    [Senate Hearing 108-155]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 108-155

    AGRICULTURE, RURAL DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS FOR
                                FISCAL YEAR 2004
    =======================================================================

                                    HEARINGS

                                    before a

                              SUBCOMMITTEE OF THE

                COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                          ONE HUNDRED EIGHTH CONGRESS

                                 FIRST SESSION

                                       on

                               H.R. 2673/S. 1427

     AN ACT MAKING APPROPRIATIONS FOR AGRICULTURE, RURAL DEVELOPMENT, FOOD
     AND DRUG ADMINISTRATION, AND RELATED AGENCIES PROGRAMS FOR THE FISCAL
             YEAR ENDING SEPTEMBER 30, 2004, AND FOR OTHER PURPOSES

                                   __________

                           Department of Agriculture
     Department of Health and Human Services: Food and Drug Administration
                           Nondepartmental witnesses

                                   __________

             Printed for the use of the Committee on Appropriations

     Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                     senate

                                     ______

                        U.S. GOVERNMENT PRINTING OFFICE
    85-908                       WASHINGTON : 2003
    ____________________________________________________________________________
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                          COMMITTEE ON APPROPRIATIONS

                         TED STEVENS, Alaska, Chairman
    THAD COCHRAN, Mississippi            ROBERT C. BYRD, West Virginia
    ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
    PETE V. DOMENICI, New Mexico         ERNEST F. HOLLINGS, South Carolina
    CHRISTOPHER S. BOND, Missouri        PATRICK J. LEAHY, Vermont
    MITCH McCONNELL, Kentucky            TOM HARKIN, Iowa
    CONRAD BURNS, Montana                BARBARA A. MIKULSKI, Maryland
    RICHARD C. SHELBY, Alabama           HARRY REID, Nevada
    JUDD GREGG, New Hampshire            HERB KOHL, Wisconsin
    ROBERT F. BENNETT, Utah              PATTY MURRAY, Washington
    BEN NIGHTHORSE CAMPBELL, Colorado    BYRON L. DORGAN, North Dakota
    LARRY CRAIG, Idaho                   DIANNE FEINSTEIN, California
    KAY BAILEY HUTCHISON, Texas          RICHARD J. DURBIN, Illinois
    MIKE DeWINE, Ohio                    TIM JOHNSON, South Dakota
    SAM BROWNBACK, Kansas                MARY L. LANDRIEU, Louisiana
                        James W. Morhard, Staff Director
                     Lisa Sutherland, Deputy Staff Director
                  Terrence E. Sauvain, Minority Staff Director
                                     ------

      Subcommittee on Agriculture, Rural Development, and Related Agencies

                       ROBERT F. BENNETT, Utah, Chairman
    THAD COCHRAN, Mississippi            HERB KOHL, Wisconsin
    ARLEN SPECTER, Pennsylvania          TOM HARKIN, Iowa
    CHRISTOPHER S. BOND, Missouri        BYRON L. DORGAN, North Dakota
    MITCH McCONNELL, Kentucky            DIANNE FEINSTEIN, California
    CONRAD BURNS, Montana                RICHARD J. DURBIN, Illinois
    LARRY CRAIG, Idaho                   TIM JOHNSON, South Dakota
    SAM BROWNBACK, Kansas                MARY L. LANDRIEU, Louisiana
    TED STEVENS, Alaska                  ROBERT C. BYRD, West Virginia
      (ex officio)                         (ex officio)
                               Professional Staff

                                  Pat Raymond
                                   Fitz Elder
                                Hunter Moorhead
                           Galen Fountain (Minority)
                            Jessica Arden (Minority)
                           William Simpson (Minority)

                             Administrative Support

                                 Dianne Preece
                         Meaghan L. McCarthy (Minority)

                                C O N T E N T S

                                  ----------

                             Thursday, May 8, 2003

                                                                       Page
    Department of Agriculture: Office of the Secretary...............     1

                              Friday, May 16, 2003

    Department of Agriculture........................................   175

                             Thursday, May 22, 2003

    Department of Agriculture........................................   287
    Department of Health and Human Services: Food and Drug
      Administration.................................................   363
    Nondepartmental witnesses........................................   431

    AGRICULTURE, RURAL DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS FOR
                                FISCAL YEAR 2004

                                  ----------

                             THURSDAY, MAY 8, 2003

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:58 a.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Robert F. Bennett (chairman)
    presiding.
        Present: Senators Bennett, Cochran, Specter, Burns, Craig,
    Stevens, Kohl, Harkin, Dorgan, Durbin, Johnson, and Byrd.

                           DEPARTMENT OF AGRICULTURE

                            Office of the Secretary

    STATEMENT OF ANN M. VENEMAN, SECRETARY OF AGRICULTURE
    ACCOMPANIED BY:
            JAMES R. MOSELEY, DEPUTY SECRETARY
            KEITH COLLINS, CHIEF ECONOMIST
            STEPHEN DEWHURST, DIRECTOR, OFFICE OF BUDGET AND PROGRAM
                ANALYSIS
        Senator Bennett. The subcommittee will come to order.
        Let me apologize, Madam Secretary, to you and your team and
    to the others who are interested in the hearing for the fact
    that we are starting so late. We had a historic vote on the
    floor of the Senate. The leader reminded us that this is the
    58th anniversary of VE Day, which makes me feel a little old
    because I remember VE Day.
        But for those who do not understand, that stood for Victory
    in Europe, and was the day when the Nazi war machine
    surrendered and ended the war in Europe, and of course, a day
    of great rejoicing and excitement.
        And symbolically on this day we have just ratified the
    treaty that expands NATO and brings into NATO those former
    Soviet Republic, nations that were under the Soviet yoke, that
    have now become part of NATO. The leader asked us all to be on
    the floor and vote in the traditional fashion, standing at our
    desks. I think that was worthy delaying the hearing for.
        So we again thank you for your indulgence and your patience
    while we went through that.
        This is my first hearing as chairman of this subcommittee
    and I very much appreciate the support and openness which we
    have received from the Department of Agriculture. I have been
    down to the Department and met with Secretary Veneman and her
    staff, and am impressed with the depths of her bench as they
    deal with the very significant problems that we have here.
        I am looking forward to working with Senator Kohl, who
    chaired this subcommittee in the previous Congress and with
    whom I have had very productive conversations in anticipation
    of this new assignment.
        The Department of Agriculture, I discover, has a very
    diverse jurisdiction. It is not just about corn. There are all
    kinds of things going on in the Department which require our
    attention and funding. So we are looking forward to hearing the
    Secretary discuss this.
        The situation in which we meet is somewhat unusual in that
    the request for fiscal year 2004 was written before the
    legislation adopting appropriations for fiscal year 2003 was
    completed. I do not remember any previous situation where that
    was true. That leads to some confusion. That leads to some
    uncertainty as to where we are and what we will be doing.
        To further add to that, we have still not nailed down the
    allocation that we will receive from the full committee for
    this subcommittee. We have had some preliminary numbers but the
    chairman of the full committee has been unable to reach
    complete agreement with the chairman of the House. We do not
    know what number the House is going to come up with. We do not
    necessarily have to have the same number but that, I think, is
    a byproduct of the confusion that arose because the fiscal year
    2003 bill had not been enacted when the 2004 request was being
    put together.
        So we are going forward with our hearing. We want to get
    the information that the Department has to offer to us
    available and in front of us. But we are going forward with a
    little more uncertainty than would normally be the case. So
    that is why we are looking forward to this year with much
    anticipation, because it will be tremendously informative.
        I look forward to learning more, both at this hearing and
    in a continuing dialogue with the Secretary and the members of
    the Department that are here.
        Senator Burns, we are grateful that you are here with us.
    Senator Burns presides over the Interior Subcommittee which
    presides over a good chunk of the Department of Agriculture's
    budget, so maybe he is here to ask those kinds of questions as
    well. But Senator we appreciate your being here and we are
    happy to hear whatever you have to say.

                              PREPARED STATEMENTS

        Senator Burns. Thank you very much, Mr. Chairman, and thank
    you, Madame Secretary, for being here this morning. Thank you
    for a lot of good work along the way, drought assistance being
    one of those. I know that was a painful thing that went on
    downtown and we appreciate your good work on that.
        I have come this morning to take all the Ag money and put
    it over in Interior, so you guys who have all those books, can
    go on back to work now.
        When we take a look and see what the President proposed,
    and I am going to put my statement in the record, Mr. Chairman.
        Senator Bennett. Without objection, it shall be included.
        [The statements follow:]

                   Prepared Statement of Senator Conrad Burns

        Good Morning: Thank you, Mr. Chairman for holding this hearing on
    Ag Appropriations and welcome committee members and new member Mr.
    Bennett.
        Secretary Veneman--welcome--thanks for coming and I would like to
    thank you for your continued hard work and efforts in helping America's
    producers provide a food supply that is safe, reliable, abundant and
    affordable.
        Thanks for drought assistance. It was a long hard battle, but you,
    worked well with myself and farmers and ranchers from Montana.
        However, there is still work to do. The Farm Bill greatly increased
    the number of farmers and ranchers eligible for price support payments,
    conservation funding and farm program payments. Wood, mohair, honey and
    pulse crops became eligible for price support payments through loans
    and LDP's. Milk producers are receiving direct payments based upon milk
    production and price for each month. I welcome the increased
    participation which means that farm programs are helping more farmers
    and ranchers, especially those small and mid sized producers in rural
    areas.
        USDA's Farm Service Agency (FSA) has had the largest proportional
    reductions in permanent staffing at USDA during the past 9 years. FSA's
    personnel cuts have resulted in the loss of 5,694 permanent positions
    or a 38 percent reduction of staff since 1994. Temporary staff years
    have been reduced since 1996 by 1,424 staff years or a 41 percent
    reduction. President Bush's new budget proposal for 2004 further
    reduced 2 temporary staff years or an additional 15 percent while
    keeping permanent employee levels current.
        The shortage of staff is also resulting in delayed implementation
    of the Direct and County Cyclical Program, a major component of the
    Farm Bill. As of February of 2003, 39.3 percent of the nation's farms
    have been enrolled in the Direct and Counter-Cyclical Program with 79
    percent of the enrollment period completed. The shortage of employees
    and increased demands create the likelihood of errors by overworked
    staff resulting in increased inefficiencies in the FSA County Offices.
        Clearly, we have many challenges to face in the critical time of
    agriculture. Thanks again for being here today and thanks for all you
    support and hard work in helping the American farmer and rancher. Thank
    you, Mr. Chairman.
                                     ______

                 Prepared Statement of Senator Byron L. Dorgan

        Ms. Secretary, I welcome you and your staff to our subcommittee and
    I thank you for your appearance before us today. I recognize the
    challenges of putting together any Departmental budget during these
    tough budgetary times. As you point out, this budget is ``highly
    constrained.'' I would call this budget more than ``constrained'' and
    argue that it fails to meet the commitments that we made to the
    American people in the 2002 farm bill.
        This budget proposes to take many programs, recommended for
    mandatory funding in the farm bill, and make them discretionary
    programs. These include the rural broadband loan program, which I think
    is critically important to deploy technology to rural America, and many
    of the renewable energy programs. Given the tough times facing rural
    America, funding for rural development programs are really critical.
    Some of these areas have taken a pretty big hit in your budget
    recommendation, and I would urge the Subcommittee to take another look
    at your recommendations. Tight limits on discretionary spending will
    force the subcommittee to make some difficult decisions, and I hope
    that we will be able to work together to carry through on the promises
    made in the Farm Bill.
        This budget also contains some artificial offsets that will
    complicate our jobs. Proposals for new user fees, loan sales and caps
    on delivery expense reimbursements for crop insurance companies have
    been proposed before and rejected by Congress. These prospects for
    using these offsets to provide us some relief on limited discretionary
    spending are not good.
        One of my top priorities on this Subcommittee remains robust
    funding for agriculture funding. Unfortunately, the fiscal year 2004
    budget moves us in the wrong direction. Funding for ARS's research
    programs ($987.3 million requested) is down from an estimated $1
    billion in fiscal year 2003, and there is also a slight decrease in
    formula funds for agriculture research and extension at the land grant
    Colleges of Agriculture. I hope that we will be able to continue moving
    this research in the right direction.
        Finally, I hope that USDA becomes more aggressive in pursuing trade
    violations and I am hopeful that the slight increase of $6.6 million
    that this budget requests to deal with trade issues will result in more
    action. I have a question about wheat trade with China that I will pose
    to the Secretary, but I hope that any increase we provide will yield
    results in the area of trade enforcement.
        Ms. Secretary, I look forward to your testimony.
                                     ______

                Prepared Statement of Senator Richard J. Durbin

        Chairman Bennett, thank you for holding this important hearing
    today. I look forward to working with you, Senator Kohl, and my
    Subcommittee colleagues on the fiscal year 2004 Agriculture budget. Mr.
    Chairman, I'd like to welcome USDA Secretary Ann Veneman to this
    morning's hearing. Madam Secretary, I look forward to working with you
    and the rest of the USDA team. I'm certainly familiar with the three
    gentlemen you've brought with you today, Deputy Secretary, James
    Moseley, Chief Economist Keith Collins and Budget Officer Steve
    Dewhurst--who all testified last March before this Subcommittee, along
    with the Secretary. I always enjoy their budget insights.
        I'd like to take a few minutes this morning to talk about some very
    important issues that affect the Department, and my home state of
    Illinois. When I go back to Illinois, one of the things I hear from
    farmers is: How can we get the rural economy back on track? As you
    stated in your testimony, there are over 60 million people that call
    rural America home. Illinois has a significant rural community so I am
    pleased to see USDA is committed to creating new economic opportunities
    and improving the quality of life for a diversified rural population.
        One way in which we can improve the rural economy is through
    providing farmers with incentives for things such as biodiesel and
    ethanol.
        The expanded role for ethanol and biodiesel means more than a boost
    to industry; it means jobs to rural America, and increased energy
    security. In my home state of Illinois, roughly one in every six rows
    of corn, approximately 280 million bushels is the source for ethanol.
    Illinois ranks second in the nation in corn production, with more than
    1.5 billion bushels produced annually, and is the nation's leading
    source of clean-burning ethanol. Corn grown in Illinois is used to make
    40 percent of the ethanol consumed in the United States.
        Illinois farmers are the foot soldiers in our battle for energy
    independence. Farmers throughout the country have come together to
    build ethanol production facilities that, in many instances, have
    become the backbone of a regional rural economy. In fact, farmer-owned
    ethanol plants, taken together, are the single largest segment of the
    U.S. ethanol industry. As we look for solutions to rural economic
    stability, we must remember that renewable fuels are part of the
    solution. Replacing Mideast oil with Midwest ethanol is winner for
    everyone but the oil sheiks. When we can use our Illinois agricultural
    expertise to reduce our dependence on foreign suppliers, the whole
    nation benefits.
        In short, we must also work to become less dependent on foreign oil
    by opening and broadening markets for American agricultural products
    and find appropriate alternative uses. We need to create incentives for
    our farmers to produce and develop more efficient ways to make
    biodiesel and ethanol. I will continue working with my colleagues in
    Congress, and in the Bush Administration, to make every effort to
    expand the role of biodiesel and ethanol. Expanding biodiesel and
    ethanol's role is a win for our farmers, a win for the environment a
    win for the rural economy.
        Madame Secretary, I would like touch on an issue of great
    importance, food safety. Each year in the United States, food borne
    illness sickens 76 million Americans and causes more than 5,000 deaths.
    Tragically, 40 percent of the victims are children. Parents have had to
    watch their children die terrible deaths from E. coli 0157:H7
    contamination, and countless others have seen their children suffer
    after eating food contaminated with pathogens such as Listeria or
    Salmonella.
        Madame Secretary, I know you have heard these statistics before,
    and I know you share my belief that 5,000 deaths each year from
    illnesses we can prevent is simply unacceptable. All of us have been
    frustrated by court decisions that have stripped the Department of
    important enforcement powers, needless delays in cleaning up dirty food
    processing plants and industry resistance to increased food safety
    inspections. The time has come for us to provide the necessary
    resources and adequate regulatory framework to ensure the safety of the
    food eaten in our homes, the safety of food sold in our stores and the
    safety of food served to our schoolchildren.
        While I applaud the proposed $42 million increase for the Food
    Safety and Inspection Service to hire more plant inspectors and expand
    the pathogen testing program, the Administration makes these
    improvements contingent on Congress approving $122 million in new fees
    on the industry. As you know, similar user fees have been rejected in
    the past primarily because requiring industry to pay for its own
    regulation, particularly critical food safety regulation, brings into
    question the independence of such vital safety programs. Food
    inspections have historically been considered an essential government
    function and they should remain so. And, of course, industry simply
    passes the cost of user fees on to the consumer.
        If these fees are rejected as they have been in the past, we would
    be forced under the administration's program to either wring $80
    million out of other vital programs to pay for these critical inspector
    positions and testing program, or let them go unfunded. I would ask
    your commitment to fully fund the expansion of FSIS programs without
    relying on industry fees, and I support your efforts to expand pathogen
    inspection, testing and training programs to ensure the safety of our
    food supply.
        I also seek your support of legislation that will significantly
    bolster the safety of our food supply. One important measure, the Safe
    School Food Act which I introduced earlier this year, would improve the
    inspection, purchasing and preparation of food served in our nation's
    schools. Since 1990, there have been more than 100 reported outbreaks
    of food borne illness in schools that have sickened more than 6,000
    children nationwide. The Centers for Disease Control and Prevention
    tells us that 10,000 more children were sickened in school-related food
    outbreaks during that time, although those children never learned what
    food or pathogen made them sick. And those numbers are likely a
    fraction of the true amount since food borne illness in schools is
    seriously under-reported in this country.
        In fact, the Chicago Tribune recently reported that countless
    Illinois schoolchildren were served ammonia-contaminated chicken,
    hamburgers and potatoes over the course of several months last year
    contaminated food that apparently both Federal and State officials knew
    about but allowed to be served. In one Illinois elementary school, 42
    kids and teachers became so ill after eating chicken with ammonia
    levels 133 times the acceptable amount, that several were rushed to the
    hospital. I understand, Madame Secretary, that your agency has worked
    to improve the safety of food in our schools, but when our
    schoolchildren are being sent to the hospital after eating the food we
    provide, inspect and regulate, then obviously much more needs to be
    done.
        The Safe School Food Act fills the numerous gaps in our school
    lunch food safety program through increased inspection of foods donated
    to schools by the USDA, increased cafeteria inspections, improved food
    safety planning at the local level, helping schools incorporate food
    safety requirements in their purchasing contracts, sharing information
    on food suppliers' safety records and perhaps most important, giving
    your agency the authority to ensure that tainted food is removed from
    schools through mandatory recalls. Some say that the number of food
    borne illness outbreaks in our schools is relatively insignificant
    compared to the number of meals served each year. But I believe, as do
    many others, that when our schoolchildren are being hospitalized
    because of the food we serve them, we are breaking our promise that we
    will provide them with a safe and secure learning environment.
        Chairman Bennett and Senator Kohl, thank you again for the
    opportunity to talk about these issues and the fiscal year 2004 Budget.

                               FSA PERSONNEL CUTS

        Senator Burns. I want to bring up a point that really
    caught my attention and I think it is something that is
    indicative of the Department and it is something that I have
    been saying all along about the Department of Agriculture. It
    is the reduction in FSA, in staff, and their ability to get
    their work done. That concerns me.
        FSA's personnel cuts have resulted in a loss of 5,694 jobs
    or a 38 percent reduction since 1994.
        I do not know whether any other department in the
    Department of Agriculture has taken cuts like that or not. You
    can fill me in on that if you would. But temporary staff years
    have been reduced since 1996 by 1,428 staff years or a 41
    percent reduction.
        The President's new budget, proposed for 2004, further cut
    temporary staff years an additional 15 percent while keeping
    permanent employees' level current. When you look at those
    numbers, the shortage of staff is also resulting in delayed
    implementation of the Direct and Countercyclical Program, a
    major component of the Farm Bill. As of February of 2003, 39.3
    percent of the Nation's farmers had been enrolled in the Direct
    or Countercyclical Program with 79 percent of the enrollment
    period completed. The shortage of employees and increased
    demands, I think, is creating a likelihood of errors, number
    one, by overworked staff resulting in increased inefficiencies
    in our FSA county offices.
        I think it points to an attitude towards producer. We are
    here for the producers and we are just not doing things in that
    respect that would assist them or to do originally what the
    Department of Agriculture was created for in the first place.
        So I think we are in a time where we have critical
    challenges. I really believe this wholeheartedly. If somebody
    can clear me up on this, I would sure stand corrected and I
    will feel better about the whole thing. But that is the only
    gun I am going to fire this morning.
        Thank you, Mr. Chairman, for allowing me to get on with
    that sermon. I will pass the plate later.
        Senator Bennett. You took careful aim. Thank you.
        Madame Secretary, we appreciate very much your being here
    and we look forward to hearing what you have to tell us.

                          STATEMENT OF ANN M. VENEMAN

        Secretary Veneman. Thank you very much, Mr. Chairman. I
    appreciate the opportunity to be here with you and the members
    of the committee and it is an honor to appear before you today.
        We have with us today our Deputy Secretary Jim Moseley, our
    Chief Economist Keith Collins, and our Budget Officer Steve
    Dewhurst, as well as a number of our staff who are here in the
    audience as well.
        I want to thank this committee again for your support of
    USDA this year and for the long history of effective
    cooperation between this committee and the Department in
    support of American agriculture. I look forward to working with
    you and continuing to work with you, Mr. Chairman, in your new
    role as chairman of this subcommittee, as well as the other
    members, to make progress on issues during the 2004 budget
    process and to ensure strong programs for our Nation's farm
    sector and the many other USDA mission areas that we have as
    well.
        I submitted a formal statement that discusses in detail the
    Administration's 2004 budget and particularly, that of
    Department of Agriculture. I would be grateful if this would be
    included in the record.
        Senator Bennett. It will be.

                        FISCAL YEAR 2004 BUDGET OVERVIEW

        Secretary Veneman. In the next few minutes I want to
    provide a quick overview of our budget proposals.
        First, the fiscal year 2004 budget focuses on key
    priorities for USDA, enhancing protection and safety of the
    Nation's agriculture and food supply, continuing rapid
    implementation and diligent administration of the 2002 Farm
    Bill including providing record amounts of conservation funding
    and protecting natural resources, providing unprecedented
    funding for our food and nutrition safety net, expanding
    agricultural trade, expanding housing for rural citizens,
    investing in America's rural sector, and improving USDA's
    programs delivering customer service.
        The 2004 budget calls for $74 billion in spending, an
    increase of $1.4 billion or about 2 percent above the level
    that was requested in 2003. This is approximately $5.4 billion
    higher than the actual level in 2001 and represents a growth of
    8 percent since this Administration took office.
        Discretionary outlays are estimated at $20.2 billion, about
    a 1 percent change or $300 million below the 2003 requested
    level.
        The request before this committee for fiscal year 2004
    amounts to $15.5 billion. The budget seeks record level support
    for USDA's Food Safety and Inspection Service, or FSIS as we
    refer to it, our meat and poultry food safety programs, as well
    as increases to strengthen our agriculture protection programs.
    These areas of our budget have been top priorities for this
    Administration since we came into office and particularly since
    the tragic events of September 11th.
        FSIS funding will increase to a program level of $899
    million, an increase of nearly $42 million over the 2003
    requested level. This represents $117 million or a 15 percent
    increase in these food safety programs since 2001 when the Bush
    Administration came into office.
        The $899 million for FSIS is comprised of $797 million in
    appropriated funds and new fees for inspection services
    provided beyond an approved primary inspection shift. Existing
    user fees are expected to generate approximately $102 million.
    This will fund 7,680 food safety inspectors, an increase of 80
    inspectors, and provide specialized training for the inspector
    workforce, increase microbiological testing and sampling,
    strengthen foreign surveillance programs, and increase public
    education efforts.
        Regarding homeland security and agricultural protection
    programs, the budget includes nearly $47 million in new funding
    to strengthen laboratory security measures, conduct research on
    emerging animal diseases, improve biosecurity, develop new
    vaccines, create new biosecurity database systems, and continue
    development of the unified Federal/State Diagnostic Network for
    identifying and responding to high-risk pathogens.
        For the Animal and Plant Health Inspection Service, or
    APHIS, we are requesting increases of about $30 million above
    our 2003 request for inspection services. This is to expand the
    availability of foot and mouth disease vaccines, provide
    additional protections against chronic wasting disease and
    poultry diseases, and expand diagnostic and other scientific
    technical services.
        In addition, $200 million is requested for the National
    Research Initiative, including funding for genomics.
        The President's 2004 budget supports the continued
    implementation of the 2002 Farm Bill, which provides a
    consistent economic safety net for the next several years for
    our Nation's farmers and ranchers. We have continued to make
    good progress in implementing the Farm Bill. All of the Title I
    commodity programs have been implemented and producers have
    received payments of over $7.7 billion since the bill was
    enacted. Signup for base and yield adjustments formally ended
    on April 1st and our county offices are now working very hard
    to ensure producers have Direct and Countercyclical Program
    contracts in place by June 2nd.
        On April 22nd, we announced the Conservation Reserve
    Program general signup which began May 5th and runs through May
    30th. We also announced for fiscal year 2003 the allocation to
    States of $1 billion in CCC funding for Farm Bill conservation
    programs and another $800 million in discretionary funds to
    provide conservation assistance on working farmlands.
        In February, the Department issued the proposed rule for
    the EQIP program for public comment. The comment period has
    closed and we are about ready to issue the final rule. Also in
    February, we issued an Advanced Notice of Proposed Rulemaking,
    or what is referred to as an ANPR, to receive public comment on
    how to proceed with the Conservation Security Program. That
    comment period closed on April 3rd.
        We have an extremely heavy workload at USDA but we are
    making good progress. It should be remembered that we could not
    have done this without the tremendous efforts and hard work of
    our staff in Washington, in the field offices, and our county
    service centers all throughout the country.
        In 2004, the primary focus will be on Farm Bill
    conservation programs. Total program level funding for Farm
    Bill conservation programs increases from about $2.2 billion in
    2001, when this administration took office, to almost $3.9
    billion in 2004. This includes $3.5 billion for financial
    assistance and $432 million for conservation technical
    assistance in 2004 in support of Farm Bill implementation, an
    overall increase of $582 million over 2003. In total, this
    represents an unprecedented investment in conservation that
    will have significant and lasting environmental benefits.
        The fiscal year 2004 budget reflects the Bush
    Administration's continued commitment to the nutrition safety
    net by including a record of $44.2 billion for domestic food
    assistance programs, a $2.4 billion increase over the requested
    level for fiscal year 2003. The President has often said this
    is a compassionate administration and our continued support for
    these programs demonstrates that continued commitment.
        The budget supports an estimated 21.6 million food stamp
    participants. It supports a record level of 7.8 million low-
    income, nutritionally at-risk WIC participants. It supports an
    average of 29 million schoolchildren each day in the National
    School Lunch Program. With food stamps, WIC, and school lunch
    programs, we are reaching more Americans and helping educate
    more people about healthy eating and stressing the importance
    of balanced diets. This is part of the President's HealthierUS
    Initiative.
        The budget also includes $2 billion contingency reserve for
    food stamps and $150 million contingency reserve for the WIC
    program to be available to cover unanticipated increases in
    participation in these programs.
        A high priority of the Administration is reauthorization of
    the Child Nutrition Programs and WIC this year to ensure stable
    and adequate funding for the programs and to improve nutrient
    intakes of participants. In February, we unveiled some of the
    Administration's principals regarding reauthorization to
    include ensuring that all of those eligible have access to
    these important programs, working to provide more incentives to
    schools to provide healthy choices and examining innovative
    approaches to do so, and ensuring continued program integrity.
        The fiscal year 2004 budget continues a strong commitment
    to export promotion and foreign market development efforts by
    proposing $6.2 billion in spending. Included in our trade
    budget is funding for USDA's market development programs
    including the Market Access and Cooperator Programs, which are
    increased by $15 million. Since this Administration took
    office, funding for market development programs has experienced
    significant growth, a 37 percent increase since fiscal year
    2001.
        The budget requests a new centralized fund of $6.6 million
    to support agencies' work in addressing important cross-cutting
    trade issues, compliance monitoring, dispute resolution, and
    biotechnology activities within the Department.
        A program level of $4.2 billion is provided for the
    Commodity Credit Corporation export credit guarantee
    activities. Nearly $1.6 billion is requested for U.S. foreign
    food assistance activities, including $50 million for the
    McGovern-Dole International Food for Education and Child
    Nutrition Program which builds upon the pilot Global Food for
    Education Program.
        We have worked hard in this budget to provide funding to
    increase rural home ownership and to enhance the economic
    opportunities and the quality of life in rural America. The
    Administration proposes spending of $11.9 billion for rural
    development programs. The budget supports the President's home
    ownership initiative with particular emphasis on minority
    family home ownership. The initiative provides for more than 40
    percent increase for single-family housing. Nearly $4.1 billion
    is requested for direct and guaranteed Section 502 single-
    family housing loans compared to an estimate of $2.8 billion
    for fiscal year 2003.
        The President's budget will provide 49,000 new home
    ownership opportunities for low--and moderate-income families
    in rural areas. In addition, the water and waste disposal
    program is being maintained at the requested 2003 level of $1.5
    billion.
        The budget supports the Department's strategic plan and
    supports several management initiatives to better integrate
    computer systems and technology to provide the Department's
    constituents with enhanced ability to access records, to sign
    up for program benefits, to access USDA studies and economic
    information and to respond to USDA surveys.
        These initiatives will also provide USDA employees with the
    necessary tools to officially operate and deliver services.
        Our attention to financial management paid off with the
    first-ever clean opinion on the Department's fiscal year 2002
    financial statements and a significant reduction in delinquent
    debt, something that we are very proud of.
        We are providing greater focus on efforts to eliminate
    discrimination. Our budget requests $800,000 to fund the new
    Office of the Assistant Secretary for Civil Rights. We
    appreciate the funding that was provided by the Congress in
    2003 for this new office, and we appreciate the Senate
    confirming our new Assistant Secretary for Civil Rights, Mr.
    Vernon Parker. We are very excited to have him as part of the
    team and I can tell you that he is already doing a very good
    job.
        Finally, I want to give you a brief update on the $3.1
    billion disaster assistance that was included in the 2003
    Omnibus Budget package that was signed by the President on
    February 20th. The same day that the President signed the
    legislation, I established a Disaster Assistance Working Group
    within USDA to begin work on the disaster assistance programs.
    Their charge is very clear, to make implementation of disaster
    assistance a farmer-friendly process and to make sure the
    program benefits reach producers as quickly as possible.
        I am pleased to announce that the signup for the tobacco
    crop losses began on March 17th. Signup for the additional
    benefits associated with the Livestock Compensation Program
    began on April 1st. The Cottonseed Payment Program signup began
    on May 2nd. Signup for the Crop Disaster Program will begin on
    June 6th.
        USDA has launched a disaster assistance implementation web
    site that contains basic program information, the announcements
    on program signup, questions and answers, as well as a comments
    and suggestions section to encourage interested parties to
    provide input to USDA on how best to move implementation
    forward in a timely and expeditious manner.

                               PREPARED STATEMENT

        Mr. Chairman and members of the committee, that completes
    my overview of some of the key points in this budget, as well
    as an update on some important issues in the Department of
    Agriculture.
        Again, I want to thank you for the opportunity to be here
    this morning. We look forward to working with the committee as
    we move forward on the fiscal year 2004 budget proposals, and
    our team at USDA is available in the coming months to provide
    details and information on all of these important issues.
        Again, thank you Mr. Chairman and members of the committee
    and I will be happy to answer your questions.
        [The statement follows:]

                      Prepared Statement of Ann M. Veneman

        Mr. Chairman, Members of the Committee, it is an honor for me to
    appear before you to discuss the fiscal year 2004 budget for the
    Department of Agriculture (USDA). I have with me today Deputy Secretary
    Jim Moseley, our Chief Economist, Keith Collins, and our Budget
    Officer, Steve Dewhurst.
        I want to thank the Committee again this year for its support of
    USDA programs and for the long history of effective cooperation between
    this Committee and the Department in support of American agriculture. I
    look forward to working with you, Mr. Chairman, and all the Members of
    the Committee during the 2004 budget process.
        As you know, the President's Budget was released on February 3rd.
    Total USDA outlays for 2004 are estimated to be $74.1 billion. This is
    an increase of $1.4 billion above the level requested in 2003.
    Departmentwide discretionary outlays are estimated at $20.2 billion,
    about $300 million below the 2003 requested level. The Department's
    request for discretionary budget authority before this committee is
    $15.4 billion.
        This year's budget is consistent with this Administration's policy
    book: Food and Agricultural Policy for the 21st Century and supports
    the Department's 5-year strategic plan. This plan outlines long-term
    goals and strategies for providing leadership in food, agriculture,
    resource and related issues, and the 2004 budget is designed to help
    accomplish USDA's strategic goals of: enhancing economic opportunities
    for agricultural producers; supporting increased economic opportunities
    and improving quality of life in rural America; enhancing protection
    and safety of the Nation's agriculture and food supply; improving the
    Nation's nutrition and health; and protecting and enhancing the
    Nation's natural resource base and environment.
        Because of fiscal realities, this budget is highly constrained.
    However, it maintains and enhances critical programs that supports the
    Department's strategic goals by:
        For 2004, this budget supports the following key initiatives:
      --Providing necessary funding for the continued implementation and
            administration of new and expanded programs enacted as part of
            the Farm Security and Rural Investment Act of 2002 (Farm Bill).
      --Implementing the largest and most wide-reaching Farm Bill
            conservation title ever which represents an unprecedented
            investment in conservation that will have significant
            environmental benefits.
      --Providing record funding to support record levels of participants
            in the Special Supplemental Nutrition Program for Women,
            Infants and Children (WIC) and covers the anticipated increases
            in participation in the Food Stamp Program, including legal
            immigrants and others newly eligible for benefits under the
            2002 Farm Bill.
      --Providing record level funding to strengthen protection against
            harmful bacteria in meat and poultry products. The request
            funds additional food safety inspectors and supports continued
            implementation of a science-based food safety inspection system
            by providing specialized food safety training to inspectors and
            other food safety professionals, increasing microbiological
            testing, and enhancing the information available to inspectors
            for evaluating food safety hazards that threaten the food
            supply.
      --Supporting the Department's strategic goal of expanding
            international marketing opportunities by providing over $6.0
            billion for the Department's international programs and
            activities.
      --Protecting American agriculture from threats to plants and animals
            and transfers necessary inspection and research functions to
            support the new Department of Homeland Security (DHS).
      --Providing continued support for fundamental and applied sciences in
            agriculture, including advancing research on agricultural
            genomics and on animal and plant pests and diseases.
      --Providing over $11 billion in loans, grants, and technical
            assistance for rural development needs, including electric and
            telecommunications systems, water and waste disposal systems,
            rural housing, and business and industry.
      --Improving the management and delivery of the Department's programs.
        With this as an overview, I would now like to discuss the details
    of our budget proposals for 2004.

                               HOMELAND SECURITY

        The Department is transferring the border inspection functions of
    the Animal and Plant Health Inspection Service's (APHIS) Agricultural
    Quarantine Inspection (AQI) program and the Plum Island Animal Disease
    Center to the new DHS. The transfer involves $247 million and nearly
    2,700 staff years. A Memorandum of Understanding will ensure that USDA
    has access to AQI employees in the event of future outbreaks of plant
    and animal pests and diseases.
        The budget requests an increase of nearly $42 million over that for
    fiscal year 2003. It will support 7,680 food safety inspectors, an
    increase of 80 inspectors, and provide specialized training for the
    inspection workforce, increase microbiological testing and sampling,
    strengthen foreign surveillance programs and increase public education
    efforts. In addition, $30 million will fund efforts by APHIS to expand
    inspection services, increase the availability of foot-and-mouth
    disease vaccines, provide protection against chronic wasting disease
    and poultry diseases, and expand diagnostic and other scientific/
    technical services. An increase of $47 million will strengthen
    laboratory security measures, fund research on emerging animal
    diseases, develop new vaccines, create new bio-security database
    systems, and continue development of the unified Federal-State
    Diagnostic Network for identifying and responding to high risk
    pathogens.
        The fiscal year 2002 Emergency Supplemental provided the Department
    with $328 million for 2002 and 2003 to protect American agriculture and
    its food supplies from terrorism. The supplemental provided $15 million
    to APHIS for moving laboratory operations from a strip mall in Ames,
    Iowa, to the main National Veterinary Services complex. It is under
    construction. The supplemental of $50 million to ARS at Ames, Iowa, is
    being used as part of the $124 million appropriated by Congress in
    recent years for modernization of the research facility. It is awaiting
    construction. Another $23 million was allocated to Plum Island, New
    York. It is being transferred to DHS for laboratory improvements.
    Funding of $115 million was allocated to improve physical and
    operational security at USDA labs and facilities, undertake security
    related research, and improve cyber security. The planning for this
    effort is largely completed. The remaining $125 million was allocated
    to improve security for food and agriculture by expanding pest
    detection and animal health monitoring, emergency preparedness training
    and exercises and strengthening the regional laboratory network. As of
    March 2003, $143.7 million has been obligated with the remainder to be
    spent during 2003.

                     FARM AND FOREIGN AGRICULTURAL SERVICES

        The farm sector in recent years has experienced lower market
    returns for several major commodities and recurring losses from various
    diseases, pests and other natural disaster-related causes. While the
    situation is showing signs of improvement, market returns in some areas
    of the farm economy are still low. The new Farm Bill enacted in 2002
    provides additional financial support for the farm economy if market
    conditions weaken. The President's budget for 2004 reflects the new
    Farm Bill which added new countercyclical programs to the farm safety
    net, reformed other farm programs and substantially expanded the
    Department's conservation programs. In addition, the budget supports a
    strong crop insurance program and an aggressive international trade
    program that will be critical to improving the farm economy in the next
    few years.

    Farm Program Delivery
        Farm Service Agency (FSA) salaries and expenses are funded at $1.3
    billion in 2004. This would support staffing levels of about 5,900
    Federal staff years and 10,800 county non-Federal staff years,
    including about 1,500 temporary staff years. Temporary staff will be
    reduced from the high level required in 2003 because of the heavy
    workload associated with the initial implementation of the new farm
    programs. However, we expect the workload for FSA to remain at
    significant levels in 2004, particularly because of Farm Bill
    requirements in the conservation area. Therefore, permanent county non-
    Federal staff levels are protected at current levels.
        In order to help FSA meet its workload challenges, improve service
    to farmers, and enhance operating efficiency, the budget provides
    increased funding of $41.9 million for FSA's information technology
    efforts related to the Service Center Modernization Initiative. This
    includes continued installation of geographic information systems (GIS)
    and other Common Computing Environment (CCE) initiatives to help move
    the delivery system into the e-Government era. The budget presents
    these funds as well as funds for the other Service Center agencies
    under the CCE appropriation to ensure that these activities are well
    coordinated.
        Management initiatives to modernize farm credit program servicing
    activities and to streamline information technology and related
    administrative support for the Service Center activities of FSA, the
    Natural Resources Conservation Service (NRCS), and Rural Development
    (RD) will also be undertaken in an effort to improve our ability to
    provide services at less cost.

    International Trade
        One of the key objectives set forth in the Department's new
    strategic plan is the expansion of international marketing
    opportunities. As the strategic plan and our earlier review of the U.S.
    food and agricultural system in the 21st century make clear, expanding
    markets is critical to the long-term health and prosperity of American
    agriculture. With 96 percent of the world's population living outside
    the United States, future growth in demand for food and agricultural
    products will occur primarily in overseas markets.
        The Department is moving ahead aggressively to achieve our trade
    expansion objectives. At the center of these efforts is negotiation of
    trade agreements that will reduce trade barriers and increase market
    access overseas. At the World Trade Organization, the United States has
    presented an ambitious proposal for reform of global agricultural trade
    that will eliminate export subsidies and reduce market access barriers
    and trade distorting domestic support. At the same time, the Department
    is actively engaged in efforts to establish regional free trade
    agreements with countries in Central America and southern Africa, as
    well as the Free Trade Area of the Americas. Work also has begun to
    reach comprehensive trade agreements with Australia and Morocco.
        Our trade policy activities are not limited to negotiating new
    agreements, however. As these agreements are implemented, it is
    essential that we bolster our efforts to monitor compliance and ensure
    that U.S. rights are protected. These efforts are critical to
    preserving markets as evidenced by the Department's work over the past
    year to resolve trade disputes, such as China's restrictions on soybean
    imports and Russia's ban on U.S. poultry imports.
        The Foreign Agricultural Service (FAS) is the lead agency in the
    Department's international activities and plays a critical role in our
    efforts to expand and preserve overseas markets. To support its
    activities, the 2004 budget provides a program level of $145 million
    for FAS. This is an increase of nearly $10 million above the 2003
    request level and supports a number of important trade-related
    activities. Among these is a trade capacity building initiative that
    will allow FAS to work with other countries in their implementation of
    the Cartagena Protocol on Biosafety. The Protocol is intended to
    provide uniform standards for ensuring the safe transport and use of
    products derived from biotechnology. Through a series of regional
    seminars, training sessions, scientific exchanges, and related
    activities, FAS will work to ensure that the Protocol's provisions are
    properly interpreted and applied. This is intended to facilitate the
    adoption of science-based, transparent, and non-discriminatory
    standards and, thereby, help to avoid potential disruptions in
    agricultural trade.
        The FAS budget also includes funding for a USDA contribution to the
    Montreal Protocol Multilateral Fund. Established in 1991, the Fund
    assists developing countries switch from ozone-depleting substances to
    safer alternatives. Agricultural issues are expected to become
    increasingly important in the Montreal Protocol process, particularly
    as the scheduled phase-out date for the use of methyl bromide
    approaches. The USDA contribution will help to further U.S.
    agricultural interests in the Protocol implementation process.
        Additional funding in support of FAS trade agreement negotiation,
    enforcement, and standards-setting activities will be made available
    from funds requested for the Office of the Secretary to conduct USDA
    cross-cutting trade negotiation and biotechnology activities. These
    funds also will be available to bolster efforts by FAS, APHIS, and
    other USDA agencies to address market access constraints related to
    biotechnology.
        The Department's export promotion and market development programs
    are another key component in our efforts to expand international
    marketing opportunities. The 2002 Farm Bill increased funding for many
    of these programs in order to bolster our trade expansion efforts, and
    the President's budget fully reflects those increases.
        For the Commodity Credit Corporation (CCC) export credit guarantee
    programs, the budget includes a program level of $4.2 billion which
    continues the programs near their current level. For the Department's
    market development programs, including the Market Access Program and
    Cooperator Program, the budget increases funding to $163 million in
    2004. This includes $2 million to continue the Technical Assistance for
    Specialty Crops Program authorized by the Farm Bill and implemented by
    FAS last year. The budget also includes $57 million for the Dairy
    Export Incentive Program and $28 million for the Export Enhancement
    Program.
        The budget supports a total program level for U.S. foreign food
    assistance activities of nearly $1.6 billion. Of that amount, just over
    $1.3 billion is provided for the Public Law 480 Title I credit and
    Title II donation programs. It also includes a projected $151 million
    for the CCC-funded Food for Progress programs which, based on current
    price projections, should support 400,000 metric tons of assistance as
    required by the Farm Bill. The budget also requests $50 million in
    appropriated funding for the new McGovern-Dole International Food for
    Education and Child Nutrition Program. As the Committee is aware, the
    program is funded through CCC in 2003, but beginning in 2004 is to be
    funded through appropriations. This funding level will provide
    continuity to new program activities that will begin to be implemented
    in late 2003.

    Farm Credit
        The budget also supports a program level of about $3.7 billion in
    farm credit programs to enhance opportunities for producers to obtain,
    when necessary, Federally-supported operating, ownership, and emergency
    credit. The program level is down slightly from last year due to higher
    subsidy costs for the direct loan programs. In addition, funding has
    been reallocated from guaranteed operating loans to the direct loan
    programs to better accommodate the actual demand in these programs. No
    additional funding is being requested for the emergency loan program.
    Based on current estimates, the budget assumes that carry-over funding
    in the emergency loan program will be sufficient to meet demand.

    Crop Insurance
        The budget also includes full funding for the crop insurance
    program. The budget includes ``such sums as necessary'' for the
    mandatory costs associated with program delivery and the payment of
    indemnities. The program is delivered by private insurance companies,
    and the Federal Government reimburses the companies for their delivery
    costs. The companies may also receive underwriting gains on policies
    for which they retain the risk of loss.
        In 2000, Congress substantially reformed the crop insurance
    program, in part, by providing for substantial increases in the premium
    subsidy available to producers, especially at higher levels of
    coverage. Producers have responded by purchasing higher levels of
    coverage. As a result, the premium earned per policy has increased from
    about $1,500 to over $2,300. However, the number of policies sold has
    remained virtually steady at about 1.3 million policies, indicating
    that most policies are renewal business which requires less sales
    effort than does the solicitation of new customers. In addition,
    technological advances mandated, in part, by the 2000 reforms have
    provided producers the opportunity to access information and to apply
    for crop insurance electronically.
        The Administration recently announced that the 2004 book of
    business would be delivered under the Standard Reinsurance Agreement
    that has been in place for a number of years. However, the budget
    includes a proposal to cap the amount of delivery expense reimbursement
    the companies may receive at 20 percent of the premium. The existing
    cap of 24.5 percent has been in place since 1998. This proposal is
    expected to save about $68 million in 2004. These savings are
    achievable because of improvements in the cost-effectiveness of the
    delivery system through the establishment of e-commerce procedures,
    higher premium dollar policies for insuring the same number of acres,
    and more business being done on a renewal basis.

                       MARKETING AND REGULATORY PROGRAMS

        Marketing and Regulatory Program agencies provide the basic
    infrastructure to protect and improve agricultural market
    competitiveness for the benefit of both consumers and U.S. producers.
    Pests and Diseases
        Helping protect the health of animal and plant resources from
    inadvertent as well as intentional pest and disease threats has been a
    primary responsibility of APHIS. The Department is entering into a
    Memorandum of Understanding with the DHS regarding the transfer of the
    AQI border inspections program. In this regard, APHIS will retain
    responsibility for promulgating regulations to protect against
    agricultural pests and diseases. DHS will provide access to the AQI
    inspectors in the event of future outbreaks. USDA will retain the role
    of inspecting passengers and cargoes traveling from Hawaii and Puerto
    Rico to the mainland for compliance with specified regulations to
    protect the health of the agricultural sector on the mainland.
        The 2004 budget proposes a program level of slightly more than $800
    million for salaries and expenses, an increase of about $10 million
    from the current comparable 2003 estimate. Notable programmatic
    increases would double efforts against chronic wasting disease,
    increase the availability of foot-and-mouth disease vaccines to protect
    against a potential outbreak, fund a low-pathogenic avian influenza
    program, enhance the ability to track animals and animal products
    entering and leaving the country, and expand regulatory enforcement.
    Further, bio-security and physical and operational security efforts
    would be bolstered, as would veterinary biologic and diagnostic support
    for the livestock sector. About $32 million is reduced from specific
    pest and disease management programs assuming an increase in cost-
    sharing for emergency pest and disease outbreaks by some cooperators. A
    proposed rule will be published for comment which will provide the
    criteria for cost-sharing for all cooperators.

    Marketing
        Another important proposal in the marketing and regulatory programs
    area involves the Grain Inspection, Packers and Stockyards
    Administration (GIPSA). The 2004 budget requests $13 million to help
    ensure efficient market functioning. An increase of almost $1 million
    would fund a new pilot program to audit the top four steer and heifer
    meatpackers. The audits are anticipated to result in substantially
    better financial protection to the regulated industries through
    heightened financial scrutiny. An additional $500,000 would enhance
    compliance with the Packers and Stockyards Act and fund a review of the
    Act. GIPSA will implement a General Accounting Office recommendation to
    provide industry participants with clear information on agency views of
    competitive activities. The GIPSA budget also proposes user fees to
    recover the costs of establishing and amending U.S. Grain Standards, as
    well as license fees to recover costs of the Packers and Stockyards
    program.
        For the Agricultural Marketing Service the budget proposes a
    program level of $297 million of which over 65 percent will be funded
    through user fees with the remainder funded through appropriations. An
    increase of $1 million in appropriated funds for increased pay costs is
    included in order to maintain existing program operations in Marketing
    Services and Payments to States.

                                  FOOD SAFETY

        USDA plays a critical role in safeguarding the food supply and its
    policies have contributed to the recent decline in pathogenic
    contamination of meat and poultry products and the level of foodborne
    illness as reported by the Centers for Disease Control and Prevention.
    This Administration believes that continued investment in the food
    safety infrastructure is necessary to ensure that the appropriate
    personnel, tools, and information are available to address the emerging
    food safety hazards that threaten public health and the viability of
    our agricultural system.
        For 2004, the budget for the Food Safety and Inspection Service
    (FSIS) provides a program level of $899 million, an increase of nearly
    $42 million over 2003. The budget includes increases for pay and
    inflation, the resources necessary to support approximately 7,680 meat
    and poultry inspectors, an increase of 80 inspectors from 2003. These
    inspectors are necessary to provide uninterrupted inspection services
    to the growing poultry industry. Increased funding for domestic
    inspection programs is also requested to take into account Virginia's
    decision to terminate its State inspection program and Maine's decision
    to implement a State inspection program.
        The budget includes an increase of approximately $16 million to
    support programmatic improvements aimed at achieving USDA's strategic
    objective to reduce the prevalence of foodborne hazards from farm-to-
    table. These program improvements will permit FSIS to continually
    assess and update food safety systems in order to ensure the highest
    level of safety possible. The following programmatic improvements will
    be supported by the budget.
        The budget includes an increase of $2 million to intensify the
    oversight of foreign inspection systems and inspection of the meat and
    poultry products which are exported to the United States. As more
    countries seek permission to export meat and poultry products to the
    United States, greater efforts will have to be made by inspection
    personnel to determine that their inspection systems ensure the level
    of safety that we expect here at home. With this funding, the number of
    countries being evaluated will increase from 33 to 40.
        The budget also includes a programmatic increase of $6 million to
    strengthen FSIS's microbiological testing program. First, consistent
    with recent directives issued by FSIS concerning the control of E. coli
    O157:H7 and Listeria monocytogenes, FSIS will significantly increase
    the level of testing of meat and poultry products for the presence of
    these pathogens. With this funding, the number of tests of ready-to-eat
    meat and poultry products samples for Listeria and Salmonella will
    increase by 50 percent; environmental sampling for Listeria
    monocytogenes in firms processing ready-to-eat meat and poultry
    products will be initiated; and samples of raw ground beef and ground
    beef products will more than double. This level of sampling will give
    consumers greater assurance that establishments are effectively
    controlling or eliminating the presence of pathogens in meat and
    poultry products.
        In order to handle the increased level of testing and to develop
    the emergency surge capacity in the event of a bioterrorist incident,
    the budget includes funding to improve the agency's laboratory
    infrastructure and to increase the number of highly trained chemists
    and microbiologists. These improvements are necessary to provide FSIS
    the capability it needs to ensure the safety of the products on a daily
    basis and to respond effectively to national emergencies involving the
    products it regulates.
        FSIS will also conduct nationwide microbiological baseline studies
    to provide the long-term data necessary to assess the ongoing risks
    presented by the products FSIS regulates. Improved risk assessments
    will make inspection decisions more science-based. Consistent with the
    Administration's policy on outsourcing, this laboratory testing would
    be conducted by outside laboratories.
        The budget also provides a programmatic increase of $6 million to
    improve the scientific and surveillance skills of FSIS workforce. This
    represents approximately a 33 percent increase in FSIS' training budget
    and a commitment to raising the base level of skill of the FSIS
    workforce. Training will be provided to in-plant inspectors to enhance
    the consistency and effectiveness of inspection. Inspectors highly
    trained in the latest food safety science and technology, including
    skills in assessing establishment Hazard Analysis and Critical Control
    Point systems and Sanitation Standard Operating Procedures, must be the
    backbone of our food safety infrastructure. In addition, training needs
    to be provided to food safety professionals, such as microbiologists,
    toxicologists, and risk assessors, in order to improve the development
    and enforcement of more science-based regulations.
        An increase of approximately $2 million is requested to evaluate
    and design a mass media campaign aimed at improving the safe food
    handling practices of consumers. A well educated public is better
    prepared to understand and address the food safety hazards they face
    and, therefore, will be more confident in the food they buy and eat.
        The 2004 budget also proposes legislation to collect an additional
    $122 million in user fees annually by recovering 100 percent of the
    cost of providing inspection services beyond an approved primary shift.
    Recovering a greater portion of these funds through user fees would
    result in savings to the taxpayer. These fees will have a minimal
    impact on prices received by producers or prices paid at retail by
    consumers.

                     FOOD, NUTRITION, AND CONSUMER SERVICES

        The budget includes $44.2 billion for USDA's domestic nutrition
    assistance programs, the highest level ever requested. The budget will
    ensure access to food assistance for all eligible recipients, it will
    help improve nutritional intakes and reduce obesity, and it will
    provide support for those recipients working toward economic self-
    sufficiency.
        The Special Supplemental Nutrition Program for Women, Infants and
    Children is budgeted at $4.8 billion. This is a record high funding
    request, which funds record levels of at-risk, low-income participants.
    This request also includes additional funding for program initiatives,
    including State information systems, breastfeeding peer counselors, and
    childhood obesity prevention projects. WIC reauthorization is a
    priority and is assumed in the budget. Ensuring an appropriately funded
    WIC program with the best possible outcomes is a top Administration
    priority. Further, the budget includes $20 million for the WIC Farmer's
    Market Nutrition Program and another $15 million in CCC funds for the
    Senior Farmers' Market Nutrition Program.
        The Food Stamp Program, which is the cornerstone of America's
    effort to ensure low-income people have access to an adequate diet, is
    funded at $27.5 billion. This covers anticipated food cost inflation
    and participation growth of about 1 million participants, including
    legal immigrants and others newly eligible based on legislative changes
    in the 2002 Farm Bill. Included is a $2 billion contingency reserve,
    $1.4 billion for Nutrition Assistance for Puerto Rico, and funds to
    improve integrity and Electronic Benefit Transfer. Significant progress
    has been made in reducing over and under payment error in the program
    such that average State payment accuracy is now 91.34 percent, and
    overpayment error averages 6.37 percent of benefits. The budget
    maintains the emphasis on program integrity and seeks to reduce error
    further.
        The Child Nutrition Programs would be funded at $11.4 billion, also
    a record for these programs. Increases are provided for food cost
    inflation, growth in the number of meals served and program integrity.
    Reauthorization of the Child Nutrition Programs is a priority for this
    coming year, and the Administration believes the focus should be on:
      --Ensuring stable and adequate funding for program benefits,
            especially for eligible meals served to low-income children who
            are eligible for free or reduced price meals;
      --Ensuring access to meals for all children;
      --Providing financial incentives to schools that serve meals
            consistent with the Dietary Guidelines; and
      --Streamlining program administration, minimizing administrative
            burden, ensuring adequate resources for program oversight,
            reducing error and improving program outcomes, while
            reinvesting any savings in strengthening the programs.
        The budget also includes a proposal specifically to explore policy
    changes to help ensure that all free and reduced price meal eligibles
    are correctly certified. USDA studies and national survey data suggest
    that a significant number of children approved for free and reduced
    price meals are from ineligible households. Correct certifications are
    a priority not only because they affect about $7 billion in school meal
    funds, but also because a wide array of Federal, State, and local
    education resources, totaling considerably more than meal
    reimbursements, are targeted to low-income children and schools using
    the same data. More accurate certifications will help ensure that these
    resources are all targeted correctly. The Administration would fully
    reinvest any savings that result from improved payment accuracy to
    strengthen the programs.

                       NATURAL RESOURCES AND ENVIRONMENT

        The 2002 Farm Bill contains many new conservation programs designed
    to protect and enhance the environment. The Department is now faced
    with the demanding task of implementing this Farm Bill which provides
    nearly $17.1 billion in new conservation funding over the next 10
    years. The 2004 budget request in the conservation area recognizes the
    importance of this task, as well as the need to continue to support
    underlying programs to address the full range of conservation issues at
    the national, State, local and farm level.
        The 2004 budget request for NRCS includes $1.2 billion in
    appropriated funding, and $1.4 billion in mandatory CCC financial
    assistance funding for the Farm Bill conservation programs, including
    $850 million for the Environmental Quality Incentive Program. The
    appropriated request includes $577 million for conservation technical
    assistance for the base programs that support the Department's
    conservation partnership with State and local entities. One new element
    in the NRCS appropriated account structure, proposed initially in a
    2003 budget amendment, is a new Farm Bill Technical Assistance Account
    that will provide all technical assistance associated with the
    implementation of all the Farm Bill conservation programs. In 2004,
    this new appropriated account is funded at $432 million.
        The 2004 budget for NRCS will also enable the agency to maintain
    support for important ongoing activities such as addressing the
    problems associated with polluted runoff from animal feeding operations
    and providing specialized technical assistance to land users on grazing
    lands. In addition, limited increases will be directed to other high
    priority activities such as addressing air quality problems in
    noncompliance areas, more fully implementing the Customer Service
    Toolkit, and establishing a more effective and meaningful monitoring
    and evaluation regimen to oversee the implementation of Farm Bill
    programs.
        The budget also proposes certain other changes for the watershed
    programs. With emergency spending being so difficult to predict, the
    budget proposes to not seek appropriated funding for emergency work
    while partially restoring the ongoing watershed planning and Public Law
    566 programs. This will help address the backlog of unmet community
    needs that these programs are designed to meet. Disaster funding will
    be addressed as emergencies arise.
        The Department's 2004 budget request maintains funding for the 368
    Resource Conservation and Development areas now authorized. The ongoing
    program will continue to improve State and local leadership
    capabilities in planning, developing and carrying out resource
    conservation programs.

                               RURAL DEVELOPMENT

        Over 60 million people call rural America home and relatively few
    of them are farmers and ranchers. USDA must embrace this reality and
    commit to creating new economic opportunities and improving the quality
    of life for a diversified rural population. Rural America needs to
    share in the Nation's economic prosperity, in terms of good jobs and
    earning potential, homeownership and infrastructure for community
    services, including telecommunications to participate in a highly
    technological, global society.
        The Administration is committed to bringing new ideas, new
    solutions and new approaches to rural America. The 2004 budget reflects
    this commitment. It includes new programs that are being implemented
    using the mandatory funding provided by the 2002 Farm Bill, and
    maintains the traditional loan, grant and technical assistance programs
    for rural development purposes at realistic levels of funding while
    offering new ways to operate these programs. For example, on January
    29, 2003, USDA announced the availability of over $1.4 billion in loans
    for broadband telecommunication. This initiative started as a pilot
    program in 2001 and is on the verge of becoming one of USDA's most
    important programs. It could make the same difference to rural America
    as the railroads did in the 19th century and the highway program did in
    the 20th century.
        The 2004 budget proposes $11.9 billion for USDA's rural development
    programs, including $680 million for administrative expenses. This
    program level is estimated to cost the Government $2.3 billion in
    budget authority, which compares to about $2.6 billion in the
    President's 2003 budget. Because interest rates have declined, the
    subsidy costs for most direct loan programs are lower than those
    reflected in the 2003 budget. The 2004 budget maintains these programs
    at their 2003 levels, which results in a savings in budget authority.
        The 2004 budget maintains the water and waste disposal program at
    an overall program level of $1.5 billion. However, it proposes that the
    amount of grants included in this level be reduced from $587 million to
    $346 million. Because the subsidy rate is only about 3.33 percent for
    direct loans, compared to 100 percent for grants, the shift toward more
    loans would maintain the same program level as the 2003 President's
    budget while achieving a substantial savings in budget authority. The
    lowest interest rates in a decade should allow more communities to
    repay loans rather than rely on grants. In addition, mandatory funding
    provided by the 2002 Farm Bill was used to fund a backlog of projects
    that needed a substantial portion of their funding through grants in
    order to be viable. Recent applications indicate that more projects can
    be funded through loans alone or with only a moderate grant.
        Electric loans are maintained at a $2.6 billion level. However, the
    amount available for direct loans at the 5 percent interest rate would
    be increased from $121 million to $240 million. This increase is
    intended to serve areas with low density and high consumer costs as
    well as other hardships. Further, USDA intends to ask electric
    borrowers, most of which qualified for eligibility based on service
    areas defined decades ago, to recertify that they are still serving
    rural areas, rather than urban or suburban areas.
        Loans for broadband access were initiated as a pilot program in
    2001. The 2002 Farm Bill provided the statutory authority and mandatory
    funding for this initiative. The 2004 budget provides for an increase
    in discretionary funding for broadband loans from $80 million in the
    2003 budget to $196 million for 2004. This increase reflects the
    Administration's support for bringing internet and broadband services
    to rural areas, and its belief that this activity should compete for
    funding under the annual budget process. Therefore, the 2004 budget
    proposes rescinding the mandatory funding for broadband loans that the
    2002 Farm Bill makes available for 2004. The mandatory funding relating
    to the January 29, 2003, announcement is reflected in the budget as
    being used in 2003. However, this funding remains available until
    expended.
        The 2004 budget also includes $2 million for broadband grants. As
    has been the policy since 2001 when the program was established, these
    grants will be used to assist a few small communities that lack the
    repayment capacity for loans.
        With regard to the rest of the telecommunications programs, the
    budget includes $495 million for telecommunication direct loans, and
    $50 million in direct loans and $25 million in grants for the distance
    learning and telemedicine program. These levels are the same as those
    requested for 2003. Further, the 2004 budget contains the
    Administration's prior proposal to stop funding the loan-making
    activities of the Rural Telephone Bank (RTB). The RTB is fully capable
    of obtaining funds to make loans through commercial channels as soon as
    it is privatized through the redemption of its Class A stock, which the
    Government holds.
        The business and industry guaranteed loan program is funded at a
    program level of $602 million, down from $733 million in 2003. The
    decrease reflects an increase in subsidy costs due to both increased
    losses on guarantees made in prior years and technical adjustments.
        Section 502 direct loans for single family housing would be
    increased from $957 million in 2003 to almost $1.4 billion in 2004.
    This increase would contribute to meeting the President's goal of
    increasing minority homeownership. In addition, the 2004 budget
    includes $2.725 billion for Section 502 guaranteed loans, including
    $225 million for refinancing. While there have been shortfalls in
    demand for these guarantees in prior years, the Administration recently
    lowered the fees to bring them more in line with what other Federal
    agencies charge. This change is expected to ensure a strong demand for
    the program through 2004. Section 502 direct and guaranteed loans are
    expected to provide about 49,000 homeownership opportunities in 2004.
        Consistent with last year's budget proposal, the 2004 budget does
    not include funding for new construction of Section 515 rural rental
    housing projects. This proposal reflects concern about the long-term
    cost of the Government for maintaining the existing portfolio of 17,800
    projects, and the need to find more cost-effective ways to provide
    housing support for rural residents with very low income. Many of these
    projects are over 20 years old and in need of repair or rehabilitation.
    They also require substantial amounts of rental assistance payments to
    remain viable. USDA has already initiated a review of alternatives for
    servicing the portfolio and developing options for making loans for new
    projects at less cost to the Government. Direct loans for repair,
    rehabilitation and preservation would continue to be made. The 2004
    budget would support $71 million for these purposes. Further, the 2004
    budget provides $740 million for rural rental assistance payments,
    which is sufficient to renew all expiring contracts and to support new
    construction of $59 million of farm labor housing projects.
        In addition, the 2004 budget includes an estimated savings of $5
    million for sales of loan assets. USDA's RD mission area, along with
    FSA, will be evaluating the potential for conducting such sales on a
    regular basis.

                       RESEARCH, EDUCATION, AND ECONOMICS

        Publicly supported agricultural research has provided the
    foundation for modern agriculture and is an important component of
    virtually all of our strategic objectives. Research will lead to
    commercially feasible renewable energy and biobased products with
    benefits to the environment, national security, and farm income.
    Genetic and molecular biology hold promise to reduce plant and animal
    diseases that threaten U.S. agriculture as the movement of plants and
    animals increases and as bioterrorism becomes a matter of increasing
    concern. There are technology-based opportunities to make our food
    supply safer and more wholesome that need to be exploited to address
    serious human health-related problems.
        The 2004 budget for the four Research, Education and Economics
    agencies is approximately $2.3 billion, nearly the same as 2003 budget
    level. The 2004 budget follows the general pattern of the 2003 budget
    with reductions in earmarked programs and program increases in areas
    where needs and returns are the greatest. The budget also includes
    increases for pay costs, homeland security related activities,
    information technology and other infrastructure requirements.
        The centerpiece of the 2003 budget was the proposal to move
    aggressively towards the full authorization level for the National
    Research Initiative (NRI). The proposal in the 2004 budget is based on
    the same underlying policy objective, but in a way that is consistent
    with the greater overall constraints of the 2004 budget. The proposal
    for $200 million for the NRI will finance work that will have an
    immediate impact on such issues as emerging diseases of plants and
    animals, biosecurity, air quality, and food and nutrition. The NRI
    provides critical support for mapping and sequencing the genomes of
    organisms of importance to agriculture. These projects are carried out
    in the major Federal genome sequencing centers in cooperation with
    other agencies including the National Institutes of Health, the
    Department of Energy, and the National Science Foundation, where USDA
    funds are highly leveraged.
        The 2004 budget for the Agricultural Research Service (ARS) calls
    for increases to support participation in genome mapping and sequencing
    projects and enhance the agency's bioinformatics capacity to transfer
    this information into research programs. There are increases for work
    on animal diseases and biosecurity to develop new vaccines, rapid
    diagnostic tests, and genome data on biosecurity threat agents. The
    research will lead to improved vaccines and therapeutics against foot
    and mouth disease and the newly emerging and most threatening swine
    disease, known as porcine reproductive respiratory syndrome or PRRS.
        The budget includes funds to install security countermeasures in
    ARS laboratories. Security assessments and initial investments in
    countermeasures were funded through the 2002 emergency supplemental
    funding. Assessments of all ARS facilities are being completed and
    funds in the 2004 budget will be used for the highest priority
    projects. At this time, such security measures represent the highest
    priority for the Buildings and Facilities account. Congress has
    appropriated a total of $124 million in recent years for implementation
    of the animal health facilities in Ames, Iowa. No funding is proposed
    in the 2004 budget as security of existing facilities is the higher
    priority for this year. The Administration will reconsider the full
    range of options for future modernization of these facilities and
    present recommendations in the fiscal year 2005 budget.
        The 2004 budget for the Cooperative State Research, Education, and
    Extension Service (CSREES) includes funds to continue the formula
    programs for the 1862 institutions at current levels and increase
    formula payments to the 1890 institutions as a step towards funding
    these programs at the higher authorization levels established in the
    2002 Farm Bill. There are also proposed increases in funds for the 1994
    Tribal Land Grant schools and an increase in the CSREES graduate
    fellowship program that will allow more funding for fellowships at the
    masters degree level which is especially important for recruiting
    minority graduate students. Finally, there is an increase in the
    Outreach and Technical Assistance Program authorized under Section 2501
    of the 1990 Farm Bill which is now being administered by CSREES. Our
    goals for the 2501 program are to encourage and assist socially
    disadvantaged farmers and ranchers own and operate farms and ranches
    and participate in USDA programs. With increased funding to $4 million
    we will be making more awards, for longer periods of time, to a wide
    range of community-based entities.
        The budget for the Economic Research Service (ERS) includes an
    increase for two initiatives. An increase of $1 million for a Security
    Analysis System for U.S. agriculture (SAS-USA) to provide information
    critical for the mitigation of security threats and attacks to the
    Nation's agriculture and food supply. The system will integrate spatial
    and economic data with analysis functions to deliver security
    assessments and recommendations to key decision makers within a short
    timeframe. An increase of $1.1 million will allow ERS to investigate
    consumer behavior, particularly in U.S. export markets, towards foods
    modified by genomic and other agricultural biotechnology innovations.
        The budget for the National Agricultural Statistics Service (NASS)
    includes an increase for three initiatives and a decrease of $16.5
    million for the Census of Agriculture, reflecting the decrease in
    staffing and activity levels to be realized in 2004 due to the cyclical
    nature of the 5-year census program.
        An increase of $4.8 million is requested to help restore and
    modernize NASS core survey and estimation program for U.S. agricultural
    commodities and other economic, environmental and rural data. These
    data are used by a variety of customers for business decisions, policy
    making, research, and other issues. They are also necessary for the
    calculation of national countercyclical payments rates provided under
    the 2002 Farm Bill.
        An increase of $1.6 million for NASS Locality-Based Agricultural
    County estimates program continues the improvements included in the
    2003 budget request. These local estimates are one of the most
    requested data sets, and are especially important to the Risk
    Management Agency (RMA) for their risk rating process, (affecting
    premium levels paid by producers), and to FSA for calculating national
    loan deficiency payments.
        Finally, an increase of $3.25 million is requested to support NASS
    efforts as the lead agency for two of USDA's enterprise-wide e-
    Government initiatives, Survey Capability and Data Management. This
    funding will allow NASS to develop the infrastructure necessary for
    electronic data reporting for its surveys, thereby reducing the
    reporting burden on farmers and ranchers.

                            DEPARTMENTAL MANAGEMENT

        The Departmental staff offices provide leadership, coordination and
    support for all administrative and policy functions of the Department.
    These offices' are vital to USDA's success in providing effective
    customer service and efficient program delivery. Salaries and benefits
    often comprise 90 percent or more of these offices' budgets, leaving
    them little flexibility to reduce other expenditures needed to continue
    their operations. The 2004 budget proposes funding required to ensure
    that these offices maintain the staffing levels needed to provide
    management leadership, oversight and coordination.
        These offices also have key responsibilities related to the
    President's Management Agenda and other departmentwide and agency-
    specific management reforms, which are crucial to making the Department
    an efficient, effective and discrimination-free organization that
    delivers the best return on taxpayers-investments. The Department has
    made significant progress in improving management. Examples are:
      --The Department has a new strategic plan which is being used to
            communicate and drive our programmatic, budget and management
            priorities.
      -- The Department received its first-ever unqualified or ``clean''
            opinion on the fiscal year 2002 financial statements,
            significantly reduced delinquent debt and all of the
            Department's agencies now use a single financial information
            system that meets Federal standards.
      --The Department's National Finance Center was one of four winners of
            a governmentwide competition to streamline payroll service
            providers. It also helps nearly 3 million Thrift Savings Plan
            participants manage and track their investments.
      --USDA's customers can increasingly conduct business with the
            Department online, saving them and the Department time and
            money over the long term.
        The fiscal year 2004 budget builds upon that progress by continuing
    funding levels for these offices and providing key funding increases in
    order to:
      --Provide $6.6 million to appropriate agencies, such as APHIS, FAS,
            and GIPSA, through the Office of the Secretary to address
            cross-cutting trade related challenges. Additional resources
            are needed for trade negotiations and enforcement actions, as
            well as in solving biotechnology issues related to market
            access and regulatory standards. This request will allow
            Secretarial level coordination, flexibility and resource
            sharing to target current trade issues.
      --Meet demands for Departmental coordination of homeland security
            efforts, including emergency planning and strengthened physical
            and cyber security in light of the September 11, 2001, attacks.
      --Continue efforts to modernize the Service Center agencies (FSA,
            NRCS, and RD) to improve efficiency and customer service. A key
            element in these plans is the maintenance of a CCE for the
            Service Center agencies and RMA acceleration of our efforts to
            acquire and use Geospatial Information Systems (GIS). The CCE
            and GIS are critical to providing electronic services to USDA
            customers.
      --Continue renovations of the South Building to ensure that employees
            and customers have a safe and modern working environment.
      --Enable the new Assistant Secretary for Civil Rights to guide civil
            rights activities. The President nominated Vernon Parker as the
            Department's first Assistant Secretary for Civil Rights and he
            was confirmed by Senate on March 27.
      --Enhance outreach efforts to provide all of our customers with
            information about our programs.
      --Enable the Offices of the General Counsel and the Inspector General
            to provide needed services to the Department.
        That concludes my statement. I look forward to working with the
    Committee on the 2004 budget so that we can better serve those who rely
    on USDA programs and services.

        Senator Bennett. Thank you very much, Madame Secretary.
        As you have seen, as the vote has concluded, a number of
    members of the subcommittee have joined us. I want to
    particularly welcome Senator Kohl, who was chairman of the
    subcommittee and set a high standard of excellence for us all
    to try to follow.
        Senator, if you have an opening statement, we will be happy
    to hear that and then I will begin the questioning in the
    normal round.
        Senator Kohl. Go ahead.

                     BIOTECHNOLOGY TRADE-RELATED ACTIVITIES

        Senator Bennett. Thank you very much.
        Madame Secretary, I noted that you requested an additional
    $6.6 million in your own budget to fund cross-cutting trade
    relating and biotechnology programs throughout the Department.
    As we have talked to members of your staff, you plan to use
    this money for the Foreign Agricultural Service, the Animal
    Plant Health Inspection Service, and the Grain Inspection,
    Packers and Stockyards Administration.
        Could you tell us how you arrived at this figure of $6.6
    million? And how much of this amount do you plan to give to
    each of these agencies? Why didn't the Department request that
    the increases be provided directly to these accounts instead of
    coming through your office? Do you have an established criteria
    for distribution of the funds?
        We are just trying to get a better understanding of all of
    this. And if you do not have those specific members right at
    your fingertips, you can supply them for the record. But I
    would appreciate any comment that you would have on this
    general approach.
        Secretary Veneman. Mr. Chairman, I appreciate that
    question. This is a new proposal, something that has not
    appeared in our budget before. As you know, there are a number
    of new developments with regard to biotechnology. We are
    encountering trade issues, as we have worked to open up markets
    in the European Union. That continues to be a very big issue,
    not only with the EU but with other countries as well.
        As we worked through the budget, one of the things that was
    apparent was that a number of these agencies were requesting
    additional funds to work on issues related to biotechnology on
    the trade side and on the regulatory side as well. We have had
    issues come up over the course of the last year where we have
    had to deal with the cleanup of an issue relating to Prodigy,
    for example. We also had to deal with the Starlink situation,
    in 2001.
        So these are cross-cutting issues with regard to
    biotechnology. They are trade related. They are regulatory
    related. The concept is to have a fund under which we can
    really utilize the resources that we have in a coordinated
    manner, in a cross-cutting manner, and have some flexibility as
    these issues arise.
        At this point, is not possible for me to give you the exact
    break down by agency. Some of that will continue to remain
    undetermined because we will need some flexibility in this
    account to address issues that we may not anticipate. But we
    will be happy to give you what detail we can on this particular
    proposal.
        [The information follows:]

        Funding for these activities will be allocated in a coordinated
    manner to address issues related to trade and biotechnology that are
    very fluid. It would be premature to make allocations at this time,
    though we would expect funding to be used to respond to World Trade
    Organization and regional and bilateral trade negotiation demands, as
    well as trade and regulatory issues associated with biotechnology.
    Examples of the types of activities to be funded include:
      --work to minimize market constraints related to biotechnology;
      --expand efforts to exchange information relating to the implications
            of implementing laws and regulations related to biotechnology;
      --deal with issues that may disrupt trade;
      --address increased trade negotiation workload associated with the
            World Trade Organization's multilateral negotiations to reform
            world agricultural trade practices, as well as the negotiation
            of regional trade agreements, including the Free Trade Area of
            the Americas, and numerous bilateral free trade agreements; and
      --ensure that introduced genetically-modified organisms, including
            those in field testing, do not pose a risk to American
            agriculture.

                          CRP/WRP TECHNICAL ASSISTANCE

        Senator Bennett. We would appreciate that.
        In the 2003 supplemental, this subcommittee provided
    direction your Department regarding funding of technical
    assistance and clarifying the intent of Congress and an area. I
    understand there has been some confusion about that or at least
    some dispute about it.
        Can you tell us how the Department interprets the language
    that this subcommittee included in the 2003 supplemental on
    that issue? And how much money will be required to fund
    technical assistance for the Conservation Reserve Program and
    Wetland Reserve Program in fiscal year 2004?
        Secretary Veneman. Mr. Chairman, as you indicate, there was
    some dispute about how the technical assistance would be
    funded. Ultimately, there was a decision by the Justice
    Department as to how the law should be interpreted and we are
    bound by that decision.
        There was $333 million in the 2003 budget and we are asking
    for $432 million in the 2004 budget for technical assistance
    for the conservation programs.
        Senator Bennett. Mr. Dewhurst.
        Mr. Dewhurst. Senator, let me just add to the Secretary's
    answer. As you said, in the Omnibus Bill that the Congress
    enacted, the Congress clarified the law with respect to
    technical assistance, and specified that funding from certain
    of those mandatory programs, provided for in the Farm Bill,
    should be used to provide technical assistance for the
    conservation programs, not withstanding what we know as the
    Section 11 cap, which had been a problem in the past.
        The approach that the Congress adopted in the Omnibus Bill
    is different from the approach that the Administration had
    recommended in its budget in the sense that the Administration
    had recommended the creation of a discretionary account to
    provide this money and the action of the Congress specifies the
    use of mandatory money for this purpose.
        Senator Bennett. That is why we asked the question.
        Mr. Dewhurst. One of the things that happens here under the
    operation of that law is that four of the programs that are in
    the Farm Bill, the EQIP Program, the Farmland Protection
    Program, the Grasslands Program, and the Wildlife Habitat
    Incentives Program essentially are asked to provide the
    technical assistance money to support all of those programs. So
    you have some of these programs being used as a source of
    technical assistance money for other conservation programs, and
    that has become controversial.
        The $333 million that the Secretary talked about remains
    the amount of money that the Department thinks is needed in
    total to support these programs in the current fiscal year.
    That money, under the law, will come out of the mandatory
    programs, out of those four programs I mentioned. It will be
    used to provide the technical assistance to support all of the
    Farm Bill programs, including programs such as the Conservation
    Reserve Program.
        So the Administration is continuing to recommend, in its
    2004 budget, the creation of a discretionary account for this
    purpose and the issue resides in where you get the money from
    and whether or not you want the money from one program to, in
    effect, subsidize another program. It is quite a complicated
    and controversial issue.
        Senator Bennett. Thank you. That is a clear explanation of
    where we are and obviously the determination will have to be
    made by this subcommittee as to where we go.
        Let me ask what might be a parochial question but I think
    it affects everyone, and then I will go to my colleagues and
    come back on a second round for my additional questions.

                     EMERGENCY WATERSHED PROTECTION PROGRAM

        I say parochial because the situation occurred in
    Santaquin, Utah. A wildfire burned the hills in that rural area
    and Utahans were able to work with NRCS and receive funding
    through the Emergency Watershed Protection Program. The
    community was threatened with mud slides and funding helped to
    avert that potential disaster, and we are naturally very
    grateful.
        The USDA budget now does not include any funding for the
    Emergency Watershed Protection Program. We may not be having
    mud slides this year because we are in the 5 year of the worst
    drought in history, and maybe we would like enough water to
    perhaps threaten us with a mud slide. But there is no funding
    for that particular program.
        You state that ``emergency assistance will be evaluated and
    addressed as disasters arise.'' The age-old question how do you
    address disasters if you have no prior funding, especially in
    the light of potential devastating fire season that we may
    have. The flip side of being free from mud slides is that we
    are threatened with serious fires.
        Unfortunately in the West right now we have the worst of
    all possible scenarios. We have had, as I say, the worst
    drought since they started keeping records. And then this
    spring it rained just enough to create a very significant
    sprout of grass. When the rain goes away and the grass is
    there, it is tinder, and then the rest of the landscape is
    tremendously dry.
        So I am concerned, not just for my own state but for all
    states in the West where this situation exists. With your
    statement that emergency assistance will be evaluated and
    addressed as disasters arise, should we not consider putting
    some money in that fund in advance of the disaster to give you
    a faster response time to this particular kind of challenge?
        Secretary Veneman. Mr. Chairman, let me first address the
    issues that you raise with regard to the West and the drought
    and fire danger. This has been something we have been following
    very closely, both because of the impacts of the drought on
    agriculture but also because of the impacts of the drought on
    firefighting, and our fire season.
        Obviously, last year was one of the worst fire seasons we
    have ever had. We are continually, through our drought task
    force, not only implementing the drought assistance provisions
    but really following this issue of the drought. We are very
    concerned about what the fire year is going to look like. We
    are very thankful for the rain we have had but obviously this
    is a high priority, and also a very strong reason why the
    President has put forward his Healthy Forests Initiative. We
    will continue to work through the budget process to try to get
    that implemented.
        Senator Bennett. Senator Burns will address that in his
    subcommittee.
        Secretary Veneman. I know, but I just wanted to remind
    everyone that that is a very high priority for us.
        As far as this program, let me have Mr. Dewhurst address
    how we have typically used this in the past, in terms of the
    funding for the disasters.
        Mr. Dewhurst. Senator, your question, of course, highlights
    one of the most difficult dilemmas we have when we put a budget
    together for the Department in areas such as firefighting and
    the emergency watershed conservation program that you
    mentioned. We also have an emergency conservation program in
    the Farm Service Agency.
        In most years that we have emergencies, we are not very
    good at anticipating the true magnitude of those emergencies.
    Funding that we provide in advance counts against the
    discretionary budget targets for the Department.
        So in most years that I have been here, most
    administrations have chosen, although we do provide money in
    advance for firefighting to some extent, not to budget the
    Emergency Watershed Program or the Emergency Conservation
    Program in advance.
        What happens is that after we have emergencies, evaluations
    are done at the local level, and estimates of damages are
    provided to the Administration and to the Congress. These
    programs are almost always dealt with through supplemental
    funding after those evaluations are available.
        It may or may not be the best way to do it, but it is in
    fact what has happened over many years.
        Senator Bennett. We may think about changing that. Thank
    you very much.
        Senator Kohl, you have been very patient. We appreciate
    your support.
        Senator Kohl. Thank you very much, Senator Bennett.
        I would like to offer a very warm welcome to Senator
    Bennett as he assumes his responsibilities as chairman of this
    subcommittee. He is someone that I and other members of this
    committee have come to know, respect and admire for his
    fairness.
        Senator Bennett, we will all be looking to you for
    leadership, advice, and counsel as the subcommittee proceeds.

                         DAIRY PRICE SUPPORT ACTIVITIES

        Secretary Veneman, America's dairy farmers and those in my
    state of Wisconsin, which has more dairy farmers than any other
    state by far, are suffering hugely from low prices and a dairy
    pricing system that often works against the farmers best
    interests. In fact, if it were not for the new dairy program in
    the Farm Bill, then dairy farmers would be going out of
    business all across this country at a historical and therefore
    devastating rate.
        We know that there is no single solution to the problems
    faced by dairy farmers, but as Secretary of Agriculture, you
    have a number of authorities which you can use to help these
    hard working men and women stay in business. Expanded dairy
    research, innovative marketing alternatives, enhanced risk
    management options, sound conservation practices, rural
    development strategies, and a strong voice in international
    trade policy are all necessary to support the dairy industry.
        I have listed just a few of the tools that you can use to
    assist dairy farmers. Please share with us, if you would, how
    you can use these and other authorities to strengthen the dairy
    sector and help our struggling dairy farmers survive.
        Secretary Veneman. Senator Kohl, I appreciate the difficult
    situation the dairy farmers are faced with regard to prices in
    recent times. It is something we have heard continuously about
    and I do appreciate your bringing up some of the various kinds
    of programs that we have that assist farmers across the board
    from research to marketing programs and international trade.
        Obviously, all of these kinds of programs can be used to
    help a variety of farmers and rural communities throughout
    America and we continue to use them. We are working through our
    international trade negotiations to open up more markets for
    our farmers and ranchers. We have used some of our tremendous
    stocks of non-fat dry milk that we have in storage for
    humanitarian purposes.
        You also mentioned the conservation programs, which are
    increased by about 80 percent in this Farm Bill. Much of that
    will be available for animal agriculture to help ranchers
    comply with some of the environmental regulations such as
    Consolidated Animal Feeding Operations (CAFOS). So we are using
    a number of these programs to assist dairy farmers and
    ranchers.
        I will call upon our Chief Economist, Mr. Collins, to just
    give a quick overview of the situation with regard to the
    economics of the dairy industry, as well.
        Mr. Collins. Thank you, Madame Secretary.
        Senator Kohl, I agree with your comment about the economic
    distress dairy producers are in. April milk prices were the
    lowest since 1978, and that has caused the greatest concern in
    25 years.
        You outlined the key areas, I believe, where things can be
    done to help dairy producers. And, we have tools in all of
    those areas and we are doing some things that people may not
    know about and may even be surprised about.
        If I were looking at how to help dairy producers, I would
    focus on trying to help them manage the risks they face,
    starting with the input they buy.
        If you take the State of Wisconsin, for example, we have
    over 700,000 acres of corn that is used for silage for dairy
    producers. Unfortunately, only about 18,000 acres of that is
    insured. So we could do a lot better job on developing
    insurance tools for forage and pasture and silage-type of
    crops.
        On the output side, we have the milk program, the Milk
    Income Loss Contract Program. We have paid about $1.3 billion
    to dairy producers since that program began under the 2002 Farm
    Bill.
        In addition to that, we have a couple of interesting
    programs that are now in operation that are helping small dairy
    producers. We have Whole Farm Insurance Programs and the
    Adjusted Gross Revenue Pilot Program which is available in a
    number of states. Unfortunately, it has a limit as to how much
    milk can be covered by that program. However, the State of
    Pennsylvania has a program called Adjusted Gross Revenue Lite,
    in which 100 percent of the income can come from milk on a farm
    and be covered. You have to have at least two commodities
    because it is a whole farm product. But most of it could be
    milk and could be covered under a Whole Farm Insurance product.
        These are new things. These are new tools that are
    evolving. The Risk Management Agency at USDA is working on
    those programs, and they hold some potential for providing new
    crop insurance and risk management tools for dairy producers.
        We also have a new product that has been submitted to the
    Federal Crop Insurance Corporation by a private insurance
    provider for a price insurance product for milk. So there are
    things going on that can help producers. But they do not happen
    overnight. They are taking time. But in the meantime, we have a
    price support program. We continue to support milk marketing
    orders. We also have DEIP, the Dairy Export Incentive Program,
    and we have the Milk Income Loss Contract Program, all
    providing a range of support to dairy producers.

                       STRENGTHENING DAIRY PRICE SUPPORT

        Senator Kohl. I would like to ask one additional question,
    Madame Secretary.
        The Dairy Price Support system requires that USDA purchase
    certain dairy products when the Class III price falls below
    $9.90 per hundredweight. As has been said, since January 2003,
    the Class III price has remained at record lows and below that
    support level. In fact, we reached a low of $9.11 per
    hundredweight in March.
        What can you do to strengthen the price support program to
    prevent the market price from falling below the support level?
        Mr. Collins. Senator Kohl, this is an interesting case. We
    have seen this happen before. This is not new this year. It has
    happened a number of times over the years, that the price has
    temporarily fallen below $9.90 per hundredweight.
        The law requires us to support the price of manufacturing
    grade milk at $9.90. It can happen that for a particular class
    like Class III or Class IV, or for a particular region of the
    country, the milk price can fall below $9.90.
        As a whole, the manufacturing grade milk price in the
    United States has been running close to $9.90. The April
    average price was, in fact, exactly $9.90.
        But the question you raise does point toward the price
    support program. There may be some things we can do there.
    There is concern when you see prices on exchanges fall well
    below $9.90, or the product prices fall way below our purchase
    prices, for example, like the cheese price or the butter price.
        One of the things that we are looking at is the extent to
    which there are unique costs borne by those who sell their
    products to us. For example, cheese. If you are talking about
    the Class III price, that is the price of the milk that goes
    into producing cheese. When we buy cheese, we impose certain
    requirements on those that supply cheese to us.
        We are reviewing right now what cost those requirements are
    imposing on the suppliers. And to see whether we have properly
    accounted for those costs in establishing our purchase price
    for cheese.
        To the extent that we have not properly accounted for those
    costs, then suppliers would in fact be selling cheese to us at
    a milk price less than $9.90.
        So we are reviewing that right now, trying to look at that
    dimension of the dairy price support issue you raised.
        Senator Kohl. I thank you and I have additional questions,
    Mr. Chairman, but we will get back to that on the second round.
        Senator Bennett. We will go through a second round. Senator
    Burns.

                          CONSERVATION RESERVE PROGRAM

        Senator Burns. Thank you, Mr. Chairman. I have a couple
    questions regarding CRP. You just closed the applications for
    CRP; is that correct?
        Secretary Veneman. No, sir. We just opened them on May 5th
    through the end of May.
        Senator Burns. Do you have any expectations whether or not
    you will hit the 39 million acre cap? Is it not capped at 39.3
    million acres?
        Secretary Veneman. It is capped at 39.2 million acres.
        Senator Burns. Do you think you will hit that cap?
        Secretary Veneman. No, sir, not yet.
        Mr. Collins. Senator Burns, we are a long way from that
    cap. Under the 1996 Farm Bill, the statutory cap was 36.4
    million acres. We are still a couple of million acres away from
    that cap.
        In addition to that, this fall we will have about 1.5
    million acres that will expire. The contracts will expire and
    come out of the CRP or have to rebid to come in. So we will
    have a tremendous amount, something on the order of 7 million
    acres, of potential room under the 39.2 million acre cap.
        For the purposes of our budget that has been presented, we
    estimated about 2.8 million acres would be enrolled in this
    signup. Now that is not a target. That is just a placeholder
    that we used to be able to project the budget costs for the
    CRP. We can go above that, we can go below that, depending on
    the quality of the bids.

                             CROP DISASTER PAYMENTS

        Senator Burns. The next question is, of course we went
    through the drought thing. And I know that you have had to do a
    lot of work in software and do a lot of things in your county
    offices in order to get that money out the door.
        Give me an idea right now, if you have an idea, when
    producers can expect some sort of relief or receipt of some of
    those checks?
        Mr. Collins. If you are referring to the crop disaster
    payments, the signup begins June 6th and payments can be
    expected within a couple of weeks after producers come in the
    door, provided they come in that first week.
        Senator Burns. It is going to be that quick?
        Mr. Collins. Yes, sir.
        Senator Burns. Those are the questions I had. I have got
    some questions here that I would like to just relate to you if
    that is all right, in some areas. There is a couple of areas
    that I do not know what I am talking about. There are more than
    that, really, but two that I have identified this morning.
        But they are programs that are ongoing. I will convey my
    questions to the people here and we will try and get that
    ironed out and get some answers because they are parochial and
    I know there are other folks here that are going to talk about
    overall budgets and programs. So I think we should move on to
    that.
        I thank the chairman.
        Senator Bennett. Thank you very much.

                     HEALTHY FORESTS AND FOREST STEWARDSHIP

        Senator Burns. The fire situation, I will tell you, right
    now we are looking at a pretty normal year. We are getting rain
    in Montana. You guys have got to hold your mouth right. But you
    have to hold it right for 5 years. It is tough to do.
        Right now, we are getting moisture in Montana and it is
    pretty good moisture. The old prairie is trying to green up a
    little bit.
        We would hope, in all your planning, but that does not mean
    that there are not other areas out there that is a high risk.
        As far as your USDA, the Forest Service is concerned, we
    sure need that money budgeted for Healthy Forest and forest
    stewardship, because what we are finding is you can have more
    moisture that we normally had in our forest, but they need
    thinning. The growth that is in these areas are just taking
    that moisture and they are just sucking it out. So it takes
    more snow and more rainfall to sustain us through the season.
        So I am particularly interested in that money as it goes to
    forest health and to our forest stewardship programs.
        They are working, by the way. Those programs are really
    working, and I think will have an impact on our fire season and
    how we manage our forest.
        Senator Bennett. Thank you very much.
        We appreciate the ranking member of the full committee,
    Senator Byrd, being with us. And I will go out of the early
    bird order to recognize Senator Byrd and thank him for his
    participation.
        Senator Byrd. How is the PA system working?
        I often comment, Mr. Chairman, that our country has been
    able to put a man on the moon and bring him back to Earth
    safely, but it has never been able to perfect a public address
    system.
        But you know, Mr. Chairman, I think there is a postscript
    to that, if I might add. I am having great difficulty in
    opening milk cartons. I follow the instructions to open on one
    side, and I turn it around, and it says to press on both sides.
    And I cannot get the darn thing to open.
        So I think our country needs to work hard on producing a
    milk carton that works.
        Senator Burns. Senator, I suggest you get a bigger hammer.
        Senator Byrd. Mr. Chairman, you are very kind to call on
    me. I am an ex officio member, as you pointed out, but I want
    to wait my turn and let the regular members have their turn. I
    do appreciate your kindness. Thank you.
        Senator Bennett. Thank you, sir, for your courtesy. Senator
    Johnson.
        Senator Johnson. Thank you, and I thank Senator Byrd, as
    well, for his leadership and guidance and his courtesy here.
        Congratulations to Chairman Bennett, and also thank you to
    Senator Kohl for your leadership on this subcommittee. It has
    been extraordinary and something that I have valued a great
    deal.
        Welcome, of course, to Secretary Veneman. The Secretary and
    I played some telephone tag here this past week and I apologize
    that somehow or another I was not able to quite get things
    squared away that way. But the Secretary has been very
    accessible and willing to sit down and work through issues, and
    I am very appreciative of that.
        Let me just, at the outset, make more of a comment than a
    question. And that is as we review the President's fiscal 2004
    budget proposal, I have to say that there are a number of areas
    where I feel some concern.

               PROPOSED ELIMINATION OF CERTAIN FARM BILL PROGRAMS

        One is that the USDA budget would zero out a great many of
    our rural development initiatives that Congress included in the
    Farm Bill. This is a point of great concern to me.
        Frankly, this zeroing out, I think, has largely to do with
    making room for the President's massive tax cut which largely
    will be borrowed in order to compensate for the cost. but also
    will come out of the hide of other domestic programs.
        Among those I am concerned about is the elimination of $200
    million from the water and sewer grants to small communities at
    a time when frankly, the backlog of communities at our doorstep
    looking for help on these water and sewer issues is just
    immense. These communities have virtually nowhere else to go.

                               PREPARED STATEMENT

        Also the Value-added Development Grant Program, the
    Bioenergy Program, and the Renewal Energy Program all wind up
    zeroed out. And this is a source of great concern to me.
        In my limited time, let me ask the chairman for consent to
    submit a full opening statement, that is more comprehensive and
    I want to expedite things by doing that.
        Senator Bennett. Your statement will be included in the
    record.
        [The statement follows:]

                   Prepared Statement of Senator Tim Johnson

        Thank you Chairman Bennett and Senator Kohl, I join you in
    welcoming Secretary Veneman to discuss the President's Budget request
    for agriculture in fiscal year 2004. Senator Bennett, congratulations
    on your appointment as Chair of the Agriculture Appropriations
    Subcommittee, I look forward to working with you. I want to briefly
    outline some concerns about the U.S. Department of Agriculture's (USDA)
    budget proposal for fiscal year 2004, then, discuss issues such as
    implementation of the farm bill and disaster aid.
        I am concerned that in order to accommodate the President's
    proposed $726 billion tax cut, the Administration has made significant
    cuts to critical programs that benefit farmers, ranchers, and all
    American citizens.
        Of greatest concern, the proposed USDA budget would zero-out many
    rural development initiatives that Congress included in the farm bill.
    Overall, the Administration is seeking $1.4 billion less for rural
    development programs than 1 year ago. The cuts would result in the
    following problems:
      --$200 million would be eliminated from water and sewer grants to
            small communities. These towns have nowhere else to go, and the
            cuts will leave them with inadequate or no water and sewer
            service;
      --The Value-Added Development Grants program would be totally
            eliminated;
      --$50 million would be cut from the very successful Bio-Energy
            Program which pays new and existing renewable fuel refineries
            for purchasing corn, soybeans, and other biomass for renewable
            fuel production;
      --Funding would be prohibited under the new Renewable Energy program
            in the farm bill.
        Combining the cuts to the value-added program and the new energy
    title in the farm bill, the Administration is suggesting that renewable
    fuel production and other value-added agriculture development just
    aren't very important when the exact opposite is true. Finally, I am
    concerned that conservation programs would be reduced and a Rural
    Firefighters grant program would be eliminated.
        Once again, I am disappointed by these cuts and by the
    Administration's priority for a $726 billion tax cut that would not
    serve the interests of South Dakota and rural America, and I desire to
    help restore some of the severe cuts made by this budget proposal.
        I want to congratulate Secretary Veneman and her fine staff,
    however, for a job well-done in implementing the new farm bill. I am
    particularly proud the Farm Service Agency staff in South Dakota
    virtually led the nation in farm bill sign-ups relative to updating
    producer information for bases and yields. As the June 2nd deadline for
    participation in the 2002 and 2003 direct and counter-cyclical program
    nears, and a new CRP sign-up begins, I anticipate producer concerns
    will arise and I encourage you to keep a watchful eye for these
    implementation issues.
        I am disappointed with the lack of seriousness the Administration
    has taken with respect to the ongoing drought and its effect on
    producers across the country. Suggesting the President will veto a $6
    billion disaster package while at the same time pushing for billions of
    dollars in tax cuts for the very wealthy is irresponsible policy and
    sends the wrong message to hard working farmers and ranchers.
        The $3.1 billion of disaster relief included in the fiscal year
    2003 omnibus appropriations bill, shortchanged nearly every producer
    who has suffered substantial losses from the drought. Livestock
    producers in South Dakota, who received a minimal assistance in 2002,
    can expect little if any further assistance as they enter into the
    third year of severe drought. It is simply unrealistic to expect
    producers to recover from the losses they have endured without any
    real, comprehensive assistance.
        On February 20, 2003, the President signed the Agricultural
    Assistance Act of 2003 into law. Yet, producers have received no
    indication from USDA when the $250 million for the Livestock Assistance
    Program (LAP) will be made available to them. It is my hope that at the
    conclusion of today's hearing, I will have a commitment from you to
    release the $250 million for LAP in the very immediate future.
        Further, I'm troubled by the new feed assistance program you
    announced on April 8th, 2003 that excludes over three-fourths of the
    counties in South Dakota at the same time the drought continues and
    feed supplies have been nearly depleted. While it is true many parts of
    South Dakota have received timely rains in the last 2 months, it
    doesn't make up for a serious lack of meaningful precipitation in the
    last 2 years. These producers may need additional help to cope with the
    drought.
        Finally, I want to comment on USDA's role to implement the
    mandatory country-of-origin labeling (COL) provision for meat, produce,
    fish, and peanuts contained in the farm bill. Madam Secretary, the
    livestock producers I represent believe passage of COL may be the most
    important law enacted since the adoption of the Packers and Stockyards
    Act of 1921 they want it to work.
        Nevertheless, the Bush Administration and USDA have made it clear
    that you oppose the mandatory COL law that I and others successfully
    attached to the farm bill. I am very disappointed about the signals
    that USDA and others have been sending regarding COL. Recent testimony
    from USDA Undersecretary Hawks says, ``the new labeling requirements
    will not have a positive effect overall and the potential impact on
    trade and the unintended consequences on producers could be
    significant.'' USDA issued cost estimates that were excessively high
    and have since been refuted. Documents from USDA indicate that you only
    consulted with three persons outside USDA to make the overblown cost
    estimates, and those persons were lobbyists for organizations that
    oppose labeling. Recently, you sent me a letter indicating it was not
    just three, but rather twenty-nine organizations that USDA consulted
    concerning COL costs I would like to know the twenty-nine groups to
    identify how many of them were consumer and/or producer groups
    supporting COL.
        The negative statements about COL from the Administration cause me
    great concern with regard to the credibility and the agenda of USDA in
    the implementation process. I had a substantial part in writing the COL
    provision of the farm bill. We intend for consumers to be informed
    about where food comes from and for USDA to use existing programs to
    implement the program (i.e. USDA quality grading system, school lunch
    program, Certified Angus Beef program, current voluntary program for
    the California producer using a ``Born and Raised in the USA'' label,
    and HACCP among others).
        None of those programs requires third party verification. Yet, in
    your voluntary guidelines for voluntary COL, USDA suggests that self
    verification is not sufficient, implying that an expensive third party
    verification system is required. I did not intend that result, there is
    no language in the law to support that interpretation, and none of the
    existing programs set forth as examples for your agency require it. I
    encourage USDA to re-examine the logic behind negating self-
    certification, I also hope USDA will analyze how to reduce costs of COL
    by tracking only imports of livestock.
        Further, USDA has never recognized or studied the benefits of COL.
    However, a study by five university law professors and economists was
    released yesterday by the University of Florida saying that the
    benefits for selling beef alone were almost $6 billion because
    consumers are willing to pay for labeling because they desire it so
    strongly. $6 billion for beef alone! That does not include the consumer
    willingness to pay for labeling of pork, lamb, fruits, nuts, fish or
    vegetables.
        The report also indicates USDA's suggestion that COL will cost $2
    billion is overblown and based upon errors in legal and economic
    assumptions. The University of Florida report estimates the cost of COL
    is more likely in a range between $70 million and $200 million,
    depending upon the implementation system employed. The economists
    writing the report believe USDA can implement COL at a cost of less
    than one cent per pound of food covered by the law. That is very
    inexpensive. Importantly, the report indicates consumers are willing to
    pay a premium for beef with a COL. That does not mean I believe COL
    will increase the cost of beef I am not sure it will.
        The food industry currently keeps voluminous records on each and
    every unit of product in their supply chains. COL should not require an
    expensive new record keeping system for those involved in the process.
    The law professors and economists in the Florida study also said that
    the most inexpensive means of implementing the labeling law was to
    recognize the on-the-ground fact that the vast majority of U.S. product
    is produced and processed in the United States and that the USDA should
    presume that all product comes from the United States while tracking
    existing marks of origin that are already on virtually all relevant
    food products coming in to the country.
        I want to believe you will carry out the law as intended by
    Congress and that it is done so as to minimize cost, record keeping
    requirements, and other regulatory burdens. I have directed my office
    to work in good-faith with your staff and USDA to ensure the COL law is
    implemented in a common sense fashion. I have confidence in the staff
    at the Agricultural Marketing Service that they will write a reasonable
    final rule upon which to base COL implementation.
        Thank you for holding the twelve COL listening sessions across the
    country and I appreciate the time that USDA will need to put into this
    law to make it work. I encourage USDA to review this thorough cost-
    benefit analysis from the University of Florida and use it as you
    develop the final rule to implement COL. I hope that USDA will be able
    to focus on the benefits of labeling, the fact that nearly thirty major
    trading partners already have COL, the fact that the United States has
    not issued a WTO challenge against another country's COL law, and that
    every major consumer and agriculture group in the United States
    supports COL.
        Madam Secretary, I appreciate you taking the time to appear before
    this subcommittee. You have been quoted describing USDA's budget for
    fiscal year 2004 as ``constrained,'' and I look forward to working
    together to reconstruct some of the important initiatives reduced or
    cut by the budget.
        Mr. Chairman, thank you, I conclude my remarks and look forward to
    asking Secretary Veneman questions.

                           COUNTRY OF ORIGIN LABELING

        Senator Johnson. Let me focus on one issue that is, I guess
    tangentially involved with the budget, at least, but a matter
    of great concern to me. And that, Madame Secretary, as you know
    there is a widely held and growing view across much of America
    that the Department of Agriculture is teaming up with the
    packers to sandbag country of origin labeling for meat. There
    is a sense among many of my producers that USDA is consciously
    seeking out ways to complicate such a program and to cause it
    to be far more expensive than need be.
        Now whether those views are legitimate or not, they are
    widely held. I appreciate the listening sessions that USDA has
    been having, and I know that people with greatly diverse views
    have shared their views with you. And I think those listening
    sessions no doubt will be of some value.
        But it seems to me that a workable efficient country of
    origin labeling program for meat, and obviously the law applies
    to fruits and vegetables as well, is not rocket science. Many
    other countries already do this. It has been pointed out to me
    that under Article 9 of GATT, live cattle entering the United
    States can be marked as to the country of origin so long as the
    mark does not discriminate against, materially reduce the value
    of, or unreasonably increase the cost of the imported item.
        Indeed, last year the United States imported 800,000 calves
    from Mexico and most of these calves were branded with an M to
    differentiate them from domestic cattle. The practice is in
    compliance with Article 9.
        Several organizations have made a very compelling case to
    me that one way to reduce the implementation and tracking costs
    associated with country of origin is to have USDA require
    markings similar to what already is done with imports of
    Mexican cattle on all imported livestock. The rationale is that
    tracking these markings on imports will reduce overall cost for
    implementation.
        I believe the costs associated with tracking only imported
    animals for country of origin implementation is a common sense
    approach to pursue, which is permissible under the law, and
    which would reduce implementation costs because imported
    livestock are already marked as such.
        The law that we passed forbids third party verification.
    And as you know, there are mailings going out as we speak from
    some of the packers raising questions and fears among livestock
    producers that what USDA is going to do is to require expensive
    recordkeeping and alternative methods which would, in effect,
    destroy the credibility of the entire program.
        And so my question to you is to what extent has USDA
    analyzed Article 9 to determine how to implement country of
    origin labeling? Does it have a position on using this as a
    rational to track only imported animals? And do you agree that
    virtually all imported covered commodities are currently marked
    as to country of origin, and that such marks are specifically
    allowed under GATT and WTO?
        In general terms, the United States only imports around 2
    million head of live cattle but slaughters 28 million head.
    Obviously, obviously of most of the cattle we slaughter are of
    U.S. origin. It does it not make sense to the USDA that
    tracking the 2 million imported cattle would be less costly
    than keeping track of 28 million that are born and raised in
    the United States?
        Secretary Veneman. Mr. Johnson, I appreciate your question
    because, as you indicate, this has been a very controversial
    provision in the Farm Bill, one that was controversial as it
    was discussed in the context of the Farm Bill, and one that the
    Administration did not support. But as it was passed in the
    Farm Bill, we have worked to implement what the law has
    required.
        We announced the voluntary program last fall, as was
    provided in the law. That voluntary program then became the
    framework from which we have begun to discuss a proposed rule
    for the mandatory program that the law requires us to implement
    by 2004.
        There is a lot of controversy surrounding this provision,
    particularly as you point out with regard to livestock, because
    the law does require that livestock be born and raised in the
    United States, and the retailers and the packers, to some
    extent, are concerned about how do they ensure that. So, we
    decided, as you mentioned, to have these listening sessions
    around the country. And I think, by all accounts, they have
    been very helpful in helping to identify some of the issues
    that have come up with trying to implement a Country of Origin
    Labeling program that will be workable for the long-term.
        As we pointed out, this is not an easy program to
    implement. We pointed that out in our Statement of
    Administrative Action. We certainly want to get all of the
    information from these listening sessions and from the comments
    that we received on the voluntary rule, before we put forward
    the proposed rule.
        But as we move forward, this program is something that has
    been difficult to implement and is of increasing concern to
    many of the producer groups. As I go around the country, I am
    hearing more and more from the meat producers themselves. They
    indicate that they would like to see this remain as a voluntary
    program. But, we cannot do that without a Congressional change.
        Senator Johnson. The reason you are hearing that is because
    they are scared to death of extraordinarily bureaucratic, red-
    tape filled, expensive recordkeeping requirements that the
    packers are telling them USDA is going to require. And so that
    is, I think, the resistance you are finding from the producers.
    I think they support the concept of country of origin labeling,
    that our consumers deserve to know the origins of the products
    they feed their families. But what they are worried about is
    this threat that USDA and the packers are going to team up on
    them and create a monumental red tape problem and recordkeeping
    problem.
        What we need from you is assurances that you are not only
    going to implement this program, but that you are going to seek
    out ways which will minimize the cost and minimize the
    recordkeeping. One of the suggestions is to follow the model
    that we already do on imported livestock. But there may be some
    other things that you can do, as well. I think that is the
    thrust of what I hear from livestock producers around the
    country.
        Secretary Veneman. We are doing everything we can within
    the law. The problem is that the law is very specific on
    country of origin labeling, in terms of what USDA can and
    cannot do. I have discussed this extensively with our legal
    counsel and I am told that the way we are looking at this and
    implementing it is in accordance with what the law requires.
        Senator Johnson. And I would only conclude that among the
    things the law requires is that there not be third party
    verification requirements for every animal in the country.
        Secretary Veneman. I understand that.
        Senator Johnson. And that self-verification is indeed what
    we do in many other labeling circumstances, whether it is
    school lunch programs and all kinds of other things, Black
    Angus, you name it. There is nothing new about this. And that
    self-verification or some variation on that is indeed one of
    the opportunities that USDA has, would be within the law, in
    fact is required by the law.
        So I thank you for sharing your thoughts with me on this
    and I know that there are other members here who want to go on.
        If I may, I have a number of other questions on this and
    some other issues. And if you would be so kind, I would submit
    those to the Department in writing for your response.
        Secretary Veneman. We would be happy to work with you on
    that.
        Senator Johnson. Thank you very much, Madame Secretary.
        Senator Bennett. Senator Cochran, who is responsible for my
    being here. Happy to hear from you, sir.
        Senator Cochran. Mr. Chairman, thank you very much.
        Madame Secretary, welcome to the committee. We appreciate
    your presence but more especially your good assistance in the
    efforts to implement the Farm Bill and to assist us as we work
    to reauthorize the child nutrition programs.

                               FSA STAFFING LEVEL

        One specific responsibility that we have is getting the
    Farm Service agencies staffed and carrying out their
    responsibilities to conduct the signups. I wonder if you could
    give us a report on the status of that and whether or not this
    budget contains sufficient funding to staff these offices and
    give them the equipment and the other things they need to carry
    out the intent of the Congress as reflected in the Farm Bill?
        Secretary Veneman. Senator, I appreciate the question and I
    appreciate your compliments on the Farm Bill implementation. I
    must say that our team has worked extraordinarily hard on
    implementing the Farm Bill with Keith Collins and Scott Steele
    and Hunt Shipman, before you stole him away. And we appreciate
    the working relationship that we have with your Committee on
    the work that we are doing on the reauthorization of the Child
    Nutrition Programs.
        When the Farm Bill was passed, the Department asked for, I
    believe, $110 million in implementation money. We received just
    over $50 million. Additional money was provided in the 2003
    appropriation, which gives us the ability to hire some
    additional staff.
        But I have to say, we have done extraordinarily well under
    the circumstances with the staff we have. We have got over 90
    percent of the signup completed. It is nearly complete. We are
    in the middle of the CRP signup in addition to the disaster
    assistance program and so forth.
        The other things that we are trying to do is to incorporate
    more and more new technologies that will allow us to better
    serve our farmers and ranchers with online forms that are
    understandable and usable, and access to all of the maps. We
    are trying to get all of the maps, both for the Farm Service
    Agency and NRCS digitized and onto the computer, which, we
    believe, will make it much easier for both the delivery of
    programs as well as the utilization of them by farmers.
        So as we move forward, I think it is important to recognize
    what an extraordinary job our Farm Service Agency people and,
    our NRCS people have done, as we have implemented this Farm
    Bill. And we will continue to work to make sure that we have
    the tools necessary to carry out these programs.
        But we do believe that we have budgeted for an appropriate
    number of additional staff as we go forward because once we get
    beyond the initial signups, obviously the workload will change.

                        FOOD SAFETY TRAINING INITIATIVE

        Senator Cochran. One of your other high priorities is food
    safety. You have taken steps to improve the food safety system.
    In your statement you suggest that inspectors are the backbone
    of our food safety system. Could you tell us about your
    training initiative and how this will improve the food
    inspection system?
        Secretary Veneman. We feel very strongly that we need to
    continually find ways to enhance our training for our food
    safety inspectors. In the mid-1990s, the Department implemented
    HACCP. We want to make sure that we have the best possible
    training under this relatively new methodology. We are
    conducting food safety inspections to make sure that training
    is up to date and appropriate for our inspectors and that they
    fully understand how to inspect for and implement HACCP. So we
    have asked for additional money in our budget for food safety
    training.
        I might add that this has been something that has been
    strongly supported by the industry groups, the processors
    themselves, consumer groups, as well as our Department. We want
    to work together to enhance the training programs that are
    available to our inspectors and we are working hard in FSIS to
    do that.
        Senator Cochran. We noticed that a recent report from the
    National Academy of Sciences entitled Scientific Criteria to
    Ensure Safe Food concluded that the HACCP inspection system's
    progress in reducing food-borne illness is, and I quote,
    ``decidedly favorable.''
        Do you agree with the findings in this report?
        Secretary Veneman. We agree with much of what was in that
    report and there are things that we do not agree with. We are
    going to have a more formal response to the report. But there
    are findings that we certainly do agree with.
        There were some questions in that report about whether or
    not we had legislative authority to enforce performance
    standards. We continue to use performance standards in our
    plants, and in our HACCP reviews. We are also using them to
    evaluate issues in plants to determine whether or not we need
    to do further inspections.
        So that report does have a lot of very good information but
    we have not had a formal response to it as yet.
        Senator Cochran. Mr. Chairman, thank you very much for your
    recognition.
        Senator Bennett. Thank you, and thank you for giving me
    this opportunity when you moved from this committee to the
    Homeland Security Committee.
        We should take note, as the first hearing without Senator
    Cochran, of his service as both chairman and ranking member of
    this subcommittee for a number of years.
        Senator Harkin.
        Senator Harkin. Thank you very much, Mr. Chairman. Madame
    Secretary, welcome again.

                         CONSERVATION SECURITY PROGRAM

        I would like to, if I might in my limited time, I have two
    or three items. I hope to get through them in this round, if
    not maybe another round. But the most important thing I would
    like to discuss with you is the Conservation Security Program
    that was included in the 2002 Farm Bill.
        As I have said before, this program is consistent with the
    goals that were spelled out in your farm policy book. When the
    President signed the Farm Bill into law, he specifically
    pointed to conservation as one of the major provisions of the
    Farm Bill.
        There is strong nationwide interest in making sure that CSP
    is implemented soon and correctly. Congress set funding for CSP
    at $3.773 billion in the Omnibus Bill, not at the $2 billion
    level included in the President's budget. So there is no basis
    anywhere for the $2 billion in any law ever passed by Congress.
        So I am asking if you can commit that the Department will
    move ahead and issue regulations based on delivering the full
    $3.773 billion to producers that was in the Omnibus Bill? Will
    that form the basis of your regulations? That figure, rather
    than $2 billion?
        Secretary Veneman. Currently, we are looking at the 4,500
    comments that we received in response to the Advanced Noticed
    of Proposed Rulemaking in the formulation of this program. This
    has been an extraordinarily complicated program to implement
    with a number of questions that need to be answered.
        One of the things you said is that we want to make sure
    that we do it correctly. We are absolutely in agreement that we
    want to do this program right because there was a lot of
    questions that we needed to have answered, so we went out with
    this request for comments. It is an extraordinary number of
    comments that we have gotten in.
        The $3.773 billion that was included in the fiscal year
    2003 budget, I believe, is a number that authorizes up to that
    amount in terms of expenditures for this program. The
    President's budget does include a $2 billion figure for 2004
    and that number, of course, was proposed before the 2003 budget
    was enacted. We had an unusual situation this year, in that we
    developed the fiscal year 2004 budget without a 2003
    appropriation.
        I cannot commit to a number today, but I do recognize that
    the 2003 Omnibus does allow the program to spend up to $3.773
    billion. It does not mandate, as I understand it, the spending
    $3.773 billion.
        Senator Harkin. Let me try it again.
        I understand what you are saying about the budget came up
    before the Omnibus. I understand that. I am just saying that
    the law that we passed, signed by the President, allows funding
    for CSP at the $3.773 billion level.
        All I am asking, and I am going to get into the rules here
    in a little bit and the Advance Notice of Proposed Regulations.
    I am just asking that in your implementation, as we move ahead
    this year, because I hope we are going to be signing up people
    this year, will it be based upon the full $3.773 billion? Or
    will it be based on $2 billion or something else? What will it
    be based on?
        Secretary Veneman. We are still working on the regulations
    and what they will ultimately be. But what we want these
    regulations to do is to be based on principle, not a level of
    funding. We want to get the principle and the program right.
        It is going to be very difficult to develop a regulation
    that promises to spend an exact amount of money. We want to get
    the principles right so that they comply with the level of
    funding authorized for the program.
        Senator Harkin. Principles. Do you agree, Madame Secretary,
    that the principle that we are operating under for the
    Conservation Security Program, the principle is written in
    statute? That statute is the Farm Bill. And, as written, as a
    statute, it is a mandatory open-ended program. Do you agree
    with that? As written in statute.
        Secretary Veneman. It is a complicated budget issue because
    there are certain budget scores that have been attached to it.
    So it has certainly been limited by what the Congress has
    specifically passed.
        Senator Harkin. I agree that there is a cap of $3.773
    billion. But the statute provides it as a mandatory open-ended
    program. It is just that the Omnibus Bill put a cap on it. I am
    talking about principles now. The principle that we are
    operating under is an open-ended mandatory program. Is that
    right or not? That should be very straightforward.
        Secretary Veneman. As far as I understand it, that is
    correct.
        Senator Harkin. Thank you.
        So that, again, if farmers do the work, the conservation
    work, to earn up to the $3.773 billion, then they should not be
    denied access to that money. That is how the law is written. At
    least that is how the law is written with the cap that we put
    on it. Now I am working to get the cap removed, as you know.
    But I am just talking about what you have to deal with right
    now.
        Secretary Veneman. I would agree that the fiscal year 2003
    law allows us to implement the program and use up to $3.773
    billion.
        Senator Harkin. Thank you.
        I understand that you have got 700 letters that had up to
    4,500 comments, but a lot of these comments were involved in
    the letters. And I understand that you did get a big response.
        And again, I do want to say that in February I met with
    Secretary Moseley and Mr. Collins, Ms. Waters, and Mr. Knight.
    We had a very good meeting on this in the Capitol. I understand
    full well the problems of moving ahead with this. It is a new
    program. I was more than willing to overlook the fact that the
    Farm Bill stipulated 270 days for final rules. I understand
    that. Fine, we move on beyond that.
        But what I want to ask now is you had 700 letters that came
    in. A lot of those came in early, so you have had at least a
    month or so to look at them. I am not certain that there is 700
    different points of view. There are just 700 letters came in.
        I think perhaps a lot of them have the same points of view
    on it. This does not mean you have to look at all the different
    ones.
        I know that you have been working on this, but I want to
    know when can we expect that we are going to have the final
    rules promulgated? And will USDA meet its goal of having sign
    up this year, this fiscal year?
        Secretary Veneman. We are doing everything we can to get
    these comments reviewed in order to put in place a proposed
    rule. We believe it is important to issue a proposed rule
    because of the complexity of this. As you know, there are a
    number of review processes that occur with these rules and we,
    in the Department, have worked very hard to get our Farm Bill
    rules out as quickly as possible. It also depends on external
    forces like how quickly things get through OMB, as well.
        I believe that when the USDA representatives met with you,
    they did present you with a time line. We are still working
    under the time line that was presented to you.
        Senator Harkin. Correct me if I am wrong, Jim, but I think
    the time line was to try to get the final rule sometime towards
    the end of the summer so that we can have sign up before the
    end of the fiscal year.
        Mr. Moseley. Yes, that is correct. When we met that was the
    discussion we had. And that would still be a reasonable time
    frame.
        As the Secretary pointed out, though, when you get involved
    in these things, you find out there are more hoops to jump
    through than you anticipated. If we could control everything,
    that would be reasonable. But, we cannot control everything. So
    we are moving along and trying to process this is quickly as we
    can.
        As I stated to you that day, there is no, absolutely no
    intent on the part of USDA to slow down the adoption of CSP. We
    think, in principle, it has some things that farmers want. And
    so we are moving forward as quickly as we can.
        At the same time, as the Secretary has pointed out, and you
    and I have discussed, this is a very complicated piece of
    legislation. There are a lot of views and opinions out there
    and I hear them all the time from farmers when I travel.
        Trying to bring all of that information together and to say
    that this is the best way to proceed is not a simple process.
        As I pointed out to you that day, the most important thing
    is to get it right. We would like to get it right soon and
    quick. But those two things, quick and right, may not
    necessarily be compatible.
        I think the important thing and the message that I would
    share is that there is no intent on the part of USDA to slow
    this down at all. We are trying to keep this on track and get
    this out.
        Senator Harkin. As I said once before, I think, to the
    Secretary, I am not aiming at you. I am talking to you but I
    think the aim may be at something called OMB. I have detected
    that the Department is interested in this. You are moving
    ahead, but my senses pick up that there is some hanky-panky
    going on at OMB that are really, Mr. Chairman, trying to
    misinterpret the law as we wrote the statute. I do not think it
    is at the department level but I think it is at OMB.
        So I might be pointing the questions at you but really I
    think my remarks are probably more applicable to OMB.
        Thank you very much. Again, I appreciate your working with
    us. Senator Smith and I wrote you a letter, and I hope you will
    look at that because we took a lot of care and time in looking
    at how we had envisioned this program and how we brought it
    through the Farm Bill. So I hope you will take look at those.
        Mr. Moseley. We will do that.
        Senator Harkin. Thank you. Thank you, Mr. Chairman.
        Senator Bennett. We have been joined by the chairman of the
    full committee. Senator Stevens, we appreciate your
    participation.

                         CONSERVATION SECURITY PROGRAM

        Senator Stevens. Thank you very much.
        I am glad I came in during that discussion because, Madame
    Secretary, I do want to have a discussion with the Senator from
    Iowa and you about what the Senator from Iowa just said.
        I do not envision the program he mentioned to be an
    entitlement that is unlimited. We did put a cap on it. As a
    matter of fact, I think we ought to have a review of that
    program. I know of no other program in the country where a
    landowner can make what he or she considers to be conservation
    improvements and automatically get totally repaid for the cost
    of those improvements without any limitation, without any kind
    of restriction at all.
        I am opposed to entitlements in appropriations bills. I am
    opposed to the concept that we can have, named through the
    appropriations process, a type of program that we do not have
    the right to control or limit.
        I want to put some limits on that and I want to know who is
    getting that money. Are people that have 10,000 acres getting
    it? Or is it a 160 acre limitation? What is it?
        I think it needs some better definition. And it certainly
    does not amount to what the Senator from Iowa said, to a
    program where everybody is entitled to money without regard to
    the amount of money we put up. You have a limit, and I want to
    see that limited.
        We are facing considerable opposition to a lot of the
    moneys which we should be appropriating for conservation
    programs in other areas. And to have an agricultural
    entitlement in an appropriations bill, I think, is wrong.
        I would just make that statement. I am not here to have a
    debate. But I do want to go it in the future.
        I am sure Senator Byrd is doing what I am doing. We have
    got several appropriation subcommittees meeting this morning
    and I would ask that the questions I do not have time to ask be
    submitted to the Secretary for a response.
        Senator Bennett. Without objection.

                                 SALMON PRICES

        Senator Stevens. But I have two specific issues. One is
    very close to the heart of all of the people in the North
    Pacific. We have a problem with regard to salmon prices,
    primarily because of the enormous amount of imports now that
    are coming in from Chile and from other countries.
        The questions I am filing are about the programs we have
    instituted, organic seafood and country of origin labeling. I
    would be happy to have your response to those.
        But right now there is a half million cases of canned
    salmon in warehouses in Seattle. They are not owned by my
    constituents. They are owned by the people in Seattle. But the
    fact that they are there is an overhang on the market so that
    the prices for salmon this year are really endangered.
        We specifically included language, at the request of the
    Senators from Washington and myself, to give the Department the
    authority to purchase surplus salmon products.
        I was recently informed that your Department people have
    told us that there were not funds for those purchases. We
    thought there was money for purchase of surplus foods. This is
    the first time salmon has been included in that category. But
    you have enormous amounts of money to purchase surplus foods.
    Why can't you use that for the purchase of this salmon and make
    it available under the food program?
        Secretary Veneman. Senator, we do have money for purchases
    of surplus foods. We have been purchasing surplus foods just in
    the last few weeks. And we do have salmon under active
    consideration, as I understand it.
        Senator Stevens. This is about the best buy in the country.
    Canned salmon is probably the most beneficial food that a woman
    can eat because when salmon is canned, the bones are calcified
    and it is the highest level of natural calcium in the world, in
    any food.
        But as a practical matter, until that salmon is taken off
    the shelf, they are not going to buy any salmon this year. And
    it is a result of the recession and the economic conditions.
    But I would urge you to use your authority to remove that
    impediment to the purchase of salmon this year. If those cases
    stay there, there will not be any salmon canned this year. I
    would just make that request.

                            DISTANCE LEARNING GRANTS

        Secondly, our committee included $15 million for a distant
    learning account to help rural public television stations meet
    the Federally mandated deadline, which is this month, to
    convert from analog to digital broadcasting. The exact language
    is $15 million in grants for public broadcasting systems to
    meet that goal of digital conversion.
        Now, the House specifically agreed to that in conference.
    But I am now told that your staff has advised us that the
    Congressional intent is not clear. I do not know how much
    clearer we can have it. It is a very short statement.
        It was the Senate committee who vote that provision and
    those grants are to public broadcasting stations to allow them
    to install the digital translators that are necessary to send
    digital broadcast signals to rural America. They have a
    deadline of this month. There are over 100 translators in
    Alaska alone. The money is not solely for Alaska, but it is for
    the country.
        We hope we will get additional money in 2004. What this
    means is that some of the broadcasting systems will no longer
    get public funds if they do not meet the requirement of being
    able to specifically deliver the digital signal along with the
    analog.
        We hope that they will all become digital soon but those
    that remain that have some analog capability must show that
    they have digital capability to continue to get assistance from
    the public broadcasting system. This money was to your
    department to help rural public television stations.
        Could you tell me why you cannot proceed?
        Secretary Veneman. Mr. Chairman, I will look into this
    issue for you. As I understand it, there may be some argument
    with the lawyers here. And I will commit to you to look into
    this and get back to you as quickly as possible.
        Let me say this, though. We have been strong proponents of
    using our rural development programs and expanding them for
    technology advances for rural America. We think that is
    important. If rural America is going to compete in the 21st
    century, they cannot be left behind with regard to the
    technology infrastructure.
        So I agree with you that these kinds of issues are very
    important as we move forward.
        I will commit to you that we will get back to you as
    quickly as possible on what the potential issues may be with
    regard to this $15 million. But I do understand your sense of
    urgency and we will work on this immediately.
        Senator Stevens. Just to make sure what happened, we
    started out with the $15 million. The House did not have that.
    But in the conference we had $42.813 million for distance
    learning and telemedicine grants and grants to broadcast
    digital signal for conversion.
        So the $15 million does not stand there all alone but is
    part of the larger sum. And we specifically, in the law, said
    it was for the digital signal conversion.
        I hope that you will look at it and I hope you will
    recognize the deadline these people are under, which is the end
    of this month.
        Secretary Veneman. I understand your concern and we will
    look at it immediately.
        Senator Stevens. I am sorry to come in so quickly and get
    out, but thank you very much. Mr. Chairman, I thank the
    committee for its courtesy.
        Senator Bennett. Thank you. Senator Byrd.
        Senator Byrd. Thank you, Mr. Chairman.
        I also want to thank my colleague, Senator Stevens, the
    chairman of the full committee, for his contribution today.
        By the way, his charming daughter Lilly is going to receive
    a bachelor's degree in history from the University of Stanford
    within a short time. I know how proud Senator Stevens is of
    this fine young woman, and he has every reason to be. She is,
    likewise, so proud of him. He is the idol of her eye.

                          HUMANE SLAUGHTER INSPECTORS

        Two years ago The Washington Post detailed the inhumane
    treatment of livestock in our Nation's slaughterhouses. The
    Humane Methods Slaughter Act of 1978 stipulates that cattle and
    hogs are to be stunned prior to their slaughter, rendering them
    senseless to the pain.
        However, as the article revealed, many slaughterhouses do
    not abide by the humane practices outlined in the Federal law.
    Thus, unimaginable pain is forced upon these defenseless
    animals. They cannot speak. They cannot tell us to be merciful.
        In the fiscal year 2003 Omnibus Appropriations Bill, $5
    million was secured for the hiring of at least 50 new humane
    slaughter inspectors within the Food Safety Inspection Service
    at the USDA. The report language in that bill instructed these
    new inspectors to work solely on the enforcement of the Humane
    Slaughter Act.
        Prior to the $1.25 million that I added to the fiscal year
    2001 Supplemental Appropriations Bill for the hiring of 17
    District Veterinary Medical Specialists at the Food Safety
    Inspection Service, there was not a single USDA inspector
    employed exclusively for the purpose of enforcing the Humane
    Slaughter Act. Not one.
        In the book of Proverbs, it is written that a righteous man
    regardeth the life of his beast. We are stewards of God's
    creatures and, as stewards, we are called to treat all animals
    with kindness, empathy, and a merciful spirit. At least, our
    domesticated animals.
        Despite the laws on the books, chronically weak enforcement
    and intense pressure to speed up slaughterhouse assembly lines
    reportedly have resulted in animals being skinned, dismembered,
    and boiled while they are still alive and conscious.
        Due to the late date on which the fiscal year 2003 Omnibus
    Appropriations Bill was signed into law, language in the bill
    permitted the funding for inspectors to be used into fiscal
    year 2004. What is the intention, Madam Secretary, of the USDA
    with reference to the hiring of at least 50 new humane
    slaughter inspectors with the funds that were provided?
        Secretary Veneman. Senator, I certainly appreciate your
    strong interest in this issue and share your concern for the
    humane slaughter of animals. As you indicated, we have, in the
    last couple of years, hired 17 new district veterinarians to
    work on these issues. I have recently talked with my staff in
    the Food Safety and Inspection Service about their
    implementation progress with regard to this $5 million and the
    50 humane slaughter inspectors.
        We are in the process now of defining exactly how the
    position descriptions would be put together and how we would
    proceed with hiring additional people.
        I had a question from Senator Cochran earlier, about our
    training initiative. We have in this 2004 budget, a training
    initiative for our food safety inspectors. As part of that
    training initiative, there will be additional training on
    humane slaughter for the personnel that are in the plants
    because it is important that they are cognizant of the humane
    slaughter practices in the plants. So we are working on this
    from a number of different perspectives.
        I noted also that there was an L.A. Times article on this
    issue just about a week or two ago talking about the progress
    that has been made in humane slaughter. An independent
    consultant said that in 1996 just 36 percent, according to her
    studies of the beef plants, had effectively knocked out the
    cattle before slaughter. Last year her statistics showed that
    94 percent of the plants were doing it properly.
        This is an outside study that was reported in the press,
    but it is something I think shows some progress in this area on
    an issue that I know is of great concern to you, sir.
        Senator Byrd. Madam Secretary, I am astonished. You did not
    answer my question. Let me repeat the question.
        What is the intention of the USDA with regard to hiring at
    least 50 new humane slaughter inspectors with the funding it
    has been provided? That is a straightforward question, and I
    would hope that we would get a straightforward answer.
        Secretary Veneman. Sir, I thought I did answer your
    question.
        Senator Byrd. No, you did not. With all respect, I do not
    want to appear to be discourteous but I listened carefully. Why
    don't you answer that question?
        Secretary Veneman. As I think I said, we are in the process
    of working on the position descriptions to comply with
    implementation of this particular provision in the 2003 bill. I
    will be glad to get you a more complete description of how we
    intend to carry this out. But this was a provision that was
    just recently passed. Our folks are working on the details of
    how we intend to implement this initiative and carry forward
    with the hiring. We will work to brief you or your staff on the
    specifics or get you written information on that.
        Senator Byrd. We have talked about this before. And with
    all due respect, I heard you say that you recently met with
    your staff and discussed this.
        We talked about this a year ago. I think we talked about it
    2 years ago. Here is what the language says in the omnibus
    appropriations conference report, dated February 13, 2003.
        The conference agreement includes $5 million to remain
    available through fiscal year 2004 to hire no fewer than 50
    FTEs for enforcement of the Humane Methods of Slaughter Act
    through full-time antemortem inspection, particular unloading,
    handling, stunning and killing of animals at slaughter plants.
        Now how many do you have on board? How many of these
    inspectors do you have on board at this time?
        Secretary Veneman. My understanding is none, sir. We are
    still in the process of developing these positions. Again, this
    has been a relatively short amount of time since this provision
    was implemented or signed into law but we are working to
    implement this provision of the 2003 Omnibus bill.
        Senator Byrd. This is not something new, and the very
    distinguished Secretary knows that, because I added $1.25
    million to the fiscal year 2001 Supplemental Appropriations
    Bill. At that time, there was not a single USDA inspector
    employed exclusively for the purpose of enforcing the Humane
    Slaughter Act.
        I am really surprised that we have to talk about this a
    second time. I was very, I thought, serious in my discussion of
    this last year with the Secretary. How many are on board at
    this time?
        Secretary Veneman. We have the 17 on board that were hired
    previously. As I mentioned earlier, we do have 17 district
    veterinarians who are overseeing the issue of humane slaughter.
    The issue of the 50 new additional inspectors is still, as I
    indicated, being reviewed in our Department to determine the
    position descriptions. My understanding is that these are 50
    FTEs for enforcement activities but are not necessarily
    veterinary personnel.
        Senator Byrd. That is right.
        Secretary Veneman. And so it is a different position
    description than the 17 that we have previously hired. We are
    in the process of developing this program to effectively carry
    it out as specified in the conference report.
        Senator Byrd. How long does it take? The suffering of these
    animals is going on.
        Let me read this conference report just a bit further. It
    mentions the 17 District Veterinary Medical Specialists. It
    says the conferees also support the ongoing activities of the
    17 District Veterinary Medical Specialists and expect that
    their mission be limited to HMSA enforcement.
        So aside from those, the conference report includes $5
    million to remain available through fiscal year 2004 to hire,
    no fewer than 50 FTEs for enforcement of the Humane Methods of
    Slaughter Act.
        Do you not think that there is a responsibility to pursue
    the course set out by the Congress, through the workings of its
    two Appropriations committees in the Senate and the House,
    respectively, according to their instructions in the conference
    report that was issued in February? Do you not think that the
    Department has a responsibility to follow-up on this, and to do
    it quickly?
        There is a manifest need, a great need, for these
    inspectors. I called attention to it last year and I have done
    it again today, most respectfully. I have called attention to
    The Washington Post articles.
        Mr. Chairman, I ask unanimous consent to include in the
    record two articles here, one entitled, ``An Outbreak Waiting
    to Happen,'' and the other entitled, ``Big Mac's Big Voice in
    Meat Plants.''
        Senator Bennett. Without objection, they will be included.
        [The information follows:]

                   [From the Washington Post, April 10, 2001]

                         Big Mac's Voice in Meat Plants

        Never mind the bad old days, when slaughterhouses were dark places
    filled with blood and terror. As far as the world's No. 1 hamburger
    vendor is concerned, Happy Meals start with happy cows.
        That was the message delivered in February by a coterie of
    McDonald's consultants to a group of 140 managers who oversee the
    slaughter of most of the cattle and pigs Americans will consume this
    year. From now on, McDonald's says, its suppliers will be judged not
    only on how cleanly they slaughter animals, but also on how well they
    manage the small details in the final minutes.
        Starting with cheerful indoor lighting.
        ``Cows like indirect lighting,'' explained Temple Grandin, an
    animal science assistant professor at Colorado State University and
    McDonald's lead consultant on animal welfare. ``Bright lights are a
    distraction.''
        And only indoor voices, please.
        ``We've got to get rid of the yelling and screaming coming out of
    people's mouths,'' Grandin scolded.
        So much attention on atmosphere may seem misplaced, given that the
    beneficiaries are seconds away from death. But McDonald's, like much of
    the meat industry, is serious when it comes to convincing the public of
    its compassion for the cows, chickens and pigs that account for the
    bulk of its menu.
        Bloodied in past scrapes with animal rights groups, McDonald's has
    been positioning itself in recent years as an ardent defender of farm
    animals. It announced last year it would no longer buy eggs from
    companies that permit the controversial practice of withholding food
    and water from hens to speed up egg production.
        Now the company's headfirst plunge into slaughter policing is
    revolutionizing the way slaughterhouses do business, according to a
    wide range of industry experts and observers.
        ``In this business, you have a pre-McDonald's era and a post-
    McDonald's era,'' said Grandin, who has studied animal-handling
    practices for more than 20 years. ``The difference is measured in
    light-years.''
        Others also have contributed to the improvement, including the
    American Meat Institute, which is drawing ever-larger crowds to its
    annual ``humane-handling'' seminars, such as the one in Kansas City.
    The AMI, working with Grandin, issued industry-wide guidelines in 1997
    that spell out proper treatment of cows and pigs, from a calm and
    orderly delivery to the stockyards to a quick and painless end on the
    killing floor.
        But the driving force for change is McDonald's, which decided in
    1998 to conduct annual inspections at every plant that puts the beef
    into Big Macs. The chain's auditors observe how animals are treated at
    each stage of the process, keeping track of even minor problems such as
    excessive squealing or the overuse of cattle prods.
        The members of McDonald's audit team say their job is made easier
    by scientific evidence that shows tangible economic benefits when
    animals are treated well. Meat from abused or frightened animals is
    often discolored and soft, and it spoils more quickly due to hormonal
    secretions in the final moments of life, industry experts say.
        ``Humane handling results in better finished products,'' AMI
    President J. Patrick Boyle said. ``It also creates a safer workplace,
    because there's a potential for worker injuries when animals are
    mishandled.''
        Not everyone is convinced that slaughter practices have improved as
    much as McDonald's surveys suggest. Gail Eisnitz, investigator for the
    Humane Farming Association, notes that until the past few months, all
    McDonald's inspections were announced in advance.
        ``The industry's self-inspections are meaningless,'' Eisnitz said.
    ``They're designed to lull Americans into a false sense of security
    about what goes on inside slaughterhouses.''
        But Jeff Rau, an animal scientist who attended the Kansas City
    seminar on behalf of the Humane Society of the United States, saw the
    increased attention to animal welfare as a hopeful step.
        ``The industry has recognized it has some work to do,'' Rau said.
    ``The next step is to convince consumers to be aware of what is
    happening to their food before it gets to the table. People should
    understand that their food dollars can carry some weight in persuading
    companies to improve.''
                                     ______

                   [From the Washington Post, April 9, 2001]

                         An Outbreak Waiting to Happen

         ``Did your daughter eat meat that was pink or red?''
        The nurse's question puzzled Connie Kriefall. In an intensive care
    ward a few steps from where the young mother stood, doctors were
    struggling to save her only daughter, a 3-year-old with sapphire eyes
    and a mysterious disease.
        In 6 days, tiny Brianna Kriefall had gone from a healthy
    preschooler with a tummy ache to a deathly sick child with advanced
    organ failure. Her kidneys had quit. Her heart was faltering. And now a
    nurse was asking: Could this be E. coli?
        Kriefall's mind raced back to dinner at a Sizzler restaurant the
    previous week. Brianna had chosen the children's buffet, she
    remembered. Watermelon, cantaloupe, cheese. Nothing likely to carry E.
    coli. ``That just couldn't be possible,'' she said.
        But the outbreak that killed Brianna and sickened more than 500
    others here in July was not only possible, it was foreseeable. A series
    of systemic failures by government and industry all but guaranteed that
    potentially deadly microbes would make their way into a kitchen
    somewhere in America. It was simply a question of when.
        For decades, the familiar purple ``USDA-inspected'' stamp has given
    Americans confidence that their meat supply is safe. But for the
    Kriefalls, like thousands of other families stricken by meat-borne
    pathogens each year, this veneer of safety proved dangerously
    deceptive.
        Wisconsin health investigators later concluded Brianna Kriefall
    died from eating watermelon that Sizzler workers had inadvertently
    splattered with juices from tainted sirloin tips. The meat came from a
    Colorado slaughterhouse where beef repeatedly had been contaminated
    with feces, E. coli's favorite breeding ground. Federal inspectors had
    known of the problems at the plant and had documented them dozens of
    times. But ultimately they were unable to fix them.
        Nearly a century after Upton Sinclair exposed the scandal of
    America's slaughterhouses in his novel ``The Jungle,'' some of the
    nation's largest meatpacking plants still fail to meet Federal
    inspection guidelines to produce meat free of disease-carrying filth,
    an investigation by The Washington Post and Dateline NBC has found.
        U.S. Department of Agriculture inspectors who patrol the nation's
    6,000 meatpacking plants today are armed with more modern tools and
    tougher standards than ever. But the government's watchdog agency often
    has lacked the legal muscle and political will to address serious
    safety threats. It cannot impose civil fines or recall meat even when
    its inspectors see problems that could lead to outbreaks.
        In the Milwaukee case, one of the nation's largest, most modern
    meatpacking plants--Excel Corp.'s Fort Morgan, Colo., facility--was
    cited 26 times over a 10-month period before Brianna Kriefall's death
    for letting feces contaminate meat, documents show. Despite new
    government controls on bacteria launched 3 years ago, the plant shipped
    out beef tainted with E. coli on at least four occasions. The last
    shipment delivered the pathogens that ended up in the children's buffet
    at the suburban Milwaukee Sizzler.
        ``It was like making Fords without brakes,'' said Michael
    Schwochert, a veterinarian and retired Federal inspector who worked at
    the Excel plant. ``We used to sit around the office and say, `They're
    going to have to kill someone before anything gets done.''
        Excel officials said they were unable to talk about the Milwaukee
    outbreak, citing litigation. In a statement, Excel said it uses
    cutting-edge technology to prevent contamination, but food must be
    properly cooked and handled to ensure safety. ``Excel is committed to
    providing safe food for people,'' the company said.
        A lawyer for the Sizzler franchise in suburban Milwaukee said the
    restaurant owners still did not know how the outbreak occurred, but had
    reached settlements with numerous sickened customers. ``The owners have
    been devastated by this outbreak,'' attorney Ron Pezze Jr. said.
        Criticism of the USDA's enforcement record comes as domestic E.
    coli outbreaks and epidemics of mad-cow and foot-and-mouth disease in
    Europe heighten concerns about America's meat supply. Contamination
    similar to that found at Excel was documented at several other plants
    around the country in an internal agency report a month before the
    Milwaukee outbreak.
        The USDA's inspector general, in a sharply critical review of the
    agency's inspection system, said the government's safety net for
    consumers was being compromised by confusing policies, blurred lines of
    authority and a lack of options for enforcement. At some plants,
    regulators frequently were finding tainted beef but doing nothing
    because they simply ``were unaware of any actions to take,'' the report
    said.
        ``How long does it take for a `bad' plant to be listed as bad? We
    can't tell you,'' USDA Inspector General Roger Viadero said in an
    interview, ``because [the USDA] has not told the inspector what's
    bad.''
        USDA officials at the Excel plant were still searching for that
    line last June 14 when they sent the last in a series of warnings to
    the plant's management. Nine days later, records show, a package of
    contaminated meat left the factory and ended up at the Sizzler in
    Milwaukee.
        ``It was like a ticking time bomb by the time it got to the Sizzler
    restaurant,'' said William Cannon, attorney for the Kriefall family.
    ``And unfortunately, this ticking time bomb killed Brianna Kriefall.''
    A Safer System
        The internal struggle over beef quality at the Excel plant would
    likely have never attracted public attention were it not for two
    headline-generating events.
        The first came in August 1999 with the chance discovery--in a USDA
    random survey--of E. coli in Excel beef at an Indiana grocery store.
        The second was the Milwaukee E. coli outbreak last summer. In one
    of the worst such incidents in state history, more than 500 people got
    sick, 62 with confirmed E. coli infections.
        What happened between the two incidents starkly illustrates how
    problems at modern meat plants test the limits of the USDA's new
    inspection and meat safety system.
        Located on a dry plain 80 miles northeast of Denver, the Excel
    factory is an imposing agglomeration of smokestacks and aircraft
    hangar-sized buildings covering 2 million square feet. The only outward
    sign that the plant produces beef is the line of trucks delivering
    cattle to the stockyard. That, and the ubiquitous smell--cow manure
    with a hint of decaying meat.
        Inside, much of the butchering is done the old-fashioned way, by
    workers using various sorts of knives. At the front of the line is the
    ``knocker,'' who uses a pistol-like device to drive a metal bolt into
    the steer's head--the law requires that animals be rendered insensible
    to pain before slaughtering. Another worker slits the animal's throat
    to drain the blood. Others in turn remove limbs, hide and organs.
        At line speeds of more than 300 cattle per hour, things frequently
    go wrong. Organs tear and spill their contents. Fecal matter is smeared
    and splattered.
        The presence of fecal matter greatly increases the risk of
    pathogens, which is why USDA inspectors enforce a ``zero-tolerance''
    policy for fecal contamination on meat carcasses. Meat smeared with
    fecal matter is supposed to be pulled off the line and cleaned by
    trimming. But there is no law that requires raw meat to be free of
    pathogens; the exception is for ground beef. Thus, raw meat must carry
    a label that specifies it must be properly cooked.
        In 1993, the Jack in the Box food poisonings on the West Coast
    killed four children and awakened Americans to E. coli 0157, a mutant
    bacterial strain that lurked in undercooked ground beef. Three years
    later, the Clinton administration officially scrapped a century-old
    system that relied on the eyes and noses of Federal inspectors--called
    ``poke and sniff''--in favor of a preventative system of controls
    developed by the industry with federal supervision.
        That system, supported by food safety experts and many consumer
    groups, was called the Hazard Analysis and Critical Control Point
    system, or HACCP (pronounced hass-ip). Under HACCP, companies create
    their own plans for addressing safety threats--a ``hazard analysis''--
    and their own methods of dealing with threats--``control points.'' The
    theory is that hazards arise at many points in the production process,
    and steps can be taken to minimize risks from pathogens. The measures
    can range from lowering room temperatures to dousing meat with a
    chlorine rinse to kill germs.
        In a nod to consumer groups, HACCP introduced mandatory testing for
    microbes for the first time. Plants would be subjected to testing for
    salmonella and a benign form of E. coli, but not the deadly E. coli
    0157:H7.
        Three years into HACCP implementation, the reviews are decidedly
    mixed. The rate for deadly E. coli illness remains steady, with 73,000
    people stricken and 61 killed a year, according to the U.S. Centers for
    Disease Control and Prevention.
        But a steady decline in disease rates for salmonella and several
    other pathogens since 1996 has prompted UDSA officials and many
    consumer groups to declare HACCP a major success.
        ``The nation's food supply is safer than ever,'' Thomas J. Billy,
    administrator of the Food Safety Inspection Service, said in a
    statement in response to questions about HACCP's performance. ``Our
    data shows the level of harmful bacteria has been markedly reduced.''
        But pathogens remain a major concern. The USDA estimates that
    salmonella is present in 35 percent of turkeys, 11 percent of chickens
    and 6 percent of ground beef. Each year, food-borne pathogens cause 76
    million illnesses and 5,000 deaths, according to the CDC.
        According to critics, gaps in HACCP still allow too many pathogens
    to slip through.
        The report by the USDA's inspector general last summer said meat
    companies were manipulating the new system to limit interference from
    inspectors. For example, by their placement of control points, plants
    can effectively dictate which parts of the process inspectors can fully
    monitor.
        Viadero said the agency was ``uncertain of its authorities'' and
    had ``reduced its oversight short of what is prudent and necessary for
    the protection of the consumer.''
        ``After what I've seen,'' Viadero said in an interview, ``if my
    hamburgers don't look like hockey pucks, I don't eat them.''
        Meat inspectors and consumer groups like HACCP's microbe-testing
    requirements, but some argue the new system is an ``industry-honor
    system'' that puts consumers at greater risk. Under the old system,
    meat with fecal matter on it was trimmed to remove pathogens. Now,
    inspectors say, chemical rinses can wash off visible traces of fecal
    matter without removing all the pathogens.
        ``It's the biggest disaster I've seen,'' said Delmer Jones,
    president of the National Joint Council of Food Inspection Locals,
    which represents most of the government's 7,600 meat inspectors.
    ``We're vulnerable to more deaths and no one seems to care.''
        Last fall, two Washington watchdog groups, the Government
    Accountability Project and Public Citizen, released results of an
    unscientific poll of 451 inspectors. While a majority approved of HACCP
    in concept, more than three-fourths said their ability to enforce the
    law had declined.
        One inspector scribbled these words:
        ``HACCP ties our hands and limits what we can do. If this is the
    best the government has to offer, I will instruct my family and friends
    to turn vegetarian.''
        Schwochert, formerly the night shift inspector-in-charge at Excel's
    Fort Morgan Plant, worked 15 years in private business before joining
    the USDA. He prided himself on his ability to work with industry, but
    he felt that HACCP made his job even tougher.
        ``I've never seen anything so slow to respond,'' he said.
        ``Nothing in my professional training or life gave me the tools for
    dealing with what was going on. It was a calamity of errors. If it
    weren't so serious, it would be funny.''
    Showdown at Excel
        By the late summer and fall of 1999, Schwochert was accustomed to
    tussling with Excel's managers over problems ranging from filthy,
    urine-soaked employee washrooms to occasional findings of fecal matter
    on carcasses. But the skirmishes intensified dramatically on Sept. 13,
    after the USDA found E. coli 0157 in a package of Excel beef at the
    Indiana grocery store.
        The discovery, part of a routine survey of grocery stores and
    meatpacking plants, triggered a series of reviews of the Excel plant's
    food-safety practices.
        The measures began with 2 weeks of E. coli testing. Inspectors
    found E. coli--not once but twice, in the first 3 days of testing. The
    USDA ordered the contaminated meat seized, but it was too late. Some of
    the meat had been loaded onto a delivery truck.
        ``Not only were those samples positive, but that meat had left the
    plant,'' Schwo-chert said. Excel tracked down the truck and returned
    the meat to the plant.
        USDA documents show the combination of E. coli positives and the
    improper shipment of the contaminated beef prompted the government to
    impose its harshest sanction: A district supervisor ``withheld
    inspection'' from the plant, forcing Excel to shut down for 3 days. On
    Sept. 28, the plant reopened under the threat of another suspension if
    new violations occurred.
        They did, but no suspension followed. By Sept. 29, inspectors were
    finding so much fecal contamination on carcasses that Schwochert said
    he tried to close the plant again, even though he felt he lacked the
    authority to do so. At the last minute, the plant's top supervisor
    agreed to shutter the factory voluntarily for the rest of the day,
    Schwochert said.
        Excel promised to retrain its workers and fine-tune its carcass-
    dressing system, although details of its plan are considered
    proprietary information. But more contaminated carcasses turned up 2
    days later, and regularly after that, agency records show:
        Oct. 1: ``Fecal contamination observed . . . sample failed to meet
    zero-tolerance requirements.''
        Oct. 2: ``Identifiable fecal deficiencies on two carcasses (out of
    11).''
        Oct. 4: ``Fecal contamination splotched in an area 1 inch by 4
    inches . . . carcasses retained.''
        Oct. 9: ``Deficiencies were observed on six carcasses (out of
    11).''
        In company memos, Excel responded that the inspectors were focusing
    on ``unrelated'' and ``isolated'' incidents. But USDA district
    supervisors took a different view. One USDA letter called the company's
    explanations ``incredible, frivolous and capricious.'' Another
    specifically suggested Excel was putting its customers at risk.
        ``In the light of recent E. coli positives, I would think that food
    safety and preventive dressing procedures would be of utmost importance
    on your corporate agenda,'' Dale Hansen, the FSIS's circuit supervisor
    in Greeley, Colo., wrote on Nov. 29 to Marsha Kreegar, Excel's
    regulatory affairs superintendent.
        USDA's enforcement records contain no response to that letter.
    Excel has declined to make officials at the Fort Morgan plant available
    for interviews.
        For 5 months, the USDA chose not to impose new sanctions, despite
    14 additional citations for fecal contamination and a host of other
    problems. Government records also describe mice infestation, grease and
    rainwater leaking onto meat; unsanitary knives; equipment sullied with
    day-old meat and fat scraps; and carcasses being dragged across floors.
        USDA inspectors asked their supervisors for guidance. How many
    violations before the plant is suspended again? Three? Five?
        ``The question was asked by myself or in my presence at least 10
    times,'' Schwochert said, ``and we never got a clear answer.''
        On May 23, the USDA threatened another suspension. ``Recent
    repetitive fecal findings on product produced by your firm demonstrates
    that the HACCP plan at your facility is not being effectively
    implemented to control food safety hazards,'' USDA District Manager
    Ronald Jones wrote to Excel General Manager Mike Chabot.
        Excel was given 3 days to make changes--then a 3-day extension,
    after Excel's initial proposals proved less than convincing.
        Finally, on June 14, based on Excel's promise to improve its
    process, USDA withdrew its threat with an additional warning. ``Your
    firm will be required to consistently demonstrate that your slaughter
    process is under control, meeting food-safety standards,'' the agency
    wrote.
        On June 23, a sealed package of sirloin tips contaminated with E.
    coli was loaded into an Excel truck bound for Milwaukee.
    A Family's Ordeal
        The Sizzler restaurant on South Milwaukee's Layton Avenue was one
    of Brianna's favorite places, even if she could never quite remember
    its name. To her 3-year-old mind it was just the restaurant ``up the
    hill.''
        ``We used to pass it all the time, and she'd have a fit if we
    didn't go there,'' her father, Doug Kriefall, recalled.
        On the night of July 17, her parents were happy to oblige. It was
    the end of a harried workday for a young family juggling two careers
    and two kids, and the lure of a quick and inexpensive night out was
    irresistible. As a bonus, Sizzler offered an adult menu as well as a
    special salad bar stocked with kids' favorites: macaroni and cheese,
    fresh fruit, dinosaur-shaped chicken nuggets.
        Emotionally, the family was still in shock from the loss of a baby
    girl just 7 weeks earlier. The girl the family calls Haley was
    stillborn. The loss reopened old wounds: Connie Kriefall had lost six
    fetuses in 8 years before finally giving birth to Brianna in May 1997.
        ``She was my miracle baby,'' the mother said. ``It was the best
    Mother's Day present any mom could ever get.''
        The couple's difficulty in having children made Connie Kriefall an
    exceptionally careful mother. She knew improperly cooked meat can carry
    E. coli, a microbe sometimes fatal to young children. So at Sizzler,
    the Kriefalls' buffet choices reflected caution: watermelon,
    cantaloupe, cheese, ham cubes, a meatball or two.
        But on that night, the bacteria was hidden not in meat but in
    watermelon, an investigation concluded. A state health task force would
    determine that E. coli entered the restaurant in sealed packages of
    sirloin tips.
        The USDA inspection stamp on the package read ``XL Est. 86R''--the
    code assigned to the Fort Morgan plant. Unopened packages of Excel beef
    in the restaurant's cooler would test positive for the same genetic
    strain of E. coli 0157 found in the bodies of Brianna Kriefall and
    other restaurant patrons.
        Once loose in the restaurant's cramped kitchen, the task force
    found, the bacteria easily made the jump from raw meat to raw fruit.
    Health officials discovered that kitchen workers had violated the
    restaurant's rules by preparing watermelon and meat on the same counter
    top. A meat grinder used to convert steak trimmings into hamburger was
    located inches from the same counter, close enough to splatter juices
    on other foods.
        The recycling of salad bar items over several days eventually
    exposed hundreds of people to the bacteria. The first symptoms surfaced
    on July 14, three days before the Kriefalls' dinner. By July 24,
    Milwaukee health officials were tracking an epidemic. Twenty-three
    victims were hospitalized. The intensive care unit at Milwaukee's
    Children's Hospital was already jammed with sufferers before medical
    investigators confirmed the cause of the illness and its source.
        ``I knew it was bad. I just didn't know how bad,'' recalled Judy
    Fortier, a Milwaukee mother whose oldest daughter, Carly, was among the
    most seriously ill. For days, Carly, 8, suffered painful bouts of
    bloody diarrhea so severe her intravenous line was moved to the
    bathroom so she could nap during the brief lulls between attacks. ``She
    would lean against me,'' Fortier said, ``and that's how she slept.''
        Like many other parents, Connie Kriefall assumed her children had
    picked up a summer virus when both came down with stomachaches on a
    Wednesday evening, 2 days after their meal at Sizzler.
        By Friday, Chad had recovered, but Brianna's condition had taken a
    frightful turn. Severely dehydrated from diarrhea, she was admitted to
    the hospital the next morning.
        For her parents, the next 7 days unfolded with deepening horror. On
    Sunday, the family learned Brianna had developed a life-threatening
    complication. By Tuesday, doctors had begun dialysis to prop up the
    girl's failing kidneys. The normally bright, playful child had become
    nearly unresponsive, uttering only a single, mournful phrase for hours
    at a time.
        ``It was just `Ow-wee, Mama, Ow-wee, Mama,' '' Connie Kriefall
    recalled. ``And those eyes. I'll never forget how she looked at me.''
        The crying would end abruptly. On Wednesday morning, Brianna was
    placed on a respirator after her heart briefly stopped beating.
    Finally, on Thursday, she suffered a catastrophic stroke and lapsed
    into a coma.
        With all medical options exhausted, the Kriefalls decided to allow
    the doctors to disconnect Brianna's life support.
        ``Thursday night we both stayed up with her, and took turns
    crawling in bed with her, telling her how much we loved her and reading
    her stories,'' her mother said. ``I couldn't hold her, and I wanted to
    hold her so bad. And her heart was racing all night--her heart rate was
    so high.''
        On Friday, just before 7 a.m., Brianna's heart stopped.
    Forward
        The months since the Sizzler outbreak inevitably brought
    investigations and lawsuits, as both victims and governments tried to
    parcel out blame. An early casualty was the Sizzler restaurant on
    Layton Avenue, which was permanently closed.
        Excel lawyers have maintained in court documents that the
    corporation was not at fault, since it had no control over Sizzler's
    food-handling practices.
        ``Excel is continuously seeking ways to eliminate or reduce food
    hazards,'' the statement said. ``For the benefits of those efforts to
    reach the consumer, it is essential for food preparers to follow safe
    handling practices.''
        Pezze, the lawyer for the Sizzler franchise, said he had seen the
    USDA documents from the Excel plant and found the reports of fecal
    contamination surprising. ``Obviously, if suppliers and producers could
    nip this problem in the bud, we wouldn't need to rely purely on
    preparers.''
        Industry trade groups and the USDA also argue that it is impossible
    to make meat germ-free, so consumers bear responsibility for using
    proper preparation techniques and fully cooking their food.
        It's an argument that William Cannon, the Kriefalls' attorney,
    finds especially galling. The Kriefalls have joined other victims in a
    lawsuit that names Sizzler and Excel.
        ``They have blamed other people for not catching their mistakes,
    but the blame starts with them,'' Cannon said of Excel. ``They knew or
    should have known they were sending out meat that contained this
    bacteria. And that there was a substantial risk that somebody,
    somewhere, in America would end up eating this meat.''
        But others find more disturbing the government's ineffectiveness in
    responding to chronic lapses at plants such as Excel's. It's a problem
    nearly as old as meat inspection itself, said Carol Tucker Foreman, the
    assistant secretary for food and consumer services in the Carter
    administration.
        ``There is almost no notion of shutting down a plant for failing to
    meet standards,'' said Foreman, now a distinguished senior fellow at
    the Washington-based Food Policy Institute. ``The regulations help
    ensure that plants stay just above the level that requires sanctions.''
        USDA officials are promising change. After devoting 3 years to
    implementing HACCP, the agency is beginning an extensive review to
    determine how the system can be improved.
        Congressional supporters of stronger food safety protections say
    they will press again this year for a law giving meat inspectors more
    effective enforcement tools, including the power to impose civil fines
    and order mandatory meat recalls. But after similar legislation failed
    in the last three sessions, backers acknowledge their prospects are far
    from certain.
        ``The American people would be shocked,'' said Sen. Tom Harkin, an
    Iowa Democrat and sponsor of several previous bills, ``to learn that
    the USDA does not have the fundamental authority to protect public
    health.''
    Anger and Grief
        The memorial card for Brianna Kriefall is a collage of things the
    little girl liked best: Barney and Barbies, dancing and Dr. Seuss, the
    little watering can that was Brianna's delight on summer days when the
    flowers were in bloom. The card's verse is written in a child's words.
        ``Mom and Dad, don't cry that I didn't stay,'' it begins. ``I know
    you'll be lonesome for me for a while, but time heals all wounds and
    again you will smile.''
        For now, though, the promise of healing seems a hollow one. At the
    Kriefalls' neatly kept home in middle-class South Milwaukee, every day
    brings searing reminders. Pictures of Brianna adorn almost every wall.
    The little girl's room and toys remain just as she left them. Their son
    Chad, now 2\1/2\, asks about his sister and sometimes loses patience
    with his parents' explanations. `` `Nana come home--now!' '' he wails.
        For Connie Kriefall, just knowing that Brianna's ordeal might have
    been prevented fires emotions too intense for words. Like her son's,
    the mother's grief is tinged with an anger she suspects is beyond
    healing.
        ``They need to be aware that this has completely destroyed our
    lives,'' she says in a whisper. ``Our daughter was a miracle child we
    waited 8 years for. And now she's gone, and we'll never get her back.''

        Senator Byrd. These 17 veterinary inspectors do not count
    toward the 50. Now, I take it from your answers to my questions
    that you do not have any of the 50, aside from the 17
    veterinary inspectors?
        Secretary Veneman. That is correct, sir. We have not begun
    the hiring process on the 50 new inspectors. But I respectfully
    disagree with your statement that we do not intend to carry out
    this provision.
        Senator Byrd. I do not think that I said you did not intend
    it. I asked you what the intention was of your department.
        Secretary Veneman. We are in the process of implementing
    this provision by putting together the specifications for the
    50 FTEs. It has been a relatively short amount of time since
    the passage of the 2003 Omnibus Appropriation. It was not
    passed last September, as normally we would see these.
        And so I will commit to you that I will work with our Food
    Safety and Inspection Service to get this implemented as
    quickly as we possibly can.
        Senator Byrd. I appreciate what you said.
        Mr. Chairman, I think we ought to write it into the bill.
    The language has been in the report. It is there for all to
    see. And reports are important. If the courts carry out the
    legislative intent of this bill, or that bill, or some other
    bill, and there is a suit, the courts resort many times to the
    committee reports, as well as, to the legislative history on
    the Senate floor and House floor, to determine, or to construe
    the intent of the Legislative Branch. It is right here in plain
    language.
        Secretary Veneman. I do not think, sir, that we have a
    dispute on the intent.
        Senator Byrd. Very well.
        Let us carry out that commitment, and I think that we may
    as well put it into the bill. If the report does not speak
    loudly enough, we can put it into the bill. And the Department
    can pursue the carrying out of the purposes of the bill. We
    should not have to meet a third time on this matter, and I am
    sorry we have had to talk about it today.
        Mr. Chairman, I do not want to impose on the committee. I
    have one more question, if I may.
        This question has to do with outsourcing.
        Senator Bennett. Senator, Senator Dorgan has not gone a
    first round. Could we hear from Senator Dorgan and then to your
    question?
        Senator Byrd. Absolutely. I would like to hear from Senator
    Dorgan, also.
        Senator Dorgan. Mr. Chairman, thank you.
        I was interested in the questions Senator Byrd has been
    asking. Let me just ask a couple of brief questions.

                              FAS TRADE WITH CHINA

        I would like to ask a couple of questions about trade, FAS
    trade with China. First of all, is the Foreign Agricultural
    Service at USDA a part of the Trade Policy Review Group? I
    believe it is. Does anybody know that?
        Secretary Veneman. USDA is part of the Trade Policy Review
    Group. It is not necessarily just the Foreign Agricultural
    Service, but the Undersecretary's office as well.
        Basically, the way that the trade interagency process works
    is that, at the principles level, you have the USTR and the
    cabinet secretaries that are involved in trade, which would
    include USDA. Then you have the Trade Policy Review Group and
    then the Trade Policy Subcommittees. Through FAS, we are
    thoroughly involved in that process.
        Senator Dorgan. Let me tell you why I asked the question.
    On March 17th, a USTR official in charge of agricultural trade
    with China, this was the week this person left the employ of
    the United States. He had been in charge of agricultural trade
    at USTR.
        He stated that the United States would be well justified in
    filing a WTO case in China for failing to live up to its
    commitments on wheat trade. The official said that the evidence
    of unfair trade by the Chinese was ``undeniable'' and that the
    Chinese themselves privately acknowledge that they are cheating
    on agricultural trade.
        He then said that the Interagency Trade Policy Review Group
    has given USTR the green light to march forward with a WTO case
    against China. But this official said the administration was
    reluctant to do that because the Chinese might be offended. The
    administration was worried that a WTO case would be seen as an
    ``in your face'' thing to do to China so soon after China
    joined the WTO.
        Let me tell you why I believe he says that it is undeniable
    that the Chinese are cheating with respect to wheat trade. When
    we did the bilateral trade agreement with China, China agreed
    that it would set tariff rate quotas for imported wheat at 8.5
    million metric tons. That means 8.5 million metric tons a week
    could enter China at very low tariffs.
        According to the CRS, China's imports were less than 8
    percent of that from the United States. The Chinese decided
    that they would issue licenses for imports, but most all of the
    licenses, over 90 percent, were retained by the Chinese
    government. Less than 10 percent were given to private
    interests. And for that reason we have sold very little wheat
    to China.
        So if the Chinese government decides it does not want
    American wheat, then it retains these licenses in the
    government and does not import the wheat.
        So we have a USTR official, and the USTR of course is part
    of the Trade Policy Review Group, saying that there ought to
    have been a WTO case. And what he said is there was a green
    light given by the Trade Policy Review Group to take action
    against China.
        Would that have been the position of USDA, as well, as a
    part of the Trade Policy Review Group? Who serves on that group
    for USDA?
        Secretary Veneman. It depends on the issue. That is why I
    say that the USDA is part of the Trade Policy Review Group, and
    it would depend on the issue as to who attended the meeting on
    behalf of USDA because we have various specialties.
        I have to say, I am not familiar with those remarks of the
    USTR official, but we will be happy to get back to you on it.
        As you know, China entered the WTO as a result of the Doha
    meeting in November 2001, which provides tremendous market
    potential for the United States, as you point out. We have had
    a continuing number of issues with China as they seek to
    implement their agreements with regard to agriculture and the
    WTO.
        I was in China just the summer. We discussed a whole range
    of these issues, including the licensing arrangements, with
    Chinese officials and we talked about the importance of making
    sure that they had transparent trading systems if they are
    going to be credible members of the WTO.
        We are continuing to press the Chinese officials very hard
    on a wide range of issues, including wheat. Obviously, options
    will be considered if we do not make progress.

                     INTERAGENCY TRADE POLICY REVIEW GROUP

        Senator Dorgan. Madam Secretary, we have been pushing on
    the Chinese for years. They now have a $103 billion trade
    surplus with us. We agreed to a bilateral trade agreement with
    them. We agreed to a bilateral trade agreement with the Chinese
    a couple of years ago. On that basis they were able to enter
    the WTO.
        The fact is an official in USTR, the week before he left,
    said publicly it is undeniable they are cheating. And he also
    said that the Trade Policy Review Group, a group that is made
    up of USDA as one member, had given the green light to take a
    WTO case against China.
        I had intended to try to get to you about this so that I
    could give you some warning. Can we find out whether that is
    the case? This is an administration official speaking on the
    record, so he is saying it is the case.
        When did that happen, the Interagency Trade Policy Review
    Group? And if it did happen, if that group signaled somehow
    that they believe that a WTO case was brought against China on
    the issue of wheat, it seems to me there are plenty of other
    areas that we can use to bring actions against China. Because
    China--you make the point that this is a great opportunity for
    us. But there is no opportunity in China if China will not buy
    our products. There is no opportunity.
        Secretary Veneman. That is correct, although I must say
    that they have become about a billion dollar soybean market for
    us, and that is a relatively recent development in our trade
    with China. They have been a very good purchaser of soybeans,
    although we have had some difficulties with some regulations.
        Senator Dorgan. How big is that market?
        Secretary Veneman. It is about $1 billion.
        Senator Dorgan. You look at trade with China, and I will
    not talk about Mexico and Canada and Europe and Japan. But just
    look at China today. $103 billion and in virtually every single
    area, when you look at the promise of the bilateral 2 years
    ago, you find out that the promises were never kept.
        The agriculture minister of China went to South China to
    Guang Zhou, and in the South Asian Post was quoted as saying
    yes, we have this 8.5 million metric tons but that does not
    mean we are going to buy that from the United States.
        And now what we have discovered 2 years later is they are
    not buying wheat from us because the Chinese government does
    not want to, despite the fact they have this huge surplus. And
    if someone inside the administration, officially a Trade Policy
    Review Group, has decided that we should take action,
    officially take action and pursue a WTO case, should we not do
    that? And should we not do that immediately?
        Secretary Veneman. Again, I am unfamiliar with the remarks
    that you are referencing. We will look into that and get back
    to you. I just had not seen that particular report.
        Just to correct the record, we did not enter into a
    bilateral agreement, per se. We entered into various agreements
    with China as part of their accession to the WTO, as opposed to
    a bilateral free trade agreement.
        Senator Dorgan. But we got those agreements bilaterally
    from China?
        Secretary Veneman. Right. They were bilateral discussions
    with regard to the accession to the WTO.
        However, we continue to have a number of issues, wheat
    being one of them, with China that we are having trade
    difficulties with. USTR officials were scheduled, along with
    USDA officials, to go to China and discuss some of these issues
    but unfortunately, a lot of the recent travel to China has been
    postponed because of the SARS issue.
        But we do take these and other trade issues very seriously
    and we are having a number of discussions regarding trade
    issues, as you point out, around the world, whether it is
    Mexico or Canada or other countries.
        China, again, has been an area that we are watching very
    closely because they did commit, in their WTO accession
    negotiations, to certain things. We want to make sure those are
    implemented properly. And obviously, we will work with you on
    this wheat issue.
        Senator Dorgan. But Madam Secretary, we already know they
    are not implemented properly. We already know that the Chinese
    are cheating.
        And with respect to these trade negotiators, I must say,
    for Democratic administrations and Republican administrations,
    I have seen them get on airplanes for 20 years and move off.
    And frankly, you can put them all in a barrel and roll it down
    a hill, you are always going to have a lower on top.
        The fact is they cannot, within 1 week, fail to lose a
    trade association. They come to us with these negotiations, in
    this case the Chinese bilateral, and they say look what this is
    going to do for our country. And then 2 years later we discover
    we are moving backwards.
        This is not your fault, but I am asking the question about
    the policy review group. If, in fact, we have a group now that
    says we ought to be taking action against China on trade from
    wheat purposes only, then let us do that. Let us decide to have
    a backbone, a spine, some stiffness of spirit here, and stand
    up for the wheat producers in this country.
        It is more for USTR and Commerce than it is for you, Madame
    Secretary, but I am just asking having a vote or a membership
    on the Trade Policy Review Group, I hope that you go in there
    and start swinging, to say on behalf of American farmers, by
    God, we have the right to demand fair trade, whether it is with
    China, Japan, Europe, Canada. We have a right to demand it.
        Secretary Veneman. I agree with you and, as I said, I will
    definitely look into the comments that you have attributed to
    this USTR official and determine, if there was some kind of
    decision made, what that decision was and where it has gone
    since then.
        Senator Dorgan. Would you get back with me?
        Secretary Veneman. I will get back to you.
        [The information follows:]

        USDA is part of the interagency Trade Policy Review Group (TPRG),
    which also includes the USTR, State, Commerce, Treasury, NSC, and
    several other agencies. USDA's representative's at these meetings can
    vary depending on the topic, but generally includes high-level
    representation from either the Office of the Secretary, the Office of
    the Under Secretary for Farm and Foreign Agricultural Services, or the
    Foreign Agricultural Service.
        At the TPRG meeting that preceded the February high-level dialog
    talks, USDA expressed support, absent a timely resolution of
    outstanding concerns, for pursuing a WTO case against China over its
    overall administration of its tariff-rate quota (TRQ) system. The TPRG
    deferred a decision to initiate a WTO case, pending the outcome of
    further discussions with the Chinese to resolve the issues. Ambassador
    Zoellick and Ambassador Johnson raised our concerns at the highest
    levels during their subsequent visit to Beijing in February. A follow-
    up meeting, which was delayed by the SARS situation, is expected to
    occur in the very near future. Absent a satisfactory outcome, it is
    expected that the TPRG would reconvene to revisit the issue of
    initiating a WTO case. Wheat is one of the nine agricultural
    commodities covered by China's TRQ system and USDA believes that
    improvements in China's TRQ system would lead to greater market access
    for U.S. wheat and other commodities.

        Senator Dorgan. Thank you, Madam Secretary.
        Senator Bennett. We have been joined by two other members
    of the Subcommittee. We will go to Senator Specter, then
    Senator Durbin, and Senator Byrd will follow up.
        Senator Specter. Thank you, Mr. Chairman. I regret being
    here so late but we had a meeting of the Judiciary Committee. I
    was about to compliment all my colleagues for not being members
    of the Judiciary Committee until I saw Senator Durbin walk in.
    He is a member of the Judiciary Committee. We have just been
    wrangling for a long time and we are going to do so for a lot
    longer. Senator Byrd used to be member of the Judiciary
    Committee.
        Madam Secretary, just a couple of questions. A letter was
    written to you on April 8th by about a dozen Senators inquiring
    about the requirements of the Agriculture Marketing Agreement
    Act which specifies taking into consideration regional costs of
    feed, feed availability, and other specific economic factors.
    The price of Class I fluid milk has dropped precipitously. I
    would very much appreciate--I am not going to take the time
    now--if you would review that letter and respond to it.

                                 DAIRY COMPACTS

        Also when you--you were nice enough to call me in advance
    of the hearing and I raised the issue of dairy compacts. I
    would like a response for the record on the proposals to have a
    dairy compact. I am on the verge of introducing legislation on
    it. We had one for the Northeast and we tried to expand it to a
    number of other States including Pennsylvania. It has been
    represented that it would provide stability, not be a cost to
    the taxpayer. I would like to have your position on that in
    writing.
        [The information follows:]

        There are a number of concerns with attempting to implement a dairy
    compact at this time. A first concern with starting a new program is
    that considerable Federal support is already being provided to the
    dairy industry. We are now beginning to see milk production slow down
    and expect to see farm milk prices increase as we move through the rest
    of this year. The Dairy Price Support Program (DPSP) is supporting
    prices through the purchase of manufactured dairy products. In
    addition, the Dairy Export Incentive Program (DEIP) has supported
    substantial exports of manufactured dairy products. This fiscal year,
    the DPSP and DEIP will remove from the market an estimated 35 million
    pounds of butter, 50 million pounds of cheese and 730 million pounds of
    nonfat dry milk. Federal Milk Marketing Orders continue to help assure
    orderly marketing and equity in returns among producers. And, the Milk
    Income Loss Contract program will provide an estimated $2.5 billion to
    dairy producers in income support payments this fiscal year. We are
    also making substantial efforts to distribute surplus nonfat dry milk
    through humanitarian assistance and domestic drought assistance
    programs.
        A second concern relates to the effects of a compact as revealed
    through the experience of the Northeast Compact and analysis of
    proposed regional compacts. The 1996 Farm Bill gave the Secretary
    authority to approve the Northeast Compact, a regional pricing plan
    intended to increase milk returns for Northeast dairy farmers, maintain
    local milk supplies, and reduce the decline in the number of dairy
    producers. Six New England states, accounting for 3 percent of U.S.
    milk production and 3 percent of dairy farms, implemented the Northeast
    Compact on July 1, 1997. Authority for the Northeast Compact expired on
    September 30, 2001. Compacts, such as the Northeast Compact, establish
    minimum prices fluid handlers must pay for milk. Our review of the
    economic effects of compacts shows that farm milk prices and dairy farm
    income increased in compact states, when the Federal order minimum
    price is below the compact-established price. There appears to be no
    evidence that the Northeast Compact reduced the decline in the number
    of small and medium-sized dairies in New England. Milk production
    increases above what it would otherwise be in compact states as dairy
    farmers react to higher prices by expanding their dairy herds and
    increasing feeding rates both of which lead to higher milk production.
        The Northeast Compact experience provides strong evidence that
    handlers of fluid milk pass along the higher prices imposed by a
    compact to consumers. Immediately following implementation of the
    Northeast Compact, the retail price of fluid milk increased by about
    $0.20 per gallon in New England, while retail prices fell nationally.
    Higher retail prices for fluid milk cause consumers to reduce fluid
    milk consumption in a compact region. Farm milk prices and income
    decline outside of compact states because higher milk production and
    lower fluid milk consumption in the compact states results in more milk
    available for processing into manufactured dairy products, leading to
    lower prices for milk and manufactured dairy products in non-compact
    states. This is the reason producers in the Upper Midwest opposed the
    Northeast Compact. The Northeast Compact regulations required
    reimbursement of WIC state agencies for increased program costs, and
    the Northeast Compact adopted provisions to reimburse schools for
    increases in the cost of fluid milk caused by regulation. Other low-
    income households, however, were not compensated for higher fluid milk
    prices resulting from the Northeast Compact.
        The administration does not have a position on any future
    legislative efforts to establish dairy compacts at this time. However,
    there are numerous programs already in operation to support dairy
    farmers and the Administration is concerned that compacts stimulate
    milk production, adversely affect consumer milk prices and retail
    demand for fluid milk, have disparate regional effects on farm income
    and reduce the effectiveness of the Federal dairy programs already
    directed by Congress. Legislation authorizing compacts should address
    such concerns.

        Senator Specter. Thank you, Mr. Chairman.
        Senator Bennett. Thank you very much.
        Senator Durbin.
        Senator Durbin. Mr. Chairman, it is a pleasure to be here
    with you again in your new capacity. I hope you will enjoy this
    committee. It is an assignment I had in the House and in the
    Senate and I think it is an excellent opportunity.
        Madam Secretary, Mr. Dewhurst, Mr. Collins, Mr. Moseley,
    thank you for being here today. I am going to just ask one area
    of questioning very briefly. I have my statement that I would
    like to submit for the record and my questions.

                    FOOD SAFETY IN THE SCHOOL LUNCH PROGRAM

        But I would like to speak to you for a moment and ask your
    thoughts on the question of the safety of the food in the
    school lunch programs of America. Since 1990 there have been
    more than 100 reported outbreaks of foodborne illness in
    schools that have sickened more than 6,000 children across our
    Nation. The Centers for Disease Control and Prevention tell us
    that 10,000 more kids were sickened in school-related food
    outbreaks during that time, although these kids never learned
    what food or pathogen made them sick. Those numbers are, I am
    afraid, just a fraction of the true amount, since foodborne
    illness in schools is seriously underreported across America.
        Recently the Chicago Tribune reported that countless
    Illinois schoolchildren were served ammonia-contaminated
    chicken, hamburgers, and potatoes over the course of several
    months; contaminated food that apparently both Federal and
    State officials knew about but allowed to be served. In one
    Illinois elementary school, 42 kids and teachers became so ill
    after eating chicken with ammonia levels 133 times the
    acceptable amount that they were rushed to the hospital.
        I understand that your agency has worked to improve the
    safety of food in schools, but when our schoolchildren are
    being sent to the hospital after eating the food that we
    provide, inspect, and regulate then obviously more needs to be
    done.

                        MANDATORY RECALL OF UNSAFE FOOD

        I would like to ask you a few specific questions.
    Currently, recalls of unsafe food in the school lunch program
    are performed on a voluntary basis. Let me repeat that. Recalls
    of unsafe food in the school lunch program are performed on a
    voluntary basis. Complicating the recalls is the fact that
    schools do not know the identity of the producers who supply
    the food due to the complicated chain leading up to the school
    door. In the Illinois case, it appears some of the food was
    pulled from cafeterias. Several schools were not even notified
    they were serving potentially dangerous food until it was too
    late. In any event, the process in place now failed to protect
    our kids.
        First question. Are there any reasons recalls of
    contaminated food served in the school lunch program should not
    be made mandatory if a voluntary recall effort fails?
        Secretary Veneman. Senator, I appreciate your concerns
    about the school lunch food safety. It has been something that
    we have been concerned about as well. In fact, let me just give
    you a little bit of background on some of the things that we
    are doing in the Department.
        We basically have three agencies involved in the school
    lunch program. We have the Food and Nutrition Service, the
    Agricultural Marketing Service, who purchases a lot of the
    products, and we have the Food Safety and Inspection Service
    when it comes to the safety of meat and poultry. We have
    started, within the Department, an interagency dialogue on all
    of these food safety issues so that the minute we have any
    issue that involves food safety, we know whether or not there
    were products that went into the school lunch program. That is
    part of our notice now.
        That is something that was not done before. I just bring
    this up to tell you that I share your concern.
        With regard to the case you cited that happened recently in
    Illinois, my understanding is that there were specific disposal
    orders that went out that were not followed by the school
    district. In fact, there are school district officials who have
    been indicted in this case.
        Senator Durbin. That is true.
        Secretary Veneman. So while we need to be looking at that
    case as an example of where we can do better, I do not think
    the fault lies with the Federal agencies since they issued the
    disposal orders and they were not followed through on by the
    school district.
        Now what does that mean for us in the future? It means that
    we are going to go back the next time and make sure that
    officials do what they say they are going to do.
        Senator Durbin. I would just say, you know that my passion
    is food safety.
        Secretary Veneman. It is one of mine as well.
        Senator Durbin. I know that there are a dozen Federal
    agencies in charge of food safety, and 35 different laws, and
    25 different committees on Capitol Hill. It is madness. The
    only people that I can get to support a single food safety
    agency to try to consolidate this are people who have not been
    appointed Secretary of Agriculture or those who were former
    Secretaries of Agriculture. I cannot get any incumbent
    Secretary of Agriculture to agree with it until they leave
    office and then they think it is a great idea. Secretary
    Glickman fought me all the way, and now he is with me all the
    way.
        I do not know what it takes, but there is something about
    going into that building that leaves you in a state of mind
    that you cannot think in terms of consolidating food safety.
    But what I just heard you say was, you are starting to realize
    you have to. You are bringing together within your own agency
    groups that were not talking to one another.
        But what about the basic question? Should we have mandatory
    recall of contaminated food in the school lunch program rather
    than voluntary?
        Secretary Veneman. We have not, to my knowledge, had
    difficulty getting firms to recall any product when necessary
    because, as you know, the U.S. Department of Agriculture,
    through the Food Safety and Inspection Service, has the ability
    to shut down a plant if they do not put forward a recall order
    as we recommend.
        In addition, I would also note that the Department of
    Agriculture itself, through our Food and Nutrition Service, has
    used recall authority when necessary. We are able to do that as
    the customer.
        So the issue of whether or not we need additional
    legislative authority I think is one that is, in our view, not
    necessary. We believe we have the legal authorities necessary
    to carry out recalls, if needed, and we have never had an
    instance where we were unable to get a recall carried out.
        Senator Durbin. I ask you, please do not rule out the
    possibility until we can talk about it a little more, because I
    think it may give you some authority that will protect some
    children.

                              SUPPLIER DISCLOSURE

        I would also like to suggest to you, and this will be my
    last question, Mr. Chairman, we have had recommendations from
    the General Accounting Office that we need to give school
    districts and school authorities who are purchasing food, more
    information about food suppliers.
        In other words, if you have gathered information, USDA FDA,
    that suggest that some suppliers to the school lunch program
    have had a questionable history of providing safe food, I would
    think it obvious that school authorities should have that
    information so that when they contract with these same people
    they have the benefit of this Federal information, and that
    they can purchase the safest foods for the school lunch
    program.
        I have some legislation along this line and I would like to
    bring it to you in the same context if I can.
        Secretary Veneman. If I might also make one comment, just
    last week we released our new Agricultural Marketing Service
    standards for the purchase of ground beef. Those are much
    stricter standards. They are standards which are consistent
    with those that the fast food restaurants use. So we now have a
    much stricter standard that we just released last week with
    regard to purchases of ground beef for the school lunch
    program.
        Senator Durbin. Good. Thank you. Thanks, Mr. Chairman.
        Senator Bennett. Thank you very much, Senator.
        Senator Byrd, you have been very patient. Appreciate your
    participation. Glad to give you a second round.
        Senator Byrd. Mr. Chairman, you have been very patient. My
    experience over my 45 years on this committee is that the
    Chairman is usually left to the last. He is constrained to give
    other members of the committee an opportunity, and he usually
    waits until everybody else has a chance. So, I respect your
    situation, and I will be perfectly happy to wait until you have
    an opportunity to ask some questions.
        Senator Bennett. Go ahead.

                          HUMANE SLAUGHTER INSPECTORS

        Senator Byrd. Thank you, Mr. Chairman.
        A brief follow-up on the subject that I was pursuing
    earlier. In order to ensure that adequate funding is available
    to maintain no less than 50 humane slaughter inspectors
    throughout fiscal year 2004, the future funding needs must be
    determined. Given that the $5 million provided in the fiscal
    year 2003 omnibus appropriations bill for no less than 50 new
    humane slaughter inspectors has been made available through
    fiscal year 2004, Madam Secretary, will any additional funding
    be needed to fulfill and maintain this requirement in fiscal
    year 2004?
        Secretary Veneman. We do not anticipate that we will need
    additional funding for the period of time through fiscal year
    2004. That should be adequate funds according to our budget
    analysis that has been done.
        Senator Byrd. Very well. I thank you. I will be pursuing
    this with interest, and I hope that the Department will proceed
    expeditiously to get the 50 new humane slaughter inspectors on
    board. I will be back later if you need additional funds.
        In the meantime, I would appreciate it if you let me know
    if you are having any problems.
        Secretary Veneman. We will do that, sir. We will keep in
    touch with you.

                            COMPETITIVE OUTSOURCING

        Senator Byrd. Now as to outsourcing, the OMB scores
    agencies on how well they comply with the President's
    management agenda. Agencies are encouraged to submit management
    plans to the OMB which incorporates the competitive sourcing
    quotas outlined in the President's budget. I understand that
    agencies within the Department of Agriculture are currently
    studying their workforces to find places where it would be
    appropriate for private contractors to take over agency
    functions. One example relates to potential outsourcing of
    technical specialists, such as soil scientists and other
    conservation specialists of the Natural Resources Conservation
    Service. These are the people who are responsible for
    transferring public conservation policy to private landholders
    through what has been one of the most successful public/private
    partnerships in history.
        Another example, which many of my constituents are
    concerned about, is the privatization effort within the U.S.
    Forest Service. I believe that this is an important issue for
    every agency in your Department. Regardless of the agency or
    the activity, the uncertainty at the employee level as to how
    agency outsourcing will evolve is having a horrific effect on
    morale. Given the loss of experienced agency personnel that
    will occur as a large number of employees reach retirement, we
    should be thinking of ways to retain experienced workers, not
    engage in practices that will erode their trust in personnel
    management.
        It is my understanding from OMB that these competitive
    sourcing plans, once they are submitted to the OMB for approval
    can be released to the public at the discretion of the agency
    heads. If the Congress is to appropriate substantial funding
    for private sector employment opportunities, will you first
    provide Congress, and in particular this committee, with a copy
    of any management plan or a competitive sourcing proposal that
    the Department of Agriculture submits to the OMB?
        Secretary Veneman. Senator, first let me just say that I
    have served in Government a long time and I have a great
    respect for career civil servants and the job that they do. It
    is certainly not a philosophical position on my part to reduce
    the career workforce.
        I think, though, that you do bring up a very good example
    of where competitive sourcing is appropriate, and that is in
    the technical assistance area through the NRCS for some of the
    conservation issues in the Farm Bill that was specifically
    authorized by the Congress. We recognize the fact that we are
    going to need substantial new resources in technical
    assistance. It is not going to take away current jobs, we do
    not believe, in the NRCS, but recognize that we should have the
    opportunity for the private sector or the non-profit sector to
    compete with regard to technical assistance.
        This has been something that has been very well received
    both on the side of the provider community as well as by the
    farmers themselves having the opportunity to work with a
    variety of sources in terms of this kind of technical
    assistance. We are working with OMB on where the appropriate
    areas are to potentially look at outsourcing, and we will
    consult with this Committee as we move forward.
        But I do think that the technical assistance issue with
    regard to the NRCS is a very important one because it was
    specifically authorized by the Congress. And, it has been very
    well accepted in the agricultural community. It is one that we
    have done in conjunction with a lot of public input and public
    meetings to best see how to do this.
        Another area where we do a lot of outsourcing, and it has
    been very effective, is in the whole area of technology and
    technology development. It is very difficult to get the kind of
    technology expertise in-house in the Government. We need the
    expertise of various providers, whether it is in GIS mapping or
    in some of our computer systems. But these are the kinds of
    things that I think are appropriate as we move forward and
    looking at the kinds of things that would be appropriate
    outsourcing in our Department.
        Senator Byrd. You did not exactly answer my question. Let
    me ask a different question.
        When do you expect to submit a management plan to the OMB?
    And, how soon can you make that plan available to this
    committee, if it requests such?
        Secretary Veneman. We are working with OMB. I do not know
    that we have a specific timetable for submission of a
    management plan but we will certainly work with this Committee
    as we move forward on any specific plans with regard to the
    outsourcing provisions.
        Senator Byrd. Do I understand you to say that you will
    provide this committee, if it requests such, a copy of any
    management plan or competitive outsourcing proposal that the
    Department of Agriculture submits to the OMB?
        Secretary Veneman. Yes, we would provide this Committee
    with any plans to restructure the kinds of activities that we
    were proposing.
        Senator Byrd. Very well.
        Mr. Chairman, I thank you for your courtesy and your
    patience. And I thank you, Madam Secretary, and Mr. Dewhurst,
    and Secretary Moseley, and Mr. Collins. Thank you very much.
        Secretary Veneman. Thank you, sir.
        Senator Bennett. Thank you, Senator.
        Senator Harkin, do you want a second round?
        Senator Harkin. If you had some----
        Senator Bennett. I am going to submit some of mine in
    writing. I will say, the Secretary has a lunch appointment with
    the President of Spain as I understand it. So I am going to
    submit mine in writing so that she can meet her appointment.
    She and I talk perhaps more often than some of the others of
    you, so go ahead, sir.
        Senator Harkin. I will keep mine real short. I just want to
    know, is he buying or selling?
        If he is buying, I will be real short.

                      AMES, IOWA ANIMAL RESEARCH FACILITY

        You are very nice, Madam Secretary. You have been very
    patient. Mr. Chairman, you have been very patient and I
    appreciate that. I just have three very short ones. One has to
    do with the Ames Animal Research Facility. In 2001, USDA came
    to the conclusion that modernizing the Ames facilities was
    essential. You have visited the facilities. Three Secretaries
    of Agriculture have come to the same conclusion. As I read your
    testimony I am concerned that there may be some going back and
    reevaluating USDA's carefully developed plans to rehabilitate
    and renovate these facilities. Delay means increased costs and
    leaves our Nation without the facilities it needs to respond to
    future natural or terrorist threats to our meat supply.
        I understand that construction will start this fall on the
    large animal holding facility and I just want to know, should
    we be concerned about any delay in moving forward with this
    project? Should we be concerned about any delay?
        Secretary Veneman. We are absolutely committed to moving
    forward with the Ames modernization program. The question is
    funds. As you point out, if we delay and do this in increments,
    it could substantially increase the cost of the program.
        Senator Harkin. Could increase it.
        Secretary Veneman. So, at this point, we intend to stay on
    the accelerated program. We received some additional monies in
    the 2003 omnibus bill, and that is certainly helpful. We are,
    as you say, going to begin construction on the one portion of
    it this fall.
        Senator Bennett. Senator Harkin is responsible for your
    giving additional monies.
        Secretary Veneman. Thank you, sir.
        Senator Harkin. I do not know about that. We all worked
    together on that, I think, to get that done.
        Mr. Chairman, as you know, you have been in business. They
    are building--everyone is committed to getting this thing
    rebuilt. There is a large animal facility. Then there is
    another biocontainment facility, then a small animal facility.
    The contractors and constructors will be there this fall
    starting on the large animal facility. If they can then
    continue to build the others, they have got all the equipment
    there, they have got the people there. But if they have to
    close that down, go away, then come back, the costs just
    escalate. That is what we are trying to get to in terms of
    getting the funds out there. Once the contractor is there,
    finish the job and get it done. That is what my comments went
    to.

                          FARM BILL ENERGY PROVISIONS

        On energy, Madam Secretary, you along with your staff and
    the President have stated your support for farm-based renewable
    energy including the landmark energy provisions in 2002 farm
    bill. Yet the Administration in the budget has proposed to cut
    or eliminate funding for some of these very popular
    initiatives. The 2004 budget of the President effectively zeros
    out funding for the renewable energy and energy efficiency
    program. That is Section 9006, which provides cost-share
    assistance to farmers and rural small businesses for renewable
    energy systems like wind turbines, methane digesters, and to
    make valuable energy efficiency improvements to their own
    operations to save money. Your budget also reduces funding for
    the critically important bioenergy program under the Commodity
    Credit Corporation which assists our ethanol and biodiesel
    producers. Again, these programs were funded in the Farm Bill.
        So can you--again, if you cannot now, if you want to
    respond in writing, that is fine. I know you have got to get to
    your lunch, but I am just interested in where you are headed
    with this and whether or not we are going to get the funds
    necessary for the cost-share programs and for the bioenergy
    programs.
        Secretary Veneman. Senator, you and I have talked a lot
    about programs for rural America and for renewable sources of
    energy. Obviously, we are very supportive of moving ahead with
    new markets for our agricultural producers.
        One of the issues that came up with regard to the Farm Bill
    is that there were funds that were provided for some of these
    programs, and we will get some of the specifics to you in
    writing as you indicate, but some of these programs were funded
    for the first year of the Farm Bill with mandatory funds and
    then it was left to discretionary funds in the outyears. We are
    limited in terms of the amount of discretionary funds we have
    to put toward new programs, which made it difficult to make
    some of these choices. I understand that the Farm Bill
    authorized these programs but they were funded initially with
    mandatory funds and we have had difficulty coming up with
    discretionary funds to continue some of the funding.
        The other thing I would like to point out is that some of
    these programs were funded with mandatory funds in fiscal year
    2002 with program funds that would go into fiscal year 2003. So
    some of the funds that were provided as mandatory funds are
    continuing funds that can be used for these programs to allow
    them to proceed into the outyears.
        Senator Harkin. Please check with your staff. I think the
    two programs I mentioned, 9006 and the bioenergy program are
    both mandatory. Those do not rely upon discretionary funds.
        Mr. Collins. Senator Harkin, that is correct, they are both
    mandatory. What happened with the CCC bioenergy program, the
    Administration did propose capping that at $100 million. The
    authorization is for $150 million a year. However, it is funded
    at 77 percent of $150 million, or $115.5 million by the
    appropriations bill. We just announced the final rule on that
    program this week. We are operating that program with $115.5
    million for fiscal year 2003 and at $150 million in future
    years. That is the operating regime we are under.
        With respect to the other program you mentioned, the
    renewable energy systems and energy efficiency program, that
    program was funded at $23 million in mandatory funds.
        Senator Harkin. That is that cost-share program.
        Mr. Collins. Correct, that is a cost-share program. It was
    funded at $23 million a year in mandatory spending for each
    year of the life of the Farm Bill. The Administration is
    implementing that program at the $23 million level for fiscal
    year 2003. It was proposed at $18 million in fiscal year 2003
    but it is being implemented at $23 million.
        Senator Harkin. I thought it was zeroed out.
        Mr. Collins. In the future, in fiscal year 2004 it is
    proposed to be shifted to discretionary funding. If I am not
    mistaken, I think the discretionary funding level is $3 million
    a year. That was simply a function of the tight budget
    environment and very tough trade-offs in trying to make a
    difficult decision about where to focus the money.
        Senator Harkin. So it goes from 23 down to three.
        Mr. Collins. Correct.
        Senator Harkin. And shifted from a mandatory program to a
    discretionary.
        Mr. Collins. Correct.
        Senator Harkin. Can you do that?
        Mr. Collins. No, you have to do that.
        Senator Harkin. That is what I thought.
        Mr. Collins. We can only propose that.
        Senator Harkin. That is what I thought. You cannot do that.
    So you are proposing to do that.
        Mr. Collins. Yes, sir.
        Senator Harkin. Mr. Chairman, I would say, I hope we do not
    do that. That is why it was written into the bill that way, was
    to keep it on that level and keep it moving as a mandatory
    program. If I remember right in the farm bill, that had pretty
    broad support.
        Senator Bennett. Do we do that or does the authorizing
    committee do that?
        Senator Harkin. I do not know.
        Senator Bennett. If you do not know, I certainly do not
    know.
        Senator Harkin. It would have to be that the authorizing
    committee. The appropriations can only do on the funding, but
    to change it, to shift the nature of it would have to be done
    by the authorizing committee.
        Senator Bennett. That would be my thought.
        Senator Harkin. The authorizing committee would have to
    approve of that. So again, I hope Appropriations Committee
    will--but how can they do that? You have requested us to do it,
    but I do not think we can do that. I am told by my staff they
    can do it through limitations and obligations. And we would
    oppose that, obviously.
        Senator Bennett. That was redundant.
        Senator Harkin. That statement did not have to be made.
    That was all I really had, and I do not want to delay you. I
    know you have got to go to lunch.
        Technical assistance, I will write you a letter on that
    because I think some things were said here. We specifically
    undid the Section 11 cap, specifically in the omnibus bill,
    specifically. I have got it here. I can read it to you. So I do
    not know why we are having so many problems with that because
    we specifically we wrote it out in the omnibus bill. So I do
    not know why we are having problems on the technical
    assistance.
        Lastly, Mr. Chairman, it seems I do have some work to do
    and I will have to talk with Senator Stevens about the CSP to
    clear up some misperceptions. As we all know, it is not an
    uncapped entitlement. There are rigid caps in there.
        Secondly, it is not rely an entitlement. There are things
    you have to do in order to qualify for it. It is just that it
    is open to all. But you still have to meet certain things and
    it is very strongly capped. So I will have to talk with him
    about that.

                         ADDITIONAL COMMITTEE QUESTIONS

        Thank you all very much. Thank you, Mr. Chairman, for your
    kind patience.
        [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

                                 BIOTECHNOLOGY

        Question. Madam Secretary, I noted that you have requested an
    additional $6.604 million in your own budget to fund cross-cutting
    trade-related and biotechnology programs throughout the Department.
    According to your staff, these funds will eventually be distributed to
    the Foreign Agriculture Service, the Animal and Plant Health Inspection
    Service, and the Grain Inspection, Packers and Stockyards
    Administration.
        How did you arrive at this figure? How much of this amount do you
    expect will be made available to each of these agencies? Why didn't the
    Department request that the increases be provided directly to those
    accounts?
        Answer. This figure was arrived at by considering the priority
    needs for these activities and overall budget constraints. We request
    appropriations for the Office of the Secretary so funding may be
    allocated in a coordinated manner to address issues related to trade
    and biotechnology that are very fluid. It would be premature to make
    allocations at this time, though we would expect funding to be used to
    respond to World Trade Organization and regional and bilateral trade
    negotiation demands, as well as trade and regulatory issues associated
    with biotechnology.
        Question. What are the established criteria for distribution of
    these funds? What are the established procedures to seek Congressional
    approval for these transfers?
        Answer. Funds would be used for high-priority Departmental needs
    related to trade and biotechnology, such as World Trade Organization
    and regional trade negotiation demands and trade and regulatory issues
    associated with biotechnology. Authority to transfer the funds is
    included in proposed appropriation language that was submitted with the
    President's budget.

                      REVIEW OF RURAL DEVELOPMENT OFFICES

        Question. I understand Rural Development is performing a review of
    all of its offices nationwide. Could you please share your expectations
    of this review with us, the reasons behind it, and the status?
        Answer. Rural Development went through several reorganizations
    during the 1990's that resulted in a variety of different
    organizational structures, positions and titles in the States. While
    there is great diversity in geography and needs among the States, the
    variety of field structures has resulted in confusion to our customers,
    especially those who work with more one State office, and to the
    national office staff as it works to implement national programs. An
    advisory committee composed of 10 Rural Development State Directors
    reviewed the various organizations and recommended two organizational
    models, one of which could be adopted in all States. The committee also
    made several recommendations related to responsibilities, titles, and
    the minimum size of staff at an office location to ensure quality
    customer service is provided. Each Rural Development State Director has
    developed a plan for achieving the recommendations of the advisory
    committee's report and those state plans are currently being reviewed.
    Implementation of those plans will result in greater consistency in the
    delivery of our programs and improved efficiency and effectiveness in
    the delivery of our programs.

         IMPLEMENTATION OF AGRICULTURE EMERGENCY ASSISTANCE ACT OF 2003

        Question. What is the status of the implementation of the
    Agriculture Emergency Assistance Act of 2003? When do you expect the
    Livestock Assistance Program signup to begin? When do you expect
    payments to begin?
        Answer. The implementation status is as follows:
      --2001/2002 Crop Disaster Program.--Signup begins June 6, with
            payments to begin by the end of the month.
      --Livestock Compensation Program (LCP).--2,149 counties in 42 States
            were already eligible for LCP under the original program
            announced September 19, 2002 (LCP-I). An additional 779
            counties in 30 States have become eligible under the
            Agricultural Assistance Act of 2003 (LCP-II). Signup began
            April 1 and will continue through early June. Payments began in
            early May.
      --Hurricane Loss Assistance for Sugarcane Growers and Cooperatives
            and Sugar Beet Disaster Program.--Signup will begin for both
            programs once the program provisions have been finalized.
      --Tobacco Payment Program.--Signup is under way March 17 through May
            16, with payments to be completed by the end of May.
      --Cottonseed Payment Program.--Signup began May 2 and will continue
            through May 23. Payments will be issued in early June.
        Signup is expected to begin in August and continue through the end
    of October.
        Because the program is limited to $250 million, signup must end and
    a payment factor be determined before payments can be issued. Once the
    factor is determined, payments should begin within 2 weeks.

                      FOOD STAMP PAYMENT ACCURACY ACTIVITY

        Question. In your testimony, you mention funds to improve the
    integrity and accuracy of nutrition programs. According to your
    testimony, the current average State payment accuracy is now 91.34
    percent. How does the Department expect to improve on that number and
    improve the integrity of nutrition programs?
        Answer. The Food and Nutrition Service (FNS) implemented a priority
    project plan beginning in fiscal year 2001 to reduce eligibility errors
    and assure program integrity in the Food Stamp Program. The intended
    outcome was to initially achieve, for fiscal year 2001, a payment
    accuracy rate of at least 90.8 percent. As noted above, the agency
    exceeded its payment accuracy goal, by achieving an accuracy rate of
    91.34 percent in fiscal year 2001. Preliminary quality control data for
    fiscal year 2002 suggest there has been even further improvement in
    this fiscal year. These rates will be released in June 2003.
        FNS continues to employ a variety of strategies and activities to
    improve payment accuracy and assure program integrity. For the past
    several years, the agency has received $1.9 million in funding per year
    to augment its staffing and efforts to increase payment accuracy
    nationwide. FNS also allocates nearly $400,000 annually to support
    State travel to conferences, workshops, and other meetings between
    States, to facilitate the sharing of best practices of effective and
    efficient program management techniques.
        Fiscal year 2003-2004 current and planned activities include:
      --Creating and maintaining a national team of experts to monitor and
            evaluate payment accuracy progress, analyze error rate data,
            and exchange information on payment accuracy best practices and
            program improvement strategies.
      --Targeting high issuance/high error rate states for enhanced Federal
            intervention and technical support. This is accomplished by
            establishing a tier methodology for states (based on error rate
            performance) to support effective and consistent deployment of
            limited FNS resources for intervention and technical
            assistance.
      --Continuing the exchange of best practices information through the
            State Exchange Program, and the publication of a Best Practice
            Guide.
      --Further facilitating the commitment, involvement and collaboration
            among State partners and leadership at all levels through the
            utilization of a web-based environment dedicated to the
            exchange of information and discussion forums on error
            reduction issues and strategies.
      --Continuing to work with States to optimize analysis based on
            quality control data in an effort to develop and monitor
            corrective action.

                      WIC PARTICIPATION ESTIMATION PROCESS

        Question. The Administration's budget supports a record level of
    funding for the Women, Infants and Children Program (WIC) to cover
    anticipated increases in participation. What process is used by the
    Department of Agriculture to determine the additional participation?
    Also, will the Department make another participation estimate prior to
    Committee action on the fiscal year 2004 Agriculture Appropriations
    bill?
        Answer. USDA tracks WIC participation throughout the fiscal year
    and makes projections for the following fiscal year based on
    anticipated demand for services. Based on current and projected fiscal
    year 2003 participation levels, we consider it unlikely that we will
    revise our participation estimate prior to Committee action on the
    fiscal year 2004 Agriculture Appropriations bill.

                            FOOD SAFETY EDUCATION

        Question. The Department recently launched a campaign to educate
    and reinforce to consumers the importance of food safety. A food safety
    mobile actually travels the country to educate the public. According to
    your testimony, an increase of approximately $2 million is requested
    for a mass media campaign aimed at improving the safe food handling
    practices of consumers. What other resources are available through USDA
    to educate the public when it comes to food safety?
        Answer. One of the key public health missions for FSIS is to
    educate the public about the hazards of foodborne illness, as well as
    to teach safe food handling techniques to ensure the safety of meat,
    poultry, and egg products. The $1.5 million requested in the budget
    will be used to evaluate and develop effective strategies for a
    comprehensive and sustainable mass media food safety education
    campaign.
        FSIS has already started to develop this campaign with the new USDA
    Food Safety Mobile. The Food Safety Mobile is traveling the country to
    educate the public about the importance of food safety, but at the same
    time, we are learning important lessons about the best way to get our
    message across in order to reach the most people through events and the
    media. We will use the information that we learn from this new campaign
    to determine how to best utilize our resources, meet our food safety
    education goals and communicate our food safety message with all
    segments of the population.
        Other USDA agencies such as the Food and Nutrition Service (FNS)
    and the Cooperative State Research Education and Extension Service
    (CSREES), also offer programs to promote food safety and make
    educational materials available. Trying to share food safety messages
    with all segments of the population, such as consumers, food preparers,
    educators, children, physicians, public health officials, and industry,
    is a formidable task. However, partnerships between USDA agencies,
    other State and Federal entities, as well as private and public
    organizations facilitates a wider dissemination of life-saving public
    health information about food safety.

                REIMBURSEMENT RATE FOR CROP INSURANCE COMPANIES

        Question. In the Risk Management Agency portion of the
    Administration's budget, the reimbursement rate for crop insurance
    companies is reduced from the current level of 24.5 percent to 20
    percent. Recently, one crop insurance company failed and others have
    commented on the thin profit margins due to 2 years of drought
    conditions. If this proposal is enacted, do you expect participation in
    the crop insurance program to lower due to this change?
        Answer. The number of companies participating in the Crop Insurance
    program has been on a steady decline due to a variety of reasons. As
    recently as 1993 there were 24 companies in the program compared to 18
    today. It is likely that market dynamics will further reduce that
    number. To protect the integrity of the delivery system, each new
    company will need to satisfy a higher minimum standard of operating and
    financial condition to be admitted into, and remain in, the program.
        A reduction in the reimbursement rate will increase the financial
    pressure upon the companies to adjust their operating approach. Each
    company will strive for increased efficiencies without sacrificing
    service. This of course is a healthy exercise. However, if the company
    is not successful in driving down cost and generating sufficient
    returns to satisfy shareholders, consolidation or departures will be
    the result.

                         CROP INSURANCE FRAUD AND ABUSE

        Question. It is my understanding that crop insurance fraud and
    abuse is a concern for both the Department of Agriculture and crop
    insurance companies. A number of individuals are experimenting with
    various methods that could be used to combat fraud and abuse. Does the
    Risk Management Agency have additional ideas on how to increase the
    awareness or combat program fraud and abuse?
        Answer. The Risk Management Agency (RMA) continues to regard
    technology, visibility and preemptive actions as a major element of our
    program to improve the way we address fraud and abuse. This approach
    takes advantage of the advanced tools that are becoming available
    through various USDA initiatives such as data mining, remote imagery,
    and geographical information systems (GIS) technology. We have only
    started to explore and use the possibilities of leveraging the use of
    GIS technology and data mining to identify potential program abuse and
    increase the cost/benefit for the funds currently dedicated to
    compliance activities. In particular, GIS capabilities will be expanded
    in concert with the Farm Service Agency to benefit program compliance
    with other farm programs in addition to crop insurance. RMA also
    benefits from FSA field office spot checks in priority areas and from
    continual review and revision of product structures and program design
    to preempt and prevent abuse. Regarding program awareness, RMA
    continues to publicize high profile cases to make farmers aware of the
    penalties associated with program abuse. Future RMA reviews will also
    include more field visits with producers to promote compliance program
    objectives.
                                     ______

                   Questions Submitted by Senator Ted Stevens

                       organic standards for wild seafood
        Question. In the fiscal year 2003 Supplemental Congress just
    approved, a provision was included directing you to permit wild seafood
    to be labeled ``organic''. Under prior law, seafood could not be
    labeled organic because it was not grown on a farm. What are the plans
    for implementing this new law, and when can we expect new regulations
    to be in place?
        Answer. Our plans at the present are to begin a public dialogue on
    standards for seafood later this fiscal year. We will publish
    information on the National Organic Program web site seeking comments
    and input from interested parties to determine the scope of work
    involving the development of organic standards for seafood.

                           COUNTRY OF ORIGIN LABELING

        Question. In the 2002 Farm Bill, Congress passed a provision
    directing the USDA to develop a country of origin labeling program for
    several commodities, including salmon. You recently announced that your
    department would hold listening sessions in several communities. My
    colleague Lisa Murkowski and I wrote you a letter requesting that you
    schedule a session in Alaska. What are your plans for listening
    sessions in our State?
        Answer. We are pleased to inform you that we have been in contact
    with representatives of the Alaska seafood industry and will join them
    in Kodiak, Alaska, on June 12, 2003, to hear their views and concerns
    on country of origin labeling.
        Question. Because of the importance of this program in Alaska and
    in the lower 38, I would like to know what the timeline is for
    implementation of this program?
        Answer. The law required USDA to issue guidelines for voluntary
    country of origin labeling by September 30, 2002, which USDA published
    on October 11, 2002. To meet the law's deadline for implementation no
    later than September 30, 2004, we expect to promulgate the rules for
    the mandatory country of origin labeling program in early 2004.
                                     ______

               Questions Submitted by Senator Christopher S. Bond

                              COMPETITIVE SOURCING

        Question. With respect to the A-76 process, please outline in
    detail a comprehensive description of the status of all affected USDA
    employees in Missouri, including but not limited to the following
    information: how many employees are on the inventory; a description of
    their duties; how they were determined and by whom to not be considered
    ``inherently governmental''; how many employees on the job are already
    privatized/contracted out and what they do and what they cost; any
    available analysis suggesting that service is not compromised and that
    the cost to the Federal Government is reduced; what the plans are for
    the future; and how functions placed on the inventory before enactment
    of fiscal year 2003 appropriations are in compliance with language
    included in Senate Report 107-41 noted below.
        ``The Committee expects that none of the funds provided for Rural
    Development, Salaries and Expenses should be used to enter into or
    renew a contract for any activity that is best suited as an inherent
    function of Government, without prior approval from the Committees on
    Appropriations of the House and Senate. Such activities may include,
    but are not limited to, any function that affects eligibility
    determination, disbursement, collection or accounting for Government
    subsidies provided under any of the direct or guaranteed loan programs
    of the Rural Development mission area or the Farm Service Agency.
    Further, the Secretary shall provide a report to the Committees on
    Appropriations of the House and Senate by March 1, 2002, on all plans
    by the Department to enter into contracts to carry out any of the
    previously stated activities.''
         How many total FTEs at Rural Development currently exist relative
    to levels 10 years ago?
        Answer. The Rural Development Mission Area FTE ceiling is 7,024 for
    fiscal year 2003. In 1993, our records show that the precursor agencies
    that now constitute Rural Development had the following staff year
    ceilings.
        [The information follows:]

    ------------------------------------------------------------------------
                                                                1993 STAFF
                             AGENCY                                YEARS
    ------------------------------------------------------------------------
    Rural Utilities Service, formerly Rural Electrification              890
     Administration.........................................
    Rural Housing Service, formerly Rural Housing and                  8,144
     Community Service......................................
    Rural Business-Cooperative Service, formerly Rural                   435
     Business and Cooperative Development Service...........
                                                             ---------------
          TOTAL.............................................           9,469
    ------------------------------------------------------------------------

        This represents a reduction of 2,435 staff years from the staff
    year ceiling over the 10-year period.
        Question. How many contract employees at Rural Development
    currently exist relative to levels 10 years ago?
        Answer. Due to the temporary nature of contracts and contract
    employees, Rural Development does not track this information.
        Question. Federal Programs at USDA to provide loans to the rural
    poor were authorized by Congress because private lending institutions
    were not willing to expose themselves to the significant financial
    risk. It is my understanding that those bidding under A-76 to take over
    the public loan program functions carried out by the USDA are large
    multi-national banks. Do you think it is appropriate to turn over
    lending programs to those who have already elected not to serve these
    poor citizens?
        Answer. The Rural Development mission area has not identified any
    public loan program functions in its competitive sourcing plan approved
    by the Department in May 2002.
        Question. Do you believe it is a good Federal policy to have big
    private banks conducting activities such as determining eligibility,
    disbursement, collection or accounting for Government subsidies
    provided under any of the direct or guaranteed loan programs of the
    Rural Development area or the Farm Service agency?
        Answer. The Rural Development mission area has not identified for
    competitive sourcing, any function related to the determining of
    eligibility, disbursement, collection or accounting for Government
    subsidies functions under any of its direct or guaranteed loan
    programs.

                FOOD SAFETY ASSESSMENT PROCESS FOR BIOTECHNOLOGY

        Question. Under current law, it is clear that there is latitude to
    administratively establish an early food safety assessment process for
    biotechnology derived food and feed products, which is often referred
    to as the Adventitious Presence issue. It is also clear that USDA would
    have a lead role to play in coordinating this process with EPA and FDA.
    Could you elaborate upon the progress that the three agencies have made
    to move forward on the OSTP notice, which was issued in the summer of
    2002?
         Answer. The expansion of biotechnology-derived crops is expected
    to result in net benefits to producers, consumers, and the environment.
    The Federal regulatory agencies--the USDA Animal and Plant Health
    Inspection Service (APHIS), the Food and Drug Administration (FDA), and
    the Environmental Protection Agency (EPA)--must maintain appropriate
    regulatory oversight, adjusting its requirements based on scientific
    developments and industry trends.
        The Office of Science and Technology Policy has requested public
    comment on proposed Federal actions. In anticipation of the expansion
    of the development and commercialization of agricultural biotechnology,
    these proposed Federal actions would establish a coordinated regulatory
    approach to update field testing requirements of biotechnology-derived
    plants and to establish early food assessments for new proteins
    produced by plants intended for food and feed use. The comments
    received in response to the proposal are still under review and the
    agencies continue close coordination.

                         EARLY FOOD SAFETY ASSESSMENTS

        Question. Expanding agricultural exports is critical to the
    viability of the American farmer and to a robust economy. It appears to
    me that it is critical to establish an early food safety assessment
    process in a timely manner to leverage greater access for U.S.
    agricultural products in international markets while simultaneously
    protecting our credibility with trading partners. I would appreciate
    your view on this and what plans the Agencies have to address this
    issue in international markets.
        Answer. Regarding the value of an early food safety assessment for
    products of modern agricultural biotechnology, USDA coordinates closely
    with the Food and Drug Administration and the Environmental Protection
    Agency under the U.S. Government's Coordinated Framework for
    Biotechnology to address these types of important issues. In addition,
    USDA operates a host of activities and participates in many others to
    promote the development, responsible regulation and use of agricultural
    biotechnology around the world in order to preserve market access for
    U.S. agricultural products.

                               BIO-BASED PRODUCTS

        Question. Secretary Veneman, I appreciate the enormous task you and
    your staff at USDA have had last year in implementing the 2002 Farm
    Bill. I commend you for your diligence and hard work in getting these
    critical programs up and running for our nation's farmers and rural
    citizens. However, there is one area that has lagged behind in
    implementation and that is Section 9002 of the Farm Bill. This section
    gives USDA the central role in leading the Federal Government's use of
    bio-based products. I would like to know the status of the proposed
    regulations.
        Answer. Currently, the draft proposed regulation is in final
    clearance. We expect to have the proposed regulation published by
    autumn. A 60-day public comment period will follow, to give
    stakeholders and the public an opportunity for comment. The draft
    regulations have taken longer than anticipated for several reasons:
        The program is complex, with many issues to be resolved, ranging
    from the types of renewable materials that can be used in bio-based
    products that qualify for procurement, to how a labeling program would
    work, to how bio-based content is measured. As bio-based products are
    such a new field, there is no obvious blueprint to follow.
        Addressing the range of responsibilities the statute gives the
    Secretary is especially challenging. Before qualifying items for
    procurement, the Secretary must consider the availability of the items
    and the economic and technological feasibility of using the items,
    including the life-cycle costs. Moreover, the statutes also require
    that the Secretary provide information as to the availability, relative
    price, performance, environmental and public health benefits, and--
    where appropriate--a recommended level of bio-based material contained
    in the items to be procured. To meet these criteria, we have been
    working to identify the appropriate testing and evaluation procedures
    to be used and how to ensure the integrity of test results.
        Another necessary complication is that the statute requires
    consultation with a number of Federal agencies, and that takes time
    because of differing views.
        Question. I would also like to encourage USDA's own internal use of
    bio-based products. I feel USDA can and should be leading this
    government-wide effort. Bio-based products help develop new markets for
    our agriculture products and should be fully utilized by USDA. Please
    let me know the status of USDA's activities in this area.
        Answer. USDA has been an enthusiastic user of bio-based products,
    as well as a leader in spearheading new bio-based research and
    applications.
        Our Beltsville Agricultural Research Center (BARC) has been at the
    forefront of this effort. In fact, BARC won the prestigious White House
    Closing the Circle (CTC) Award for environmental achievement in 2001,
    in recognition of the Center's innovative utilization of bio-based
    products. The 2001 CTC Award specifically lauded the BARC Biodiesel
    Demonstration, the permanent fuel program of the Center in which all
    150 diesel-powered vehicles at BARC use a blend of 20 percent biodiesel
    and 80 percent diesel fuel referred to as B20. The Center has worked
    closely with the Defense Energy Supply Center, to purchase large
    quantities of pre-blended B20, which reduced costs and made it easier
    for Defense and civilian agencies to purchase the fuel. BARC is now
    demonstrating the use of B20 in back-up generators at the facility, and
    is using another, B5, blend in its boiler plants in an effort to reduce
    use of #2 home heating oil.
        In addition to biodiesel, the Center utilizes a variety of bio-
    based products on a regular basis. In fact, the use of these products
    as part of an innovative Environmental Management System helped BARC
    win the CTC award for 2002 as well. Specific examples of bio-based
    products utilized include: soy-backed carpet; bio-based 2-cycle oil;
    gear lubricant; hydraulic fluids; lithium grease; anti-wear hydraulic
    oil; chainsaw bar and chain lubricant; oil cutter; penetrating fluid;
    power steering fluid; and engine oil. All shops utilize bio-based hand
    cleaners, parts cleaners, and metal cleaners. A recently-implemented
    BARC janitorial contract requires the use of bio-based and/or
    environmentally preferable cleaning materials, restroom hand soaps, and
    other products on a daily use basis in all the Center's facilities.
        Across the Department, other activities are ongoing to expand our
    internal usage of bio-based products. USDA is committed to using
    alternative domestic biofuels in our fleet vehicles, and has an
    internal Departmental education and promotion strategy in place to
    annually increase the level of usage of these fuels, especially
    biodiesel and ethanol. In fiscal year 2000, USDA fleets used 66,550
    gallons of alternative fuels and by fiscal year 2002 the fleets were
    using over 133,000 annually. For fiscal year 2003, we expect an
    estimated 8 percent increase over fiscal year 2002 usage levels. Also,
    we expect to soon initiate a biodiesel fuel educational outreach grant
    program, as directed by the 2002 Farm Bill's Section 9004. In another
    product area, this past spring, USDA purchased carpet for various
    Departmental offices that utilizes soy-based carpet backing.
        Finally, we are involved in government-wide projects to create
    markets for bio-based products. In addition to the aforementioned
    Federal bio-based preferred procurement program of the Farm Bill's
    Section 9002 that we are leading, we are actively participating in the
    ``Buy Bio'' inter-governmental working group, developing additional
    strategies for government-wide procurement and promotion of bio-based
    products.

                     VALUE-ADDED DEVELOPMENT GRANT PROGRAM

        Question. On another note, the Administration's proposed budget
    eliminated funding for the value-added development grant program, which
    was authorized in the last farm bill. Many Missouri farmer groups are
    utilizing this program to jump start value-added ventures, which are
    desperately needed to rejuvenate rural economies and create jobs. While
    Missouri producers were successful last year in securing some funding
    to assist their projects, many projects are still seeking assistance.
    With the proposed elimination of funding, how does USDA intend to
    assist producer groups who are seeking to help themselves and their
    communities through value-added agriculture?
        Answer. USDA provides support to producer groups for value-added
    activities through a number of its programs. One means is through
    technical assistance. Rural Development's Cooperative Services program
    has many years of experience in working with producers to organize
    cooperatives, many of which involve value-added activities. There are
    cooperative development specialists assigned to the National Office, as
    well as to many of the State Rural Development offices. Rural
    Development also offers other funding programs to assist producers who
    wish to enter value-added activities. These include the Business and
    Industry Loan Guarantee Program, the Cooperative Stock Purchase
    Program, and the Rural Business Enterprise Grant Program.
                                     ______

                  Questions Submitted by Senator Conrad Burns

                        UPDATE ON LIVESTOCK FEED PROGRAM

        Question. Much of the State is still in extreme drought conditions.
    Your announcement on it was last month--can you provide an update on
    how the program is running, and whom it affects?
        Answer. The Secretary will add seven counties in southeastern Idaho
    and an additional four counties in northwestern Utah, under the 2003
    Livestock Assistance Nonfat Dry Milk Program to those experiencing
    continuing drought. This makes livestock producers in a total of 130
    counties in 11 States eligible to apply for surplus stocks of nonfat
    dry (NDM) milk. These surplus stocks cannot be used for human
    consumption.
        This program was designed to be dynamic and adjust as conditions
    change to help meet the needs of America's foundation livestock owners
    experiencing the worst conditions.
        Other States already included in NDMFP are Arizona, Colorado,
    Kansas, Montana, Nebraska, New Mexico, South Dakota, Utah and Wyoming.
    These stocks are provided at a minimal cost to the States and Tribal
    Governments who are responsible for providing distribution points for
    the eligible producers. The Commodity Credit Corporation will bear the
    expense of and be responsible for transporting the NDM to distribution
    points.
        The program uses USDA's surplus NDM stocks that are out of
    condition. The allocation of NDM for a county is based on a renewable,
    30-day supply equivalent to 2 pounds of NDM per day for beef cattle and
    buffalo, and \1/2\ pound of NDM per day for sheep and goats. Eligible
    livestock include foundation herds of beef cattle, buffalo, sheep and
    goats. National Agricultural Statistics Service (NASS) data is used to
    determine the number of eligible livestock in each county. Eligibility
    is determined based on the U.S. Drought Monitor found on the Web at
    http://www.drought.unl.edu/dm/monitor.html.
        The addition of 11 counties required an obligation of 12 million
    pounds of NDM. A total of 232 million pounds of NDM is now obligated to
    producers in the States that have been hardest hit by the ongoing
    drought.
        Question. When will checks for Crop Disaster (CDP) be going out?
        Answer. Signup started on June 6 and the issuance of payments began
    on June 30.
        Question. What are the views on the Ewe replacement program?
        Answer. The Lamb Meat Adjustment Assistance Program including the
    ewe lamb expansion payment program is scheduled to expire July 31,
    2003. The overall program has provided some much needed assistance and
    sheep producer returns have improved since the initiation of the
    program in 1999. In general, the program seems to have fulfilled its
    objective. Ewe lamb payments have been made on over 1.3 million ewe
    lambs to increase the quality and size of U.S. flocks. However, serious
    drought conditions have discouraged expansion in many areas. We will
    reevaluate the overall condition of the sheep industry as we consider
    proposals to extend the program.

                           HARD WHITE WHEAT INCENTIVE

        Question. How will USDA handle this program?
        Answer. The final rule for the Hard White Wheat Incentive Program
    (HWWIP) is published in the Federal Register. Key components of the
    HWWIP include:
      --Signup for 2003 HWWIP began March 3, 2003, and will continue
            through the marketing year.
      --Both hard white winter wheat and hard white spring wheat are
            eligible for payment.
      --A production incentive in the amount of $0.20 per bushel is
            provided for a minimum of #2 or better hard white wheat, as
            established by the Federal Grain Inspection Service.
      --Payment can be earned on a maximum of 60 bushels for each planted
            acre.
      --An additional incentive in the amount of $2.00 per acre is provided
            for each acre planted to certified seed.
      --Producers are eligible to earn both the production incentive and
            the certified seed incentive in the same year.
      --Total Commodity Credit Corporation outlay for the 3 years is to be
            based on not more than 2 million acres or equivalent volume of
            production.
      --Settlement sheets must be provided to FSA upon disposal of the
            production certified on the application, to be eligible to earn
            the production incentive.
      --The end use of the hard white wheat may not be for feed.
        Question. When can producers expect to get paid for their certified
    seed tags?
        Answer. The certified seed incentive payment and the production
    incentive payments will be issued, as applicable, as soon as payments
    software development and testing is complete.
        As you are aware, the HWWIP provisions were included in the 2002
    Farm Bill. Due to the massive resources required to implement the
    Direct and Counter-Cyclical Program, livestock assistance programs,
    other programs included in the 2002 Farm Bill, and the programs
    included in the Agricultural Assistance Act of 2003, program delivery
    and implementation was prioritized according to the potential numbers
    of affected producers, as well as other determining factors.
        All available resources are currently being utilized and a certain
    portion allotted to final development of the HWWIP, so that payments
    may be timely issued. We are anticipating that we will be able to begin
    issuing payments as soon as possible during the summer of 2003.
                                     ______

                    Questions Submitted by Senator Herb Kohl

                            FARM BILL IMPLEMENTATION

        Question. The new farm bill expanded program crops to include
    soybeans as an eligible commodity to receive direct and counter-
    cyclical payments. I have heard from constituents that this has had the
    unintended effect of restricting the ability of growers to produce
    anything other than program crops once their acreage becomes
    ``program'' acreage and they are thereby prohibited from producing
    commodities such as fruits and vegetables. I do recognize that the
    Department has attempted to address this problem administratively.
        Are there additional authorities at your disposal to address this
    problem, or does a remedy require legislation?
        Answer. The 1996 Act established bases acres for wheat, feed
    grains, cotton, and rice. Nationally, base acres equal 212 million
    acres. Because producers of these crops can update their bases and
    bases may be established for oilseeds for the first time under the 2002
    Farm Bill, total base acres could increase by 50 to 75 million acres.
    These additional base acres potentially reduce the ``pool'' of acres
    available for fruit and vegetable plantings.
        The provisions that allow owners to update base acres and establish
    base acres for oilseeds is statutory; the Administration has no
    discretion when it comes to implementing these provisions.
        However, the 2002 Farm Bill allows producers to opt out of the
    program for any year and be allowed to plant unlimited acres of fruits
    and vegetables on that farm. The producer will not receive any direct
    and counter-cyclical payments for that farm; however, the farm may be
    enrolled in the in succeeding years and receive full program benefits.
        We have heard compelling arguments from those who think the fruit
    and vegetable restrictions and penalties are too severe and from those
    who think the opposite. The Secretary has used any discretionary tools
    available to her to strike a balance between opposing viewpoints. We
    believe in the principle of planting flexibility; however, we are
    concerned about how small increases in fruit and vegetable acreage can
    be devastating to the traditional growers of these crops, especially if
    the increase is a result of government programs.
        After listening carefully to all sides of the arguments, we have a
    rule that implements the statutory provisions of the 2002 Farm Bill and
    minimizes the government's role in influencing a producer's decision to
    plant fruits and vegetables. The rule gives the industry the ability to
    attract new acres if market conditions warrant, without giving the
    program participant an unfair advantage in being able to receive both
    government payments and fruit and vegetable income on the same acres.

                 HOMELAND SECURITY/OFFICE OF HOMELAND SECURITY

        Question. What are the responsibilities of the Department's Office
    of Homeland Security?
        Answer. The Department does not have an Office of Homeland
    Security. The Department established a Homeland Security Council and a
    Homeland Security Support Staff. The Council is chaired by the Deputy
    Secretary and includes all of the Under and Assistant Secretaries, the
    Inspector General, select staff office directors, and the
    communications director. This Council is responsible for protecting the
    food supply and agricultural production, protecting USDA facilities and
    other infrastructure, and protecting USDA staff and managing emergency
    preparedness.
        USDA's Homeland Security Staff is delegated authority for the
    following primary functions of:
      --coordination with mission areas for policy formulation, response
            plans, reporting and action assignments to meet acute and major
            threats to the food and agricultural system, and key USDA
            assets;
      --activating the USDA incident management system and the Federal
            Response Plan responsibilities in the event of a major
            incident;
      --oversight of USDA nationwide policies and procedures related to
            homeland security;
      --coordination with the White House Homeland Security Council,
            Department of Homeland Security, other Federal agencies, and
            public and private organizations, as necessary;
      --collaboration with the National Security Council, the Homeland
            Security Council, the Office of Management and Budget, USDA
            mission areas, the Office of Budget and Program Analysis, and
            the USDA Homeland Security Council on the development and
            submission of a coordinated budget request for homeland
            security; and
      --staff support to the USDA Homeland Security Council.

                            TRANSFERS TO PLUM ISLAND

        Question. The President's budget proposes to transfer $7.8 million
    in fiscal year 2004 to the Department of Homeland Security (DHS) for
    research and diagnostic activities currently funded through ARS and
    APHIS respectively at the Plum Island Animal Disease Center at
    Greenport, NY.
        What assurances do you have that once this funding is transferred
    to DHS, research and diagnostic priorities will continue to support the
    animal health issues as they have in the past and as anticipated by the
    livestock sector?
        Answer. The fiscal year 2004 Budget provided funding for Plum
    Island activities to both USDA and DHS. We are working with our
    partners at DHS to create a research and diagnostic program that
    reflects the priorities of both departments. Communications between
    USDA and DHS, in relation to the DHS fiscal year 2004 budget, reveal
    that they share a strong interest in rapid detection of pathogens and
    vaccine development. These two areas of ongoing research by USDA are
    designed to meet the need of the livestock industry and the American
    public.
        Question. Please summarize any communications you have had with the
    livestock sector in regard to concerns they may have that
    responsibilities for these activities may fall out of the jurisdiction
    of USDA.
        Answer. USDA personnel have visited with various stakeholder and
    consumer groups representing the livestock sector during which the
    transition at Plum Island has been discussed. Within these groups there
    is a broad array of opinions as to how the changeover is perceived.
    Some groups express apprehension that their priorities will not be
    reflected in research programs conducted by DHS and are further
    concerned about how the changes in funding will impact current USDA
    research. Others, however, see it as an opportunity to bring new
    resources into agriculture to meet high priority needs.

                     HOMELAND SECURITY UNOBLIGATED BALANCES

        Question. You state in your written testimony that of the $328
    million provided to USDA for Homeland Security purposes, $184.3 million
    remains to be obligated. Documents from the Administration indicate
    that USDA is one of the Departments to have obligated the smallest
    percentage of Homeland Security-related appropriations since the
    terrorist attacks of September 11, 2001.
        Please explain why USDA has taken longer than most Departments to
    obligate these funds and provide specific information on how and when
    the $184.3 million which remains will be obligated.
        Answer. I wanted to make sure the Department took the time
    necessary to intensively review our needs and direct the funds where
    critical security gaps were identified.
        Many of the activities being funded through the Homeland Security
    supplemental require significant levels of planning prior to the
    obligation of funds. In the case of laboratory enhancements, which
    represent 27 percent of the funds provided, significant planning and
    design work must precede construction. Additionally, we have allocated
    funds to cover salary and benefit costs for new employees. Although we
    have made good progress in recruiting and filling these positions,
    obligations will appear incrementally as salary payments are made.
        The Department plans on obligating the majority of the remaining
    funds by the end of fiscal year 2003. However, certain funds, including
    those for construction and those awaiting the results of security
    assessments are expected to be obligated in 2004. Additionally,
    approximately $30.8 million of the $328 million is being transferred to
    the Department of Homeland Security for the laboratory at Plum Island.

                      EXTENSION DISASTER EDUCATION NETWORK

        Question. It has been noted that the USDA Extension Service, with
    its state and county network, can provide substantial contributions to
    Homeland Security in the nature of a first-responder in rural areas. In
    fact, the Extension Disaster Education Network (EDEN) is in place to
    serve in this capacity.
        Does USDA intend to utilize the EDEN system as a Homeland Security
    tool, and if so, in what manner?
        Answer. USDA is currently utilizing the EDEN system as a Homeland
    Security tool and intends to support efforts to increase that
    utilization in the future. The EDEN system is an internet based tool
    for providing relevant information on disaster preparedness, mitigation
    and recovery to Extension educators throughout the Nation. USDA is
    using the system to provide relevant information on homeland security
    to Extension educators who can use it for training and educating
    farmers, ranchers and others who are likely to be first responders in
    rural areas.
        Question. What level of funding is in the President's fiscal year
    2004 budget for the EDEN system?
        Answer. Approximately $500,000 of the $16,000,000 in the Homeland
    Security Program line of Integrated Activities in the CSREES fiscal
    year 2004 President's Budget will be used to support EDEN homeland
    security efforts.
        Question. Has the EDEN system, or any other USDA program, been used
    to improve Homeland Security preparations at the farm level? What
    evidence is there that individual farmers are taking steps to improve
    homeland security? Please describe funds in the President's fiscal year
    2004 budget to help individual farmers be better prepared in the area
    of Homeland Security.
        Answer. EDEN system based information has been used to educate
    farmers and farm advisors on the identification and appropriate
    responses to suspected introductions of plant and animal diseases. This
    is being done through linking EDEN with the Plant and Animal Disease
    Diagnostic Networks and with APHIS information systems. EDEN is being
    used to survey Extension educators on their use of EDEN based
    information in their farmer and rancher education programs. In addition
    to the direct funding for EDEN, education programs will be developed
    through funding of integrated activities in the National Research
    Initiative (NRI). $500,000 in fiscal year 2003 NRI funds are being used
    for a National Training Program for Agricultural Homeland Security.
    More funds could be allocated for this purpose in fiscal year 2004
    depending on the fiscal year 2004 appropriation language, and if the
    number and quality of proposals indicate it would be a good investment.

                                  FOOD SAFETY

        Question. The President's budget request includes an increase of
    nearly $5 million, in part, to develop the laboratory capability to
    respond to chemical terrorism. This increase will include the
    construction and equipping of a Biosafety Level 3 (BL-3) facility
    within FSIS's Microbiological Outbreaks and Special Projects Unit in
    Athens, GA.
        Has construction on this lab already started? When will it be
    completed?
        Answer. In order to protect laboratory staff and to minimize the
    probability that the laboratory complex will become contaminated, FSIS
    will renovate existing laboratory space at the Russell Research Center
    in Athens, Georgia. Renovation of this facility began in March of 2003,
    and is expected to be completed in February of 2004.
        Question. What will the total cost for lab construction and
    equipment be? Will additional increases be requested in the future?
    Please provide the planned timeline and budget for completion and
    equipment of this laboratory.
        Answer. The total cost for renovating existing space to construct
    the Biosafety Level-3 facility is $2.1 million. The President's 2004
    Budget does not request additional funding for this laboratory. The
    planned timeline and budget for completion and equipment of laboratory
    are as follows:

    ------------------------------------------------------------------------
                                             Performance
                   Dates                     milestones           Budget
    ------------------------------------------------------------------------
    Mar 2002..........................  Purchase lab                $117,000
                                         equipment.
    Jun 2002..........................  Purchase lab                  66,000
                                         equipment.
    Aug 2002..........................  Purchase lab                  68,000
                                         equipment.
    Sep 2002..........................  Construction               1,660,000
                                         Contract to bring
                                         to BL-3 level.
                                        Other Costs.........         140,000
    Feb 2004..........................  Construction
                                         Completed.
                                                             ---------------
          Total Costs.................  ....................       2,051,000
    ------------------------------------------------------------------------

        Question. What, specifically, will the laboratory be used for?
        Answer. In the event that there is a major threat condition, the
    BL-3 laboratory will be a critical resource that will allow FSIS to
    handle and screen large numbers of food samples for the presence of
    biological, chemical, and radiological agents. It will also give FSIS
    the capability to handle samples potentially contaminated with unknown
    and mixed agents. This facility will also protect staff and minimize
    the probability that the entire laboratory complex will become
    contaminated during the analysis of agents that would mostly be used to
    contaminate the food supply.

                              FSIS REORGANIZATION

        Question. The January, 2003 FSIS report on the Food Security
    Initiatives currently being undertaken by FSIS mentions the Food
    Biosecurity Action Team, and states that ``a planned reorganization of
    FSIS is underway that includes a new homeland security office that will
    serve as a center for this team's functions.'' However, I see no
    specific mention of this Team or any planned reorganization in the
    President's budget request.
        Is a reorganization being planned for FSIS? If so, please provide
    information on when will it take effect and what is being planned.
        Answer. FSIS has developed a reorganization plan, which is
    currently under review.
        Question. Will Congress receive prior notification of any
    reorganization?
        Answer. Congress will be notified as required by the 2003
    Appropriations Act.
        Question. Will this reorganization result in the need to reprogram
    any of the funds requested in the President's budget?
        Answer. The reorganization plan is under review. Therefore, we have
    not determined if there will be a need to reprogram any of the funds
    requested in the President's budget.

                             FOOT AND MOUTH DISEASE

        Question. Please contrast the level and type of preparations the
    United States now has to contain an outbreak of Foot and Mouth Disease
    from those which the British had available at the time of the outbreak
    in the United Kingdom in 2001. How have the British modified their
    level of preparation since then? What actions have the United States
    taken since then?
        Answer. Since the British experience with foot-and-mouth disease
    (FMD) and the terrorist attacks of September 11, 2001, USDA has
    strengthened its guard against FMD and other animal health threats.
    USDA has bolstered the Emergency Management System (EMS), 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. In March
    2001, APHIS announced the availability of fiscal year 2001 funds for a
    grant program for the National Animal Health Emergency Management
    System to increase the level of animal health emergency preparedness
    for the entire United States. Of the 67 grant applications received,
    APHIS was able to award 38 of them, totaling $1.8 million.
        During the FMD outbreak in the United Kingdom, the United States
    responded to the United Kingdom's request for assistance on disease
    diagnosis and carcass removal. More than 200 veterinarians from State
    agencies, private practice, universities, and other organizations from
    the United States took part in the control efforts. Another 125 Federal
    veterinarians from several agencies also participated, and the U.S.
    Environmental Protection Agency provided support for carcass disposal
    and burial. ARS scientists visited the main UK reference laboratory at
    Pirbright and assessed sampling protocols and diagnostic tools utilized
    throughout the outbreak. This experience, as well as the practice USDA
    gained in coordinating such a diverse group, will be beneficial in the
    event of future emergencies.
        In fiscal year 2002, APHIS distributed approximately $18.5 million
    in cooperative agreements to the States and Tribal Lands to help
    bolster foreign animal disease (FAD) surveillance and preparedness.
    Currently, APHIS is working on distributing additional funds to the
    States and Tribal Lands to be used to help further bolster their FAD
    surveillance programs.
        Additionally, APHIS developed and participated in many State level
    test exercises to increase the confidence and capability of the first
    responders to an animal health emergency in the United States. APHIS
    also participated in the development and implementation of an
    international animal health test exercise in Australia. In fiscal year
    2002, APHIS offered FAD awareness and incident command system training
    to State veterinarians.
        APHIS and the Cooperative State Research Education and Extension
    Service initiated a cohesive and coordinated national animal health
    laboratory network (NAHLN) in fiscal year 2002 with Homeland Security
    Supplemental funds. The network emulates a national strategy to meld
    the Nation's Federal, State, and local resources in order to respond to
    any type of animal health emergency, including bioterrorist events,
    newly emerging diseases, and FAD agents that threaten the Nation's food
    supply and public health. During fiscal year 2002, APHIS provided a
    total of $15.25 million in Homeland Security funding to 12 State
    diagnostic laboratories for activities such as improving biosecurity of
    facilities, communication of results, equipment, standardization of
    methods, and quality assurance.
        Question. Please provide the USDA position on the need to make
    available a rapid test to detect the presence of Foot and Mouth Disease
    and the need to stockpile vaccines.
        Answer. The availability of a rapid test to detect the presence of
    foot-and-mouth disease (FMD) would greatly help contain an outbreak
    should one ever occur here. ARS Scientists at Plum Island have
    developed and bench validated a rapid detection assay. The assay will
    be further validated by APHIS. In addition, two other rapid detection
    assays for FMD (one developed by the California Animal Health
    Diagnostic Laboratory System in conjunction with the Lawrence Livermore
    National Laboratory and one commercial assay developed by Dupont) will
    also be validated by APHIS.
        Stockpiling is already occurring through the North American FMD
    Vaccine Bank, which stores FMD antigens that keep indefinitely and may
    be formulated into vaccine rapidly should an FMD outbreak occur. Given
    the many subtypes of the FMD virus, APHIS continues to add antigens to
    the Bank for needed subtypes.
        Question. Does such a rapid test exist, and if so, why is it not
    deployed? If it does not exist, what is USDA doing to develop one?
        Answer. ARS Scientists at Plum Island have developed and bench
    validated a rapid detection assay for foot-and-mouth Disease (FMD).
    This assay has been taken to the field and tested on samples from
    clinical cases of the disease, but more data and testing is required
    before these tests can be accepted as fully validated. The assay will
    be further validated by APHIS, via testing on samples of positive and
    negative controls. In addition, two other rapid detection assays for
    FMD (one developed by the California Animal Health Diagnostic
    Laboratory System in conjunction with the Lawrence Livermore National
    Laboratory and one commercial assay developed by Dupont) will also be
    validated by APHIS.
        Question. To what extent are vaccines available? If there was a
    reported outbreak, how quickly could vaccines reach the effected herds?
        Answer. Presently, our contributions, along with contributions from
    Mexico and Canada, assure the availability of 14.5 million doses of
    four strains of FMD vaccine. During fiscal year 2003, APHIS expects to
    add additional strains and bring the total number of available doses to
    19.5 million. In the fiscal year 2004 President's budget, APHIS
    proposes to increase the availability of doses to 20.75 million at a
    cost of $560,000.
        Once the North American FMD Vaccine Bank is supplied with the
    serotype of the outbreak, and the vaccine is available, the North
    American FMD Vaccine Bank will be able to supply approximately 300,000
    vaccines to the affected areas within 3 days. If however, the North
    American FMD Vaccine Bank does not have a stockpile of the needed
    vaccine, it could take as long as a month to produce the needed
    vaccines.

                            EXOTIC NEWCASTLE DISEASE

        Question. It is my understanding that USDA developed a rapid test
    for Exotic Newcastle Disease more than 2 years ago, but has failed to
    speed the validation or deployment of this test in spite of
    admonishments from Congress. The recent outbreak of this disease
    indicates that USDA efforts at containment are badly inadequate.
        Is not Exotic Newcastle Disease a virus that has been identified as
    a potential biological weapon agent?
        Answer. I disagree that the USDA efforts at containment are badly
    inadequate. While the exotic Newcastle disease virus has been
    identified as a potential biological weapon agent, there is no evidence
    that this incident is the result of an intentional introduction.
        Question. Why has USDA not validated and made available this test?
        Answer. The United States Department of Agriculture, along with the
    California diagnostic laboratory system, has validated the rapid test
    for exotic Newcastle disease. Samples were used from the recent
    outbreak in California to validate the test. Presently, both the State
    of California and USDA's National Veterinary Services Laboratories are
    using the rapid test to sample commercial and backyard flocks. USDA
    officials have also offered the test to neighboring State diagnostic
    laboratories and to laboratories participating in the National Animal
    Health Laboratory Network. Training has been completed and once the
    laboratories pass a proficiency test, they will begin using the rapid
    test in national surveillance.
        Question. To what extent does USDA believe the outbreak of Exotic
    Newcastle Disease is intentional or does USDA believe, as has been
    reported, that it was introduced by the illegal transportation of
    fighting birds? If the latter is the case, what is USDA doing to step
    up enforcement of bird fighting laws to prevent similar introductions
    in the future?
        Answer. While USDA's investigation into the exotic Newcastle
    disease outbreak in Southern California has not provided a source of
    infection, the virus strain is genetically similar to a strain
    confirmed in Mexico in 2000. USDA does not believe the virus was
    introduced intentionally. There is no conclusive evidence to support
    the claims in the press that the disease was introduced by the illegal
    transportation of fighting birds. However, the movement of poultry
    species such as fighting birds does contribute to the spread of
    disease. USDA commonly intercepts illegally transported pet birds from
    Mexico and previous exotic Newcastle disease outbreaks have been
    attributed to birds from Mexico. In February 2003, USDA conducted a 30-
    day operation on the Mexican Border in Southern California to intercept
    birds and other prohibited items. During the operation, program
    officials intercepted three shipments of smuggled birds and two
    shipments of fighting cock spurs, resulting in the confiscation of six
    birds. All seized birds tested negative for END. Regulations in the new
    Farm Bill and legislation pending in California should help support
    improved enforcement of laws prohibiting the movement of fighting
    birds.

           SECURITY ANALYSIS SYSTEM/UNITED STATES AGRICULTURE SYSTEM

        Question. You are requesting additional funding for the SAS/USA
    system. The Agency received $1.7 million from Homeland Security Funds
    last fiscal year. With the large balance left in that fund, why is a
    separate line-item request needed?
        Answer. ERS plans to obligate all of this $1.7 million before the
    end of fiscal year 2003. Currently, ERS is focusing on integrating many
    new databases to strengthen the fundamentals of the SAS/USA system to
    have information readily available for analysis for a variety of
    agriculture-related emergency situations. ERS has made substantial
    progress in gathering and incorporating data in the areas of
    transportation, agriculture production, and the locations of food
    processing facilities. Within the next 6 months, ERS will also be
    developing a very complex food contamination scenario that uses data to
    describe the flow of food material from production through processing
    and distribution channels to consumers. This scenario will concentrate
    on ground meat, ready-to-eat food, poultry, milk, and eggs.
        For fiscal year 2004, ERS will use the $1 million in additional
    requested funding to finalize the food contamination scenario and
    construct a foot-and-mouth scenario, as well as to incorporate a more
    finely-defined spatial dimension (at the county level instead of the
    current State level) and economic dimension (about 500 business sectors
    instead of the current 132) into the system. ERS also plans to develop
    a more sophisticated economic model that includes feedback to project
    consumer reactions.
        The Homeland Security funds have all been allocated to high
    priority efforts, and all such funds are expected to be obligated the
    end of fiscal year 2003.

                              COMPETITIVE SOURCING

        Question. I am concerned that Administration directives on the
    subject of USDA Competitive Sourcing will result in substantial harm to
    employee morale and serious erosion of long-held public/private
    partnerships in the area of conservation and other mission areas
    important to Rural America.
        Please provide a listing of all USDA activities that are being
    considered for competitive sourcing and the timetables for actions on
    this subject with a brief description of their current workload,
    responsibility, grade, ethnicity, gender and include persons with
    disabilities.
        Answer. Currently USDA is considering approximately 6,600 positions
    for study under Competitive Sourcing guidelines during fiscal year
    2003. These positions include functions such as Human Resources,
    Internet Technology, Debt Collection, Loan Operations, Program
    Reporting, Maintenance, Clerical, Geological analysis, Cartography,
    Soil conservation, Civil Engineering and Laboratory Technicians. About
    two thirds of the individuals filling these positions have been
    identified as male and about a third female, with an ethnicity of 8
    percent African-American, 2.6 percent Hispanic, 1 percent Asian, 1
    percent American Indian and less than 1 percent identified as disabled.
    The grades of these individuals range from GS-3 to GS-14. I will
    provide the listing you requested for the record.
        [The information follows.]

    ----------------------------------------------------------------------------------------------------------------
                                                                                                         Expected
                   Agency Responsible                         Type of Work Load          Study Start    Completion
                                                                                             Date          Date
    ----------------------------------------------------------------------------------------------------------------
    FSA............................................  Human Resources...................     6/1/2002       9/30/2003
                                                     Information Technology............     6/1/2002       9/30/2003
                                                     Debt Collections..................     6/1/2002       9/30/2003
                                                     Loan Operations...................     6/1/2002       9/30/2003
                                                     Program Reporting.................     6/1/2002       9/30/2003
    FAS............................................  Data Collection...................    10/1/2002       9/30/2003
    RMA............................................  Administrative Support............     8/1/2003       9/30/2003
    FS.............................................  Information Technology                 2/3/2003       2/15/2004
                                                      Infrastructure.
                                                     Maintenance.......................         2003       9/30/2003
                                                                                            (various
                                                                                               start
                                                                                              dates)
                                                     Job Corp Center...................     4/3/2003       9/30/2003
                                                     Information Technology Help Desk..   10/15/2002       12/2/2003
                                                     Content Analysis..................          TBD             TBD
    NRCS...........................................  Administrative Support............    12/1/2002       9/30/2003
                                                     Geological Analysis...............     1/1/2003       9/30/2003
                                                     Supply Warehouse and Distribution.    12/1/2002       9/30/2003
                                                     Cartography.......................     1/1/2003        9/1/2004
                                                     Soil Conservation Operations......    12/1/2002       9/30/2003
                                                     Soil Conservation Evaluation......    12/1/2002       9/30/2003
                                                     Civil Engineering and Analysis....   12/18/2002        4/1/2004
    RD.............................................  Centralized Service Center........    10/8/2002       9/18/2003
                                                     Operations and Service                10/8/2002       9/18/2003
                                                      (Accounting).
                                                     Human Resources (Training Support)    10/8/2002       9/18/2003
                                                     Program Support...................    10/8/2002       9/18/2003
    FNS............................................  Administrative Support............    9/30/2002       9/30/2003
    AMS............................................  Cotton Grading....................     8/1/2003       8/30/2003
    APHIS..........................................  Laboratory Technicians............     2/1/2003       9/30/2003
                                                     Administrative Support............     1/1/2002        6/1/2002
                                                     Aircraft Pilot....................     2/1/2003       9/30/2003
                                                     Tree Climbers.....................     2/1/2003       9/30/2003
                                                     Clerical Support..................     2/1/2002       9/30/2002
                                                     Information Technology............     9/1/2002       9/30/2003
                                                     Laboratory Technicians............     2/1/2003       9/30/2003
                                                     Maintenance.......................     2/1/2003       9/30/2003
                                                     Medfly Production Workers.........     2/1/2003       9/30/2003
                                                     Training..........................     9/1/2002             TBD
    REE............................................  Facilities Operations &                5/1/2003       12/1/2004
                                                      Maintenance Farm Services.
                                                     Facilities Operations &                5/1/2003       12/1/2004
                                                      Maintenance Research Farming
                                                      Service.
    NFC............................................  E-Payroll operations..............    10/1/2002        1/1/2003
                                                     Information Graphics..............     7/1/2003       9/30/2003
                                                     Printing and Reproduction.........     7/1/2003       9/30/2003
                                                     Records Management................     7/1/2003       9/30/2003
                                                     Microfilming......................     7/1/2003       9/30/2003
                                                     Nursing...........................     7/1/2003       9/30/2003
                                                     Internal Audit....................     7/1/2004       9/30/2003
                                                     Claims Processing.................     7/1/2003       9/30/2003
                                                     Telephone Management..............     7/1/2003       9/30/2003
                                                     Cyber Security....................     7/1/2003       9/30/2003
    ----------------------------------------------------------------------------------------------------------------

        Question. Please explain how you intend to consider the
    ``competitive'' value of the historical experience and cooperation with
    the private sector that Federal agencies currently posses?
        Answer. USDA contracts extensively with the private sector. As
    contracts expire, USDA will continue to compete the work according to
    the Federal Acquisition Regulation to ensure full and open competition
    through the use of competitive procedures.
        Question. Please explain how the Administration intends to ensure
    that any private entity that succeeds in a competitive bid over a
    current USDA agency will maintain, at least, current services over a
    prolonged period of time?
        Answer. The Federal Acquisition Regulations that the Department and
    other Federal agencies follow provide a number of mechanisms to ensure
    that private entities provide services under contract to the
    government. During the evaluation of the contract bid proposals, the
    past performance of the vendor is considered when judging the ability
    of a private entity to perform at the required level. In addition, the
    contracting officer makes a determination to ensure that a private
    entity is making a responsible offer; this assessment includes
    possessing such items as: adequate resources, necessary organization
    and experience, accounting and operational controls, and a satisfactory
    performance record. Once a contract is awarded, the Department provides
    technical direction and guidance to the contractor to ensure
    satisfactory performance and timely delivery.
        Question. For what period of time will private entities be expected
    to maintain a current level of services in order to be ``competitive''
    in this process?
        Answer. Typically, a contract will include a base year and four
    option years. Options will be exercised based on contract performance.
        Question. Will there be liquidated damages assessed against any
    private entity that defaults in their contractual responsibilities over
    a period of time? If not, what means will be used to ensure long-term
    viability of Federal programs once they are no longer under the control
    of Federal employees?
        Answer. The Federal Acquisition Regulation (FAR) provides for
    several remedies, depending upon the circumstances, should a contractor
    default in their contractual responsibilities. One such remedy is to
    terminate the contract. There are also various steps the government
    takes to notify contractors of unsatisfactory performance and to permit
    them to correct the situation, prior to engaging in the termination
    process. Should the contactor be terminated for default, the government
    may hold it liable for any additional costs resulting from
    reprocurement. Generally, sound contract administration practices
    should result in satisfactory performance by most contractors. Use of
    positive and negative financial incentives, in conjunction with the use
    of a performance-based work statement, will also assist in ensuring
    quality contractor performance.
        Question. The Centralized Servicing Center's bankruptcy division is
    an example of potential out-sourcing. If the government wins this
    competition, as I understand, a contract will have to estimate the
    number of bankruptcies that would be completed for a year. As the year
    proceeds, if the number is less, the Agency will have to modify the
    contract down. If the numbers come in higher as the year proceeds, the
    Agency will have to modify once again and provide additional resources
    including FTEs. In addition, if by chance there is a surge in
    foreclosures, the Agency would be prevented from transferring some of
    this work from the bankruptcy division to the foreclosure division to
    temporarily handle the backlog. With the uncertainties in the economy
    and an ever changing housing market, does this make sense to reach
    efficiencies and provide good service to the customers? Why was the CSC
    even considered?
        Answer. Estimated workload requirements are included as part of the
    Performance Work Statement (PWS) in the solicitation. These estimates
    take into account workload variations. Additionally, the solicitation
    states, ``The actual specific workload that the Provider will
    experience during the performance period is subject to annual review
    and may vary from the estimated workloads shown in the PWS by a much as
    10 percent.'' Both government and potential industry offerors are aware
    that their staffing approach must be flexible enough to accommodate the
    fluctuations in workload.
        Upon completion of the study, the Centralized Service Center (CSC)
    will continue to be flexible in meeting the needs of their customers.
    Further, we believe that the organization will actually have improved
    control and management capability through its performance measures and
    quality assurance procedures.
        Since the CSC performs mortgage loan servicing functions that are
    similar to loan servicing functions performed in the private mortgage
    industry, this similarity makes the Center a good candidate.
        Question. I also understand the correspondence unit in the national
    office for Rural Development will be contracted out, even though the
    overall competitive sourcing evaluations are not complete. A large
    percentage of these letters are from Congress. The Federal managers of
    the contract will have to ensure the complex policy, program and
    political issues are dealt with appropriately. How will an outside
    source with no historical knowledge of the internal workings of the
    Department, relationships with the programs and Congress provide
    savings and not simply add another layer of oversight?
        Answer. The Rural Development Correspondence Unit does its work by
    obtaining input on policy, program and political matters from Rural
    Development policy officials and staff. The unit itself does not have
    the expertise to address such matters. Its functions are primarily
    administrative, such as keeping track of correspondence, using
    previously approved responses for handling routine correspondence and
    drafting appropriate responses based on the input it receives from
    other sources including National, State and local office staff. Such
    functions do not require a great deal of historical knowledge. Rather,
    they require only basic skills in communications and organization,
    which are readily available in the private sector work force.
        Question. It is my understanding that the direct conversion
    provisions of the A-76 are directed to functions with 10 or fewer
    employees. These groups are not afforded the ability to compete. What
    is the percentage of minorities and persons with disabilities that
    could be impacted by this allowance?
        Answer. For Rural Development, the number of FTEs impacted is 18,
    12 of these individuals have been placed in other positions in the
    agency. Fifty percent (9) were minorities, and three of them were
    placed within the agency. Five have disabilities and three of them were
    placed within the agency.
        Question. Since Thursday, January 23, 2003, 13 employees in the
    Rural Development Washington, D.C. office were given ``Certificates of
    Expected Separation'' under the Direct Conversion of the A-76. What is
    the Civil Rights Impact analysis of those employees, and have any Civil
    Rights Impact Analysis been conducted on any other potential A-76 RIF
    candidate?
        Answer. I understand that Rural Development has performed a Civil
    Rights Impact Analysis on all potential impacted employees in the
    mission area. This analysis indicated that competitive sourcing in the
    Washington DC area will impact less than 2 percent of Rural
    Development's employees.
        Question. I understand the same contractor, operating out of the
    same Headquarters Office in Virginia, is performing both the
    Performance Work Statement (PWS) and the Most Efficient Organization
    (MEO) on this A-76 study. Do you have concerns that this could result
    in a conflict of interest, and if so, can it be defended?
        Answer. In accordance with OMB Circular A-76 and applicable Federal
    Acquisition Regulations, firewalls are required within the competitive
    sourcing process to ensure the government maintains the integrity of
    the process by preventing the occurrence of actual or perceived
    conflicts of interest. Rural Development has established written
    firewall procedures based on the most current OMB guidance, and
    requires compliance with that guidance by its contractors.
        The Agriculture Appropriations Report, S. Rept. 107-41, stated as
    follows: ``The Committee expects that none of the funds provided for
    Rural Development, Salaries and Expenses should be used to enter into
    or renew a contract for any activity that is best suited as an inherent
    function of government, without prior approval from the Committees on
    Appropriations of the House and Senate. Such activities many include,
    but are not limited to, any functions that affects eligibility
    determination, disbursement, collection or accounting for Government
    Subsidies provided under any of the direct or guaranteed loan programs
    of the Rural Development mission area or the Farm Service Agency.
    Further, the Secretary shall provide a report to the Committees on
    Appropriations of the House and Senate by March 1, 2002, and all plans
    by the Department to enter into contracts to carry out any of the
    previously stated activities.''
        Clearly it is the intent of Congress that any function that affects
    eligibility determination, disbursement, collection or accounting for
    government subsidies provided under any of the direct or guaranteed
    loan programs of the Rural Development mission area is inherently
    governmental and should not be subjected to either competition or
    direct diversion to the private sector.
        Pursuant to the above, was a report provided to the Committees of
    the House and Senate on plans to enter into contracts to carry out any
    of these activities. The answer on March 6, 2002, from Deputy Under
    Secretary Neruda stated: ``Rural Development contracting officers have
    not entered into any contract for inherently governmental services and
    do not plan to do so.''
        Question. Don't some, if not all, of the services, contained in the
    aforementioned fiscal year 2003 Competitive Sourcing plan for Rural
    Development affect eligibility determination, disbursement, collection
    of accounting for Government subsidies provided under any of the direct
    or guaranteed loan programs of the Rural Development mission area?
        Answer. Rural Development's competitive sourcing plan does not
    include any of the aforementioned functions.
        Question. It is my understanding that in its fiscal year 2000 Fair
    Act Inventory, Rural Development listed some 929 FTEs as commercial,
    with the remaining approximate 6,000 FTEs in Rural Development
    considered being inherently governmental. Of the 929 FTEs listed as
    commercial in fiscal year 2000, approximated 139 were coded ``Reason A
    specifically exempted by the agency from OMB Circular A-76 cost
    comparisons as core functions,'' and 788 were coded ``Reason B subject
    to cost comparison or direct conversion requirements.'' Then in its
    fiscal year 2001 FAIR Act Inventory Rural Development listed a total of
    only 183 FTEs as commercial activities on its FAIR Act inventory of its
    approximately 7,000 employees which seems more in line with the intent
    of Congress as expressed in the fiscal year 2002 Agriculture
    Appropriations report language. Of these approximately 58 were listed
    with Reason Code A, and 125 with Reason Code B. The fiscal year 2002
    FAIR Act Inventory was posted on the OCFO website on or about February
    11, 2003. It now lists ALL of Rural Development activities and
    employees as commercial. Can you explain the fluctuations in what is
    being considered as inherently governmental vs. what is being
    considered as commercial activities?
        Answer. The FAIR Act inventory requirements have changed over time.
    The fiscal year 2000 FAIR Act inventory required only ``Commercial''
    functions. Rural Development identified only Headquarters functions in
    that inventory; Field Offices were not reported and no inherently
    governmental functions were identified. OMB did not approve Rural
    Development's fiscal year 2001 FAIR Act Inventory. Rural Development's
    fiscal year 2002 FAIR Act inventory reflects 20 percent of its total
    FTEs (7,020) as commercial.
        Question. Have you considered the cost of Federal oversight as a
    factor in the cost of outsourcing?
        Answer. Yes, the cost of oversight is routinely included in the
    study process.

                             UNAUTHORIZED USER FEES

        Question. The President's fiscal year 2004 budget request includes
    assumed revenues of $159 million from unauthorized user fees among the
    following programs: $8 million in connection with the Animal and Plant
    Health Inspection Service, $29 million in connection with the Grain
    Inspection Packers and Stockyards Administration, and $122 million in
    connection with the Food Safety Inspection Service. The jurisdiction
    for authorizing such fees does not lie with this Committee.
        Notwithstanding the fact that the Budget Appendix for the
    President's fiscal year 2003 Budget submission indicates appropriation
    levels based on current law, Table S-8 on page 318 of the President's
    Budget indicates the total discretionary spending amount for this
    subcommittee is $16.9 billion, which does include assumptions that the
    total $159 million in assumed revenues from these fees will be
    available. It is from this table that the subcommittee's allocation
    will be based.
        Section 723 of Division A of Public Law 108-7 requires information
    in regard to reductions in the President's budget that must occur in
    the event such user fees are not timely authorized. Please provide that
    information.
        Answer. If the user fee proposals were not enacted, appropriations
    would need to be provided to adequately support FSIS programs. We
    respectfully defer to the appropriations and authorizing committees to
    determine the outcome of these proposals.
        Question. Have the Congressional authorizing committees received
    your proposed legislation in regard to these fees, and if not, when
    will they receive it?
        Answer. The Department has not submitted the proposed legislation
    to Congress. We expect to forward a package by the end of June.
        Question. Since the President assumes the $159 million in revenues
    from these fees will be available, would you similarly have no
    objections if we also assume that the authorizing committees will
    provide you the authority to collect these fees? Therefore, do you have
    no objection if we, consistent with the President's S-8 Table,
    appropriate what the President wants us to appropriate as suggested by
    Table S-8, and provide you with the ability, subject to authorization,
    to collect these fees? Do you have any objection to working with the
    authorizing committees in this fashion?
        Answer. We will be glad to work with both the appropriations and
    authorizing committees to give the Department the ability to collect
    and retain the user fees.

                                  EEOC REVIEW

        Question. The March 10th article in the Washington Post on USDA
    Civil Rights refers to an EEOC review that was very critical of the
    Department's entire civil rights process.
        When will this division come into compliance with time frames,
    tracking, proper oversight, etc.?
        Answer. Vernon Parker, USDA's first Assistant Secretary for Civil
    Rights, was sworn in on April 1, 2003, and is exploring aggressive
    actions to improve civil rights at USDA.
        Parker is developing a plan with a number of initiatives that will
    dovetail with the United States Equal Employment Opportunity
    Commission's (EEOC's) recommendations. The initiatives will address
    timeliness, data tracking and oversight responsibilities. USDA plans to
    fully comply with all the recommendations in EEOC's report and has
    begun implementing and tracking the actions required to comply with the
    recommendations.

                                  FAIR HOUSING

        Question. In 2001 and 2002, the Rural Housing Service conducted
    Fair Housing testing on management companies, banks, and USDA
    employees. I understand that some results have indicated violation in
    the tested areas.
        When will the results of this data be made available to Congress
    and have you taken any steps against violators including USDA
    employees?
        Answer. All of the Rural Development testing projects are scheduled
    for completion, with the Contractor's final reports issued, by
    September 2003. Once the final reports are issued, corrective action
    plans are developed and our summaries analysis completed I will be in a
    position to provide you with a final report. We anticipate this being
    completed by November 2003.
        Question. In light of the President's initiative on increasing
    minority housing, do you think this activity should continue, and if
    so, will you provide funding within the Rural Development S&E budget?
        Answer. Yes, testing should continue as part of the President's
    initiative. We feel this is a tool to evaluate Rural Development's
    program administration and better direct appropriate funding to various
    programs. Funding for this activity is included within Rural
    Development's S&E account for 2003 and the 2004 Budget.
        Question. What are your plans for complying with the President's
    Housing Initiative including Fair Housing?
        Answer. Based upon the 2000 Census, Rural America is comprised of
    13 percent minorities; however, over 20 percent of USDA's homeownership
    programs benefit rural minority families. While USDA has an excellent
    track record at assisting minority families, we feel we can do more. At
    the White House Conference on Increasing Minority Homeownership on
    October 15, 2002, both USDA Secretary Ann Veneman and Housing and Urban
    Development (HUD) Secretary Mel Martinez announced their individual
    plans to increase minority homeownership. USDA's Five Star Commitment
    includes (1) lowering fees to reduce barriers to minority
    homeownership; (2) doubling the number of self-help housing
    participants by 2010; (3) increasing participation by minority lenders
    through outreach; (4) promoting credit counseling and homeownership
    education; and (5) monitoring lending activities to ensure a 10 percent
    increase.
        Benchmarks and performance goals have been issued to each State,
    and each State has developed their own plans to meet the Department's
    Minority Homeownership goals by the decade. In addition, USDA agreed to
    submit reports to the White House on the progress made by HUD, VA and
    USDA in meeting the President's initiative.
        Question. I understand that the Department of Justice's Office of
    Legal Counsel has indicated the HUD Fair Housing Division can't
    prosecute USDA employees that violate the Fair Housing Act. What steps
    are you taking to ensure USDA employees comply with the Fair Housing
    Act and what steps will you take or have taken against violators?
        Answer. Rural Development has in place appropriate regulations that
    can be used when Rural Development employees violate civil rights laws
    especially the Fair Housing Act. Rural Development Instruction 1901-E,
    the Table of Disciplinary Penalties and employee evaluations are the
    tools Rural Development will use to ensure accountability to violations
    of civil rights laws.
        The Rural Development Civil Rights Staff (CRS), in conjunction with
    Program Area Divisions, conduct annual field reviews, Management
    Control Reviews, State Internal Reviews, as well as Civil Rights
    Compliance Reviews. These different types of reviews are all part of
    regulations and the CRS is working toward providing training to all
    Rural Development employees in the area of civil rights and program
    reviews. Rural Development's Civil Rights Instruction require that one
    third of its portfolio is to be reviewed by trained civil rights
    compliance persons each year. Additionally, Rural Development has
    collateral and full time State Civil Right Coordinator/Managers in each
    State office.
        Question. In the last administration, HUD and USDA entered into a
    memorandum of understanding on Fair Housing. Is this still in place and
    has it been altered?
        Answer. Yes, the Memorandum of Understanding is still in place and
    it has not been altered.

                              WORKING CAPTIAL FUND

        Question. The fiscal year 2003 enacted bill provided $12,000,000
    for acquisition of remote mirroring backup technology and requires a
    feasibility study to be submitted to both the House and Senate
    Appropriation Committees.
        Can you give us an estimate of when you would complete this study?
        Answer. The study should be completed by August 2003.
        Question. Will it include various locations, including existing
    USDA Federal facilities sites?
        Answer. The National Finance Center is in the process of gathering
    information required for a feasibility study. The study will look at
    appropriate locations. However, until the study is completed, we will
    not know whether a solution will involve one or more locations, or the
    use of existing Federal facilities sites.
        Question. Do you anticipate competition for one finance center for
    the entire Federal Government in the future?
        Answer. The Office of Management and Budget (OMB) and the Office of
    Personnel Management (OPM) may look at this issue in the future.
    Earlier this year, OPM conducted an internal competition to consolidate
    22 Federal payroll providers and recommended that two payroll
    partnerships be formed. USDA's National Finance Center and the
    Department of Interior will form one partnership and the Department of
    Defense will partner with the General Services Administration. OMB and
    OPM expect this consolidation to save the Federal Government an
    estimated $1.2 billion over the next decade.

                   OUTREACH TO SOCIALLY DISADVANTAGED FARMERS

        Question. What is the status of the funding for the 2501 program
    with funds made available in 2002 and 2003 combined?
        Answer. A request for applications was released November 6, 2002 to
    begin the solicitation process. The deadline for proposals to be
    submitted was January 31, 2003. We received 85 proposals with the
    following types of organizations represented in the applications: 25
    percent from 1890 institutions; 35 percent from community based
    organizations; 15 percent from 1994 institutions and tribal
    organizations; 25 percent from other higher education institutions.
    Applications came from the following regions: Western region 35
    percent; Southern 38 percent; Northeast 9 percent; North Central 18
    percent and 4 percent were multi-state applications. The peer review
    panel has been convened and awards have been recommended. We anticipate
    that the grants will be announced in early summer once the award
    process is completed.
        Question. Will you establish performance measures in this program?
        Answer. Yes. The following two performance measures are under
    development:
      --Level of Participation.--There will be an increase in participation
            in USDA farm assistance programs among socially disadvantaged
            farmers and ranchers.
      --Minority Participation.--There will be an increase in the number of
            minorities involved in CSREES-funded education programs
            (African Americans, Native Americans, Alaskan Natives,
            Hispanics, Asians, and Pacific Islanders).

                CHRONIC WASTING DISEASE/ASSISTANCE TO WISCONSIN

        Question. Last year, the sudden presence of chronic wasting disease
    in Wisconsin deer populations caused serious concern among the state's
    livestock and natural resource sectors. I want to thank you for the
    assistance you provided to Wisconsin. As is the case with many State
    governments, budget shortfalls in Wisconsin have made it very difficult
    for the State to direct the resources needed to contain and eradicate
    this disease. Last year, we appropriated $14.9 million to combat
    chronic wasting disease of which Wisconsin received only $800,000--far
    below the State's needs. I understand other States have similar
    shortfalls.
        Can you explain how the $14.9 million was allocated and what
    additional resources you plan to make available to Wisconsin in fiscal
    year 2003?
        Answer. Slightly more than half (about $7.6 million) of the
    available fiscal year 2003 appropriations was directed to deal with CWD
    in wild herds, of which $4 million was for cooperative agreements with
    States. To deal with the disease in wild herds, APHIS worked with the
    International Association of Fish and Wildlife Agencies in determining
    the formulas for distributing these funds. Level-1 States, including
    Wisconsin, are eligible to receive $93,750 for surveillance activities
    and $125,000 for management activities. Final funding amounts are based
    on the State's risk level and the needs outlined in the surveillance
    and management plan accompanying each State's application for funding.
        In addition to the $4 million reserved for State management and
    surveillance assistance, APHIS also provides support for the diagnostic
    testing of samples collected during the 2002-2003 hunting season.
    Funding for diagnostic testing was based on the initial number of
    samples projected in a given State's approved surveillance plan. APHIS
    estimates that the allocation for the testing of Wisconsin samples will
    be $232,000 given greater-than-expected testing efficiencies; this
    amount will cover the 41,000 samples collected in the State during the
    2002-2003 hunting season. Payments will be directed to the certified
    laboratories that are conducting the tests. APHIS has already provided
    the State laboratory of Wisconsin with $100,000 for the reagents used
    to conduct the diagnostic testing.
        We estimate that APHIS' total funding to Wisconsin in fiscal year
    2003 to address CWD in free-ranging cervids will reach approximately
    $550,750. We will make a final allocation of funds after all
    surveillance and management plans submitted by State wildlife agencies
    have been reviewed. Should funds remain after we meet all approved
    requests, we will consider additional allocations. Such allocations
    would focus on level-1 States like Wisconsin. Also we will consider
    emergency developments such as CWD detection in wild cervids that
    occurred in Wisconsin last year.
        A sizable portion of the resources devoted to the captive cervid
    program will support the program in Wisconsin. APHIS will be covering
    testing, indemnity, and disposal costs associated with the depopulation
    of CWD-positive and CWD-exposed captive cervid herds. In addition,
    APHIS hired a veterinary medical officer (VMO) in September 2002 who is
    stationed in Madison, Wisconsin. The Wisconsin VMO is responsible for
    coordinating indemnity and disposal activities in the region.
        Question. I and other members of the Wisconsin Congressional
    delegation recently sent you a letter on ways you can release more
    funds to Wisconsin. Please respond on that issue.
        Answer. APHIS appreciates the support we have received from the
    Wisconsin Congressional delegation in our efforts to monitor and
    control the spread of CWD in captive and wild cervid herds. Before
    finalizing the fiscal year 2003 CWD allocation, we are waiting to
    receive about 20 more State applications for wildlife surveillance and
    management funds, for which we have set aside $4 million. After we have
    received and reviewed all applications and have allocated funds based
    on these submissions, we will work with the International Association
    of Fish and Wildlife Agencies to redistribute any remaining funds to
    high-risk States. We recognize the need for funding in Wisconsin, and
    we will take these needs into account when redistributing any
    unallocated funds.
        Question. The State of Wisconsin has requested $5.5 million in
    Federal funds for CWD activities in fiscal year 2004. Will the
    President's budget request provide Wisconsin with the necessary
    resources to meet this need?
        Answer. During fiscal year 2004, we anticipate distributing CWD
    funds to States based on their level of risk, as we are doing in fiscal
    year 2003. Wisconsin is among those States that rank in the highest
    risk category.
        During fiscal year 2003, we project that we will provide
    approximately $550,750 to Wisconsin for CWD management, surveillance,
    and testing of wild cervids. We may also be providing additional
    resources to the State if unallocated funds remain from the $4 million
    we set aside for wildlife surveillance and management. In addition,
    APHIS will be covering testing, indemnity, and disposal costs
    associated with the depopulation of CWD-positive and CWD-exposed
    captive cervid herds in the State. We have also stationed a permanent
    CWD VMO in Madison, Wisconsin, to carry out program activities.
        Given that Congress provided a level of funding in fiscal year 2003
    that was nearly equal to the amount asked for in the President's fiscal
    year 2004 budget request, a significant increase in any one State's
    level of funding in fiscal year 2004 would require other States to
    accept significant decreases. Barring any unforeseen emergencies, we
    anticipate CWD funding levels in fiscal year 2004 will correspond
    closely to the amounts we are providing to the States during fiscal
    year 2003.

                                  ANIMAL CARE

        Question. Please provide information regarding the number of
    investigation and enforcement actions undertaken in fiscal year 2002,
    and estimated for fiscal years 2003 and 2004, in regard to the Animal
    Welfare Act.
        Answer. APHIS conducted 12,174 AWA inspections and 143 formal
    investigations of potential AWA violations in fiscal year 2002. The
    investigations resulted in 137 official warnings, 97 stipulated
    agreements, 85 formal decisions by administrative law judges, $586,577
    in civil penalties, and 22 license suspensions and revocations. As of
    May 2003, the number of inspections for fiscal year 2003 has increased
    by 16 percent over the fiscal year 2002 inspection level. Based on this
    increase, we estimate that we will conduct 14,121 inspections in fiscal
    year 2003. With level funding, the number would remain roughly the same
    in fiscal year 2004.
        Question. Please describe how USDA has used the increases for
    Animal Welfare Act-related activities in fiscal year 2002, and
    estimated for fiscal year 2003, above the President's requested levels.
        Answer. In fiscal year 2002, APHIS hired 17 new inspectors,
    increasing the AWA inspection force to 99, and increased the number of
    inspections by 2 percent over fiscal year 2001. We also increased
    outreach efforts by conducting canine care workshops for licensed dog
    dealers in seven locations. In fiscal year 2003, we are increasing the
    inspection force to 100. With the newly-trained inspectors that were
    hired in fiscal year 2002, we are increasing inspections by 16 percent
    this fiscal year. To increase the effectiveness of the inspection and
    enforcement process, we have upgraded our database and the equipment
    used by inspectors. We are also continuing to conduct canine care
    seminars for dog dealers and have created a seminar on caring for
    large, exotic and wild cats. Additionally, program officials have
    participated in training sessions for Institutional Animal Care and Use
    Committees at registered research facilities and conducted a seminar in
    conjunction with the Animal Welfare Information Center on searching for
    alternatives to animal testing for researchers. We are working to
    formalize these types of outreach efforts.
        Question. To what extent have the additional funds for Animal
    Welfare investigations increased the demand for additional resources
    for enforcement activities?
        Answer. The inspectors hired in fiscal year 2002 are now fully
    trained and inspections are up 16 percent for fiscal year 2003. We
    estimate that the number of formal investigations and enforcement
    actions required will increase as well. As of May 2003, we have already
    conducted 132 formal investigations into potential Animal Welfare
    violations compared to the 143 conducted during all of fiscal year
    2002.
        Question. Please explain actions taken by USDA to enforce
    violations of bird and animal fighting statutes. Do you support
    directing enforcement of these statutes through the Office of Inspector
    General or through the enforcement programs of APHIS?
        Answer. We believe that animal fighting statutes must be enforced
    primarily through the Office of Inspector General (OIG), USDA's law
    enforcement arm, with the assistance of APHIS investigators. Most
    animal fighting ventures are accompanied by other illegal activity,
    such as sales of illegal drugs and firearms. Investigations into these
    types of violations are inherently dangerous and require the expertise
    of trained and equipped law enforcement personnel and the participation
    of State and local law enforcement agencies. OIG frequently cooperates
    with these agencies and can more effectively and safely lead such
    investigations.
        Since January 2003, OIG has assisted in three Federal prosecutions
    for the smuggling of fighting cocks and two investigations of domestic
    fighting cock operations. Because the three prosecutions involved
    smuggling, the U.S. attorney was able to charge the defendants with
    felonies. In the two domestic fighting cock investigations, over 1,500
    fighting cocks were seized. Additionally, APHIS is reviewing
    epidemiological evidence to determine whether the exotic Newcastle
    disease outbreak in California and other nearby States resulted from
    the movement of fighting birds.

                                MOLTING RESEARCH

        Question. It has been reported that the egg production industry has
    invested in research to maintain levels of production without the
    practice of ``molting'' their flocks. Do you have any information
    regarding research in this area, is USDA engaged in any such research,
    and is there any reason there should not be a prohibition to this
    practice?
        Answer. The egg production industry is funding research directed at
    assessing non-feed versus feed withdrawal methods to induce molting,
    which contrasts greatly from maintaining production without the
    practice of molting. The United Egg Producers is funding research at
    three different universities: the University of Illinois, the
    University of Nebraska, and North Carolina State University. The U.S.
    Poultry and Egg Association's website (www.poultryegg.org) reveals
    funding for three proposals for this year, two at North Carolina State
    University and one at Virginia Polytechnic Institute and State
    University. Additionally, ARS is conducting both physiological and
    behavioral research in the area of alternatives to induce molting
    through feed withdrawal. The Department is currently in the process of
    responding to a Congressional directive, Senate Report 107-41, which
    discusses current practices and molting alternatives as well as the use
    and consequences of molting as a management tool.
        Question. While there has been significant publicity to problems
    regarding humane handling of livestock during slaughter operations,
    there is a growing concern among the American people in regard to the
    treatment of livestock during the production phase. Since the Animal
    Welfare Act does not apply to poultry or livestock, would you support a
    study to provide recommendations on humane treatment of farm animals?
        Answer. Since USDA has no authority to regulate humane handling of
    poultry or livestock, such a report would have to address authorities
    to implement any recommendations.

                               WILDLIFE SERVICES

        Question. Please describe progress in adapting additional non-
    lethal methods of animal control through the Wildlife Services
    programs.
        Answer. APHIS Wildlife Services has made progress in the following
    areas:
        Having developed an effective non-lethal Radio-Activated Guard
    (RAG), APHIS is working on reducing the relatively high costs of the
    device.
        Substantial efforts have been made towards the development and
    evaluation of an effective non-lethal Movement-Activated Guard (MAG)
    system to protect livestock from various large predators, including
    wolves, black bears, and eagles. MAG systems are more flexible in their
    application than RAG systems although they have a smaller, effective
    range. The cost of these systems is likely to be less than the cost of
    RAG units, making them more practical for routine livestock protection.
        NWRC scientists are now in the process of testing a new breakaway
    snare design with great promise as an effective remote collaring system
    for both coyotes and wolves.
        Substantial efforts continue to develop new and effective capture
    technologies, including establishment of a temporary duty assignment
    for APHIS wildlife specialists to work with National Wildlife Research
    Center (NWRC) scientists to test and to improve cable restraint devices
    that could serve as practical alternatives to foothold traps under some
    circumstances. Additionally, in cooperation with APHIS operational
    personnel in Arizona and New Mexico, the U.S. Fish and Wildlife
    Service, Defenders of Wildlife, and the Arizona and New Mexico wildlife
    agencies, NWRC is planning to investigate sustainable livestock grazing
    regimes that could minimize predation opportunities by Mexican wolves.
    As part of these studies and investigations elsewhere, NWRC scientists
    are developing alert systems to warn ranchers when predators are in the
    vicinity of livestock.
        APHIS has established cooperative agreements with two universities
    and a private research firm to foster collaborative research on
    reproductive inhibitions, economics of non-lethal management
    strategies, and the development of baiting systems to deliver wildlife
    pharmaceuticals.
        APHIS has applied commercially available repellents and fencing to
    protect forest resources from beaver damage.
        APHIS has documented the effectiveness of vulture effigies and low-
    powered lasers as dispersal methods at vulture roosting sites.
        Question. Please provide information in regard to losses to
    production agriculture and other costs (such as costs related to
    traffic accidents, costs to communities, etc.) from wildlife whose
    control is under the jurisdiction of Wildlife Services.
        Answer. According to Resolving Human-Wildlife Conflicts by Michael
    Conover, 2001, wildlife causes an estimated $23.3 billion in damages to
    the United States annually. Damage to agricultural producers is
    approximately $4.5 billion annually; more than half of all farmers and
    ranchers experience some kind of wildlife damage each year. APHIS'
    efforts to protect agricultural resources include managing wildlife
    predation to livestock and wildlife damage to a variety of crops (e.g.,
    rice, sunflowers). In addition, APHIS conducts beaver management
    activities to reduce loss to the timber industry, which is
    approximately $3.4 billion annually.
        APHIS works to reduce deer populations in heavily populated areas
    in order to increase public safety. Damage from deer-automobile
    collisions is approximately $1.6 billion annually and results in
    approximately 29,000 human injuries each year. Damage from bird-
    aircraft collisions is about $300 million annually, while also posing a
    serious safety hazard to flight crews and passengers.
        Other wildlife damage includes damage to metropolitan households
    (approximately $8.3 billion annually) and damage to rural households
    (approximately $4.2 billion). APHIS provides technical assistance and
    frequently loans equipment to resolve wildlife damage to residential
    property.
        The power interruptions caused by Brown Tree Snakes (BTS) on Guam
    cause a multitude of problems that have been valued at over $1 million,
    ranging from food spoilage to computer failures. BTS frequently invade
    poultry houses, homes, and yards to consume domestic poultry, eggs, pet
    birds, and small mammals associated with residential areas. APHIS has a
    BTS control program in Guam and conducts activities to prevent the
    introduction of BTS into Hawaii through aircraft and cargo transport.
        Question. Please provide information in regard to control of wolves
    in the Upper Midwest.
        Answer. As the Eastern timber wolf population continues to increase
    in Minnesota, Michigan, and Wisconsin, so have the requests for
    assistance with wolf predation. The U.S. Fish and Wildlife Service
    (FWS) estimates the number of wolves to be over 2,600 in Minnesota, 325
    in Michigan, and 360 in Wisconsin. In Minnesota alone, APHIS responded
    to 218 requests for assistance with wolf predation on livestock and
    other domestic animals during fiscal year 2002. APHIS also hired a wolf
    damage management specialist to assist with management activities
    related to the increasing wolf population within the State of Michigan.
    There has been an increase in the wolf population in Wisconsin at a
    rate of approximately 20 percent per year, and the public is
    increasingly intolerant of wolf conflicts.
        In fiscal year 2002, we continued to coordinate wolf depredation
    control activities with the Wisconsin Department of Natural Resources
    (WDNR) and the FWS. APHIS received 80 wolf depredation complaints in
    fiscal year 2002 and verified 20 of these conflicts as either probable
    or confirmed wolf depredation. The WDNR requested APHIS conduct control
    operations, which resulted in APHIS capturing and relocating 18 wolves
    to resolve livestock depredations. With the additional funding Congress
    provided in fiscal year 2003, we are in the process of hiring wildlife
    specialists and procuring necessary equipment and supplies to enhance
    response to wolf depredation in the Upper Midwest.

                     COMPREHENSIVE FARMERS' MARKET PROGRAM

        Question. In the fiscal year 2003 conference report, language was
    included that encouraged research on creating a broad Farmers' Market
    Program, that would take into account all of the activities currently
    provided in the Senior and WIC Farmers' Market Nutrition Programs, as
    well as the recently authorized Farmers' Market Promotion Program. A
    report was requested by March 1, 2003. What is the status of this
    report? Please summarize its contents.
        Answer. On May 15, 2003, a letter reporting on this subject was
    sent to the House and Senate Appropriations Committees. The letter
    recommends that responsibilities for administration of the affected
    programs remain unchanged at this time. This recommendation is based on
    the relationship of the farmers' market programs in terms of target
    populations served, administration of the programs at the State level,
    current infrastructure at the Food and Nutrition Service and
    Agriculture Marketing Service in terms of Federal oversight and
    monitoring, and the lack of appropriated funding available for the
    Farmers' Market Promotion Program. A copy of the letter is attached for
    the record.
        [The information follows:]

                         U.S Department of Agriculture,
                                       Office of the Secretary,
                                          Washington, DC, May 15, 2003.
    Hon. Ted Stevens,
    Chairman, Committee on Appropriations, U.S. Senate, Washington, DC.
        Dear Mr. Chairman: Public Law 108-7, enacted February 20, 2003,
    directs the Under Secretary for Marketing and Regulatory Programs to
    work with the Under Secretary for Food, Nutrition, and Consumer
    Services to study the potential for a broad Farmers' Market Program
    within the Agricultural Marketing Service (AMS). Such a program would
    provide funding for the WIC Farmers' Market Nutrition Program (FMNP),
    the Senior Farmers' Market Nutrition Program (SFMNP), and the recently
    authorized Farmers' Market Promotion Program (FMPP). Public Law 108-7
    requires that a report on this subject be provided to the House and
    Senate Committees on Appropriations by March 1, 2003.
        As a result of our consultation, we are pleased to report our
    recommendations. As you are aware, both the FMNP and SFMNP are intended
    to enhance the health of their target populations by providing coupons
    directly to recipients that can be exchanged at farmers' markets,
    roadsides stands, and in the SFMNP community supported agriculture
    programs for the purchase of fresh fruits and vegetables. In many
    cases, the same office that operates the Special Supplemental Nutrition
    Program for Women, Infants and Children (WIC) administers the FMNP and
    SFMNP. Only State-level governmental agencies and Federally recognized
    Indian tribal organizations can receive grant funds to administer the
    FMNP or SFMNP.
        The Food and Nutrition Service (FNS) has successfully administered
    the FMNP and SFMNP since their inception. FNS' infrastructure includes
    seven regional offices that effectively provide oversight, technical
    assistance and monitoring of the programs. The FNS cost estimate
    associated with the administration of the FMNP and the SFMNP is
    $554,600 per fiscal year.
        AMS facilitates cooperation and collaboration among agencies and
    organizations that promotes direct marketing and help agricultural
    producers benefit from the growing consumer interest in direct
    marketing, including promoting the development and operation of
    farmer's markets. As such, staff from AMS works closely with FNS staff
    to provide technical guidance and expertise on market developments
    aspects of the FMNP and SFMNP. Over the years, AMS has significantly
    increased its farmers direct marketing activities. Evidence of our
    success is the phenomenal growth in the number of farmer's markets
    nationwide.
        The Farmers' Market Promotion Program is intended to support the
    development of farmers' markets and direct marketing opportunities for
    agricultural producers by providing funds directly to agricultural
    cooperatives; local governments; nonprofit corporations; public benefit
    corporations; economic development corporations; regional farmers'
    market authorities; or other entities as the Secretary may designate.
    Currently, no funding has been appropriated for this program.
        Given the relationship of the farmer's market programs in terms of
    target populations served, administration at the State level, current
    infrastructure at FNS and AMS in terms of Federal oversight and
    monitoring, and no appropriated funding for the FMPP, we recommend that
    responsibilities for administration of the affected programs remain
    unchanged at this time.
                Sincerely,
                                       William Hawks,
                    Under Secretary, Marketing and Regulatory Programs.
                                       Eric M. Bost,
                Under Secretary, Food, Nutrition and Consumer Services.

                          FOODS DONATED TO FOOD BANKS

        Question. Please describe any authorities USDA has to assist public
    or private organizations with activities to collect donated crops or
    food from farms, restaurants and other entities and deliver this food
    to local food banks.
        Answer. Under the Emergency Food Assistance Act, State and local
    agencies can use Emergency Food Assistance Program (TEFAP)
    administrative funds to pay costs associated with the transportation,
    processing, and packaging of foods obtained through gleaning and food
    recovery initiatives. Such activities complement our efforts to engage
    community-based organizations, including faith-based organizations, in
    providing nutrition assistance to those in need. In corresponding with
    State and local agencies, we continue to emphasize the excellent
    opportunity to increase the volume of fresh produce available to TEFAP
    recipients by using TEFAP administrative funds to support gleaning
    initiatives. The recovery and distribution of foods from restaurants
    and other congregate meal service sites are governed by State and local
    Health Department regulations, and require an intensively organized
    local effort. While USDA does not play a significant role in these
    initiatives, we continue to remind State and local agencies that TEFAP
    administrative funds can be used to support them.

                         AGRICULTURAL MARKETING SERVICE

        Question. There have been several recent reports of children
    becoming ill after eating school lunches. As the agency who purchases
    commodities for the school lunch program, please explain how you ensure
    that all commodities you purchase are safe for consumption, and what
    authorities you have to notify school districts if a problem is
    discovered. What information is AMS required to provide school
    districts regarding the commodities they are receiving? Is AMS
    considering any additional means to ensure that contaminated foods are
    not delivered to school districts, and if so, what is being considered?
    Further, what are the responsibilities of the individual school
    districts in relation to AMS? If a problem is discovered at the local
    level, are school districts required to notify AMS or another USDA
    agency?
        Answer. The Agricultural Marketing Service (AMS) purchases
    commodities based on strict specifications that assure high standards
    of quality as well as safety. AMS purchase specifications rely on FSIS
    and FDA food safety safeguards, explicitly require monitoring beyond
    FSIS or FDA requirements of those safeguards, and require additional
    testing to meet food safety standards as deemed appropriate.
        Because USDA donated products are produced under contract and
    certified by AMS employees as meeting these product specifications, AMS
    attempts to ensure that only products that meet the required processing
    sanitation or safety requirements are delivered to schools.
        Further, when a plant that sells products to AMS becomes associated
    with a food safety issue, such as a recall of products in commercial
    trade, FSIS communicates such information about these problems to both
    AMS and FNS. If the products produced under contract to AMS are
    suspected to also be associated with the food safety problem, AMS
    provides the product destinations to FNS for them to notify the State
    Distributing Agencies so that suspected products are removed from the
    system.
        However, as noted in a number of independent reports, many of the
    food safety issues that occur in the school lunch program associated
    with USDA donated products are ultimately found to have resulted from
    improper food handling within the school itself through cross-
    contamination or improper preparation and are not due to
    unwholesomeness of the USDA donated product as it was delivered to the
    school.
        AMS provides item descriptions to FNS, which in turn provides the
    information to recipients. AMS also puts all of the specifications for
    the commodities it purchases on its website.
        All of the involved agencies within USDA--AMS, FNS, FSIS, and FSA--
    are working to improve information systems used to assure that
    recipients as well as State Distributing Agencies are always
    immediately notified of suspected food safety issues involving foods
    purchased for the school lunch program.
        AMS is an integral part of the Department's Commodity Hold and
    Recall Process which requires schools to report potential problems to
    FNS. By being a part of this process, AMS learns of problems associated
    with the products it procures so that corrective action can be taken in
    a timely manner.
        If schools suspect a food safety issue, they are to immediately
    contact their local or State health department and FNS through its
    commodity hotline.

                              AMS IT CONSOLIDATION

        Question. What is the total funding ``saved'' through IT
    consolidation? How was this number formulated?
        Answer. The Department's total funding ``saved'' through IT
    consolidation is $16 million. These savings will be realized across the
    Department, through consolidated hardware and software procurements, as
    well as the reengineering of paper-based processes, such as data
    collection.

                        NON-FAT DRY MILK DONATION PILOT

        Question. Please provide an update on the pilot project between
    USDA and the Milwaukee Hunger Task Force regarding the donation of non-
    fat dry milk.
        Answer. We have worked with the Wisconsin Department of Health and
    Family Services, the Hunger Task Force of Milwaukee, and Alto Dairy to
    develop agreements under which non-fat dry milk will be made available
    for processing into mozzarella cheese for distribution through the
    Emergency Food Assistance Program. For purposes of this pilot, the
    agreements reflect a substantial reduction in reporting and
    recordkeeping requirements traditionally imposed under processing
    agreements. We anticipate receiving information necessary for USDA to
    approve the agreement between the Hunger Task Force of Milwaukee and
    Alto Dairy in the very near future. Once the agreement is approved,
    USDA will arrange to have the non-fat dry milk shipped directly to Alto
    Dairy.

                         AGRICULTURAL MARKETING SERVICE

        Question. What is the most updated estimate on the level of funds
    AMS plans on spending in fiscal year 2004 on surplus commodities that
    will be donated to food pantries, including the type and amount of
    commodities?
        Answer. Consistent with statutory requirements, fiscal year 2004
    surplus removal levels will depend on a number of factors for each
    possible commodity, including market demand, inventory levels, and
    production yields. The Food and Nutrition Service will consider program
    needs across the various Federal food and nutrition programs in
    determining the appropriate outlets for each commodity purchased.
    Beyond the commodities otherwise purchased through appropriations
    specific to food pantries and other programs, recent history would
    suggest a significant level of commodity donations for food pantries in
    fiscal year 2004.

                COUNTRY OF ORIGIN LABELING--RECORDKEEPING COSTS

        Question. Please provide an updated cost estimate on record-keeping
    costs associated with implementation of the voluntary Country of Origin
    Labeling measures.
        Answer. Thus far, no retailer has chosen to implement the voluntary
    country of origin labeling guidelines, so there is no basis for
    updating the cost estimate for recordkeeping costs.

                                   SECTION 32

        Question. During fiscal year 2003, Section 32 funds were released
    for a livestock compensation program in a manner not suggested in the
    submission of the President's 2003 budget request or accompanying
    budget materials. This Committee was not provided prior notice of this
    action and, in fact, learned of it as it was announced publicly through
    a USDA broadcast.
        Can you assure this Committee prior notification of any such future
    actions in regard to Section 32 funds or other program authorities?
        Answer. We will keep the Committee informed of future major uses of
    Section 32 funds not included in the annual budget submission or that
    otherwise fall outside the normal use of these funds.
        Question. Please provide information for estimates of fiscal year
    2003 and 2004 Section 32 purchases of specialty crops as a means to
    comply with Farm Bill requirements.
        Answer. For fiscal year 2003 through May 22, 2003, $135.9 million
    has been authorized for Section 32 purchases of fruits and vegetables.
    Actual, total Section 32 purchases for fruits and vegetables through
    May 22, 2003 are $69.2 million. We do not anticipate a problem in
    meeting the Farm Bill requirement for fruit and vegetable purchases in
    either fiscal year 2003 or 2004.
        Question. Please provide current estimates for all Section 32
    activities for fiscal years 2003 and 2004.
        Answer. The Department expects to spend a total of $1,432.4 million
    of Section 32 funds in fiscal year 2003. This includes $897.0 million
    provided for drought relief through the Livestock Compensation Program
    and $25.6 million for AMS administrative expenses. The balance will
    primarily be available for commodity purchases. For fiscal year 2004,
    AMS anticipates expenditures of $821.6 million for commodity purchases.

            GRAIN INSPECTION, PACKERS AND STOCKYARDS PROGRAM STUDIES

        Question. Can you estimate the time frame for the $4.5 million
    packer concentration study?
        Answer. GIPSA is committed to completing the study as quickly as
    possible consistent with the need to produce technically sound
    findings. This is a complex, data-intensive project. It is difficult to
    anticipate time requirements accurately before plans for the scope of
    the study have been finalized and without knowing what specific
    methodology and data needs will be proposed by potential contractors.
        Major milestones include receiving public comments on plans for the
    study; finalizing the plans; establishing a 5- to 7-member academic
    peer review team; soliciting offers and awarding contracts;
    consolidating data needs of the contractors and developing data
    collection plans; obtaining Office of Management and Budget clearances
    for data collection; collecting and analyzing data and preparing
    contractors' draft reports; reviewing contractors draft reports;
    finalizing contractors' reports; and preparing GIPSA's summary reports.
        Question. Is a $500,000 study needed to review the Packers and
    Stockyards Act? Couldn't this be accomplished by the Department's staff
    without the additional cost?
        Answer. The Packers and Stockyards Act of 1921 has not undergone
    any significant review since its enactment, despite the substantial and
    controversial structural changes experienced by the regulated
    industries. The request for an additional $500,000 to review the
    Packers and Stockyards Act primarily addresses the need for additional
    staff with expertise not currently residing within the Agency for a
    comprehensive review of the P&S Act. Use of existing staff to handle
    issues associated with the review of the P&S Act and regulations would
    also divert resources away from ongoing monitoring and compliance
    programs.

                              WAREHOUSE LICENSING

        Question. Section 770 of Division A of Public Law 108-7 (the
    Agriculture, Rural Development, Food and Drug Administration, and
    Related Agencies Appropriations Act, 2003) established certain
    limitations in regard to the licensing of grain warehouses. Please
    provide information in regard to this section and the current status
    protections for farmers in regard to licensed warehouses.
        Answer. On August 5, 2002, the Department of Agriculture (USDA)
    published its final rule implementing the U.S. Warehouse Act of 2000
    which clarified, for the first time, that Federal warehouse operators
    cannot be required by State government to be dually licensed or comply
    with State warehousing, grain dealer laws or regulations. The final
    rule asserted, publicly, USDA's long-held view that it has exclusive
    jurisdiction to regulate the merchandising and other activities of
    Federally licensed warehouses. The final rule reflected existing case
    law dating back more than 60 years and made transparent what USDA has
    conveyed when asked.
        State Departments of Agriculture with grain merchandising licensing
    programs disagreed with USDA's position. Several States issued strongly
    worded statements in response to USDA's position, noting the impact it
    could have on the continued willingness of Federally licensed
    warehouses to comply with State grain dealer laws or to submit elevator
    proceeds to State grain indemnity funds.
        The issue has caused both USDA and State governments to examine
    levels of protection currently provided to producers under warehouse
    programs. USDA cooperated with the National Association of State
    Departments of Agriculture, as well as farm and industry
    representatives, to explore ways to improve warehouse regulations in
    order to protect producers and depositors.
        As a result of its meetings with stakeholder groups, USDA announced
    changes on February 5, 2003, to the Federal license requirements for
    grain warehouse operators. These changes would improve depositor
    protection requirements already in place for storage obligations and
    expand coverage to producer contractual obligations.
        USDA is changing the requirements for Federally licensed warehouse
    operators to improve producer protection already in place for producers
    who own and store grain with such warehouse operators and will extend
    protection to producers who only sell grain to such an operator. USDA
    is making the following changes to existing requirements for Federal
    licenses:
      --Increase the basic net worth requirements a warehouse operator must
            have to qualify for a license;
      --Increase the level of auditing required of the warehouse operator's
            financial statements by a third-party auditing firm; and
      --Provide additional coverage for producers who only sell grain to a
            Federally licensed warehouse.
        The increased producer protection will be funded through
    liquidation proceeds, a $5 million assessment on the Federal licensee
    community, and a $10 million umbrella insurance policy.
        USDA planned to have its grain warehousing plan in place for the
    start of the 2003 marketing year that begins May 1, 2003. The plan
    included an opportunity for Federally licensed warehouse operators to
    review the new program requirements before executing the new grain
    licensing agreements. The new grain licensing agreements were scheduled
    to be available by March 1, 2003.
        This implementation plan changed based on the language in Section
    770 of Division A of Public Law 108-7. This section requires a 180 day
    moratorium during which no funds could be used to: (1) amend licensing
    agreements for grain (excluding rice) under the United States Warehouse
    Act; or (2) to issue Federal licenses to grain warehouse operators
    (excluding rice) that are not currently Federally licensed; or (3) to
    implement any changes that were not in effect on January 1, 2003.
        All actions with respect to implementation of these changes
    initially ceased during this 180-day period. On March 27, 2003, at the
    urging of the stakeholders, USDA re-initiated its efforts to develop
    and implement the grain licensing changes. USDA is working to implement
    the announced changes at the end of the moratorium.
        A stakeholder group composed of representatives from producer and
    industry groups, and State Departments of Agriculture have met twice to
    develop their own plan for improving producer protection in Federally
    licensed grain warehouses. Joe Pearson from the Indiana Department of
    Agriculture and Randy Gordon with the National Grain and Feed
    Association serve as co-chairs for the warehouse task force.
        USDA has provided requested background information and made
    available staff to answer questions at both meetings. The warehouse
    task force has requested information on the costs associated with
    USDA's program. USDA has provided all information that has been
    developed; however, some cost information has not been provided either
    because it is unknown at this time or will require resources to
    develop. The cost of the insurance policy is still unknown though USDA
    is working quickly to obtain a contract for the insurance policy.

                              FSIS SYSTEMS REVIEW

        Question. The Secretary was directed in the 2002 Farm Bill to
    review State meat and poultry inspection systems and report the
    findings to Congress in FSIS's annual report to Congress, including
    guidance on possible changes if the statutory prohibition on interstate
    shipment of State-inspected product is removed.
        Please provide an update on the status of this report, including
    when it, and FSIS's annual report, will be available.
        Answer. At the 2002 National Advisory Committee on Meat and Poultry
    Inspection (NACMPI) meeting, discussions were held in response to the
    Farm Bill report language concerning interstate shipment. Committee
    members recommended that FSIS assess all completed State comprehensive
    reviews back to 2000, and complete reviews of the remaining States by
    March 2003, before starting the more comprehensive reviews called for
    in the Farm Bill report language. FSIS has completed all the audits
    through March 2003, as recommended by NACMPI and is now beginning the
    more comprehensive review of State MPI programs. Preliminary results of
    the intensified comprehensive reviews should be available in late fall
    2003.
        Question. Further, no specific funding for this report is requested
    in the fiscal year 2003 President's budget. How is this survey being
    funded, and how much will it cost?
        Answer. Existing resources within FSIS have been utilized to
    prepare for the more comprehensive reviews of State inspection
    programs. Under the current FSIS plan for these reviews, the more
    intensive portion of the reviews will not occur until next year.
    Available FSIS resources would in large part dictate the number of
    States that could be reviewed next year.

                                 FSIS USER FEES

        Question. The President's budget request for FSIS for fiscal year
    2004 is $797,140,000 in total. However, this number includes $122
    million that is to be collected in proposed user fees paid for by
    industry for the cost of mandatory, Federal inspections services beyond
    8 hours per day. Therefore, the true President's budget request for
    appropriated funds is $675,149,000. This is a decrease of $79,672,000
    from last year's appropriated level, unless the proposed user fees are
    authorized and collected.
        Do you agree with this summary?
        Answer. Yes, however, under current law, the budget requests
    $797,149,000 million, which is the level of funding necessary to ensure
    that America has the safest food supply in the world.
        Question. If the appropriations committee provides FSIS with the
    President's request for appropriated funds, $675 million, and the user
    fees are not authorized, please describe in detail the effect this will
    have on the FSIS budget and activities. Specifically, how will this cut
    in funding be absorbed by FSIS, and how will it affect the number of
    inspectors and inspections performed?
        Answer. FSIS will not be able to conduct inspection operations
    throughout the year, which would result in a disruption to industry
    operations.
        Question. Did USDA consult with industry or food-safety consumer
    groups when preparing this user-fee proposal?
        Answer. USDA did not consult with industry or food safety consumer
    groups when preparing the user fee proposal.
        Question. Did USDA consult with Congress before preparing this
    user-fee proposal to ensure that there would be adequate support to get
    it enacted?
        Answer. USDA did not consult with Congress before preparing the
    user fee proposal.

                   STATE MEAT AND POULTRY INSPECTION PROGRAMS

        Question. In fiscal year 2003, both Maine and Virginia terminated
    their State food inspection programs. Therefore, FSIS has assumed these
    costs in its fiscal year 2004 budget request. In the current fiscal
    environment, it is not unlikely that in the future, more States may
    consider terminating their State food inspection programs and leaving
    the responsibility with FSIS.
        Does USDA believe this is a viable possibility, and has this
    possibility been budgeted for in the Administration's fiscal year 2004
    request?
        Answer. FSIS is in constant contact with States to determine what
    actions they will take with respect to their inspection programs. If
    FSIS is aware of any plans by a State to either terminate or initiate
    its program, FSIS will take it into account when preparing its budget.
        Question. If this has not been budgeted for, how has FSIS planned
    for these potential situations?
        Answer. It is difficult to plan because many States are on a
    different legislative and budget calendar than the Federal Government.
    FSIS will address any potential funding problems related to the change
    in status of State inspection programs as they arise.

                            TECHNOLOGY AND TRAINING

        Question. The overall FSIS budget includes a total decrease of $1.5
    million for ``savings associated with centralization and improvement of
    information technology.'' How specifically was this number, and amount
    of savings, determined?
        Answer. The estimate of Department-wide savings resulting from
    consolidating enterprise architecture and infrastructure procurement is
    $16 million. FSIS' share of this is $1,356,000. The savings to the
    agency will be realized through consolidated hardware and software
    procurements, as well as the reengineering of paper-based processes,
    such as data collection.
        Question. I was pleased to see an increase of more than $5 million
    to improve the scientific and surveillance skills of the workforce,
    which appears to be essentially for increased training. While FSIS has
    long declared that their employees need additional training, will this
    training eventually qualify these employees for higher grade levels and
    promotions? What type of payroll and benefit increases does FSIS
    anticipate as a result of this training?
        Answer. FSIS has recently created a Consumer Safety Officer (CSO)
    position that requires greater scientific training and experience, as
    well as a higher grade level. Employees qualifying for these positions
    would receive increased compensation. Other employees that receive
    training to conduct their duties as assigned will not automatically be
    qualified for a higher grade level or promotion. Employees that move
    into higher graded positions would receive increased compensation.
                        expanded food safety authorities
        Question. I am pleased to hear that USDA is now reconsidering its
    position on the need for additional food safety authorities. When the
    Secretary spoke to the Food Safety Summit and Expo on March 19th, she
    stated that USDA was considering asking Congress for additional
    authorities, including, and I quote ``mandatory notification to USDA
    when a Federally inspected establishment has reason to believe that
    meat or poultry has been adulterated or misbranded; authority to impose
    civil penalties after notice in writing and continued lack of
    compliance; and cease and desist orders and potential suspensions at
    earlier phases and on an expedited basis arising from HACCP
    violations.''
        What were the reasons that USDA decided to seek additional
    regulatory authorities, and what is the status of these requests?
        Answer. We are always assessing our authorities to determine if
    they need to be strengthened. I have asked for a complete review of our
    authorities to determine if they allow us to do our job and I am
    awaiting assessments on what options USDA should consider pursuing in
    the future.
        Question. If additional authority is requested and granted, will
    you have additional costs that were not included in the fiscal year
    2004 budget? If so, how much do you anticipate additional authorities
    will cost?
        Answer. We are still evaluating our legislative authorities. Until
    that evaluation is completed, we will not know what the potential
    budget impact of those authorities will be.
        Question. Are there any other additional authorities that the
    Department is considering, such as mandatory recall authority?
        Answer. At this time, we have not determined if we require any
    additional authorities.
        Question. If, in fact, you believe that your enforcement
    authorities are relatively sufficient, then why are you continuing to
    be sued by meat companies when your agencies try to enforce regulations
    that the courts do not necessarily hold to have a legal basis, as
    reported just yesterday in the Omaha World Herald? I realize you can't
    discuss pending litigation, but this incident does seem to be more
    evidence that sufficient authorities are lacking.
        Answer. The Federal Meat Inspection Act and the Poultry Products
    Inspection Act provide the authority needed to close plants that fail
    to comply with FSIS regulatory requirements. Under these existing laws,
    FSIS maintains the authority to initiate a withholding, suspension, or
    withdrawal action based on sanitation or HACCP violations, including:
    failure to collect and analyze samples for the presence of generic E.
    coli; failure to develop or implement sanitation standard operating
    procedures; or failure to develop or implement a required HACCP plan.
    FSIS may also initiate a withholding, suspension, or withdrawal action
    for other violations, such as inhumane slaughter or unsanitary
    conditions. Even though FSIS cannot act solely on an establishment's
    failure of the Salmonella performance standard, an establishment's
    failure to meet Salmonella performance standards will trigger an
    immediate review of the establishment's entire food safety system.
    Establishments that do not meet food safety requirements are subject to
    enforcement actions.
        Question. I have received a request to include language that would
    make bison an amenable species for purposes of the Meat Inspection Act.
    Please provide a cost estimate for FSIS if this language is included in
    the fiscal year 2004 bill.
        Answer. It would cost approximately $1 million to start up a
    mandatory bison inspection program.

                        HUMANE METHODS OF SLAUGHTER ACT

        Question. The Committee, in fiscal year 2003, provided FSIS with $5
    million to be used to hire no fewer than 50 FTEs for enforcement of the
    Humane Methods of Slaughter Act. The Secretary stated at her May 8th
    hearing before the Committee that none of the FTEs had been hired, but
    that FSIS was working on the position descriptions.
        How many total people does FSIS plan to hire during fiscal year
    2003 and fiscal year 2004 with these funds? How many people will be
    hired in fiscal year 2003, and how many will be hired (not carried over
    from fiscal year 2003) in fiscal year 2004?
        Answer. FSIS continues to increase agency efforts to ensure that
    all field personnel understand their authorities and rigorously enforce
    the Humane Methods of Slaughter Act. FSIS has recently hired 215 new
    line inspectors trained in humane handling methods and at this time,
    the systemwide FSIS effort devoted to humane handling and slaughter
    inspection is equal to 63 FTEs. In fiscal year 2002, the comparable
    level of effort equaled 25 FTEs carrying out humane handling and
    slaughter inspection, so the agency has added 38 FTEs in fiscal year
    2003. The agency expects that this number will continue to rise through
    fiscal year 2004 to meet and even exceed the requirement outlined in
    the fiscal year 2003 Omnibus Appropriations bill.
        Question. Has FSIS been working with the GAO on the HMSA report
    required in the fiscal year 2003 Conference report? If so, how?
        Answer. FSIS has met with General Accounting Office (GAO) auditors
    regarding the GAO report. FSIS has provided GAO a variety of humane
    handling related materials. Several FSIS representatives have met with
    GAO auditors to discuss humane handling issues. Additional meetings are
    being planned.

                                 IMPORTED FOOD

        Question. In the fiscal year 2003 bill, the Committee included
    report language emphasizing the importance of USDA enhancing its
    inspections of overseas plants, making sure any plant that fails to
    meet U.S. standards is audited frequently, and not allowed to ship its
    product into this country until it meets our standards. So, I am
    pleased to see an increase of $1.7 million to increase the number of
    trips overseas by FSIS inspectors in order to ensure that foreign
    plants shipping product to the United States meet the U.S. standard for
    safety. The budget states that this funding will increase the number of
    countries being evaluated from 33 to 40.
        What, exactly, will this $1.7 million increase buy, and how will it
    improve our food safety system? Will additional inspectors be provided
    to countries that have historically struggled to meet our safety
    standards?
        Answer. Funds are included in this request to hire seven additional
    auditors to conduct reviews of foreign country inspection systems.
    These new auditors will enhance FSIS' review of foreign meat and
    poultry inspection systems and exporting plants to assure they operate
    at standards equivalent to the U.S. system. The additional auditors
    will ensure that each country approved to export meat and poultry
    products to the United States will be audited at least annually, and
    more frequently, if needed.
        FSIS currently allocates more resources to those countries that
    have historically struggled to meet our safety standards and will
    continue to do so.
        Question. How many countries import meat into the United States?
    Are there any countries that USDA inspectors do not physically visit
    and evaluate, and if not, why?
        Answer. At this time 33 countries have been approved to export meat
    and poultry products to the United States.
        All countries exporting meat and poultry products to the United
    States are audited through a physical visit at least once a year.
        Question. The language in the Senate report last year was due to a
    concern about the safety of meat imported into this country. Although I
    received several assurances from FSIS officials that this was not a
    safety issue, and the USDA system was not flawed, there was a USDA
    internal inspector general report released in February which stated
    that from 1999 to 2001, USDA allowed more than 800,000 pounds of meat
    from foreign plants that might have been prohibited, and 66,000 of that
    was from processors that were not approved to ship product to the
    United States. Generally, the report concluded that USDA has not been
    sufficiently guarding the food supply from potentially unsafe imported
    meat. This report was released after the President's budget request was
    formulated. Please explain the discrepancy between the assurance I
    received about the safety of imported meat, and the information
    included in the USDA Inspector General's report. Further, what steps is
    USDA taking to address the findings in this report? Will the increase
    requested in the budget take care of the safety issues outlined, or is
    further funding necessary?
        Answer. The Office of the Inspector General (OIG) questioned the
    entry of about 800,000 pounds of meat from foreign plants, including
    66,000 pounds of meat from plants not eligible to export to the United
    States. The discrepancy resulted from a disagreement between FSIS and
    the OIG over how countries provided annual certifications of eligible
    establishments to FSIS. FSIS is confident that establishments are
    properly certified, and has made procedural changes to address the
    concerns of the OIG. FSIS pointed out that, at the time this product
    was presented for reinspection by FSIS, each shipment was accompanied
    by a certificate issued by the inspection service of the foreign
    country attesting that it was produced according to U.S. standards and
    in a plant eligible to export to the United States.
        The Automated Import Information System (AIIS) has been re-
    programmed and updated to address all concerns raised by the OIG
    regarding the entry of shipments. The changes will be made with
    existing and requested resources.

                            FARM ASSISTANCE PROGRAMS

        Question. The salaries and expense request eliminates 2,807 non-
    Federal staff years, 2,657 temporary positions, and 150 permanent
    positions. At the same time, the Agency received $70 million in
    supplemental funding in the fiscal year 2003 appropriations bill,
    Division N of Public Law 108-7.
        How will the supplemental funds be allocated?
        Answer. The $70 million will support approximately an additional
    1,200 temporary staff years for county field offices during fiscal year
    2003 and fiscal year 2004. In addition, funding will be used for IT/ADP
    software development and support, and increased operating costs such as
    postage, supplies, and materials. Even though the fiscal year 2004
    Budget reflects a precipitous drop of 2,692 non-Federal temporary and
    other staff years from the fiscal year 2003 level, FSA is working to
    even out fiscal year 2003 to fiscal year 2004 temporary staffing
    levels. We are able to do this by spreading the use of the $70 million
    additional funding over a 2-year period.
        Question. Will any be used for IT purposes and how much?
        Answer. Yes, approximately $14 million of the funds provided for
    Farm Bill implementation will be used for IT/ADP software development
    and support.
        Question. With the continued demand from new Farm Bill programs,
    many still to be implemented, is there a need for additional permanent
    Federal full-time staff?
        Answer. No, at the present time, FSA does not feel there is a
    critical need for additional permanent Federal full-time staff. The
    initial impacts of Farm-Bill-related implementation workload increases
    are similar to those of a disaster in that they are temporary and do
    not easily lend themselves to support of permanent staff. Through the
    dedication of our employees we have been able to sign up over 90
    percent of the landowners that have made base and yield selections.
    Some offices were stretched more than others, and we did our best to
    provide additional temporary staffing resources to fill the gaps.
    Temporary staffing is being used to assist with administrative
    activities, allowing time for permanent staff with the needed technical
    knowledge to conduct signup activities.
        FSA does not yet know the full impact of permanent, ongoing
    maintenance of new Farm Bill programs. However, every effort will be
    made to continue the high standard of service provided to our customers
    while analyzing these impacts.
        Question. In the inventory property area, what is the racial and
    ethnic breakdown, including women, of purchasers who have acquired
    property through FSA lending programs in the latest data available?
    Please include the average loan and size of farm.
        Answer. FSA does not track the gender of purchasers when an
    inventory property is sold. FSA lending programs do not finance
    acquisition of inventory property except for beginning farmers. Rather,
    the property is sold at auction to the highest bidder.
        The following table displays fiscal year 2002 inventory property
    purchasers by race, average size of farm and total acreage:

                                     INVENTORY PROPERTY PURCHASERS, FISCAL YEAR 2002
    ----------------------------------------------------------------------------------------------------------------
                                                                                       Average Size
                             Race/Ethnicity                              Number of        of Farm      Total Acreage
                                                                        Purchasers        (Acres)
    ----------------------------------------------------------------------------------------------------------------
    Asian/Pacific Islander..........................................               1              10              10
    Black...........................................................               6              84             505
    Hispanic........................................................               4              31             123
    Native American.................................................               2             281             561
    White...........................................................             174             148          25,679
    Tax-Exempt \1\..................................................               4             267           1,066
                                                                     -----------------------------------------------
          Total.....................................................             191             146          27,944
    ----------------------------------------------------------------------------------------------------------------
    \1\ This category reflects corporations that have status as a race or ethnic group. Purchases made by these
      entities are not tracked by any other group designation.

        Question. In the Beginning Farmer Program, what is the racial and
    ethnic breakdown, including women, of purchasers who have acquired a
    farm or ranch? Please include the average loan and size of farm. The
    2002 Farm Bill enacted a similar provision on data analysis but which
    applied to Farm Loans rather than housing loans. Will this report be
    submitted to the Committee?
        Answer. There were 402 Beginning Farmer Farm Ownership Loans made
    to females during fiscal year 2002. Because women are also counted in
    the racial and ethnic categories, the number of women per racial
    category was not separately identified during 2002. FSA does not track
    the average size of farm by racial category for beginning farmers. This
    information is only captured for inventory property.
        [The information follows:]

    ----------------------------------------------------------------------------------------------------------------
                                                         Direct FO     Average Loan    Guaranteed FO   Average Loan
    ----------------------------------------------------------------------------------------------------------------
    White...........................................           1,000        $118,947             731        $252,300
    Black...........................................              15         106,060               4         253,850
    Asian...........................................              10         140,450              61         457,374
    American Indian.................................              53         122,623              32         271,047
    Hispanic........................................              19         102,726              11         214,313
    Other--Not coded................................               0               0               1         200,000
                                                     ---------------------------------------------------------------
          Total Participants........................           1,097         118,864             840         267,354
    ----------------------------------------------------------------------------------------------------------------

        We assume the 2002 Farm Bill provision you are referring to is
    Section 10708, ``Transparency and Accountability for Socially
    Disadvantaged Farmers and Ranchers; Public Disclosure Requirements for
    County Committee Elections.'' That provision is much broader than just
    the farm loan programs. That provision requires an annual report on the
    participation rate of ``socially disadvantaged farmers and ranchers
    according to race, ethnicity, and gender'' for ``each program of the
    Department of Agriculture established for farmers and ranchers,'' and;
    the composition of county, area or local committees established under
    the Soil Conservation and Domestic Allotment Act. In addition, Section
    10708 requires a report to Congress after the completion of each Census
    of Agriculture on the rate of change in participation by socially
    disadvantaged groups since the previous census. We would be happy to
    provide both the annual reports and the post-census report to Congress
    when they become available.

                                RISK MANAGEMENT

        Question. The President's budget proposes reducing the
    administrative expense reimbursement rate from 24.5 to 20 percent,
    which is expected to produce a savings of $67.8 million. Given the
    drought and other natural disasters that have occurred in the farming
    sector over the past several years, in developing this proposal, have
    you worked with the individual crop insurance companies to ensure that
    this limitation will in no way impair those companies' abilities to
    continue providing coverage to our Nation's farmers? If so, what were
    their comments? If not, please explain why.
        Answer. On an ongoing basis, RMA works closely with the companies
    to address a wide range of issues. It is clear that a reduction of the
    A&O reimbursement rate is a cause of significant concern to them. It
    should be noted that the general rate of 24 percent is not the actual
    rate paid to companies. Because the rate is based upon the type of
    policy purchased, the companies receive an average closer to 21
    percent.
        A reduction in the reimbursement rate will increase the financial
    pressure upon the companies to adjust their operating approach. Each
    company will strive for increased efficiencies without sacrificing
    service. This of course is a healthy exercise. However, if the company
    is not successful in driving down cost and generating sufficient
    returns to satisfy shareholders, consolidations or departures will be
    the result.

                       INFORMATION TECHNOLOGY INVESTMENTS

        Question. The President's budget proposes a $5.5 million increase
    for a new, updated information technology system. What are the specific
    spending plans for this funding? Will all of the $5.5 million be spent
    in fiscal year 2004? If not, how and when will each portion of the
    funding be spent?
        Answer. The spending plan for the funding is as follows:

    ------------------------------------------------------------------------
                                                                Dollars in
               Information Technology Investments                thousands
    ------------------------------------------------------------------------
    Financial Management System.............................            $512
    Corporate Insurance Information System..................           2,713
    Compliance Support & Pattern Recognition System.........             725
    Standard Reinsurance Agreement Analysis.................           1,550
                                                             ---------------
          Total.............................................           5,500
    ------------------------------------------------------------------------

        These funds are scheduled to be used within the fiscal year. The
    funds will be scheduled within the 5-year plan, which is currently
    being developed, and will be completed and implemented prior to the
    beginning of fiscal year 2004.

                          CROP AND LIVESTOCK INSURANCE

        Question. Recently, I have heard from farmers in Wisconsin
    regarding crop and livestock insurance. Specifically, they are in favor
    of both, but believe that crop insurance while beneficial, can be
    complicated and difficult for small farmers to understand and feel
    comfortable participating in, and are concerned that any livestock
    insurance program may have the same problems. How does RMA attempt to
    reach out to small or part-time farmers to educate them on crop
    insurance? Are there any products currently produced by RMA to educate
    farmers about crop insurance that are easily accessible and easy to
    understand? If not, how much additional funding would RMA need in order
    to produce and distribute this information?
        Answer. RMA operates two major education programs, as mandated and
    funded under the Federal Crop Insurance Act (FCIA sections 522(d)(3)(F)
    and 524(a)(2)). These two programs are (1) partnerships for risk
    management education, with priority for producers of certain crops; and
    (2) crop insurance education and information in States that have been
    historically underserved by crop insurance. In addition, the
    Cooperative State Research, Education, and Extension Service operates a
    national program of grants for risk management education through four
    regional centers based at Land Grant universities in accordance with
    FCIA, section 524(a)(3).
        RMA operates its educational programs to reach small farmers and
    ranchers through local education partners. Funding to conduct these
    local programs is awarded competitively through cooperative agreements
    to educational partners that have substantial influence with local
    farmers and farm groups. RMA's educational partners include State
    departments of agriculture, universities, grower groups, and other
    public and private organizations.
        RMA recognizes the ongoing need for clear, understandable, and
    timely information about crop insurance so that farmers can make an
    informed decision. To accomplish this, RMA's regional offices work
    closely with local education partners to tailor educational curricula
    and training materials to the commodities and growing practices unique
    to each area. Informational materials are also available on RMA's web
    site (www.rma.usda.gov) and on the RMA-sponsored Ag Risk Education
    Library web site (www.agrisk.umn.edu). RMA works with its educational
    partners to ensure that, as far as possible, farmers are informed about
    local educational opportunities.
        Much is being done to reach the legislatively-mandated underserved
    groups and regions with crop insurance education. Given the
    acceleration in crop insurance development and expansion, however,
    RMA's educational resources are continuously challenged to keep pace.
    The increased use of information technology holds out the best promise
    of meeting this challenge. Additional funding of $3 million per year
    would allow RMA to substantially enhance its set of internet
    information and distance learning tools, especially those dealing with
    newer products such as livestock. With such tools, RMA could reach a
    much larger number of small farmers than it can with current resources.

                              USDA DROUGHT OUTLOOK

        Question. What does USDA forecast for drought outlook this coming
    year, and if natural disaster-related crop and livestock losses reach
    or exceed the levels of the last 2 years, will you recommend to the
    President to work with the Congress to enact disaster assistance?
        Answer. We are monitoring drought conditions carefully, however, it
    is too early to make any reliable predictions on the outlook for the
    coming year. According to the U.S. Drought Monitor, conditions have
    generally been improving throughout the U.S. since early March.
    However, severe drought persists in the West particularly from the 4-
    Corners Region north to Southern Idaho. Current projections are that
    this area will remain under drought conditions for at least the near
    future. While we do not anticipate drought related losses to reach the
    levels seen in 2002, we would expect to work with Congress should the
    need arise.

                          DAIRY PRICE SUPPORT PROGRAM

        Question. The Dairy Price Support system requires that USDA
    purchase certain dairy products when the class III price falls below
    $9.90 per hundredweight. Since January 2003 the class III price has
    remained below that support level--in fact we reached a low of $9.11
    per hundredweight for March. It has been suggested that USDA
    specifications for the purchase of these products created additional
    costs, and results in prices to producers falling below the safety-net
    established by Congress.
        Since January of 2000, the weekly average block cheddar cheese
    price on the Chicago Mercantile Exchange has been below the $1.1314 per
    pound CCC purchase price about one-fourth of the time. At one point,
    during the week ending February 28, 2002, the price averaged as low as
    12.3 cents below the CCC purchase price. In other words, sellers on the
    CME are choosing to sell product at levels far below the standing offer
    of the CCC. The effect of this is to undermine the integrity of the
    price support program, causing prices to producers to fall far below
    the $9.90 per hundredweight support price established by Congress. In
    fact, during the period of January 2000 through April of 2003, the
    Class III price; was below support for 14 of 39 months.
        In order to make the price support program function more
    effectively, and to more closely meet the intent of Congress with
    regard to a price support level of $9.90 per hundredweight, some in the
    industry have suggested that the CCC should be an active trader of
    dairy products on the Chicago Mercantile Exchange. Instead of acting as
    a passive purchaser of surplus products whenever manufacturers choose
    to sell, it is argued that CCC should step in and purchase product,
    particularly cheese, whenever it is offered on the CME at prices that
    match or fall below the established CCC purchase price.
        How do you plan to strengthen the price support program to prevent
    the market price from falling below the support level?
        Answer. The Farm Security and Rural Investment Act of 2002 states
    that the Milk Price Support Program (MPSP) purchase prices shall be
    sufficient to enable plants of average efficiency to pay producers, on
    average, a price not less than $9.90 per hundredweight (cwt) for milk
    containing 3.67-percent butterfat. The Class III price calculated by
    the Agricultural Marketing Service (AMS) is a minimum price for milk
    containing 3.5-percent butterfat. Actual prices producers received are
    typically greater than the minimum, and prices for 3.67-percent milk
    are about $0.20 per cwt higher when butter is near its support price of
    $1.05.
        CCC has historically interpreted ``on average'' to mean an annual
    average over all cheese and butter/nonfat dry milk (NDM) plants (Class
    III and Class IV milk). Weighted average prices, based on utilization,
    of milk used for cheese making (Class III) and milk used for butter/NDM
    making (Class IV) have exceeded $10.00 per cwt for the past 3 years.
    Annual average manufacturing milk prices in the National Agricultural
    Statistics Service (NASS) reports and the manufactured milk value
    calculated for the Dairy Interagency Commodity Estimates Committee have
    also exceeded $10.00 per cwt.
        AMS began publishing a minimum monthly price for Class III milk and
    a separate minimum monthly price for Class IV milk in January 2000 with
    implementation of Federal Milk Market Order reform. CCC is considering
    whether in light of these published prices it should revise its
    interpretation of ``on average.''
        Payment of an allowance to cover additional costs incurred to sell
    cheese to CCC is being considered. This payment would be designed to
    lessen the difference between Class III and Class IV prices when dairy
    product prices are near CCC purchase prices for cheese, butter and NDM.
        Question. Are you aware of the effect USDA specifications have on
    the final level of support received by dairy farmers, and will you
    consider either changing the specifications or being a more active
    purchaser of products, such as on the Chicago Mercantile Exchange, in
    order to make certain dairy farmers receive a price support level as
    directed in the Farm Bill?
        Answer. We are aware of USDA specification impacts on support
    received by dairy farmers. Revisions to USDA specifications are in
    draft form and are currently being reviewed. However, CCC storage of
    product requires more expensive packaging. Also, resale or donation of
    product from CCC inventory requires grading that is not typically
    required for cheese going for immediate processing uses in the
    commercial market.
        Question. Does the CCC have the authority to be an active trader of
    dairy products on the CME, or would separate legislation from Congress
    be required to enable such action?
        Answer. CCC has been an active trader on futures exchanges (Chicago
    Board of Trade) and CCC has the authority to be an active dairy
    products trader on the CME spot cash market.
        Question. If the CCC does have this authority, please comment on
    why it has not been used, in light of how often cheese prices have
    fallen below support over the last several years?
        Answer. In discussions with CME officials it was found that even
    though CME product specifications match USDA's specifications, they are
    not enforced for CME commercial trades. If CCC offered to buy product
    on CME, CCC would not necessarily receive product meeting CCC
    specifications. CME is uncomfortable with CCC's proposal to actively
    sell inventory on the CME when market prices are above purchase prices
    because this would tend to narrow the CME trading range and allow CCC
    to break market rallies. CCC could purchase cheese on the CME at its
    purchase price provided CCC specifications were fulfilled, but total
    acquisition costs would be higher. CME brokerage fees, immediate
    payment and $25 per trade transaction fees would add expenses to CCC
    purchases. Also, CCC requires grading paid for by the seller while CME
    does not require grading unless requested by the buyer, and if
    requested, grading costs must be paid by the buyer.
        Question. Will you provide me an analysis of the relationship
    between an increase in the purchase CCC price of dairy products and
    dairy income received by farmers?
        Answer. A one cent increase in the CCC purchase price for cheese
    should raise Class III milk price about 10 cents per cwt when purchases
    are being made and cause a slight decrease in Class IV price. Class III
    (milk used for cheese making) used 44 percent of total milk marketings
    in 2002 so the price impact would affect at least 44 percent of milk
    production. If Class III is the price mover, Class I price would also
    increase, affecting another 37 percent of milk production. Impact on
    the all milk price will vary from 4 cents to 8 cents per cwt depending
    on the month. When purchases are taking place throughout the year and
    Class III is seldom the Class I price mover, a 5 cent per cwt average
    milk price increase for the year would yield an $85 million (half of 1
    percent) dairy farm income increase (an average of about $925 per
    farm). In years with few cheese purchases and Class III prices never
    being the mover, the impact would be less than 1 cent per cwt average
    increase, yielding a $12 million total income increase ($130 per farm).
        Question. To what extent will use surplus stocks of non-fat dry
    milk for food aid, drought relief, or other purposes?
        Answer. Disposition of CCC NDM inventory for fiscal year 2003 has
    been about 400 million pounds through April 30. Export donations have
    been about 100 million pounds and drought relief about 250 million
    pounds. Domestic donations and sales have each been about 25 million
    pounds. Additional export donations of 100 to 200 million pounds are
    expected. Additional drought aid is beginning to be distributed and use
    may reach 200 to 400 million pounds by the end of the fiscal year.

                                  CONSERVATION

        Question. What input did USDA have in the Justice Department
    determination that conservation technical assistance for Farm Bill
    conservation programs would be subject to the section 11 cap, making
    necessary the President's request to provide such assistance through
    discretionary spending?
        Answer. The Justice Department determination that conservation
    technical assistance for Farm Bill conservation programs would be
    subject to the section 11 cap reflects its own independent evaluation
    of the law, legislative history, and relevant precedents. USDA supplied
    the Justice Department with relevant legal materials, as requested.

                         CONSERVATION SECURITY PROGRAM

        Question. Do you intend to implement the Conservation Security
    Program in a manner similar to an entitlement until enrollments reach
    the current statutory spending cap? If not, how would such alteration
    be consistent with the Farm Bill?
        Answer. USDA estimates that there is a potential applicant pool of
    over two million farms and ranches covering some 900 million
    potentially eligible acres. A primary implementation concern that was
    raised in our published Advanced Notice of Proposed Rulemaking (ANPR)
    is the scope of the CSP program. In order for this program to
    accomplish the Administration's goal of maximizing the conservation and
    improvement of natural resources, it will be necessary to focus CSP
    assistance on farms and ranches that maintain the highest level of
    natural resource protection.

                        STATUS OF CONSERVATION PROJECTS

        Question. Please provide the status of conservation projects listed
    in the Conservation Operations and Watershed Flood Prevention
    Operations accounts of the Senate, House, and Conference Report
    Statement of Managers to accompany the fiscal year 2003 appropriations
    bill.
        Answer. All of the fiscal year 2003 conservation projects listed in
    the Conservation Operations account of the Senate, House, and
    Conference Report Statement of Managers have been funded and
    allocations made to the States within the last few months. State
    Conservationists are in the process of implementing the projects and
    accomplishments will be available at the end of the fiscal year.
        Appropriated funds for Watershed Flood Prevention Operations were
    not sufficient to cover the estimated installation cost of all projects
    listed in the appropriation language. As a result, each 2003 project
    allocation was reduced by approximately 20 percent. The following table
    summarizes the fund allocations that were made during mid April:

                    WATERSHED PROTECTION AND FLOOD PREVENTION
    ------------------------------------------------------------------------
                  State                     Project         Status of Funds
    ------------------------------------------------------------------------
    Alabama.........................  Upper Cahaba......  No funds
                                                           allocated, not an
                                                           authorized
                                                           Watershed
                                                           Protection and
                                                           Flood Prevention
                                                           project
    Alabama.........................  Pine Barren WS      $1,184,000
                                       Ext..               allocated to
                                                           project
    Arkansas........................  Little Red River..  $545,000 allocated
                                                           to project
    Arkansas........................  Poinsett..........  $744,000 allocated
                                                           to project
    Arkansas........................  Big Slough........  $125,000 allocated
                                                           to project
    California......................  Beardsley.........  $5,646,000
                                                           allocated to
                                                           project
    Florida.........................  WF-Four Pilot       $1,452,000
                                       Projects in North   allocated to
                                       FL.                 project
    Florida.........................  Big Cypress.......  $186,000 allocated
                                                           for FL project
                                                           planning,
                                                           including Big
                                                           Cyprus
    Illinois........................  DuPage County.....  $25,000 allocated
                                                           to project
    Kansas..........................  Whitewater East...  $1,429,000
                                                           allocated to
                                                           project
    Kansas..........................  Whitewater West...  $971,000 allocated
                                                           to project
    Louisiana.......................  Bayou Bourbeux....  $7,815,000
                                                           allocated to
                                                           project
    Missouri........................  Big Creek &         $1,341,000
                                       Hurricane Creek.    allocated to
                                                           project
    Missouri........................  E. Fork of Grand..  $477,000 allocated
                                                           to project
    Missouri........................  E. Locust Cr......  $477,000 allocated
                                                           to project
    New York........................  Cayuga Lake.......  Not an authorized
                                                           Watershed
                                                           Protection and
                                                           Flood Prevention
                                                           Project. Other
                                                           programs are
                                                           being utilized.
    North Carolina..................  Swan Quarter......  $2,851,000
                                                           allocated to
                                                           project
    North Dakota....................  Devil's Lake Basin  Not an authorized
                                                           Watershed
                                                           Protection and
                                                           Flood Prevention
                                                           Project
    Oklahoma........................  Sugar Creek.......  $3,512,000
                                                           allocated to
                                                           project
    Pennsylvania....................  Mill Creek........  $507,000 allocated
                                                           to project
    Pennsylvania....................  Little Toby.......  $347,000 allocated
                                                           to project
    South Carolina..................  Flood mitigation    Not an authorized
                                       Projects.           Watershed
                                                           Protection and
                                                           Flood Prevention
                                                           Project
    South Dakota....................  Little Minnesota    $67,000 allocated
                                       River/Big Stone     to project
                                       Lake.
    Texas...........................  Elm Cr. Site #34..  $1,615,000
                                                           allocated to
                                                           project
    Texas...........................  Big Sandy Cr......  $1,277,000
                                                           allocated to
                                                           project
    Texas...........................  Lake Waco           $437,000 allocated
                                       Watershed.          to project
    Virginia........................  Southwest VA        Not an authorized
                                       Waterways in        Watershed
                                       Clinch Powell.      Protection and
                                                           Flood Prevention
                                                           Project. $105,400
                                                           allocated through
                                                           the Emergency
                                                           Watershed
                                                           Program.
    Virginia........................  Holston, Pound, &   Not an authorized
                                       Bluestone R..       Watershed
                                                           Protection and
                                                           Flood Prevention
                                                           Project. $105,000
                                                           allocated through
                                                           the Emergency
                                                           Watershed
                                                           Program.
    Virginia........................  Marrowbone Cr.....  $18,000 Watershed
                                                           Rehabilitation
                                                           Planning
                                                           provided, in
                                                           addition to
                                                           fiscal year 2002
                                                           fund carryover.
    West Virginia...................  Upper Tygart        $12,131,000
                                       Valley WTSH.        allocated to the
                                                           project
    West Virginia...................  Little Whitestick   $3,570,000
                                       Cranberry.          allocated to the
                                                           project
    West Virginia...................  Potomac Headwaters  $460,000 allocated
                                       Land Treatment.     to the project
    ------------------------------------------------------------------------

                        WATERSHED REHABILITATION PROGRAM

        Question. Please provide information in regard to expenditures in
    fiscal years 2003 and 2004 under the Watershed Rehabilitation Program.
    What criteria is USDA using to determine which rehabilitation projects
    to fund? At the rate of funding for this program as requested by the
    President, how many years will it take before those structures in
    danger of failure will be rehabilitated? Is it likely that some
    structures will fail before such time, and to what degree is this
    likely?
        Answer. The following is a summary of the allocations made for
    fiscal year 2003. (To date, the fiscal year 2004 appropriations and
    subsequent allocations have not been made):

    ------------------------------------------------------------------------
                              STATE                                TOTAL
    ------------------------------------------------------------------------
    Alabama.................................................         $30,000
    Alaska..................................................               0
    Arizona.................................................         320,000
    Arkansas................................................       1,055,000
    California..............................................          10,000
    Colorado................................................               0
    Connecticut.............................................               0
    Delaware................................................               0
    Florida.................................................               0
    Georgia.................................................       5,125,000
    Hawaii..................................................               0
    Idaho...................................................               0
    Illinois................................................          40,000
    Indiana.................................................         125,000
    Iowa....................................................       1,126,000
    Kansas..................................................         845,000
    Kentucky................................................         165,000
    Louisiana...............................................          44,000
    Maine...................................................               0
    Maryland................................................               0
    Massachusetts...........................................         125,000
    Michigan................................................          19,000
    Minnesota...............................................               0
    Mississippi.............................................         530,000
    Missouri................................................         660,000
    Montana.................................................         160,000
    Nebraska................................................       1,466,000
    Nevada..................................................               0
    New Hampshire...........................................               0
    New Jersey..............................................          50,000
    New Mexico..............................................         740,000
    New York................................................         275,000
    North Carolina..........................................          54,000
    North Dakota............................................         470,000
    Ohio....................................................         300,000
    Oklahoma................................................       6,451,000
    Oregon..................................................               0
    Pennsylvania............................................         230,000
    Rhode Island............................................               0
    South Carolina..........................................          40,000
    South Dakota............................................          15,000
    Tennessee...............................................         975,000
    Texas...................................................       5,304,000
    Utah....................................................         150,000
    Vermont.................................................          73,000
    Virginia................................................         328,000
    Washington..............................................               0
    West Virginia...........................................         220,000
    Wisconsin...............................................         150,000
    Wyoming.................................................          36,000
    Puerto Rico.............................................          25,000
                                                             ---------------
          Total.............................................      27,731,000
    ------------------------------------------------------------------------

        The Watershed Rehabilitation amendment to Public Law 566 requires
    that a priority ranking system be prepared. A standardized priority
    ranking procedure was developed and is contained in NRCS policy. The
    priority ranking process computes a ``risk index'' for each dam which
    includes the following components:
      --Potential for failure of the dam--based on existing conditions and
            design features of the dam.
      --Consequences of failure of the dam--based on number of lives and
            property at risk if the dam should fail.
      --Input from the State Dam Safety Agency.
        Priority was placed on dams with:
      --The highest risk to loss of life and where the dams were in the
            poorest condition.
      --Legal obligations through Federal contracts or projects agreements
            where local contracts will encumber funds.
      --Commitments for planning and application were made (i.e. completion
            of plans, designs, and construction contracts).
        At $10 million per year, an estimated 10 projects annually will be
    rehabilitated. We do not have estimates of the number of dams that are
    currently in danger of failure to respond to your request for
    information on the possibility of future failures under current and
    proposed program funding levels. We expect to have 250 risk assessments
    completed by September 30, 2003 which will shed some light on this
    question.

                      RD FIELD STRUCTURE CONSISTENCY PLAN

        Question. I understand that the Under Secretary (Rural Development)
    will issue a Consistency Plan for the field structure of RD. I also
    understand that in the previous reorganization, States were allowed
    flexibility to set up the structures to meet specific State needs. This
    new plan, as I understand, will close most two-person offices and allow
    States to develop a 2 or 3 tier system. States would also be limited to
    the number of program chiefs. I assume this will require a shifting of
    employees, functions and grade level changes.
        How will these changes impact delivery and costs to the Agency?
        Answer. The purpose of the Consistency Planning effort is to
    improve the field structure across the country to better serve the
    public, ensure that a basic level of service is available in all
    offices, and to improve the delivery of services to customers. It
    provides two possible field structures, which are very compatible to
    each other on a national level, but allow for differences among the
    States in geography, population density, program demand, and staffing
    levels. Having a basic requirement nationally that there be at least 3
    people in each office improves the chances that someone will always be
    there to help customers in need of assistance rather than having to
    close an office when employees are sick, on leave, or working away from
    the office in order to make or service loans or provide technical
    assistance. There will be some initial costs of relocating a few
    employees and renting new space. There may be some savings in the long-
    term of reduced rent due to the consolidation of a few offices.
        Question. How will the savings or increase in cost be reflected in
    your 2005 or 2006 budget?
        Answer. These costs will be paid from, and any savings as a result
    of improved efficiency, will accrue to the Salaries and Expenses
    account.

                        RD COUNTY FIELD OFFICE CLOSURES

        Question. What is the status of the 2003 requests by OMB to close
    200 county base field offices?
        Answer. The Secretary's Task Force, in the very near future, will
    be transmitting to the State Leadership of the Farm Service Agency, the
    Natural Resources Conservation Service, and Rural Development
    instructions for evaluating offices for consolidation. The Task Force
    anticipates the evaluation will be completed this summer.
        Question. Is the criteria used for the Secretary's office closing,
    to comply with the OMB request, and RD's plan similar, please explain?
        Answer. The criteria are similar in that both efforts seek to
    ensure customers are served effectively and efficiently. Rural
    Development's consistency planning effort focuses on how the agency can
    most effectively deliver its services with the resources available.
    While the consistency plans are being reviewed, Rural Development is
    also working closely with the Secretary's staff identifying inefficient
    offices. The Rural Development State Directors will receive and utilize
    the same evaluation criteria and instructions as the NRCS State
    Conservationist, and the FSA State Executive Director and any
    inconsistency between the Rural Development consistency plan and the
    Secretary's evaluations will be reconciled following the completion of
    the evaluations. Any Rural Development offices identified as
    inefficient will be addressed in the implementation phase of each
    State's consistency plan.
        Question. Is there different criteria used in the two plans?
        Answer. The criteria for the two initiatives are tailored to meet
    the specific purposes of each initiative. However, the two effects are
    being closely coordinated. Rural Development offices meeting the
    evaluation criteria being used by the Secretary's Task Force will be
    reviewed by the Rural Development State Director during their
    consistency evaluation and appropriate action taken, based on the
    overall needs and resources of the State.
        Question. Are both groups using underserved minority populations,
    substandard housing, rent overburden, and unemployment as factors for
    office locations?
        Answer. Rural Development did not provide specific criteria for the
    States to use in determining the location of its offices during the
    consistency planning process and each Rural Development State Director
    is determining, with the assistance of their staff, where the offices
    should be located utilizing such factors as geography, roads, location
    of trade centers, existing office locations, and impact on employees.
    The Secretary's Task Force has included diversity of the customer base
    as a criterion that is being used in the evaluation of offices,
    including those of Rural Development.
        Question. Is the National Office reviewing factors of historic need
    prior to final approval of State plans, including the factors used to
    allocate resources to the States in the 1940-L regulation?
        Answer. The National Office review of each State's implementation
    plan does not include an assessment of the proposed office locations.
    Each State Director established a working group of employees to assist
    them in the development of their plan. The location of proposed offices
    is part of that effort. The employees in the State are far more
    knowledgeable of the State and its needs than is the staff of the
    National Office and it would be presumptuous, in most cases, of the
    National Office staff to question the recommendations of the State
    employees as to the location of their worksites.

                      THE OFFICE OF COMMUNITY DEVELOPMENT

        Question. The Office of Community Development will be redirected
    from assisting EZ/EC and other communities to create and monitor
    performance measures, training field staff and strategic planning (18
    people). Do you need this entire staff devoted for these purposes?
        Answer. The Office of Community Development (OCD) will continue to
    provide national-level oversight of the Empowerment Zone/Enterprise
    Community (EZ/EC) program, along with the Champion Communities and the
    Rural Economic Area Partnership (REAP) Zones. These programs were
    designed so that direct assistance to the supported communities would
    be conducted by the Rural Development State and area office staff. As
    part of a comprehensive plan to strengthen the field structure and give
    State offices more responsibility for the outcome of programs in their
    jurisdictions, OCD will provide State offices and staff additional
    training on the implementation of the EZ/EC programs. In addition to
    these responsibilities, OCD will be coordinating the effort within
    Rural Development to formulate sound strategic plans, develop
    appropriate goals to implement them, and devise sound performance
    measurements to determine the effectiveness of Rural Development's
    programs. It will also continue to develop and provide Rural
    Development National and State office staff with web-based measurement,
    mapping and reporting tools, along with other database management
    systems, to achieve Rural Development's mission. Given this workload,
    the staff of 18 FTEs is fully employed meeting these responsibilities.

                        ROUND 2 AND 3 EZ/EC COMMUNITIES

        Question. Proper oversight and technical assistance were issues
    when Round I of the EZ/EC communities were funded and there are still
    many outstanding issues for these communities. What will happen to the
    Round 2 and in the future round 3 EZ/EC communities with the proper
    oversight and assistance to ensure these funds are adequately
    administered?
        Answer. Clearly, the Round I program constituted a learning
    experience for both the urban and rural EZ/EC programs. There are still
    outstanding issues with the oversight and assistance for the EZ/EC
    program and they are constantly being addressed. Our Benchmark
    Management System actively shows communities in all three Rounds are
    making progress in the implementation of their strategic plans, for
    example achieving an average leveraging ratio of over 16:1 with the
    Federal funds provided them.

                   RURAL HOUSING SERVICE/MULTI-FAMILY HOUSING

        Question. In recent years, RHS has offered little in the way of
    incentives for section 515 owners to maintain long-term use. This lack
    of action and funding has prompted both the courts and--the Congress to
    consider the provisions of the law that regulates section 515 and
    provides incentives. All section 515 tenants are low-income--with
    average incomes of approximately $8,000 and two-thirds are elderly or
    disabled households.
        What is RHS doing to resolve this issue, so that owners are
    compensated consistent with the law and tenants are not displaced?
        Answer. The 2004 Budget includes funding for equity loans to
    encourage owners to remain in the program. Additionally, RHS will
    implement administrative changes to include: (1) encouraging and
    expanding the use of third-party funds by establishing industry
    relationships and continuing to subordinate our debt to secure
    preservation funding; (2) re-directing existing Section 515 funds and
    Section 521 rental assistance to resolve preservation cases; (3)
    expanding the eligibility of non-profits and streamlining the transfer
    of ownership process; (4) exploring contracting for processing; and (5)
    concentrating MFH program and borrower training on preservation issues.
        Question. If Congress, or the courts, lifted the restrictions in
    the 87 Housing Act, what is the Agency's estimate of the number of
    units that would be lost and the number of households that are likely
    to be displaced?
        Answer. Our estimates are consistent with those reflected in last
    May's GAO report that stated 3,872 projects representing approximately
    100,000 units/households could be eligible to prepay in the next
    several years if restrictions on prepayment are lifted.

                MULTI-FAMILY HOUSING PORTFOLIO NEEDS ASSESSMENT

        Question. What is the status of the Committee's recommendation to
    provide the Department $1,000,000 to conduct a capital needs assessment
    as outlined in the GAO report, GAO-02-397?
        Answer. The Committee's recommendation was included in the Senate
    Appropriation Report, however, it did not reach the Conference Report;
    and it was not funded by a separate line item in the USDA fiscal year
    2003 budget. The Agency, however, has accepted the Committee's
    recommendation to conduct a capital needs assessment of the Multi-
    Family Housing Portfolio as outlined in the GAO report, GAO-02-397 and
    has begun the study. To date, the structure of the Request for Proposal
    (RFP) has been decided. A Multi-Family Advisory Board has been formed,
    which consists of National Office staff, State Directors, and Program
    Directors who will execute and closely monitor the progress of the
    study. Portions of the study will be contracted out. Affordable housing
    industry stakeholders have been identified to consult with the Multi-
    Family Advisory Board during the study. Our target date for completion
    of the study is early in 2004.

                       COMPREHENSIVE PROPERTY ASSESSMENT

        Question. I see that the 515 program has no new construction funds
    for 2004. What are the specific rehabilitation and preservation needs
    for the entire portfolio and will you contract out for this purpose?
        Answer. The Rural Housing Service has initiated an effort to
    determine the condition of the portfolio from several perspectives. The
    Comprehensive Property Assessment (CPA) has several objectives, all of
    which are designed to provide an all-encompassing evaluation of the
    State of the portfolio. These objectives include: (1) assessment of
    property's physical condition; (2) assessment of property's financial
    condition; (3) assessment of property's position in the real estate
    rental market; (4) determination of continuing need for this rental
    housing; (5) assessment of needed capital improvements and cost; (6)
    assessment of future capital reserves needs; (7) analysis of prepayment
    potential; and (8) analysis of prepayment incentive costs to retain
    properties/use restrictions.
        These objectives will be met using a combination of in-house
    expertise and private contracts.

                            HUD OMHAR STRATEGIC PLAN

        Question. The HUD OMHAR Strategic Plan indicates HUD will provide
    assistance to the Department of Agriculture with restructuring the
    Section 515 Program. What assistance are they providing and are there
    any plans to allow HUD to perform preservation or other activities for
    RHS? Is this delaying your Rural Housing Study?
        Answer. The HUD OMHAR Strategic Plan referenced is a draft plan
    that indicates that OMHAR would have the capacity to assist RHS as
    OMHAR's activities sunset in 2004. At this point, there have been no
    discussions with HUD as to how OMHAR could assist. However, we plan to
    meet with HUD to see if OMHAR's underwriting capabilities can be used
    to assist in meeting the preservation needs of RHS.

                          SECTION 515 HOUSING PROGRAM

        Question. The Committee provided additional funding above the
    President's request for new construction and rental assistance for the
    515 programs. How much funding will be allocated to new construction
    and please include the associated rental assistance cost and units?
        Answer. Of the amount Congress appropriated for fiscal year 2003
    for Section 515, the agency allocated a total of $29,252,541 for new
    construction. As of June 6, 2003, we have funded 41 new construction
    properties containing 984 units for a total funding of $23,616,151.
    Rental Assistance was provided to 545 of those units totaling
    $5,990,998 or 55 percent.

                           MULTI-FAMILY HOUSING STUDY

        Question. The RFP for the $2,000,000 study on multi-family housing
    has never been issued. This is the second year you have not requested
    new construction funds while awaiting for this study to be completed.
    What have you learned and when will you be in a position to request new
    construction funds or legislation to change or replace the 515
    programs?
        Answer. The study is underway and the RFP is to be issued for
    portions of the study that will be contracted out in fiscal year 2003.
    We expect the study to be concluded in the first quarter of fiscal year
    2004.
        In recent years, RHS has offered little in the way of incentives
    for Section 515 owners to maintain long-term use. This lack of action
    and funding has prompted both the courts and--the Congress to consider
    the provisions of the law that regulates section 515 and provides
    incentives. All section 515 tenants are low-income--with average
    incomes of approximately $8,000 and two-thirds are elderly or disabled
    households.
        Question. What is RHS doing to resolve this issue, so that owners
    are compensated consistent with the law and tenants are not displaced?
        Answer. The 2004 Budget includes funding for equity loans to
    encourage owners to remain in the program. Additionally, RHS will
    implement administrative changes to include: (1) encouraging and
    expanding the use of third-party funds by establishing industry
    relationships and continuing to subordinate our debt to secure
    preservation funding; (2) re-directing existing Section 515 funds and
    Section 521 rental assistance to resolve preservation cases; (3)
    expanding the eligibility of non-profits and streamlining the transfer
    of ownership process; (4) exploring contracting for processing; and (5)
    concentrating MFH program and borrower training on preservation issues.
        Question. If Congress, or the courts, lifted the restrictions in
    the 87 Housing Act, what is the Agency's estimate of the number of
    units that would be lost and the number of households that are likely
    to be displaced?
        Answer. Our estimates are consistent with those reflected in last
    May's GAO report that stated 3,872 projects representing approximately
    100,000 units/households could be eligible to prepay in the next
    several years if restrictions on prepayment are lifted.

                    RURAL HOUSING SERVICE/RENTAL ASSISTANCE

        Question. The Section 521 Rental Assistance Program is the largest
    line item in the entire Rural Development request. On December 18,
    2002, I requested the GAO to look into processes of the 521 Rental
    Assistance Program including the administration of this program and
    models used to anticipate recurring and future needs to formulate your
    appropriation request. It is my understanding that the Agency is moving
    to automate this process for the first time. Preliminary discussions
    with GAO indicate this program appears to have large levels of
    unliquidated balances for many reasons. The previous model was flawed
    in estimating recurring and future costs as reflected in the
    Department's appropriation requests.
        The Secretary's testimony before this Committee on May 8, 2003,
    insisted that outsourcing is needed specifically for advanced
    technological needs.
        Wouldn't it be prudent to contract with an outside source to help
    the Agency construct an accurate and efficient program to track and
    estimate the needs for this program?
        Answer. The Agency has developed a working group consisting of
    staff from the Department's IT Systems Services Division, the Financial
    Management Division, national office and field staff, and private
    contractors from Unisys, IBM and Rose International. This team is
    developing a model based on relevant information elements using several
    software applications that will provide a mechanism for providing
    improved information for making budgetary decisions.
        Question. This has obviously been a problem for many years. Are you
    using outside expertise to create or test a new model?
        Answer. Early in the rental assistance program, which started in
    1978, there was a tendency to overestimate rental assistance needs,
    mostly due to newness of the program and a lack of history on
    assistance usage. Our recent analysis of the accuracy of rental
    assistance projections in the last 6 to 7 years has revealed that the
    current estimating methods used have been more accurate than in the
    past. We have acquired a team of professionals from inside and outside
    of government to create the Rental Assistance Forecasting tool.
        Question. Are you using the same staff to provide input that
    created the previous model?
        Answer. Predicting the use of rental assistance has taken many
    forms over the last 25 years and various methods and staff persons were
    used to determine obligation amounts. We believe the recent methods of
    projecting rental assistance usage contain valid parameters for
    determining future needs, and it is critical to the development of the
    forecasting tool to include persons most familiar with that process.
    These staff members provide valuable input, historical knowledge and a
    keen understanding of the variables associated with designing such an
    estimating tool. A combination of experience and skill to assist in
    this effort is required.
        Question. Have you considered modifying existing systems, such as
    DLOS, which USDA has spent millions of dollars to modify for RHS needs.
        Answer. The Dedicated Loan Origination and Servicing System (DLOS)
    is underpinned by a commercial-off-the-shelf package that currently
    does not support the business processes applicable to the making and
    servicing of Multi-Family Housing loans and the management of projects
    and rental assistance. It was determined more cost effective and
    efficient to pursue those systems already in place that support the
    Multi-Family Housing loan program. These already contain much of the
    data and have automated processes already in place that would support
    the development and the integration of the new Rental Assistance
    Forecasting software. This will reduce the cost of design, development,
    and deployment as well as more effectively support existing business
    processes supported by these systems.

                RURAL HOUSING SERVICE/HOME OWNERSHIP COUNSELING

        Question. The Section 525 technical assistance program for
    homeownership counseling with a historical level of approximately $1
    million has been eliminated with a justification that other sources,
    including HUD, will provide this service. The President's Budget also
    eliminates the Office of Rural Housing at HUD to provide technical
    assistance and build capacity. HUD has been inadequate with the FHA
    programs in penetrating rural America. In addition, the President and
    the Secretaries of USDA and HUD have announced changes to increase
    minority participation in Homeownership. One change required this
    Committee to transfer $11,000,000 in the 502 guaranteed program to make
    up for a shortfall during conference.
        Do you have a commitment from HUD or others that would ensure our
    rural areas are not left behind?
        Answer. We work with many agencies, including HUD, State housing
    finance agencies, local housing authorities and local non-profit
    housing groups to ensure that rural areas receive a fair share of
    housing assistance, including homeownership counseling. Homeownership
    counseling is also provided by our Section 523 Grantees to those
    families who participate in the Mutual Self-Help Housing Program. A
    Memorandum of Understanding is being developed between the Rural
    Housing Service (RHS) and the Federal Deposit Insurance Corporation
    (FDIC) to make available training for potential rural homeowners using
    the Money Smart financial literacy program. Our field staffs have
    received training and are already using this program as another tool in
    providing homeownership counseling.
        Question. Does this Administration believe homeownership counseling
    is an intricate part of the success of homeownership and wouldn't this
    small investment add value; especially when you are reaching out to
    historically undeserved minority communities and individuals?
        Answer. We believe homeownership counseling is a critical factor in
    becoming a successful homeowner. However, funding for homebuyer
    education programs is available through numerous other Federal, State,
    and local government and non-governmental sources. For example, in
    2002, HUD awarded more than $18 million for its Housing Counseling
    Programs in urban and rural areas across the country.

                    RURAL HOUSING SERVICE/SELF-HELP HOUSING

        Question. In fiscal year 2003, the Rural Housing Service had a
    large percentage of carryover-appropriated funds for the Self Help
    Housing Grant fund.
        What is the actual need to meet obligations in 2004?
        Answer. We anticipate the actual need in fiscal year 2004 to be
    $34,000,000. About $24,000,000 of this amount would be used to refund
    75 existing grantees. The rest would be awarded to new grantees brought
    to meet contract needs.

                    RURAL HOUSING SERVICE/FARM LABOR HOUSING

        Question. In the Secretary's testimony for the May 8, 2003
    Appropriation hearing, she indicated that the rental assistance request
    is enough for all renewals including supporting new construction of $59
    million for farm labor housing projects. In a recent briefing with the
    Committee staff, the Department indicated that only 170 units of rental
    assistance would be used for farm labor. Additionally, these projects
    require a large percentage (around 80 percent) of rental assistance for
    each facility, which averages around 40 units.
        How will you utilize $59 million to construct farm labor housing
    with only enough rental assistance for 4 or 5 projects?
        Answer. We have projected to fund 984 farm labor housing (FLH) new
    construction units from the $59,167,000 appropriations. Of that number
    we will provide Rental Assistance for 859 units or 87.3 percent of FLH
    new construction units, which will allow us to continue to operate a
    viable FLH program. The percentage in prior years was 85 percent in
    2002 and 79.5 percent in 2003.
        Question. This is a program has low-rehab needs. What will you do
    with the balance for the loan and grant programs in farm labor?
        Answer. For fiscal year 2004, we anticipate to use all of the $59
    million in loan and grant funds in FLH. The funds will be made
    available for new construction of off-farm housing and rehabilitation
    of properties in the portfolio. The balance of the funds will be used
    for on-farm new construction and Technical Assistance grants.
        Question. Will you make adjustments to this request?
        Answer. We do not plan to make adjustments to this request.

                              BENEFICIARIES REPORT

        Question. In 2001 the Department sent to the Congress a report,
    Rural Housing Service Program Beneficiaries, which analyzed
    demographically who was getting Rural Housing Service funds.
        When will the Department provide another such report; a report that
    is required annually by the Fair Housing Act?
        Answer. This report will be completed within this fiscal year and
    will cover the period from the last report.
        Question. How many units of housing will the Rural Housing Service
    finance with the budget authority requested in the fiscal year 2004
    budget? How does this relate to the need?
        Answer. For the Single Family Housing Direct loan and grant
    programs, RHS will finance the construction or purchase of
    approximately 17,900 homes with Section 502 Direct Loan funds, 17,000
    with Section 502 Guaranteed funds and make more affordable over 2,500
    units of refinanced housing, and the repair/rehabilitation of
    approximately 12,000 homes with the Section 504 Loan and Grant funds.
    The demand for these programs remains very strong.
        For the Multi-Family Housing programs, the fiscal year 2004
    President's Budget column reflects what will be financed with the
    budget authority provided.
        [The information follows:]

    ------------------------------------------------------------------------
                                                            Fiscal year 2004
                PROGRAM (MULTI-FAMILY HOUSING)             Presidents Budget
    ------------------------------------------------------------------------
    Total Number of units funded for new construction                  3,143
     (fiscal year).......................................
    Sec. 515.............................................                  0
    Sec. 514/516.........................................                741
    Sec. 514/516 Natural Disaster........................                  0
    Sec. 538.............................................              2,402
    Total Number of units funded for rehabilitation                    9,243
     (fiscal year).......................................
    Sec. 515.............................................              5,888
    Sec. 514/516.........................................                978
    Sec. 533.............................................              2,377
                                                          ------------------
          Total..........................................             24,772
    ------------------------------------------------------------------------

        These figures, which are consistent with prior years, indicate that
    the Rural Housing Service is making a significant contribution toward
    meeting the housing needs of Rural America.
        I believe these analyses, judging from the one submitted for the
    Rural Housing Service in 2001, Rural Housing Service Program
    Beneficiaries, are tools for the Congress, the Department, and the
    agencies in Rural Development and the Farm Services Agency to monitor
    civil rights, as well as, programmatic performance. This type of report
    can tell you who received the funds, what county they are in, what
    their racial and ethnic background is, and who was successful in
    obtaining USDA funds. The report also compares the beneficiaries to
    those eligible for the program, so you can see if you are reaching all
    eligible populations around the country.
        Question. I know we have had a difficult time getting data and
    analysis from the Department on these programs, wouldn't you agree that
    this type of analysis would help you respond to us in the Congress as
    well as to self-monitor your own programs?
        Answer. Yes, this type of analysis would help respond to Congress
    and Rural Development is working to improve data collection.
        Rural Development has evaluated all of its program data and
    reformatted the data to better address the requirement of FHA and other
    Civil Rights Laws. Additional racial and ethnic data collection has
    been adopted to the new categories as required by the Office of
    Management and Budget.
        Question. Does the Department have the personnel to perform such
    analysis?
        Answer. Rural Development's report was prepared by a private
    contractor. Similar reports for other USDA program areas would likely
    also have to be done by contractor.
        I know the Assistant Secretary for Civil Rights' was just
    established and may have difficulty providing studies such as the one
    submitted in 2001, so I don't believe we can look there for action. I
    know the report, Rural Housing Service Program Beneficiaries, was
    produced by a private group under contract from Rural Development.
        Question. Are you prepared, as Rural Development did, to seek non-
    Federal entities to perform the analysis and write these reports
    required by law?
        Answer. We believe such reports can be effectively done in-house or
    by private contractors. It is important that they meet the specific
    needs for ethnic data for specific program areas.

                                  ASSET SALES

        Question. What programs do you consider for the asset sale and how
    will you assure that agencies don't repeat 1987 loan asset sales
    conducted by the former Farmers Home Administration when they sold only
    seasoned loans for approximately 55 cents on the dollar?
        Answer. All farm loan programs, both performing and non-performing
    loans, will potentially be considered for the loan asset sale. However,
    FSA will participate with RD in a study to determine whether or not
    there is any market for the loans and whether or not there would be any
    net savings to the Government after factoring in the cost of the sale.
    If it is determined that there will be no net savings, it is not likely
    that the farm loans will be considered for an asset sale.
        As noted above, FSA will conduct a study to determine whether or
    not there will be a net savings to the government before farm loans are
    considered for an asset sale.
        Question. Will these assets also be heavily discounted and if so
    isn't this the same as reducing a portion of the debt to the borrowers
    and allowing them to refinance with the private sector?
        Answer. If it is determined that the farm loans will not yield any
    net savings to the Government, it is not likely that they will be
    considered for an asset sale.

                             RURAL BUSINESS SERVICE

        Question. The Rural Business Investment Program (RBIP, Sec. 6029)
    is currently required to use another Federal agency to carryout the
    program. Is this arrangement adequate, or should the Department have
    the authority to contract with non-Federal groups or deliver this
    program in-house?
        Answer. Rural Development and SBA have jointly identified certain
    impediments with the current legislation. While we are continuing to
    work toward resolving these impediments, we may find it necessary to
    propose some legislative changes.
        Question. How does the agency protect a property acquired by a
    Rural Enterprise grant from allowing the recipient to take an equity
    loan on a facility or selling the equipment? Is any instrument filed by
    the Government at the courthouse to protect the Government's interest?
        Answer. Rural Business Enterprise Grants are governed by Section
    3019.37 of 7 C.F.R., which provides that Federal agencies may require
    recipients of grants to record liens or other appropriate notices of
    record to indicate that personal or real property has been acquired or
    improved with Federal funds, and that use and disposition conditions
    apply to the property. These requirements are spelled out in the Grant
    Agreement and/or Letter of Conditions that is signed by the Agency and
    Grantee.
        Question. A recent news report referred to a Business and Industry
    loan provided to a company that was found to have violated other
    Federal requirements and was forced to pay penalties to the Federal
    Government. The report indicated that proceeds from the B&I loan went
    to pay these fines. Is this allowed under the current regulations and,
    if so, is this good policy? Can you please explain in detail how this
    loan was approved?
        Answer. We are not familiar with the news report to which you
    refer. Not knowing the specifics of the project, it is hard to provide
    more than a general answer. Program regulations do not specifically
    prohibit the payment of fines, but prudent lending decisions would
    dictate the proper action. Most guaranteed loans are approved at the
    State Office level. It would be up to the approval official to evaluate
    each individual application on its own merits, assess the causes of any
    fines or penalties, and evaluate any adverse affect on repayment
    ability. We do not know the amount or purpose of the fines. It is
    possible that a business owner purchased property with existing
    environmental problems of which he was unaware. It is possible that the
    lender and borrower did not make the Agency aware of the fines, nor
    that B&I funds were used to pay the fines.

               RURAL ECONOMIC DEVELOPMENT LOAN AND GRANT PROGRAM

        Question. The Farm Security and Rural Investment Act of 2002 (Farm
    Bill), which was signed into law by President Bush last May, included a
    new provision providing for private sector funding for the Rural
    Economic Development Loan and Grant (REDLEG) program. The REDLEG
    program provides zero-interest loans and grants for projects such as
    business expansion and start-up, community facilities, schools and
    hospitals, emergency vehicles, and other essential community
    infrastructure projects in rural America. In Wisconsin alone, this
    program has provided 59 grants/loans totaling nearly $13 million while
    leveraging an additional $59 million and creating over 1,800 jobs. This
    new source of private funding for REDLEG is provided through fees
    assessed on qualified private lenders receiving a guarantee under
    Section 313 A of the Farm Bill. The authorizing language is very
    straightforward on this matter and incorporates specific and strong
    protections to the government to ensure the safety and soundness of the
    program. In fact, the Farm Bill Conference Report notes that this new
    provision ``effectively places the lender between the RUS and the
    borrower minimizing the risks to the government.'' It is clearly stated
    in the Farm Bill that the Secretary has 180 days from the date of
    enactment to issue regulations and 240 days to implement the program.
    Both deadlines has come and gone and not even draft regulations have
    been issued. I am concerned that by the time regulations are issued
    with the appropriate following public comment period and then final
    program implementation, USDA may well be into the next fiscal year and
    lose the $1 billion guarantee program level Congress appropriated for
    this fiscal year.
        What steps are you taking to expedite this process and will you
    have something published this fiscal year?
        Answer. The Rural Utilities Service is in the process of addressing
    the issues that came about through the normal review process within the
    Administration. The regulation should be published in the near future.
        Question. Does this Committee need to do anything else to assist
    the Department in this effort?
        Answer. No, the Committee does not need to do anything else.

                              COMMUNITY FACILITIES

        Question. The Rural Community Development Initiative (RCDI) imposes
    a one-to-one match requirement. Is this a problem serving low-income
    communities that lack capacity compared to, for example, national
    organizations?
        Answer. The point system used for ranking RCDI applications gives
    priority to small, low-income rural communities. We have no way of
    determining if some organizations are discouraged from applying by the
    requirement for matching funds. However, there have been more loan
    applications than could be funded in recent years.
        Question. What lead to the change to allow the Federal match and
    are we funding other USDA entities like Extension Service and is this
    good policy?
        Answer. The matching funds requirement is mandated by Congress. The
    Extension Service and other USDA agencies are not eligible to receive
    RCDI funding.
        Community Facilities (CF) Direct Loan--The CF direct program has
    never had a negative subsidy. This program has had a generally flat
    program level of $250,000,000 for years. Additionally, the Agency
    adjusts the interest rates to the customers on a quarterly basis on the
    11th bond buyer's index. On the 3 week at the end of the quarter, the
    Agency averages the bond buyer's index for the previous three months
    and sets a new interest rate for the next quarter.
        Question. The current rates to the borrowers are as follow:
    Poverty, 4.5 percent; Intermediary, 4.78 percent; Market, 5 percent.
    Without any budget authority, is the Agency exposed as we move through
    the appropriation process with higher anticipated interest rates?
    Wouldn't a slight rise in the interest rates have a tremendous impact
    on this program and the end customers? What are the factors that lead
    to a negative subsidy rate for the first time?
        Answer. All direct loan programs are exposed to risk related to a
    rise in interest rates as we go through the appropriation process. That
    is a part of credit reform budgeting for direct loans. Subsidy costs
    tend to increase when interest rates go up and to decrease when
    interest rates go down. Other factors that determine the subsidy rate
    include disbursement rates, average loan terms, percentage of program
    level obligated at each interest rate, grace period for principal,
    repayment schedule, and recovery of payments that are behind schedule.
    The primary factor that has changed creating the negative subsidy
    factor is the overall cost of money to the Federal Government.

              RURAL UTILITIES SERVICE/WATER AND WASTEWATER PROGRAM

        Question. The 2002 Farm Bill provided mandatory funds to meet the
    requirements of a portion of the backlog for water and wastewater
    applications. The fiscal year 2002 request dramatically reduces the
    portion of grant funds available for this program. I understand that
    you have applications in a pre-application stage, applications that
    have been approved for funding and are expected to be funded with
    available dollars, and applications which have been approved for
    funding but for which resources are not available.
        What level of applications which had been approved for funding were
    still unfunded after the Farm Bill mandatory funds were made available?
        Answer. At the end of fiscal 2002 there were 762 complete loan
    applications on hand totaling $1,363,369,609 and 561 complete grant
    applications on hand totaling $706,527,731.
        Question. How many applications were funded with the Farm Bill
    mandatory funds and how many additional applications approved for
    funding were unfunded?
        Answer. A total of 393 projects were funded with the Farm Bill
    mandatory funds and a total of 786 additional applications were
    unfunded at the end of fiscal year 2002.
        Question. As of May 1, 2003, how may applications are approved and
    waiting for funding but are not expected to be funded in fiscal year
    2003, and what is the cost of funding these applications?
        Answer. It is estimated that approximately 500 complete
    applications will not be funded in fiscal year 2003. It is estimated
    that the cost of funding these applications is approximately $1.0
    billion.
        Question. As of May 1, 2003, how many applications have been
    submitted that are in the pre-application stage, and what is the
    expected cost of funding these applications if they are all approved.
        Answer. There are a total of 820 incomplete applications on hand.
    The total cost of funding these incomplete applications is estimated to
    be $1.5 billion.
        Question. Of the applications approved for funding, what is the
    total of grant necessary to fund these applications?
        Answer. The total amount of grant needed to fund the complete
    applications on hand is estimated to be $763,852,491.
        Question. How many applications will not be funded in fiscal year
    2004 due to the Administration's reduction in grant funds since those
    applications need a higher rate of grant funds to cash flow, and from
    what States are those applications generated?
        Answer. Nationally, the applications remaining in the backlog
    indicate an increasing demand for loan funds, which could mean that
    there would be no change in the number of applications funded and
    unfunded. It is anticipated that fiscal year 2004 will be no different
    than any other fiscal year in that a number of applications will be
    unfunded in each State.
        Question. Will the Administration's proposal to reduce grant levels
    mean that it is intended to pass on a higher portion of the project
    cost to lower income Americans or does it mean that it is intended that
    this program shall be more targeted to more affluent communities?
        Answer. It is believed that neither one of these is the case. The
    program remains committed to directing loan and grant funds to the
    smallest communities with the lowest incomes, while providing financial
    assistance that results in reasonable costs for rural residents, rural
    businesses, and other rural users. The substantial reduction in
    interest rates that has occurred over the past 10 years has made
    projects funded through loans more affordable.
        Question. Will the customer historic rates for water and sewer
    increase for the States as a result of debt serving a larger portion of
    the projects with loans funds instead of a higher grant infusion and
    have you conducted any analysis on the impact to low and very low-
    income communities?
        Answer. It is believed that the customer's historic rates for water
    and sewer will not increase at this time. Matching loan and grant funds
    to meet the needs of local communities is always challenging. A
    project's financial feasibility is determined based on its ability to
    repay a loan and at the same time maintain reasonable user rates. With
    the additional funding from the Farm Bill, we were able to fund a
    significant number of applications that needed grant funds to develop a
    feasible project. The loan-grant mix on the 393 Farm Bill projects was
    50/50. Fortunately, we were able to reach many projects that needed
    significant grant support. This resulted in a reduction in the backlog
    particularly in projects with a heavy grant demand. Nationally, the
    applications remaining in the backlog indicate an increasing demand for
    loan funds.
        A formal analysis has not been conducted on the impact to low and
    very low-income communities.

                               PUBLIC TELEVISION

        Question. Public television stations are facing a Federal mandate
    to convert all of their analog transmission equipment to digital. The
    deadline for public television stations to make this conversion
    recently passed on May 1, 2003. 195 stations have filed with the FCC
    for extensions of the deadline. Of the stations that cited financial
    hardship as reason for a waiver, 70 percent of them serve predominantly
    rural areas.
        Last year, members of this committee recognized that public
    stations serving rural areas would experience financial hardship as one
    of the obstacles to meeting the Federally mandated deadline. To assist
    these stations, the committee included $15 million in the Distance
    Learning and Telemedicine program specifically to address these needs.
        Committee staffs have recently met with both budget officers and
    attorneys in your department about funding for this purpose. Further, I
    understand that your agency has neglected to develop a plan for
    awarding these funds. It is my understanding that the reason for the
    delay in awarding these funds is because your department does not feel
    that there is significant congressional direction to implement this
    program for public television. I have read both the Senate report
    language as well as the Omnibus report language and I think that
    Congress was explicit in their intent to award these funds. I might add
    that we put those funds in there for this specific purpose--to provide
    funding for rural public televisions stations.
        Please explain why you are choosing to ignore a directive from this
    committee?
        Answer. Rural Development is aggressively seeking the
    implementation of a Notice of Funds Availability (NOFA) that would make
    this funding available this summer. The NOFA will outline funding
    parameters and set forth eligibility requirements to allow for the most
    equitable distribution of this grant funding.

                        WIC CONTINGENCY FUND USE IN 2003

        Question. Does USDA currently anticipate the need to use any of the
    contingency funds provided in fiscal year 2003 in order to maintain
    full WIC participation in fiscal year 2003.
        Answer. Based on our current assessment of State agency funding
    requirements, we do not anticipate using contingency funds in fiscal
    year 2003 in order to maintain WIC participation. Any projected
    shortfalls by individual States will be managed through conventional
    reallocations.

                        2003 WIC FARMERS' MARKET GRANTS

        Question. Please provide an update on funds provided in fiscal year
    2003 for the WIC Farmers' Market Program, including the amount of funds
    obligated to date, and information regarding the specific grants.
    Further, please include the total number and total amount of requests
    received for the WIC Farmers' Market Program.
        Answer. A total of 44 State agencies requested and received to
    date, $23,619,504 in funds as reflected in the attached chart. We have
    advised State agencies of the opportunity to request additional
    funding, given that $1,380,496 remains available from the $25 million
    appropriated for the program. Some State agencies have expressed an
    interest in receiving additional funds. Therefore, we are collecting
    this information and expect to allocate additional funds by July 2003.
    The grant allocations through May 22, 2003 are provided for the record.
        [The information follows:]

                      WIC FARMERS' MARKET NUTRITION PROGRAM
    ------------------------------------------------------------------------
                                                                Fiscal Year
                          State Agency                         2003 Program
                                                                 Grant \1\
    ------------------------------------------------------------------------
    ALABAMA.................................................        $239,850
    ALASKA..................................................         290,029
    ARIZONA.................................................         303,333
    ARKANSAS................................................         245,000
    CALIFORNIA..............................................       3,097,875
    CHICKASAW, OK...........................................          40,000
    CONNECTICUT.............................................         409,879
    D.C.....................................................         339,276
    5 SANDOVAL..............................................           6,337
    FLORIDA.................................................         366,543
    GEORGIA.................................................         309,243
    GUAM....................................................         123,457
    ILLINOIS................................................         322,166
    INDIANA.................................................         284,696
    IOWA....................................................         641,320
    KENTUCKY................................................         230,000
    MAINE...................................................          85,000
    MARYLAND................................................         624,843
    MASSACHUSETTS...........................................         607,229
    MICHIGAN................................................         515,490
    MINNESOTA...............................................         396,667
    MISSISSIPPI.............................................          86,766
    MISSOURI................................................         257,137
    MS. CHOCTAWS............................................          14,500
    MONTANA.................................................          70,000
    NEW HAMPSHIRE...........................................         129,047
    NEW JERSEY..............................................       1,118,411
    NEW MEXICO..............................................         392,891
    NEW YORK................................................       4,083,332
    NORTH CAROLINA..........................................         365,470
    OHIO....................................................         329,446
    OREGON..................................................         363,067
    OSAGE TRIBAL COUNCIL....................................          31,325
    PENNSYLVANIA............................................       2,312,386
    PUEBLO OF SAN FELIPE....................................           8,666
    PUERTO RICO.............................................       1,301,308
    RHODE ISLAND............................................         198,313
    SOUTH CAROLINA..........................................         132,530
    TENNESSEE...............................................          96,000
    TEXAS...................................................       1,650,000
    VERMONT.................................................          75,676
    WASHINGTON..............................................         308,000
    WEST VIRGINIA...........................................          70,000
    WISCONSIN...............................................         747,000
                                                             ---------------
          TOTAL.............................................      23,619,504
                                                             ===============
    Fiscal year 2003 Available Funds........................      25,000,000
                                                             ===============
    Total Funds Allocated...................................      23,619,504
                                                             ===============
    Remaining Available Funds...............................      1,380,496
    ------------------------------------------------------------------------
    \1\ Funds Allocated Thru May 22, 2003.

                        WIC VENDOR PRACTICES EVALUATION

        Question. Please provide an update on the evaluation of WIC vendor
    practices, for which $2 million was provided in fiscal year 2003. When
    will the evaluation be complete, and does USDA anticipate any changes
    in WIC guidelines as a result of this evaluation?
        Answer. We anticipate that an evaluation contractor will be
    selected and a contract awarded by September 30, 2003. Data collection
    will occur in 2004 with a final report expected in 2005. This will be
    the first study of WIC vendor management practices since the WIC Food
    Delivery Systems final rule, which was published on December 29, 2000.
    WIC State agencies were required to implement the rule by October 1,
    2002. We expect that an examination of the efficacy of existing State
    high-risk vendor identification systems will result in additional
    guidance to help States to target more effectively their limited
    investigative resources toward vendors that are most likely to
    overcharge on food instruments or commit other serious violations.

                          ROUNDING-UP FOR WIC FORMULA

        Question. The Senate included report language last year regarding
    the amount of infant formula issued to WIC participants each month and
    the variety of infant formula can sizes. Has FNS taken any action in
    regard to this report language? Please provide an update.
        Answer. The Department has a proposed rule in the initial stages of
    clearance that would, as drafted, allow WIC State agencies to round up
    to the next whole can size of WIC formula (infant formula, exempt
    infant formula, or WIC-eligible medical food) so that participants can
    receive the full amount of formula authorized in WIC regulations. We
    intend to publish the proposed rule by September 2003.

                             WIC MANDATORY FUNDING

        Question. Has USDA taken any position on any proposals to modify
    the WIC program from a discretionary program to a mandatory program
    during the reauthorization of the Child Nutrition Act, or at any other
    time? If so, what is the position of USDA?
        Answer. As stated in Food and Agriculture Policy: Taking Stock for
    the New Century of particular urgency is ensuring dependable funding
    for WIC. There may be advantages, programmatically as well as from a
    budget formulation perspective, in redefining WIC as a mandatory
    spending program. There has been no formal proposal and the
    Administration has taken no formal position on any proposals to modify
    the WIC program from a discretionary program to a mandatory program. In
    the current budget environment, the Administration is likely to be wary
    of putting more spending on the mandatory side of the budget.

                          WIC STUDIES AND EVALUATIONS

        Question. The President's budget requests an increase of $5 million
    for studies and evaluations. Please provide more detailed information
    on the type of studies planned with this increased funding, and the
    information that will be obtained through these studies.
        Answer. This increase will be used for a comprehensive study to
    evaluate the effectiveness of the WIC program.
        While studies by FNS and other entities have long shown that WIC is
    cost-effective in improving health and nutritional outcomes for
    specific populations, a comprehensive evaluation has not been recently
    completed. The program faces a range of emerging issues and challenges,
    including changes in the demographics of WIC recipients, the need for
    better coordination with other programs, staff development and
    retention, and the use of new technologies to improve customer service
    and maintain program integrity. Detailed research plans are under
    development within USDA. We will be happy to share this with the
    Committee once they are finalized.

                   WIC MANAGEMENT INFORMATION SYSTEM REQUEST

        Question. The President's budget requests an increase of $30
    million for State Management Information Systems, to replace old and
    antiquated WIC systems. What are the specific spending plans for this
    funding? Will all of the $30 million be spent in fiscal year 2004? If
    not, how and when will each portion of the funding be spent? Is this
    $30 million increase a one-time request for fiscal year 2004, or do you
    anticipate requesting another increase in fiscal year 2005 and beyond?
        Answer. We intend to fully obligate the funds in fiscal year 2004
    for planning activities and system design and development work. Funding
    decisions will be made in accordance with a Capital Planning and
    Investment Plan we are preparing in conjunction with OMB. Funds
    obligated in fiscal year 2004 will ultimately be contingent upon State
    agency progress in forming consortiums, determining State agency needs,
    and actual award of procurement contracts as specified in our Plan.
        The requested $30 million is part of a multi-year plan for WIC
    system development that should be completed no later than fiscal year
    2008.

                     BREASTFEEDING PEER COUNSELING REQUEST

        Question. How will the $20 million increase for breastfeeding peer
    counseling, in the President's budget, be distributed? Will there be
    any evaluation of this effort to increase the number of women who
    choose to breastfeed?
        Answer. These funds would be awarded on a competitive grant basis
    to the WIC State agencies. Restricting the use of these funds to
    breastfeeding peer counselor programs would ensure that peer counselors
    are available at a majority of the WIC agencies nationwide. The
    selection criteria for awarding grant funds to the WIC State agencies
    is still under consideration. However, we expect the components of a
    successful peer counselor program to provide education and support to
    WIC clients through: (1) repetitive contacts throughout the prenatal
    period in the WIC clinic; (2) postpartum hospital visits; (3) home
    visits, (4) follow-up phone calls; (5) addressing barriers and
    encouraging family support; and (6) culturally sensitive breastfeeding
    management and education within the context of limited financial and
    social resources.
        Prior to developing our budget request, we examined the research on
    use of breastfeeding peer counselors. The research indicated that use
    of breastfeeding peer counselors has proven to be an effective method
    of increasing breastfeeding duration rates among the WIC target
    population. To ensure that WIC breastfeeding peer counseling is
    effectively implemented, we plan to monitor and evaluate the
    effectiveness of breastfeeding peer counseling on WIC breastfeeding
    initiation and duration rates, but no formal evaluation is planned.

                        WIC FOOD PACKAGE REVISION STATUS

        Question. I recently received a letter from Secretary Veneman,
    dated March 11, stating that the updated WIC food package is expected
    to be published in early summer. Please provide a specific date by
    which this is expected to occur.
        Answer. The letter you refer to, dated March 11, 2002, outlined the
    Department's plans to publish a proposed rule to amend the WIC food
    packages by early summer 2002. Since that time, in light of emerging
    nutrition-related health issues and the new research-based Dietary
    Reference Intakes, the Department instead plans to publish an Advanced
    Notice of Proposed Rulemaking (ANPRM) on the WIC food packages in late
    summer 2003. Also, a Statement of Work has recently been submitted to
    the Institute of Medicine's (IOM) Food and Nutrition Board requesting
    that it undertake a review of the research on nutrients lacking in the
    WIC population's diet and the WIC food packages. We are asking the IOM
    to make recommendations for possible changes to the WIC food packages,
    based on the best available science. They will also consider
    recommendations from the National WIC Association and comments received
    in response to the ANPRM. IOM recommendations and the Department's
    proposed decisions on how to implement them will be submitted for
    public review and comment through a Notice of Proposed Rulemaking. We
    have developed an accelerated timeline to ensure publication of a final
    rule before the close of fiscal year 2005.

                         WIC OBESITY PREVENTION EFFORTS

        Question. The President's budget requests an increase of $5 million
    for obesity prevention projects to be carried out in WIC clinics,
    including evaluations of those projects. Does USDA intend to try and
    replicate successful projects throughout the country when reasonable?
    Further, does USDA anticipate additional funding needs for obesity
    prevention within the WIC program in the near future?
        Answer. FNS plans to use these funds to implement and rigorously
    evaluate a series of interventions in multiple WIC clinics to prevent
    childhood obesity. FNS will encourage States and local WIC agencies to
    implement any cost-effective approaches identified through the
    evaluation.
        FNS will use the results of the evaluation to determine the need
    for additional funding. If cost effective approaches to preventing
    childhood obesity are identified, FNS may request additional funding to
    assist State and local WIC agencies in implementing these approaches.

                   FREE AND REDUCED PRICE LUNCH CERTIFICATION

        Question. The President's budget includes an increase of $6 million
    for activities to explore policy changes to help ensure that all
    children receiving free and reduced price meals are eligible for them.
    According to the budget, some of the ways in which USDA seeks to
    improve the accuracy of eligibility decisions include mandating the use
    of Food Stamp and TANF records to directly certify eligibility of
    children already participating, or to use a ``combination of third-
    party wage data'' and other expanded requirements for up-front
    documentation for children not currently receiving free or reduced
    price school lunches.
        Does USDA believe that these increased certification requirements
    will not only identify ineligible children who are currently receiving
    benefits, but also children who are currently receiving reduced price
    lunches but are in fact eligible for free lunches?
        Answer. Yes. We expect that using Food Stamp records to directly
    certify children for free meals, and other program improvements, will
    help to identify more children who are eligible for free breakfast and
    lunch, but currently pay for school meals at reduced or full price, and
    certify them for free meals.
        We also intend to address this issue through our $6 million budget
    request to explore methods to enhance the targeting accuracy of the
    free and reduced price eligibility determination system.
        USDA has identified two fundamental problems in the current system.
    First, there is a substantial number of children approved for free and
    reduced price meal benefits on the basis of an application that are not
    income-eligible for the benefit level they are receiving. These
    children are over-certified. FNS believes that the vast majority of
    over-certified children are approved on the basis of an application
    provided to their school district, while there are very few over-
    certified children approved on the basis of direct certification.
        Second, there are a significant number of income-eligible children
    that are not approved for the level of benefits associated with their
    income-level. For example, some households eligible for free or reduced
    price meal benefits are not approved for either level of benefits. When
    these children receive an NSLP lunch, they must pay full price.
    Likewise, there are some households eligible for free meal benefits but
    who are approved for reduced price meal benefits. Funds requested are
    designed to consider methods to address both fundamental problems.

                      SCHOOL LUNCH CERTIFICATION ACCURACY

        Question. Please explain the proposals listed in the budget a
    little more fully, specifically the ``combination of third-party wage
    data and other expanded requirements.'' If USDA has updated their
    proposals, please explain the most current ones.
        Answer. Through the President's Budget request and the
    reauthorization of the Child Nutrition Programs, USDA will seek to
    improve the accuracy of program eligibility determinations, while
    ensuring access to program benefits for all eligible children, and
    reinvesting program savings to support program outcomes. Our current
    recommendations to improve integrity include:
      --Requiring direct certification for free meals through the Food
            Stamp Program, to increase access among low-income families,
            reduce the application burden for their families and schools,
            and improve certification accuracy.
      --Enhancing verification of paper-based applications by drawing
            verification samples early in the school year, expanding the
            verification sample; and including an error-prone and random
            sample.
      --Minimizing barriers for eligible children who wish to remain in the
            program by requiring a robust, consistent effort in every
            school to follow-up with those who do not respond to
            verification requests.
      --Initiating a series of comprehensive demonstration projects to test
            alternative mechanisms for certifying and verifying applicant
            information, including use of wage data matching that
            identifies eligible and ineligible households.
      --Planning for a nationally representative study of overcertification
            errors and the number of dollars lost to program error.

                        IMPROVING CERTIFICATION ACCURACY

        Question. How does USDA intend to make sure that increased
    certification requirements do not drive away any child who is eligible
    for a free or reduced-price school lunch, regardless of whether or not
    they are currently participating?
        Answer. The Administration is committed to maintaining and
    improving access to low-income children who rely on free or reduced-
    price school meals. We have had a continuing dialogue with the
    Congress, the school food service community, and program advocates, and
    have been working to develop and test policy changes that improve
    accuracy but do not deter eligible children from participation in the
    program and do not impose undue burdens on local program
    administrators. Recommendations we support include:
      --Requiring direct certification for free meals through the Food
            Stamp Program. As provided for in the Child Nutrition
            reauthorization, this would increase access among low-income
            children and reduce the application burden for their families.
            Current evidence suggests that while direct certification is
            much more accurate than the standard application process it is
            not yet widely used.
      --Requiring school districts to follow up and make contact with
            households that do not respond to verification requests, in
            writing and by telephone.
      --Streamlining the process for those who must still submit paper
            applications by requiring a single application for each
            household.
      --Providing for year-long certifications in both paper-based
            applications and direct certifications, eliminating the need to
            report income changes during the year.

                   USE OF SAVINGS FROM CERTIFICATION ACCURACY

        Question. Secretary Veneman's testimony stated that the
    Administration would fully reinvest any savings that result from
    improved payment accuracy to strengthen the programs. How specifically
    will those savings be reinvested?
        Answer. The Administration's decision to fully reinvest any savings
    back into the programs is an essential aspect of our commitment to
    improving program integrity and program access.
        A majority of the savings will be reinvested to promote access to
    the programs for all those eligible for them. Some specific proposals
    in this area include increasing the regular free and reduced-price
    school breakfast rates to the severe need rate, to encourage additional
    schools to deliver the School Breakfast Program, and to exclude
    military housing allowances from income, expanding eligibility and
    improving access for families serving in America's armed forces.
        Savings will also be used to encourage children to make positive
    choices about what they eat, how much they eat, and how active they
    are. This could include proposals such as providing expanded funding to
    support the delivery of nutrition education messages and materials in
    schools and conducting a large-scale demonstration project and
    evaluation to test the impact of a healthy school nutrition environment
    on student's nutrition and well-being in schools across the Nation.

                       IRRADIATED MEAT IN SCHOOL LUNCHES

        Question. Please provide an update on any plans by USDA to
    introduce irradiated meat into the school lunch program.
        Answer. Product specifications will be released May 29, 2003 and
    schools will have the option to order irradiated beef beginning January
    2004. This allows ample time for schools to educate parents and the
    community so that informed decisions can be made. Should schools decide
    to order product, this also allows schools ample time to notify
    parents. In addition, irradiated beef manufacturers will have the
    opportunity to study and implement the specifications prior to orders
    from schools in January. The decision to order and serve irradiated
    ground beef will be left to each school food authority.
        Farm Bill conference report language indicates that USDA should
    consider ``the acceptability by recipients of products purchased'' by
    USDA for commodity distribution. Therefore, before irradiated ground
    beef products are made available for order by schools, USDA will make
    every effort to encourage schools to educate food service personnel,
    parents, and the community concerning irradiated ground beef products.
    Shortly after the release of specifications, FNS will provide all
    school districts with an informational package to help them to decide
    whether to order irradiated beef products beginning January 2004. The
    package will be mailed in June 2003 and will include a letter from
    Under Secretary Bost strongly encouraging schools to notify parents,
    students, and the community if they are planning to order irradiated
    beef. In addition, the package will include a brochure with answers to
    commonly asked questions about irradiation. This letter will also
    include Web site addresses for the brochure as well as the site for the
    U.S. Food and Drug Administration (FDA) irradiation consumer
    information. The letter will give information regarding the community
    educational materials currently under development by the State of
    Minnesota that will be available to schools in the fall of 2003.

                           FRUIT AND VEGETABLE PILOT

        Question. The pilot programs that have provided free fruits and
    vegetables to students have been deemed extremely successful, and the
    USDA has stated that it would like to expand these pilot programs. Has
    USDA taken any specific steps to try and expand these programs in the
    most cost-effective manner?
        Answer. Public Law 108-30, enacted May 29, 2003, extends the
    ability of schools participating in the Fruit and Vegetable Pilot
    Program, which was authorized in the Farm Bill, to use any remaining
    funds to continue the pilot in the 2003-2004 school year. Schools were
    unable to expend the funds completely this past school year because the
    grants were not made until the middle of October and schools then
    needed time to implement the pilot. We will continue to work closely
    with participating schools, providing support and technical assistance,
    through next school year. We stand ready to provide technical
    assistance to Congress, upon request, on this issue. An evaluation of
    the pilots, submitted by USDA to Congress in May 2002, demonstrated
    great popularity among participating schools; however, empirical
    evidence was not available to allow us to evaluate the impact of the
    pilots on dietary or health outcomes.

                       SCHOOL MEALS AND CHILDHOOD OBESITY

        Question. There have been many reports of the drastic increase in
    childhood obesity, and questions have been raised about the role of
    school meals in this trend. What actions are USDA taking to ensure that
    meals provided to children during school hours are nutritious and do
    not contribute to childhood obesity?
        Answer. Currently, the Richard B. Russell National School Lunch Act
    requires schools to offer program meals that meet USDA's nutritional
    standards. In a recent report, the General Accounting Office (GAO),
    citing USDA studies, found that schools have made measurable progress
    nationwide, in meeting USDA nutrition requirements and other
    guidelines. GAO noted that additional improvement is needed not only in
    meeting the nutrition requirements, but also in encouraging students to
    eat more healthfully.
        FNS is currently working on updating guidance and providing
    training to assist States in providing schools with the technical
    assistance needed to bring all meals up to the nutrition requirements
    identified in program regulations. The more difficult problem is
    teaching children to eat more healthfully. Most schools secure
    additional revenues by offering children ``other foods'' a la carte
    during times of meal service, in school stores, in vending machines,
    and in other venues that compete with the school meals in the
    cafeteria. There are no nutritional standards for these ``other
    foods'', except that when sold in the cafeteria during meal service
    periods they cannot be ``foods of minimal nutritional value.''
        GAO noted that FNS has several major school nutrition initiatives--
    Team Nutrition, Changing the Scene, and Eat Smart.Play
    Hard.TM--that play an important role in encouraging schools
    to serve nutritious foods and encouraging children to eat well. FNS is
    also working with the Centers for Disease Control, the Department of
    Health and Human Services, and the Department of Education to support
    the Administration's HealthierUS initiative. However, not all schools
    participate in these initiatives.

                    FOOD PROGRAM PARTICIPATION IN WISCONSIN

        Question. There were recently two articles in the Milwaukee Journal
    Sentinel regarding Wisconsin's difficulty in getting Federal food aid
    to hungry people within the State. While some of these problems are due
    to complicated Federal regulations, other difficulties are due to the
    complex State applications people are required to fill out, and a lack
    of outreach to eligible participants. Do you currently have, or are you
    pursuing through Child Nutrition reauthorization, any programs that
    will provide outreach and assistance to States such as Wisconsin to
    help them increase the numbers of people they are serving?
        Answer. While we are aware of problems in certain areas of the
    State, it is important to note that Wisconsin's Food Stamp Program
    (FSP) participation has substantially increased in recent years. For
    instance, between February 2001 and 2003, Food Stamp participation
    increased by 39 percent in Wisconsin, compared to 22 percent
    nationally. Furthermore, the FSP has several outreach activities
    underway to help States like Wisconsin increase the number of eligible
    people that they are serving. One is a web-based pre-screening tool
    that will be launched this Summer to allow interested persons to learn
    quickly if they might be eligible for FSP benefits and the approximate
    benefit amount they might receive. Another is a bilingual toll-free
    number allowing callers to receive educational materials about the FSP
    and how to apply.
        Regarding the Child Nutrition Programs, the Administration believes
    that ensuring access to program benefits for all eligible children
    should be one of the guiding principles of the Child Nutrition
    reauthorization. To advance this principle, we would support using
    savings from an improved eligibility certification process for the
    National School Lunch Program for proposals such as:
      --Streamlining the school meal programs by fostering common program
            rules and policies, supporting program operators in improving
            access to the programs.
      --Increasing the regular free and reduced-price breakfast rates to
            the severe need rate for all schools participating in the
            School Breakfast Program, to encourage more schools to
            participate in the program.
      --Mandating direct certification for free meals through the FSP,
            which would add low-income children to the program while
            reducing the application burden on their families.
      --Expanding the 14 State Summer Food Service Program Pilots
            (``Lugar'' pilots) to all States, thus eliminating cost
            accounting for reimbursement in the Summer Food Service Program
            (SFSP).
      --Expanding permanent authority for proprietary child care centers
            with 25 percent of their enrollment at free and reduced-price
            to all States who participate in the Child and Adult Care Food
            Program. Currently, only 3 States have this authority.

                WISCONSIN SCHOOL BREAKFAST PROGRAM PARTICIPATION

        Question. Wisconsin ranks last in getting school breakfast to needy
    children. Morning meals were served in only 44 percent of Wisconsin
    schools that also serve lunch, compared with 78 percent nationally. It
    seems to me that we should be able to turn this situation around. As I
    understand, with the combination of start-up grants we have provided in
    the last three Appropriations bills--and that we hope to make a
    national program by next year--and State and Federal subsidies, a
    Wisconsin school district can run a breakfast program at minimal to no
    cost to the district. Given the great benefits to the students of a
    school breakfast program, I have to believe that many Wisconsin school
    districts aren't offering breakfast because they simply do not
    understand how easy it would be to set up and run the program.
        Can USDA commit to me that they will work with my office to develop
    a plan to ``sell'' the school breakfast program to Wisconsin school
    systems?
        Answer. We share your concern regarding the low participation rate
    of Wisconsin schools in the School Breakfast Program (SBP). In fiscal
    year 2003, the Food and Nutrition Service (FNS) has made promotion of
    this program a national priority. In reviewing the level of school
    participation in Wisconsin, we find the number of schools participating
    in the SBP has increased from 858 (fiscal year 2000) to 1,127 (fiscal
    year 2003), a 31 percent increase. Prior to the grant activity (fiscal
    year 2000), only 35 percent of the schools with the National School
    Lunch Program also participated in the breakfast program; this has
    grown to 45 percent in fiscal year 2003. This growth is encouraging and
    likely represents the Wisconsin Department of Public Instruction's
    (DPI) efforts to ``sell'' the program.
        In addition to schools not understanding how easy it would be to
    set up and run the SBP, a number of other factors that are not within
    the control of the State agency or school food service may affect a
    school's decision to participate in the SBP; e.g., logistics resulting
    from bussing or scheduling. As a result, it is not clear what level of
    participation we can hope to expect from Wisconsin schools.
        In addition to the School Breakfast Start-up grants which may be
    used for administrative costs related to program outreach and
    expansion, DPI receives State Administrative Expense Funds to
    administer the Child Nutrition Programs. These funds may also be used
    to promote the breakfast program to schools. USDA will continue to work
    closely with Wisconsin, as we do with all State agencies, to provide
    technical assistance. We will also continue to work with our partners
    in the advocacy community, the Food Research and Action Center and the
    American School Food Service Association, to generate interest in the
    program across the country.

                  WISCONSIN SCHOOL BREAKFAST PROGRAM EXPANSION

        Question. Will such a commitment include people and time dedicated
    to helping these districts understand and design new school breakfast
    programs?
        Answer. The Department of Public Instruction (DPI) is the State
    agency charged with administering the breakfast program in Wisconsin.
    In addition to the School Breakfast Start-up grants to be used for
    administrative costs related to program outreach and expansion, DPI
    receives State Administrative Expense Funds to administer and promote
    the Child Nutrition Programs, including the School Breakfast Program.
        USDA will continue to work closely with Wisconsin, as we do with
    all State agencies, to provide technical assistance, as needed. We will
    also continue to work with our partners in the advocacy community, the
    Food Research and Action Center and the American School Food Service
    Association, to generate interest in the program nationwide.

                            FOOD STAMP REINVESTMENT

        Question. Several States, including my State of Wisconsin, have
    paid several million dollars in penalties in recent years due to
    misadministration of the Food Stamp Program within the State. However,
    USDA does allow these States to ``reinvest'' those funds in order to
    try and improve their programs. How are these funds ``reinvested''? Are
    there specific guidelines? Does USDA provide any assistance to States
    as they are attempting to improve their program?
        Answer. USDA's Food and Nutrition Service (FNS) encourages States
    to settle liabilities incurred due to misadministration of the Food
    Stamp Program by reinvesting in mutually agreed-upon error reduction
    activities and management improvements to improve payment accuracy. In
    recognition that no single approach or set of initiatives work for all
    areas, reinvestment strategies vary from State to State and reflect
    each State's unique problems and circumstances. In the past States have
    reinvested funds in activities such as enhanced training of eligibility
    workers, computer cross matching to check client data, on-line policy
    manuals, client education on reporting responsibilities, intensive case
    reviews, and centralized change reporting functions.
        While there is a broad spectrum of potential strategies for
    reinvestment, there are specific criteria that must be met in
    determining whether or not a specific activity is allowable. These
    include a determination that the activity is directly related to error
    reduction in the State's ongoing Food Stamp Program and has specific
    objectives regarding the amount of error reduction and type of errors
    that will be reduced. The activity must also be in addition to the
    minimum program administration required by law for State agency
    administration and represent a new or increased expenditure that is
    entirely funded by State money, without any matching Federal funds
    until the entire reinvestment amount is expended.
        FNS works with States to develop allowable reinvestment strategies
    and routinely assists them as they attempt to improve their programs.
    As part of this effort, FNS allocates State Exchange funds to support
    travel to conferences, workshops, and other meetings between States to
    facilitate the sharing of effective and efficient program management
    techniques. FNS Regional Offices also work with States to analyze error
    data and provide technical assistance in support of corrective action
    and payment accuracy efforts. These efforts are supplemented by
    national efforts to monitor and evaluate payment accuracy progress,
    analyze error rate data and exchange information on payment accuracy
    best practices and program improvement strategies.

                              BISON MEAT PURCHASES

        Question. The Committee provided $3 million in fiscal year 2003 for
    the purchase of bison meat for the food stamp program. How much of that
    funding has been expended? Does the Department anticipate spending the
    full amount? If additional funding were provided, would USDA encounter
    any difficulty in expending the funds?
        Answer. To date, the Department has spent $789,689 of the $3
    million provided to purchase bison meat for the Food Distribution
    Program on Indian Reservations in fiscal year 2003. The Department
    anticipates fully expending the remaining funds. Should the same amount
    or a lesser amount be appropriated under the same terms for this
    purpose for fiscal year 2004, we believe that it could be fully
    utilized.

                        FOOD STAMP PRIVATIZATION WAIVERS

        Question. Are there currently any pending or requested waivers of
    section 11(e)(6)(B) of the Food Stamp Act? Please provide an update of
    the waiver granted in fiscal year 2002. Is it still in effect, and what
    have the results been.
        Answer. There are no pending waivers of the merit personnel
    provisions under section 11(e)(6)(B).
        In December 2002, the State of Florida requested a modification of
    its approved fiscal year 2002 food stamp privatization waiver. The
    expanded request would include all food stamp households in the six
    demonstration sites, increasing the number of food stamp households
    participating in the demonstration from approximately 3 percent to
    approximately 22 percent of the State's food stamp caseload. The Food
    and Nutrition Service (FNS) denied this expansion request. However,
    because the State indicated its intention to request the same waiver
    for the Medicaid caseload, FNS advised the State in April 2003 that we
    would reconsider the merits of the expanded waiver when the Center for
    Medicaid and Medicare Services (CMS) at the Department of Health and
    Human Services reviews the Medicaid waiver. We believe this will ensure
    the greatest program consistency among the Federal programs. As of this
    date, the State of Florida has not submitted its waiver request to CMS.
    In the meantime, we continue to work with the State in its development
    of a Request for Proposals for the independent evaluator of the
    demonstration as originally approved.

              COMMODITY SUPPLEMENTAL FOOD PROGRAM FUNDING REQUEST

        Question. The President's budget requests $94.991 million for the
    Commodity Supplemental Food Program. This is the same level as
    requested last year. However, the Congress provided $114.5 million for
    CSFP in fiscal year 2003, so the net result is a requested decrease of
    nearly $19 million for this important program for senior citizens and
    others.
        In Dane County, in my State of Wisconsin, food pantry participation
    has increased 14 percent in the previous year. At the same time,
    donations are down, so pantries are trying to feed more people with
    less food. Similar statistics are seen throughout the State, and with
    the current unemployment rate, relief doesn't seem to be coming any
    time soon.
        With all this information in mind, why wasn't an increase in
    funding requested for CSFP over the fiscal year 2003 President's
    request level?
        Answer. The President's Budget request for fiscal year 2004 was
    submitted before the fiscal year 2003 appropriation was enacted on
    February 20, 2003 and was identical to the fiscal year 2003 request.
    The fiscal year 2003 appropriation of approximately $114 million
    significantly exceeded the President's request for $94,991,000.

                         FUNDING AND CSFP PARTICIPANTS

        Question. How many participants does the Administration believe
    will have to be turned away from this program, if the President's
    budget request is agreed to by Congress?
        Answer. We do not believe that any participants will be turned away
    from the Commodity Supplemental Food Program (CSFP). Because fiscal
    year 2003 appropriations increased so significantly over the previous
    year, and because they were enacted so late in the fiscal year, we
    anticipate that States will not be able to fill a significant portion
    of their allocated caseload. Therefore, we anticipate carryover into
    fiscal year 2004 of about $12 million. Based on the fiscal year 2004
    budget request, the anticipated availability of bonus commodities for
    the CSFP, projected participation levels at the close of the current
    fiscal year, and unspent funds carried over from fiscal year 2003, we
    anticipate being able to support a caseload of 530,000. A monthly
    average participation of 482,000 is projected. It is important to point
    out that the Food Stamp Program is America's first line of defense
    against hunger and poor diet quality for people of all ages, and CSFP
    participants are typically eligible for food stamps.

                          COORDINATION OF CSFP FUNDING

        Question. Was the CSFP request taken into consideration when
    formulating the budget for other Federal feeding programs such as WIC
    and the Elderly Feeding Programs?
        Answer. The Commodity Supplemental Food Program (CSFP) funding
    request for fiscal year 2004 was developed independently from the
    requests for other nutrition assistance programs such as WIC or the
    Elderly Feeding Program. The other programs cited do not have a direct
    connection to the level of activity or resource needs of CSFP. The WIC
    component of CSFP is a small and declining portion of the program and
    is not significantly influenced by the activity in the WIC Program. The
    Elderly Feeding Program, now known as the Nutrition Services Incentive
    Program (NSIP), is no longer a part of the USDA budget request. The
    program was transferred to the Department of Health and Human Services
    in fiscal year 2003.
        Question. What suggestions and resources does USDA have for people
    who are turned away from CSFP?
        Answer. The Department does not anticipate that eligible applicants
    will be turned away in fiscal year 2004. It should be noted that the
    CSFP is not a nationwide program. Currently, it operates in 32 States,
    on 2 Indian reservations and the District of Columbia. Also, only in a
    few States is the program administered Statewide. Individuals in need
    of nutrition assistance that do not have access to CSFP can apply to
    participate in the Food Stamp Program, which is the Nation's primary
    nutrition assistance program. In addition, individuals may also be
    eligible for The Emergency Food Assistance Program, the Women, Infants
    and Children Program and /or the Nutrition Services Incentive Program
    which are all administered nationwide.

          THE EMERGENCY FOOD ASSISTANCE PROGRAM ADMINISTRATIVE FUNDING

        Question. Congress provided the Secretary with the authority to
    transfer up to $10 million from TEFAP commodity purchases to
    administration, if the Secretary deemed it necessary. Have any funds
    been transferred to date? If so, how much, and if not, does USDA
    anticipate transferring funding for this purpose?
        Answer. On March 27, 2003, State agencies administering the
    Emergency Food Assistance Program (TEFAP) were notified of their fair
    shares of the $10 million being made available from TEFAP commodity
    purchases for program administration. The funds were released to the
    States in early April.

                   TEFAP ADMINISTRATIVE FUNDING USE FOR FOOD

        Question. Currently, within the TEFAP Program, does USDA have the
    authority to allow a State to use any of its storage and distribution
    funds to purchase additional commodities, if feasible for that State?
    If not, what additional authorities, if any, are needed, and would USDA
    support such a proposal?
        Answer. No. The Emergency Food Assistance Act currently prohibits
    State and local agencies from using TEFAP administrative funds to make
    direct purchases of additional commodities. However, in recent years,
    excluding fiscal year 2003, States were granted authority under
    Appropriations Acts to convert any portion of their TEFAP
    administrative funds to food funds for use by the Department to
    purchase additional commodities on behalf of the States for
    distribution through TEFAP. To ensure that States are granted this
    authority on a permanent basis, an amendment to the Emergency Food
    Assistance Act would be necessary. Since States are in the best
    position to target available resources to ensure that the nutritional
    needs of households are met, the Department would support such an
    amendment.
        The Department would not, however, support an amendment to permit
    States to make direct purchases of additional commodities since, in
    most instances; States cannot purchase commodities as economically as
    the Department. Although State and local agencies cannot directly buy
    food with TEFAP administrative funds, they can use these funds to pay
    costs associated with the transportation, storage, packaging, and
    distribution of non-USDA commodities. The Department encourages using
    TEFAP funds to support gleaning and food recovery initiatives, and the
    distribution of commodities donated by other sources, because this
    practice can substantially increase the amount of commodities available
    for distribution through TEFAP.

                   SENIORS FARMERS' MARKET NUTRITION PROGRAM

        Question. What was the total number of requests received by USDA
    for the Seniors Farmers' Market Nutrition Program for fiscal year 2003?
        Answer. A total of 48 grant applications were received by USDA's
    Food and Nutrition Service to operate the Seniors Farmers' Market
    Nutrition Program (SFMNP) for fiscal year 2003. All 36 SFMNP grantees
    from fiscal year 2002 requested funding to continue their programs. In
    addition, 12 new State agencies submitted applications to operate the
    program.

                      FUNDING FOR SENIORS FARMERS' MARKET

        Question. What was the total funding level requested for fiscal
    year 2003 by the States, and how many and what level of grants were
    funded?
        Answer. The total funding level requested for the Seniors Farmers'
    Market Nutrition Program (SFMNP) grants for fiscal year 2003 was just
    under $30 million. The total amount of grants awarded was $16.8
    million. The attached chart reflects the individual grant amounts for
    the 40 State or tribal agencies that received SFMNP grant awards for
    the fiscal year 2003 market season. The SFMNP grant allocations for
    fiscal year 2003 are provided for the record.
        [The information follows:]

    ------------------------------------------------------------------------
                                                                GRANT AWARD
                      SFMNP STATE AGENCIES                      FISCAL YEAR
                                                                   2003
    ------------------------------------------------------------------------
    Alabama.................................................        $757,760
    Alaska..................................................          52,221
    Arkansas................................................          96,335
    California..............................................         791,800
    Chickasaw...............................................         144,845
    Connecticut.............................................          91,148
    District of Columbia....................................         143,080
    Florida.................................................          96,604
    Grand Traverse..........................................          96,440
    Hawaii..................................................         575,246
    Illinois................................................         814,352
    Indiana.................................................          42,297
    Iowa....................................................         467,997
    Kansas \1\..............................................         182,439
    Kentucky \1\............................................         750,000
    Louisiana...............................................         284,644
    Maine...................................................         893,220
    Maryland................................................         135,000
    Massachusetts...........................................          56,900
    Minnesota...............................................          77,280
    Missouri................................................         238,888
    Montana.................................................          43,313
    Nebraska................................................         205,885
    Nevada \1\..............................................         200,010
    New Hampshire...........................................          86,000
    New Jersey..............................................         560,734
    New York................................................       1,457,900
    North Carolina..........................................          54,000
    Ohio....................................................       1,309,052
    Oregon..................................................         882,249
    Osage Tribal............................................          22,720
    Pennsylvania............................................       1,500,000
    Puerto Rico \1\.........................................       1,000,000
    South Carolina..........................................         570,925
    Tennessee...............................................         472,980
    Vermont.................................................          64,660
    Virginia................................................         493,707
    Washington..............................................         123,720
    West Virginia...........................................         737,973
    Wisconsin...............................................         299,579
                                                             ---------------
          Total.............................................      16,783,903
    ------------------------------------------------------------------------
    \1\ Indicates New State Agencies for fiscal year 2003.

             NUTRITION SERVICES INCENTIVE PROGRAM TRANSFER TO DHHS

        Question. Please provide an update or summary on the transfer of
    the Nutrition Services Incentive Program from USDA to DHHS.
        Answer. Before the passage of the fiscal year 2003 Appropriations
    Act, USDA was still operating the Nutrition Services Incentive Program
    (NSIP). For the fiscal period prior to the passage of the fiscal year
    2003 Appropriations Act, the States obligated a total of $58,114,849.
    USDA is closing out all financial operations for the current fiscal
    year for funds provided to the program during the Continuing
    Resolutions. The Administration on Aging within the Department of
    Health and Human Services has taken the lead in developing two
    memoranda of agreement with input from the USDA's Food and Nutrition
    Service. The first memorandum established roles and procedures for
    program operations during this transitional year and the second
    addresses fiscal year 2004 and beyond.

                 NUTRITION SERVICES INCENTIVE PROGRAM TRANSFER

        Question. Was service to any participants interrupted at all during
    the NSIP transfer?
        Answer. Service to participants has not been interrupted during the
    NSIP transfer. States continue to order and receive commodities for the
    current program year. Cash has also been provided to States in a timely
    manner.

              NUTRITION SERVICES INCENTIVE PROGRAM FUND ALLOCATION

        Question. Were all aspects of NSIP maintained that were
    specifically mentioned by the Congress? These include ensuring that
    NSIP funds are allocated on the basis of the number of meals served in
    a State in the previous year, excluding NSIP from being subject to
    transfer of administrative or match requirements, and ensuring that
    States continue to have the option to receive benefits in the form of
    cash or commodities.
        Answer. While the program operated under Continuing Resolutions at
    USDA, all aspects of the program remained unchanged. All States were
    provided the opportunity to receive benefits in the form of cash and/or
    commodities, and all NSIP funds were allocated on the basis of the
    number of meals served in the previous year. The Department of Health
    and Human Services, Administration on Aging, has maintained program
    administration and operation as specified by Congress including the
    exclusion of NSIP from being subject to transfer of administrative or
    match requirements.

                   CHILD NUTRITION PROGRAMS INTEGRITY REQUEST

        Question. The President's budget requests a $6 million increase
    under the Child Nutrition Programs account for ``enhanced program
    integrity in the Child Nutrition Programs.'' An increase of $1 million
    is also requested for ``enhanced program integrity in the Child
    Nutrition Programs'' under the Nutrition Programs Administration
    account. What specific activities will be carried out with these two
    requests and will there be any overlap? Why were these funds requested
    in two different accounts to apparently carry out the same activities?
        Answer. The requests are in separate accounts to support different
    kinds of activities--analytical program assessment versus State agency
    oversight--each of which is intended to contribute to enhanced Child
    Nutrition Program integrity.
        The $6 million request under the Child Nutrition Programs account
    will allow FNS to expand its assessment of free and reduced price meal
    certification procedures in the National School Lunch and School
    Breakfast Programs. The agency has been testing a number of potential
    policy and program changes to improve certification accuracy. The
    requested funding will build on these efforts, and provide important
    data needed to inform policy decisions in this area. Specific projects
    will be selected based on the outcome of work already underway; high
    priorities include a study of the feasibility, cost, and operational
    implications of data matching as an additional source of eligibility
    information, and collecting information that will improve the accuracy
    of our estimates of the level of error in the program. This activity
    will help us to comply with the Improper Payments Information Act.
        The $1 million increase in the Nutrition Programs Administration
    account will fund 13 additional staff years to support increased
    oversight of State agencies and their efforts at improving local level
    eligibility determinations for the National School Lunch Program.

                          FNS STUDIES AND EVALUATIONS

        Question. Congress provided an increase of $3.195 million in fiscal
    year 2003 to the Food and Nutrition Service for studies and
    evaluations, and requested a comprehensive list of planned studies,
    including the intent and funding level of each study, and the time
    frame during which each study will be carried out. Please provide the
    most up-to-date information on all planned studies to be carried out
    with this increase.
        Answer. The Food and Nutrition Service provided the requested list
    of planned studies to the Committee on April 24. I will provide a copy
    for the record.
        [The information follows:]

       NUTRITION ASSISTANCE STUDY AND EVALUATION PLAN FOOD AND NUTRITION
                            SERVICE FISCAL YEAR 2003

        America's nutrition assistance programs form a nationwide nutrition
    safety net to help low-income families and individuals improve their
    nutritional levels. Together, these programs touch the lives of one in
    five Americans over the course of a year and, with an expected
    investment of nearly $42 billion in fiscal year 2003, account for
    almost 40 percent of USDA's annual budget. Operational assessments that
    respond directly to the needs of program policy makers and managers are
    essential to ensure that these programs achieve their mission
    effectively.
        As indicated in House Rpt. 108-010, the Consolidated Appropriations
    Resolution, 2003, provided the Food and Nutrition Service (FNS) a
    $3,195,000 increase (for a total of $6,195,000) in the Food Program
    Administration account for studies and evaluations of the nutrition
    assistance programs. The conferees directed the Department to report to
    the Committees on Appropriations on the studies and evaluations to be
    carried out, including a comprehensive list of planned studies, the
    intent and funding level of each study, and the time frame during which
    each study will be carried out. The study and evaluation agenda
    described here responds to this directive.
        The conference agreement also provided $2,000,000 in the account
    for the Special Supplemental Nutrition Program for Women, Infants, and
    Children (WIC) for an evaluation of WIC vendor practices. Finally, not
    less than $7,500,000 of the Food Program Administration account is
    available to improve integrity in the Food Stamp and Child Nutrition
    programs, a portion of which is used to provide support for related
    studies. This report consolidates the Agency's spending plans for funds
    provided from all of these sources.
        The study and evaluation agenda described here addresses four key
    program priorities:
      --Improve access to Federal nutrition assistance programs, to ensure
            that all those eligible for these programs are able to
            participate. USDA is targeting special efforts in three
            underutilized programs--Food Stamps, School Breakfast, and
            Summer Food Service.
      --Improve program integrity, to strengthen their operations and
            maximize their ability to serve eligible children and low-
            income people while safeguarding the taxpayer's investment in
            nutrition assistance.
      --Build a HealthierUS by better integrating nutrition education into
            the nutrition assistance programs and promoting healthier
            lifestyles among those eligible for nutrition assistance.
      --Address the emerging epidemic of obesity, especially among
            America's youth, by improving the programs' ability to promote
            healthy eating and physical activity.

    Improve Program Access
        Measuring Program Access, Trends, and Impacts.--This project
    supports several key analytic tools (including microsimulation) to
    address program participation trends and impacts. It provides annual
    estimates of the percentage of eligible individuals who receive food
    stamps, for the Nation as a whole and for individual States, providing
    a key measure of the program's effectiveness in reaching its target
    population. The project also generates annual reports on the
    characteristics of food stamp participants. In addition, the project
    provides the primary mechanism through which FNS estimates the caseload
    and budgetary impact of actual and proposed policy changes. The project
    is structured to support these activities through fiscal year 2008.
        Evaluation of Grants to Improve Food Stamp Participation.--FNS
    awarded 19 grants to State and local organizations in 2002 to explore
    innovative approaches to improve food stamp access and increase program
    participation. Grantees are responsible for evaluating the impact of
    their approach. This project will provide technical assistance to help
    ensure that their evaluations meet national technical standards and
    will synthesize findings across all grants to help inform policy makers
    about the effectiveness of different approaches. The final report is
    anticipated in 2005.
        National Work Support Center Demonstration.--The rate of receipt of
    the full package of financial work supports available to low-wage
    workers is quite low even though it can fundamentally change the return
    on low-wage work, raising a family well above the poverty level. This
    project will support a multi-year demonstration to put in place new
    systems and procedures that make it easier for low-wage workers to
    access the full range of financial work supports--including food
    stamps. Funds would be provided to the U.S. Department of Labor, which
    would serve as the lead Federal agency in a consortium of public and
    private funders. Initial funding will support the development and
    implementation of an integrated work support demonstration in selected
    sites in 2003 and 2004.
        Feeding Practices of Low-Income Households When School is Out.--
    Federal summer feeding programs reach only one in five of the 15
    million children who receive free or reduced price school lunches on a
    typical day during the regular school year. This qualitative study will
    examine the family dynamics and food security of low-income households
    with school-aged children during the summer months in an effort to gain
    a better understanding why low-income families are not participating in
    the Summer Food Service Program. The final report is expected in 2005.

    Improve Program Integrity
        NSLP Payment Error Rate Methodology Study.--There is growing
    recognition that inaccurate certification of eligibility for school
    meals is a significant problem. The precise size of the problem,
    however, remains difficult to quantify. This project would explore
    survey methods for accurate classification of households eligible for
    free and reduced price meals and examine the cost and burden
    implications of various methods to estimate the payment error rate in
    the National School Lunch Program. The final report is anticipated in
    2004.
        Evaluation of NSLP Application and Verification Pilot Projects.--
    This evaluation is examining the effect of new school meal application
    and verification processes on the accuracy of free and reduced price
    meal eligibility determinations, the difficulty that eligible
    households have in obtaining benefits for their children, and the
    additional workload imposed on school food service staff. Fiscal year
    2003 funds will be used to fund remaining tasks of a contract awarded
    in fiscal year 2002. The final report is expected in 2003.
        Case Study of Metropolitan Area Verification Outcomes.--The current
    pilot tests of alternative free and reduced price eligibility
    determination systems for school meals does not include any of the
    largest metropolitan school districts. This study will help fill this
    gap by collecting application verification results from a number of
    large metropolitan areas and conducting household interviews with a
    sample of those who fail to respond to a request for documentation to
    assess their eligibility for free and reduced price meals. The results
    will be used to inform discussions related to school meal certification
    and verification. The final report is expected in 2003.
        Feasibility of Data Matching.--This project would assess current
    State infrastructure and capability to conduct data matching as an
    additional source of eligibility information in the school meals
    certification process. An initial census of all States would be
    followed by feasibility testing in selected States. Fiscal year 2003
    funds would be used to fund the initial census and to design the
    feasibility test. The results will be used to improve the process for
    determination and verification of student eligibility for school meals.
    The final report is anticipated in 2005.
        WIC Vendor Practices.--This Congressionally-mandated study will
    examine the extent to which vendors comply with program rules and
    ensure that proper foods are purchased from retail stores. This would
    be the first study of WIC vendor management practices since the new
    vendor management regulations were issued. It will also build on State
    high-risk vendor identification systems to identify and evaluate the
    efficacy of high-risk indicators that would allow States to target
    their limited investigation resources toward vendors that are most
    likely to be overcharging on food instruments. The final report is
    anticipated in 2005.

    Build a HealthierUS
        Assessment of Nutrition Education in the Food Stamp Program.--A key
    mission area initiative is to improve the nutrition status and behavior
    of those served by USDA's food assistance programs through integrated
    cross-program nutrition education. Nutrition education funded through
    the Food Stamp Program can be a powerful tool to promote healthy food
    choices among low-income families and individuals. This project will
    help realize this potential by collecting systematic information needed
    for effective policy oversight and planning. This information will
    include measures of the extent of integration of community efforts to
    promote healthy food choices and physical activity; the content,
    structure and funding of nutrition education and promotion activities;
    and consistency with FNS policy objectives. The project will also
    develop a model assessment tool that can be used to assess the quality
    of food stamp nutrition education in a community. Project results are
    anticipated to be available in 2005.
        Feasibility of Monitoring Impact of Competitive Food Policy.--
    Although there has been an increased emphasis on nutritional
    improvement in school meals, the increased prevalence of childhood
    obesity underscores the need to consider further efforts to promote
    healthy eating throughout the school environment. Schools typically
    sell foods and beverages that compete with the Federally supported
    school meals, both in cafeterias and through vending machines, school
    stores and other venues. This feasibility study will explore data
    availability and reliability, and analytic methods to monitor the
    impact of changes in competitive food policies on the nutritional
    profile of foods available in the school environment. The final report
    is anticipated in 2003.
        Integrated Study of School Meal Programs.--The school meals
    programs have changed considerably since the last national studies of
    student diets and meal costs were completed in the 1990's. As part of
    the Agency's periodic assessment of the nutritional effects of school
    meals, this integrated study would update information on five domains
    of great interest to policy makers: (1) characteristics of the school
    environment and school food service operations; (2) nutritional quality
    of meals offered and served in the school meal programs; (3) costs and
    revenues of providing school meals; (4) student participation,
    participant characteristics, satisfaction, and related attitudes toward
    the school lunch and breakfast program; and (5) student dietary intakes
    and the contribution of school meals to these dietary intakes. Fiscal
    year 2003 funds would be used to develop the sampling frame and recruit
    school districts to participate in this large national study. The final
    report is expected in 2006.
        Food and Nutrition Information Center.--These funds will support
    the Food and Nutrition Information Center (FNIC) within the National
    Agriculture Library to systematically store and disseminate information
    on USDA's food assistance programs, nutrition education, and related
    nutrition topics.

    Address Obesity
        Overweight and Obesity Initiative Pilot Project.--As part of
    mission area's Breaking the Barriers initiative, the Center for
    Nutrition Policy and Promotion has launched a pilot project to help
    consumers aim for and maintain a healthy weight. The pilot will develop
    and test appropriate messages and delivery mechanisms targeted to 20 to
    40 year old women, especially those with low income. These funds will
    support creative development and consumer research of material
    prototypes, a small-scale implementation in selected cities to evaluate
    effectiveness and measure consumer awareness, and development and
    testing of enhanced graphics and educational information for the
    Interactive Healthy Eating Index. The final report is expected in 2005.
        Poverty, Food Assistance, and Obesity.--Recent observers, noting
    the prevalence of obesity among low-income recipients of food
    assistance, have speculated that there is a relationship between
    program participation and obesity. The research evidence on this
    question is sparse, scattered, and inconsistent. This project will
    assemble an expert panel of leading researchers to conduct a critical
    review, evaluation, and synthesis of the scientific literature and
    suggest avenues for additional work to determine how food assistance
    programs can best address overweight and obesity among participants.
    The final report is expected in 2004.

                       FNS & ERS STUDIES AND EVALUATIONS

        Question. I understand that the fiscal year 2004 budget was
    formulated and sent to Congress prior to the passage of the fiscal year
    2003 appropriations bill. In light of this, is it USDA's opinion that
    the studies and evaluations funding, which was transferred from the
    Economic Research Service to the Food and Nutrition Service in fiscal
    year 2003, should remain in FNS in fiscal year 2004 or should be
    transferred back to ERS?
        Answer. Objective studies and evaluations are a critical need for
    effective program management of the Nation's nutrition assistance
    programs. To keep the budget request to a minimum required difficult
    decisions about funding levels for studies and evaluations, and which
    organization should have primary responsibility. Funding should be
    provided as requested, although it would seem appropriate to anticipate
    continuation of a certain level of flexibility, as plans solidify
    around program needs.

                 UPDATING THE DIETARY GUIDELINES FOR AMERICANS

        Question. The President's budget requested an increase of $150,000
    for development for the Year 2005 Dietary Guidelines for Americans, in
    conjunction with DHHS. Will there be additional increases requested for
    these efforts in the future? Please provide a breakout of the total
    cost, including funding provided by USDA and funding provided by DHHS.
        Answer. Although USDA and HHS jointly manage the effort to develop
    and publish the Dietary Guidelines for Americans, each is responsible
    for funding different aspects of the process. The responsibility to
    charter and fund the operation of the Dietary Guidelines Advisory
    Committee rotates between the two departments--HHS bears that
    responsibility for the 2005 Committee. The HHS costs for Committee
    operations have been estimated to be $116,300. The $150,000 requested
    by CNPP for fiscal year 2004 is for development and testing the sixth
    edition of the consumer bulletin Nutrition and Your Health: Dietary
    Guidelines for Americans.
        After release of the new Guidelines, development and dissemination
    of a variety of actionable materials for targeted consumer audiences
    will allow the messages to reach and influence consumer behaviors.

                        UPDATING THE FOOD GUIDE PYRAMID

        Question. There has been an increased focus on decreasing obesity
    and improving eating habits in America recently, and much publicity has
    been given to a Harvard study published in the American Journal of
    Clinical Nutrition in December 2003 that suggests the USDA Food Guide
    Pyramid is outdated and actually contributes to obesity. The
    President's budget request includes a $670,000 increase to promote the
    ``Reassessed and Updated Food Guide Pyramid''. What is the status of
    updating the Food Guide Pyramid? Will there be an update on the
    nutritional recommendations included in the Food Guide Pyramid, or will
    this be a newer packaging and presentation of the same material? Has or
    will the December 2003 study be taken into consideration? When does
    USDA plan on having the update complete, and do you anticipate another
    requested budget increase?
        Answer. The Food Guide Pyramid reassessment and updating process
    includes three phases. The first phase consists of gathering
    information through technical research, stakeholder input, and consumer
    research. The second phase involves updating of the Pyramid food
    patterns and the third involves developing new or revised graphic and
    educational materials for consumers.
        Phase two technical analysis is currently underway to revise
    Pyramid food patterns so that they meet current nutritional standards
    and reflect changes in food choices among Americans. Pyramid food
    patterns consist of the types and amounts of foods to eat and are
    specific to consumers' gender and life stage. Any changes in the food
    patterns will be examined in consultation with Department of Health and
    Human Service staff and potentially with other experts in the field.
    Proposed modifications will also be made available for stakeholder and
    public comment through the Federal Register before they are finalized.
        New or revised consumer materials will be developed and tested in
    the third phase of the revision process. The major goal of this phase
    is to create a graphical representation and materials that communicate
    the Pyramid's advice in ways that consumers can understand and act on
    it. All proposed changes to the Pyramid's graphic presentation will be
    tested with consumers and available for stakeholder and public comment
    through the Federal Register before they are finalized.
        As described above, there will be an update of the nutritional
    recommendations included in the Food Guide Pyramid as well as the
    packaging and presentation. The nutritional goals for the Pyramid are
    set according to current nutritional standards, including the Dietary
    Reference Intakes from the National Academy of Sciences, Institute of
    Medicine, and the Dietary Guidelines for Americans. The committees that
    establish these standards conduct extensive reviews and evaluations of
    all the current scientific literature. The determinations that they
    make are based on the preponderance of these research findings. Within
    the context of these standards, we are taking into consideration the
    findings from the Harvard study, along with the findings from numerous
    other studies

              TIMING OF DIETARY GUIDELINES AND FOOD GUIDE PYRAMID

        Question. Upon looking at the budget, it appears as though the
    updated Food Guide Pyramid will be completed and used in the
    development of the Year 2005 Dietary Guidelines for Americans. Please
    provide a timeline of how and when these two items will be developed
    and updated--how will the updated dietary guidelines be reflected in
    the Food Guide Pyramid if the Food Guide Pyramid is completed first, or
    will these two updates occur concurrently?
        Answer. The development processes for the Food Guide Pyramid and
    the Dietary Guidelines for Americans are concurrent and coordinated.
    USDA plans to present Pyramid-related technical and consumer research
    to the Dietary Guidelines Advisory Committee. Coordination of these two
    activities allows for significant changes in the Guidelines to be
    reflected in the Pyramid. HHS and USDA expect to release the new
    Dietary Guidelines in January 2005. Release of an updated Food Guide
    Pyramid with a core set of actionable, consumer-friendly materials will
    follow shortly after that in early 2005. The projected timelines for
    development of the sixth edition of the Dietary Guidelines for
    Americans and the updated Food Guide Pyramid follow.
        [The information follows:]

    ------------------------------------------------------------------------
                                      Dietary Guidelines
                                         for Americans    Food Guide Pyramid
    ------------------------------------------------------------------------
    Fall 2002.......................  USDA and DHHS       CNPP conducts
                                       Memorandum of       technical
                                       Understanding       research to
                                       provides the        develop proposed
                                       framework to        revisions to Food
                                       jointly prepare     Guide Pyramid
                                       and publish the     food patterns.
                                       2005 Dietary
                                       Guidelines for
                                       Americans.
    Spring 2003.....................  The Dietary
                                       Guidelines
                                       Advisory
                                       Committee (DGAC)
                                       is chartered.
                                       Federal Register
                                       notice solicits
                                       public
                                       nominations for
                                       the DGAC.
    Summer 2003.....................  USDA and DHHS       Proposed Food
                                       appoint a Dietary   Guide Pyramid
                                       Guidelines          food patterns are
                                       Advisory            published in the
                                       Committee (DGAC)    Federal Register
                                       composed of         for peer review
                                       nationally          and public
                                       recognized health   comment.
                                       and nutrition
                                       experts. Federal
                                       Register notice
                                       announces the
                                       DGAC members and
                                       their first
                                       meeting date. The
                                       notice also
                                       solicits written
                                       and oral comments
                                       from the public.
    Fall 2003.......................  DGAC holds its      Revised Food Guide
                                       first public        Pyramid food
                                       meeting in          patterns are
                                       Washington, DC.     finalized and
                                                           cleared.
                                                           Preliminary
                                                           graphic
                                                           presentation is
                                                           conceptualized
                                                           and designed.
    Winter 2003-Summer 2004.........  DGAC holds its      Preliminary
                                       second, third and   graphic
                                       fourth public       presentation is
                                       meetings, which     consumer tested.
                                       include oral        Proposed Food
                                       public testimony    Guide Pyramid
                                       and presentations   graphic
                                       from invited        presentation is
                                       experts on          published in the
                                       Dietary             Federal Register
                                       Guidelines          for public
                                       related topics,     comment.
                                       including
                                       presentations by
                                       CNPP on the Food
                                       Guide Pyramid
                                       revision.
    Fall 2004.......................  The DGAC report is  The Food Guide
                                       issued to the       Pyramid is
                                       USDA and HHS        finalized.
                                       Secretaries. The
                                       departments
                                       develop and
                                       produce the
                                       bulletin,
                                       Nutrition and
                                       Your Health:
                                       Dietary
                                       Guidelines for
                                       Americans.
    January 2005....................  The sixth edition   Revised Food Guide
                                       of Nutrition and    Pyramid is
                                       Your Health:        cleared.
                                       Dietary
                                       Guidelines for
                                       Americans is
                                       released.
    February 2005...................  ..................  Revised Food Guide
                                                           Pyramid is
                                                           released.
    ------------------------------------------------------------------------

                        INTERACTIVE HEALTHY EATING INDEX

        Question. An increase of $400,000 is requested to update the
    Interactive Healthy Eating Index. How long has this website been in
    existence, and approximately how many hits does it receive daily? Are
    further increases anticipated, as the update is scheduled for fiscal
    year 2004 and fiscal year 2005?
        Answer. In April 1998, the Interactive Healthy Eating Index (IHEI)
    was added to the Web site of the Center for Nutrition Policy and
    Promotion. In fiscal year 2002, on an average day, consumers hold more
    than 2,500 sessions of the IHEI, spending about 25 to 35 minutes on
    average assessing their dietary status and receiving targeted nutrition
    education messages. (The average number of hits per day is around
    200,000, but this is not as informative as the average number of
    sessions). Besides continual updates to the IHEI foods database, the
    Center will need to incorporate any revisions in targets for the new
    Dietary Guidelines and the Food Guide Pyramid. An interactive menu
    planning module will be an enhancement that will allow consumers to
    plan for healthful diets based on their food preferences and dietary
    guidance. The Center also intends to develop and promote IHEI-related
    applications--a single-user CD-ROM and a Personal Digital Assistant
    (PDA) IHEI application--that will provide greater access to the IHEI.

                   OBESITY PREVENTION AND NUTRITION PROMOTION

        Question. Please provide additional information regarding what the
    $600,000 increase to expand an obesity prevention program, and the $2.5
    million increase for nutrition education and promotion, will be spent
    on. Will all of this money be spent in fiscal year 2004?
        Answer. The $600,000 increase to expand an obesity prevention
    program will be spent in fiscal year 2004 on consumer research and
    message development to refine and reshape consumer messages for
    additional audiences. In fiscal year 2003, the Center for Nutrition
    Policy and Promotion (CNPP) began development of a campaign to build
    awareness of USDA's anti-obesity message and promote behavior change.
    In this first phase, credible consumer messages were developed and
    pilot tested with 20 to 40 year old women, especially low-income women,
    to help motivate them to aim for a healthy weight. The fiscal year 2004
    funds will be spent on research to test the applicability of these
    messages to men and women over 40, and to reshape the messages and
    modify the delivery channels as needed to better target these
    audiences. Widespread implementation of the consumer-tested campaign
    elements is planned for fiscal year 2005, using appropriate messages
    and delivery channels for each audience.
        The $2.5 million increase for nutrition education and promotion
    will be spent in fiscal year 2004 on:
        Enhanced Media Support for the Eat Smart.Play Hard.TM
    Campaign (40 percent). This includes expanding the Web site with
    interactive games and projects for children and information for
    teachers and caregivers, producing nutrition education materials for
    teachers, and producing messages and other products that can be shown
    on in-school educational networks and closed circuit channels in WIC
    clinics, community centers and Food Stamp offices.
        Revising, reprinting and distributing existing Eat Smart.Play
    Hard.TM Materials (25 percent). This includes providing
    materials to WIC and the household-based commodity programs and
    translating and making materials more culturally appropriate (for
    Native Americans and Hispanics).
        Establishing and evaluating cross-program nutrition education
    interventions (35 percent). This includes working with specific States
    to plan and implement targeted nutrition education interventions by
    providing materials, training and evaluation support to teams
    representing all the FNS programs. Subjects would include promoting the
    5-A-Day messages, breastfeeding, implementing comprehensive Team
    Nutrition, and overweight and obesity issues especially in children.

                            PUBLIC LAW 480 TITLE II

        Question. During fiscal year 2003, we appropriated more than $1.7
    billion for international food assistance through the Public Law 480
    Title II program. Those resources were in addition to other commodities
    released this year from the Bill Emerson Humanitarian Trust, and were
    vital to meet needs in places like Sub-Saharan Africa from which
    resources were being diverted to meet anticipated demand in connection
    with our military campaign in Iraq. However, the President's 2004
    budget for Public Law 480 Title II is less than $1.2 billion.
        Can you explain why the President has recommended a decrease by
    more than $500 million when the crisis in Africa remains at
    unprecedented levels?
        Answer. Title II has been provided an unprecedented funding level
    for fiscal year 2003 in response to the scale and magnitude of
    emergency requirements around the globe, and for increased program
    costs due to higher U.S. commodity prices and fuel costs for shipping
    in the run up to the war with Iraq. Our assumption is that fiscal year
    2003 is an unusual year, and fiscal year 2004 will see a return to a
    more traditional situation, including more typical commodity and fuel
    costs. Accordingly, the President's budget proposes to continue funding
    for Public Law 480 Title II in fiscal year 2004 at the same level
    requested for fiscal year 2003.
        Question. Have the President's or your views changed since the
    United Nation's World Food Program informed the Administration just the
    other week that their appeal for assistance in Iraq for $1.3 billion
    will be $868 million below what they actually need?
        Answer. Under the original appeal of $1.3 billion, the World Food
    Program planned on distribution of full rations for 3 months, assuming
    the public distribution system (PDS) would be fully functioning in
    July. As time has progressed, we have come to realize that the PDS
    system will take longer than expected to become fully functional and
    will require the support of WFP for a longer period of time. The WFP
    now plans to expand its Emergency Operations, which are still under
    revision, to include full rations until the end of October at an
    estimated total value of $1.85 billion.
        Question. What assumptions were used for commodity prices in the
    fiscal year 2004 budget request for Public Law 480 Title II? How do
    they compare to more recent estimates of commodity prices for fiscal
    year 2004?
        Answer. The commodity price projections used in the fiscal year
    2004 budget request were based on the USDA baseline estimates of
    November 2002. The baseline incorporates provisions of the Farm
    Security and Rural Investment Act of 2002 and assumes that current farm
    legislation remains in effect through the projections period. Projected
    prices for corn, wheat, and soybeans reflect, in part, movements in
    stocks-to-use ratios. The baseline assumes that prices decline over the
    next several years as production recovers from the reduced levels of
    the 2002 crops. Prices for corn, wheat, and soybeans rise during the
    later years of the baseline period as growth in demand outpaces gains
    in production.
        When the November forecasts were made, there was only limited
    information about Northern Hemisphere winter wheat plantings for 2003/
    2004 and, of course, no information about Southern Hemisphere crops for
    the next year. By the May revision, however, Northern Hemisphere winter
    and spring crop conditions and plantings were better known. In
    addition, by this time in the crop year, there are at least some
    indications of Southern Hemisphere winter grain plantings.
        For wheat, the November 2002 baseline price for Marketing Year
    2003/2004 was $3.25 per bushel and this was revised to $3.35 (midpoint
    of range) in the May 12, 2003, World Agricultural Supply and Demand
    Estimates (WASDE). For rice, the November 2002 baseline price for
    Marketing Year 2003/2004 was $3.77 per hundredweight and this was
    revised to $5.25 (midpoint of range) in the May 12 WASDE. For corn, the
    November 2002 baseline price for Marketing Year 2003/2004 was $2.20 per
    bushel and this was revised to $2.10 (midpoint of range) in the May 12
    WASDE. For soybeans, the November 2002 baseline price for Marketing
    Year 2003/2004 was $189 per metric ton and this was revised to $182
    (midpoint of range) in the May 12 WASDE. For soybean oil, the November
    2002 baseline price for Marketing Year 2003/2004 was $525 per metric
    ton and this was revised to $430 (midpoint of range) in the May 12
    WASDE.
        Question. What estimates were used for emergency needs (commodity
    and dollar levels for each country) in the 2004 request for Title II?
    Are these levels still relevant? Will funding be needed for food aid
    for Iraq?
        Answer. As outlined in USAID's Congressional Budget Justification,
    the estimated emergency allocation in the aggregate for fiscal year
    2004 for Title II is approximately $522 million, not including the
    unallocated reserve of $241 million. It is expected that over 1 million
    metric tons of commodities for emergency food needs can be procured
    with this funding level. Allocation decisions between emergency and
    non-emergency programs must take into account many factors, including
    congressional mandates related to Title II as well as global food aid
    needs. No decisions regarding specific dollar and tonnage allocations
    by country for fiscal year 2004 have been made at this time. As we draw
    nearer to the fiscal year, funds will be allocated to countries or
    regions based upon the latest information on hand. This is true for all
    countries, including Iraq, where the projected funding allocation for
    fiscal year 2004 is largely dependent on what food commodities are
    sourced through the Oil for Food program contracts. The U.S. Government
    will provide funding to fill shortfalls as needed.
        Question. Does the 2004 request for Title II assume that you will
    comply with the requirement in the 2002 Farm Bill that 1.875 MMT be
    made available for non-emergency purposes, and what steps have been
    taken to seek proposals for fiscal year 2004 developmental programs in
    order to reach the 1.875 MMT level?
        Answer. The fiscal year 2004 budget request assumes that the Title
    II program will comply with the minimum tonnage level established for
    non-emergency programs. We understand the Office of Food for Peace at
    USAID continues to work with the U.S. PVO community to increase the
    number of effective development activities, as well as to program
    commodities for other non-emergency activities.
        Question. Is OMB or USAID placing arbitrary limits on the use of
    monetization for Title II programs, rather than allowing PVOs to
    identify and justify in their proposals the appropriate levels to meet
    program objectives in particular countries?
        Answer. No arbitrary limits have been placed by OMB or USAID on the
    use of monetization of Title II commodities. However, as part of the
    President's Management Agenda and related review of Title II programs,
    a decision has been made jointly by OMB and USAID to reduce the level
    of monetization over the next several years. A Monetization
    Rationalization Plan has been developed by USAID to guide this process.
    The plan is now under discussion with private voluntary organizations.
        Question. How has the Administration met the requirement in the
    fiscal year 2003 Supplemental Appropriations Act that to the greatest
    extent possible USAID shall restore funding for the Title II non-
    emergency programs that were cut? What tonnage level do you estimate
    will be provided for non-emergency Title II programs in fiscal year
    2003?
        Answer. Except for India, funding has been restored to the maximum
    extent possible to all non-emergency programs that were cut to meet the
    food emergencies in Africa. In the case of India, the Government's
    position on commodities potentially containing genetically modified
    organisms prohibit us from shipping commodities to that country at this
    time. USAID anticipates that $106 million will be restored to the PVO
    development portfolio in fiscal year 2003, bringing the funding level
    to $416 million for PVO development activities.
        Including PVO development activities and other Title II non-
    emergency activities, it is estimated that approximately 1.3-1.9
    million metric tons grain equivalent of food will be programmed under
    Title II non-emergency programs in fiscal year 2003.
        Question. What level (tonnage and dollar amounts) of food
    assistance is being provided for the following emergencies: a) Southern
    Africa, b) Ethiopia, and c) Eritrea and from what funding sources? What
    were the estimated food needs (tonnage and dollar amounts) in each of
    these cases in fiscal year 2003?
        Answer. The information is submitted for the record.
        [The information follows:]

        Southern Africa.--The U.S. Government has provided 566,000 metric
    tons of food aid to Southern Africa over the past year, using both
    fiscal year 2002 and fiscal year 2003 funding availabilities. The
    estimated value of those contributions is $320 million. In addition,
    USAID will be shipping an additional estimated 150,000 metric tons of
    commodities in fiscal year 2003. Funding has come from three sources:
    Public Law 480 Title II, Section 416(b) programming, and the Bill
    Emerson Humanitarian Trust.
        The estimated humanitarian cereal needs for the six affected
    countries in southern Africa between July 1, 2002, and March 31, 2003,
    was 1.2 million metric tons. With the addition of the other required
    components of the food basket, such as beans and oil, the total reached
    approximately 1.5 million metric tons. On average, the provision of
    this amount of food aid would cost $825 million.
        Ethiopia.--In fiscal year 2003, 737,020 metric tons valued at $340
    million have been provided from both the Bill Emerson Humanitarian
    Trust ($77 million) and Public Law 480 Title II ($263 million). The
    estimated food needs for Ethiopia are 1.52 million metric tons for 12.6
    million beneficiaries. Based on U.S. pricing factors, this quantity on
    average would cost $836 million.
        Eritrea.--In fiscal year 2003, 118,900 metric tons valued at $52
    million have been provided from Public Law 480 Title II. The estimated
    food needs for Eritrea are 290,000 metric tons for 1.4 million
    beneficiaries. Based on U.S. pricing factors, this quantity on average
    would cost $160 million.

        Question. The Administration did not request food aid funding for
    Iraq, other than restoring $200 million to foreign aid accounts for
    funds that were provided to the U.N. World Food Program for the
    purchase of food aid from other countries. What level (tonnage and
    dollar amount) of food aid will be provided to Iraq from the United
    States, not foreign purchases, in fiscal year 2003 and from what
    funding sources?
        Answer. USAID will provide a total of 164,000 metric tons of Title
    II valued at $150 million and 81,500 metric tons from the Bill Emerson
    Humanitarian Trust valued at $46 million. The total planned U.S.
    contribution is 245,500 metric tons valued at $196 million. This does
    not include the $200 million in cash provided to WFP.
        Question. What is the estimated need for Iraq food assistance for
    the remainder of the fiscal year? If this is not being supplied
    directly through U.S. food aid programs, then how is it being supplied?
    Do you agree with the World Food Program estimates in regard to Iraq,
    and if not, please explain.
        Answer. Fortunately, the WFP has been able to re-negotiate over 1.2
    million metric tons of food contracts. According to the latest reports
    from WFP, 1.2 million metric tons of Oil for Food contracts coupled
    with additional donor contributions, including those from the U.S.
    Government, mean that the food pipeline is fully sourced.
        The total needs for the Iraqi population are being met in part
    through U.S. food contributions, other donor contributions, and a $200
    million cash contribution provided by the U.S. The cash allowed WFP to
    procure 330,000 metric tons of commodities in the Gulf region. This was
    done to provide commodities urgently needed in Iraq in May, when U.S.
    food aid could not have arrived in time.
        We agree with WFP estimates in regard to Iraq. The total food needs
    per month under the Public Distribution System are a little under
    500,000 metric tons. This level multiplied by 5 months is about 2.4
    million metric tons.

                        BILL EMERSON HUMANITARIAN TRUST

        Question. The fiscal year 2003 supplemental provides $69 million
    for the purchase of commodities to replenish the Emerson Trust.
    Language is also included that prohibits the monetization of any
    additional release of Emerson Trust commodities during the remainder of
    this fiscal year.
        Do you support having the authority to hold cash for replenishment
    of the Emerson Trust rather than being required to actually purchase
    commodities to be held in storage for future use?
        Answer. Yes, we support maximum flexibility in administering the
    Bill Emerson Humanitarian Trust.
        Question. What effect on U.S. commodity markets has the
    monetization of Emerson Trust commodities had during the past 2 years?
        Answer. About 19 million bushels of wheat were monetized during the
    2002/2003 marketing year. A review of wheat prices shows that wheat
    markets began an upswing in June and peaked in early September. Markets
    began a downward swing about mid-September and leveled off around mid-
    October. There was slight market increase in late October through early
    November. Markets then began a downward trend in mid-November that
    continued through the end of the marketing year.
        Although wheat prices varied, there is no evidence to link the sale
    of wheat by CCC as the reason for any price decline. Price decreases
    point more directly to declines in the U.S. market share of world wheat
    trade, which resulted from lower priced wheat being offered by other
    countries, including a number of non-traditional exporters. U.S. wheat
    exports during 2002/2003 were at the lowest level in many years.
        It is also important to note that during the June to December 2002
    period, CCC purchased more wheat in the marketplace--approximately 59
    million bushels--than it sold--approximately 26.7 million bushels. When
    all these factors are taken into account, the sale of wheat from the
    Emerson Trust appears to have had a negligible impact on the domestic
    U.S. wheat market.
        Question. How is the $69 million appropriated in the fiscal year
    2003 Supplemental Appropriations Bill being used?
        Answer. At the moment, the $69 million is being held by the
    Commodity Credit Corporation. No final decision has been made on how
    the $69 million will be used, but clearly its use will depend on future
    needs.
        Question. Why did USDA decide not to seek funds to replenish
    commodities for the Trust?
        Answer. Funds were not sought by the Administration to replenish
    the Trust at this time due to other more pressing budget needs.
        Question. Have Public Law 480 funds been used at any time to repay
    the Trust for commodities withdrawn for urgent needs under section
    302(c)(1) of the Bill Emerson Humanitarian Trust Act? If so, have any
    of these funds been retained for the purchase of commodities to
    replenish the Trust, as permitted under section 302(b)(2)(B)?
        Answer. CCC has been reimbursed three times for wheat released from
    the reserve in response to urgent humanitarian needs and programmed
    through Public Law 480 Title II. The reimbursements were based on the
    export market price of the wheat in accord with section 302(f)(2) of
    the authorizing statute. CCC was reimbursed $45 million in fiscal year
    1987, $6.9 million in fiscal year 1991, and $28 million in fiscal year
    1995. These funds were not used for the purchase of commodities to
    replenish the Trust. The reason for that is because the authority
    provided in section 302(b)(2)(B) was not added to the statute until
    enactment of the Bill Emerson Humanitarian Trust Act of 1998, which was
    after all three reimbursements had occurred.

                            MILK PROTEIN CONCENTRATE

        Question. Although USDA has no direct jurisdiction of the
    regulation of MPCs, the importation of these products has raised
    substantial concerns among dairy farmers.
        Will USDA work with the USTR to ensure that any future agricultural
    trade negotiations will include the issue of MPC imports as a priority?
        Answer. In trade negotiations we pay close attention to the needs
    of import-sensitive U.S. producers. Throughout the negotiations, USTR
    and USDA work together closely to assess a particular product's import
    sensitivity, based on advice from the ITC on probable economic effects.
    USTR and USDA also consult closely with private sector advisors and
    Congress throughout the negotiations. Negotiators use a variety of
    tools to protect U.S. import-sensitive sectors, including extended
    periods for tariff reductions and import safeguards.
        Question. In the meantime, does USDA have any recommendations on
    how the harm to domestic dairy markets from MPC imports can be
    overcome?
        Answer. MPC impacts on dairy markets would be to lower nonfat dry
    milk (NDM) prices. However, during MPC import growth domestic NDM
    prices have typically been near support and CCC has purchased
    significant quantities of NDM. The impact of MPC imports has been to
    support new product formulations and to some extent increase CCC NDM
    purchases. Direct impacts on farm prices are believed to be very small
    because of the milk price support program (MPSP).
        A subsidy program to encourage the production of MPC domestically
    is being considered. Diversion of milk protein to domestic MPC
    production and away from NDM production might decrease CCC purchases
    and save total government expenditures.
        A tariff rate quota would probably lead to a WTO challenge and
    possible demands from the EU for compensation of up to $600 million.

                        INTERNATIONAL DEVELOPMENT POLICY

        Question. There is evidence of growing sentiments around the world
    critical of the United States intentions and practices, on a global
    scale.
        Do you agree or disagree that international developmental programs,
    such as those associated with Public Law 480 non-emergency programs,
    have great potential to overcome growing world hostilities toward
    American interests, help prevent the growth of terrorist organizations
    in those parts of the world, and provide significant long-term benefits
    for those countries and the United States?
        Answer. We agree that Public Law 480 non-emergency programs, such
    as Public Law 480 Title I and Public Law 480 Title II development and
    food for work programs, have a significant role in supporting the
    economic development of low-income countries and in this way are
    beneficial in reducing the potential for terrorist activity. For the
    United States, reducing the number of chronically poor, undernourished
    and underweight people throughout the world is both a humanitarian
    concern and a strategic goal. Food aid resources are given to help
    those in need in an effort to deal with hunger and to eliminate the
    food insecurity that fuels political instability and the potential for
    terrorism. Global Food for Education programs and food for work
    activities also contribute to the prevention of conditions that foster
    terrorism and create new generations of better educated citizens.
    However, it is important to note that there is a mosaic of issues that
    stimulates terrorists that is much broader than food and economic
    development alone.
        Question. If you agree, what will you do to help promote these
    programs and seek greater levels of resources?
        Answer. Our first step in promoting the non-emergency programs will
    be to continue to work with the recipients of our programs to develop
    effective programs that are supported by the recipient governments. We
    also will continue to ensure that program oversight is effective so
    that program objectives are met. These measures will go a long way
    toward effective and efficient use of program resources.
        Question. Should these types of programs take on a greater role in
    the context of national security in view of current world conditions?
        Answer. The United States Government carries out a wide range of
    programs designed to assist in the growth and development of developing
    countries. These programs range from security, economic development,
    humanitarian food assistance, and health and safety programs.
    Maintaining a balance in the level of support for these programs is
    important, and that's what the Administration is attempting to do.
        Question. One of the areas of U.S. involvement in reconstruction
    efforts in Iraq is agriculture. Please describe U.S. activities in this
    effort, including the amount of funds and number of personnel assigned
    to this task.
        Answer. USDA has had one person on the ground in Baghdad since
    April 24th. He has been totally involved in getting the Ministry of
    Agriculture up and running and in selecting a management team which
    will begin to make decisions on the priorities of the agriculture
    sector. Once this team is in full play, USDA will be sending Daniel
    Amstutz, Senior Advisor for Agriculture, to Baghdad. He will be
    responsible for policy development in agriculture and as agriculture
    relates to the other sectors of the Iraqi economy.
        USAID has begun the lengthy process of obtaining a project
    agreement for the reconstruction of agriculture in Iraq. The proposed
    project will contain four components: (1) increased agriculture
    production, (2) enterprise development, (3) access to rural credit, and
    (4) resource management--water, irrigation, etc. The timetable for this
    project will include full and open competition (45 days), a bidders'
    conference, a period in which to receive proposals, evaluation,
    selection, negotiations, and awards. Funding for this project is to
    come from the funds already designated for Iraq reconstruction.
        Question. There has been significant criticism of U.S. farm
    policies (and those of other countries) that certain program
    characteristics, such as commodity price support programs, are very
    harmful to the developing economies of many poor nations. How does USDA
    respond to these criticisms?
        Answer. All domestic support programs are not alike. The United
    States has tabled an ambitious proposal to the WTO agriculture
    negotiations designed to substantially reduce trade-distorting domestic
    support and open world agricultural markets to fair competition.
    Governments can and will continue to support their agricultural
    producers; however, our focus remains on trade-distorting domestic
    support.
        The Uruguay Round only started the job of tackling trade-distorting
    domestic subsidies. As a result, the EU's current limit for amber box
    support is around $67 billion annually, Japan's limit is around $33
    billion, and the U.S. limit is $19.1 billion. In addition, the EU and
    Japan use blue box subsidies (trade-distorting support linked to
    production limiting policies). All other countries have much lower
    levels of amber and blue subsidies, if any.
        The U.S. agriculture proposal in the Doha negotiations seeks to
    build on the first step of the Uruguay Round by pressing for much more
    substantial reductions to achieve a more level playing field for all
    countries, including developing ones. In particular, the U.S. proposal
    calls for a cut of over $100 billion in trade-distorting support
    globally, undertaken in a manner that harmonizes levels across
    countries, with the eventual goal of eliminating such subsidies
    altogether. The United States proposes maintaining current rules on
    non-trade distorting support (green box)--spending in areas such as
    conservation, research, food stamps, and the environment--as long as
    such spending is de-linked from production incentives.

                                 BIOTECH TRADE

        Question. An Iowa State University study concluded that the U.S.
    wheat industry could lose 30-50 percent of its business with foreign
    markets for spring wheat if Monsanto releases a new genetically
    modified variety of that commodity.
        Do you agree with this assessment?
        Answer. Dr. Robert Wisner of the Iowa State University concluded in
    a recent study that U.S. exports of hard red spring (HRS) wheat could
    fall by 33-52 percent if Monsanto's herbicide-tolerant, genetically
    modified (GM) wheat were introduced in the United States. We believe
    that this finding can only be regarded as a worst-case scenario. Dr.
    Wisner makes a strong assumption about the ready availability of non-GM
    wheat in competing countries. Further, his analysis does not consider
    the probable diversion of U.S. exports to markets that will accept GM
    wheat.
        A preliminary ERS study suggests there is considerable scope for
    diversion of GM wheat away from sensitive export markets. In the U.S.
    domestic market, we estimate that the non-GM segment accounts for only
    5-10 percent of demand. Thus, our large domestic market would provide
    an important outlet for GM wheat production, even if most export
    customers refused to accept it. Of course, the feasibility of diversion
    (without loss of export sales) also depends on extent of adoption by
    spring wheat growers. The ERS analysis, assuming 50 percent adoption of
    the GM variety, shows relatively modest impacts on average farm-level
    prices. However, buyers of non-GM spring wheat (primarily foreign)
    would incur additional costs.
        Question. Do you think that the growing trend toward genetically
    modified agricultural products can continue without a further erosion
    of our foreign markets? If so, how?
        Answer. Up to now, trade impacts from the rapid adoption of biotech
    crops since 1996 have been limited. Demand for non-biotech corn and
    soybeans has reflected biotech food labeling regulations in some parts
    of the world, such as the EU and Japan, and changing consumer
    preferences toward non-biotech foods. Over the last few years, the EU's
    de facto moratorium on approving new biotech varieties did adversely
    impact the United States. However, a concerted effort is being made by
    the government, the U.S. grain industry, and biotech companies to
    address issues that led to these incidents, paving the way for the
    further adoption of biotech crops.
        Question. What plans does USDA have to counter the threats by
    foreign nations in regard to genetically modified products?
        Answer. The Administration announced on May 13, 2003, that the
    United States, Argentina, and Canada are requesting World Trade
    Organization (WTO) consultations with the EU over its moratorium on
    approving new biotech varieties. The complaint intends to ensure that
    crops grown by U.S. farmers will not be rejected simply because they
    were produced using biotechnology.
        In the United States, we have managed to keep biotech discussions
    within the realm of science; and, indeed, scientific assessments are
    the cornerstones of our regulatory system. USDA/APHIS, FDA, and EPA
    have managed to maintain consumers' faith in their abilities to discern
    which products are safe to consume, and which products are unsafe.
        We continue to believe that keeping the discussions on scientific
    ground offers the most promise to counter threats to biotech products,
    but we need to reinforce those efforts. For this reason, the 2004
    budget requests $6.6 million to establish a new fund within the Office
    of the Secretary to support cross-cutting trade-related and
    biotechnology issues. These funds will be available to support the work
    of FAS, APHIS, and other USDA agencies as they address the growing
    array of regulatory and market access issues related to biotechnology.
                                     ______

                   Questions Submitted by Senator Tom Harkin

                       CONSERVATION TECHNICAL ASSISTANCE

        Question. The most recent allocations for conservation programs
    were for far less than was generally expected after passage of the farm
    bill because of the Administration's decision to prohibit technical
    assistance to be paid from each program's funds as provided in the farm
    bill. I believe we need to find a solution that does not continue to
    require a net reduction in overall conservation funding, because that
    is the effect under both the omnibus appropriations bill and the
    Administration's budget.
        Will you work with the Committee to find a way to fix the technical
    assistance funding problem that does not involve cutting funding for
    conservation from expected farm bill levels?
        Answer. We share your concern about providing adequate funding for
    the technical assistance necessary to support the conservation programs
    of the 2002 Farm Bill. We believe that the President's budget proposal
    for a dedicated technical assistance account for Farm Bill
    implementation would be the best approach to fixing this problem. This
    approach maximizes the amount of financial assistance dollars while
    providing the technical assistance funding needed to deliver the
    programs. Having one central account also increases accountability and
    improves transparency of the Department's costs of delivering these
    conservation programs.
        At the same time, both NRCS and the Farm Service Agency have been
    making concerted efforts to improve and streamline their operations in
    the field which has helped to significantly reduce NRCS technical
    assistance costs for the Environmental Quality Incentives Program.
    Recently proposed rule changes for the Conservation Reserve Program
    will help streamline and improve the sign-up process and will lead to
    additional savings. This summer, we will also be conducting a thorough
    sweep of all Farm Bill conservation program accounts and will convert
    any unused technical assistance funding back into program dollars.
        Finally, NRCS will be fully implementing the new Technical
    Assistance Provider (TAP) system authorized in the Farm Bill. This will
    ensure that there is a viable cadre of technically qualified non-
    Federal partners that are certified by NRCS to provide the technical
    assistance needed to plan and oversee the installation of conservation
    practices.
        While we believe that these steps will greatly help achieve the
    conservation envisioned by the Farm Bill, we also look forward to
    working with the Committee to look for ways to better address this
    issue and to make further improvements.

                        NATIONAL ORGANIC STANDARDS BOARD

        Question. I am concerned about ongoing threats to the integrity of
    the Organic Foods Protection Act of 1990 (OFPA). OFPA requires a very
    strong public-private partnership in setting, enforcing and maintaining
    strong standards for organically certified foods. Specifically, OFPA
    established the National Organic Standards Board (NOSB) as a body of
    private-sector experts to help USDA set and oversee the implementation
    of the national organic standards, and required the establishment of a
    peer review panel to ensure public oversight of USDA's accreditation
    program. As envisioned by OFPA, the NOSB's recommendations would have
    significant weight and authority. Yet, in recent years, many of its
    recommendations have been ignored or simply not implemented by USDA. In
    addition, the peer review panel has yet to be established, even though
    organic certifiers have been accredited.
        Please detail your plan for giving proper weight to recommendations
    of the NOSB and for constituting and supporting the required peer
    review panel.
        Answer. AMS is in the process of establishing a peer review panel,
    with the American National Standards Institute (ANSI), a well
    recognized accrediting body that represents the United States in
    international standards setting organizations. A technical expert from
    the organic community will assist ANSI in their review of AMS'
    accreditation program under the National Organic Program (NOP). This
    technical expert will be selected from nominations made by the organic
    industry. AMS also is developing ``Good Guidance Practices,'' a
    document that outlines in detail how the agency will process and handle
    recommendations from the NOSB. In addition, AMS has provided the NOSB
    with clear guidance on how to present their recommendations to the
    agency in a manner that will expedite action on those recommendations.
        Question. In addition, would you please provide for the record a
    list of the recommendations that the NOSB has made, since the
    publication of the final rule on organic standards, and the actions
    that USDA has taken in response to those recommendations. If no action
    has been taken in response, please explain why.
        Answer. Since the final rule was published in December, 2000, the
    NOSB has held six public meetings; all of their recommendations are
    posted on the NOP web site for viewing by the public. All
    recommendations concerning materials to be added or prohibited on the
    National List have been accepted by AMS and are being published in the
    Federal Register for notice and comment. All other recommendations made
    by the NOSB will be reprocessed through the guidance material that the
    agency has given to the NOSB, so that all Board recommendations are
    treated equally and to ensure that those recommendations that are
    feasible will withstand scrutiny from a legal and regulatory review.

                REIMBURSEMENT RATE FOR CROP INSURANCE COMPANIES

        Question. The crop insurance industry is in shaky financial shape
    in the wake of the drought and other disasters that affected the 2002/
    2003 crops, as illustrated by the failure of American Acceptance, the
    largest company at the time. The President's budget proposes to cap the
    amount of delivery expense reimbursement the crop insurance companies
    may receive at 20 percent of the premium. Such a cut from the current
    24.5 percent would cut companies' revenue for delivery expenses by 20
    percent.
        What analysis has been done to assess the effect such a reduction
    would have on the financial condition of remaining companies,
    particularly in high-loss years such as 2002? What are the results of
    this analysis?
        Answer. The 24.5 percent reimbursement rate is the statutory
    maximum rate. However, several crop insurance products currently have a
    maximum statutory reimbursement rate less than that. In fact, for the
    2002 crop year the average reimbursement rate across all product lines
    was about 21 percent. We are projecting a reduction in reimbursements
    of about 10 percent. To put this in perspective, reimbursements have
    risen about 53 percent in the past 5 years with no increase in the
    number of policies sold.
        RMA conducts an annual analysis of each company's plan of operation
    for the upcoming crop year, in addition, the Agency has recently
    instituted a comprehensive review of each company's financial
    condition. As part of this review, the Agency is evaluating financial
    data that has never been previously requested by RMA. While the results
    are preliminary, it is evident that the analysis will significantly
    improve the Agency's ability to identify companies who are in a
    particularly vulnerable financial position.
        A reduction in the reimbursement rate will increase the financial
    pressure on companies to adjust their operating approach. Each company
    will strive for increased efficiencies without sacrificing service.
    This of course is a healthy exercise. However, if the company is not
    successful in driving down cost and generating sufficient returns to
    satisfy shareholders, consolidation or departures will be the result.

                             PACKERS AND STOCKYARDS

        Question. In a letter to me from Under Secretary Hawks dated
    February 24, 2003, the Administration stated its opposition to the
    proposed ban on mandatory arbitration in livestock and poultry
    contracts, its opposition to efforts to reorganize USDA to improve
    enforcement of the Packers and Stockyards Act, and other competition
    and trade practice statutes. The letter argued that USDA already has
    the authority and enforcement regime to deal with matters like unfair
    contract terms. Yet a number of private suits, as well as numerous
    press accounts and studies, have highlighted the real problems that
    exist in USDA's enforcement of the Packers and Stockyards Act.
        Your testimony indicates that the USDA budget seeks an additional
    $500,000 to ``enhance compliance with the Packers and Stockyards Act
    and to fund a review of the Act'' (page 13). We have increased Grain
    Inspection Packers and Stockyards Administration (GIPSA) funding for
    years, with absolutely no improved results, and some would argue even
    more lax enforcement. Without substantial changes in the law and in
    USDA's enforcement organization, why should we think that simply
    increasing funding will address GIPSA's serious enforcement
    shortcomings?
        Answer. Industry has become more complex, vertically integrated,
    and is making increasing use of technology, which complicates
    enforcement activities. The P&S Act has not undergone any significant
    review in many years. A review of the P&S Act and regulations is
    warranted to determine the best way for GIPSA to remain effective in
    the 21st century. The request for an additional $500,000 to ``enhance
    compliance with the Packers and Stockyards Act and to fund a review of
    the Act'' would provide 6 additional staff years, expenses, and
    consultations necessary for a comprehensive review of the P&S Act.

                               FSIS MEAT RECALLS

        Question. USDA has been criticized during recalls for its policy of
    telling State public health officials where recalled meat was
    distributed in their States only if those States promise not to tell
    their citizens where recalled product is being sold. It seems to me
    that the purpose of a recall is to get tainted product out of
    consumers' homes.
        Can you explain the reasoning behind USDA's policy of essentially
    withholding from consumers information about where recalled product was
    sold? Is there any barrier, legal or otherwise, to the Department's
    release of this information to any State public-health department that
    may need it to respond to a recall?
        Answer. The goal of a recall is to protect public health by
    removing potentially contaminated product as quickly as possible. In a
    recall situation, FSIS needs to be able to act quickly to ensure public
    health by protecting consumers from potentially contaminated product.
    The cooperative arrangement with establishments ensures that FSIS can
    move as quickly as needed to remove potentially contaminated product
    from the marketplace. It also allows industry to move as rapidly as
    possible. The current cooperative arrangement allows FSIS to act
    quickly to protect public health and is preferable to a slow,
    cumbersome legal process.
        There are no barriers to the Department's release of distribution
    information to the States.

                               FOOD AID PROGRAMS

        Question. Has USDA considered adding Iraq to the list of countries
    receiving donations under the McGovern-Dole International Food for
    Education and Child Nutrition program?
        Answer. USDA will consider all proposals during the application
    period, which we expect to begin in June. Proposals for Iraq would be
    considered, although Iraq will soon return to the status of middle-
    income country. Due to the limited budget for the McGovern-Dole
    International Food for Education and Child Nutrition program, most
    programming resources are expected to go to low-income countries. A
    major consideration in programming will be the cooperating sponsors'
    ability to carry out effective programs immediately. It is not clear if
    this criterion could be met for Iraq because the economic and political
    systems are in transition.
        Question. If not, do you think it would help facilitate Iraqi
    reconstruction if we encourage such school nutrition programs there?
        Answer. The education system in Iraq is already restarting and
    rebuilding. Over the next few months, what is needed to restore and
    improve the education system will be assessed by the new Iraqi
    government as well as the international donor community. Use of
    programs like McGovern-Dole should not be ruled out but, as Iraq
    emerges as a middle-income country, it would not be a primary target
    for U.S. Government food aid programs.

                               VALUE-ADDED GRANTS

        Question. The Farm Bill provided $40 million a year in mandatory
    funding for Value-Added Product Market Development grants. These grants
    have been a critical element in assisting rural value-added business
    development. Without the help of these value-added grants, many
    projects such as farmer owned ethanol plants and meat processing plants
    simply would not materialize. The Administration's budget proposes
    changing this program to discretionary funding and reducing the funding
    to $2 million a year--only 5 percent of its fiscal year 2003 level--
    thus essentially eliminating this program.
        What is the Administration's commitment to producer owned business
    and cooperative development in light of this budget proposal?
        Answer. USDA spends approximately $10 million a year on the
    Cooperative Service programs. Rural Development has over 75 years of
    experience in working with producer owned cooperative businesses. This
    includes assisting producers in organizing cooperatives; providing
    technical assistance, such as strategic planning, to existing
    cooperatives; conducting research on problems and issues facing
    cooperatives; and providing education services to cooperative boards,
    management, and members. The Administration is committed to the
    continuation of helping producers, their farm and ranch businesses, and
    their cooperatives.

                       RURAL BUSINESS INVESTMENT PROGRAM

        Question. I am disappointed that the Department has moved slowly on
    implementing the Rural Business Investment Program, which was
    authorized and provided mandatory funding in the Farm Bill. As you
    know, venture capital is a crucial need in rural America. This program,
    carefully worked out in a bipartisan manner, should really help.
        It has very broad support, including from the major farm groups,
    cooperative groups, bankers of all sizes, and many of the entities of
    the Farm Credit System.
        I had hoped by now to see this program in full operation, creating
    jobs.
        Exactly what is the status of the Department's actions to get the
    Rural Business Investment Program up and running?
        Answer. Since the Farm Bill was signed, USDA has worked jointly and
    diligently with the Small Business Administration (SBA) to develop an
    RBIP implementation and management plan that is based on the Program
    model, as envisioned and expressed by Congress in the statute. USDA and
    SBA have identified some impediments to the development of the
    implementation plan, such as how administrative responsibilities for
    the program would be shared between USDA and SBA within the context of
    the statute. We are continuing to work with SBA to reach agreement on
    such issues.
        Question. When will the Department have this program in operation?
        Answer. The timeline will be developed once an agreement with SBA
    is reached and specific roles and responsibilities are developed.
        Question. Is there anything that we can be doing to help expedite
    the Department's implementation of the Rural Business Investment
    Program?
        Answer. At this time, we know of nothing that the Committee needs
    to do to implement this program.

                                RURAL UTILITIES

        Question. The farm bill provided $360 million to assist in funding
    some of the backlog of water and wastewater programs at the Rural
    Utilities Service. Your budget proposes increasing the loan program,
    but reduces the grants by almost 50 percent, or $250 million. Small
    communities will once again be placed on a long waiting list because
    grant funds will not be available. It is not the purpose of this
    program primarily to fund only communities that qualify for loan
    programs, but also to ensure that the poorest and smallest of
    communities needing clean drinking water or a wastewater system will
    not be left behind.
        What is the national backlog in applications needing grant
    assistance? What is your plan for addressing the needs of small
    communities with very limited incomes, which need safe, reliable
    drinking water if this proposed shift in the program is implemented?
        Answer. There are currently 443 incomplete applications and 662
    complete applications on hand for water and waste grants for a total of
    1,105. The total amount requested by these applications is $433,762,484
    for incomplete applications and $763,852,491 for complete applications
    for a total of $1,197,614,975.
        With the additional funding from the Farm Bill, we were able to
    fund a significant number of applicants that needed grant funds to
    develop a feasible project. The applications remaining in the backlog
    indicate an increasing demand for loan funds. The current very low
    interest rate environment reduces the need for higher grant amounts,
    which will allow us to adequately meet the need for assistance. A
    project's financial feasibility is determined based on its ability to
    repay a loan and at the same time maintain reasonable user rates. A
    proposed system's budget is based on income projections solely from
    sales of services the system is providing. Since the Rural Utilities
    Service has the authority to switch funds between loan and grant, the
    levels established at the beginning of the year can be adjusted as
    needed based on projects funded during the year.

                                     CREDIT

        Question. On the matter of farm credit, your written testimony
    (page 10) indicates that the amount of direct loans that FSA will make
    available to farmers will decrease because the subsidy costs have
    somehow increased. Yet in other parts of your testimony, you note that
    the subsidy rate for other loan programs has actually fallen because of
    decreased interest rates.
        Please explain why the subsidy rate for FSA direct loans has
    increased in this time of lower interest rates and relatively low
    default rates.
        Answer. The cost of subsidizing direct loans has increased due
    largely to projections of increased loan defaults. As the modeling of
    the projected costs of subsidizing loans is refined, default
    projections have increased. Defaults are a major component of the
    subsidy rate that determines the amount of budget authority that is
    required to support the requested loan levels. Direct loans are more
    expensive to operate than guaranteed loans due to the fact that
    borrowers of direct loans are generally not able to obtain credit from
    commercial lenders due to their credit risk.

                           AGRICULTURAL BIOTECHNOLOGY

        Question. As a supporter of agricultural biotechnology, I believe
    products derived from this new technology hold tremendous promise for
    consumers and our Nation's agricultural industries. For that very
    reason, any shortcomings in our regulatory regime must be addressed to
    ensure that the development of agricultural biotechnology continues in
    a thoughtful and secure manner that provides our Nation's consumers and
    our trading partners with assurance that these products are safe. The
    National Research Council has released two important reports on
    agricultural biotechnology over the last few years. In last year's farm
    bill, Congress required your Department to issue a report to the House
    and Senate Agriculture Committees by next week outlining how USDA plans
    to implement the recommendations made by the Council.
        Please provide an update on the status of this report.
        Answer. While we have drafted a response to most of the
    recommendations from the National Academies of Science, National
    Research Council, there are a number of issues that we are currently
    working on with our partners at FDA and EPA that will affect many of
    our responses. As a result, our report missed the deadline of May 12.
    We feel it is important to work through the issues with our partners so
    that we can offer a more concrete overall Answer. Our report, when
    complete, will give a better sense of the direction we are taking in
    USDA and across government to address the recommendations in the
    reports.

                               FSIS--INSPECTIONS

        Question. In May 2000, a Federal judge in Texas ruled that the Food
    Safety and Inspection Service (FSIS) could not use Salmonella test
    results to determine the sanitary conditions in a beef grinding plant.
    More recently a Federal court in Nebraska prevented FSIS from closing a
    meat plant repeatedly found to have sanitation violations. Rather than
    pursuing the Nebraska case, FSIS signed a consent agreement with the
    company which ceded the agency's authority.
        In light of these court decisions, can you specify USDA's exact
    legal authority to close meat plants that repeatedly fail to comply
    with USDA's food-safety standards?
        Answer. The Federal Meat Inspection Act and the Poultry Products
    Inspection Act provide the authority needed to close plants that fail
    to comply with regulatory requirements. USDA has the authority to
    initiate a withholding, suspension, or withdrawal action based on
    sanitation or HACCP violations, including: failure to collect and
    analyze samples for the presence of generic E. coli; failure to develop
    or implement sanitation standard operating procedures (SSOP); or
    failure to develop or implement a required HACCP plan. USDA may also
    initiate a withholding, suspension, or withdrawal action for other
    violations, such as inhumane slaughter or unsanitary conditions.
        Question. Your statements last month seemed to indicate that you
    thought USDA could benefit from enhanced enforcement powers. What is
    USDA's opinion concerning the need for additional authorities, or
    clarifications of existing authorities?
        Answer. We are always assessing our authorities to determine if
    they need to be strengthened. I have asked for a complete review of our
    authorities to determine if they allow us to do our job and am awaiting
    assessments on what options USDA should consider pursuing in the
    future.

                     RENEWABLE ENERGY AND ENERGY EFFICIENCY

        Question. Please provide for the record the explanation you
    promised regarding proposed funding for the energy and energy
    efficiency program (section 9006) and the CCC Bioenergy program. As
    clarified in the hearing, these programs already have mandatory funding
    for fiscal year 2004 as provided in the farm bill. The Administration's
    budget proposes to change the 9006 program to a discretionary program
    and reduce funding from $23 million to $3 million in fiscal year 2004.
    The proposed cut of $50 million to the bioenergy program is similarly
    troubling since this program has been a key Federal program to help
    increase ethanol and biodiesel production. How do you reconcile your
    stated support for the farm bill renewable energy and energy efficiency
    programs and the Administration's budget proposal?
        Answer. This is a very tight budget and embodies numerous difficult
    resource allocation decisions. The Administration's energy policy
    strongly supports development and expansion of renewable and bio-based
    energy sources. Rural Development is in the process of implementing
    Section 9006 of the Farm Bill to promote renewable energy and energy
    efficiency projects. The $23 million in mandatory funding will be made
    available as grants under this program. Rural Development has also
    supported renewable energy under its Business and Industry (B&I)
    guaranteed loan program, and the Value Added Producer Grant program.
    Through fiscal year 2003, projects totaling over $70 million will have
    been funded under these programs. For fiscal year 2004, the Department
    is continuing to seek funding for the Section 9006 program, but at the
    reduced level of $3 million, and as discretionary rather than mandatory
    money. During this tight budget environment, it is appropriate to pause
    and review the success and effectiveness of the significant funding
    that has already been provided. Furthermore, Rural Development will
    continue to support renewable and bio-based energy projects through the
    B&I program, and also the Value Added Producer Grant program.

                                ANIMAL FIGHTING

        Question. I and many of my colleagues in the Senate and House are
    concerned about reports of illegal animal fighting. As you know,
    Congress strengthened this animal fighting law last year, as a
    component of the farm bill. In addition, we called on you to report
    back to the Committee on March 1, 2003 regarding plans for effective
    enforcement of the animal fighting law.
        What can you tell us now about how the Department intends to carry
    out these responsibilities? When will we see the report?
        Answer. The report will be sent to Congress on May 9, 2003. APHIS
    and the USDA's Office of the Inspector General (OIG) work together with
    State and local authorities to investigate and enforce Federal and
    State laws regarding animal fighting. USDA has made some progress with
    both APHIS and OIG taking steps to improve the effectiveness of the
    USDA enforcement effort. APHIS refers information it receives on animal
    fighting activities to OIG. OIG initiates investigations based upon the
    potential for criminal prosecution and as resources permit. In those
    instances where OIG does not initiate an investigation, it refers those
    complaints to State or local enforcement agencies as appropriate.
        Despite these efforts, however, significant improvements cannot be
    achieved without increased involvement by other Federal and State law
    enforcement agencies specifically dedicated to investigating and
    prosecuting violators of the prohibition against animal fighting
    ventures. APHIS must rely on law enforcement agencies to conduct
    investigations into animal fighting ventures because they are often
    accompanied by other illegal activities and are inherently dangerous.
    APHIS and OIG will continue to work together to seek better ways of
    furthering the goal of reducing and eliminating illegal animal fighting
    ventures.

                              OUTSOURCING IN NRCS

        Question. The farm bill does not authorize or justify downsizing of
    NRCS staff or outsourcing of their work. Instead, it provides for the
    use of outside personnel to supplement existing NRCS staff. I am
    concerned that the Administration has undertaken a process to downsize
    the agency by outsourcing and reducing the number of field offices.
        Please provide for the record all analyses you have done of the
    expected workload involved in fully implementing the farm bill
    conservation programs and carrying out NRCS' responsibilities for
    assisting on-farm non-farm bill conservation. How will this workload be
    met by: NRCS staff; and outside personnel, and what are the planned
    numbers for each?
        Answer. I will provide this information for the record.
        [The information follows:]

        NRCS has developed a workload model to estimate the technical
    assistance costs to deliver each of the Farm Bill programs at the
    authorized level. The model uses information from the agency's
    Integrated Accountability System (IAS) including workload analysis,
    timekeeping, and financial systems data. The model is used to project
    future technical assistance requirements for Farm Bill programs based
    on actual data collected at the field level. This model assumes that
    the program will continue to be delivered in the way they are today.
    However, we anticipate finding opportunities to work smarter and more
    efficiently and effectively deliver technical assistance. Technical
    assistance is reflected as staff year needs, regardless of who does the
    work.
        Farm Bill programs included in these technical assistance
    projections include:
      --Agricultural Management Assistance Program (AMA)
      --Conservation Reserve Program (CRP)
      --Conservation Security Program (CSP)
      --Environmental Quality Incentive Program (EQIP)
      --Ground and Surface Water Conservation Program (GSWC)
      --Klamath Basin
      --Farm and Ranchland Protection Program (FRPP)
      --Grassland Reserve Program (GRP)
      --Wildlife Habitat Incentives Program (WHIP)
      --Wetland Reserve Program (WRP)
        Funding levels for Farm Bill Programs are based upon the
    Congressional Budget Office score of the Farm Bill. Funding levels can
    be adjusted to evaluate technical assistance requirements based upon
    different funding levels.
        Farm Bill Technical Assistance Requirements currently projected
    based upon the model are displayed in the following graph:

        The projections also include technical assistance requirements for
    USDA to continue to service ongoing Commodity Credit Corporation (CCC)
    contracts from prior years for the conservation programs authorized in
    the 1996 Farm Bill.
        A key component of the NRCS workload projection model for Farm Bill
    Programs is the National Conservation Partnership Field Workload
    Analysis (WLA 2001), which provides a descriptive baseline of the
    workload requirements by discipline for Federal, State and district
    employees at the field level. WLA 2001 describes the time required by
    discipline for what employees do at the field level as described in 28
    Core Work Products (CWPs). It captures the core field activities and
    the time to accomplish them for the NRCS field staff and the
    Conservation Partners field staff. WLA 2001 is used to estimate the
    staff years required to complete fiscal year projected workload and
    total resource conservation needs.
        Within each Core Work Product, several tasks are identified and
    time associated with each task to accomplish the activity. Similar CWPs
    have the same tasks. For example, the natural resource CWPs all have
    the same tasks. Two hundred and eighteen Time Teams, consisting of NRCS
    and partner specialists (subject matter experts), provided estimates of
    the time required from various disciplines to perform the tasks
    necessary to accomplish each Core Work Product. Time teams were
    determined based on the area having similar resource concerns,
    geophysical characteristics, production characteristics, and cultural
    differences, time requirements for conservation activities.

        Integrated with information from other components of the Integrated
    Accountability System, such as the Performance and Results Measurement
    System (PRMS) and the Total Costs and Accounting System (TCAS), the
    National Conservation Partnership Field Workload Analysis (WLA 2001)
    and the NRCS workload projection model for Farm Bill Programs are the
    analysis tools utilized to provide information necessary for management
    activities such as workforce planning, and performance planning.
        The workload on non-farm bill programs consists of conservation
    planning assistance including lands, which are ultimately enrolled in
    Farm Bill programs and conservation practice installation accomplished
    on a voluntary basis without USDA incentives or cost sharing. The
    workload also includes development and maintenance of conservation
    technology such as the Field Office Technical Guide, soil surveys,
    water supply forecasts, conservation plant materials, etc, utilized by
    local, State and Federal agencies as well as individual land owners and
    operators, to guide resource management decisions and programs. In
    2002, CTA resulted in 33 million tons of sediment reduction,
    conservation systems being applied on 8.8 million acres of grazing
    lands, and 2,172 Comprehensive Nutrient Management Plans being
    installed.
        NRCS has allocated $20 million in fiscal year 2003 or approximately
    209 staff years for Technical Service Providers (TSPs) to assist in
    implementing Farm Bill programs this fiscal year. We anticipate the
    portion of technical assistance provided by TSPs of the total workload
    will grow in future years.

                      MAINTAINING ASSISTANCE TO PRODUCERS

        Question. How will you ensure that reducing NRCS staff will not
    harm producers' access to this important assistance?
        Answer. USDA will continue to utilize the best available
    information to evaluate the conservation workload and determine the
    most cost-effective means of providing the highest quality technical
    assistance available for producers including the use of NRCS staff and
    technical service providers. Given the farm bill workload, no net staff
    reductions are anticipated.
        To ensure high quality technical assistance is provided by
    technical service providers as well as NRCS staff implementation of
    several initiatives were undertaken during the first year of the new
    Farm Bill. A technical service provider online self-certification
    process (TECHREG) was made available from the NRCS website for
    organizations and individuals who wish to provide technical assistance
    to USDA customers. Several hundred technical service providers have
    registered and self certified and the list is growing each day. TECHREG
    also provides access to USDA customers to identify sources of technical
    assistance available other than NRCS staff and their areas of
    expertise. NRCS quality assurance policies were revised and updated to
    provide a standard level of quality review for all technical assistance
    provided to USDA customers including technical service providers. On
    line access was developed and implemented to provide USDA customers and
    others electronic access to the latest in standards, specifications and
    other technical information available from their local Field Office
    Technical Guide.
        By automating and streamlining administrative processes NRCS has
    made available staff resources for providing technical assistance under
    all programs, also reducing the technical assistance costs for the farm
    bill programs allowing more dollars to be available for cost-share
    assistance.
                                     ______

                 Questions Submitted by Senator Byron L. Dorgan

                        legume crops genomics initiative
        Question. The U.S. Legume Crops Genomics Initiative brings together
    growers and scientists to guide the development of priority research
    areas that will provide economic benefits and enhance sustainable
    agronomic practices of American agriculture. The initiative is designed
    to develop tools and research to alter compositional traits to further
    legume crops competitiveness and growers' profitability; maximize
    tolerance to biotic and abiotic stresses; and minimize use of inputs.
    Each of the 48 contiguous States produces legumes, from major row crops
    to alfalfa for hay and grazing. Agronomic improvements to legumes using
    modern genomics tools will provide an economic boost to agriculture in
    all areas of the United States. In 2000, the U.S. total estimated
    farmgate value was $22 billion. An added value derives from the legume
    symbiosis with soil bacteria that fixes nearly 17 million metric tons
    of atmospheric nitrogen each year, worth about $8 billion.
        Given the need and benefits of the initiative, can you detail
    USDA's plans for including legume crops genomics funding in the
    Administration's budget?
        Answer. Expansion and strengthening of legume genomics and genetics
    programs will play a crucial role in ensuring food for future
    generations. The fiscal year 2004 USDA/ARS request for sequencing and
    bioinformatics related to plants is $5.1 million of which $1.2 million
    is proposed for legume genomics.
        USDA/CSREES supports plant/crop genomics (including legumes)
    through its competitive grants program, the National Research
    Initiative (NRI). The fiscal year 2004 request for the NRI is $200
    million with $9 million requested for plant genomics (including
    legumes).

                            WORLD TRADE ORGANIZATION

        Question. On March 17, the USTR official in charge of agricultural
    trade with China stated that the United States would be well justified
    in filing a WTO case against China, for failing to live up to its
    commitments on wheat trade. The official said that the evidence of
    unfair trade by the Chinese was undeniable, and that the Chinese
    themselves privately acknowledge that they are cheating on agricultural
    trade. He said that the interagency Trade Policy Review Group has given
    USTR the green light to move forward with a WTO case against China. But
    the official said that the Administration was reluctant to do so,
    because the Chinese might be offended. He said the Administration was
    worried that a WTO case would be seen as an ``in-your-face'' thing to
    do to China, so soon after China joined the WTO.
        Is the Foreign Agricultural Service of USDA a part of the Trade
    Policy Review Group?
        Answer. USDA is part of the interagency Trade Policy Review Group
    (TPRG), which also includes USTR, State, Commerce, Treasury, NSC, and
    several other agencies. USDA's representative at these meetings can
    vary depending on the topic, but generally includes high-level
    representation from either the Office of the Secretary, the Office of
    the Under Secretary for Farm and Foreign Agricultural Services, or the
    Foreign Agricultural Service.
        Question. Didn't FAS sign off on a WTO case against China on wheat
    trade?
        Answer. In the TPRG meeting that you refer to, USDA expressed
    support, absent a timely resolution of outstanding concerns, for
    pursuing a WTO case against China over its overall administration of
    its TRQ system. The TPRG deferred a decision to initiate a WTO case,
    pending the outcome of further discussions with the Chinese to resolve
    the issue. Ambassador Zoellick and Ambassador Johnson raised our
    concerns at the highest levels during their subsequent visit to Beijing
    in February. A follow-up meeting, which has been delayed by the SARS
    situation, is expected to occur in the very near future. Absent a
    satisfactory outcome, it is expected the TPRG would reconvene to
    revisit the issue of initiating a WTO case. Wheat is one of nine
    agricultural commodities covered by China's TRQ system, and USDA
    believes that improvements in China's TRQ system would lead to greater
    market access for U.S. wheat and other commodities.
        Question. Do you believe that filing a WTO case is an ``in-your-
    face'' thing to do, when there is undeniable evidence of a trade
    violation, as the USTR official stated?
        Answer. USDA views very seriously China's failure to fully meet its
    WTO commitments. Our preference would be to resolve the issue
    bilaterally, as the WTO option, while certainly a viable one, could
    prove time consuming and could ultimately produce mixed results. At the
    same time, we recognize the bilateral process should not be open ended
    and that China should take immediate steps to bring its practices into
    compliance with the WTO. Toward that end, we are actively engaged with
    other U.S. agencies in preparation for upcoming negotiations with the
    Chinese to resolve this issue.

                   RURAL DEVELOPMENT FARM BILL SPENDING CUTS

        Question. The Administration's proposal to prohibit all fiscal year
    2004 mandatory funding for all Rural Development programs authorized in
    the Farm Bill and instead fund a few at much lower levels than
    authorized (such as renewable energy programs and enhancement of access
    to broadband services) is going to put tremendous pressure on this
    Subcommittee to fund these items with a very limited discretionary
    allocation.
        Do you consider these issues when you claim that there are no cuts
    in the Farm Bill spending?
        Answer. USDA considered both the mandatory and discretionary
    funding in developing its 2004 budget. The proposals to not spend
    mandatory funding that was authorized in the Farm Bill provided offsets
    for a portion of the discretionary funding that is being requested in
    the budget. Without these offsets, it would be even more difficult to
    stay within the discretionary spending targets.

                         PUBLIC LAW 480 PROGRAM FUNDING

        Question. The Administration's request would provide $1.185 billion
    for Public Law 480, which provides grants to private voluntary
    organizations (PVOs), and the World Food Program (WFP), to alleviate
    hunger. Last year, Congress provided $1.44 billion in appropriations,
    $300 million in supplemental appropriations (for a total of $1.74
    billion).
        Why does the Administration believe that the appropriations needed
    will be $555 million less in fiscal year 2004 than in fiscal year 2003?
        Answer. Fiscal year 2003 is unusual in that unfavorable climatic
    conditions in the United States last summer resulted in dramatically
    higher commodity prices at the same time that we are experiencing
    several large scale emergencies overseas. The scale of the emergencies
    and the fact that they overlapped is almost unprecedented. Congress
    responded to the situation by increasing the level of appropriations
    for Public Law 480 Title II for fiscal year 2003.
        Although we do not see an end to emergencies in fiscal year 2004,
    the budget assumption in this regard is that fiscal year 2003 is an
    unusual year in terms of the magnitude of emergency requirements, e.g.,
    droughts in the Horn and Southern Africa and conflict in Iraq, and that
    the funding level required to respond to emergencies in fiscal year
    2004 will not be as high.

                              SALES OF LOAN ASSETS

        Question. I see that your budget includes a new provision that
    would provide an estimated savings of $5 million from the sales of loan
    assets. I have to admit that this provision makes me very nervous given
    the experience that North Dakotans have had with the Small Business
    Administration's asset sale program and the sale of their disaster
    loans to private companies.
        A GAO report released last January confirmed the complaints that I
    heard and found very serious problems in SBA's asset sales program.
    This report found that SBA lacks a comprehensive system to document and
    track all borrower inquiries and complaints after loans are sold, that
    SBA incorrectly calculated the losses on its loan sales and lacks
    reliable financial statements. It recommended that before OMB continues
    to encourage loan sales at USDA and other agencies, it make sure that
    agencies have the capability to properly carry out and account for
    these activities.
        Does USDA have these mechanisms in place? Is USDA familiar with the
    concerns raised by GAO, and if so, what does it plan to do to address
    borrower inquiries and complaints after FSA and Rural Development loans
    are sold?
        Answer. USDA does have mechanisms in place to correctly account for
    its loan programs and to handle constituent inquiries of any kind. USDA
    has reviewed the GAO report on the SBA loan sales program and is
    currently working with OMB to make certain that the problems
    experienced by SBA are not repeated at USDA. In the event of a sale of
    loan assets, all borrower rights would still be protected, as they were
    during previous sales.
                                     ______

                Questions Submitted by Senator Dianne Feinstein

                          MEXICAN FRUIT FLY ASSISTANCE

        Question. Secretary Veneman, I am concerned that the Mexican fruit
    fly outbreak this year is already worse--much worse than the previous
    Fallbrook outbreak. In 2000 I helped provide assistance to San Diego
    farmers hurt by the fruit fly outbreak, yet few growers who applied for
    payments received assistance from USDA.
        Secretary Veneman, if 1,470 growers suffered approximately $3.5
    million in total losses, why did your department only provide
    assistance to 60 growers for a total of $644,225?
        Answer. We provided assistance to all producers that applied for
    the program. Some producers may have elected not to participate because
    of issues relating to gross revenue eligibility requirements.

                           MEXICAN FRUIT FLY OUTBREAK

        Question. Fighting this infestation will be costly and I believe
    this widespread invasion of foreign species requires a strong Federal
    response from Congress. What more can USDA do to provide assistance to
    the avocado and citrus growers hurt by the current Mexican Fruit Fly
    outbreak?
        Answer. USDA is mounting an aggressive response to the outbreaks.
    Since the initial detection of Mexican Fruit Fly (MXFF) in November
    2002, APHIS and the California Department of Food and Agriculture have
    worked diligently to prevent and alleviate damage from this harmful
    pest as part of a cooperative eradication effort. We have increased
    trapping densities, continuously release millions of sterile MXFF's per
    square mile for at least two generations, and applied ground bait
    pesticide sprays and aerial treatments. We are also developing
    regulatory treatments especially for specialty fruits and organically
    grown commodities. Our program protocols specify pre-harvest and post-
    harvest treatments to allow the continued movement of commodities such
    as avocados and citrus in commerce.
        Question. Would you support direct financial assistance to help the
    growers in San Diego County?
        Answer. I would be happy to work with you to discuss the funding
    for the program.
        Question. To ensure high value specialty crop growers are able to
    receive the help they deserve, I believe compensation payment must be
    based on the value of the crop, not the acreage. Would you support
    adding specific language to an appropriations bill to specify this so
    that growers of high value crops like avocados and citrus receive
    adequate payments?
        Answer. I would be happy to work with you to discuss the funding
    for the program.
           reallocating unused sugar export quotas to other countries
        Question. Secretary Veneman, I was able to include an amendment to
    the Farm Bill to allow you the authority to ensure that the amount of
    sugar allowed to come into the United States actually makes it to the
    market.
        At the end of section 1403 of the Farm Bill, I included a provision
    that allows you, working with the United States Trade Representative,
    to reallocate any unfilled portion of a sugar exporting country's quota
    when that country does not fill its quota.
        On March 25th, I wrote you a letter urging you to make this
    reallocation because there are 50,000-60,000 tons of sugar that could
    be exported to the United States right now from other nations that have
    already met their cap. Will USDA and USTR be making this reallocation
    this year to help refineries like C&H Sugar--the only sugar refinery on
    the West Coast--obtain more raw sugar to be refined?
        Answer. According to current estimates, the shortfall of the raw
    cane sugar tariff rate quota for fiscal year 2003 is expected to be
    30,000 tons. The Harmonized Tariff Schedule of the United States and
    the Farm Bill authorize the United States Trade Representative to
    allocate the quota and reallocate it, if necessary. USDA's authority is
    limited to establishment of the quota and consulting with the U.S.
    Trade Representative. Concerning this year, the U.S. Trade
    Representative has not informed us of his intentions regarding a
    shortfall reallocation.
                                     ______

                Questions Submitted by Senator Richard J. Durbin

                        PATHOGEN TESTING AND ENFORCEMENT

        Question. Madame Secretary, in a speech you gave in March you said
    ``we are working under a Meat Inspection Act that pre-dates the Model
    T,'' and I couldn't agree with you more. It is obvious that changes are
    needed to ensure that dirty meat processing plants can be shut down
    based on the results of microbiological testing, and Senator Harkin,
    myself and others have sought to clarify the USDA's authority through
    the Pathogen Reduction and Enforcement Act, or Kevin's Law, as it also
    is known. I also want to ensure that you have enough resources to
    implement a vigorous microbiological testing program.
        You have asked for a $6 million increase to strengthen FSIS'
    microbiological testing program for Salmonella, E.Coli and Listeria.
    How frequently will the USDA be testing products for Salmonella, E.Coli
    and Listeria with the $6 million requested, and is that enough to make
    the new E.Coli and Listeria testing directives meaningful?
        Answer. The proposed increase of just over $6 million is to
    strengthen USDA's microbiological testing program. Of the approximately
    $6 million requested, $4.5 million would be used to provide additional
    microbiologists, chemists, laboratory technicians, and other personnel
    to increase the agency's ability to identify adulterants in meat,
    poultry, and egg products. This funding will help the agency develop
    analytical methods to test food products for chemical, biological, and
    radiological contamination. This initiative will also increase sampling
    of ready-to-eat (RTE) products for the presence of bacteria such as
    Listeria monocytogenes and Salmonella. FSIS will increase sampling of
    these products from 10,000 to 15,000 annually and will add the
    capability to conduct 5,000 Listeria monocytogenes environmental
    samples annually. The agency also plans to increase sampling of raw
    ground beef and raw ground beef ingredients for E. coli O157:H7 from
    7,000 to 15,000 samples annually.
        The budget request also includes a new $1.7 million initiative to
    establish nationwide microbiological baseline studies to provide the
    long-term data necessary to assess the ongoing risks presented by the
    products FSIS regulates. The use of nationwide microbiological baseline
    studies will improve data quality and help us further incorporate risk
    management into all regulatory and policy actions. Furthermore, these
    increases will significantly increase FSIS' ability to identify food
    safety risks associated with these pathogens.
        Question. How much more testing could USDA perform if it were given
    $10 million for the testing program?
        Answer. It costs the agency approximately $130 per test. However,
    the budget fully funds the laboratory needs for 2004.

                          MANDATORY NOTICE AND RECALL

        Question. Madame Secretary, you also suggested earlier this year
    that you would be willing to support mandatory notification to USDA
    when a Federally inspected establishment has reason to believe it has
    adulterated or misbranded meat or poultry. You also called for civil
    penalties for continual lack of compliance, and expedited cease-and-
    desist orders and suspensions for those companies that violate their
    Hazard Analysis and Critical Control Points plan.
        I support you in seeking these authorities, but I'm curious to know
    why you did not seek mandatory recall authority of an adulterated
    product, considering mandatory notice of adulteration, and recall
    authority, traditionally go hand in glove? Why would you want mandatory
    notice of a food safety problem, but not want the authority to act on
    it?
        Answer. FSIS has the means to quickly remove potentially
    adulterated product from commerce in order to protect the public
    health. Any new authority would need to be implemented with an eye
    towards enhancing public health. Providing FSIS with mandatory recall
    authority would not increase the safety of our food supply nor enhance
    our Nation's public health.
        Advance notice of food safety problems would enable FSIS to more
    quickly identify and act to initiate a recall or other action to
    protect public health from a potential food safety hazard. This would
    provide an additional tool to increase response time to a food safety
    hazard with a recall or other action. A company's decision to comply
    with a voluntary recall request from FSIS is compelled by FSIS
    enforcement powers such as detention and seizure authority. In addition
    to detention and seizure authority, the agency can also shut a plant
    down by withholding official inspection.

                               LISTERIA STANDARDS

        Question. Last summer a multi-state Listeriosis outbreak linked to
    deli products sickened at least 53 consumers, killing eight people and
    causing three miscarriages or stillbirths. More than 2 years have
    passed since the USDA published a proposal to require ready-to-eat meat
    and poultry processing plants to test for Listeria. A recent USDA risk
    assessment showed that requiring even more frequent Listeria testing
    than was proposed in 2001 would ``lead to a proportionally lower risk
    of listeriosis.'' Thus, the new risk assessment provides the scientific
    basis for the USDA to issue a stronger Listeria rule.
        When do you anticipate issuing the final regulations for Listeria
    testing and when would those regulations go into effect?
        Answer. We plan on issuing an interim final rule on June 4, 2003
    with an effective date of 120 days after publication in the Federal
    Register.
        Question. Wouldn't more testing save more lives by helping plants
    to more rapidly identify when they are not adequately controlling
    Listeria? Shouldn't USDA be seeking a testing scheme that is more
    protective of public health?
        Answer. Through use of the Listeria risk assessment, FSIS
    discovered that a combination of testing, sanitation and interventions
    yielded greater benefits than any one strategy alone. The risk
    assessment also demonstrated that the use of intervention steps, such
    as post-packaging pasteurization or the introduction of growth
    inhibitors, showed dramatic public health benefits.
        FSIS has worked diligently to gather the extensive scientific data
    necessary to develop a predictive risk assessment model. By allowing
    FSIS to evaluate factors that potentially contribute to the overall
    risk to public health, this risk assessment has given FSIS scientific
    confidence that new policies will be effective.

                      SAFETY OF FOODS PURCHASED BY SCHOOLS

        Question. About 17 percent of the food served in schools is donated
    by the Federal Government and undergoes stringent USDA food-safety
    standards, including increased inspections and tougher pathogen
    standards. The USDA also has extensive safety information available to
    it on the companies it purchases food from to help it make informed
    decisions. Yet, the remaining 83 percent of food consumed at schools is
    purchased locally and is not subjected to these tougher standards.
    Local school officials also do not have access to the safety
    information that their Federal counterparts have when making their
    purchasing decisions.
        In 2002, the General Accounting Office recommended USDA provide
    local school authorities with information and guidance on incorporating
    these more stringent safety provisions in their procurement contracts.
    The GAO also urged USDA to consider giving schools access to records
    from USDA's and FDA's inspections of prospective school food suppliers.
        Have you followed up on these GAO recommendations? If so, to what
    extent have these recommendations been implemented?
        Answer. As we understand it, the General Accounting Office (GAO)
    made these suggestions in testimony given in April 2002 on ``Continued
    Vigilance Needed to Ensure Safety of School Meals.'' Since that time,
    GAO has done extensive work in this subject area. They recently
    concluded an audit entitled, ``GAO Audit of School Meal Programs:
    Opportunities Exist to Improve Nationwide Data on Frequency and Causes
    of Foodborne Illness and to Enhance School Food Safety Efforts
    (Assignment No. 360246).'' GAO held exit conferences with the Food
    Safety and Inspection Service (FSIS), the Agricultural Marketing
    Service (AMS), and the Food and Nutrition Service (FNS) on March 7 and
    April 15, 2003. GAO released the audit on May 9, 2003, entitled
    ``School Meal Programs: Few Instances of Foodborne Outbreaks Reported,
    but Opportunities Exist to Enhance Outbreak Data and Food Safety
    Practices (GAO-03-530).''
        GAO's recommendation that USDA provide local school authorities
    with information and guidance on incorporating these more stringent
    safety provisions in their procurement contracts is currently being
    addressed. First Choice: A Purchasing System Manual for School Food
    Service has been revised and published by the National School Food
    Service Management Institute (NFSMI). NFSMI is currently working on a
    food safety supplement to First Choice that provides information on how
    to apply food safety to food purchasing including guidance on food
    safety procurement language that schools could use in developing their
    contracts. This supplement will be made available to every local school
    as a technical resource in the fall of 2003. Development and
    distribution of these NFSMI products are fully funded by USDA.
        The suggestion to share inspection records was not raised in either
    exit conference or in the statement of facts that GAO provided. We feel
    that sharing inspection records with schools would not be an effective
    or efficient means of helping them make purchases, as these records are
    complex and voluminous. AMS conducts lengthy and rigorous screening of
    potential vendors and considers many factors, including inspection
    records, before admitting a vendor to the Approved Vendor List. That
    list, which may be useful to schools, is available on the AMS website.

                   USDA COMMODITY STANDARDS FOR LOCAL SCHOOLS

        Question. What would be the health benefits of incorporating USDA's
    donated commodity standards into local schools' food-purchasing
    contracts?
        Answer. There would be little or no health benefits of
    incorporating USDA's donated commodity standards into local school food
    purchasing contracts, as the more stringent safety standards only apply
    to USDA commodities of ground meats, turkey, some egg products, frozen
    cooked diced chicken, and canned fruits and vegetables. Otherwise, all
    foods supplied through the USDA commodity donation program have the
    same safety standards as are required for commercially available foods.
    Schools, for the most part, choose to use their entitlement money to
    purchase those products that are more stringently regulated (ground
    meats, turkey, some egg products, and frozen cooked diced chicken), and
    purchase very little of those same foods from the commercial market.
    Schools make direct purchases of foods such as fresh dairy products,
    fresh bread and other baked goods, additional fresh, frozen, or canned
    fruits and vegetables, and staples, such as salt, sugar, seasonings,
    and spices, for which no more stringent specifications are available at
    the Federal level.

                         SCHOOLS ACCESS TO SAFETY DATA

        Question. Would school officials be able to make better purchasing
    decisions if they had access to companies' safety data? What barriers
    (legal or otherwise) are preventing USDA from implementing these
    recommendations?
        Answer. No, we believe giving schools access to companies' safety
    data would prove to be overwhelming and not informative. If the
    assumption is that these records would lead school officials directly
    to a decision to purchase or not to purchase, there is no single set of
    inspection records that could be used to arrive at that conclusion. As
    noted above, heavily regulated foods supplied through the commodity
    program are more stringently governed by food safety measures. Other
    food items supplied by USDA or purchased commercially by schools meet
    all of the current safety standards as are required for all
    commercially available foods.
        One barrier to providing inspection and safety records is that this
    data is voluminous, complex, and requires specialized knowledge of the
    subject in order to be properly interpreted. Another barrier is that
    this information would need to be screened and, in some cases
    ``sanitized,'' to protect confidential and proprietary commercial
    information, or other protected information, from release.

                             SAFE FOODS IN SCHOOLS

        Question. What other methods could be employed to ensure that
    schools are purchasing and preparing the safest foods possible for the
    school lunch program?
        Answer. We believe that training school food service staff is the
    key to ensuring that schools are purchasing and preparing safe foods.
    Administering State agencies provide training to school food service
    personnel on an on-going basis. To support training in the areas of
    safe food purchasing and food handling practices, FNS has worked
    closely with the National Food Service Management Institute (NFSMI) to
    provide guidance and seminars to complement State agency training
    endeavors.
        NFSMI is a key resource for food safety materials, education and
    training for food service personnel in our nutrition programs.
    Established by Congress in 1989, the Institute recently created a
    network of Hazard Analysis and Critical Control Points (HACCP)
    instructors to train school food service employees in HACCP principles,
    and developed a manual and teleconferences to train food service
    managers in responding to a food recall or emergency readiness crisis.
    In addition, NFSMI has been active in developing procurement materials
    including the manual, First Choice, A Purchasing Systems Manual for
    School Food Service which was originally published in 1995. Since its
    publication, over 2,000 school food service professionals have attended
    seminars using the manual as a reference. This training effort
    reinforces the concept that food procurement is integrally related to
    food safety. Emphasis is placed on bid specifications, laboratory
    testing of products, food recall procedures, and receiving and storage
    of foods.
        FNS's Team Nutrition developed a complementary manual, Serving It
    Safe: A Manager's Tool Kit to assist food service managers to implement
    a comprehensive sanitation and safety program in the cafeteria.
    Emphasis is placed on identifying key phases and critical control
    points in the food preparation process and identifying methods of
    preventing problems during each phase of the process. FNS continues to
    develop materials to educate food service personnel on food safety
    issues and to emphasize the importance of the safety of the food in
    school meals. We have distributed irradiation pamphlets; bio-security
    guidelines for school food service; ``Fight BAC'' food safety posters
    and pocket cards; ``Thermy'' pocket card, poster and magnet; and a
    manager's checklist.
        FNS is providing funding to the NFSMI for various food safety
    projects including: creation of a Hand Washing Video and Poster, adding
    hazard analysis and critical control points information to all USDA
    recipes, and updating Serving it Safe--A Manager's Toolkit.
        While we will continue to provide materials and guidance and to
    work with States to educate school food service personnel on food
    safety issues, we also believe that the reauthorization of the Child
    Nutrition Programs offers an opportunity to reaffirm the importance of
    food safety. We would support requiring all school food authorities to
    employ approved HACCP procedures in the preparation and service of
    meals, to ensure that every meal is prepared under the safest, most
    wholesome conditions possible.
                                     ______

                   Questions Submitted by Senator Tim Johnson

                 COUNTRY OF ORIGIN LABELING--CONSUMER BENEFITS

        Question. A study from the International Agricultural Trade and
    Policy Center at the University of Florida was released yesterday
    concerning the benefits and costs of mandatory COL. This is the only
    comprehensive, independent study on COOL that covers the benefits of
    labeling, and also provides a legal analysis to guide regulators at
    USDA in the implementation of the rule. No other report exists other
    than those paid for by lobbying groups and opponents of COL.
        The report contains very encouraging news about consumer
    willingness to pay for beef containing a U.S. label. It suggests the
    benefits of COL for beef may total between $3 and $6 billion if you
    extrapolate the consumer willingness to pay a 10 percent premium for
    steaks, 10 percent premium for roasts, and a 24 percent premium for
    hamburger. (We know from a recent Colorado State study consumers are
    willing to pay those premiums for beef with a U.S. label.) Finally, the
    University of Florida report suggests labeling won't cost $2 billion,
    but rather between $70 and $200 million.
        I encourage USDA to review this study and glean useful information
    from it.
        Has USDA ever studied the benefits of COL? If not, why?
        Answer. USDA has conducted studies that examined the benefits of
    Country of Origin Labeling (COOL). The Conference Report accompanying
    the Agriculture, Rural Development, Food and Drug Administration, and
    Related Agencies Appropriations Act, 1999 directed the Secretary of
    Agriculture to conduct a study on the potential effects of mandatory
    country of origin labeling of imported fresh muscle cuts of beef and
    lamb until such products reach the ultimate consumer. As directed,
    USDA's Food Safety and Inspection Service released a report entitled
    ``Mandatory Country of Origin Labeling of Imported Fresh Muscle Cuts of
    Beef and Lamb'' in January 2000. The findings of the report relate to
    benefits, costs, implications for international trade, and stakeholder
    views.
        To fulfill requirements of the Paperwork Reduction Act of 1995
    (PRA), USDA estimated the annual reporting and recordingkeeping burden
    associated with the voluntary COOL program published on October 11,
    2002. The PRA requires the estimation of the amount of time and related
    cost necessary for participants to comply with a program, but does not
    require the determination of any benefits that may be attributed to a
    program.
        In the process of promulgating the regulations to implement
    mandatory COOL, USDA will prepare a cost/benefit assessment. We have
    received many comments on the initial reporting and recordkeeping
    burden estimates, which combined with information gleaned from
    available studies, the voluntary COOL program, and other public and
    private data, will assist us in examining both the benefits and costs
    of mandatory country of origin labeling.
        Question. Do you agree that the consumer demand for knowing the
    country of origin of the food they feed their children is very
    substantial?
        Answer. Many groups, including consumers and industry associations,
    have expressed an intense interest in the value of country of origin
    labeling.
        Question. Do you agree that there may well be a significant
    willingness on the part of consumers to pay for information about the
    origin of the food they feed their families?
        Answer. This will be one of the issues that will be examined when
    the requisite cost/benefit analysis is conducted as part of the
    mandatory rulemaking.
        Question. Do you agree that more consumer information about their
    food is better than less information?
        Answer. In general, consumers benefit from having more information
    on which to base their purchasing decisions. However, the costs of
    providing the additional information must be considered as well as the
    benefits.
        A recent independent consumer survey conducted by economists at
    Colorado State University indicated that of those surveyed, 75 percent
    of consumers prefer mandatory COL for beef. Other findings included: 73
    percent of consumers were willing to pay an 11-percent premium for
    steak and a 24-percent premium for hamburger with a ``U.S.'' label and
    21 percent of the consumers surveyed preferred COL for beef because
    they want to support U.S. ranchers--they prefer to buy American meat
    from American producers.
        Question. Has USDA reviewed this consumer survey, will you consider
    these consumer benefits as you write the final rule, and do you agree
    with the results from the survey?
        Answer. As part of the rulemaking process, USDA will prepare a
    detailed cost/benefit analysis utilizing all of the pertinent
    information available, including the Colorado State University survey.
    However, the researchers who conducted this survey recently issued a
    fact sheet about the appropriate use of the survey data and stated that
    results of the study ``were not intended to and should not be used to
    establish COOL policy or cost benefit analysis.''

                   COUNTRY OF ORIGIN LABELING--PACKER THREATS

        Question. My constituents are very supportive of COL, but are very
    concerned about the abusive letters sent by meat packers saying that
    the packers intend to conduct random private audits of farmers and
    ranchers for compliance. The law was carefully written to prohibit on-
    farm, mandatory animal identification and it doesn't permit third-party
    audits mandated by packers.
        What provision of the COL law leads USDA or the packers to believe
    mandatory third-party audits are permissible?
        Answer. While Section 282(f)(1) of the law expressly prohibits USDA
    from using a mandatory identification system to verify country of
    origin, the law does not contain any language prohibiting the industry
    from using whatever method industry participants deem appropriate,
    including the use of third-party audits, to verify the country of
    origin information they receive from their suppliers (i.e. producers).
        Question. Why do you believe it is reasonable for a packer to
    require a third-party audit of a farm when existing USDA programs to
    track origin and other information (USDA grading system, Certified
    Angus Beef program, school lunch program) do not allow for a similar
    requirement?
        Answer. The COOL law requires suppliers to provide country of
    origin information to retailers. Retailers and their suppliers are
    subject to fines of up to $10,000 per violation under the law.
    Therefore, it is reasonable to expect that industry participants will
    take the steps necessary to ensure themselves that they are in
    compliance with the law. In order for retailers to make accurate origin
    claims, suppliers must have proper documentation to verify ``born,
    raised, slaughtered'' information. Such documentation can only be
    provided by producers that have first-hand knowledge of where an animal
    was born.
        The USDA grading system, Certified Angus Beef program, and school
    lunch program are command-and-control type systems that can only be
    utilized in conjunction with a mandatory identification system. Because
    USDA itself administers these systems, third-party audits by packers or
    other entities would be redundant.
        Question. Do you agree with me that the prohibition of a mandatory
    animal identification system in the COL law means that USDA cannot mark
    product to trace the farm of origin but can mark product, including
    animals, to show the country of origin?
        Answer. This provision states that USDA ``shall not use a mandatory
    identification system to verify the country of origin of a covered
    commodity.'' The provision is not limited to mandatory animal
    identification systems and prohibits USDA from mandating any type of
    identification system to verify the country of origin.

            COUNTRY OF ORIGIN LABELING--RECORDKEEPING/IMPLEMENTATION

        Question. Livestock producers currently maintain birth, health,
    sales, breeding, feed, beef quality, veterinary, and inventory records
    on the cattle, sheep, and hogs they own. I intend for producers to be
    able to self-certify this information which can be utilized to help
    verify the origin of animals for COL.
        Does USDA believe this type of information that a majority of
    producers already maintain is sufficient to comply w/COL?
        Answer. USDA believes that in general, these types of records are
    useful in verifying the origin of animals for COOL. However,
    maintaining documents and records such as those listed will not
    necessarily ensure compliance. During a compliance audit conducted by
    USDA, auditors will review and assess any and all documents and
    information to the extent necessary to arrive at an accurate decision
    on compliance.
        Question. If not, what additional information do you believe you
    will require?
        Answer. Because of the diversity in industry operations, we cannot
    predetermine precisely what documents will be necessary to verify
    origin claims.
        The COL law gave USDA discretion to create an audit verification
    system (not a mandatory system!) to help verify the origin of
    livestock. We included many existing industry practices and USDA
    programs to model in order to achieve voluntary audits. Some of these
    models include: the USDA grade stamp system--i.e. Choice, Select, etc,
    Certified Angus Beef and other breed programs, Beef Quality Assurance,
    Hazard Analysis Critical Control Points--HACCP, the national school
    lunch program, the Market Access Program, and, the voluntary ``Born and
    Raised in the USA'' label used by Carolyn Carey of California).
        Question. To what extent is USDA using existing models to implement
    COL?
        Answer. While the law provides USDA with the authority to require
    and enforce retail labeling, it does not provide USDA with the
    authority to certify and control the movement of products from
    production through retail sales. A necessary component of the models
    referenced is a mandatory identification system, which USDA is
    prohibited from requiring, to verify country of origin claims. Thus,
    none of these models could be used to implement COOL.
        Recently, I discovered that for one beef carcass, packers track up
    to 2,500 different products--called stock keeping units. Packers
    segregate beef products by owner, type, breed, grade, and special
    company brands or labels they use to market the beef they sell. All of
    this information is computerized and records are kept by the company.
        Moreover, a sticker is placed on every beef carcass which includes
    an identification number for the carcass and the packing plant number.
    This data is read from each sticker/carcass and downloaded into the
    company's computer system. Boxed beef items are shipped to their final
    destination according to a complex computerized routing system. The
    boxes of beef contain labels denoting a wide array of data, including:
    cut of meat, breed of animal meat is derived from, final destination
    (whether for export, a grocery store, or wholesaler), special company
    labels, packing plant, quality grade of meat, and weight among other
    information.
        All of this data is stored on a bar code included on every label
    placed on the boxed beef. It is my belief that while tracking animals,
    carcasses, and meat for COL will include costs, it isn't impossible and
    it can be done knowing they track so many other bits of information for
    their business operations.
        Question. If packers are tracking enough information to keep track
    of 2,500 different products from one beef animal, how are we to believe
    it's virtually impossible and exorbitantly costly for them to also
    track the origin of the animals?
        Answer. The level of complexity in the packing industry will be a
    function of the variation of the number of different origins and the
    number of products they process. In addition to maintaining an accurate
    recordkeeping system, packers that handle products from more than one
    country of origin will be required to have a segregation plan to
    maintain the identity of the origin of the product. Facilities may need
    modifications to permit product segregation, and there may be
    additional costs associated with handling, employee training,
    marketing, invoicing, shipping, etc. Products that may be of mixed
    origin, such as ground beef, add additional complexity to process
    needed to ensure credible country of origin labeling claims.
        Question. Do you agree that the food industry currently tracks a
    large amount of data (at least 2,500 products just for one beef animal)
    about their product so that a whole new record keeping system is NOT
    required, but merely an adjustment to current records?
        Answer. USDA does not believe that records pertaining to the origin
    of covered commodities as defined by the COOL law are already
    maintained by affected entities. While it may be possible for these
    entities to make modifications to their existing recordkeeping systems
    in order to meet the requirements of COOL, it is an additional burden
    that USDA must account for in the recordkeeping costs.

      TRACKING IMPORTS ONLY FOR VERIFICATION OF COUNTRY OF ORGIN LABELING

        Question. It has been pointed out to me that under Article 9 (IX)
    of GATT 1994, live cattle entering the United States can be marked as
    to their country of origin so long as the mark doesn't discriminate
    against, materially reduce the value of, or unreasonably increase the
    cost of the imported item. Indeed, last year the U.S. imported about
    800,000 calves from Mexico, and most of these calves were branded with
    an ``M'' to differentiate them from domestic cattle. This practice is
    in compliance with Article 9 of GATT.
        Several organizations have made a very compelling case to me that
    one way to reduce the implementation and tracking costs associated with
    COL is to have USDA require markings similar to the ``M'' applied to
    imports of Mexican cattle on all imported livestock. The rationale is
    that tracking these markings on imports will reduce overall costs for
    implementation. I believe the costs associated with tracking only
    imported animals for COL implementation--in accordance w/Article 9 of
    GATT--is a common sense approach to pursue which is permissible under
    the law and would reduce implementation costs because imported
    livestock are already marked as such.
         To what extent has USDA analyzed Article 9 of GATT to determine
    how to implement COL?
        Answer. In promulgating the regulations for the mandatory Country
    of Origin Labeling program, USDA will analyze the pertinent statutes
    that govern the marking of imported goods and will work with the Office
    of the U.S. Trade Representative to ensure that the United States is in
    compliance with all of the applicable trade laws.
        Question. Does USDA have a position on using Article 9 of GATT as a
    rationale to track only imported animals for COL implementation?
        Answer. The COOL law applies to all covered commodities and
    specifically identifies the criteria that products of U.S. origin must
    meet. While Article 9 of GATT may permit the marking of imported
    animals, the COOL law does not provide authority to control the
    movement of domestic or imported products and prohibits the use of a
    mandatory identification system, which would be required to track
    imported product through the entire chain of commerce.
        Question. Do you agree that virtually all imported covered
    commodities are currently marked as to country of origin and that such
    marks are specifically allowed by GATT and WTO rules?
        Answer. While products imported in consumer-ready packages are
    required to be labeled for origin, many imports undergo some type of
    transformation that eliminates the current requirement for labeling of
    origin. In addition, certain products such as livestock are currently
    on the ``J-List'' and are exempt from marking requirements.
        Question. In general terms, the United States only imports around 2
    million head of live cattle but slaughters 28 million head. Obviously,
    most of the cattle we slaughter are of U.S. origin. Doesn't it make
    sense to USDA that tracking the 2 million imported cattle would be less
    costly than keeping track of 28 million?
        Answer. While tracking only imported cattle may be less costly than
    tracking 28 million head, the law applies to all covered commodities
    and specifically identifies the criteria that product of U.S. origin
    must meet. The law does not provide authority to control the movement
    of products and prohibits the use of a mandatory identification system,
    which would be required to track product through the entire chain of
    commerce. Because the law requires country of origin labeling by
    retailers, compliance enforcement will begin at retail and will track
    the country of origin claims back through the production and marketing
    chain. Not all imported animals and covered commodities will be sold at
    retail, so there is little justification for requiring marking and
    tracking of all imported products.

                       COUNTRY OF ORIGIN LABELING--TRADE

        Question. Nearly 30 major trading Nations in the world have
    mandatory COL programs for food.
        Has the United States ever filed a complaint in the WTO against any
    of these foreign labeling requirements?
        Answer. The U.S. filed a complaint against certain trade practices
    followed by Korea, which included an import labeling component.
        Question. Has USDA reviewed any of these foreign labeling
    requirements so as to learn what pitfalls and/or success stories may be
    available regarding COL implementation?
        Answer. USDA has reviewed many existing labeling requirements,
    including State labeling laws. However, all of these labeling programs
    have different definitions and requirements that provide limited value
    in terms of implementing the specificity of origin in the COOL law.

                        COUNTRY OF ORIGIN LABELING--COST

        Question. Earlier this year USDA released a public cost estimate of
    $2 billion for implementation of COL. I can think of no credible
    organization that agrees with this exorbitant estimate.
        Through a Freedom of Information Act request, it was discovered
    that USDA only consulted with 3 organizations regarding the possible
    cost of COL--and all 3 were among the most powerful opponents of COL.
        The documents released to the Consumer Federation of America reveal
    USDA consulted with the National Meat Association (packers), the
    National Food Processors Association, and the National Pork Producers
    Council before developing the $2 billion cost estimate.
        Shortly thereafter, I wrote you a letter asking that you explain
    the methods USDA used to determine the initial cost of COL and why you
    apparently met only with opponents.
        You recently responded to my letter, assured me USDA would
    implement COL in a fair and balanced matter, and said USDA officials
    met formally w/29 different organizations and State programs regarding
    the cost estimate of COL, as opposed to just 3.
         How many of the 29 groups supported COL and would you provide me
    with a list of the 29 different organizations USDA met with to discuss
    cost issues?
        Answer. USDA was approached by numerous groups representing a
    variety of industry segments and we tried to meet with as many groups
    as possible. As the law had already been enacted, our discussions were
    focused more on the overall implementation of Country of Origin
    Labeling rather than the individual group's position on COOL. A copy of
    all of the groups we have met with to date is attached.
        [The information follows:]

    ------------------------------------------------------------------------
                    Event name                           Event dates
    ------------------------------------------------------------------------
    Food Labeling Conference..................  January 15
    R-Calf National Conv......................  January 23-25
    NAMP Executive Cmte.......................  January 27
    NCBA/CBB Conv. & Trade Show...............  January 29-February 1
    Northern VA Angus Assn....................  February 1
    Lancaster County Cattle Feeders Day.......  February 4
    National Grocers Assn./GRLC...............  February 4
    American Sheep Industry Assn. Annual Conv.  February 6-8
    Congressional Research Service............  February 14
    California State Univ. @ Chico............  February 15
    American Farm Bureau Federation...........  February 16-20
    United Fresh Fruit & Vegetable Assn.......  February 21-24
    Agricultural Women's Leadership Network     February 24
     Forum.
    21st Century Pork Club....................  February 26-28
    National Meat Assn. MEATXPO 2003..........  March 2-5
    Kentucky Farm Bureau......................  March 3-6
    Joplin Regional Stockyards/Mo. Cattlemen's  March 11
     Assn.
    AMI/FMI/Topco Meat Conference.............  March 9-11
    South Dakota Briefing--Farm Bill/USDA       March 11
     Programs & Services.
    International Boston Seafood Show.........  March 11-13
    National Lamb Feeders Assn................  March 13-15
    House Ag Committee Briefing...............  March 17
    Virginia Farm Bureau......................  March 18
    AAEA/FAMPS Food Labeling Conf.............  March 20-21
    Oklahoma Ag Leadership....................  March 20
    Texas Southwest Cattle Raisers Assn.......  March 23-26
    Haverlah Ranch--Powderhorn Cowbelles......  March 25
    Missouri Cattlemen's Association..........  March 25
    International Meat Secretariat/OPIC         March 30-April 1
     Regional Meeting.
    Missouri Stockgrowers Assn................  April 10-12
    National Cattlemen's Beef Assn., Spring     April 11
     Conference.
    NFI Spring Conference.....................  April 11-16
    NAFTA Workshop............................  April 23-26
    Federal Food Regulatory Conf..............  April 28
    American Farm Bureau Federation...........  May 6
    ------------------------------------------------------------------------

                           2003 LIVESTOCK FEED PROGRAM

        Question. On August 12, 2002, you announced $150 million in feed
    assistance for producers in Colorado, Nebraska, South Dakota, and
    Wyoming. This assistance was provided in the form of $23 feed credits
    for producers to use at their local feed supply store. At the same
    time, USDA was sending participating feed mills surplus nonfat dry milk
    stocks to be used in manufacturing the feed. In a press release issued
    by your office, it was stated that the four States chosen to
    participate in the program was because they were the hardest hit by the
    drought, with at least 75 percent of the pasture and forage crops rated
    poor or very poor.
        The data made available by NASS indicates pasture in South Dakota
    was rated 59 percent poor or very poor the week of April 8, 2003, when
    the new Livestock Feed Program was announced. Additionally, feed
    supplies and stock water supplies jumped from an average of 4.5 percent
    very short in 2002 to an average of 23.5 percent very short in 2003.
    Yet it appears data of this sort was not taken into consideration in
    determining how producers would be eligible for the new feed assistance
    program.
         If the entire State of South Dakota was eligible for the 2002
    Cattle Feed Program and little if any precipitation has fallen since
    then, how can you justify excluding over three-fourths of the State
    from the 2003 feed assistance program?
        Answer. In mid-April, when criteria for the 2003 Nonfat Dry Milk
    Feed Program were established, the previous 6 months' moisture
    accumulation data was used, specifically the U.S. Drought Monitor. In
    order to best utilize the available surplus stocks of non-fat dry milk,
    only the areas suffering the most according to the monitor were
    determined eligible.
        Question. Why did the Department choose a different drought data
    source (Drought Monitor) for the 2003 program, which excludes over
    three-fourths of the producers that had been eligible for the 2002
    program?
        Answer. This program was established early in the spring before
    there was any new growth of pasture. The other program was established
    in late summer after pasture losses were known. Therefore, the criteria
    based on the U.S. Drought Monitor were utilized.
        Question. How does the Department plan on providing assistance to
    producers who have no feed source for 2003 but were excluded from this
    recently announced program?
        Answer. Under the Nonfat Dry Milk Feed Program, conditions are
    monitored on a monthly basis, and the program will be available in
    areas of persisting drought and inadequate grazing due to the drought.

                               PUBLIC TV QUESTION

        Question. Secretary Veneman, as you may know, public television
    stations are facing a Federal mandate to convert all of their analog
    transmission equipment to digital. The deadline for public television
    stations to make this conversion recently passed on May 1, 2003. 195
    stations have filed with the FCC for extensions of the deadline. Of the
    stations that cited financial hardship as reason for a waiver, 70
    percent of them serve predominately rural areas.
        Last year, members of this committee recognized that public
    stations serving rural areas would experience financial hardship as one
    of the obstacles to meeting the Federally mandated deadline. To assist
    the stations, the committee included $15 million in the Distance
    Learning and Telemedicine program specifically to address these needs.
        It is my understanding that the committee staff has recently met
    with both budget officers and attorneys in your department about fund
    for this purpose. Further, I understand that you agency has neglected
    to develop a plan for awarding these funds.
        Can you explain the delay?
        Madam Secretary, it is my understanding that the reason for the
    delay in awarding these funds is because your department does not feel
    that there is significant congressional direction to implement this
    program for public television.
        I have read both the Senate report language as well as the Omnibus
    report language and I think that Congress was explicit in their intent
    to award these funds.
        I might add that we put those funds in there for this specific
    purpose--to provide funding for rural public television stations.
        Question. Secretary Venemen, can you explain why you are choosing
    to ignore a directive from this committee?
        Answer. The 2003 Agriculture Appropriations Act provides
    $56,941,000 for the Distance Learning and Telemedicine Program. It
    specifically enumerates that $10 million of these funds are to be used
    for grants to support broadband transmission and local dial-up Internet
    services for rural areas. It is, however, silent concerning translators
    for digital conversions. There is language in the Senate Appropriations
    Committee Report and a reference in the Statement of Managers that
    accompanies the Conference Report that both sets out the $15 million
    and refers to conversion to digital translators.
        Rural Development is aggressively seeking the implementation of a
    Notice of Funds Availability (NOFA) that would make this funding
    available this summer. The NOFA will outline funding parameters and set
    forth eligibility requirements to allow for the most equitable
    distribution of this grant funding.
                                     ______

                 Questions Submitted by Senator Robert C. Byrd

                                 ANIMAL WELFARE

        Question. In the Fiscal Year 2003 Omnibus Appropriations bill, $5
    million was secured for the hiring of at least 50 new Humane Slaughter
    inspectors within the Food Safety Inspection Service (FSIS) at the
    United States Department of Agriculture (USDA). Report language in this
    bill instructed these new inspectors to work solely on the enforcement
    of the Humane Slaughter Act. Prior to the $1.25 million allocation in
    the fiscal year 2001 Supplemental Appropriation bill for the hiring of
    17 District Veterinary Medical Specialists at FSIS to work solely on
    the enforcement of the Humane Slaughter Act, there were no inspectors
    employed exclusively for this purpose.
        Due to the late date on which the Fiscal Year 2003 Omnibus
    Appropriations bill was signed into law, language in the bill permitted
    the funding for inspectors to be used into fiscal year 2004. However,
    it has recently come to light that it is not the intention of the USDA
    to hire at least 50 new Humane Slaughter Inspectors with the funding
    that has been provided. Instead, it is believed that the USDA plans on
    hiring only 15 inspectors in fiscal year 2003, then in fiscal year 2004
    the USDA will retain these 15 inspectors while hiring an additional 20
    inspectors. While the USDA may claim that this qualifies as the minimum
    of 50 inspectors they are required to hire, this does not coincide with
    the original intent of the law.
         At this time, how many new Humane Slaughter Inspectors have been
    hired to work solely on the enforcement of the Humane Slaughter Act,
    funded through the $5 million provided for this purpose in the fiscal
    year 2003 Omnibus Appropriations bill? How many new inspectors will be
    hired by the end of fiscal year 2003?
        Answer. FSIS continues to increase agency efforts to ensure that
    all field personnel understand their authorities and rigorously enforce
    the Humane Methods of Slaughter Act. FSIS has recently hired 215 new
    line inspectors trained in humane handling methods and at this time,
    the systemwide FSIS effort devoted to humane handling and slaughter
    inspection is equal to 63 FTEs. In fiscal year 2002, the comparable
    level of effort equaled 25 FTEs carrying out humane handling and
    slaughter inspection, so the agency has added 38 FTEs in fiscal year
    2003. The agency expects that this number will continue to rise through
    fiscal year 2004 to meet and even exceed the requirement outlined in
    the fiscal year 2003 Omnibus Appropriations bill.
        Question. When will the USDA complete securing no less than the 50
    new Humane Slaughter inspectors as required by the fiscal year 2003
    appropriations bill and what is the schedule for hiring these new
    inspectors?
        Answer. The agency expects to meet the requirement in fiscal year
    2004 and even exceed the requirement outlined in the fiscal year 2003
    Omnibus Appropriations bill.
        When determining the amount of funding necessary to employ 50 new
    Humane Slaughter Inspectors at the Food Safety Inspection Service,
    officials at the USDA requested the amount of $5 million, indicating
    that it would be preferable to employ veterinarians in these positions,
    thus affecting the amount of funding that was allocated for these
    inspectors.
        Question. Are all of the new Humane Slaughter Inspectors, and those
    that have yet to be hired, veterinarians? If not, how many inspectors,
    above the 50 required by the fiscal year 2003 Omnibus Appropriations
    bill, are being hired?
        Answer. In fiscal year 2003, FSIS has hired 215 new line inspectors
    trained in humane handling methods and the systemwide FSIS effort
    devoted to humane handling and slaughter inspection is equal to 63
    FTEs. In fiscal year 2002, the comparable level of effort equaled 25
    FTEs carrying out humane handling and slaughter inspection, so the
    agency will have 38 FTEs in fiscal year 2003. The agency expects that
    this number will continue to rise through fiscal year 2004 to meet and
    even exceed the requirement outlined in the fiscal year 2003 Omnibus
    Appropriations bill.
        In addition to the 63 FTEs, FSIS veterinarians also conduct humane
    handling verification activities. FSIS' Veterinary Medical Officers
    (VMO) are assigned to all livestock slaughter facilities that also
    provide inspection oversight for humane handling and slaughter. FSIS
    employs 1,100 veterinarians, approximately 600 of which conduct on-
    going humane oversight verification duties in livestock plants.
        In order to ensure that adequate funding is available to maintain
    no less than 50 Humane Slaughter Inspectors throughout fiscal year
    2004, the future funding needs must be determined.
        Question. Given that the $5 million provided in the fiscal year
    2003 Omnibus Appropriations bill for no less than 50 new Humane
    Slaughter Inspectors has been made available through fiscal year 2004,
    will any additional funding be need to fulfill and maintain this
    requirement in fiscal year 2004? If so, how much funding is needed?
        Answer. FSIS has adequate resources to continue increasing agency
    efforts to ensure that all field personnel understand their authorities
    and vigorously enforce the Humane Methods of Slaughter Act.

                              COMPETITIVE SOURCING

        Question. The Office of Management and Budget (OMB) scores agencies
    on how well they comply with the President's Management Agenda.
    Agencies are encouraged to submit management plans to the OMB which
    incorporate the competitive sourcing quotas outlined in the President's
    budget. I understand that agencies within the Department of Agriculture
    are currently studying their workforces to find places where it would
    be appropriate for private contractors to take over agency functions.
        One example relates to potential outsourcing of technical
    specialists (such as soil scientists and other conservation
    specialists) of the Natural Resources Conservation Service. These are
    the very people who are responsible for transferring public
    conservation policy to private landholders through what has been one of
    the most successful public-private partnerships in history.
        Another example which many of my constituents are concerned about
    is the privatization effort within the U.S. Forest Service, but I
    believe this is an important issue for every agency in your Department.
    Regardless of the agency or the activity, the uncertainty and the
    employee level as to how agency outsourcing will evolve is having a
    horrific effect on morale. Given the loss of experienced agency
    personnel that will occur as a large number of employees reach
    retirement, we should be thinking of ways to retain experienced
    workers, not engage in practices which will erode their trust in
    personnel management.
        It is my understanding (from OMB) that these competitive sourcing
    plans, once they are submitted to the OMB for approval, can be released
    to the public at the discretion of the agency heads. If the Congress is
    to appropriate substantial funding for private sector employment
    opportunities, I expect that you will first provide Congress, and in
    particular this Committee, with a copy of any management plan or
    competitive sourcing proposal that the Department of Agriculture
    submits to the OMB.
        When do you expect to submit a management plan to the OMB, and how
    soon can you make that plan available to this Committee?
        Answer. I submitted a competitive sourcing plan to OMB in May 2002.
    This plan represents USDA's initial starting point for competitive
    sourcing. The Department expects to update this plan over the next
    several months. I will submit a copy of our May 2002 plan for the
    record.
        [The information follows.]

                             Department of Agriculture,
                                       Office of the Secretary,
                                        Washington, D.C., May 14, 2002.
    Hon. Mitchell E. Daniels, Jr.,
    Director, Office of Management and Budget, Washington, D.C.
        Dear Director Daniels: On January 4, we provided you with a summary
    of the Department's plan to meet the Administration's competitive
    sourcing goal by September 2003. Enclosed is a detailed plan of the
    specific positions we intend to compete or convert as part of Phase I
    of our plan.
        In addition, we are also now focusing on USDA-wide functions,
    including the structure and initiatives for county-based agencies. As
    we finalize the tasks, we will incorporate additional changes, as
    necessary, to our competitive.sourcing plans.
        If you have any questions, please contact Edward R. McPherson,
    Chief Financial Officer, at (202) 720-5539.
                Sincerely,
                                                Ann M. Veneman,
                                                             Secretary.

        Question. Secretary Veneman, how do you intend to quantify the
    collective experience and expertise of the public employees in your
    Department when determining their ``competitiveness'' in this process?
        Answer. We use the guidance and process in OMB's Circular A-76 when
    quantifying the experience and expertise of government employees in the
    competitive process. Circular A-76 requires that the government develop
    a Most Efficient Organization (MEO) to compete against private sector
    bidders. As part of that organization, the government develops a
    staffing plan, to include position descriptions that specify the level
    of expertise required to perform the work. If the government wins the
    competition, the new organization will be staffed from the personnel
    currently assigned within the organization.
        Question. To the extent that the Administration intends to pursue a
    policy of outsourcing, why is that policy not limited to new hires, as
    current employees retire, so as to not erode the morale of current
    employees?
        Answer. The Administration is pursuing a policy of competitive
    sourcing, not outsourcing. Where practicable, USDA has used and will
    continue to use current vacancies to minimize the impact of competitive
    sourcing on employees. However, limiting competitive sourcing only to
    vacancies could severely impact efforts to build better organizations
    across the department.

                              SUBCOMMITTEE RECESS

        Senator Bennett. Thank you for your persistence.
        Madam Secretary, we appreciate your appearance here. We
    appreciate the work that you do, and that all of your team
    does. I know this process sometimes gets untidy, and you will
    get more questions in writing that will add to the untidiness.
    But we are grateful to you and your staff for your ability to
    straighten this all out, and in the end, give us a result and a
    product that we can understand where you are.
        The subcommittee is recessed.
        [Whereupon, at 12:28 p.m., Thursday, May 8, the
    subcommittee was recessed, to reconvene to subject to the call
    of the Chair.]

    AGRICULTURE, RURAL DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS FOR
                                FISCAL YEAR 2004

                                  ----------

                              FRIDAY, MAY 16, 2003

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:32 a.m., in room SD-124, Dirksen
    Senate Office Building, Hon. Robert F. Bennett (chairman)
    presiding.
        Present: Senator Bennett.

                           DEPARTMENT OF AGRICULTURE

    STATEMENTS OF:
            KEITH COLLINS, CHIEF ECONOMIST
            J.B. PENN, UNDER SECRETARY FOR FARM AND FOREIGN AGRICULTURAL
                SERVICES
            MARK E. REY, UNDER SECRETARY FOR NATURAL RESOURCES AND
                ENVIRONMENT
            THOMAS C. DORR, UNDER SECRETARY FOR RURAL DEVELOPMENT
            JOSEPH J. JEN, UNDER SECRETARY FOR RESEARCH, EDUCATION, AND
                ECONOMICS

                 OPENING STATEMENT OF SENATOR ROBERT F. BENNETT

        Senator Bennett. The subcommittee will come to order.
        I apologize to our witnesses for the fact that we are here
    on a Friday when many would rather be out on a golf course, but
    it is raining so you might as well be in here where it is dry.
        But the Senate voted for something like 72 hours--or, no,
    it seemed like 72 hours--17 hours yesterday right straight
    through, so everything got canceled or postponed.
        Senator Kohl, the ranking member of the subcommittee, had a
    commitment today that he was unable to break, and I discussed
    with him whether we should go ahead today or not. He urged me
    to go ahead because we need to be moving ahead with our
    appropriations process. And given his previous commitments,
    why, we excuse him. Other Senators have run into the same
    problem, so that means the witnesses are going to have to bear
    with the rather heavy dose of me this morning.
        I will not be constrained by any 5-minute rule. Nor will I
    go two or three rounds. We will simply start in, and I will
    cover as many of my questions as I can, and on behalf of some
    of the other Senators, ask theirs as well.
        We are pleased this morning to have what are somewhat
    familiarly called ``the Unders'' this morning; that is, we have
    four Under Secretaries and Dr. Collins, who is the Chief
    Economist, and I am sure ranks and is paid as an Under
    Secretary of the Department of Agriculture. Title inflation
    seems to have set in everywhere. I remember when there was one
    Under Secretary in the whole Department. But he is now the
    Deputy Secretary, and former Assistant Secretaries have become
    Under Secretaries, and I don't know what it is that has become
    an Assistant Secretary or how it has worked out.
        Nonetheless, these are the men who do much of the heavy
    lifting in the Department, and we appreciate your being here
    and sharing your testimony with us as we proceed.

                              PREPARED STATEMENTS

        This will be the second hearing of this subcommittee
    dealing with the 2004 appropriations bill. Last week, we had
    Secretary Veneman, who was very helpful to us in her
    presentation, and we have another hearing scheduled for next
    week.
        [The statements follow:]

                   Prepared Statement of Senator Conrad Burns

        Thank you, Mr. Chairman for holding this hearing. I believe we had
    a very successful and informative hearing last week and look forward to
    today's testimony.
        I would also like to thank the witnesses for joining us here today.
        Dr. Penn, I know from being in this business for a while that the
    only time we hear anything is when we've done something wrong. I would
    like to take this opportunity to thank you and your staff for your hard
    work on the Drought Disaster package.
        As is often the case, the devil is in the details and that was
    never truer than in the details of the Crop Disaster Program. I talked
    to you a number of times myself on this issue.
        Additionally, I have heard from a number of the wheat and barley
    producers in Montana and they said you were always responsive to their
    concerns and you where willing to work with them on the problems.
        Maybe I should repeat that. You were responsive to the concerns of
    the agriculture producer. That is what it is all about folks. That is
    why are here in the first place. That is why USDA was formed.
        Thank you for that willingness to work with producers and I urge
    you to get those checks out to the farmers as soon as possible.
                                     ______

                    Prepared Statement of Senator Herb Kohl

        Thank you, Mr. Chairman, and welcome to all our witnesses here
    today. I will be brief.
        Today's panel centers on the mission areas of USDA that have the
    most direct impact on Rural America. There is much concern today about
    the national economy and how it is suffering compared to recent years.
    We must remember that much of Rural America did not share in all the
    prosperity that the rest of the Nation enjoyed over the past decade,
    and conditions on the farm are, in many cases, worse than ever.
    Wisconsin dairy farmers, for example, face record low prices,
    increasing costs, and this market squeeze is devastating.
        I have some concerns about the delivery of many of the programs
    available to support the farm sector. In regard to international
    programs, there are tremendous challenges we face regarding trade
    impediments and we must not lose sight of our responsibilities
    regarding humanitarian food assistance.
        In comparison to overall federal spending on research, agricultural
    research lags far behind, in spite of the fact that such research is
    tied to the production, maintenance, and safety of our food supply.
    Clearly, protection of our food supply is one of our greatest
    responsibilities.
        Mr. Chairman, thank you and I look forward to our witnesses
    statements.
                                     ______

                Prepared Statement of Senator Richard J. Durbin

        Chairman Bennett, thank you for holding this important hearing
    today on the USDA's fiscal year 2004 Budget. I look forward to working
    with you, Senator Kohl, and my Subcommittee colleagues on the farm
    economy and rural sector. I would like to welcome our witnesses Keith
    Collins, USDA Chief Economist, J.B. Penn, Under Secretary for Farm and
    Foreign Agricultural Services, Mark Rey, Under Secretary for Natural
    Resources and Environment, Dr. Joseph Jen, Under Secretary for
    Research, Education and Economics and Thomas Dorr, Under Secretary for
    Rural Development. I would also like to thank others in USDA who
    submitted testimony for today's hearing.
        I'd like to take a few minutes this morning to talk about some very
    important issues that affect the Department, and my home state of
    Illinois. When I go back to Illinois, one of the things I hear from
    farmers is: How can we get the rural economy back on track? As you
    know, there are over 60 million people that call rural America home.
    Illinois has a significant rural community so I am pleased to see USDA
    is committed to creating new economic opportunities and improving the
    quality of life for a diversified rural population.
        One issue of importance is to make sure our rural communities have
    access to the kinds of technology, business opportunities and
    affordable housing that we have in other parts of the country, so that
    rural America will not be left behind. We must work on economic growth
    in rural America.
        Illinois is one of our country's most important agricultural
    contributors. Illinois farm land, which accounts for about 27 million
    acres, is considered some of the most productive in the world. More
    than 76,000 farm families in the state produce corn, soybeans, wheat,
    beef, pork, dairy products, and specialty crops. Illinois exports more
    than $3.4 billion worth of agricultural products. The state's
    agribusiness activity is vibrant. From the Chicago area to Decatur and
    throughout Illinois, agricultural processing employs thousands of
    people. And our researchers at the University of Illinois as well as at
    other institutions, continue to help provide answers to some of the
    most common as well as the most complex, agricultural questions we
    face.
        I would like to bring attention to the USDA's Rural Development
    budget. The rural utilities water and waste disposal system is an
    important program for Illinois (For fiscal year 2003; total direct
    loans, $23 million, guaranteed loans, $1.5 million and grants, $3.4
    million) and the rest of the country. As stated by Administrator Hilda
    Gay Legg's submitted testimony, the need for water and waste disposal
    systems are still significant and are likely to grow as a result of
    expanding populations in certain rural areas, changes to water quality
    standards, drought conditions and similar factors. I know the
    additional funding provided by the Farm Bill helped reduce backlog for
    assistance and it is my hope we will be able to reduce the backlog in a
    timely manner.
        I would also like to take a minute to comment on research and
    education and to stress how important I feel they are to USDA. Though
    agriculture research we have the opportunity to face challenges to our
    Nation's food and agriculture system.
        I am planning on introducing legislation again this year to ensure
    the safety of genetically engineered foods, a fast-growing segment of
    our food supply that shows much promise, but which also must be
    adequately regulated to assure consumers of biotech products' safety
    and effectiveness. Through genetic engineering, scientists are hoping
    to address world hunger, develop new drugs and create alternative fuel
    sources to help solve many of the social problems that vex us today. My
    bill will ensure these efforts continue, but require a mandatory,
    public approval process that deems such foods and products safe before
    they are put in the marketplace. In today's global marketplace, it is
    critical that we demonstrate the safety of these foods and products
    through a scientific-based approval process.
        Chairman Bennett and Senator Kohl, thank you again for the
    opportunity to talk about these issues and the fiscal year 2004 Budget.

        Senator Bennett. Gentlemen, we appreciate your being here.
    Let's hear from you, probably from my left to my right. Let's
    start with Dr. Jen, who is the--okay. Let's start with my right
    and go to your left. We will start with Dr. Collins, who is the
    Chief Economist at USDA. Doctor, we appreciate your being here.
    For the record, this is Dr. Keith Collins.

                         OFFICE OF THE CHIEF ECONOMIST

        Dr. Collins. Thank you very much, Mr. Chairman. I am happy
    to go in whatever order you would desire.
        This morning, you are going to hear the budgets profiled
    for programs that generally represent American agriculture and
    rural areas, and what I think I will do is begin not by talking
    about my budget but instead talking a little bit about the
    perspective that these programs will operate in, in the current
    year, and where the agricultural economy might be heading in
    the future.

                           U.S. AGRICULTURAL ECONOMY

        In a nutshell, like most sectors of the U.S. economy, U.S.
    agriculture has been restrained by slow global economic growth.
    We have had a high value of the dollar over the last couple of
    years, lots of production in competing countries. We have had
    declining prices. We have had bad weather. And all of these
    things have also limited growth.
        But the agricultural economy has been improving over the
    past year. I think it is going to continue improving, but I
    think the recovery is going to be gradual. It is going to be
    uneven. And I think in some sectors it will lag, such as in
    dairy.
        The world economy is expected to grow only about 2 percent
    this year. That is about the same rate of growth of the world
    economy last year. And some of our major markets are growing
    even slower, such as in Japan and the European Union.
    Nevertheless, a number of countries appear to be doing better,
    such as Latin America, and with that better growth and with a
    declining value of the dollar, we think U.S. agricultural
    exports will be up $4 billion this year to $57 billion,
    although we will again look at that number and possibly revise
    it on May 27th.
        The stronger exports and the higher farm prices that have
    followed from last year's below-trend production are boosting
    farm revenues. Farmers' receipts from the sale of products in
    the marketplace are expected to be up about $7 billion this
    year, exceed $200 billion, and I think that is a very healthy
    gain. And we are seeing receipts up for both crops and for
    livestock.
        I think the most important observation I can make--and we
    just released our first forecasts for the 2003-2004 marketing
    year--about the coming year, year and a half, is that U.S.
    agricultural markets generally look to be in pretty good
    balance. If you look at grain stocks, they are in desirable
    ranges. Oilseed stocks are, in fact, very low. Cotton and rice
    stocks are finally declining after being persistently high for
    some time.
        Average farm prices are up, and that is leading to very
    sharp reductions in the costs of farm programs such as the
    Marketing Loan Program.
        Crop production this year is expected to rise, assuming we
    have average weather, which we can't predict yet at this time.
    For example, we expect that wheat production will bound back
    and be up 31 percent from last year's drought crop. Corn and
    soybeans are expected to also increase, cotton probably
    stabilize, and rice decline, and that will help continue the
    price increases we have been seeing for cotton and rice over
    the past year.
        Now, although exports of grains over the past year have
    been pretty weak, soybean exports have been record high, and
    cotton exports were the highest or we think will be the highest
    in 75 years this year.
        Looking ahead to the coming season, soybeans exports are
    likely to decline as South America continues to expand sharply.
    But grain exports should increase and cotton could possibly set
    an all-time record high.
        Livestock markets are finally looking fundamentally
    bullish. We have had weather disruptions and trade disruptions
    over the last couple of years, and that has caused liquidations
    and prices to go down. I think those downward trends are
    beginning to turn, and the recovery could be very sharp over
    the next couple of years. But that is a conclusion, I think,
    that very much depends on what is going to happen with forage
    and range conditions.
        You, Mr. Chairman, probably know as well as anyone the
    hurdle that livestock producers face because in looking at the
    current drought monitor, I see that Utah remains the only State
    in the Nation where every single county is either in extreme or
    exceptional drought. And so that is a hurdle for livestock
    producers in battling back.
        With cattle and hog inventories down and poultry output
    being cut back, we think that meat production will be lower in
    2003. We think it will be lower again in 2004. And that is
    going to push prices of cattle, hogs, and broilers up probably
    10 to 15 percent this year, and up again next year, and we
    could possibly see a record high cattle price in 2004.
        Dairy remains our most unbalanced sector. We have weak
    demand. We have dairy product stocks at record highs. We have
    prices at 20-year lows. Our programs, however, I think have
    been stabilizing. We are regularly buying cheese, butter, and
    nonfat dry milk, and so far, since the program started, we have
    spent about $1.3 billion in the Milk Income Loss Contract
    Program.
        Summing up, for 2003, net cash farm income is expected to
    be up about 11 percent as market receipts grow, Government
    payments rise. Excluding Government payments, market income
    will be flat, and I think that reflects a sharp increase in
    production expenses. We are seeing prices for key input items
    up, feeder cattle, fertilizer, and energy-based inputs.
        Farmland values remain strong. We think when the final data
    come in, they will be up 4 percent for 2002. We are predicting
    1.5 percent for 2003. And I think the higher asset values are
    keeping the farm balance sheet in reasonably good shape.
        The performance of the non-farm economy is also crucial for
    farm households since three out of four farm households earn
    the majority of their income off the farm.

                               PREPARED STATEMENT

        It is now a way of life for farms to be under pressure
    daily to raise productivity, to adopt new technology, to lower
    their production costs, to farm sustainably, to raise product
    quality, and to respond to consumer tastes and preferences. And
    I think as they do these things, they are going to need more
    than ever USDA's commodity, conservation, rural development,
    and research programs.
        And, with that, that completes my comments, Mr. Chairman.
        [The statement follows:]

                      Prepared Statement of Keith Collins

        Mr. Chairman and members of the Committee, I appreciate the
    opportunity to appear at this hearing to discuss the current situation
    and outlook for U.S. agriculture. In general the agricultural sector
    should show improvement this year after several years of low prices.
    However, recovery is expected to be slow and uneven, with some sectors
    such as dairy continuing to lag.

    Outlook for United States and World Economies and the Implications for
            Agriculture
        Macroeconomic factors, such as the exchange value of the dollar and
    slow economic growth around the world, have constrained demand for U.S.
    agricultural products and farm prices and will continue to do so over
    the next year or more.
        The past 2 years have been disappointing as far as the U.S. economy
    goes. We have been continually pushing out into the future the expected
    rebound. Six months ago, the blue chip economists' forecast of U.S.
    Gross Domestic Product (GDP) growth for 2003 was 3.5 percent. Now, it
    is 2.4 percent, the same as last year's growth rate. The U.S. economy
    in 2003 will face some of the same restraints it faced in 2002: excess
    capacity, low returns in many sectors, high consumer and business debt,
    low consumer confidence, high unemployment, and weak growth in Japan
    and Europe.
        But on the positive side: interest rates are low; liquidity is
    substantial; consumer confidence is rising; oil prices have declined;
    and fiscal policy is expansionary and may get more so with enactment of
    a growth package that cuts taxes or provides other stimulus.
    Unfortunately, though, we do not foresee stronger economic growth for
    the United States, such as in the 3 to 3.5 percent range, until 2004,
    and unemployment remains high.
        When the U.S. economy is very weak, as in the recessions in 1991
    and 2001, growth in food consumption slows. It did pick up in 2002, but
    was still not very strong, rising only 1.7 percent, which is half the
    rate of growth in 1999, when the economy was stronger and consumers
    were more confident. With the economy likely to show limited growth
    this year, we can expect food spending to be similar to last year,
    perhaps slightly stronger.
        Consumer spending at grocery stores in 2002 also grew slowly,
    rising 1.5 percent. However, sales were up 2.5 percent during the first
    quarter of 2003, compared with a year earlier. As the U.S. economy
    eventually starts growing faster, the farm economy will benefit from
    stronger domestic food sales. As we look to the future, we can expect
    American consumers to continue to shift their consumption patterns as
    factors like income, population diversity, age, diet and health
    awareness drive change. Per capita consumption for such foods as
    fruits, vegetables, yogurt, eggs, poultry, grains, and nuts are likely
    to grow, while milk, red meats and potatoes may face declines.
        World economic growth continues to be slow. Global GDP is forecast
    at only 2.0 percent in 2003, similar to last year's 1.9 percent. While
    mild U.S. growth will restrain overall foreign growth, growth for most
    of our trading partners, with the exception of Japan and the European
    Union, is expected to be moderate. Economic growth in Asia is forecast
    at 5.4 percent in 2003, down slightly from the 5.8 percent growth in
    2002. Mexico's GDP is expected to continue its slow recovery, with 2003
    growth forecast at 3.0 percent. Likewise, Brazil and Argentina should
    see positive growth this year after the sharp devaluations and
    recessions in 2002.
        Despite the weak global economy, the value of U.S. agricultural
    exports is forecast to reach $57 billion in fiscal 2003, the fourth
    consecutive annual increase. We are within striking distance of the
    record $60 billion achieved in fiscal 1996. Much of the increase is due
    to stronger farm prices rather than volume gains. The value of
    agricultural imports has also risen during that same period, but so has
    our agricultural trade surplus.
        Although the dollar remains relatively strong, especially against
    Latin American currencies, it has depreciated against the euro,
    Canadian dollar, and the yen. On a weighted-average basis, against the
    currencies of our major markets, the dollar has fallen steadily since
    early 2002. Although no precipitous drop in the dollar is anticipated,
    we are likely to see a slow decline against major currencies over the
    rest of the year and into 2004. The United States is running a record
    current account deficit, which requires financing from overseas.
    However, the combination of low real interest rates in the United
    States and a listless economy is unlikely to attract foreign
    investment. Thus, for the moment, the fundamental direction for the
    dollar has to be down. This is good news for export prospects.
        USDA released its long term baseline projections on February 7th.
    They suggest some of the export pressures and opportunities U.S.
    farmers may face in the future. Exports are seen rising to the 1996
    record of $60 billion by 2005 and then to nearly $72 billion by 2010.
    But the projected growth is all in intermediate and consumer ready
    products. By contrast, bulk commodities are expected to face continued
    very strong competition. For many of the bulk products, their best
    entry into export growth markets will be in value-added and processed
    form, such as feed grains and protein meals exported as meat.

    Outlook for Major Crops
        Weather remains the dominant factor shaping the near-term outlook.
    Drought in key areas in 2002, notably in Australia, Canada, and the
    United States, depleted crop supplies in traditional exporting
    countries, and drought in Africa expanded global food aid needs.
    Weather raised many U.S. crop prices, and these higher prices are
    carrying into the first half of 2003. However, a rebound in yields and
    strong competition especially from traditional competitors will likely
    cause a pull back in prices. The major uncertainty in this conclusion
    is the ongoing drought in the west, although precipitation has helped
    in recent weeks.
        Wheat plantings for 2003/2004 are estimated at 61.7 million acres,
    up 1.3 million (2 percent) from 2002, as gains in winter wheat more
    than offset lower spring wheat plantings. Winter wheat seedings are 6
    percent above last year, with most of the increase in hard red winter
    (HRW). Soft red winter (SRW) plantings are down as prolonged wet
    conditions resulted in reduced seedings in parts of the Delta,
    Southeast, and Atlantic Coast and offset gains in the Midwest. Farmers
    indicated in March that they plan to plant 7 percent less land to other
    spring wheat and 3 percent fewer durum acres than in 2002.
        Wheat prices are down sharply from the highs of last fall and
    alternative crops are offering better returns than spring wheat. For
    example, contract prices for malting barley are up sharply from last
    year, due to drought-reduced supplies in the United States and Canada.
        While wheat planted area looks like it will expand less than
    previously expected, wheat production is forecast up more than 30
    percent from last year's unusually poor crop. Harvested acres are
    forecast up 6.9 million acres (15 percent) and yields up 4.8 bushels
    per acre (14 percent). If this projection materializes, larger
    production would more than offset the smallest carryin stocks since
    1996/1997, leaving 2003/2004 supplies almost 185 million bushels above
    2002/2003.
        Food use likely will increase, but at a rate less than population
    growth due to changes in diets and baking technology that have extended
    the shelf life of bakery products. Feed and residual use, forecast at
    175 million bushels, will be up sharply from the unusually small 125
    million bushels in 2002/2003. Reduced wheat prices, especially during
    harvest, will promote the use of wheat for feeding. Hog and poultry
    feeders in the Southeast and Atlantic Coast areas and cattle and hogs
    feeders in the Plains likely will see relatively high prices for corn
    during the early summer. These areas had poor corn and sorghum crops in
    2002 and will have to bear the cost of transporting feed corn from a
    greater distance than usual.
        U.S. 2003/2004 wheat exports are estimated at 950 million bushels,
    an 8.6 percent increase over 2002/2003 levels. The United States will
    face increased competition from expanding production in the major
    foreign exporters, especially Australia and Canada, and declining
    competition from Russia, Ukraine, and Eastern Europe.
        Total wheat use in 2003/2004 is expected to increase about the same
    as supplies, leaving ending stocks little changed from a year earlier.
    Prices received by farmers are expected to average $3.05 to $3.65 per
    bushel, compared with $3.56 in 2002/2003. Large U.S. winter wheat
    supplies, declining global imports, and sharply expanding production in
    Australia and Canada will provide little opportunity for prices to
    rebound as the year progresses. However, if crops in the major foreign
    exporters do not rebound strongly from 2002/2003, U.S. prices will rise
    sharply to ration limited supplies, because the ``minor'' exporters
    will not have the supplies available to step in and meet market needs,
    as they did this past year.
        U.S. rice producers intend to plant 3.0 million acres in 2003, down
    6 percent from last year, and a decline of 8 percent from the preceding
    5-year average. Planted area in long-grain rice is down 9 percent from
    last year, while combined medium-and short-grain plantings are up 5
    percent. Poor market prices is the primary reason for the decline in
    expected plantings. The recent strengthening of U.S. prices due in part
    to anticipated significant food aid purchases destined for Iraq could
    offset some of the expected decline in planted acres.
        Assuming trend yields, U.S. rice production in 2003/2004 is
    expected to be down about 5 percent from last year's bumper crop.
    Average rice yields have jumped higher in the last several years due to
    the introduction of higher-yielding long-grain varieties in the South.
    Production of long grain rice is expected to be down about 9 percent
    from 2002/2003, while combined medium- and short-grain rice production
    will be up fractionally. Domestic and residual use is expected to be up
    slightly and on trend, while U.S. exports are expected to be down 26
    percent from record 2002/2003 levels because of reduced supplies and
    keen international competition. Ending stocks are expected to total
    22.1 million cwt, about the same as 2002/2003. The season-average price
    is expected to be $1.10 per cwt higher than 2002/2003 due to tighter
    domestic supplies.
        Global rice trade for calendar year 2003 is projected to contract
    slightly with global rice prices below the levels of the 1990s. For
    example, Thai 100b long grain milled rice was quoted at about $209 per
    ton as of early April compared to $194 per ton a year ago and $276 per
    ton 2 years ago. In 2002, India subsidized the majority of its exports
    in an effort to reduce burdensome stocks thereby pressuring rice
    prices. India is currently reviewing its export policy for 2003 and may
    decide to reduce the level of export subsidies as its stocks are worked
    down.
        In 2003, Thailand will continue to be the world's predominant
    exporter with exports projected at 7.5 million tons, 4 percent above
    2002. The other top exporters will include Vietnam and India at 4.0
    million tons each, followed by the United States at 3.4 million tons
    and China at 2.25 million tons. Indonesia is projected to be the
    largest importer with imports of 3.25 million projected for 2003, 7
    percent below 2002. Other large importers include Nigeria at 1.5
    million tons, Iran at 1.25 million tons, and the Philippines at 1.2
    million tons.
        In March, U.S. corn farmers indicated they will plant marginally
    fewer acres to corn than the 79.1 million seeded in 2002 and well below
    industry expectations for a 1 to 2 million acre increase. The expected
    expansion in corn acres may not occur because of lower acres in the
    Great Plains, where lack of irrigation water, concerns about high
    energy prices, and lack of soil moisture reserves changed farmers'
    intentions. Corn harvested acreage for grain is forecast at 72 million
    acres and yield is forecast at 139.7 bushels per acre, based on a
    simple linear trend over crop years 1960-2001 and is well above the 130
    bushels per acre in 2002 and the 1994 record of 138.6. Thus, corn
    production is forecast at 10.1 billion bushels, up more than 1 billion
    from 2002. However, reduced carryin stocks will be partially offsetting
    and total supplies are projected at 11.1 billion bushels, up around 510
    million from 2002/2003.
        Projected 2003/2004 corn feed and residual use is down slightly
    from a year earlier, but food, seed, and industrial use is expected to
    increase 4 percent, following a 11-percent gain in 2002/2003. While
    most uses are expected to show little change, corn used for ethanol
    production is projected to increase 8 percent from the rapidly
    expanding levels of 2002/2003.
        The global setting for feed grain trade in 2003/2004 is more
    favorable than that for wheat, but U.S. corn exports will continue to
    face strong competition from corn from Argentina and China and feed
    wheat from India and the Black Sea region. However, an expected 20-
    cents-per-bushel drop in the U.S. farm price of corn will make U.S.
    corn more competitive. China's corn exports continue to be the biggest
    unknown. Corn plantings in China are expected to decline as some
    producers switch to soybeans in response to various Government
    incentives and a reduced protection price for corn. However, the volume
    of China's corn exports will continue to largely depend on the level of
    Government export incentives. U.S. corn exports are projected at 1,850
    million bushels, up 225 million from the 2002/2003 forecast.
        Corn ending stocks for 2003/2004 are projected at 1,304 million
    bushels, a rise of less than 250 million from the forecast 2002/2003
    level. The projected farm price of $1.90 to $2.30 compares with a
    forecast price of $2.30 for 2002/2003.
        Soybean production in 2002/2003 was 2.7 billion bushels, down about
    5 percent from the record level achieved a year earlier. Despite
    reduced total use, ending stocks are projected to decline to 145
    million bushels, the lowest since 1996/97. At these levels, the soybean
    stocks-to-use ratio is the lowest in 30 years. Before the dramatic
    expansion of soybean production in South America in recent years,
    stocks at these levels would have been associated with much higher
    prices. However, with soybean production in South America significantly
    exceeding that of the United States, farm level prices are likely to
    average only $5.50 per bushel.
        Soybean producers in March indicated intentions to plant 73.2
    million acres for 2003, down 0.6 million acres from 2002. If realized,
    soybean acreage would decline for the third consecutive year. Although
    net returns and crop rotations favor a shift toward corn this year as
    evidenced by the intentions of producers in the Eastern Corn Belt,
    producers in the Northern Plains are planning to further expand soybean
    acreage, a trend that began in the mid 1990's. With a return to trend
    yields, production is expected to reach 2.9 billion bushels, up 4
    percent from 2002.
        Domestic soybean meal demand is projected to grow at a moderate 1-2
    percent, limited by slow expansion in poultry and hog production and
    increased availability of other protein meals. With large competitor
    supplies of soybeans, soybean meal exports are likely to remain
    relatively weak as well. Soybean meal prices are projected to decline 6
    percent from 2002/2003 levels.
        Much of the world's 2003/2004 soybean demand growth will come from
    China and other Asian markets. Demand is also rising in Latin America,
    the Middle East and North Africa. In 2002/2003, China is forecast to
    import a record 16.5 million tons, exceeding its domestic soybean
    production for the first time. U.S. exports to China will reach record
    levels in 2002/2003. However, record South American soybean crops will
    leave world supplies high in the fall of 2003, and likely will limit
    export growth for the United States for both soybeans and soybean meal.
    Consequently, U.S. soybean exports are projected to decline about 5
    percent in 2003/2004. With larger supplies and limited demand growth
    for U.S. soybeans, ending stocks are expected to increase to above 200
    million bushels for 2003/2004. With higher stocks and continued
    prospects for larger foreign soybean production, soybean prices are
    projected to drop below $5.00 per bushel for the 2003/2004 marketing
    year.
        Cotton production for 2002/2003 was 17.2 million bales, a reduction
    of 15 percent from the preceding year's record. Domestic mill use has
    stabilized after a 13-percent drop in 2001/2002 and is forecast at 7.6
    million bales. Lower foreign production and higher foreign consumption
    are supporting exports at a level near last season's 11.0 million
    bales--the current forecast is 10.8 million bales. With total use
    approaching that of last season, ending stocks are expected to fall 17
    percent to 6.3 million bales. The reduction in stocks, combined with
    higher world prices, has raised farm prices more than 40 percent from
    last season's 29-year low.
        Cotton producers intend to plant 14.3 million acres in 2003, 2
    percent more than last year. While cotton prices have risen, so have
    prices for alternative crops. The small increase in area is primarily a
    result of a more certain environment following passage of the 2002 farm
    bill. With average abandonment and yields, production would be about
    the same as 2002's 17.2 million bales. Domestic mill use is likely to
    stabilize or fall slightly in 2003/2004, as U.S. mills continue to have
    difficulty competing with textile imports. Exports, however, could rise
    to a record 11.5 million bales. If these forecasts are realized, stocks
    would be drawn down to about 4.7 million bales, which is a relatively
    tight 25 percent of total use, and cotton prices would likely continue
    to rise.
        World cotton stocks are forecast to fall to 36.6 million bales at
    the end of 2002/2003, their lowest level since 1994/1995. A combination
    of lower area and unfavorable weather cut world production more than 10
    percent; at the same time, demand has probably has been helped by low
    cotton prices vis-a-vis polyester. While global cotton production is
    likely to rebound in 2003/2004 in response to higher prices, it will be
    difficult to offset the reduction in stocks experienced in 2002/2003
    and, at the same time, satisfy further increases in demand. Therefore,
    world stocks are anticipated to remain tight through the 2003/2004
    season.
        U.S. sugar production in 2003/2004 likely will increase, assuming
    average weather, following last year's damaging storms in Louisiana and
    below-average sugarbeet yields in many northern States. However, if
    sugar consumption returns to near-normal growth, supplies likely will
    not be burdensome to producers. A major uncertainty in the near future
    is how to accommodate a completely integrated North American sweetener
    market, as will happen by 2008 under the North American Free Trade
    Agreement. Additional uncertainties could develop in the next round of
    WTO trade talks, and as the United States works toward bilateral and
    regional free trade agreements.
        The outlook for U.S. sugar markets largely will be driven by the
    sugar program. At present, marketing allotments are being used to
    prevent sugar loan forfeitures and maintain the program at no cost to
    the taxpayer, as directed by the 2002 Farm Bill. Allotments have been
    in effect since October 2002, and raw sugar prices have averaged 22
    cents per pound while refined sugar has averaged 27 cents per pound. As
    long as sugar imports do not exceed the legislated trigger, marketing
    allotments will remain in place and prices likely will continue at
    these levels.
        At $11.3 billion forecast for 2002/2003, horticultural exports
    account for 20 percent of total agricultural exports and a significant
    portion of horticultural farm sales. Reduced growth rates began with
    the Asian financial crisis and continued with stagnating prospects in
    the European Union. While fresh citrus, processed fruits and
    vegetables, wine, and nursery/greenhouse products have stabilized,
    prospects have been stronger for fresh vegetables and deciduous fruits,
    tree nuts, and juices.
        The outlook for horticultural crops is a return to trend growth in
    farm sales, following a strong performance in 2002/2003. Fruit and
    vegetable farmers earned $28.4 billion from the 2002 harvest, up $1.6
    billion and well above trend growth. The increase resulted from higher
    output and prices. Fruits and vegetables, which have accounted for 30
    percent of all horticultural crop values in recent years, are sharply
    up from a 22-percent share for 1996. In addition, greenhouse/nursery
    crop sales likely will top $14 billion in 2003, increasing $600 million
    following flat growth in 2002. Export growth, however, has slowed to
    only $200 million annually during the last 5 years, much lower than
    $700 million yearly growth leading up to 1997.

    Outlook for Livestock, Poultry and Dairy
        The livestock, poultry, and dairy sectors experienced a stressful
    year in 2002 as weather, disease, trade disruptions, record production,
    and low prices affected markets. Price prospects for the livestock and
    poultry sectors are much improved for 2003, but the outlook for the
    dairy sector remains guarded.
        Commercial beef production in 2002 reached a record 27.1 billion
    pounds as drought conditions caused producers to continue to reduce
    their herds. With record beef production, as well as record pork and
    broiler production, Choice Nebraska steer prices fell nearly 8 percent
    to $67.04 per cwt.
        U.S. commercial beef production is forecast at 26.2 billion pounds
    in 2003, 3.2 percent lower than in 2002. After wheat grazed cattle are
    placed in feedlots this spring, feeder cattle supplies are expected to
    tighten, especially if forage conditions improve, enabling producers to
    hold back heifers for herd rebuilding. Cattle slaughter is expected to
    decline year-over-year during the second half of the year, ending 3.5
    percent lower. Choice Nebraska steer prices in 2003 are forecast to be
    $76 per cwt, an increase of 14 percent from 2002. Firm beef demand and
    tighter cattle supplies pushed prices to about $78 per cwt in the first
    quarter of this year. After a seasonal decline during the spring, steer
    prices will then increase to the upper $70's per cwt.
        Beef exports in 2002 rebounded from the BSE-reduced import demand
    of 2001. Although sales were weak to Japan, U.S. exports to Mexico and
    Korea reached record levels. In 2003, beef exports are forecast to be
    about the same as in 2002 as Japan remains weak and tighter supplies
    limit growth but then rise 3-4 percent in 2004 as the world economy
    improves.
        Herd liquidation continued for the seventh consecutive year in
    2002. The cattle herd on January 1, 2003, was 96.1 million head, about
    1 percent lower than a year earlier. Herd expansion is not expected
    this year as most heifers retained this year will not calf until 2004.
    Signs of heifer retention likely will appear by late May or early June
    as producers finalize retention decisions. For 2004, another decline in
    beef production is expected and fed cattle prices could reach record
    high levels.
        In 2002, pork production increased 2.7 percent to a record 19.7
    billion pounds. Hog imports from Canada climbed to more than 5.7
    million head last year, and 66 percent of the imports were feeder pigs
    mainly destined for finishing operations in the Midwest. Increased pork
    supplies last year resulted in an average hog price of about $35 per
    cwt, nearly $11 below the previous year's price.
        Given last year's price weakness, the industry appears not to be
    expanding in 2003. Beginning with the 4th quarter of 2002 and
    continuing into 1st quarter 2003, producers reduced the number of sows
    farrowed by about 2.5 percent. Producers also indicated they intend to
    farrow 3 percent fewer sows through August 2003. This would result in a
    smaller pig crop and fewer hogs to slaughter in 2003 and into 2004.
    Consequently, pork production is forecast at 19.5 billion pounds in
    2003, 1 percent lower than in 2002, with another 1 percent drop in
    2004. Hog prices are forecast at $38-$39 per cwt in 2003, up 9-12
    percent over 2002, with a further price increase in 2004 into the low
    $40's per cwt.
        Pork exports increased 3.5 percent in 2002, due to rising shipments
    to Japan and Korea. In 2003, exports are forecast to increase nearly 3
    percent and another 2 percent in 2004.
        Whole-bird broiler prices dropped 6 percent to 55.6 cents in 2002.
    Parts prices were even weaker as the broiler sector, which exported
    nearly 18 percent of production in 2001, was hit with trade disruptions
    caused by disease outbreaks and trade disagreements with Russia over
    antibiotic use and processing plant inspections. Northeast leg quarter
    prices were 28 percent lower in 2002 than in 2001. Meat that could not
    be exported led to burdensome broiler stocks which weighed on other
    prices. In response to the price weakness last year, broiler producers
    began to scale back production in the fall of 2002. Hatchery data
    indicates that eggs set in incubators and chicks placed on feed have
    been below year ago levels since last September, except for 1 week.
        As a result of these cutbacks, broiler production in 2003 is
    forecast to increase just 0.2 percent, the smallest year-to-year
    increase since the early 1970's. Higher prices may result in production
    increases beginning in the later part of the year and continue into
    2004 when a 1 percent increase is projected. Broiler prices in 2003 are
    forecast at 60-62 cents per pound, up 8-12 percent, and the highest
    average price since 1998, and hold there in 2004.
        Broiler exports fell nearly 14 percent in 2002 because of disease
    outbreaks and a Russian ban on poultry imports. Exports in 2003 are
    forecast at 5.0 billion pounds, 4 percent higher than last year. In an
    attempt to stimulate domestic production, Russia imposed a 1.05-
    million-ton quota on poultry imports for the next 3 years. The quota
    goes into effect at the beginning of May, and the quota quantity is
    prorated at 744,000 tons for 2003. The United States was allocated
    553,500 tons under the quota in 2003. Under this scenario, the United
    States will not export to Russia much more than levels from a year ago
    because of trade uncertainties early in the year and the quota
    limitations beyond April.
        In 2002, milk production increased 2.5 percent to 169.8 billion
    pounds. Output per cow gained more than 2 percent and the number of
    milk cows were slightly higher as producers responded to the high
    prices of 2001. However, in the face of expanded production and slowing
    demand, the all-milk price fell to $12.11 per cwt, 19 percent below a
    year earlier. Prices for butter, cheese, and nonfat dry milk (NDM) were
    considerably weaker in 2002 as fat basis commercial use languished at
    just 0.5 percent above 2001 and skim-solids use declined. With
    increased milk production and weaker commercial use in 2002, Commodity
    Credit Corporation (CCC) purchases of nonfat dry milk were 66 percent
    higher than in 2001, and cheese purchases were 4 times the level of the
    previous year.
        For 2003, the all-milk price is expected to drop around 7 percent
    to $11.10-11.60 per cwt. Milk production is forecast to increase 1
    percent to 171.4 billion pounds on continued gains in output per cow.
    Although beginning the year fractionally above 2002, cow numbers are
    expected to drop slightly this year. Cow numbers have remained higher
    than expected because exits from the dairy industry have been slower
    than anticipated over the past year. The Milk Income Loss Contract
    program likely has provided many producers with a cushion against low
    milk prices. Commercial use is expected to increase about 2 percent in
    2003 but not enough to boost prices given the abundant supply of milk
    and stored products. As a result, CCC purchases of butter, cheese, and
    NDM are expected to remain substantial.
    Farm Income Outlook
        The U.S. farm economy was under financial stress in 2002, but it is
    on an improving footing in early 2003. Some producers, especially those
    affected by weather, do face serious problems. However, because of
    structural diversity and preventive steps, most in agriculture are
    enduring. While prospects for 2003 look stronger for many producers, a
    boom is not in sight.
        In 2002, farm cash receipts for crops rose slightly, but livestock
    receipts fell $10.5 billion as prices fell sharply under the big,
    drought-driven increase in meat production and slower meat exports and
    lower milk prices. Another factor affecting farm income was the slow
    pace of farm program signup, which resulted in $4 billion in government
    payments being shifted from the fall of 2002 into 2003. These factors
    combined to reduce farm income in 2002 quite sharply and cause it to
    drop below the levels we forecast a year ago. Net farm income, which
    includes noncash items such as depreciation and inventory change, fell
    29 percent in 2002 from the 2001 level. Net cash farm income, which is
    gross cash income minus total cash expenses, fell 22 percent.
        In 2002, net cash income, the income an operator has left over to
    pay living expenses, capital costs and service debt, was at its lowest
    level since the mid 1980s. The big drop indicates many producers faced
    tight budget constraints in 2002, particularly those in weather-
    affected areas. Income declines occurred in all regions and were
    especially pronounced for hog and dairy operations. This continues to
    pressure input markets such as machinery sales. Many bankers tightened
    collateral requirements as their unease grew during 2002. On the other
    hand, loan delinquencies have been modest, farm interest rates remain
    low, and banks remain in sound condition with ample loanable funds.
        Several factors contribute to the economic resiliency of many farm
    households. First, three out of four farm households earn the majority
    of their income from off-the-farm sources. This reduces the impact of
    farm income changes--either up or down--on their well being. Second,
    the farms most dependent on farm income are the 10 percent of farms
    that produce two-thirds of the output and receive the bulk of U.S.
    agricultural support. These farms, on average, have household incomes
    that are well above the national average and remained so in 2002.
    Third, the value of farm assets continues to grow, giving some
    financially stressed producers a chance to weather a down period by
    selling some assets or borrowing against them.
        For 2003, net cash farm income is expected to rebound by 11 percent
    to over $51 billion, as both crop and livestock receipts grow and
    government payments rise. If government payments are excluded, net
    income from the market is expected to be little changed, as farm
    production expenses rise reflecting higher feed and feeder cattle costs
    and higher energy and fertilizer expenses. Farmland values remain
    strong, rising an estimated 4 percent in 2002, but are expected to rise
    at a slower 1.5 percent in 2003, reflecting the reduced cash income in
    2002 and restrained market income expectations in 2003. For 2003, with
    slow growth in asset values but another boost in debt levels, the farm
    debt-to-asset ratio is forecast to move up to 16 percent a still
    healthy figure but the highest since 1998.
        As always, these observations about the farm economy must be
    weighed in light of a number of uncertainties. There are many: the
    aftermath of the war in Iraq and its uncertainties; the global economy,
    its pace of recovery, the influence of uncertain factors such as SARS
    and the behavior of exchange rates; foreign nations' farm and trade
    policies, especially China for crop imports and exports, and places
    like Russia and Japan for meat imports; and finally, the weather, here
    as well as abroad.

                                                                                FARM ECONOMIC INDICATORS COMMODITY PRICES
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Unit                   1997/1998       1998/1999       1999/2000       2000/2001       2001/2002       2002/2003       2003/2004
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Commodity Prices:
        Wheat.....................................  $/bu............................            3.38            2.65            2.48            2.62            2.78            3.56            3.35
        Corn......................................  $/bu............................            2.43            1.94            1.82            1.85            1.97            2.30            2.10
        Soybeans..................................  $/bu............................            6.47            4.93            4.63            4.54            4.38            5.50            4.95
        Rice......................................  $/cwt...........................            9.70            8.89            5.93            5.61            4.25            4.15            5.25
        Cotton....................................  cents/lb........................           65.20           60.20           45.00            49.8            29.8        \1\ 42.5  ..............
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\ August through March average.

                                                                                FARM ECONOMIC INDICATORS COMMODITY PRICES
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Unit                     1998            1999            2000            2001            2002            2003            2004
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Commodity Prices:
        Hogs......................................  $/cwt...........................           34.72           34.00           44.70           45.81           34.92           38.50           42.50
        Steers....................................  $/cwt...........................           61.48           65.56           69.65           72.71           67.04           76.50           80.50
        Broilers..................................  cents/lb........................           63.00           58.10           56.20           59.10           55.60           61.00           60.50
        Milk......................................  $/cwt...........................           15.46           14.38           12.40           14.97           12.12           11.35           11.65
        Gasoline \1\..............................  $/gallon........................            1.07            1.18            1.53            1.47            1.39            1.56            1.43
        Diesel \1\................................  $/gallon........................            1.04            1.12            1.49            1.40            1.32            1.53            1.38
        Natural gas (wellhead) \1\................  $per1,000 cubic ft..............            1.96            2.19            3.69            4.12            2.95            4.52            3.95
        Electricity \2\...........................  $/kwh...........................            8.26            8.16            8.24            8.48            8.41            8.52            8.37
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\ Source: Energy Information Administration, Short Term Energy Outlook, April 2003.

                                                                                     FARM ECONOMIC INDICATORS TRADE
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                Fiscal Year
                                                                     -------------------------------------------------------------------------------------------------------------------------------
                                                                           1997            1998            1999            2000            2001            2002            2003            2004
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Agricultural Trade (Billion $):
        Total exports...............................................            57.4            53.6            49.1            50.7            52.7            53.3            57.0              NA
                                                                     ===============================================================================================================================
        Asia........................................................            23.9            19.7            18.5            19.7            20.1            19.4            20.9              NA
        Canada......................................................             6.6             7.0             7.0             7.5             8.0             8.6             9.1              NA
        Mexico......................................................             5.1             6.0             5.7             6.3             7.3             7.1             7.9              NA
                                                                     -------------------------------------------------------------------------------------------------------------------------------
          Total imports.............................................            35.7            36.8            37.3            38.9            39.0            41.0            43.0              NA
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

                                                                                  FARM ECONOMIC INDICATORS FARM INCOME
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                Fiscal year
                                                                     -------------------------------------------------------------------------------------------------------------------------------
                                                                           1997            1998            1999            2000            2001            2002            2003            2004
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Farm Income (Billion $):
        Cash receipts...............................................           207.6           195.8           187.5           193.7           202.8           193.5           200.5              NA
        Govt payments...............................................             7.5            12.4            21.5            22.9            20.7            13.1            17.6              NA
        Gross cash income...........................................           227.3           222.2           224.0           230.4           238.5           222.5           234.9              NA
        Cash expenses...............................................           168.7           167.4           166.9           172.0           178.8           176.2           183.6              NA
        Net cash income.............................................            58.5            54.8            57.1            58.4            59.7            46.3            51.3              NA
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

        Senator Bennett. Thank you very much.
        Our next witness will be Dr. J.B. Penn, who is the Under
    Secretary for Farm and Foreign Agricultural Services. Dr. Penn?

                     FARM AND FOREIGN AGRICULTURAL SERVICES

        Dr. Penn. Thank you, Mr. Chairman. It is a pleasure to be
    with you this morning, and I am pleased that you chose to
    describe us as ``Unders'' rather than ``lessers.''
        As you know, I represent the Farm and Foreign Agricultural
    Service mission area of the Department, and that encompasses
    the Foreign Agricultural Service, the Farm Service Agency, and
    the Risk Management Agency, and the administrators of those
    agencies are with us this morning.
        The programs and services of the Farm and Foreign
    Agricultural Services mission area are central to the
    Department's efforts to meet the challenges of agriculture in
    the 21st century and to enhance economic opportunity for
    America's farmers. The agencies of our mission area were very
    heavily involved in major activities related to the farm
    economy during the past year. As you know, the Farm Bill was
    enacted last May, and we immediately undertook the massive task
    of ensuring timely and effective implementation of that program
    and ensuring that we got the benefits to the agricultural
    sector on time.
        As Dr. Collins noted, severe drought affected major parts
    of the country, and our risk management resources were taxed to
    meet the failure of the Nation's largest crop insurance company
    last year. And now we are very heavily involved in the task of
    implementing the Emergency Disaster Assistance Program, which
    was enacted on February 20th.
        Now, at the same time all of those things were going on,
    the workload associated with the very ambitious international
    trade negotiation agenda has increased, and we are spending
    more and more time maintaining the existing markets that we
    have while the trade enforcement responsibilities also continue
    to grow.
        The 2004 budget proposals that we are discussing today
    fully support continuation of all of these activities and
    ensure our continued efforts on behalf of America's
    agricultural producers.

                              FARM SERVICE AGENCY

        I want to first briefly note the Farm Service Agency. That
    is USDA's primary vehicle for delivering assistance, and it is
    the one with which farmers and ranchers interact the most
    frequently. Because of FSA's important role in operating the
    farm programs, our budget proposal places a priority on
    enhancing the agency's ability to continue to assist our
    producers. We propose a 2004 program level for FSA salaries and
    expenses of $1.3 billion to support a ceiling of 5,900 Federal
    staff years and 10,800 non-Federal county staff years.
        We also continue to strive to modernize our services. One
    important effort is the initiative to put the Geospatial
    Information System in place to replace hard-copy paper maps and
    data files with an integrated digital system. The GIS will
    enable producers and our service center agencies to
    electronically share and process information on farm records,
    soils, and aerial photography in ways that we believe will
    dramatically improve efficiency.
        The President's budget proposes $42 million under the
    Office of the Chief Information Officer for FSA's component of
    the common computing environment to support this GIS and
    related activities.
        Now, the Farm Service Agency also plays a critical role by
    providing a variety of direct loans and loan guarantees to farm
    families who would otherwise be unable to obtain the credit
    they need to continue their farming operations. By law, a
    substantial portion of the direct loan funds are reserved each
    year for assistance to beginning, limited-resource, and
    socially disadvantaged farmers and ranchers. And our budget
    proposal includes funding for $850 million in direct loans and
    $2.7 billion in loan guarantees, and we believe these amounts
    will be sufficient to meet the demand in 2004.
        Now, for emergency disaster loans, our carryover funding
    from 2003 is expected to provide sufficient credit in 2004 to
    those producers whose farming operations have been damaged by
    natural disasters.

                             RISK MANAGEMENT AGENCY

        Now, very briefly, the Risk Management Agency. The Federal
    crop insurance program, as you know, is an increasingly
    important part of the safety net available to our agricultural
    producers. In 2002, crop insurance provided $37 billion in
    protection on 215 million acres. That is 4 million acres more
    insured last year than were insured in 2001. And because of the
    drought, we expect indemnity payments on the 2002 crops to
    exceed $4 billion, and that is well over $1 billion more than
    the indemnities for the 2001 crop.
        We are budgeting for slightly lower participation in 2004
    based on our latest estimates of planted acreage and expected
    market prices for the major agricultural crops.
        The 2004 budget requests an appropriation of such sums as
    necessary for the mandatory costs associated with the program,
    and this will provide resources to meet program expenses at
    whatever level of coverage the producers choose to elect.
        For salaries and expenses of the Risk Management Agency,
    $78 million in discretionary spending is proposed, and that is
    an increase of $7.8 million over the previous year.
        In addition, we have proposed nearly $9 million for
    information technology needs under the common computing
    environment. RMA's information technology is aging. The last
    major overhaul occurred more than 10 years ago, and this
    funding request under the common computing environment will
    provide for the needed improvements to RMA's existing
    information technology, and it will enable coordination and
    data sharing with the Farm Service Agency, a goal that all of
    us have long sought to achieve.

                          FOREIGN AGRICULTURAL SERVICE

        Let me finally turn very quickly to the Foreign
    Agricultural Service and the international activities of the
    Department. The importance of expanding international market
    opportunities for America's farmers and ranchers simply can't
    be overstated, so expanding market access is among our highest
    priorities for agriculture. We continue to pursue trade
    expansion efforts, as I noted. We are doing this on several
    fronts, negotiation of new trade agreements at the
    international level, the regional level, and the bilateral
    level, and the plan is that these will reduce barriers and
    expand access to critically needed overseas markets.
        Our trade policy activities, however, are not limited to
    only negotiating new agreements. We have stepped up our efforts
    to monitor compliance with existing agreements and then to
    ensure that our trade rights are protected. This past year, we
    worked hard to resolve important issues such as China's
    restriction on soybean imports, implementation of its WTO
    accession commitments. We worked on Russia's ban on U.S.
    poultry. And we have continuing difficulties with Mexico and
    the implementation of NAFTA, which continues to take a lot of
    our time.
        The Foreign Agricultural Service is the lead agency in the
    Department's international activities, and it leads our efforts
    to expand and preserve overseas markets. And I am pleased to
    say that this month marks the 50th anniversary of the Foreign
    Agricultural Service, a very important milestone for that
    agency and for USDA.
        The budget provides total appropriated funding for FAS of
    $145 million for 2004 and supports a number of important trade-
    related initiatives. We are proposing 20 additional staff years
    for our involvement in the trade negotiations and to bolster
    the rapidly growing market access constraints that are related
    to sanitary and phytosanitary provisions and to biotechnology.
        Finally, the 2004 budget requests additional funds for FAS
    for non-discretionary administrative requirements including pay
    cost increases, inflation, and higher payments to the U.S.
    Department of State for administrative services that they
    provide to us at overseas posts.
        Now, the United States also continues its commitment to
    alleviating hunger and improving food security in developing
    countries through the provision of food assistance. The
    proposed budget includes a total program level for U.S. foreign
    food assistance of nearly $1.6 billion. This includes $1.3
    billion for Public Law 480 Title I credit programs and Title II
    donations. And the budget also requests $50 million of
    appropriated funding for the McGovern-Dole International Food
    for Education and Child Nutrition Program. This is a new
    program that was included in the Farm Bill, and we hope to soon
    have those regulations in final form and to begin operation of
    that program.

                              PREPARED STATEMENTS

        Mr. Chairman, let me close by saying that this is a very
    modest but positive budget proposal. It provides the needed
    resources for the Farm and Foreign Agricultural Services
    mission area to continue the important work on behalf of all of
    our farmers and ranchers, and it supports some important
    investments to ensure that, as we look ahead, we can continue
    to provide those benefits in an effective and efficient manner.
        Thank you very much. That concludes my statement. Again, it
    is a pleasure to be with you today.
        [The statements follow:]

                        Prepared Statement of J.B. Penn

        Mr. Chairman and Members of the Committee, I am pleased to appear
    before you today to present the 2004 budget and program proposals for
    the Farm and Foreign Agricultural Services (FFAS) mission area of the
    Department of Agriculture (USDA). Accompanying me this morning are the
    Administrators of the three agencies within our mission area: James
    Little, Administrator of the Farm Service Agency; Ross Davidson, Jr.,
    Administrator of the Risk Management Agency; and Ellen Terpstra,
    Administrator of the Foreign Agricultural Service. We also have with us
    Kirk Miller, the Department's General Sales Manager, and Dennis Kaplan
    from the Office of Budget and Program Analysis.
        Statements by each of the Administrators providing details on the
    agencies' budget and program proposals for 2004 have already been
    submitted to the Committee. My statement will summarize those
    proposals, after which we will be pleased to respond to any questions
    you may have.
        Mr. Chairman, last February, Secretary Veneman released a new
    strategic plan that provides the framework for achieving the
    Department's policy and program objectives. One of the five primary
    goals established in the plan is to ``enhance economic opportunities
    for American agricultural producers''. The programs and services of the
    FFAS mission area are at the heart of the Department's efforts to
    respond to the challenges of the 21st century and enhance economic
    opportunities. Through the wide range of services provided by our
    agencies--price and income supports, farm credit assistance, risk
    management tools, conservation assistance, and trade expansion and
    export promotion programs--we provide the foundation for ensuring the
    future economic health and vitality of American agriculture.
        This past year, the FFAS agencies and programs were challenged by a
    number of significant developments to which they responded effectively.
    In May, the Farm Security and Rural Investment Act of 2002 (2002 Farm
    Bill) was enacted, and we undertook the massive task of ensuring timely
    and efficient implementation of this far-reaching and complex
    legislation. Sections of the United States experienced drought this
    past summer, and our risk management resources were taxed to meet the
    most pressing needs of drought-stressed producers. Now, we are
    undertaking the task of implementing the supplemental emergency
    disaster assistance provisions of the 2003 omnibus appropriations act.
    At the same time, the workload associated with our trade negotiation
    and enforcement responsibilities has continued to grow, and 2003 will
    be a critical year for negotiations aimed at further reducing trade
    barriers and opening new markets overseas.
        The 2004 budget proposals we are discussing today fully support
    continuation of these activities and ensure our continued efforts on
    behalf of America's agricultural producers. In particular, the budget
    supports the implementation of the domestic commodity and income
    support, conservation, trade, and related programs provided by the new
    Farm Bill. It fully funds our risk management and crop insurance
    activities. It supports the Administration's export expansion goals by
    providing a program level of $6 billion for the Department's
    international activities and programs. Also, it provides for the
    continued delivery of a large and complex set of farm and related
    assistance programs, while improving management and the delivery of
    those programs.

                              FARM SERVICE AGENCY

        The Farm Service Agency (FSA) is our frontline agency for
    delivering farm assistance and is the agency the majority of farmers
    and ranchers interact with most frequently. Producers come to FSA to
    participate in farm programs, including programs involving direct and
    countercyclical payments, commodity marketing assistance loans, loan
    deficiency payments, farm ownership and operating loans, disaster
    assistance, and conservation programs such as the Conservation Reserve
    Program (CRP). Because FSA plays a lead role in implementing provisions
    of the new Farm Bill, the budget places a priority on enhancing the
    ability of FSA to provide better service to our producers more
    efficiently.

    Farm Program Delivery
         The new Farm Bill signed in May 2002 required immediate action by
    FSA to formulate and put into effect a new set of programs for the 2002
    crops. With about 2.1 million farms eligible for the complex, new
    Direct and Counter-cyclical Payments Program, FSA faced major
    implementation challenges. Producers had until April 1, 2003, to
    contact their local FSA offices and update bases and yields, and have
    until June 2nd to finalize their contracts. Approximately 4 percent of
    our producers were required to schedule appointments after the April
    1st deadline to select their base and yield option because of the heavy
    workload in some of our busier offices. Those late appointments will be
    concluded by tomorrow, May 16th, at which time we are confident that
    everyone who wanted to update their bases and yields will have been
    provided the opportunity to do so. Approximately $4.3 billion in direct
    and counter-cyclical payments had been paid out as of April 25th, and
    payments have risen rapidly as signup has progressed. In addition, over
    $1.3 billion in Milk Income Loss Contract payments have been made to
    date to dairy producers, and about $1.2 billion in Peanut Quota Buyout
    payments have been made along with Apple Market Loss Assistance and
    other payments issued this fiscal year.
        Along with implementation of the provisions of the new farm bill,
    FSA continues to meet the challenges of simultaneously implementing
    provisions of the recently passed $3.1 billion Disaster Assistance
    package. In fact, FSA is currently making payments to producers signed
    up for the reauthorized Livestock Compensation Program; approximately
    $15 million in refunds under the Conservation Reserve Program Refund
    Program; and $10 million in grants to Texas farmers for water losses in
    the Rio Grande Valley. Sign-up for the $50 million Cottonseed Program
    began 2 weeks ago, with payments scheduled to begin at the end of June
    and, within a few days, FSA will begin disbursing payments for the $55
    million Tobacco Payment Program. On June 6th we will begin accepting
    applications for the $2.15 billion Crop Disaster Program and begin
    making payments by the end of June. We are also expediting $60 million
    in payments to sugarcane producers suffering from devastating hurricane
    losses, $1.7 million in assistance to New Mexico producers who incurred
    losses from pesticide applications, and $60 million in payments to
    sugar beet producers. A disaster assistance website with frequently
    asked questions and answers as well as input from farmers, ranchers,
    and industry organizations have ensured that the programs are
    implemented clearly and effectively.
        The magnitude and complexity of the programs being implemented will
    continue to reinforce the need to improve customer service efficiency
    in FSA and the other county-based conservation and rural development
    agencies. FSA will continue to face a substantial workload through
    2004, as new Farm Bill programs are implemented. As the initial work
    associated with commodity programs signup in 2003 moderates, the
    workload associated with supporting the expansion of the Farm Bill
    mandated conservation programs will rise in 2004 and beyond.
        The proposed 2004 program level for FSA salaries and expenses of
    $1.3 billion will support a ceiling of about 5,900 Federal staff years
    and 10,800 non-Federal county staff years. The proposed level for 2004
    will maintain permanent non-Federal county staffing at prior year
    levels, while reducing the number of temporary non-Federal staff, which
    had been increased in 2003 and earlier years to support supplemental
    assistance programs and to begin Farm Bill implementation in 2002 and
    2003. The agricultural assistance title of the 2003 omnibus
    appropriations act provides $70 million for the administrative costs of
    implementing that title, as well as title I of the 2002 Farm Bill.
    Federal staff years for 2004 are near prior year levels except for an
    increase of 56 staff years to support the Geospatial Information System
    (GIS) initiatives to improve services to producers and enhance
    efficiency.
        The Administration places high priority on management initiatives
    and investments in technology to deliver improved, more efficient
    services to rural customers by continuing to streamline and modernize
    the field offices and Service Centers. Although we have established a
    high number of consolidated Service Centers and have made major strides
    in replacing separate-agency, aging information technology systems with
    the Common Computing Environment and re-engineered business processes,
    additional steps are needed to realize the full benefits.
        A key component in these efforts is the continued initiative to put
    the GIS in place to replace normal hard-copy paper maps and data files
    with an integrated digital system. The GIS will enable producers and
    the Service Center agencies to electronically share and process vital
    information on farm records, soils, and aerial photography in ways that
    can dramatically improve efficiency. The President's budget proposes
    $42 million in appropriated funds under the Office of the Chief
    Information Officer for FSA's component of the Common Computing
    Environment to support GIS and related FSA investments.
        FSA also will work on modernizing its farm credit program servicing
    activities, and we will review Service Center office processes and
    structure to explore additional ways to provide services at lower cost.

    Commodity Credit Corporation
        Disaster and commodity price and income support programs
    administered by FSA are financed through the Commodity Credit
    Corporation (CCC). CCC also is the source of funding for a number of
    conservation programs administered by USDA, and it funds many of the
    export programs administered by the Foreign Agricultural Service. CCC
    borrows funds directly from the Treasury to finance those programs.
        Changes over the last decade in commodity, disaster, and
    conservation programs have dramatically changed the level, mission, and
    variability of CCC outlays. CCC net outlays have declined from a record
    of $32 billion in 2000 to $22.1 billion in 2001 and $15.7 billion in
    2002.
        CCC net outlays for 2004 are currently estimated at $15.4 billion,
    down approximately $3.8 billion from the revised 2003 estimated level
    of $19.2 billion. These estimates reflect the new Farm Bill and the
    supplemental emergency disaster assistance provided in the omnibus
    appropriations act for 2003.
        Annual agriculture appropriations acts authorize CCC to replenish
    its borrowing authority as needed from the Treasury, up to the amount
    of realized losses at the end of the preceding fiscal year. This
    authority provides CCC with the flexibility to request funds as needed
    from the Treasury, up to the actual losses recorded for the most recent
    year. For 2002 losses, CCC was reimbursed $17.7 billion.

    Conservation Programs
        Conservation program outlays will account for over 10 percent of
    CCC expenditures in 2003. The Farm Bill authorized direct CCC funding
    for the CRP administered by FSA and dramatically increased funding for
    several conservation programs administered by NRCS. Funds for several
    conservation programs are transferred to NRCS and presented in the
    budget estimates for that agency.
        CRP protects millions of acres of topsoil from erosion and is
    designed to improve the Nation's natural resources base. Participants
    voluntarily remove environmentally sensitive land from agricultural
    production by entering into long-term contracts for 10 to 15 years. In
    exchange, participants receive annual rental payments and a payment of
    up to 50 percent of the cost of establishing conservation practices.
        The 2002 Farm Bill authorized USDA to increase CRP enrollment to
    39.2 million acres in fiscal year 2006 through general signups, a
    continuous signup, the Conservation Reserve Enhancement Program (CREP),
    and the Farmable Wetlands Program (FWP). Since May 5, FSA has been
    accepting applications for a Conservation Reserve Program (CRP) general
    signup. Current participants with contracts expiring this fall,
    accounting for about 1.5 million acres, can make new contract offers.
    Contracts awarded under the new general signup will become effective at
    either the beginning of fiscal year 2004 or the following fiscal year,
    whichever the producer chooses.
        The Farm Service Agency will evaluate and rank eligible CRP offers
    using the Environmental Benefits Index (EBI) for environmental benefits
    to be gained from enrolling the land in CRP. Decisions on the EBI
    cutoff will be made after the general signup ends in late May and EBI
    numbers of all offers have been analyzed. Those who would have met
    previous sign-up EBI thresholds are not guaranteed a contract under the
    current signup.
        Aside from the general signup, the CRP continuous signup program is
    ongoing. USDA has reserved two million acres for the continuous
    program, which represents the most environmentally desirable and
    sensitive land. USDA is making a special effort to help enhance
    wildlife habitats and air quality by setting aside 500,000 acres for
    bottomland hardwood tree planting. Continuous signup for hardwood
    planting will begin after the general signup is complete.
        The President's budget does not request additional appropriated
    funding for the Emergency Conservation Program for 2004 because it is
    impossible to predict natural disasters in advance and, therefore,
    difficult to forecast an appropriate level of funding.

    Farm Loan Programs
        FSA plays a critical role for our Nation's agricultural producers
    by providing a variety of direct loans and loan guarantees to farm
    families who would otherwise be unable to obtain the credit they need
    to continue their farming operations. By law, a substantial portion of
    the direct loan funds are reserved each year for assistance to
    beginning, limited resource, and socially disadvantaged farmers and
    ranchers. For 2004, 70 percent of direct farm ownership loans are
    reserved for beginning farmers and about 35 percent are made at a
    reduced interest rate to limited resource borrowers, who may also be
    beginning farmers.
        The 2004 budget includes funding for about $850 million in direct
    loans and $2.7 billion in guarantees. In prior years, the Department
    shifted funding from guaranteed operating loans to meet excess demand
    in the direct loan programs. The levels requested for 2004 reflect
    those shifts and are expected to reflect actual program demand more
    accurately. The overall reduction is due primarily to higher subsidy
    rates for the direct loan programs, which make those programs more
    expensive to operate than guarantees. However, we believe the proposed
    loan levels will be sufficient to meet the demand in 2004.
        The 2004 budget maintains funding of $2 million for the Indian Land
    Acquisition program. For the Boll Weevil Eradication program, the
    budget requests $60 million, a reduction of $40 million from 2003. This
    reduction is due to the successful completion of eradication efforts in
    several areas. The amount requested is expected to fund fully those
    eradication programs operating in 2004. For emergency disaster loans,
    carryover funding from 2003 is expected to provide sufficient credit in
    2004 to producers whose farming operations have been damaged by natural
    disasters.

                             RISK MANAGEMENT AGENCY

        The Federal crop insurance program represents one of the strongest
    safety net programs available to our Nation's agricultural producers.
    It reflects the principles of this Administration contained in the Food
    and Agricultural Policy report by providing risk management tools that
    are compatible with international trade commitments, creates products
    and services that are market driven, harnesses the strengths of both
    the public and private sectors, and reflects the diversity of the
    agricultural sector.
        In 2002, the crop insurance program provided about $37 billion in
    protection on over 215 million acres, which is about 4 million acres
    more than were insured in 2001. Our current projection is that
    indemnity payments to producers on their 2002 crops will exceed $4
    billion, which is about $1 billion more than was incurred on 2001
    crops.
        The crop insurance program has seen a significant shift in business
    over the past several years--producers have chosen to buy-up to higher
    levels of coverage as a result of increased premium subsidies provided
    in the Agricultural Risk Protection Act of 2000 (ARPA). The number of
    policies, acres, liability, and premium all increased more than 40
    percent for coverage levels 70 percent and higher.
        Our current projection for 2004 shows a modest decrease in
    participation. This projection is based on USDA's latest estimates of
    planted acreage and expected market prices for the major agricultural
    crops, and assumes that producer participation remains essentially the
    same as it was in 2002.
        The 2004 budget includes a legislative proposal to reduce the
    percentage of administrative expense reimbursements from 24.5 percent
    to 20 percent of premium. This proposal is estimated to save taxpayers
    about $68 million in 2004. A 1997 study of the crop insurance program
    by the General Accounting Office (GAO) indicated that higher premiums
    had resulted in substantially higher reimbursements to the companies
    for delivering essentially the same number of policies. In 1998,
    Congress responded to that report by imposing the current cap of 24.5
    percent on reimbursements. Since that time, Congress has enacted a
    number of reforms to crop insurance designed to encourage participation
    at higher levels of coverage. Although the number of policies sold has
    remained virtually unchanged, total premiums in 2002 are more than 50
    percent higher than in 1998, and reimbursements have increased by about
    $229 million over that time.
        Savings in reimbursements to the companies are achievable. About 95
    percent of the policies sold annually are renewals, which require less
    work to maintain and service than do policies sold for the first time.
    Further, in 2000, Congress passed the Freedom to e-File Act, which
    mandated that Federal Agencies provide access to all forms and other
    program information via the internet and provide for the electronic
    filing of all required program paperwork. Today, the vision Congress
    expressed through that mandate is a reality for agricultural producers
    participating in the Federal crop insurance program who are doing most
    of the paperwork on their own.
        The 2004 budget requests an appropriation of ``such sums as
    necessary'' as mandatory spending for all costs associated with the
    program, except for Federal salaries and expenses. This level of
    funding will provide the necessary resources to meet program expenses
    at whatever level of coverage producers choose to purchase. The current
    projection for the 2004 budget year is that $3.3 billion will be needed
    for that purpose.
        For salaries and expenses of the Risk Management Agency (RMA),
    $78.5 million in discretionary spending is proposed, an increase of
    about $8 million above 2003. This net increase includes additional
    funding mainly for information technology, maintenance costs, increased
    monitoring of the insurance companies, and pay costs.
        At this time I would like to return to the budget request for the
    common computing environment (CCE). This budget includes about $8.7
    million for information technology needs of RMA under the CCE. This
    amount is in addition to any funding requested within the salaries and
    expenses of RMA. Historically, funding under the CCE has been reserved
    for the Service Center agencies. However, in the ARPA legislation
    passed in 2000, Congress mandated a new role for FSA to assist RMA with
    program compliance and integrity in the crop insurance program. That
    mandate has required a greater level of coordination and data sharing
    between these two agencies. The best way to ensure the level of
    coordination required is to provide funding under the controls of the
    CCE.
        RMA's information technology system is aging; the last major
    overhaul occurred about 10 years ago. Since that time, the crop
    insurance program has expanded tremendously. Catastrophic coverage and
    revenue insurance products have been initiated and coverage for new
    commodities has been added, including many specialty crops and more
    recently livestock. In short, RMA's information technology system has
    not kept pace with the changes in the program. The funding requested
    under the CCE will provide for improvements to RMA's existing
    information technology system to improve coordination and data sharing
    with the insurance companies and with FSA. The funding will also
    provide for the development of a new information technology
    architecture to support the way RMA will need to do business in the
    future with strong consideration to shared resources under the CCE.

                          FOREIGN AGRICULTURAL SERVICE

        The importance of international markets for America's farmers and
    ranchers cannot be overstated and, thus, improving market access and
    expanding trade are among our highest priorities for American
    agriculture. Expanding international market opportunities is one of the
    key objectives set forth in the Department's new strategic plan.
        We continue to pursue our trade expansion efforts on many fronts.
    At the center of these efforts is the negotiation of trade agreements
    that will reduce barriers and improve access to overseas markets. We
    expect 2003 will be a crucial year for these efforts. At the World
    Trade Organization (WTO) multilateral negotiations, where U.S. remains
    committed to an ambitious outcome, we are entering a critical phase.
    Having missed the March 31st the deadline for reaching agreement on the
    modalities--or formula--for reducing protection and trade-distorting
    subsidies, we need to step up our efforts to press for real and
    effective trade reform. The next critical milestone will be the
    September Ministerial in Cancun. Our trading partners, particularly the
    European Union and Japan, must show flexibility and demonstrate their
    commitment to reform in order for the Ministerial to give the
    negotiations the direction and impetus to conclude next year.
        We also are engaged in a number of regional and bilateral
    negotiations to establish free trade agreements. Negotiations to
    establish a Free Trade Area of the Americas (FTAA) are entering an
    important phase. In February, countries tabled specific offers to
    reduce trade barriers in key areas, including agriculture. The United
    States will host the next FTAA Ministerial in November, and we will be
    working diligently to move the negotiations along. Our goal is to
    provide greater trade opportunities in this market of 800 million
    consumers with an annual Gross Domestic Product of $13 trillion. At the
    same time, we will be engaged in negotiations this year with Central
    American countries, the Southern African Customs Union, Australia, and
    Morocco to reach free trade agreements that will improve trade
    opportunities for American farmers and ranchers.
        Our trade policy activities are not limited to negotiating new
    agreements however. As new agreements have been implemented, we have
    stepped up our efforts to monitor compliance and ensure that U.S. trade
    rights are protected. These efforts are essential as the Department
    continues to work diligently to resolve a number of trade problems,
    such as China's implementation of its WTO accession commitments on
    tariff-rate quota administration and export subsidy obligations;
    Russia's quotas on meat and poultry imports; and Mexico's continuing
    implementation of provisions of the North American Free Trade
    Agreement.
        As traditional trade barriers fall, we find a rise in technical
    barriers to trade including resistance to adoption of new technologies,
    such as biotechnology, and increased use of sanitary and phytosanitary
    measures. It is fundamental to our maintaining market access to
    encourage the adoption by our trading partners of science-based
    regulatory systems. In this regard, it has become increasingly
    important to improve these countries' capacity to trade so that they
    can take part in negotiations, implement agreements, and connect trade
    liberalization to a program for economic reform and growth. This work
    is important because it helps to engage developing countries in the
    development and implementation of trading rules and guidelines and,
    thereby, helps to ensure the success of the trade negotiating process
    and the fair implementation of its results.
        Another major focus of activity this year is implementation of the
    new Trade Adjustment Assistance for Farmers program that was authorized
    in the Trade Act of 2002. Under the new $90 million program, USDA is
    authorized to make payments to eligible producers when commodity prices
    have been affected by imports. Benefits may be provided when the
    current year's price of an agricultural commodity is less that 80
    percent of the national average price during a preceding 5-year period
    and the Secretary determines that imports have contributed importantly
    to the price decline. This has proven a very complex program to put in
    place; its administration will involve at least 5 agencies of the
    Department. These agencies have worked diligently to design and
    establish the program. Proposed regulations for the program were
    published on April 23rd, and we are working to have final regulations
    in place and to begin accepting petitions for assistance this summer.
    FAS Salaries and Expenses
        The Foreign Agricultural Service (FAS) serves as the lead agency in
    the Department's international activities and plays a critical role in
    our efforts to expand and preserve overseas markets. In March, we
    observed the 50th anniversary of FAS, an important milestone for the
    agency and for the Department.
        Much has changed during the past 50 years, not the least of which
    is the importance of international markets for U.S. farmers and
    ranchers and the FAS programs that support our agricultural community
    to take advantage of those opportunities. U.S. agricultural exports
    were $2.8 billion during 1953, while imports were higher at $4.3
    billion. By fiscal year 2002, exports had grown to just over $53
    billion and imports to $41 billion.
        This morning, our more immediate concern is ensuring that FAS has
    the necessary resources and staffing to continue their important work
    as we face new trade challenges together with the U.S. agricultural
    community. The budget provides total appropriated funding for FAS of
    $145.2 million for 2004, and supports a number of important trade-
    related initiatives.
        First, an additional 20 staff years are provided to FAS to
    facilitate the agency's active involvement in ongoing multilateral,
    regional, and bilateral trade negotiations and to bolster its efforts
    to address rapidly growing market access constraints related to
    biotechnology, and sanitary and phytosanitary measures. These will be
    funded from a centralized fund to be established in the Office of the
    Secretary to support cross-cutting USDA trade-related and biotechnology
    activities.
        Funding also is provided to FAS for a trade capacity building
    initiative to support a number of critical activities supporting our
    trade policy agenda. This includes assistance to countries to implement
    the Cartagena Protocol on Biosafety. If countries misinterpret the
    Protocol, it can seriously impede international trade, product
    development, technology transfer, and scientific research. FAS will
    work with developing countries so that science-based, transparent, and
    non-discriminatory standards are adopted and, by doing so, will help to
    avoid potential disruptions to trade or other problems.
        Funding is also provided for a USDA contribution to the Montreal
    Protocol Multilateral Fund. The Fund was established in 1991 to help
    developing countries switch from ozone depleting substances to safer
    alternatives. The USDA contribution will supplement contributions by
    the Department of State and Environmental Protection Agency to the Fund
    and will further U.S. agricultural interests in the implementation of
    the Protocol.
        Finally, the 2004 budget requests additional funds for FAS for a
    number of non-discretionary administrative requirements, including pay
    cost increases, inflation, and higher payments to the Department of
    State for administrative services provided at overseas posts.
    Export Promotion and Market Development Programs
        FAS administers the Department's major export promotion and market
    development programs that are key components in our efforts to expand
    exports. The 2002 Farm Bill provided increased funding for a number of
    these programs in order to bolster our trade expansion efforts on
    behalf of U.S. agriculture, and the President's 2004 budget proposals
    fully reflect those increases.
        For the market development programs, including the Market Access
    Program and the Foreign Market Development Cooperator Program, the
    budget provides $164 million, an increase of $15 million above 2003.
    Included in this amount is $2 million for the Technical Assistance for
    Specialty Crops program that was authorized in the Farm Bill. Under the
    program, grants are provided to assist U.S. organizations in activities
    designed to overcome phytosanitary and related technical barriers that
    prohibit the export of U.S. specialty crops. FAS worked very hard in
    getting that program up and running so that 2002 programming could be
    implemented by the end of last year. Final regulations for the program
    are currently under development and are expected to be published in the
    near future, which will allow 2003 programming to move forward.
        For the CCC export credit guarantees, the largest of our export
    programs, the budget includes a program level of $4.2 billion. We
    experienced strong growth in the supplier credit guarantee program
    during 2002, with sales registrations once again doubling the previous
    year's level.
        The budget also includes projected program levels of $57 million
    for the Dairy Export Incentive Program and $28 million for the Export
    Enhancement Program (EEP).

    International Food Assistance
        The United States continues its commitment to alleviating hunger
    and improving food security in developing countries through the
    provision of food assistance. The budget includes a total program level
    for U.S. foreign food assistance of nearly $1.6 billion. This includes
    $1.3 billion for Public Law 480 Title I credit and Title II donations,
    which is expected to support the export of 3.1 million metric tons of
    commodity assistance. The Farm Bill increased the annual minimum
    tonnage for Title II donations to 2.5 million metric tons and, based on
    current price projections, the budget provides sufficient funding to
    meet that requirement.
        The budget also provides $50 million of appropriated funding for
    the McGovern-Dole International Food for Education and Child Nutrition
    Program. As the Committee will recall, the Farm Bill authorized this
    new program, which succeeds the Global Food for Education Initiative
    pilot program that the Department carried our during 2001 and 2002. For
    2003, the program will be funded through the CCC but, beginning in
    2004, is to be funded through annual appropriations. FAS published
    proposed regulations for the program on March 26th, and the public
    comment period ended on April 25th. Once the final rule is published,
    FAS will request proposals from private voluntary organizations, the
    World Food Program, and other groups to begin implementation of the
    program.
        The budget also includes a program level of $151 million for the
    CCC-funded Food for Progress programs during 2004. The Farm Bill
    authorized an increase in transportation and other non-commodity costs
    in order to support the minimum annual program level of 400,000 metric
    tons for Food for Progress activities established in the Bill. Finally,
    the budget also assumes that donations of nonfat dry milk will continue
    under the authority of section 416(b) of the Agricultural Act of 1949.
    The value of the assistance and associated costs are projected to total
    $118 million.
        This concludes my statement, Mr. Chairman. I would be pleased to
    answer any questions you or other Members of the Committee may have.
                                     ______

      Prepared Statement of James R. Little, Administrator, Farm Service
                                     Agency

        Mr. Chairman and Members of the Subcommittee, I appreciate the
    opportunity to present the fiscal year 2004 budget for the Farm Service
    Agency (FSA). This budget supports the FSA programs that will ensure a
    strong, viable U.S. agriculture market. Before addressing the details
    of the budget, I would like to comment on some of the initiatives that
    FSA has undertaken over the last year.

    Farm Bill Implementation
        Since before the Farm Security and Rural Investment Act of 2003 was
    signed on May 13, 2002, FSA employees in headquarters and across the
    Nation have dedicated themselves to its effective and timely
    implementation.
        Producers had until April 1, 2003, to contact their local FSA
    offices and update bases and yields and until June 2nd to finalize
    their contracts. Approximately 4 percent of our producers were required
    to schedule appointments after the April 1st deadline because of the
    heavy workload in some of our busier offices. Those late appointments
    should be completed by tomorrow, May 16th, at which time we are
    confident that everyone who wanted to update their bases and yields
    would have been provided the opportunity to do so. As of April 25th,
    FSA has issued approximately $4.3 billion in direct and counter-
    cyclical payments (DCP)--over $3 billion in direct payments and over $1
    billion in counter-cyclical payments to date, and payments have risen
    rapidly as signup has progressed. We have worked diligently to ensure
    that producers have the information they need to make informed
    decisions about program participation. While the DCP Program has been a
    major focus, we have also provided a steady stream of information on
    other Farm Bill provisions including: the Milk Income Loss Contract
    program, the Peanut Quota Buyout program, new loan rates, the addition
    of pulse crops, and other issues important to the agriculture
    community. As of April 25th, over $1.3 billion in Milk Income Loss
    Contract payments have been made to dairy producers. About $1.2 billion
    in Peanut Quota Buyout payments have also been made along with the
    Apple Market Loss Assistance and other payments issued this fiscal
    year.
        At the same time, we have worked internally to develop extensive
    training sessions and materials to ensure that county office employees
    on the front line of program delivery have the information needed to
    perform their jobs. Recognizing that the effectiveness and efficiency
    of Farm Bill implementation hinges on high quality and timely
    information, FSA worked with State extension services and the Farm
    Foundation to undertake an extensive training initiative. In August and
    September of 2002, four regional train-the-trainer meetings were
    conducted to provide representatives of State extension services,
    Native American councils and tribal organizations, 1862 and 1890
    universities, farm organizations, farm consulting firms, farm
    management organizations, farm lenders, and agribusiness leaders with
    Farm Bill information. Attendees were able to use materials provided at
    the sessions to replicate the training within their own organizations
    and train an additional 1,000 trainers. This process allowed local
    training for various target audiences of farmers and ranchers across
    the Nation. In addition, attendance by the press helped ensure that
    early and accurate Farm Bill information was disseminated through the
    media. The partnership between Federal, State, and private
    organizations was key in alerting producers of the importance of making
    informed management decisions regarding the new legislation.
        FSA employees at every organizational level have succeeded in
    implementing extensive new programs and program changes in record time.
    The implementation challenge was complicated by the need to partially
    rely on old technology systems. We are in the process of transitioning
    to new systems under the Common Computing Environment and look forward
    to the benefits of the improvements, once the transition is complete.
        Technology has proven to be an invaluable tool. We have
    supplemented our FSA website to provide Farm Bill information and
    program details, updated enrollment data, and frequently asked
    questions. The website offers online program forms to allow producers
    to e-file applications in compliance with the Government Paperwork
    Elimination Act. We also provided web-based calculation tools such as
    the base and yield update analyzer developed in collaboration with
    Texas A&M University.
        As we continue to administer the Farm Bill programs, we are
    committed to utilizing technology and process improvements to further
    enhance performance and deliver the quality of service that America's
    producers and taxpayers have the right to expect.

    Agricultural Assistance Act Implementation
        Along with implementation of the new farm bill, FSA continues to
    meet the challenges of simultaneously implementing provisions of the
    recently passed $3.1 billion Agricultural Assistance Act of 2003. In
    fact, FSA is currently making payments to producers signed up for the
    reauthorized Livestock Compensation Program; approximately $15 million
    in refunds under the Conservation Reserve Program Refund Program; and
    $10 million in grants to Texas farmers for water losses along the Rio
    Grande River. Signup for the $50 million Cottonseed Program began 2
    weeks ago, with payments scheduled to begin at the end of June, and FSA
    will begin disbursing payments for the $55 million Tobacco Payment
    Program within a few days. On June 6th, we will begin accepting
    applications for the $2.15 billion Crop Disaster Program and begin
    making payments by the end of June. We are also expediting $60 million
    in payments to sugarcane producers suffering from devastating hurricane
    losses, $1.7 million in assistance to New Mexico producers who incurred
    losses from pesticide application, and $60 million payments to sugar
    beet producers.

    Civil Rights
        To ensure every customer is treated with dignity and respect, FSA
    has developed a civil rights action plan to address issues of unequal
    access and disparate treatment in the past. The plan ensures that
    preventive measures, such as oversight of loan servicing and outreach
    at the State level, are in place. We are investigating reports of
    disparate treatment in certain locales, taking corrective action where
    appropriate. Our actions ensure that FSA employees at every level, in
    every part of the country, offer superior customer service.

    Program Outreach
        FSA's civil rights effort works in tandem with our ongoing program
    outreach initiative. For fiscal year 2003, we initiated 16 projects to
    reach out to various under-served populations across the country. Nine
    of these projects are underway, and six are in the planning stages. One
    of the projects is an expansion of the existing American Indian Credit
    Outreach Initiative, which originated as a pilot project in Montana and
    has achieved resounding success. The project was expanded to 10 States
    in fiscal year 2002, and we are expanding to 31 States in 2003.

    Warehouse Act Implementation
        FSA has also been engaged in implementing revisions in the law
    pertaining to federally licensed warehouse operators under the Grain
    Standards and Warehouse Improvement Act of 2000. USDA has defined the
    issue of Federal preemption as the exclusive jurisdiction of the
    Department over a Federally licensed warehouse for activities related
    to the merchandising and storage of grain. We have developed an action
    plan that improves warehouse regulations and better protects the
    interests of producers and other depositors. One measure we are
    proposing is to upgrade the net worth and financial reporting
    requirements for obtaining a Federal warehouse license. Revised
    licensing agreements for commodities other than grains will be
    available for review by warehouse operators early this summer, prior to
    the start of the 2003 harvest. Licensing agreements for grain elevators
    have been postponed in accordance with the moratorium under Section 770
    of the 2003 Consolidated Appropriations Resolution.

    Management Initiatives
        FSA is an active participant in USDA's management achievements,
    many of which fall within the scope of the President's Management
    Agenda. I would like to highlight a few of our success stories.
        Improving Financial Performance.--FSA has demonstrated its
    commitment to improving financial performance and accountability by
    achieving a clean audit opinion for the fiscal year 2002 financial
    statements. A clean audit opinion assures the public that the financial
    data is reliable, accurate, and complete, and it enables users to make
    informed decisions and manage resources more wisely. The achievement of
    a clean audit opinion contributed toward the clean audit opinion for
    USDA as well. We have also made progress in fully complying with the
    Debt Collection Improvement Act of 1996.
        Expanded Electronic Government.--In partnership with other Service
    Center agencies, FSA met the requirements of the Freedom to E-File Act
    in 2002 by posting over 300 electronic forms for producer access
    through our common e-Forms service site located at the following
    address: http://forms.sc.egov.usda.gov.
        Farm Credit Program Loan Servicing.--FSA is working with the
    Department to identify and implement improvements to modernize loan
    servicing, including mailings, billings, collections, and
    correspondence.

                                BUDGET REQUESTS

        The following highlights our proposals for the 2004 budget for
    commodity and conservation programs funded by the Commodity Credit
    Corporation (CCC); the farm loan programs of the Agricultural Credit
    Insurance Fund; our other appropriated programs; and administrative
    support.

                          COMMODITY CREDIT CORPORATION

        Domestic farm commodity price and income support programs are
    administered by FSA and financed through the CCC, a government
    corporation for which FSA provides operating personnel. Commodity
    support operations for corn, barley, oats, grain sorghum, wheat and
    wheat products, soybeans, minor oilseed crops, cotton (upland and extra
    long staple), rice, tobacco, milk and milk products, honey, peanuts,
    pulse crops, sugar, wool and mohair are primarily facilitated through
    loans, payment programs, and purchase programs.
        The 2002 Farm Bill authorizes CCC to transfer funds to various
    agencies for authorized programs in fiscal years 2002 through 2007. It
    is anticipated that in fiscal year 2003, $1.5 billion will be
    transferred to other agencies.
        The CCC is also the source of funding for the Conservation Reserve
    Program (CRP) administered by FSA, as well as many of the conservation
    programs administered by the Natural Resources Conservation Service.
    CCC also funds many of the export programs administered by the Foreign
    Agricultural Service. When called upon, CCC finances various disaster
    assistance programs authorized by Congress.

    Program Outlays
        The 2004 budget estimates largely reflect supply and demand
    assumptions for the 2003 crop, based on November 2002 data. CCC net
    expenditures for fiscal year 2004 are estimated at $15.4 billion, down
    about $3.8 billion from $19.2 billion in fiscal year 2003.
        The nearly $3.8 billion net decrease in projected expenditures is
    attributable to reduced outlays for disaster assistance programs and
    several programs such as Milk Income Loss Contract payments, Peanut
    Quota Buyout payments, and net marketing assistance loan outlays, which
    more than offset increased outlays for direct and counter-cyclical
    payments.

    Reimbursement for Realized Losses
        Annual appropriations acts authorize CCC to replenish its borrowing
    authority, as needed, from Treasury, up to the amount of realized
    losses recorded in CCC's financial statements at the end of the
    preceding fiscal year. For fiscal year 2002 losses, CCC was reimbursed
    $17.7 billion.

    Conservation Reserve Program
        FSA's Conservation Reserve Program (CRP) is currently USDA's
    largest conservation/environmental program. It is designed to cost-
    effectively assist farm owners and operators in improving soil, water,
    air, and wildlife resources by converting highly erodible and other
    environmentally sensitive acreage to a long-term resource-conserving
    cover. CRP participants enroll acreage for 10 to 15 years in exchange
    for annual rental payments as well as cost-share assistance and
    technical assistance to install approved conservation practices. The
    2002 Farm Bill increased the enrollment ceiling under this program from
    36.4 million acres to 39.2 million acres.
        The fiscal year 2004 budget reflects funding for general signups in
    fiscal years 2003 and 2004, for approximately 2.8 million acres and 1.8
    million acres, respectively; 600,000 continuous signup and Conservation
    Reserve Enhancement Program acres and 100,000 Farmable Wetlands Program
    acres. Since May 5, FSA has been accepting applications for CRP. In
    addition to the general signup, CRP's continuous signup program will be
    ongoing. In total, two million acres are reserved for the continuous
    signup program, which provides for enrollment of the most
    environmentally desirable and sensitive land. Included in the two
    million acre reserve is 500,000 acres for bottomland hardwood tree
    planting to enhance wildlife habitats and air quality. Continuous
    signup for hardwood planting will start after the general signup is
    complete.
        Current participants with contracts expiring September 30, 2003,
    account for about 1.5 million acres. These participants can make new
    contract offers during the general signup, with an effective date of
    October 1, 2004 if they are accepted. All other contracts awarded under
    this signup will become effective either at the beginning of next
    fiscal year, October 1, 2003, or the following year, October 1, 2004,
    whichever the producer chooses.
        The Farm Service Agency will evaluate and rank eligible CRP offers
    using the Environmental Benefits Index (EBI). Decisions on the EBI
    rankings and cutoff criteria will be made after signup ends and after
    analyzing EBI rankings of all offers. Those who may have met previous
    signup EBI thresholds are not guaranteed a contract under this signup,
    as USDA is committed to enrolling acreage which will provide the
    greatest environmental benefit.
        Overall, CRP enrollment is assumed to gradually increase from 34
    million acres at the end of fiscal year 2002 to 39.2 million acres by
    fiscal year 2006, while maintaining a reserve sufficient to provide for
    a total program enrollment of 4.2 million acres in continuous signup
    and CREP. To date, approximately 2.2 million acres are already enrolled
    through continuous signup and CREP. In May 2000, new continuous signup
    and CREP participants became eligible for additional financial
    incentives designed to boost participation. USDA has allocated $147
    million for these one-time, up-front incentive payments in each of
    fiscal years 2003 through 2006. Actual incentive payments for fiscal
    year 2002 were approximately $115 million.

                               FARM LOAN PROGRAMS

        The loan programs funded through the Agricultural Credit Insurance
    Fund provide a variety of loans and loan guarantees to farm families
    who would otherwise be unable to obtain the credit they need to
    continue their farming operations.
        The fiscal year 2004 Budget proposes a total program level of about
    $3.5 billion. Of this total, $2.7 billion is requested for guaranteed
    loans, which are offered in cooperation with private lenders. To align
    more closely with actual program demand, the fiscal year 2004 Budget
    allocates a larger share to the direct loan programs than the 2003
    request. In 2001 and 2002, FSA transferred guaranteed loan funding to
    the direct loan programs as provided by law, and we are preparing for a
    similar transfer in 2003. By increasing the proportion of direct loan
    funding up front, as proposed, we will avert delays that might occur
    through an inter-program transfer of funds.
        For direct farm ownership loans, we are requesting a loan level of
    $140 million. The proposed program level would allow FSA to extend
    credit to about 1,200 small and beginning farmers to purchase or
    maintain a family farm. In accordance with legislative authorities, FSA
    has established annual county-by-county participation targets for
    members of socially disadvantaged groups based on demographic data.
    Seventy percent of direct farm ownership loans are reserved for
    beginning farmers, and about 35 percent are made at a reduced interest
    rate to limited resource borrowers, who may also be beginning farmers.
    For direct farm operating loans, we are requesting a program level of
    $650 million to provide nearly 14,000 loans to family farmers.
        For guaranteed farm ownership loans in fiscal year 2004, we are
    requesting a loan level of $1 billion, which will provide approximately
    3,500 farmers the opportunity to acquire their own farm or to preserve
    an existing one. Guaranteed farm ownership loans allow real estate
    equity to be used in restructuring short-term debt under more favorable
    long-term rates. For guaranteed farm operating loans, we propose an
    fiscal year 2004 program level of approximately $1.7 billion to assist
    about 10,000 producers finance their farming operations. This program
    enables private lenders to extend credit to farm customers who would
    not otherwise qualify for commercial loans. We are particularly proud
    of our guaranteed loan program, which is one of the most successful in
    the government system.
        In addition, our budget proposes program levels of $2 million for
    Indian tribal land acquisition loans and $60 million for boll weevil
    eradication loans. For emergency disaster loans, carryover funding from
    2003 is expected to provide sufficient credit to producers whose
    farming operations have been damaged by natural disasters.

                          OTHER APPROPRIATED PROGRAMS

    State Mediation Grants
        State Mediation Grants assist States in developing programs that
    deal with disputes involving distressed farm loans, wetland
    determinations, conservation compliance, pesticides, and other
    agricultural issues. Operated primarily by State universities or
    departments of agriculture, the program provides neutral mediators to
    assist producers, primarily small farmers, in resolving disputes before
    they culminate in litigation or bankruptcy. States with certified
    mediation programs may request grants of up to 70 percent of the cost
    of operating their programs.
        The fiscal year 2004 Budget requests $4 million for 28 to 32 grants
    to States. The $3.9 million available for fiscal year 2003 has provided
    grants to 29 States.

    Emergency Conservation Program
        It is impossible to predict natural disasters and, therefore,
    difficult to forecast an appropriate funding level for the Emergency
    Conservation Program (ECP). The President's Budget does not include a
    request for this program because a significant amount of supplemental
    funding provided in fiscal year 2002 for ECP remained available for
    carryover to operate the program in 2003 when the fiscal year 2004
    budget was prepared. However, because of severe drought, floods,
    tornadoes, and other disasters, which have occurred already this fiscal
    year, as of April 22, over $22 million has been allocated in fiscal
    year 2003 to repair damage to agricultural lands and to provide water
    enhancement measures during the drought emergencies. We are currently
    reviewing our funds availability.

    Dairy Indemnity Program
        The Dairy Indemnity Program (DIP) compensates dairy farmers and
    manufacturers who, through no fault of their own, suffer income losses
    on milk or milk products removed from commercial markets due to
    residues of certain chemicals or other toxic substances. Payees are
    required to reimburse the Government if they recover their losses
    through litigation or other sources. As of April 22, we had paid fiscal
    year 2003 DIP claims totaling $213,000 in nine States.
        The fiscal year 2004 appropriation request of $100 thousand,
    together with unobligated carryover funds expected to be available at
    the end of fiscal year 2003, would cover a higher than normal, but not
    catastrophic, level of claims. DIP, which was extended through 2007 by
    the 2002 Farm Bill, is an important element in the financial safety net
    for dairy producers in the event of a serious contamination incident.

                             ADMINISTRATIVE SUPPORT

        The costs of administering all FSA activities are funded by a
    consolidated Salaries and Expenses account. The account comprises
    direct appropriations, transfers from loan programs under credit reform
    procedures, user fees, and advances and reimbursements from various
    sources.
        The fiscal year 2004 Budget requests $1.3 billion from appropriated
    sources including credit reform transfers. The request assumes
    decreases in non-Federal county staff years and operating expenses,
    partially offset by increases in pay-related costs to sustain essential
    program delivery.
        In total, the fiscal year 2004 Budget reflects a ceiling of 5,917
    Federal staff years and 10,784 non-Federal staff years. The
    Agricultural Assistance Act of the 2003 Consolidated Appropriations
    Resolution provided $70 million to cover increased administrative costs
    needed to implement the disaster provisions as well as the commodity
    provisions of the 2002 Farm Bill. Temporary staffing and overtime will
    be used to meet this increased workload for the remainder of this
    fiscal year. As workload stabilizes in fiscal year 2004, temporary non-
    Federal staff years will be reduced from the fiscal year 2003 level, as
    is reflected in this request. Permanent non-Federal county staff years
    are expected to increase slightly to support the conservation
    provisions, where the workload is expected to remain at significant
    levels.
        Federal staff years will increase by 56 to support the Geospatial
    Information Systems initiative, which will be funded by the Common
    Computing Environment account of the Office of the Chief Information
    Officer. This and other CCE initiatives will lead to more efficient and
    effective customer service and will help move FSA and the other Service
    Center agencies into the e-Government era, resulting in significant
    long-term savings and administrative improvements.
        Mr. Chairman, this concludes my statement. I will be happy to
    answer your questions and those of the other Subcommittee Members.
                                     ______

        Prepared Statement of A. Ellen Terpstra, Administrator, Foreign
                              Agricultural Service

        Mr. Chairman, members of the Subcommittee, I appreciate the
    opportunity to review the work of the Foreign Agricultural Service
    (FAS) and to present the President's budget request for FAS programs
    for fiscal year 2004.
        This year, as FAS celebrates its 50th anniversary as an agency, we
    have an opportunity to review our history and make sure we are prepared
    for tomorrow's challenges. In 1953, Secretary of Agriculture Ezra Taft
    Benson issued four challenges to the new agency:
      --Supply American agriculture with current market information;
      --Promote the sale of American farm products abroad;
      --Remove obstacles to foreign trade; and
      --Help other countries become better customers through technical
            assistance, foreign investment, greater use of credit and other
            means.
        Through all the changes of the past 50 years--new nations, new
    technologies, new food and agricultural products, to name just a few--
    those activities remain the core of our agency's work. The work we do
    supports the Department's strategic objectives of expanding
    international market opportunities and supporting international
    economic development and trade capacity building.
        The challenges the new FAS faced in 1953 are not unlike the
    challenges we face today--the excess productive capacity of U.S.
    agriculture, continued global agricultural policy reform, weather
    uncertainties and competition. At the same time, the U.S. export
    situation is incredibly different. During the 1950s, our agricultural
    trade balance was awash in red ink. In 1953, for example, U.S.
    agricultural imports were $4.3 billion and exports were $2.8 billion,
    leaving a trade deficit of $1.5 billion. In sharp contrast, for fiscal
    2002, U.S. agricultural exports topped $53 billion and imports were $41
    billion, producing a surplus of more than $12 billion.
        In the early 1950s, six of our top 10 export markets were in
    Western Europe. Now half are in Asia and only two are in Europe. Also,
    Canada and Mexico, our partners in the North American Free Trade
    Agreement, ranked 1 and 3 in 2002. Together, they took 29 percent of
    our total agricultural exports, up from 11 percent in the early 1950s
    when Mexico was not even in the top 10.
        Bulk commodities dominated the U.S. trade picture back then. The
    big three at the time--wheat, cotton and tobacco leaf--accounted for up
    to 60 percent of total U.S. agricultural export value. A USDA report at
    the time boasted that our soybean exports set a record in 1953--42
    million bushels. We now export about a billion bushels a year. In the
    early 1950s, meats trailed animal fats in export volume and value, and
    horsemeat tonnage beat poultry meat. Like meats, fruits and vegetables
    show huge export gains over the past 50 years. In 1952 and 1953
    combined, we exported 164 million pounds of fresh apples, compared with
    2.9 billion pounds in 2000-2001.
        Many factors contributed to these changes. The global marketplace
    has grown enormously--more people, more production, higher incomes and
    much, much more trade. World population increased from about 2.7
    billion in 1953 to a projected 6.3 billion this year. Urban populations
    have more than tripled.
        Rising incomes have expanded trade not only by generating demand
    for more food, but also by helping to alter diets, sharply boosting per
    capita global consumption and trade in meats, cereals, fruits and
    vegetables, and processed grocery products. At the same time, trade
    liberalization, changing market structures and new technologies in
    processing, storage and shipping created new opportunities and new
    markets.
        American producers, processors and exporters took advantage of
    these growing opportunities by increasing their productivity, improving
    quality and variety, and intensifying marketing efforts. And through it
    all, government--including FAS--and the private sector developed a
    strong partnership, working together on market development and
    promotion programs, market-opening negotiations and new trade
    agreements, food and technical assistance, and research and quality
    improvements.
        While we still face many challenges, we continue to believe that
    world markets offer rewarding growth opportunities and play a vital
    role in the future strength and prosperity of American agriculture.
    FAS Program Activities
        Throughout our 50 years, Congress has given us many tools to help
    us expand export opportunities for U.S. agricultural, fish, and forest
    products. Last year, we continued to use our long-standing export
    programs vigorously and have implemented new initiatives contained in
    the Farm Security and Rural Investment Act of 2002.
        The 2002 Farm Bill established the Technical Assistance for
    Specialty Crops program and authorizes $2 million in Commodity Credit
    Corporation funds for each fiscal year from 2002 to 2007. We moved
    quickly to implement the program and allocated $2 million to 18
    entities for fiscal year 2002 under this program, which is designed to
    address unique barriers that prohibit or threaten the export of U.S.
    specialty crops.
        The Farm Bill also increased the Market Access Program to $100
    million for 2002, and those funds were allocated to 65 trade
    organizations to promote their products overseas. The Farm Bill
    increased funds for the Foreign Market Development Program, and FAS
    approved marketing plans totaling $34.5 million for 24 trade
    organizations for fiscal year 2002.
        The Emerging Markets Program is authorized at $10 million each year
    to promote increased market access for U.S. commodities and products in
    emerging markets. A total of 82 projects were approved for fiscal year
    2002. The Quality Samples Program provides funds so U.S. organizations
    can provide commodity samples to foreign buyers to help educate them
    about the characteristics and qualities of U.S. agricultural products.
    FAS allocated $1.6 million in fiscal year 2002 to 21 organizations
    under this program.
        The export credit guarantee programs facilitated sales of nearly
    $3.4 billion in U.S. agricultural products last year. The GSM-102
    program helped U.S. exporters register sales of nearly $650 million in
    the South America region and over $395 million to Turkey, two areas
    where the program is most successful. U.S. exporters continue to
    discover the benefits of the Supplier Credit Guarantee Program. We
    issued over $452 million in credit guarantees under this program in
    2002, and we project continuing growth for this newer GSM program.
        With the aid of the Dairy Export Incentive Program (DEIP), U.S.
    exporters sold more than 86,000 tons of dairy products in fiscal year
    2002. The Commodity Credit Corporation awarded over $54 million in
    bonuses to help U.S. dairy exporters meet prevailing world prices and
    develop foreign markets, primarily in Asia and Latin America.
        On the trade policy front, USDA works to open, expand, and maintain
    markets for U.S. agriculture. FAS was a key player in the development
    of the comprehensive U.S. agricultural negotiation proposal for the
    World Trade Organization (WTO) Doha Development Agenda. The proposal
    calls for significant new disciplines in the areas of market access,
    export competition, and domestic support.
        We also have actively participated in other trade negotiations
    including the Free Trade Area of the Americas (FTAA) and the now
    completed Singapore and Chile Free Trade Agreements.
        While pursuing these new negotiations, we have begun to see the
    benefits of earlier agreements. United States exports of forest
    products, rice, cotton, citrus, and wheat to Taiwan and China have
    increased by over $100 million as a result of their accessions to the
    WTO, and U.S. soybean meal and corn exports to Jordan have nearly
    doubled as a result of the U.S.-Jordan Free Trade Agreement.
        FAS also worked to defend United States access to markets.
    Monitoring of trade agreements is essential to ensure that the benefits
    gained through long, hard negotiations are realized. Our monitoring of
    the Uruguay Round Agreement on Agriculture and the Sanitary and
    Phytosanitary Agreement ensured that nearly $1.8 billion in U.S. trade
    was protected or expanded. Examples include the monitoring of China and
    Taiwan's WTO accession commitments, Venezuela's import licensing for
    numerous commodities, and Costa Rica's rice import permits.
        In addition, we worked to secure access for U.S. organic exports to
    Japan and Europe, averted the imposition of grain import restrictions
    by the European Union (EU), and helped open the Australian market to
    U.S. table grapes.
        To support the U.S. commitment to global food aid efforts, we have
    used our assistance authorities to ship commodities from the United
    States to needy people around the world. FAS programmed more than 2.4
    million metric tons of food assistance in fiscal year 2002 under Public
    Law (Public Law) 480, Title I and Section 416(b) of the Agricultural
    Act of 1949. These products, valued at $600 million, went to more than
    60 countries.
        Under the pilot Global Food for Education (GFE) Initiative, which
    began in fiscal year 2001, the United States has provided 800,000 tons
    of commodities and associated assistance valued at $300 million over a
    2-year period to provide school meals for 7 million children in 38
    countries.
        Our emphasis on trade capacity building and our roles in
    international organizations continue to grow. International cooperation
    is the cornerstone for building bilateral and multilateral
    relationships that can facilitate resolution of trade differences,
    expand trade, and promote economic growth. For example, last year we
    used several international organization meetings to advance our WTO
    proposals. We began our efforts to communicate the important link
    between market access and global food security at the Food and
    Agriculture Organization's Conference in Rome in November, just prior
    to the successful launch of the Doha Development Round. We continued
    our efforts at the Finance for Development Conference in Monterrey in
    March, the World Food Summit: Five Years Later in Rome in June, the G-8
    Summit in Kananaskis, Canada, 2 weeks later, and finally the World
    Summit on Sustainable Development in Johannesburg in August.
        The meetings provided opportunities for outreach on our WTO
    proposal and biotechnology as key to addressing the problem of food
    security. Our efforts were carefully crafted to specific audiences. For
    example, at the World Food Summit: Five Years Later, Secretary Veneman
    identified three U.S. priorities for reducing hunger, with specific
    initiatives to boost agricultural productivity in the developing world,
    end famine, and alleviate severe vitamin and mineral deficiencies. She
    invited other countries to join us in these efforts. The Secretary
    announced a USDA-sponsored ministerial-level conference on agricultural
    science and technology designed to assist developing countries in
    increasing productivity. We sponsored a well-attended event on
    biotechnology that included Nobel Peace Prize winning scientist Dr.
    Norman Borlaug, bringing greater credibility to the scientific support
    behind the technology. Finally, the Secretary met with Latin American
    ministers of agriculture in their capacity as members of the Inter-
    American Institute for Cooperation on Agriculture. The result of that
    meeting was consensus among members on trade capacity building
    priorities for IICA, including sanitary and phytosanitary issues and
    biotechnology.
        It is these relationships and the training we provide that will
    help us resolve trade disputes in the future, as well as prepare
    developing countries for global trade. Our longstanding training
    program, the Cochran Fellowship Program was used to introduce 972
    Cochran Fellows from 78 countries to U.S. products and policies in
    2002--the largest number of participants in the program's history.
    These Fellows met with U.S. agribusiness; attended trade shows, policy
    and food safety seminars; and received technical training related to
    market development. The Cochran Fellowship Program provides USDA with a
    unique opportunity to educate foreign government and private sector
    representatives not only about U.S. products, but also about U.S.
    regulations and policies on critical issues such as food safety and
    biotechnology.
        We also collaborated with a diverse group of U.S. institutions in
    research partnerships with 53 countries. These research and exchange
    activities promoted the safe and appropriate development and
    application of products from biotechnology, as well as other areas such
    as food safety, improved nutritive value of crops, environmental
    sustainability, and pest and disease resistance of crops and livestock.
        In the end, the technical assistance that we provide, both our own
    and through international organizations, will help build the
    institutions needed for developing countries to attract investment and
    grow their economies. If our efforts are successful, our food and
    agricultural producers will benefit by access to more and better
    markets.
    Challenges Ahead
        Faced with continued growth in our agricultural productivity,
    intense competition, and continued aggressive spending on market
    promotion by our competitors, we must redouble our efforts to improve
    the outlook for U.S. agricultural exports. I would like to discuss our
    top priorities for the year.

                Continuing Trade Liberalization for Agriculture

        At the top of our list is moving forward in the multilateral trade
    negotiations on agriculture under the WTO. The United States was the
    first WTO member to put forward a comprehensive and specific
    agriculture proposal, which has gained support from many WTO members.
    As the negotiations progress, it has become clear that two camps have
    developed: one that wants to address the inequities of the Uruguay
    Round consistent with the Doha mandate and one that does not. The EU
    and Japan are in the latter group. Both have indicated resistance to
    moving beyond the limited Uruguay Round framework.
        We are at a critical stage in the WTO agriculture negotiations. We
    were disappointed, but not surprised that resistance to change and
    reform stymied agreement on the modalities for cuts in subsidies and
    tariffs by the March 31 deadline. The Chair of the agricultural
    negotiating group, Stuart Harbinson, is to be commended for his
    leadership in moving the process forward. However, his paper was not
    completely satisfactory to us. But it did highlight that a large number
    of countries, including the United States, are ready to advance
    significant reform, to cut subsidies and tariffs substantially.
        Along with our comprehensive tariff reduction formula, the United
    States has proposed that WTO members engage in negotiations on a
    sector-specific basis on further reform commitments that go beyond the
    basic reductions that will apply to all products. These would include
    deeper tariff reductions, product-specific limits on trade-distorting
    domestic support, and other commitments to more effectively address the
    trade-distorting practices in the affected commodity sectors. This is
    an area where we need support and involvement from our food and
    agriculture industry, and we will be seeking their guidance throughout
    the negotiations.
        So where do we go from here? We cannot lose our commitment to the
    Doha Development Agenda effort just because we encounter problems. WTO
    members need to keep working, exploring ways to bring parties together,
    to match interests so that we can move the process forward. As we work
    toward the Cancun Ministerial in September, we will continue to support
    the efforts of Chairman Harbinson to advance the negotiations.
        Overall, the passage of Trade Promotion Authority (TPA) was great
    news for America's farmers, ranchers, and food industry. The United
    States can now move forward on its ambitious trade agenda of opening
    markets multilaterally in the WTO, regionally, and bilaterally. This
    Administration is pressing ahead in its effort to create the largest,
    most comprehensive free trade area encompassing 34 democracies in the
    Western Hemisphere--a Free Trade Area of the Americas (FTAA). Despite
    economic turmoil in Latin America, the negotiations remain on schedule.
        In December, the United States, at the Free Trade Area of the
    Americas (FTAA) Ministerial in Quito, Ecuador, pushed negotiations
    forward to complete the FTAA by January 2005. The ministers energized
    market access negotiations and agreed that the United States and Brazil
    will co-chair the FTAA process through the conclusion of negotiations.
    The next meeting will be in Miami late this year, with another meeting
    set for Brazil in 2004.
        When completed, the FTAA will provide U.S. producers and exporters
    with much greater access to 450 million consumers outside the NAFTA
    countries, who will have $2 trillion in income. USDA estimates suggest
    that the FTAA could expand U.S. agricultural exports to the hemisphere
    by more than $1.5 billion annually.
        While we recognize that many challenges lie ahead and that the U.S.
    agricultural community has some concerns about the FTAA, we cannot
    afford to stand on the sidelines while other countries take away our
    potential markets. The reality is that if all Western Hemisphere
    countries have preferential agreements among themselves and the United
    States is not a party to these agreements, U.S. exports to the
    hemisphere would actually decline, perhaps as much as $300 million
    annually. So we must be a participant and a leader in these important
    negotiations.
        In the year ahead, we will also be working on agreements with
    Australia, Morocco, five countries in Central America, and the Southern
    African Customs Union. As you see, we will be working on many fronts to
    continue to improve export opportunities for the American food and
    agriculture sector.
        We also are actively participating in the Asia Pacific Economic
    Cooperation (APEC) forum. We expect APEC to serve a key role in
    promoting continued trade liberalization within the region and in the
    WTO, and we will be working through the APEC food system to realize
    this goal.
        We will continue to work with the countries that would like to join
    the WTO, such as Russia and Saudi Arabia. Although increasing the
    number of members in the WTO is a high priority, we will continue to
    insist that these accessions be made on commercially viable terms that
    provide trade and investment opportunities for U.S. agriculture. And
    when membership in the WTO is achieved, we must continue to monitor
    aggressively those countries' compliance with their commitments. We
    must ensure that acceding countries implement trade policies and
    regulations that are fully consistent with WTO rules and obligations.

                Building Trade Capacity
        Hand-in-hand with our negotiating efforts are our efforts to help
    developing countries participate more fully in the trade arena. Our
    trade capacity building efforts are aimed at helping countries take
    part in negotiations, implement agreements, and connect trade
    liberalization to a program for reform and growth. We will work closely
    with the U.S. Trade Representative and the U.S. Agency for
    International Development in this effort.
        If we are to achieve success in the negotiating process, we must
    engage the developing world in the creation and implementation of
    appropriate trading rules and guidelines. This will take time, but it
    will be worth the investment. These countries represent our future
    growth markets. Throughout the year, we will use all of our available
    tools--the Cochran Fellowship Program, the Emerging Markets Program,
    and our involvement in international organizations such as the Inter-
    American Institute for Cooperation on Agriculture (IICA)--to aid in
    this important effort.

                Addressing Biotechnology Issues
        Another priority is how we deal with the issues surrounding
    products produced through biotechnology. The increasing number of
    countries around the world that are issuing regulations relating to
    products of biotechnology present a particular challenge, both for our
    infrastructure and for our food and agricultural exports. We are using
    every available fora to ensure countries adopt science-based policies
    in this area.
        For example, last year we participated in the first APEC policy
    dialogue on biotechnology, where the 21 APEC member countries reached a
    consensus that biotechnology is an important tool with great potential
    for food security and the environment. In an effort to foster closer
    cooperation, the North American Biotechnology Initiative identified
    science, marketing, and regulatory issues as priorities for the three
    NAFTA partners. The Philippines enacted well-crafted biotech
    commercialization guidelines after 3 years of sustained FAS interaction
    through educational events and Cochran Fellowship training programs.
    FAS worked closely with third countries and allies within the EU to
    counter misinformation and to highlight the practical implications of
    EU legislation on biotech food and feed products.
        Biotech issues will continue to be important for U.S. agriculture
    in the immediate years ahead, whether in the WTO or in our bilateral
    relationships with customer and competitor nations alike. We continue
    to insist that biotech approval regimes, wherever they exist, must be
    transparent, timely, predictable, and science-based.

                Maintaining Market Access
        Inherent in the FAS mission is the need to anticipate and prevent
    disruptions to trade imposed by new market barriers. Perhaps no other
    task that we carry out is as important, yet less visible. It is a
    measure of our success that so many issues are resolved so quickly,
    with so little public awareness. Virtually every day, our overseas and
    domestic staff work as a team on a variety of concerns--first to
    prevent crises from developing and then to resolve thorny issues should
    they arise. They coordinate efforts with a number of USDA agencies, as
    well as with private sector companies and associations.
        Every year, these activities preserve millions of dollars in trade
    that could have potentially been lost by countries imposing new
    barriers. Some problems may be resolved quickly with a phone call or a
    meeting; others are more complex, and involve multiple U.S. agencies.
    Our priorities include resolving poultry trade issues with Russia,
    poultry and other issues with Mexico, and tariff-rate quota and biotech
    issues with China.

                Ensuring World Food Security
        We recognize that significant emergency food needs continue to
    haunt many in the world and we are working to help address them. Today
    the most severe needs are in Mauritania, Sudan, Angola, North Korea,
    Afghanistan, southern Africa, and the Horn of Africa. The United States
    has delivered or pledged more than 500,000 tons (valued at $266
    million) to southern Africa since the beginning of 2002, making us the
    largest donor to the World Food Program's (WFP) operations there. The
    United States is also providing food aid to Ethiopia, Eritrea, Sudan,
    Angola, North Korea, Afghanistan, and many other countries.
        However, U.S. food aid donations are determined by the availability
    of commodities, budget resources and commodity and transport prices. We
    have reduced our reliance on that part of the Section 416(b) program
    that depended on the availability of surplus U.S. commodities and have
    increased funding under the more traditional Public Law 480 and Food
    for Progress authorities. We hope that this change will allow other
    governments, private voluntary organizations (PVOs), and the World Food
    Program to have a much more reliable picture of how much food aid will
    be available from the United States each year.
        We also will be implementing the new McGovern-Dole International
    Food for Education and Child Nutrition Program. This new program,
    established in the 2002 Farm Bill, builds on the pilot Global Food for
    Education Initiative that I mentioned earlier. We will be working
    closely with the World Food Program and our PVO partners to ensure that
    this program gets off to a good start and builds on the success
    achieved by the Global Food for Education Initiative.
        In addition, FAS continues to assist USAID in its Famine Early
    Warning System (FEWS) by providing satellite and crop data. We will
    soon launch our effort to track global water resources that will allow
    us to measure critical water reservoirs in developing countries.
        But despite all our efforts, estimated food aid needs continue to
    be high. That is why we continue to press other major donors to
    increase their contributions. The United States is working with the G-8
    to make this effort multilateral. In addition, we are especially
    supportive of the efforts of the WFP's new director to widen the
    spectrum of support from private sector organizations.
        But we know food aid is not the only tool to achieve world food
    security. That is why Secretary Veneman will host a Ministerial
    Conference and Expo on Agricultural Science and Technology June 23-25
    in Sacramento, Calif. Ministers are being invited from over 180
    nations. The conference, also sponsored by the U.S. Agency for
    International Development and the Department of State, will focus on
    the critical role science and technology can play in raising
    sustainable agricultural productivity in developing countries, with the
    goal of boosting food availability and access and improving nutrition.

                Implementing Program Changes
        Our top program priority is developing and implementing the Trade
    Adjustment Assistance Program for Farmers, a new program established by
    the Trade Act of 2002. Under the program, USDA is authorized to make
    payments to eligible producer groups when the current year's price of
    an agricultural commodity is less than 80 percent of the national
    average price for a previous 5-year marketing period, and the Secretary
    determines that imports have contributed importantly to the decline in
    price. FAS is currently coordinating efforts with other USDA agencies
    to establish the new program. On April 23, we invited public comments
    on proposed regulations for the program.

                Comments are due by May 23
        Another priority is expanding our eGov capability. EGovernment is a
    multi-faceted initiative that will change the way we in FAS communicate
    with each other, with the rest of government, and most importantly,
    with the customers we serve around the world. For FAS, eGov means
    making more information and services available online, while organizing
    and presenting all of this data in a logical, accessible and useful
    way.
        Specifically for FAS, this means changing our processes for
    producing data and information in ways that make it easier to
    categorize, publish and present online. FAS has committed to being an
    early adapter in the content management initiative of eGov. Within the
    next year, FAS will make most information-collecting forms such as
    grant applications and reporting documents interactive and available
    online. And in the long term, we will analyze every function and
    activity throughout the agency to develop ways to leverage our
    information technologies to complete our agency activities faster,
    smarter and better.

                                 BUDGET REQUEST

        Mr. Chairman, our fiscal year 2004 budget proposes a funding level
    of $145.2 million for FAS and 1,005 staff years. The request includes a
    number of important trade related activities and non-discretionary
    administrative increases.
        First, an additional 20 staff years are proposed to facilitate the
    agency's active involvement in ongoing multilateral, regional, and
    bilateral trade negotiations and to bolster its efforts to address
    rapidly growing market access constraints related to biotechnology, and
    sanitary and phytosanitary measures. These will be funded from a
    centralized fund to be established in the Office of the Secretary to
    support cross-cutting USDA trade-related and biotechnology activities.
        Additionally, the budget proposes an increase of $500,000 to
    support a series of regionally based seminars on the specifics of the
    Biosafety Protocol. Representatives from 170 countries are currently
    negotiating international provisions governing the shipment and use of
    products from biotechnology under the Cartagena Protocol on Biosafety.
    Parameters set under this agreement are intended to provide uniform
    international requirements for ensuring the safe transport and use of
    these products.
        The Biosafety Protocol can offer a framework to guide countries
    that currently lack national regulatory systems for products of
    biotechnology. However, if member countries misinterpret the Protocol,
    it can seriously impede international trade, product development,
    technology transfer, and scientific research. Through a series of
    regional seminars, FAS will work to ensure that the implementation of
    these standards under the Biosafety Protocol are science-based,
    transparent, and non-discriminatory. These seminars will be coordinated
    in conjunction with other USDA agencies such as the Animal and Plant
    Health Inspection Service (APHIS), industry representatives, academia,
    the non-governmental organization community, and international
    regulatory agencies.
        The budget also requests $5 million for a USDA contribution to the
    Montreal Protocol Multilateral Fund (MPMF). The MPMF was created in
    1991 to help developing countries switch from ozone depleting
    substances to safer alternatives. Developing countries' commitment to
    comply with the Protocol's strict requirements is contingent on
    developed countries providing help through the MPMF. Historically, the
    Department of State (DOS) and the Environmental Protection Agency have
    provided nearly all U.S. payments to the MPMF. This has funded projects
    that are leading to the phase out of the production and use by
    developing countries of industrial chemicals that deplete the ozone
    layer, such as chlorofluorocarbons and halons. In the future, there
    will be an increasing focus on reducing the use of methyl bromide. In
    recognition of the growing importance of agricultural issues in the
    Montreal Protocol process, USDA is requesting a $5 million contribution
    to the MPMF.
        The budget includes an increase of $4,220,000 for non-discretionary
    administrative requirements including:
      --An increase of $1,871,000 to cover higher personnel compensation
            costs associated with the anticipated fiscal year 2004 pay
            raise. Pay cost increases are non-discretionary and must be
            funded. Absorption of these costs in fiscal year 2004 would
            primarily come from reductions in agency personnel levels,
            which would significantly affect FAS trade expansion efforts.
      --An increase of $1,539,000 for inflation. Using the OMB economic
            assumption of 2.3 percent, this is the amount needed to offset
            anticipated inflationary cost growth. This increase is of
            particular importance for maintaining FAS offices overseas at
            current levels.
      --An increase of $594,000 for higher ICASS payments to the Department
            of State. The DOS provides overseas administrative support for
            foreign affairs agencies through the International Cooperative
            Administrative Support Services (ICASS) system. FAS has no
            administrative staff overseas, and thus relies entirely on DOS/
            ICASS for this support. For fiscal year 2004, DOS has informed
            agencies that it anticipates an increase of 6.5 percent over
            fiscal year 2003 levels. That 6.5 percent estimate includes
            amounts for increasing staffing under the Diplomatic Readiness
            Initiative, continuing the Overseas Infrastructure Initiative,
            and budgeting for overseas comparability pay.
      --An increase of $356,000 for increased overseas rental expenses
            arising from the sale of dedicated FAS overseas housing by DOS.
            Section 213 of the Foreign Relations Authorization Act, fiscal
            year 2003, (Public Law 107-228) repealed Section 738 of the
            fiscal year 2001 Agriculture Appropriations Act that limited
            DOS's authority to sell ``unneeded'' property by making sales
            decisions contingent on FAS approval. In view of this action
            and State's intention to sell three additional residences, FAS
            is now seeking additional funding to finance moves into
            commercial space where government owned space is not available.
      --A decrease of $140,000 for the savings associated with
            centralization and improvement of information technology.
            Savings are associated with consolidated buys for
            infrastructure and office automation, and consolidation of
            enterprise architecture projects within the Department. USDA
            continues to ensure that information technology investments
            utilize enterprise licenses for hardware and software where
            appropriate and reduce the information technology costs.

    Export Programs
        Mr. Chairman, the fiscal year 2004 budget proposes $6.2 billion for
    programs to promote U.S. agricultural exports, develop long-term
    markets overseas, and foster economic growth in developing countries.
    The 2002 Farm Bill increased funding for several of these programs in
    order to bolster our trade expansion efforts that are reflected in the
    President's fiscal year 2004 budget.

                Export Credit Guarantee Programs
        The budget includes a projected overall program level of $4.155
    billion for export credit guarantees in fiscal year 2004.
        Under these programs, the Commodity Credit Corporation (CCC)
    provides payment guarantees for the commercial financing of U.S.
    agricultural exports. As in previous years, the budget estimates
    reflect actual levels of sales expected to be registered under the
    programs and include:
      --$3.3 billion for the GSM-102 program
      --$18 million for the GSM-103 program
      --$750 million for Supplier Credit guarantees
      --$44 million for Facility Financing guarantees Market

                Development Programs
        Funded by CCC, FAS administers a number of programs to promote the
    development, maintenance, and expansion of commercial export markets
    for U.S. agricultural commodities and products. For fiscal year 2004,
    the CCC estimates include a total of $164 million for market
    development programs that includes:
      --$125 million for the Market Access Program, an increase of $15
            million over the fiscal year 2003 level of $110 million;
      --$34.5 million for the Foreign Market Development (Cooperator)
            Program, unchanged from fiscal year 2003;
      --$2.5 million for the Quality Samples Program, unchanged from fiscal
            year 2003; and
      --$2 million for the new Technical Assistance for Specialty Crops
            Programs. International Food Assistance
        The fiscal year 2004 budget continues the worldwide leadership of
    the United States in providing international food aid. In this regard,
    the fiscal year 2004 proposals total $1.6 billion which include:
      --$1.345 billion for Public Law 480,which is expected to provide
            approximately 3.1 million metric tons of commodity assistance.
            For Title I, the budget provides for a program level of $160
            million, which will support approximately 600,000 metric tons
            of commodity assistance. For Title II donations, the budget
            provides for a program level of $1.185 billion, which is
            expected to support 2.5 million metric tons of commodity
            donations.
      --$151 million for Food for Progress. Funding at the requested level
            is expected to meet the minimum tonnage level of 400,000 metric
            tons stipulated in the 2002 Farm Bill;
      --$118 million for Section 416(b) donations. Under this program,
            surplus commodities that are acquired by CCC in the normal
            course of its domestic support operations are available for
            donation overseas. For fiscal year 2004, current CCC baseline
            estimates project the availability of surplus nonfat dry milk
            that could be made available for programming under section
            416(b) authority; and
      --$50 million for the McGovern-Dole International Food for Education
            and Child Nutrition Program. The McGovern-Dole program is an
            entirely new program, authorized by the 2002 Farm Bill. Fiscal
            year 2003 funding for McGovern-Dole is $100 million from CCC
            for both commodities and technical assistance. The fiscal year
            2004 budget requests appropriated funding of $50 million.
            However, programming should not decline significantly in fiscal
            year 2004 because of the many programs that will likely carry
            over from fiscal year 2003. In developing the fiscal year 2005
            budget, the Administration will be in a position to review
            program performance during fiscal years 2003 and 2004, and will
            make decisions on future funding in accordance with those
            results.

                Export Subsidy Programs
        FAS administers two export subsidy programs through which payments
    are made to exporters of U.S. agricultural commodities to enable them
    to be price competitive in overseas markets where competitor countries
    are subsidizing sales. These include:
      --$28 million for the Export Enhancement Program (EEP). World supply
            and demand conditions have limited EEP programming in recent
            years, and as such, the fiscal year 2004 budget assumes a
            continued limited activity. However, the 2002 Farm Bill
            includes a maximum annual EEP program level of $478 million
            allowable under Uruguay Round commitments and that amount could
            be used should market conditions warrant.
      --$57 million for the Dairy Export Incentive Program (DEIP), $26
            million above the fiscal year 2003 estimate of $31 million.
            This estimate reflects the level of subsidy currently required
            to facilitate exports sales consistent with projected United
            States and world market conditions and can change during the
            programming year as market conditions warrant.
        This concludes my statement, Mr. Chairman. I will be glad to answer
    any questions.
                                     ______

       Prepared Statement of Ross J. Davidson, Jr., Administrator, Risk
                               Management Agency

        Mr. Chairman and members of the Subcommittee, it is a pleasure to
    appear before you to testify in support of the President's fiscal year
    2004 budget for the Risk Management Agency (RMA). RMA has made rapid
    progress in meeting its legislative mandates to provide an actuarially
    sound crop insurance program to America's agricultural producers.
    However, more needs to be done. The program is expected to provide
    approximately $38 billion in risk protection on about 208 million acres
    in 2004, representing approximately 80 percent of the Nation's planted
    acres for principal crops.
        RMA's primary mission is to promote, support and regulate the
    delivery of sound risk management solutions to preserve and strengthen
    the economic stability of America's agricultural producers. Our key
    objectives in support of that mission are to:
      --Provide widely available and effective risk management solutions;
      --Ensure customers and stakeholders are well-informed;
      --Provide a fair and effective delivery system;
      --Maintain program integrity;
      --Provide excellent service.
        To achieve these objectives, RMA's total fiscal year 2004 budget
    request is $3.4 billion. The funding level proposed for the Federal
    Crop Insurance Corporation (FCIC) is $3,300,187,000 and for the
    Administrative and Operating Expenses the request is $78,488,000. This
    budget request includes a legislative proposal to reduce the
    administrative expense reimbursement to the insured companies.

                                   FCIC FUND

        The fiscal year 2004 budget proposes that ``such sums as may be
    necessary'' be appropriated to the FCIC Fund. This ensures the program
    is fully funded to meet producers' needs. The current estimate of
    funding needs is based on USDA's latest projections of planted acreage
    and expected market prices. The fiscal year 2004 budget requests an
    increase of $389.2 million from $2.9 billion in fiscal year 2003 to
    $3.3 billion in fiscal year 2004. The budget request includes increases
    of $69.9 million for Premium Subsidy, $30.3 million for Delivery
    Expenses, $10.0 million for mandated Agricultural Risk Protection Act
    of 2000 (ARPA) activities, and $346.8 million for reimbursement to the
    Insurance Fund for U.S. Treasury transfer for excess 2002 crop year
    losses. The legislative proposal is expected to save approximately
    $67.8 million in 2004 by reducing the administrative expense
    reimbursement rate paid to the insured companies from 24.5 percent to
    20 percent. These savings are achievable principally because there has
    been a substantial growth in premium dollars and reimbursements have
    increased proportionally--in essence, insuring the same number of acres
    at higher levels of coverage.

                  ADMINISTRATIVE AND OPERATING EXPENSES (A&O)

        RMA's fiscal year 2004 request of $78.5 million for Administrative
    and Operating Expenses represents an increase of about $8 million from
    fiscal year 2003. This budget will support increases for information
    technology (IT) initiatives in the amount of $5.5 million. These IT
    funds are targeted towards the continual maintenance and enhancement of
    the corporate operating systems necessary to run the program. Included
    in the total request is $1.0 million to expand the monitoring and
    evaluation of reinsured companies, and $1.3 million for pay cost for a
    staffing level of 568 employees.
        Finally, this budget also includes a funding request of about $8.7
    million for information technology for the RMA under the Common
    Computing Environment (CCE) in the budget of the Chief Information
    Officer. This amount is in addition to the funding requested above the
    administrative and operating expenses of RMA. Historically, funding
    under the CCE has been reserved for the service center agencies. The
    Department is working aggressively to coordinate its information
    technology resources to ensure greater efficiency in software
    development, hardware acquisition and maintenance and in sharing common
    data among its various agencies. The best way to ensure the level of
    coordination required is to provide funding under the controls of the
    CCE.
        In addition, RMA has an aging information technology system, the
    last major overhaul occurred about 10 years ago. Since that time the
    crop insurance program has expanded tremendously. Catastrophic coverage
    and revenue insurance products have been initiated and coverage for new
    commodities has been added including many specialty crops and more
    recently livestock. In short, RMA's information technology system has
    not kept pace with the changes in the program. The funding requested
    under the CCE will provide for improvements to RMA's existing
    information technology system to improve coordination and data sharing
    with the insurance companies and FSA. The funding will also provide for
    the development of a new information technology architecture to support
    the way RMA will need to do business in the future.

                               PROGRAM HIGHLIGHTS

    Board of Directors
        A new FCIC Board of Directors (Board) was appointed in 2002. This
    Board and I have set an aggressive agenda to address producers' issues
    and challenges in the crop insurance program. This agenda increases
    participation in the program, ensures outreach to small and limited
    resource farmers, expands programs where appropriate, affirms program
    compliance and integrity and ensures equity in risk sharing. Nine Board
    meetings were held during 2002. The Board approved 26 programs in
    fiscal year 2002 and is considering another 18 programs. Private
    companies submitted five of the approved programs. Two of these were
    livestock programs. RMA is efficiently contracting for and reviewing
    new products, and promoting new risk management strategies.
        In 2002, RMA provided approximately $37 billion of protection to
    farmers, and expects indemnity payments for 2002 losses of
    approximately $4.2 billion. The expected loss ratio for 2002 is 1.42
    compared to 1.0 for 2001. In 2002, much of the agriculture region
    across the United States suffered from severe drought conditions. The
    increase in the loss ratio reflects this. As a result, the amount of
    claim payments made under the crop insurance program increases
    significantly. This shows that the agriculture community is
    successfully benefiting from the risk management tools the government
    provides. RMA continues to evaluate the crop insurance program to
    identify areas for improvement and to create new products for
    commodities that are not offered coverage under the current crop
    insurance programs so that the government can eliminate or at least
    substantially reduce the need for ad-hoc disaster assistance payments
    to the agriculture community. The participation rate was approximately
    80 percent. While participation in the program is voluntary,
    subsidizing the premium paid by farmers for coverage encourages
    participation.
        Increases in subsidies resulting from the passage of ARPA had a
    positive affect on participation. Since 2000, farmers have shown a
    trend of choosing to purchase higher levels of buy-up protection and
    revenue coverage policies. In 2002, over 50 percent of the insured
    acreage was insured at 70 percent or higher level of coverage compared
    to only 9 percent in 1998. The high participation rate and the higher
    levels of coverage purchases by participants have added to the ability
    for Crop Insurance to become the main risk management tool for
    America's farmers. We have made additional improvements recently that
    will continue this trend. In addition, the increased number of farmers
    buying up higher levels of coverage has generated the efficiencies
    reflected in the proposal to lower the administrative expense
    reimbursement rate.

    Program Compliance and Integrity
        RMA, with the assistance of the Farm Service Agency (FSA) and
    private sector insurance providers, works to improve program compliance
    and maintain the integrity of the Federal Crop Insurance Program. In
    order to complete ARPA requirements, RMA executed procedures for the
    FSA to refer potential crop insurance abusers. RMA established a fraud
    case management system and improved the sanction process. In addition,
    RMA implemented data mining projects and fine-tuned the data
    reconciliation process.
        Last year RMA achieved a 700 percent increase in referrals on
    possible instances of fraud through data mining and analysis, a
    formalized alliance with FSA, and collaboration with approved insurance
    providers. These results demonstrated the direct impact of RMA's public
    effort to prevent fraud and saw an estimated $94 million reduction in
    program costs by preventing potential fraudulent claims during October
    2000 through December 2001. This strategy and its effects are discussed
    further in the RMA's Program Compliance and Integrity Annual Report to
    Congress.

    Livestock Insurance Plans
        The FCIC Board approved two pilot insurance programs for Iowa swine
    producers to protect them from declining hog prices. The two approved
    programs are the Livestock Gross Margin Pilot and the Livestock Risk
    Protection Pilot. Both policies are available from private insurance
    agents. Authorized under ARPA, these types of livestock insurance
    programs provide livestock producers with effective price risk
    management tools. RMA is providing $19 million in coverage on
    approximately 304,000 hogs for the 2003 reinsurance year. Pilot program
    length will be determined by farmer participation and financial
    performance of the program.
        The Livestock Gross Margin (LGM) pilot protects swine producers
    from price risks for 6 months and up to 15,000 hogs per period. The
    policy protects the gross margin between the value of the hogs and the
    cost of corn and soybean meal. Prices are based on hog futures
    contracts and feed futures contracts. LGM protects producers if feed
    costs increase and/or hog prices decline, depending on the coverage
    level selected by the producer. Coverage levels range from 85-100
    percent. LGM sales began in July 2002. There are two sale periods each
    year--January and July.
        The Livestock Risk Protection (LRP) pilot protects producers
    against declining hog prices if the price index specified in the policy
    drops below the producer's selected coverage price. Swine can be
    insured for 90, 120, 150, or 180 days, up to a total of 32,000 animals
    per year. Unlike traditional crop insurance policies which have a
    single sales closing date each year, LRP is priced daily and available
    for sale throughout the year. Coverage levels range from approximately
    70-95 percent of the daily hog prices. In addition, the FCIC Board
    recently approved LRP for both fed and feeder cattle beginning in 2003.
    We expect these programs to be available in late spring.

    Adjusted Gross Revenue--Lite
        The FCIC Board approved the Adjusted Gross Revenue-Lite (AGR-Lite)
    insurance plan in late 2002 and began sales for 2003. This product was
    submitted to FCIC through Section 508(h) of the Federal Crop Insurance
    Act. AGR-Lite is available in most of Pennsylvania and covers whole
    farm revenue up to $100,000, including revenue from animals and animal
    products. RMA encourages other states to develop similar programs.

    Adjusted Gross Revenue (AGR) Cost-Share Program
        ARPA authorized cost-sharing to assist producers in reducing
    financial risk through product diversification. To meet this directive,
    FCIC announced a cost-share program for AGR insurance that was made
    available in 11 underserved Northeastern States: Connecticut, Delaware,
    Maine, Maryland, Massachusetts, New Hampshire, New York, New Jersey,
    Pennsylvania, Rhode Island, and Vermont. Under this program, FCIC paid
    50 percent of the producer-paid premium and the full $30 administrative
    fee.

    Cost of Production
        In 2001, RMA contracted for research and development of a Cost of
    Production (COP) insurance pilot program for 12 crops (soybeans, corn,
    cotton, wheat, rice, almonds, peaches, cranberries, apricot,
    nectarines, onions, and sugarcane). The FCIC Board considered an
    initial COP program for cotton this past fall. Expert reviewers and the
    Board indicated several significant issues for further review. As a
    result, the Board concluded that more work is needed to successfully
    bring producers a COP policy to meet their needs. Currently, RMA and
    the contractor are working diligently to find solutions to these
    issues. Should the issues be resolved and a cotton pilot program is
    successful, RMA plans to expand COP coverage to other crops.

    Forage and Rangeland
        RMA currently offers the Group Risk Plan (GRP) Rangeland Pilot in
    twelve Montana Counties. GRP is an alternative risk management tool
    based on the experience of the county rather than individual farms. It
    indemnifies the insured in the event the county average per-acre yield
    (the ``payment yield'') falls below the insured's ``trigger yield.'' We
    are doing everything possible to ensure payment yields accurately and
    fairly represent the production experience of Montana's rangeland
    producers. RMA is diligently working with the Montana Agricultural
    Statistics Service as well as the Farm Service Agency (FSA) to obtain
    the best data needed to develop appropriate payment yields. While
    considerable interest has been generated in the program, we recognize
    specific problems need solutions. RMA contracted for an evaluation of
    the GRP program and is looking forward to potential solutions for
    making this product more effective. RMA also contracted for a
    feasibility study specifically for pasture and rangeland. This study
    suggested a risk management program could be developed for these
    individual crops, and RMA is proceeding with the development in fiscal
    year 2003.

    Nursery Crops
        RMA recently completed work on many significant changes to the
    nursery program. RMA will be contracting for a cost benefit analysis
    leading to a proposed rule in the Federal Register. The nursery
    industry will have the opportunity to comment on the rule, which is
    expected to be announced as a proposed rule during the 2003 calendar
    year. These changes were in response to producers' requests to modify
    the program to align it more closely with production practices and
    producer needs, balanced with the need to maintain program integrity.

    Research and Development
        During fiscal year 2002, over $19 million was obligated to
    qualified public and private organizations for research, feasibility
    studies, and development of risk management products. This represents
    approximately 45 contracts and partnership agreements. Examples include
    Florida fruit trees; Hawaii tropical fruit and tree research and
    development; livestock disease research and a sorghum pilot program;
    risk reduction for specialty crops in the southeast; direct marketing
    of perishable agricultural crops; and an apiculture insurance product,
    among others.

    Risk Management Education
        During fiscal year 2002, RMA focused its outreach and education
    program on underserved states, specialty crop producers, the Dairy
    Options Pilot Program, grants through the Cooperative State Research,
    Education, and Extension Service, and the Adjusted Gross Revenue (AGR)
    Cost Share Program. In 2002, RMA established cooperative agreements in
    historically underserved states with respect to crop insurance; 13
    cooperative agreements totaling $1.8 million were established to
    deliver crop insurance education to producers in Connecticut, Maine,
    New Hampshire, Pennsylvania, Vermont, West Virginia, Delaware,
    Maryland, New Jersey, New York, Utah, and Nevada. These cooperative
    agreements expand the amount of risk management information available
    to producers and promote risk management education opportunities. The
    agreements will also inform agribusiness leaders of increased emphasis
    on risk management and deliver risk management training to producers
    emphasizing outreach to small farms.
        In addition, RMA awarded 72 partnership agreements to specialty
    crop producers at a total cost of $3.7 million. RMA is in partnership
    to deliver risk management education to specialty crop producers with
    state departments of agriculture, universities, grower groups, and
    private agribusinesses. In conjunction with the Future Farmers of
    America, RMA also promotes youth participation and education in
    agriculture.

    National Outreach Program
        RMA has implemented several initiatives to increase awareness and
    service to small and limited resource farmers, ranchers, and other
    underserved groups. During 2002, customized regional and local
    workshops were held in several regions to deliver proven survival
    strategies directly to the producers. Forty-five competitively awarded
    partnership, with community-based, educational and nonprofit
    organizations will use $3.2 million to educate women, limited-resource,
    and other traditionally underserved farmers and ranchers. For example,
    an agreement with the Agricultural and Land Based Training Association
    will provide risk management training to beginning Latino farmers on
    the central coast of California. RMA is sponsoring and participating in
    approximately 15 Farm Bill briefings nationwide, targeting small and
    limited resource farmers and ranchers. In addition, the second national
    Survival Strategies for Small and Limited Resource Farmers and Ranchers
    is currently scheduled for November 2003 in California.

                            PROGRAM ISSUES/CONCERNS

        RMA received notice in November of the business failure of one of
    its larger reinsured companies, American Growers Insurance Company
    (AGIC). The Nebraska Department of Insurance took action under state
    law to place AGIC under regulatory supervision and later moved to place
    the company under a rehabilitation order. RMA has devoted significant
    resources to ensure that producers insured by AGIC are paid in full and
    on time. Our primary objectives are to protect policyholders, taxpayers
    and the integrity of the program. RMA is working with the Nebraska
    Department of Insurance to meet these objectives. RMA has established
    procedures for policyholders to transfer from AGIC to other approved
    providers. The transfer of fall 2003 policies is essentially complete.
    Spring policy transfers are being processed. RMA will continue to
    provide the necessary oversight, regulatory collaboration, and
    resources until the 2002 crop year claims are complete and existing
    2003 policies have been transferred to another insurance provider.

                          PROGRAM STRATEGIES/OVERSIGHT

        The President's fiscal year 2004 budget includes $1.0 million for
    monitoring and evaluating the reinsured companies. RMA is increasing
    oversight of the reinsured companies to promote a fair and effective
    delivery system. The actions being taken by RMA are:
      --Closer and more frequent monitoring of the current and emerging
            financial condition of each reinsured company;
      --Greater disclosure and transparency of specific operating expenses,
            including distribution system costs, and enhanced assessment of
            potential financial and operating exposures;
      --Comprehensive reviews of the Federal Crop Insurance Corporation's
            product portfolio and all manuals, handbooks and basic policies
            to identify process and product efficiencies;
      --Comprehensive evaluations of the current regulatory structure and
            dispute resolution procedures to identify any changes that
            would enable RMA to more proactively and cost-effectively
            ensure program integrity, service to the policyholder and
            protection of the taxpayers' interests;
      --Working with the reinsured companies and other delivery
            participants to review the current cost structure of the
            industry, to identify and pursue real cost savings, explore
            opportunities that may allow more effective risk
            diversification consistent with the market orientation of the
            program, and explore resource sharing where appropriate and
            effective; and
      --Increased monitoring and oversight of the insured companies'
            financial condition to protect program integrity. If FCIC
            determines that a reinsured company is (a) incurring expenses
            that jeopardize the financial stability of the company; (b)
            accepting business beyond its capacity to service or
            financially support that business; or (c) otherwise operating
            in a manner that adversely affects its financial condition or
            continued participation in the Federal Crop Insurance Program,
            then RMA will use all remedies available to protect the
            program.
        We will also pursue actions necessary to enhance the safety and
    soundness of the product delivery system.

                                   CONCLUSION

        As shown by my testimony today, the RMA crop insurance plan is
    working; higher participation and higher levels of coverage
    substantiate that Crop Insurance is becoming the main risk management
    tool for America's producers. Over $4 billion in coverage will go
    directly to producers this year. Buy-up coverage has dramatically
    increased. Insurance coverage has expanded to forage, fruits and
    vegetables, nursery products and livestock. Thousands of producers have
    participated in education and outreach activities. Cooperative
    agreements with state universities and department of agriculture have
    been established. New enforcement and sanction authority has been
    implemented as provided by ARPA. I ask that you approve this budget so
    RMA, under the direction of the USDA, can continue to provide an
    actuarially sound crop insurance program to America's agricultural
    producers. Thank you, Mr. Chairman and members of this committee. This
    concludes my statement. I will be happy to respond to any questions.

        Senator Bennett. Thank you very much, Dr. Penn.
        Now we go to Mark E. Rey, who is the Under Secretary for
    Natural Resources and Environment. Mr. Rey?

                       NATURAL RESOURCES AND ENVIRONMENT

        Mr. Rey. Chairman, I appreciate the opportunity to appear
    before you here today to present the fiscal year 2004 budget
    and program proposals for the Natural Resources Conservation
    Service. In light of the fact that the Senate was in session
    late, I will attempt to be very brief.
        Before I highlight our vision for 2004, though, I want to
    take a moment to mention the diligent work of the NRCS
    employees in accountability and results measurements for the
    funds provided by Congress last year. NRCS is more accessible
    to farmers, ranchers, and the general public, and the public is
    getting a good deal for the monies appropriated to NRCS.
        This week marks the 1-year anniversary of the signing of
    the Farm Bill. This Farm Bill represents historic
    opportunities, but it also represents a historic challenge for
    our natural resources professionals. The 2004 budget request
    for NRCS includes $1.2 billion in appropriated funding and $1.4
    billion in mandatory CCC funding for the Farm Bill conservation
    programs. That includes $850 million for the Environmental
    Quality Incentive Program. The 2004 budget also proposes $704
    million for Conservation Operations, which includes $577
    million for conservation technical assistance. This will
    continue the agency's activities that support locally led,
    voluntary conservation through the unique partnership that has
    been developed over the years with each soil and water
    conservation district.
        This partnership provides the foundation on which the
    Department addresses many of the Nation's critical natural
    resources issues, such as maintaining agricultural productivity
    and water quality. It leverages additional investments from
    non-Federal sources.
        I believe that the NRCS can continue to build upon the
    level of excellence demonstrated so far if it is provided the
    right support and the needed resources as provided in the
    President's budget request. Given the challenges presented by
    this Farm Bill, I suggest that we will be pursuing three areas
    of emphasis in 2004: first, to provide adequate support for
    Farm Bill implementation through a dedicated technical
    assistance account; second, to further leverage the assistance
    of our conservation partners through a new technical services
    provider program; and, third, to ensure adequate support for
    conservation operations with an emphasis on developing
    technical tools and streamlining efforts to gain efficiencies
    where possible.

                              PREPARED STATEMENTS

        In summary, I believe the Administration's 2004 request
    reflects sound policy and will provide a greater level of
    stability to the vital mission of conservation of private
    lands.
        Thank you very much.
        [The statements follow:]

                         Prepared Statement of Mark Rey

        Mr. Chairman and Members of the Committee, I am pleased to appear
    before you today to present the fiscal year 2004 budget and program
    proposals for the Natural Resources Conservation Service (NRCS) of the
    Department of Agriculture (USDA). First, I would like to congratulate
    you Mr. Chairman in your new role for the subcommittee. I would like to
    express gratitude to Members of this body for ongoing support of
    private lands conservation.
    Private Lands Conservation Gains
        Mr. Chairman, in order to bring us to a common starting point and
    provide a context for the President's fiscal year 2004 Budget
    Submission, I would like to take a moment to highlight some of the
    impressive gains in conservation that have been realized.
      --Farmers and ranchers have reduced soil erosion on cropland and
            pasture by 1.2 billion tons from 1982 to 1997 alone.
      --Landowners have reduced the loss of wetlands caused by agriculture
            to only 27,000 acres per year between 1992 and 1997. That's
            down from nearly 600,000 acres a year in the 1950s, 1960s, and
            1970s.
      --Landowners have used the Wetlands Reserve Program to restore nearly
            one million acres of wetlands since 1991.
      --They have used the Conservation Reserve Program to produce hunting
            and recreation benefits estimated at more than $700 million per
            year.
      --Since 1999, animal feeding operations have applied nutrient
            management on more than 5 million acres.
      --They have installed 26,000 waste management systems and completed
            more than 11,000 Comprehensive Nutrient Management Plans.
      --Through the Grazing Lands Conservation Initiative, owners of
            ranchland and pasture have developed grazing management plans
            for more than 80 million acres of grazing land since 1999.
      --And farmers and ranchers are helping improve air quality by
            increasing the amount of carbon stored in the soil through a
            process known as ``carbon sequestration.''
        All of these accomplishments have led to cleaner air and cleaner
    water, and conservation of our soil. But there is much more our private
    landowners can do, with the assistance of government and of partners.
    USDA will help landowners by offering proper incentives, and pursuing
    the science and policies that are needed to create a market for the
    additional environmental benefits landowners can produce and want to
    produce.
        The Administration is investing in private land conservation at an
    historic level to make this happen. The President's budget for fiscal
    year 2004 includes a record $3.9 billion for conservation on our
    Nation's farmlands, more than double the funding level in the past 2
    years.
    Performance and Results
        Mr. Chairman, before I provide the details of our future vision for
    fiscal year 2004, I wanted to take a moment to mention our diligent
    work in accountability and results measurement for the funds provided
    by Congress last year. I am proud of the strong efforts that NRCS has
    made in the past year under the leadership of Chief Knight on
    performance and results as well as making NRCS more accessible to
    farmers, ranchers, and the general public. I believe we are offering
    greater value to taxpayers, and can demonstrate increased
    accountability to Congress as well.
        For fiscal year 2002, USDA received a clean audit opinion for all
    Department financial statements.
        This clean rating was the result of our staff overcoming many
    hurdles such as ascertaining by appraisal the costs of real property,
    cleaning up years of neglect in personal property, accelerating month-
    end time tables in order to prepare reports, and correcting cash
    imbalances with the Department of Treasury. NRCS employees worked many
    nights and weekends to ensure the accuracy of reports and to correct
    state data that was in the system, leading to the unqualified opinion.
    Looking Ahead
        Mr. Chairman, last year at this time, we discussed the
    Administration's views for the future of agriculture policy and
    outlined several conservation provisions of Food and Agriculture
    Policy: Taking Stock for the New Century. A year later, virtually all
    of the Administration's conservation principles have been advanced in
    the form of the new Farm Bill. This Farm Bill represents historic
    opportunities, but it also represents a historic challenge for our
    natural resource professionals.
        The 2002 Farm Bill contains many new conservation programs designed
    to protect and enhance the environment. The Department is now faced
    with the demanding task of implementing this Farm Bill which provides
    more than $17 billion in new funding over the next 10 years. The 2004
    budget request in the conservation area recognizes the importance of
    this task, as well as the need to continue to support underlying
    programs to address the full range of conservation issues at the
    national, State, local and farm level.
        The 2004 budget request for NRCS includes $1.2 billion in
    appropriated funding, and $1.4 billion in mandatory CCC funding for the
    Farm Bill conservation programs, including $850 million for the
    Environmental Quality Incentive Program. The appropriation request
    includes $577 million for conservation technical assistance for the
    base programs that support the Department's conservation partnership
    with State and local entities. One new element in the NRCS account
    structure, proposed initially in a 2003 budget amendment, is a new Farm
    Bill Technical Assistance Account that will fund all technical
    assistance costs associated with the implementation of all the Farm
    Bill conservation programs. In 2004, this new appropriation account is
    requested at $432 million.
        The 2004 budget for NRCS will also enable the agency to maintain
    support for important ongoing activities such as addressing the
    problems associated with polluted runoff from animal feeding operations
    and providing specialized technical assistance to landusers on grazing
    lands. In addition, limited increases will be directed to other high
    priority activities such as addressing air quality problems in
    noncompliance areas.
    Technical Assistance
        Technical Assistance funding for conservation programs has been the
    subject of ongoing controversy for several years and a topic of
    interest to this Subcommittee. A fiscal year 2003 Budget amendment
    provided a long-term solution to the technical assistance issue by
    establishing a new Farm Bill Technical Assistance account and
    dedicating additional resources for this purpose. While Congress
    rejected this proposal, we appreciate your taking proactive steps to
    deal with the long-standing problem of technical assistance for Farm
    Bill conservation programs in the Consolidated Appropriations
    Resolution for fiscal year 2003. However, we believe that this
    legislation contains many deficiencies. As such, we would like to
    continue working with the Subcommittee on an approach that is mutually
    acceptable and beneficial.
        Conservation Operations (CO).--The 2004 budget proposes $704
    million for CO which includes $577 million for Conservation Technical
    Assistance (CTA). This will continue the agency's activities that
    support locally-led, voluntary conservation through the unique
    partnership that has been developed over the years with each
    conservation district. This partnership provides the foundation on
    which the Department addresses many of the Nation's critical natural
    resource issues such as maintaining agricultural productivity and water
    quality and leverages additional investment from non-Federal sources.
        The CTA budget will also enable NRCS to increase support for
    certain activities as well as maintain funding for ongoing high
    priority work. For example, increases are provided in the budget for
    additional specialized staff and training to help address air quality
    problems in areas that are not in compliance with national air quality
    standards; to enhance the Customer Service Toolkit which provides NRCS
    field staff with the geographic data and technical tools that they need
    to adequately deliver farm bill conservation and other field programs;
    and to establish a monitoring and evaluation regiment that will provide
    more meaningful performance goals and measures for Farm Bill
    conservation programs.
        Last year, I pointed out the excellent customer service ratings
    that NRCS staff has received from an independent analysis. Mr.
    Chairman, I believe that NRCS can continue and build upon this level of
    excellence, if they are given the right support and the needed
    resources as provided in the President's budget request.
        Given the challenges presented in the Farm Bill, I suggest the
    following areas of emphasis:
      --Provide adequate support for Farm Bill implementation through a
            dedicated Technical Assistance account.
      --Further leverage assistance for our conservation partners and
            through the new Technical Service Provider system. These new
            sources of technical assistance will complement our existing
            delivery system.
      --Ensure adequate support for Conservation Operations, with an
            emphasis on developing technical tools and streamlining efforts
            to gain efficiencies where possible.
        Mr. Chairman, in summary, we all know that we are trying to plan
    for the future under an atmosphere of increasingly austere budgets and
    with a multitude of unknowns on the domestic and international fronts.
    But I believe that the Administration's fiscal year 2004 request
    reflects sound policy and will provide a greater level of stability to
    the vital mission of conservation on private lands. The budget request
    reflects sound business management practices and the best way to work
    for the future and utilize valuable conservation dollars.
        I thank Members of the Subcommittee for the opportunity to appear,
    and would be happy to respond to any questions that Members might have.
                                     ______

        Prepared Statement of Bruce I. Knight, Chief, Natural Resources
                              Conservation Service

        Thank you for the opportunity to appear before you today to discuss
    our fiscal year 2004 budget request. I assumed the responsibility of
    Chief of the Natural Resources Conservation Service (NRCS) one year
    ago, and believe that this period of time has presented one of the most
    significant junctures in private lands conservation.
        One year ago, we witnessed enactment of one of the most important
    pieces of conservation legislation history in the form of the 2002 Farm
    Bill. The legislation responds to a broad range of emerging
    conservation challenges faced by farmers and ranchers, including soil
    erosion, wetlands, wildlife habitat, and farm and ranchland protection.
    Private landowners will benefit from a portfolio of voluntary
    assistance, including cost-share, land rental, incentive payments, and
    technical assistance. The Farm Bill places a strong emphasis on the
    conservation of working lands--ensuring that land remaing both healthy
    and productive.
        The conservation title of the Farm Bill builds upon past
    conservation gains and responds to the call of farmers and ranchers
    across the country for additional cost-sharing resources. In total,
    this legislation represents an authorization of more than $17 billion
    in increased conservation spending. In addition, the legislation will
    expand availability and flexibility of existing conservation programs,
    and increase farmer participation and demand for NRCS assistance.
        Three weeks ago, we released the funding allocations to our states
    for all of the conservation programs. Through these allocations, more
    than $1.8 billion in assistance has been made available to farmers and
    ranchers. And beyond allocating the funds, we have been working
    expeditiously to set in place the program guidelines and technical
    tools needed to implement these conservation opportunities on the
    ground. To date, we have published in the Federal Register rulemaking
    for every ongoing Farm Bill conservation program NRCS administers. This
    includes Final Rules for the Wetland Reserve Program, Wildlife Habitat
    Incentives Program, Environmental Quality Incentives Program, and the
    Farm and Ranch Lands Protection Program. We are making funds available
    under the Grassland Reserve Program. I am also pleased to note that we
    had an extremely robust comment period and response from all sectors of
    the agriculture and conservation interests to our Advanced Notice of
    Proposed Rulemaking on the Conservation Security Program (CSP). We are
    currently analyzing and incorporating the feedback we have received as
    we begin development of a proposed rule for CSP. Given the widespread
    provisions and complexity of the Farm Bill, I think this record is a
    testament to the hard work and dedication of our staff and I am proud
    of what we have accomplished. One year after enactment, we are open for
    business, and ready to the needs of farmers and ranchers.

                          MEETING EMERGING CHALLENGES

        Throughout the course of fiscal year 2002 and fiscal year 2003 as
    Congress developed and enacted the new Farm Bill, I am proud of the
    proactive steps that our agency took in order to prepare for emerging
    challenges. I would like to highlight our work in this area.
    Increasing Third-Party Technical Assistance
        With the historic increase in conservation funding made available
    by the 2002 Farm Bill, NRCS will look to non-federal partners to supply
    the technical assistance needed to plan and oversee the installation of
    conservation practices. NRCS will use the new Technical Service
    Provider (TSP) system to facilitate this technical assistance delivery.
    The TSP system ensures that producers have the maximum flexibility for
    choosing a third-party provider to work on their land, while also
    ensuring that TSP providers are properly certified and meet NRCS
    standards.

    Expanding Local Leverage
        One of the key attributes that NRCS has developed for local
    leverage is the Earth Team volunteer program. We, at NRCS, are proud of
    the Earth Team's accomplishments and the record expansion that this
    program has experienced. The National Earth Team Status Report for
    fiscal year 2002 showed a 19 percent increase in the number of
    volunteers, a 17 percent increase in the number of volunteer hours and
    a 5 percent increase in the number of NRCS offices using volunteer
    services over the previous year's figures. For fiscal year 2002, the
    total value of volunteer time was more than $17 million, based on the
    $16.05 hourly rate established by nationally recognized volunteer
    organizations. The total amount invested nationally in the Earth Team
    is approximately $199,000, which gives NRCS a return on its investment
    equal to $86 for every $1 spent.
        Since the Earth Team began in 1982, the number of volunteers has
    gone from 327 to more than 38,000 and the number of hours donated has
    jumped from 29,100 to 1,089,100. I believe that Earth Team volunteers
    will be increasingly important as we move forward to implement the new
    Farm Bill and provide more conservation on private lands in the future.
    It serves as an excellent example of the kind of partnership effort
    needed to accomplish the massive challenge of getting private lands
    conservation out to those farmers, ranchers, and private landowners who
    need assistance.

    Lean and Local and Accessible
        One of the core themes that I have stressed to our agency is the
    need to be lean and local. Throughout the year, we have worked hard to
    provide as much decision-making flexibility to the local level as
    possible. In addition, we have worked to provide streamlined business
    processes to improve use of valuable staff resources.
        One of the most important investments we can make today in improved
    efficiency is development of new and improved technical tools for use
    by our staff and the general public. Recently, we launched the
    Electronic Field Office Technical Guide (EFOTG). The EFOTG provides
    conservation information and scientific and technological resources on
    the Web in an easy-to-use environment. The electronic technical guides
    are linked to 8,000 NRCS web pages and external sites. Content includes
    data in technical handbooks and manuals, scientific tools that help
    generate conservation alternatives, conservation practice standards,
    conservation effects case study reports and other electronic tools for
    evaluating the effects of conservation technical assistance. In total,
    the EFOTG will make our information more accessible, and supports the
    President's Management Agenda for E-Government. The EFOTG is part of
    our larger efforts at developing SMARTECH to provide technical
    information to a broad base of conservation professionals and the
    general public.

    Access and Accountability
        As a core principle, we need to increase the accessibility of NRCS
    to the public, not only by providing conservation data, but also by
    making our internal processes more easily understood. This year, we
    have taken steps to make items such as our allocation formulas, backlog
    and program participation data much more transparent to the general
    public. We have worked to foster competition and reward performance, in
    our internal functions and also in contracting and cooperative
    agreements. Throughout this process, our goal has been to provide the
    best and most efficient service to producers at the local level and to
    make NRCS more farmer friendly and accessible.
        We know this process will take time, and I look forward to
    continuing this effort into the future.

                             DISCRETIONARY FUNDING

        While we have come a long way in the past year, the future presents
    many emerging challenges and bright horizons. The President's fiscal
    year 2004 budget request for NRCS reflects our ever-changing
    environment by providing appropriate resources for the ongoing mission
    of NRCS and ensuring that new opportunities can be realized.

    Conservation Operations
        The President's fiscal year 2004 budget request for Conservation
    Operations proposes a funding level of $704 million which includes $577
    million for Conservation Technical Assistance (CTA). The CTA budget
    will enable NRCS to increase support for certain activities as well as
    maintain funding for ongoing high priority work. For example, increases
    are provided in the budget for additional specialized staff and
    training to help address air quality problems in areas that are not in
    compliance with national air quality standards; to enhance the Customer
    Service Toolkit which provides NRCS field staff with the geographic
    data and technical tools that they need to adequately deliver Farm Bill
    conservation and other field programs; and, to establish a monitoring
    and evaluation regiment that will provide more meaningful performance
    goals and measures for Farm Bill conservation programs.
        High priority ongoing work that will be maintained includes
    addressing water pollution associated with animal agriculture. In
    addition to regular technical assistance support provided to grazing
    land customers, the budget proposes to maintain funding for Grazing
    Land Conservation Initiative (GLCI) at $22 million in 2004. The GLCI is
    a private coalition of producer groups and environmental organizations
    that supports voluntary technical assistance to private grazing
    landowners and managers.
        The Conservation Operations account funds the basic activities that
    make effective conservation of soil and water possible. It funds the
    assistance NRCS provides to conservation districts, enabling people at
    the local level to assess their needs, consider their options, and
    develop area-wide plans to conserve and use their resources.
    Conservation Operations support the site-specific technical assistance
    NRCS provides to individual landowners to help them develop plans that
    are tailored to their individual economic goals, management
    capabilities, and resource conditions. It also includes developing the
    technical standards and technical guides that are used by everyone
    managing soil and water--individuals, local and State agencies and
    other Federal 6 agencies. It includes our Soil Survey and Snow Survey
    Programs and other natural resources inventories, which provide the
    basic information about soil and water resources that is needed to use
    these resources wisely. This basic inventory work contributes to
    homeland security as well as to the long-term sustainability of the
    Nation's natural resource base.
        We have made great strides in developing an effective
    accountability system with the support of Congress. This accountability
    system has allowed us to accurately track the accomplishments of
    Conservation Operations. In fiscal year 2002, technical assistance
    supported by Conservation Operations funds enabled land users to treat
    9.46 million acres of cropland and 11.5 million acres of grazing land
    to the resource management system level (sustainable management). On 7
    million acres of cropland that had been eroding at severely damaging
    rates, NRCS technical assistance enabled farmers to reduce erosion to
    the tolerable rate or less, thus preserving the productive capacity of
    the soil.
        In fiscal year 2002, NRCS continued to assist producers to respond
    to the publics concern about water quality through the development of
    regulations addressing water quality at local, State, and Federal
    levels. We applied practices to help protect water quality, including
    5.4 million acres of nutrient management, 1.84 million acres where
    irrigation water management was improved, and 578,419 acres of buffer
    practices. All of these activities were supported by Conservation
    Operations; in some cases, funds from other Federal programs or State
    or local sources were utilized in combination with Conservation
    Operations.
        Adequate funding for Conservation Operations in 2004 will enable
    NRCS to continue to provide assistance to producers across the country.
    It will also enable us to increase our attention to critical resource
    concerns, such as animal feeding operations and assistance to producers
    who will be required to take actions under the new CAFO rule. EPA
    estimates that 15,500 producers will come under the new regulatory
    framework. Most if not all of these producers will require planning
    assistance from NRCS with nutrient management-related concerns.
        Another serious concern continues to be the health of private
    rangeland and pastureland. The Nation's 630 million acres of non-
    Federal grazing lands are vital to the quality of the Nation's
    environment and the strength of its economy. In November 2002, we were
    successful in issuing new technical guidance to field staff for
    conservation assistance on private grazing lands. Our guidance will
    help provide producers with the ecological principals associated with
    managing their land and implementing a conservation plan that meets
    their management objectives and natural resource needs. I believe that
    we need to offer a high level of excellence to grazing land and am
    proud of the great strides that we are making in this area. Sustained
    resources in Conservation Operations will mean that needed expertise
    can be brought to bear at the field level on farms and ranches.

    Farm Bill Technical Assistance
        Fully funding technical assistance for the Farm Bill programs is
    essential to ensure the environmental benefits that are expected from
    the significant increase in conservation spending. In a 2003 budget
    amendment, the Administration proposed establishing a new $333 million
    account to fund the technical assistance needed to implement the
    conservation programs authorized in the 2002 Farm Bill. The 2004 budget
    proposes the Farm Bill Technical Assistance (FBTA) account at a level
    of $432 million and would provide technical assistance funding for the
    2002 Farm Bill conservation programs which include the Conservation
    Reserve Program, the Wetland Reserve Program, the Environmental Quality
    Incentives Program, the Wildlife Habitat Incentives Program, the Farm
    and Ranchland Protection Program, the Conservation Security Program,
    and the Grasslands Reserve Program.
        This new account will be used to plan, design, and oversee the
    installation of conservation practices, and maximize the amount of
    dollars available to help farmers and ranchers install on-the-ground
    conservation projects. Establishing one technical assistance account
    will also improve the accountability and transparency of the
    conservation program's cost of delivery.
        Watershed and Flood Prevention Operation (WFPO).--The 2004 budget
    proposes funding for the Public Law 566 Watershed Operations, but
    requests no funding for the Emergency Watershed Protection program.
    With emergency spending being so difficult to predict from year to
    year, the budget proposes instead to direct available resources to
    those projects that are underway and for which Federal support is
    critical for their successful implementation. Funding for the regular
    watershed program will also address the backlog of unmet community
    needs by ensuring implementation of those watershed projects that are
    designed to meet these needs.
        Watershed Surveys and Planning.--NRCS works with local sponsoring
    organizations to develop plans on watersheds dealing with water
    quality, flooding water and land management, and sedimentation
    problems. These plans then form the basis for installing needed
    improvements. The Agency also works cooperatively with State and local
    governments to develop river basin surveys and floodplain management
    studies to help identify water and related land resource problems and
    evaluate alternative solutions. The 2004 Budget requests $5 million to
    ensure that this important work is continued.
        Watershed Rehabilitation Program.--One of the agency's strategic
    goals is to reduce risks from drought and flooding to protect community
    health and safety. A key tool in meeting this goal is providing
    financial and technical assistance to communities to implement high
    priority watershed rehabilitation projects to address the more than
    11,000 dams installed with USDA assistance that will be or are now at
    the end of their 50-year life span. Some dams already pose a
    significant threat to public safety and these will naturally be the
    first to be addressed. The budget proposes $10 million to continue the
    work begun in 2002.
        Resource Conservation and Development (RC&D).--The purpose of the
    RC&D program is to encourage and improve the capability of State and
    local units of government and local nonprofit organizations in rural
    areas to plan, develop, and carry out programs for RC&D. NRCS also
    helps coordinate available Federal, State, and local programs. The 2004
    budget proposes a level of $50 million which will support the 368 RC&D
    areas now authorized.

                         FARM BILL AUTHORIZED PROGRAMS

        Environmental Quality Incentives Program (EQIP).--The purpose of
    EQIP is to provide flexible technical, educational, and financial
    assistance to landowners that face serious natural resource challenges
    that impact soil, water and related natural resources, including
    grazing lands, wetlands, and wildlife habitat management. We have seen
    that producer demand continues to far outpace the available funding for
    EQIP. During fiscal year 2002, we received 70,000 more applications
    than could be funded, representing financial assistance requests of
    $1.4 billion for one fiscal year. Projections for the future are that
    the demand will continue to eclipse the program. At the end of January
    2003, we published revised program rules for EQIP resulting from the
    changes enacted in the new Farm Bill. We believe that the increased
    program flexibility and improved program features will continue to make
    EQIP one of the most popular and effective conservation efforts federal
    government-wide.
        EQIP was reauthorized by the 2002 Farm Bill through 2007 at a total
    funding level of $5.8 billion, including $1 billion for 2004. The
    budget proposes a level of $850 million for financial assistance. The
    Farm Bill Technical Assistance account will provide the technical
    assistance to implement EQIP.
        Wetlands Reserve Program (WRP).--WRP is a voluntary program in
    which landowners are paid to retire cropland from agricultural
    production if those lands are restored to wetlands and protected, in
    most cases, with a long-term or permanent easement. Landowners receive
    fair market value for the land and are provided with cost-share
    assistance to cover the restoration expenses. The 2002 Farm Bill
    increased the program cap to 2,275,000 acres. The fiscal year 2004
    budget request estimates that about 200,000 acres will be enrolled in
    2004.
        Grassland Reserve Program (GRP).--The 2002 Farm Bill authorized the
    GRP to assist landowners in restoring and protecting grassland by
    enrolling up to 2 million acres under easement or long term rental
    agreements. The program participant would also enroll in a restoration
    agreement to restore the functions and values of the grassland. The
    2002 Farm Bill authorized $254 million for implementation of this
    program during the period 2003-2007.
        Conservation Security Program (CSP).--CSP, as authorized by the
    2002 Farm Bill, is a voluntary program that provides financial and
    technical assistance for the conservation, protection, and improvement
    of natural resources on Tribal and private working lands. The program
    provides payments for producers who practice good stewardship on their
    agricultural lands and incentives for those who want to do more. In
    2004, the budget proposes to cap CSP spending at a total of $2 billion
    over ten years.
        Wildlife Habitat Incentives Program (WHIP).--WHIP is a voluntary
    program that provides cost-sharing for landowners to apply an array of
    wildlife practices to develop habitat will support upland wildlife,
    wetland wildlife, threatened and endangered species, fisheries, and
    other types of wildlife. The 2002 Farm Bill authorized $360 million for
    implementation of the program during the period 2002-2007 including $60
    million in 2004. The budget proposes to cap WHIP at $42 million for
    financial assistance. The Farm Bill Technical Assistance account will
    provide the technical assistance to implement WHIP.
        Farm and Ranchland Protection Program (FRPP).--Through FRPP, the
    Federal Government establishes partnership s with State, local or
    Tribal government entities or nonprofit organizations to share the
    costs of acquiring conservation easements or other interests to limit
    conversion of agricultural lands to non-agricultural uses. FRPP
    acquires perpetual conservation easements on a voluntary basis on lands
    with prime, unique, or other productive soil that presents the most
    social, economic, and environmental benefits. FRPP provides matching
    funds of no more than 50 percent of the purchase price for the acquired
    easements. The 2002 Farm Bill authorized a total of $597 million for
    the program through 2007 including $125 million in 2004. The budget,
    partially proposes a level of $112 million in financial assistance. The
    Farm Bill Technical Assistance account will provide the technical
    assistance to implement FRPP.

    Conclusion
        As we look ahead, it is clear that the challenge before us will
    require dedication of all available resources--the skills and expertise
    of the NRCS staff, the contributions of volunteers, and continued
    collaboration with partners. Conservation Districts, Resource
    Conservation and Development Councils and many valuable partners
    continue to make immeasurable contributions to the conservation
    movement. It is this partnership at the local level that makes a real
    difference to farmers and ranchers. As we move forward, we will
    accelerate the use of third-party sources of technical assistance as
    well. We recognize that the workload posed by future demand for
    conservation will far outstrip our capacity to deliver and seek to
    complement our resources with an appropriate system of qualified
    expertise.
        But it will take a single-minded focus and resolve if we are to be
    successful. I am proud of the tenacity that our people exhibit day in
    and day out as they go about the work of getting conservation on the
    ground and I believe that we will be successful. But it will require
    the continued collaboration of all of us, especially Members of this
    Subcommittee because available resources will ultimately determine
    whether our people have the tools to get the job done. I look forward
    to working with you as move ahead in this endeavor.
        This concludes my statement. I will be glad to answer any questions
    that Members of the Subcommittee might have.

        Senator Bennett. Thank you, sir.
        We are now going to hear from Thomas C. Dorr, who is the
    Under Secretary for Rural Development. Mr. Dorr.

                               RURAL DEVELOPMENT

        Mr. Dorr. Thank you, Mr. Chairman.
        I, too, appreciate the opportunity to come before you this
    morning to present to you the President's fiscal year 2004
    budget request for USDA's Rural Development. But as Mr. Rey
    first indicated, I would also like to acknowledge the exemplary
    performance of our associates at Rural Development and their
    ability to get our programs out in a timely and effective
    manner.
        This budget strongly supports our vision of Rural
    Development as rural America's venture capitalist. Rural
    Development provides equity, liquidity, and technical
    assistance to finance and foster growth, developing new
    opportunities for home ownership, business development, and
    critical community and technology infrastructure. It is with
    this vision in mind that Rural Development's mission has been
    designed to deliver programs in a way that will support, first,
    increasing economic opportunity and, second, improving the
    quality of life for all rural Americans.
        This is a very basic concept to increase economic
    opportunity and improve the quality of life. But it is these
    fundamental principles that guide our mission at Rural
    Development. This organization, which used to be known as the
    old Farmers Home Administration, frequently known as the lender
    of last resort, is now Rural Development. And we are the
    venture capitalist for rural America.
        With this renewed sense of understanding and purpose, Rural
    Development is utilizing the tools and resources at hand to
    support economic growth in rural America. Let me just highlight
    some of our more significant efforts.
        Our single-family housing program forms the bedrock of our
    commitment to rural America. It is a commitment that allows
    over 40,000 families annually to realize their dream of home
    ownership. This Administration knows that owning a home is the
    oldest and best form of building equity, and we must encourage
    more families to invest in their future.
        We are also providing rural community facility loans and
    grants for municipal, health care, child- and adult-care
    facilities, as well as public safety equipment of all kinds.
    And through our rural business programs, we expect to create or
    save through fiscal year 2003 funding over 90,000 jobs through
    the Business and Industry Guaranteed Loan Program and 30,000
    jobs through local business revolving loan funds.
        Additionally, we continue to implement the value-added
    Agricultural Product Market Development Grant Program through
    which over $57 million has been committed during the last 2
    fiscal years and an additional $40 million will be committed
    this year.
        On April 7th of 2003, we announced a $23 million farm bill-
    related Renewable Energy and Energy Efficiency Systems Grant
    Program to assist our rural small businesses, farmers, and
    ranchers to develop energy-efficient systems. Through these
    efforts, along with the tax incentives being considered by
    Congress, support for renewable energy ventures will be greatly
    enhanced. They can provide an important boost toward America's
    overall independence from foreign energy supplies.
        An added focus this year is the implementation of the farm
    bill Rural Business Investment Program. This is a complex new
    initiative, and we are continuing to work with SBA to
    coordinate the implementation of this important program.
        In our Rural Utilities Program, we are working to support
    the build-up of our rural technology infrastructure through
    making nearly $1.5 billion in rural broadband access loan funds
    available, along with our ongoing efforts through the
    telemedicine, distance learning loan and grant program.
    Additionally, our Water and Wastewater Program is providing
    communities with funding necessary to support the development
    of water and wastewater infrastructure.
        Finally, I wish to report that our effectiveness in
    delivering all of Rural Development programs will ultimately be
    measured by a rigorous standard of accountability. We believe
    it is essential to be accountable to the Congress, the
    President, and, most importantly, the rural citizens which our
    programs are intended to benefit. And in that vein, we have
    several major initiatives underway.
        One of our top initiatives is to look at the effectiveness
    of the current cooperative model for assisting farmers and
    ranchers, who struggle to convert equity and dreams into the
    kinds of economic opportunity they need and desire.
        We are also focused on addressing and shoring up our multi-
    family housing portfolio. There are many converging dynamics
    relative to the current portfolio, which includes aging
    building complexes over 20 years of age.
        Finally, we must work harder to ensure that the people of
    rural America are aware of what is available to assist them
    with their local efforts to increase economic opportunities and
    to improve their quality of life.

                              PREPARED STATEMENTS

        The goal of the President and Rural Development is to
    support these communities in their quest for long-term
    sustainability and to place at their disposal the tools they
    need to succeed. I know you share this common value and desire
    to support rural America. We do as well. And, Mr. Chairman, we
    appreciate the support this committee has provided to this
    mission and to rural America.
        At this time I will be happy to answer any questions that
    you may have.
        [The statements follow:]

                      Prepared Statement of Thomas C. Dorr

        Thank you Mr. Chairman. Mr. Chairman, Members of the Committee, I
    appreciate the opportunity to come before this committee to present to
    you the President's fiscal year 2004 Budget request for USDA Rural
    Development.
        This is my first opportunity to appear before you--as Under
    Secretary for Rural Development--I am honored by the opportunity
    President Bush has given me to serve my country in this position and to
    assist him in directing Federal resources to help rural America grow
    and prosper in an ever-changing environment.
        My own roots in rural America run deep. For all but 9 years of my
    life I have lived, worked and enjoyed life on a farm in Northwest Iowa,
    and I am appreciative for the values these experiences have instilled
    in me.
        I seek daily to apply those fundamental values and life experiences
    to the way we do business at Rural Development. My goal as Under
    Secretary is to pursue a clear vision and encourage a renewed
    commitment to the people and communities of rural America. I come to
    work each day determined to renew the energy and belief in ourselves
    and in all of rural America. By so doing, this will enable us to assure
    continued focus on our outreach efforts. This new sensitivity and
    belief in ourselves--not just as an agency or department--but our
    belief in the good people of rural America will drive all our efforts
    in Rural Development.
        So I come before this Committee Mr. Chairman with a keen
    understanding of rural issues and a strong desire to implement federal
    programs provided through this President and Congress in a way that
    families and communities can utilize most effectively the available
    resources and opportunities.

                                     VISION

        The President's 2004 budget proposal is key to economic
    revitalization in rural America. It strongly supports our vision of
    Rural Development as the Venture Capitalist for Rural America. Rural
    Development provides equity, liquidity and technical assistance to
    finance and foster growth in existing and new opportunities for
    homeownership, business development, and critical community and
    technology infrastructure. The return on this equity is the economic
    growth realized through direct assistance and incentivizing private
    market forces.
        So why do I say Rural Development is the venture capitalist of
    rural America? Because we, the President, and Congress believe in rural
    America. We believe the return on our investment will be a stronger
    rural economy and a higher quality of life, along with all the
    ancillary benefits derived from utilizing the talents of all rural
    Americans. Revitalized economic activity provides new opportunities for
    rural youth and helps stem out-migration from rural areas. It is
    critically important that we find ways to entice our young people to
    stay or even return to Rural America.

                                    MISSION

        It is with this vision in mind that Rural Development's mission has
    been designed to deliver programs in a way that will support (1)
    increasing economic opportunity and (2) improving the quality of life
    of rural residents.
        Historically, Rural Development has been associated with the old
    Farmers Home Administration--the lender of last resort. However, in
    order to properly address these mission goals, it is important to
    recognize the changes that have occurred throughout rural America. In
    the 1980 Census, it was revealed that over 960 counties derived at
    least 20 percent of gross income from production agriculture. The 2000
    Census data indicated only 262 counties retain that distinction. These
    changes in our rural economy drive our efforts today. We must be
    aggressive in helping our communities develop new economic vehicles
    that will enable them to grow and prosper. The philosophies and drive
    of the old Farmers Home Administration no longer apply to today's Rural
    Development and today's rural communities.
        It is with this renewed sense of understanding and purpose that
    Rural Development, under President Bush's leadership, has become rural
    America's venture capital firm. I would add that in contrast to reports
    that Rural America is dying, there is no reason to believe that we
    can't have economic growth in rural America. We have the essential
    tools and resources at hand.

                                RESPONSIBILITIES

        Through Rural Development's Rural Business-Cooperative Service;
    Rural Housing Service; and Rural Utilities Service we offer a multitude
    of programs that support economic development.
        Let me share with you a brief overview of the wide range of
    programs we administer.
    Rural Housing
        Housing is important because a home is the basis for the family.
    This President feels a safe secure home is the foundation for the
    family unit. In addition, owning a home is the oldest and best form of
    building equity. This is why the President has proposed a 32 percent
    increase for single-family housing direct loans in his 2004 budget.
        In general, we provide loans and repair grants for single family,
    multi-family, and farm labor housing.
        We also provide rural community facility loans and grants for
    municipal, health care, child and adult care facilities; as well as
    public safety equipment and facilities.
    Rural Business-Cooperative Services
        Through our rural business programs, we provide Business and
    Industry Guaranteed loans,
        Fund the Intermediary Relending Program, which provides capital for
    local revolving loan funds, and
        Have implemented the Value-Added Agricultural Product Market
    Development grants programs (VADGs).
    Rural Utilities
        In our rural utilities program, we support technology
    infrastructure through rural Broadband--Telemedicine/Distance Learning;
        Rural Community water and wastewater loans and grants; and Electric
    and telephone direct and guaranteed loans.
        Our programs may be traditional in name--but they must be used in
    new and innovative ways.
        Rural Business-Cooperative Services should be mindful of the need
    to improve business knowledge and skills. Serious attention needs to be
    given to business strategies, finance, marketing and decision making
    that will enable farmers, business and community leaders to lead
    dynamic, creative businesses that can succeed.
        Rural Housing Services must think about how its various programs
    can serve as a foundation for helping rural families build wealth
    through homeownership. We must be aggressive in ensuring that America's
    minority families gain access to financial resources that will allow
    increased levels of minority homeownership. The President has set a
    goal of assisting 5.5 million more minority families in attaining their
    dream of homeownership by the year 2010. It is a goal that we are
    diligently working to meet.
        Finally, our utilities programs must focus on the future.
    Technology infrastructure will do for rural America in the 21st century
    what railroads did in the 19th century and highways in the 20th
    century. Rural America's economic future and her ability to remain
    viable in the global community will be dependent upon the development
    of the necessary communications infrastructure.
        In all of these programs, it is important to remember that our
    effectiveness in delivering Rural Development programs will ultimately
    be measured by a rigorous standard of accountability. This
    accountability applies to our Congress, President and most importantly
    the rural citizens, which our programs are intended to benefit.
        In that vein, we have several major initiatives underway:

                              PRIORITY INITIATIVES

        One of our top initiatives is to look at the effectiveness of the
    current cooperative model for assisting farmers and ranchers. The
    traditional cooperative model was developed with good intentions.
    However cooperatives are now struggling to convert the equity and
    dreams of many rural Americans and agricultural producers into the
    kinds of economic opportunity they need and desire. Rural Development's
    Rural Business-Cooperative Service group should be at the focal point
    of this discussion and we intend to be.
        We are also focused on addressing and shoring up our multi-family
    housing portfolio. There are many converging dynamics relative to the
    current portfolio, including the fact that it is an aging portfolio
    with many building complexes over 20 years old.
        Another focus is on doing a better job of marketing our programs to
    rural America. Simply put, we must work harder to assure that the
    people of rural America are aware of what is available to assist them
    with their local efforts and initiatives to increase economic
    opportunities and improve quality of life. I believe that local
    communities are the cradles of innovation and, if properly encouraged
    and assisted, they will provide models and vehicles to help all of
    rural America better address its changing landscape.
        Cooperation, coordination, and collaboration, both within Rural
    Development and with other public and private partners will be
    essential to maximizing the impacts of our programs. Our commitment
    will be evident through an extensive communications effort, to raise
    the visibility of Rural Development, and minimize the perception that
    programs are operated under individual agencies. We recognize Rural
    Development needs to articulate comprehensive development themes, and
    not promote individual agencies and their specific programs. We also
    recognize there is still a public perception that the Farmers Home
    Administration exists, with its role of being the lender of last
    resort. Rural Development will engage in a comprehensive communications
    plan that will clarify our mission to the public, clearly identify our
    accessibility, and underscore our commitment to cooperation,
    coordination, and collaboration across our programs.

                                    SUMMARY

        Rural communities, much like agriculture, have been undergoing
    critical changes that are important to their long-term sustainability
    and growth. The goal of the President and Rural Development is to
    support these communities and place at their disposal the tools they
    need to succeed. I know you share this common value and desire to
    support rural Americans in their efforts to capitalize on economic
    opportunities and an improved quality of life for their families and
    communities. With the support of the President, Congress, and public
    and private sector partners, the economic future of rural America will
    be strong.

                        RURAL DEVELOPMENT BUDGET REQUEST

        Mr. Chairman, the President's commitment to rural America is
    reflected in the budget request for fiscal year 2004. The Rural
    Development request totals $2.3 billion in budget authority, to support
    $12 billion in direct loans, loan guarantees, grants and technical
    assistance, and to pay administrative expenses.
        I will now discuss the requests for specific programs. Rural
    Utilities Service
        The Rural Utilities Service (RUS) provides financing for essential
    infrastructure needs including electric, data/telecommunications, and
    water and waste disposal services that are prerequisite for economic
    development in rural areas. The RUS program request totals nearly $4.9
    billion in program level, which is comprised of $2.6 billion for
    electric loans, $495 million for rural data/telecommunication loans,
    $50 million for Distance Learning and Telemedicine loans, $25 million
    for Distance Learning and Telemedicine grants, almost $200 million in
    loans and $2 million in grants to support broadband transmission, $1.1
    billion for direct and guaranteed Water and Waste Disposal loans, $346
    million for Water and Waste Disposal Grants, and $3.5 million for Solid
    Waste Management Grants.
        Electric program funding will benefit about 3.3 million consumers
    from systems improvement, through upgrading almost 187 rural electric
    systems. Approximately 59,800 jobs will be created as a result of
    facilities constructed with Electric program funds. Almost 133,000 new
    subscribers will receive telecommunications service, over 495,000
    existing subscribers will receive improved service, and about 11,385
    jobs will be generated as a result of facilities constructed with
    Telecommunications funds. RUS will be analyzing loans made in 2002 and
    2003 to determine ways to improve the electric and telecommunication
    programs. This will include a review of potential targeting
    opportunities to increase funding to needy areas. Under the Distance
    Learning and Telemedicine programs, approximately 140 schools will
    receive distance learning facilities and 55 health care providers will
    receive telemedicine facilities. Over 40,500 jobs will be generated as
    a result of facilities constructed with water and waste disposal
    program funds, as about 648 rural water systems and about 347 rural
    waste systems are developed or expanded in compliance with the Safe
    Drinking Water Act and Federal and State environmental standards.
        The Rural Telephone Bank (RTB) was established in 1972 to provide a
    supplemental source of credit to help establish rural telephone
    companies. This has proved to be remarkably successful, and efforts
    have been underway to privatize the bank. In 1996, the RTB began
    repurchasing Class ``A'' stock from the Federal government, thereby
    beginning the process of transformation from a Federally funded
    organization to a fully privatized banking institution. A private bank
    will have greater flexibility in providing support to rural America
    which will increase economic development opportunities. The fiscal year
    2004 budget reflects the Administration's commitment to a fully
    privatized RTB that does not require Federal funds to finance the loans
    it makes.
        I would like to underscore two points in our Rural Utilities budget
    request. First, regarding broadband loans, we are building on the
    $1.455 billion loan program recently announced. Mandatory funding is
    provided for this program under the Farm Bill. For fiscal year 2004, we
    are not seeking additional mandatory money, but, rather, are requesting
    $9.1 million in discretionary budget authority. We believe programs
    should compete for resources through the annual appropriations process.
    This level of discretionary budget authority will support almost $200
    million of loans, continuing support for expanding broadband access in
    rural America. Second, we propose to provide the nearly $1.5 billion
    Water and Waste program level by relying on higher loan levels in
    meeting communities' needs. This increased reliance on loans is
    possible due to the low interest rate environment, the extensive
    funding provided in fiscal year 2002 under the Farm Bill, and the
    demonstrated needs in the current application pipeline.

                      RURAL BUSINESS-COOPERATIVE SERVICES

        One key to creating economic opportunity in rural areas is the
    development of new business and employment opportunities. These
    opportunities are essential to retaining youth and ensuring young,
    emerging leaders remain in rural areas. But, local lending institutions
    frequently do not have the capacity or capital needed to sustain local
    businesses and generate new economic growth. Agricultural producers do
    not have a ready mechanism, or information necessary, to utilize the
    equity available in farmland for other business purposes. Such equity
    could be leveraged into other activities, providing capital infusions
    into capital-starved areas. Rural Business-Cooperative Services (RBS)
    programs, particularly the Business and Industry (B&I) loan guarantee
    program, were enacted to supplement the efforts of local lending
    institutions in providing capital to stimulate job creation and
    economic expansion. Cooperative Services' research and technical
    assistance has the capacity to assist in the identification and
    creation of new business structures and financing mechanisms to support
    innovative capital formation and utilization in rural America.
        The RBS budget request for fiscal year 2004 totals about $718
    million program level, the bulk of which represents over $600 million
    for the B&I loan guarantee program. Additionally, we are requesting to
    maintain the fiscal year 2003 President's program levels for the
    majority of the remaining RBS programs ($44 million for the Rural
    Business Enterprise Grant program, $3 million for the Rural Business
    Opportunity Grant program, $40 million for the Intermediary Relending
    Program, $15 million for Rural Economic Development loans, and $9
    million for Rural Cooperative Development Grants.
        The Farm Bill provided mandatory funding for Value-Added grants and
    Renewable Energy Systems and Energy Efficiency Improvements. We are not
    seeking those mandatory funds, but rather request discretionary funding
    to support these programs. As I stated earlier, the Administration
    believes programs should compete for funding in the appropriations
    process. For fiscal year 2004, we are requesting $2 million for Value-
    Added producer grants, and $3 million to support the Renewable Energy
    program. Through lessons learned from the Value-Added program
    administered with mandatory fiscal year 2002 funds under the Farm Bill,
    $2 million can be effectively deployed to promote value-added
    activities and stimulate income generation in rural areas. Three
    million dollars for renewable energy will assist in fulfilling the
    President's Energy Policy that encourages a clean and diverse portfolio
    of domestic energy supplies to meet future energy demands. In addition
    to helping diversify our energy portfolio, the development of renewable
    energy supplies will be environmentally friendly and assist in
    stimulating the national rural economy through the jobs created and
    additional incomes to farmers, ranchers, and rural small businesses.

                             RURAL HOUSING SERVICE

        The budget request for programs administered by the Rural Housing
    Service (RHS) totals $5.7 billion. This commitment will improve housing
    conditions in rural areas, and, in particular, improve homeownership
    opportunities for minority populations. Rural Development has
    implemented a ``5-Star Commitment,'' which supports the President's
    homeownership initiative. Under this 5-Star plan, our goal is to
    increase minority participation in housing programs by ten percent over
    the next few years.
        The request for single family direct and guaranteed homeownership
    loans totals almost $4.1 billion, which will assist about 49,000
    households, who are unable to obtain credit elsewhere. The RHS request
    maintains the program level for housing repair loans and grants, $35
    million for housing repair loans and almost $32 million for housing
    repair grants, which will be used to improve 10,000 existing single
    family houses, mostly occupied by low income elderly residents.
        This budget also supports my commitment to focus on repair,
    rehabilitation, and preservation of multi-family housing projects, with
    the goal of developing a comprehensive strategy for program overhaul.
    We are proposing a rental-housing request of $71 million for direct
    loans, $100 million for multi-family guaranteed loans, $42 million for
    farm labor housing loans, $17 million for farm labor housing grants,
    and $740 million in rental assistance. RHS has an existing multi-family
    housing portfolio of $12 billion, that includes 17,500 projects. Many
    of these projects are 20 years old or older, and face rehabilitation
    needs. Given the demands for repair/rehabilitation and preservation of
    existing projects, and our ongoing study of program alternatives, we
    are deferring a request for new construction funding this year.
        This budget provides an increase in farm labor housing loans and
    maintenance of farm labor housing grants. In total, the farm labor-
    housing program will rise to $59 million, which will address pressing
    needs for farm worker housing across the country. This program provides
    housing to the poorest housed workers of any sector in the economy, and
    supports agriculture's need for dependable labor to harvest the
    abundance produced by rural farms.
        The budget includes $740 million for Rental Assistance, a slight
    increase over the current level. These payments are used to reduce the
    rent in multi-family and farm labor housing projects to no more than 30
    percent of the income of very low-income occupants (typically female
    heads of households or the elderly, with annual incomes averaging about
    $8,000). This level of funding will provide rental assistance to almost
    45,000 households, most of which would be used for renewing expiring
    contracts in existing projects.
        The request for community facilities funding holds program levels
    to the fiscal year 2003 President's Budget--$250 million for direct
    loans, $210 million for guaranteed loans, and $17 million for grants.
    Community facilities programs finance rural health facilities,
    childcare facilities, fire and safety facilities, jails, education
    facilities, and almost any other type of essential community facility
    needed in rural America. These funds will support 140 new or improved
    health care facilities, 370 new or improved public safety facilities,
    and 95 new or improved educational facilities.

                            ADMINISTRATIVE EXPENSES

        These requested program levels provide ambitious targets for
    accomplishments, for which this Committee will be proud. However,
    delivering these programs to the remote, isolated, and low income areas
    of rural America requires administrative expenses sufficient to the
    task. Over the last several years, Rural Development has administered
    growing program levels, and new programs, with modest Salaries and
    Expenses (S&E) funding increases. From fiscal year 1996 through fiscal
    year 2002 Rural Development's annual delivered program level increased
    by 79 percent. Over that same period Rural Development's S&E
    appropriation increased 13 percent. Rural Development curtailed
    employment, and Full Time Equivalent (FTE) staffing fell 15 percent.
        With an outstanding loan portfolio exceeding $86 billion, fiduciary
    responsibilities mandate that Rural Development maintain adequately
    trained staff, employ state of the art automated financial systems, and
    monitor borrowers' activities and loan security to ensure protection of
    the public's financial interests. Curtailed S&E funding in the past
    strained our ability to provide adequate underwriting and loan
    servicing to safeguard the public's interests.
        For 2004, the budget proposes a total of $680 million for Rural
    Development S&E, an increase of $50 million from the fiscal year 2003
    President's Budget. The bulk of this increase is consumed by: pay
    costs; automated systems maintenance, enhancement, and operational cost
    increases; and funding the mandatory move of staff from downtown St.
    Louis to the Goodfellow Facility, a former military instillation.
    Twelve million dollars is requested to support enhancements of three
    automated financial systems--the Guaranteed Loan System, the Dedicated
    Loan Origination System, and the RUS Loan Servicing System, which
    maintain accounting and servicing information on direct and guaranteed
    loans across the mission area. Over $17 million is needed to fund the
    General Services Administration (GSA)-mandated move of Rural
    Development staff in St. Louis. We are also requesting $1.6 million to
    support several specific initiatives: continuing to monitor guaranteed
    single and multi-family housing lenders; funding studies and analysis
    of outsourcing; and continued Credit Reform modeling and analysis
    support. In fiscal year 2002, Rural Development received a clean audit
    opinion for the first time since 1994. However, the Office of the
    General Counsel and the General Accounting Office view our cash flow
    modeling efforts as short-term solutions, and recommend continued
    analysis and refinements. Contract assistance is needed to improve data
    collection, sensitivity analysis, and validation. Improvements in
    Credit Reform processes provide assurance that program budget cost
    estimates are reasonable. Our clean audit opinion was hard-won, and we
    thank this Committee for resources provided in the past to achieve this
    goal. We are committed to maintaining this high standard.
        Rural Development is also requesting a modest (4 FTE) increase in
    staffing. These 4 FTEs will be senior analysts, with cutting-edge
    financial and analytical skills. They will be spread across the
    organization and provide financial and administrative analytical
    assistance to senior managers.
        Rural Development is very appreciative of the funding provided in
    prior years for automated financial systems development, which allowed
    Rural Development to continue to support systems for guaranteed loans,
    multi-family housing loans, Rural Utilities Service systems
    modernization, and the Program Funds Control System. This funding will
    allow Rural Development to continue to address long delayed automated
    systems development needs, but these are major projects and will not be
    completed in 1 year. We urge the committee to fund the President's
    fiscal year 2004 $680 million S&E request.
        Mr. Chairman, Members of the Committee, this concludes my formal
    statement. We would be glad to answer any questions you may have. Thank
    you for the opportunity to appear before you to discuss the Rural
    Development budget request.
                                     ______

     Prepared Statement of Hilda Gay Legg, Administrator, Rural Utilities
                                    Service

        The fiscal year 2004 budget reflects President Bush's support for
    investing in the infrastructure of rural America. It includes $4.9
    billion in loan and grant assistance for the on-going electric,
    telecommunications, and water and waste programs, which compares to
    $4.8 billion in the fiscal year 2003 budget.

                           TELECOMMUNICATIONS PROGRAM

        The building and delivery of an advanced telecommunications network
    is having a profound effect on our Nation's economy, its strength, and
    its growth. In discussing the importance of advanced, high-speed
    access--commonly referred to as ``broadband service''--at the Economic
    Forum in Waco this past summer, President Bush said: ``In order to make
    sure the economy grows, we must bring the promise of broadband
    technology to millions of Americans. And broadband technology is going
    to be incredibly important for us to stay on the cutting edge of
    innovation here in America.''
        Just as our citizens in our cities and suburbs benefit from access
    to broadband services, so should our rural residents. Broadband service
    is a necessity in rural America, it plays a vital role in solving the
    problems created by time, distance, location, and lack of resources.
    The promise of broadband is not just ``faster access''.
        Today's advanced telecommunications networks will allow rural
    communities to become platforms of opportunity for new businesses to
    compete locally, nationally and globally, and the funding we are
    seeking in the fiscal year 2004 budget request will help us continue to
    meet the ``new communications needs'' of rural America and ensure that
    no rural resident--from students to parents and teachers, from patients
    to doctors, or from consumers to entrepreneurs--will be left behind in
    this new century.

    Treasury Rate, Guaranteed, and Hardship Loans
        Since 1995--when Rural Development implemented Congress' visionary
    policy requiring that all Rural Development-financed facilities be
    ``broadband capable''--every telephone line constructed with Rural
    Development financing is capable of providing advanced services using
    digital and fiber technologies. These loan programs target the most
    rural of our rural communities, towns with populations of less than
    5,000 people.
        The fiscal year 2004 budget further targets rural areas
    experiencing extreme financial hardship, by nearly doubling the amount
    of Hardship loan funds available to those borrowers that serve the most
    rural, highest cost areas. The budget proposes over $145 million in
    direct hardship loans, an increase of approximately $70 million over
    the 2003 program level. These loans bear a fixed 5 percent interest
    rate to ensure project viability and feasibility, and due to the
    extraordinary repayment history, carry a zero subsidy cost--so no
    increase in budget authority is necessary. The budget also proposes
    $350 million in Treasury rate loans and loan guarantee authority--which
    can be provided for a modest subsidy cost of only $125,000. This
    represents a cost of just over two one-thousandths of a cent for every
    resident in rural America!

    Rural Telephone Bank
        This budget also reflects the Administration's commitment to
    accelerate privatization of the Rural Telephone Bank--as required by
    law--and therefore does not request budget authority to support lending
    for fiscal year 2004. Today, the bank operates as a supplemental lender
    to entities eligible to borrow from the Rural Development program. A
    privatized bank would be able to expand or tailor its lending practices
    beyond the current limitations imposed as a governmental lender, as
    well as leverage its substantial loan portfolio and cash reserves to
    extend favorable credit terms to rural companies that do not quality to
    borrower from Rural Development.

    Broadband Loans and Grants
        We are seeking continued support from Congress for funding to
    facilitate the deployment of broadband service in rural areas. As part
    of the Administration's continuing commitment to invest in rural
    America, in January, Rural Development announced the opening of its
    ``Access to Broadband'' Program as authorized by the Farm Security and
    Rural Investment Act of 2002, Public Law 107-171. It is the culmination
    of a 2-year pilot program under the Bush Administration that financed
    $180 million of loans dedicated to bringing broadband service to rural
    communities--where nearly 100,000 customers will receive first-time
    broadband service!
        This new program will have a profound affect on the lives of rural
    Americans. Over the next year, it is expected that $1.4 billion in
    loans and loan guarantees will be made to bring the promise of high-
    speed access--or Broadband--to our rural communities. This substantial
    investment level--nearly $680 million greater than original estimates--
    is a result of 2 years of mandatory budget authority for fiscal years
    2002 and 2003 and a very favorable subsidy cost/rate. This funding is
    ``no-year'' money and will remain available until expended. Because of
    this enormous lending level leveraged by low subsidy rates, the fiscal
    year 2004 budget proposes to eliminate the mandatory budget authority
    of $20 million and replace it with approximately $9.1 million in
    discretionary authority. This will result in a total loan and loan
    guarantee program of approximately $1.7 billion over the first 3 years
    of funding (fiscal years 2002 through 2004), versus the estimated $1.2
    billion when the Farm Bill was passed.
        Even during these fiscally challenging times, Congress has
    overwhelmingly supported funding for broadband projects. The proposed
    budget seeks to minimize taxpayer costs while providing the investment
    level envisioned by Congress and the Administration in the Farm Bill.
        The budget also proposes $2 million in grants to provide broadband
    service to areas that cannot afford loans. This past year, as part of
    the pilot program, Rural Development made available grant funds in a
    program called ``Community Connect''--a new and exciting approach to
    community funding. Funding is available to provide broadband service to
    ``connect'' the schools, libraries, police and fire stations,
    hospitals, community centers, businesses, and residents--everyone in
    the community--and introduce them to the benefits of advanced
    communications infrastructure. For some communities, this program will
    provide the seeds for sustained economic growth and community
    prosperity. The proposed grant authority will enable us to continue to
    seek ways to ensure that no one is left behind.
        There are many challenges before us and even greater rewards if we
    succeed. And the investment IS needed. Much is depending upon a
    successful public/private partnership. Rural economies today are much
    more than the farm-based economies of a few years ago. And broadband
    service not only provides critically needed economic stimuli for rural
    communities through e-commerce initiatives and by enticing new
    businesses, it creates a new workforce of students educated through
    distance learning programs with the skills necessary to compete
    globally.

    Distance Learning and Telemedicine Loans and Grants
        The Distance Learning and Telemedicine program continues its charge
    to improve educational and health care delivery in rural America. The
    terms ``distance learning'' and ``telemedicine'' are becoming synonyms
    for ``opportunity and hope.''
        Telemedicine projects are providing new and improved health care
    services beginning with patient diagnosis, through surgical procedures
    and post-operative treatment. New advancements are being made in the
    telepharmaceutical and telepsychiatry arenas and providing health care
    options never before available to many medically under-served, remote,
    rural areas.
        Distance learning projects continue to provide funding for
    computers and Internet connection in schools and libraries. The vast
    array of study options available to rural students through distance
    learning technologies literally brings the world to their doorstep.
        The value of these services to rural parents, teachers, doctors,
    and patients is immeasurable. Building on advanced telecommunications
    platforms, distance learning and telemedicine technologies are not only
    improving the quality of life in rural areas, but they are also making
    direct contributions to the economies in rural areas by introducing the
    skills needed for a high-tech workforce and promoting sound health care
    practices, including preventative care initiatives.
        Over the past 10 years in which this program has operated, it is
    clear that the demand for loans in this program is very small. This is
    primarily due to the types of entities that are eligible to borrow--
    namely schools and health care providers serving rural areas. In most
    cases, schools are prohibited from entering into loan agreements and
    would not be able to generate revenues to repay the loan if they could.
    The high cost associated with the provision of rural health care limits
    the feasibility of telemedicine loans as well. Telemedicine offers a
    means to reach the most isolated and poorest residents of the country,
    but does not always provide a means for cost recovery. Therefore, in
    the fiscal year 2004 budget, $50 million in loans is being requested.
    This amount is more than sufficient to cover loan demand based on past
    program experience and to meet any demand from larger, consortium-based
    entities with the necessary resources to collateralize a loan. The
    budget seeks $25 million in grants to continue the tremendously popular
    and successful grant program.

    Local Television
        As you are aware, in December 2000, the Local TV Act, ``Launching
    Our Communities' Access to Local Television Act of 2000'', Public Law
    106-553 was enacted. The Local TV Act provides for the establishment of
    the Local Television Loan Guarantee Board (the Board) consisting of the
    Secretaries of Agriculture, Treasury, Commerce, and the Chairman of the
    Board of Governors of the Federal Reserve System, or their designees.
    The Board is authorized to approve loan guarantees of up to 80 percent
    of the total loan amount of no more than $1.25 billion to facilitate
    access, on a technologically neutral basis, to signals of local
    television stations for households located in nonserved and underserved
    areas. This program has been fully funded through fiscal year 2002
    appropriations and mandatory funding provided in the 2002 Farm Bill.
    Therefore, no additional funding is being requested in the fiscal year
    2004 budget.

    Telecommunications Program Conclusion
        Given the amount of investment capital necessary to deploy advanced
    telecommunications technologies--not to mention the lack of available
    private capital--it is unreasonable to believe that the private
    markets, particularly local banks, can generate the capital required.
        Our goal should be to deploy a seamless, Nation-wide broadband
    network, where the only thing distinguishing users is their zip code.
        Since private capital for the deployment of broadband services in
    rural areas is not sufficient, incentives offered by the Rural
    Development program are more important than ever before. Providing
    rural residents and businesses with barrier-free access to the benefits
    of today's technology will bolster the economy and improve the quality
    of life for rural residents.
        There is no one solution to the complicated issue of bringing
    advanced telecommunications services to every citizen. Government
    incentives; cost support mechanisms; changes in technologies; and
    private investment--each must play a role. Rural Development will
    continue to do its part.

                                ELECTRIC PROGRAM

        The Rural Development Electric Program budget proposes a program of
    $2.6 billion. This amount includes: a hardship program level of $240
    million; a municipal rate program level of $100 million; a $700 million
    funding level for Treasury rate loans; and a $1.5 billion funding level
    for guaranteed loans through the Federal Financing Bank, which does not
    require any budget authority; and $60,000 in budget authority for a
    $100 million loan guarantee program for private sector loan guarantees.
        In the last 4 fiscal years (1999-2002) RUS had lent over $6.2
    billion for distribution facilities. In addition, it is anticipated
    that another $2 billion will be lent for distribution purposes in
    fiscal year 2003, which will bring the total over $8.2 billion. In the
    past 3 years (2000-2002) RUS had lent over $3.8 billion for generation
    and transmission facilities. In addition, it is anticipate that another
    $1.7 billion will be lent in fiscal year 2003, which will bring the
    total to over $5.5 billion. When consideration is given to the amount
    we have lent in the last 5 years and the fact that the backlog will
    have been reduced to less than 6 months, there is no demonstrated need
    for a $4 billion loan program in fiscal year 2004.
        An example of how our rural electric borrowers can improve the
    economic potential and quality of life in rural communities is the
    United Cooperative Service (United) in Cleburne, Texas. United was
    created in April 2000, from the consolidation of Erath County Electric
    Cooperative Association and Johnson County Electric Cooperative
    Association. United provides service to 77,916 consumers, using 8,819
    miles of distribution line. In January 2002, Rural Development awarded
    a loan to United for $32 million to serve 10,823 new consumers, build
    743 miles of new distribution lines, and make other system
    improvements.

                        WATER AND ENVIRONMENTAL PROGRAMS

        This budget seeks $346 million in budget authority for Water and
    Waste Disposal (WWD) grants; $3.5 million in budget authority for solid
    waste management grants; and $35 million in budget authority to support
    over $1.1 billion in WWD direct loans and $75 million in guaranteed
    loans.
        The budget request earmarks $11.8 million for Colonias along the
    U.S.-Mexico border, $16.2 million for technical assistance and training
    grants, $9.5 million for the circuit rider technical assistance
    program, $11.8 million for rural Alaskan villages, $13 million for
    Federally Recognized Native American Tribes; and $12.6 million in
    budget authority for loans and grants Federally designated Empowerment
    Zones and Enterprise Communities. Our budget request will also allow
    third-party service providers, such as rural water circuit riders, to
    make over 56,000 water and wastewater system contacts to communities
    needing technical assistance, and through a clearinghouse effort, take
    more than 20,000 telephone calls and an estimated 11,000 electronic
    bulletin board and web site contacts.
        As a result of Rural Development's strong technical assistance
    efforts, both from staff and third-party service providers/contractors,
    loan delinquency and loan losses will remain low. Currently, only 1
    percent of approximately 8,000 borrowers is delinquent. Since the
    inception of the water and waste disposal program, less than 0.1
    percent of the amount loaned has been written off.
        Rural Development programs improve the quality of life and health
    of an estimated 1.4 million Americans in needy communities each year by
    providing access to clean, safe drinking water. In addition, new or
    improved waste disposal facilities are provided to an estimated 500,000
    people living in rural areas. A field network of Rural Development
    employees deliver the program through ``hands-on'' technical and
    financial assistance under the Rural Community Advancement Program.
        The Water and Waste Disposal program has been very successful since
    its inception over 60 years ago. A total of over $25 billion in
    financial assistance has been provided, about 70 percent of that in the
    form of loans; approximately 45 percent of the total has been provided
    during the past 10 years. Indications suggest, however, that needs for
    water and waste disposal systems are still significant and are likely
    to grow as a result of expanding population in rural areas, changes to
    water quality standards, drought conditions, and similar factors. The
    additional funding provided by the Farm Bill helped reduce the backlog
    for assistance. However, the backlog still persists and totals
    approximately $2.3 billion. Over the last 3 years, Rural Development
    has assisted 1,124 borrowers in moving up to commercial credit in
    accordance with its graduation requirement. The loans paid off as a
    result of this effort totaled nearly $680 million.
        Mr. Chairman, this concludes my testimony for the Rural Development
    fiscal year 2004 budget for rural utility programs. I look forward to
    working with you and other Committee members to administer our
    programs. I will be happy to answer any questions the Committee might
    have.
                                     ______

     Prepared Statement of Arthur A. Garcia, Administrator, Rural Housing
                                    Service

        Mr. Chairman and members of the Committee, thank you for this
    opportunity to testify on the President's fiscal year 2004 proposed
    budget for the USDA Rural Development rural housing and community
    program.
        Rural Development assists in making rural America a better place to
    live and work. Our rural housing loan and grant programs help to
    revitalize small towns and rural communities. Most of our customers are
    first-time homebuyers who turn to us because we, in many instances,
    provide the only opportunity to share in the benefits of homeownership.
    As Secretary Veneman said last fall, ``homeownership strengthens our
    rural communities and contributes to the overall quality of life for
    rural families. USDA works with community organizations, lenders and
    individual residents to provide opportunities to the millions who seek
    the dream of owning a home.'' We are called upon to be citizen-centered
    in President Bush's management agenda. We have responded to this call
    with programs that help rural families purchase homes and gain access
    to affordable rural rental housing, and we provide financing for
    essential community services, such as facilities for health care,
    police and fire protection, adult day care, child care, and educational
    institutions.
        For more than 50 years, Rural Development has assisted some of our
    Nation's poorest people who reside in the most remote areas of our
    country. Whether on Indian reservations in the Dakotas; the Colonias
    along the Mexican border; the isolated pockets of the Appalachian
    mountains in West Virginia; or the Mississippi Delta, our programs
    provide the essential link to individuals, communities, and financial
    markets so that all rural residents may share in our Nation's
    prosperity and enjoy the basic human dignities of housing and community
    facilities.
        Let me share with you how we plan to continue improving the lives
    of rural residents under the President's fiscal year 2004 budget
    proposal for our rural housing programs.

                         SINGLE FAMILY HOUSING PROGRAMS

        With the $5.67 billion total program funding, more than $4 billion
    will be used to make guaranteed and direct Single Family Housing (SFH)
    loans. This includes an increase of approximately $400 million more for
    direct loans. These funds will assist nearly 49,000 rural families to
    purchase homes, and most of them will be first-time homeowners. Of the
    SFH funds, $2.5 billion will be available as loan guarantees with
    private partners to help approximately 28,500 low- and moderate-income
    families become new homeowners. An additional $225 million in loan
    guarantees will be used to refinance loans for approximately 2,500
    rural families in order to make their payments more affordable. We will
    fund another $1.4 billion in direct loans and assist nearly 18,000 low
    and very low-income families who cannot obtain credit to purchase homes
    without a down payment, or who cannot meet the loan terms offered
    through most lenders. In addition, the fiscal year 2004 budget includes
    $35 million in direct loans and $31.5 million in grants to
    approximately 12,000 elderly and disabled families or individuals to
    repair or rehabilitate their homes to decent, safe, and sanitary
    housing.
        The subsidy cost of operating the SFH direct loan program will be
    less expensive in 2004 due primarily to lower interest rates which
    reduce the Government's cost of borrowing and more accurate projections
    of the financial status of our borrower population. This cost savings
    will enable Rural Development to help more families obtain
    homeownership and lowers the cost to taxpayers to about $7,000 per home
    financed. The loans that we guarantee in the private sector cost
    slightly less than $1,500 per home. For rural Americans with very-low,
    low, and moderate incomes, the SFH direct and guaranteed loan programs
    continue to be the most cost-effective housing programs available.
    Five-Star Commitment to Increase Minority Homeownership
        President Bush has made a commitment to remove the barriers that
    stand in the way of our Nation's minority families obtaining
    homeownership.
        According to the 2000 census data, minorities represent about 13
    percent of rural Americans. In fiscal year 2002, 32.2 percent of the
    direct loans and 12.1 percent of the loan guarantees administered by
    Rural Development made for single-family home purchases went to
    minorities. More than 60 percent of the loans and grants were made to
    women or female-headed households. We also help disabled families
    remodel, build and afford barrier-free access to housing.
        We can do even better.
        To implement the President's vision, Rural Development's Under
    Secretary Tom Dorr recently announced the USDA Five-Star Commitment to
    expand rural minority homeownership. This commitment will help make
    housing available to all rural Americans by:
      --Lowering fees to reduce barriers to minority homeownership;
      --Doubling the number of Mutual Self-Help participants by 2010;
      --Increasing participation by minority lenders in our rural housing
            programs;
      --Promoting credit counseling and homeownership education; and,
      --Monitoring lending activities to ensure that we attain a 10 percent
            increase in minority homeownership.

    Lowering Fees to Reduce Barriers to Minority Homeownership
        To encourage more minority participation in the guaranteed single-
    family housing loan program, Rural Development recently reduced the
    guarantee fee to make homeownership more affordable. Our goal in
    reducing the up-front costs is to increase homeownership opportunities
    for low- and moderate-income borrowers, particularly minorities. The
    fee was reduced from 2 percent to 1.5 percent for purchasing a home,
    representing an average savings of $435 per family. Also, the fee was
    reduced from 2 percent to 0.5 percent for refinancing a guaranteed
    loan, representing an average savings of $1,305 per family.
        We closely monitor the other fees charged by participating lenders
    in our SFH guarantee program to ensure that fees charged are
    reasonable. Further, we work closely on the local level with local non-
    profits, which provide our first-time buyers with homeowner education
    training, credit counseling, and assistance in obtaining grants for
    closing costs and other basic homeowner assistance.

    Doubling the Number of Self-Help Participants by 2010
        The fiscal year 2004 budget request includes $34 million for the
    section 523 Mutual Self-Help Technical Assistance grant program. In
    fiscal year 2002, Rural Development partnered with more than 140 groups
    to help provide homeownership opportunities to rural families through
    this sweat equity' program. Last year, nearly 1,500 families built
    their homes through the Self-Help program, representing about 10
    percent of the total SFH direct loans. Self-Help grantees assist groups
    of six to twelve families as they work together to build their own
    neighborhoods. They provide homeowner education, guidance through the
    loan application process, and supervision and technical assistance in
    building their homes.
        The individual successes of our Self-Help borrowers are proof of
    the life-altering effect of this program. One example is the Elsie and
    George Phillips family of Birdsong, Arkansas. This couple, now in their
    80's, recently moved into the new home they helped to build--after
    living in a dilapidated trailer for the past 24 years.
    Increasing Participation by Minority Lenders in Rural Housing Programs
        Rural Development works with more than 3,000 lenders and other
    partners in our direct and guaranteed loan programs. Lenders in the
    guaranteed program range in size from small hometown banks to large
    nationwide lenders. One of our largest lenders, J.P. Morgan Chase
    (Chase), recently committed $500 billion to increasing minority
    homeownership, in part through our rural housing loan guarantees. Chase
    is the largest participating lender and services almost 40,000 rural
    housing guaranteed loans, totaling over $3 billion.
        Rural Development field employees are trained to reach out to their
    respective communities, develop relationships, and enhance partnerships
    with lenders and others serving the housing needs of minorities in
    rural America.

    Promoting Credit Counseling and Homeownership Education
        Rural Development has partnered with the FDIC to use its MoneySmart
    program to provide homeownership education to our applicants. FDIC has
    provided training to our field employees on their program. MoneySmart
    provides an additional tool to assist in creating successful
    homeowners.
        Locally, rural housing partners with many Federal and State
    agencies to assure low-income applicants have access to homebuyer
    education. These programs, many funded through HUD's HOME program,
    provide homeownership education and credit counseling. We have
    established effective working relationships with public and private
    groups offering these services to rural communities. Our goal is to
    assure that homebuyer education programs are available in all rural
    areas.

    Monitoring Lending Activities
        Increasing minority homeownership is a serious matter for us. We
    have established goals at the National and State Offices. These goals
    are performance-based and at each level of the organization,
    performance will be rated, in part, by achievement of the goals.

    Rural Housing Programs More Important Than Ever Before
        The Home Repair Loan and Grant Program helps very low-income
    families whose homes are in need of repair. The program is for those
    families who own a modest home in a rural area, but are unable to
    obtain financial assistance to repair their homes. The average annual
    income of households obtaining home repair assistance last year was
    under $10,000. Funds are used to make substandard homes decent, safe
    and sanitary through repairs and rehabilitation, including installation
    of indoor plumbing, new furnaces, weatherization, safe wiring, new
    roofs, and making homes accessible for persons with disabilities.
        In its October 2000 report, Opening Doors to Rural Home Ownership:
    Outcomes from the National Rural Housing Coalition Rural Home
    Symposium, the National Rural Housing Coalition stated, ``Although
    poverty has decreased to its lowest level in 20 years, almost all of
    the changes occurred in central cities and metropolitan areas. Rural
    homeowners are more likely than homeowners as a whole to live in
    substandard housing.''
        In its December 2002 report Taking Stock: Rural People, Poverty,
    and Housing at the Turn of the 21st Century, the Housing Assistance
    Council stated: ``Minorities in rural areas are among the poorest and
    worst housed groups in the entire Nation, with disproportionately high
    levels of inadequate housing conditions. Non-white and Hispanic
    households are nearly three times more likely to live in substandard
    housing than white rural residents.''
        The fiscal year 2004 proposed budget contains $66.5 million to
    assist up to 12,000 families with incomes below 50 percent of the area
    median income. This includes $35 million in home repair loan funds for
    6,000 very-low income families and $31.5 million for grants to assist a
    comparable number of elderly homeowners.
        Jaime Morales moved to the United States in 1990. In 2002, he and
    his wife, Maria, were able to purchase their own modest home in Horizon
    City--near El Paso, Texas--for less than $20,000. However, as with many
    homes in the Colonias, their house lacked adequate plumbing and needed
    other repairs. Jaime could do much of the work needed on the house, but
    with limited income from work at a pallet shop, the plumbing would have
    to wait. A Rural Development grant of $3,320 has changed that by paying
    for a connection to a public water system, the Lower Valley Water
    District. We provided funding for piping, a sink, commode, water heater
    inside the house, and installation of an individual septic system. This
    grant has truly improved the living conditions of Mr. and Mrs. Morales
    and their son, Jaime, Jr.
        We have a very successful record of working with private and
    nonprofit organizations to increase homeownership in rural communities.
    In fiscal year 1996, only about 8 percent of the SFH direct loans were
    leveraged with funds from additional sources, such as other bank loans,
    or were provided with down payment assistance and other grants. In that
    year, these other funding sources provided only 3 percent of the total
    cost of the home purchase. Last year, more than 55 percent of the loans
    were leveraged, with other sources contributing more than $120 million.
    This enabled us to assist an additional 2,000 families to own their
    home--an expansion of tax dollars of more than 12 percent.

                         MULTI-FAMILY HOUSING PROGRAMS

        Rural Development's Multi-Family Housing (MFH) program together
    with Rental Assistance provide decent, safe, and affordable housing to
    families who need it the most. The MFH direct loan program is the
    largest of the MFH programs, and is a principal source of multi-family
    housing for the elderly in rural America. Elderly households make up
    approximately 55 percent of the residents in the MFH program. In this
    program, we make 1 percent interest loans to private individuals, state
    and local housing agencies, and non-profit organizations, who build
    apartments and offer them as rental housing, primarily to very low-
    income senior citizens and working mothers. The incomes of these
    households average about $8,100, well below the poverty level.
    Currently, we have a MFH portfolio of about 17,500 projects, which
    contains about 450,000 units. The total outstanding indebtedness of
    these projects is about $11.9 billion. Approximately 70 percent of the
    portfolio is over 15 years old and in need of repair.
        The fiscal year 2004 budget proposes that $70.8 million in MFH
    direct loans be used to provide much-needed repairs or rehabilitation
    to approximately 5,900 projects in the current portfolio. We are not
    proposing fiscal year 2004 funding for new construction, however the
    budget includes $100 million in guaranteed loans that may be used for
    new construction. MFH guarantee loans will build 2,400 apartments and
    repair, rehabilitate and pay incentives to owners on 5,900 apartments.
    In addition, the request includes $42 million in loans and $17 million
    in grants for section Farm Labor Housing (FLH) living units--most of
    which will be new construction. These funds will finance over 1,700
    apartments for migrant and farm workers. Providing adequate housing to
    these workers is essential to having a dependable and available
    workforce.
        The President's fiscal year 2004 budget requests $740 million for
    Rental Assistance (RA) to ensure the integrity and financial stability
    of MFH and Farm Labor Housing loan and grant programs. In fiscal year
    2004, well over 93 percent of the RA budget will be used to renew more
    than 42,000 RA contracts so that elderly, disabled, and female-headed
    resident households remain in safe and livable rental apartments they
    call home. The remainder of the RA funding will be used to keep rent
    affordable when repair and rehabilitation are needed for existing
    units. Rental assistance reduces the cost of housing for rural
    Americans with very low incomes to no more than 30 percent of their
    income.
        Over the past year and a half, we have faced the possibility of
    losing affordable housing due to borrower prepayment. In 1979, 1988,
    and 1992, Congress passed legislative changes to the MFH programs to
    restrict a borrower's ability to prepay their loan, thereby protecting
    residents from displacement. Recent legal actions brought by borrowers
    have challenged the statute that governs the MFH prepayment process.
    The future of the MFH program will require continued strategic and
    tactical planning and execution to keep affordable housing available to
    our residents. Our methods will include a combination of changes to the
    program, program incentives to owners, and the establishment of new
    partnerships with state and local housing agencies, non-profits, and
    faith-based organizations, whose commitment to rural communities is
    long-term.
        We look forward to working closely with you and your colleagues as
    we address the MFH program needs.
        Rural Development's MFH program has a long proud history of working
    with faith-based organizations to provide housing to rural America. In
    fact, since 1975, we have made 125 loans to faith-based organizations
    and affiliation of faith-based organizations to construct more than
    4,253 units of rental-assisted properties located in 24 states. More
    recently, several large national faith-based housing organizations have
    been very active in acquiring Rural Development-financed MFH properties
    that were in danger of being lost as affordable housing through
    prepayment. We encourage nonprofit organizations such as these to take
    over preservation properties, as the organizations often bring
    additional resident services to the properties. Additionally, their
    charters anticipate that they will remain owners in the program for a
    significant time period, thereby reducing the chance that a property
    will, again, be taken out of the affordable rural housing portfolio.
        We are also examining industry-wide asset management practices to
    develop our MFH property's capital needs, such as roofing, exterior
    siding, major mechanical systems, window and door replacement,
    flooring, and rehabilitation of common areas such as laundry rooms,
    meeting rooms, and parking lots. Additionally, we have examined several
    asset management protocols developed by HUD, and incorporated those
    concepts into our recently implemented Multi-Family Information System
    (MFIS III). As a result, we can focus more closely on specific asset
    management attributes of small, rural apartments.
        Based on housing industry standards and our own reserve
    requirements, owners will typically need about $10,000 per unit in
    rehabilitation funds every 8 to 12 years. Reinvestment of capital in
    these properties assures continued modernization of multi-family
    housing and protects the value of the property as collateral for the
    loan. Timing of these investments and adequacy of additional funding
    sources are aspects of capital risk management that must be considered.
    It is important to note that capital replacement is needed due to the
    normal aging of the physical building. We are working to determine the
    best methods to achieve these housing goals and will have a one-time
    comprehensive study of our portfolio conducted. We anticipate that the
    study will allow us to develop short-term and long-term strategies to
    manage and protect this $11.9 billion national asset.

                               COMMUNITY PROGRAMS

        Along with decent and affordable housing, many communities also
    have a need for essential community facilities, such as educational
    buildings, fire, rescue, and public safety facilities; and child care
    centers, health care facilities, and day care and assisted living
    facilities for their increasing senior citizen populations. Having
    adequate community facilities not only impacts the quality of life for
    community residents, but also makes easier for communities to attract
    and retain businesses. Rural Development's Community Facilities (CF)
    direct and guaranteed loan and grant programs provide funding for these
    essential facilities.
        The fiscal year 2004 budget includes a program level of $477
    million for the CF program: $250 million for direct loans, $210 million
    for loan guarantees, and $17 million for grants. This level of funding
    will allow us to continue the commitment to educational facilities,
    which are especially important in preparing rural children and adults
    to compete in the global economy.
        In fiscal year 2002, Rural Development assisted 134 communities by
    investing $46.7 million in buildings to house public schools, charter
    schools, libraries, museums, colleges, vocational schools, and
    educational facilities for the disabled. Rural Development also helped
    finance the purchase of computers and other technological equipment.
    Public safety is often a need in rural communities. In fiscal year
    2002, we invested $105.7 million in 537 facilities, including
    communications centers, police, fire and rescue stations, civil defense
    buildings, and related vehicles and equipment. An example is the
    recently opened Central Shenandoah Criminal Justice Training Academy in
    Virginia's Shenandoah Valley. Rural Development invested $3.8 million
    in direct loan funds and $2.3 million in guaranteed loan funds in this
    56,000 square foot facility, which can train 280 students at one time.
    The curriculum ranges from basic law enforcement through the most
    technical and sensitive issues of homeland security and emergency
    preparedness. The academy's membership comprises 57 agencies, including
    local police and sheriffs' departments, emergency operations centers,
    regional jails, and private police departments. The facility is also
    made available to State and Federal agencies for independent training.
        In partnership with local and state governments and Indian Tribes,
    the CF budget will support more than 140 new or improved health care
    facilities, more than 130 new or improved fire and rescue facilities,
    and about 50 new or improved child care facilities in fiscal year 2004.
    These essential community facilities will create or preserve more than
    30,000 jobs in rural America.

    Centralized Service Center
        The USDA Centralized Service Center (CSC) in St. Louis, Missouri,
    provides all written and oral communication to customers in either
    English or Spanish to better serve the needs of these customers. At the
    CSC, we have used aggressive recruitment and retention initiatives in
    order to create a workforce that is 11 percent bilingual. The CSC also
    works closely with the National Industries for the Blind and provides
    monthly mortgage statements in Braille for blind customers. National
    TDD phone service is also available from CSC, as well as e-mail
    customer responses for customers with hearing disabilities. Over 10
    percent of the CSC employee population have a disability and are
    provided special equipment to enhance their productivity and ability to
    serve customers.
        Rural Development's commitment to helping people become self-
    sufficient is also evident in their ongoing Welfare-to-Work initiative.
    CSC has worked with the St. Louis Transitional Hope House and the
    American Red Cross to employ former welfare recipients. Twenty-six
    employees referred through this effort started out as worker trainees.
    Eighteen have since been promoted into permanent loan processor
    positions. New worker trainees are provided with mentors, and may later
    become mentors themselves as they become proficient in the work
    environment. One employee who started in the Welfare-to-Work program is
    now enrolled in college and pursuing an accounting degree. Another has
    obtained rural housing financing and is now a proud single-parent
    homeowner.
        The CSC has received several individual and Government agency
    awards for its initiatives. These include awards from the Council for
    Employment of Individuals with Disabilities, the Hispanic Employment
    Council, and the Black Employment Council.

    eGovernment
        Rural Development is actively supporting the President's
    eGovernment initiative. We are engaged in implementing a department-
    wide electronic government strategy, which calls for greater
    integration and collaboration across USDA and across government in
    developing and delivering services to citizens and businesses.
        When I arrived last year at Rural Development, electronic loan
    processing for our SFH direct loan program was performed by a
    commercial, off-the-shelf software system. This software, called UniFi,
    improved rural housing loan processing nationwide, but was limited by
    requiring dedicated computers in each office.
        In fiscal year 2002, $1 million was allocated to web enable' the
    UniFi software. The primary objective of the project was to convert the
    personal computer-based UniFi system to a centralized, web based server
    application that allows for multiple-user access and uniformed system
    maintenance. All field offices have successfully converted to the
    centralized database.
        In our SFH guaranteed loan program, the primary platform that
    allows guaranteed lenders to interact with us is the Lender Interactive
    Network Connection (LINC). LINC was launched in 2001 and we are
    continuing with enhancements to improve the transfer of information
    between lender-partners and Rural Development.
        Rural Development has also implemented an Electronic Data
    Interchange and a web-based reporting system that greatly enhances the
    ability of our lender-partners to report the status of the guaranteed
    loans they service. Lenders can report more data, more frequently, more
    accurately, at less expense.
        We are very excited about the Automated Loss Claims system that
    will be implemented this spring. This web-based system significantly
    reduces the paperwork burden on our lenders, allowing them to submit
    their loss claims electronically. The Automated Loss Claims system will
    significantly speed up the process, saving the government interest
    expense. In addition, the Automated Loss Claims system will enable
    lenders and Rural Development to gather more comprehensive data on loss
    claims--data that will be used in our risk management efforts to
    continually reduce the cost of our programs.
        Another technology-driven development is our Automated Underwriting
    system for guaranteed loans, scheduled for release this summer. This
    web-based system will automate the property and applicant eligibility
    determinations, streamline the underwriting process, allow for better
    and more fair underwriting decisions, improve the quality of our data,
    increase our risk management capabilities, and decrease processing time
    and costs for both lenders and Rural Development. Lower processing
    costs will lead to more affordable mortgages for rural home loan
    applicants.
        We have developed two databases in MFH that provide accounting and
    management information. In fiscal year 2002, a major upgrade converted
    the existing system to a web-based format. The upgrade provided
    additional eGovernment capabilities by enabling borrowers to submit
    information electronically.
        Rural Development has played an important role in the USDA's
    county-based agency eForm initiative. The eForms website was developed
    in response to the requirements of the Freedom to E-File Act (Public
    Law 106-222) passed by Congress in June 2000. Through collaboration
    with the Farm Service Agency, the Natural Resources Conservation
    Service, and Rural Development, customers, producers, partners, and
    others have electronic access to forms related to USDA programs. The
    website permits Rural Development customers to access and download
    forms to apply and participate in our programs.
        Rural Development employees and management recognize the tremendous
    positive impact of homeownership on the economy, its impact on
    families' lives, and on the strength of rural communities. We recognize
    that Rural Development cannot address the homeownership and rural
    community facilities issues alone, and will continue to identify and
    work with partners who have joined with the President to improve the
    lives of rural residents. Rural Development will continue to reach out
    to and partner with lenders, the many faith-based groups and other non-
    profit organizations, as well as Federal, State, local, and Indian
    Tribal governments to meet the housing and community needs of low
    income families and individuals in rural America.
        I hope I have illustrated for you the many ways that Rural
    Development's rural housing and community programs improve lives in
    rural areas. Mr. Chairman and members of the Committee, with your
    continued support, Rural Development looks forward to improving the
    quality of life in rural America by providing housing opportunities and
    building competitive, active rural communities.
                                     ______

        Prepared Statement of John Rosso, Administrator, Rural Business
                              Cooperative Service

        Mr. Chairman and members of the Subcommittee, I am pleased to
    appear before you today to present the Administration's fiscal year
    fiscal year 2004 budget for Rural Development's rural business and
    cooperative programs.
        Mr. Chairman, the programs and services of Rural Development, in
    partnership with other public and private sector businesses, continue
    to improve the economic climate of rural areas through the creation or
    preservation of sustainable business opportunities and jobs. Rural
    Development continues to invest in rural America, especially in the
    under-served rural areas and populations. Rural Development programs,
    help close the gap in opportunity for these under-served rural areas
    and populations, moving them toward improved economic growth by
    providing capital, technology and technical assistance. The $718
    million requested in this budget for Rural Development programs will
    assist in creating or saving about 72,646 jobs and providing financial
    assistance to more than 2,269 businesses and cooperatives.

                 BUSINESS AND INDUSTRY GUARANTEED LOAN PROGRAM

        For the Business and Industry (B&I) program, the fiscal year 2004
    budget includes $29 million in budget authority to support $602 million
    in guaranteed loans. We estimate that the funding requested for fiscal
    year 2004 would create or save about 19,156 jobs. We anticipate the
    demand for this program to continue to be strong.
        The Business and Industry program allows lenders to better meet the
    needs of rural businesses. Through the lender's reduced exposure on
    guaranteed loans, they are able to meet the needs of more businesses at
    rates and terms the businesses can afford. B&I guaranteed loans may
    also be used by individual farmers to purchase cooperative stock in a
    start-up and existing cooperative established for value-added
    processing.
        I would like to share a success story to illustrate how this
    program has improved the economic climate in an under-served area of
    rural America. Finger Lakes Construction in Wayne County, New York, is
    a general contractor that specializes in the construction of post frame
    and steel frame buildings. They employ 115 people and have built
    numerous buildings for residential, commercial, and agricultural
    customers throughout central and western New York. The company had
    financed a considerable amount of their growth out of cash flow, which
    negatively affected their working capital. A $1,062,000 Business and
    Industry Loan capitalized those investments, and the company now has
    the working capital to meet their goals. The September 11, 2001,
    disaster and high out-migration of several New York communities has
    seriously affected many businesses, including the construction industry
    in many areas of New York state. This B&I guarantee helped to preserve
    local jobs within the State.

                         INTERMEDIARY RELENDING PROGRAM

        The fiscal year 2004 budget also includes $17.3 million in budget
    authority to support $40 million in loans under the Intermediary
    Relending Program (IRP). The initial investment of this proposed level
    of funding will create or save an estimated 9,000 jobs. Because these
    funds are loaned three or four times by the intermediary over the 30-
    year loan term, we estimate that over 30,600 jobs will eventually be
    created or saved.
        Participation by other private credit funding sources is encouraged
    in the IRP program, since this program requires the intermediary to
    provide, at a minimum, 25 percent in matching funds. The demand for
    this program continues to be strong. To illustrate the benefits IRP
    provides to rural America, I would like to share with you a story from
    Dimmit County, Texas.
        The Neighborhood Housing Service of Dimmit County is a non-profit
    organization that has successfully administered $1.75 million in IRP
    funds and received an additional $750,000 in fiscal year 2002. The
    Neighborhood Housing Service has successfully loaned this money to
    businesses in an economically depressed part of Texas. Dimmit County is
    a poor community with a large portion of its population at or below the
    poverty level, with unemployment in the double digits. Dimmit County
    benefits from these loans through the creation of new businesses and
    additional employment opportunities. Overall, the Neighborhood Housing
    Service has made loans to 15 businesses, created 115 jobs, and
    continues to provide the communities with critical loans to support the
    livelihood in Dimmit and surrounding counties.

                    RURAL BUSINESS ENTERPRISE GRANT PROGRAM

        For the Rural Business Enterprise Grant (RBEG) program, the fiscal
    year 2004 budget includes $44 million. We anticipate that this level of
    funding will create or save over 16,300 jobs. The demand for these
    grants continues to be strong. The purpose of this program is to assist
    small and emerging businesses. It is estimated that each dollar of
    investment of an RBEG generates another $2.40 in private capital.
        Among the many eligible grant purposes under this program is the
    renovation of existing facilities by the grantee to support small and
    emerging business development in rural areas. For example, renovation
    of an older building in the downtown area of rural Uniontown,
    Washington, and converting it into a business incubator was a way for
    this community to revitalize their downtown area and spur business
    development and job creation. A $75,000 RBEG will help to save and
    create 15 jobs in the business incubator. The first tenant of this
    building is a bakery, and other space is being prepared for additional
    tenants in this small agricultural community.

                    RURAL ECONOMIC DEVELOPMENT LOAN PROGRAM

        The fiscal year 2004 budget includes $15 million in Rural Economic
    Development Loans. This program represents a unique partnership, since
    it directly involves the rural electric and telecommunications
    borrowers in community and economic development projects. It provides
    zero-interest loans to intermediaries, who invest the funds locally. In
    fiscal year 2002, each dollar invested through these programs attracted
    an estimated $9.91 in other capital. This is one reason why Rural
    Development is the venture capitalist in rural America. The return on
    our equity from rural America is strong.
        I'd like to provide an example of how this program can assist. The
    Gibson Electric Cooperative was awarded a $400,000 Rural Economic
    Development Loan to assist the Williams Sausage Company, Union City,
    Tennessee, purchase machinery and equipment for a major expansion of
    the plant. The business is a major purchaser of hogs in the region and
    provides a market for local farmers in Tennessee, Kentucky, and
    Missouri. It is estimated that there will be 60 jobs created and 140
    jobs saved by this one business assisted with Rural Economic
    Development Loan funds.

                    RURAL BUSINESS OPPORTUNITY GRANT PROGRAM

        The fiscal year 2004 budget includes $3 million for Rural Business
    Opportunity Grants to provide much-needed technical assistance and
    capacity building in rural areas. The demand for this program continues
    to grow. Many rural areas need to develop economic and community
    development strategies that will attract private investment capital and
    Federal and State assistance. Also, the vast majority of rural
    communities are served by part-time officials who do not have the time
    or training necessary to compete with large communities for funding
    that may be available to them. The funds requested under this program
    will provide invaluable assistance to communities as they take their
    first step toward overcoming these impediments.
        To illustrate, the Irwin County Board of Education in Ocilla,
    Georgia, will provide a construction consultant and professional staff
    to: (1) oversee the construction of an education facility; and (2) work
    with student interns, oversee demonstration projects, and facilitate
    meetings and education events. This Agricultural Demonstration and
    Education Farm project will cost an estimated $740,000, $45,000 of
    which is from a Rural Business Opportunity Grant. This is yet another
    example of the value in leveraging Rural Development funds.

                        RENEWABLE ENERGY GRANTS PROGRAM

        The Renewable Energy Systems and Energy Efficiency Improvements
    Program was authorized by the Farm Security and Rural Investment Act of
    2002. The program authorizes loans, loan guarantees, and grants to
    farmers, ranchers, and rural small businesses to: (1) purchase
    renewable energy systems; and (2) make energy efficiency improvements.
    The fiscal year 2004 budget proposes $3 million in discretionary funds,
    rather than mandatory funds authorized under the Farm Bill. The program
    supports the President's Energy Policy by helping to develop renewable
    energy supplies that are environmentally friendly. In addition, the
    program contributes to local rural economies through the jobs created
    and additional income to rural small businesses, farmers, and ranchers.

                              COOPERATIVE SERVICES

        The functions of our cooperative programs are authorized under both
    the Cooperative Marketing Act of 1926 and the Agricultural Marketing
    Act of 1946. Our programs serve as the focal point of national activity
    to help farmers and other rural residents help themselves by providing
    the necessary advice and assistance.
        Rural Development recently produced a report titled ``Cooperatives
    in the 21st Century.'' This report identifies the challenges and
    opportunities that face farmer cooperatives in the years ahead, and
    offers strategies to increase their chances of success. External forces
    besetting cooperatives are examined, as are their internal strengths
    and weaknesses. Priority issues are listed that cooperative members,
    leaders and advisors need to address. The report serves as a catalyst
    for further thought and discussion on how farmer cooperatives can
    enhance the income and quality of life available to their members.
        In addition to providing written assistance, Rural Development
    helps cooperatives by providing hands-on instruction. Rural Development
    is providing technical assistance to the Southwestern Peanut Growers
    Association (SWPGA), a cooperative involving peanut growers in TX, OK,
    and NM. The cooperative is making a transition from a Commodity Credit
    Corporation (CCC) designated sales agent for government-owned peanuts
    to a marketing cooperative. To maintain this activity, SWPGA must
    develop a marketing and processing business in the peanut industry.
    Rural Development is working with them to develop a business plan.

                  RURAL COOPERATIVE DEVELOPMENT GRANT PROGRAM

        For the Rural Cooperative Development Grants (RCDG) Program, the
    fiscal year 2004 budget requests $11 million. Of this amount, up to
    $1.5 million would be used for projects, which focus on assistance to
    small minority producers through their cooperative businesses. This
    program complements our internal National and State Office technical
    assistance efforts by encouraging the establishment of centers for
    cooperative development. The centers provide expertise for conducting
    feasibility analysis, outreach, and other forms of technical assistance
    for new and existing cooperatives.
        The Farm Bill formalized the value-added grant program authorizing
    $240 million in mandatory funding spread over six years. Over the past
    two years, 293 grants have been awarded for nearly $57.5 million. This
    program has four component parts including value-added producer grants,
    agriculture innovation centers, agricultural marketing resource center,
    and research on the impact of value-added projects. Eligibility for
    this grant program was greatly expanded in the Farm Bill and the
    program encourages applications for grants less than the $500,000
    maximum allowed to provide benefits to as many producers as possible.
        Five hundred thousand dollars will be used for Cooperative Research
    Agreement in a competitive program. Cooperative Services will provide a
    program of research on applied and theoretical cooperative issues
    affecting agricultural and other rural cooperatives. The use of
    cooperative agreements requires substantial involvement of our staff
    with the universities' and non-profits' staff leveraged to conduct the
    research. Personnel and funds for a competitive program are requested
    to bring research efforts back up to a level justified by current farm
    conditions; rapid industrialization, concentration, and integration in
    production agriculture; quickly evolving information, communications,
    and biological technologies; and transformation of the social and
    economic structures of rural areas. Funds are requested in fiscal year
    2004 to fund the cooperative agreements with Cooperative Services
    researchers and operations of the direct cost of conducting the
    competitive process to be funded out of the Salaries and Expense
    account.
        One example is the Cooperative Development Center at Montana State
    University-Northern. Since the fall of 2000, the Center has helped to
    form the Montana Natural Beef (LLC), Amazing Grains Cooperative,
    Flathead Native Beef Cooperative and Peaks & Prairies Oil Seed Growers
    Cooperative. Seven other cooperative groups are also receiving
    assistance. The Center has also conducted workshops on business
    formation and marketing; provides assistance in specialty food-product
    development, and facilitates business development through the use of a
    commercial kitchen.
        The Appropriate Technology Transfer for Rural Areas Program (ATTRA)
    provides technical information to producers and their advisors on the
    best sustainable production practices. We are requesting $2.0 million
    for this program. This funding would support responses to over 18,000
    direct inquiries from agricultural producers, extension personnel, and
    others on sustainable practices that reduce dependence on chemicals and
    is more environmentally friendly. ATTRA funding also supports a website
    that provides instant information to agricultural producers.
        Mr. Chairman, this concludes my testimony for the Rural Development
    fiscal year 2004 budget for rural business and cooperative programs. I
    look forward to working with you and other Committee members to
    administer our programs. I will be happy to answer any questions the
    Committee might have.

        Senator Bennett. Thank you very much.
        Now we go to Joseph Jen, who is the Under Secretary for
    Research, Education, and Economics. An economist at one end and
    an economist at the other end. Maybe that tells us something.

                       RESEARCH, EDUCATION, AND ECONOMICS

        Dr. Jen. Thank you, Mr. Chairman. I am a biochemist by
    training.
        Senator Bennett. If you are Under Secretary for Economics,
    you are an economist by definition.
        Dr. Jen. I do have an MBA, too, so I do qualify for being
    an economist. Thank you.
        Mr. Chairman, it is my pleasure to appear before you to
    discuss the fiscal year 2004 budget for the REE mission area
    agencies. REE consists of ARS, CSREES, ERS, and NASS. The
    administrators of the agencies are present here today.
        Placed in the context of current tight Government spending,
    the REE budget that we are here to discuss today reflects a
    strong commitment to addressing the challenges facing our
    Nation's food and agriculture system. We appreciate your
    support for the fiscal year 2003 appropriations. The
    President's fiscal year 2004 budget proposes $2.266 billion for
    the four REE agencies, about the same as fiscal year 2003
    Presidential budget proposal of $2.312 billion.
        Science and technology are the foundation of the American
    food and agricultural systems. The four REE agencies have been
    central to making the discoveries that have given us the most
    plentiful, affordable, and safe food supply any nation has ever
    known.
        The environment surrounding the food and agricultural
    system is in constant flux. Today, our farmers and ranchers and
    our value-added food industry face stiff competition in
    worldwide markets. Many countries now spend a much higher
    percentage of their national research dollars on the food and
    agricultural system than we do. Constant attention to and
    investment in food and agricultural research is necessary to
    maintain our leadership in the world.
        The remarkable success enjoyed by the food and agricultural
    system in this Nation depends heavily on our having a reservoir
    of basic scientific knowledge. Technology and mission-oriented
    applied research and problem-solving projects must draw from
    this reservoir of scientific knowledge. I appreciate very much
    your support of the USDA flagship grant program, the National
    Research Initiative, NRI, with an increase of $46 million in
    the fiscal year 2003 appropriations, raising the total funding
    level to $166 million. As a competitive grant, the NRI is open
    to the entire research community and provides the most
    effective mechanism to attract the best minds in the Nation to
    work on food and agricultural research and to add to our
    science knowledge reservoir. For the fiscal year 2004 budget,
    we propose to increase the NRI to $200 million.
        One of the most recent scientific breakthrough areas and
    one that represents immense opportunities for the food and
    agricultural sector is genomics research. Genomics is where the
    21st century biological science is going.
        Through the study of genetic makeup of organisms, genomics
    links the properties of genes to how plants and animals
    function.
        Both ARS and CSREES have significantly increased their
    genomics programs in recent years. However, fulfilling the
    promises of genomics will require additional investments.
        In capturing the unique benefits of genomics research and
    development, USDA has collaborated with other science
    institutions, both in the United States and abroad. The goal is
    to achieve direct applications in food and agriculture that
    would not likely be addressed without USDA participation and
    targeted funding. USDA has worked closely with the National
    Science Foundation on the National Plant Genome Initiative and
    the Microbe Genetic Project. USDA is leading in the
    coordination of Federal research activities related to domestic
    animal genomics, including working closely with the National
    Institutes of Health.
        Our work with other agencies in various research areas is
    indicative of a growing collaboration in which REE agencies are
    participating. Additionally, the new REE strategic plan asks
    the four REE agencies to provide increasing research,
    analytical, statistical, economical, and educational services
    to other USDA agencies.
        The proposed budget provides additional funding for REE
    agencies to play a major role in strengthening the Nation's
    biosecurity. The safety of our food and security of our food
    supply are critical elements of homeland security. Because of
    its size, complexity, and integration, U.S. agriculture is
    uniquely vulnerable to highly infectious disease and pests,
    particularly those diseases not native to the United States.

                              PREPARED STATEMENTS

        With continued investment, REE will be ready to meet the
    challenges to agriculture and take advantage of the
    opportunities presented by cutting-edge scientific and
    technology.
        This concludes my statement. Thank you for your attention.
        [The statements follow:]

                    Prepared Statement of Dr. Joseph J. Jen

        Mr. Chairman, Members of the Committee, it is my pleasure to appear
    before you to discuss the fiscal year 2004 budgets for the Research,
    Education, and Economics (REE) mission area agencies of the USDA. I am
    accompanied by Dr. Rodney Brown, Deputy Under Secretary of REE and the
    Administrators of the four agencies: Dr. Edward Knipling, Acting
    Administrator of the Agricultural Research Service (ARS); Dr. Colien
    Hefferan, Administrator of the Cooperative State Research, Education,
    and Extension Service (CSREES); Dr. Susan Offutt, Administrator of the
    Economic Research Service (ERS); and Mr. Ronald Bosecker, Administrator
    of the National Agricultural Statistics Service (NASS). Also present is
    Mr. Dennis Kaplan of the Office of Budget and Program Analysis of the
    Department. Each Administrator has submitted written testimony for the
    record.
        Placed in the context of current tight government spending, the REE
    budget that we are here to discuss today reflects a strong commitment
    to addressing the challenges facing our Nation's food and agricultural
    system. We appreciate your support in fiscal year 2003 appropriations.
    The President's fiscal year 2004 budget proposes $2.266 billion for the
    four REE agencies, about the same as fiscal year 2003 presidential
    budget proposal of $2.312 billion. The proposed budget requests
    increases for higher priority programs by reprogramming lower priority
    programs and eliminating completed tasks.
        Science and technology are the foundation of the American food and
    agricultural system. These four agencies have been central to making
    the discoveries that have given us the most plentiful, affordable, and
    safe food supply any nation has ever known. Research investments and
    scientific advances have caused per acre yields of corn for silage and
    milk production per dairy cow to more than double in the last half of
    the 20th Century, while household income devoted to food has dropped
    from 20.5 to 10.2 percent. It is a phenomenal success story, a story
    based significantly on REE agencies' research, education, and economic
    and statistical analysis over the years.
        The environment surrounding the food and agricultural system is in
    constant flux. Today, our farmers and ranchers and our value-added food
    industry face stiff competition in worldwide markets. Many countries
    now spend a much higher percentage of their national research dollars
    on the food and agricultural system than we do. Constant attention to
    and investment in food and agricultural research is necessary to
    maintain our leadership in the world.
        A recent National Academies report on REE, entitled Frontiers in
    Agricultural Research--Food, Health, Environment and Communities,
    states, ``Recent scientific breakthroughs will make it easier for
    agriculture to achieve its potential for delivering a wide array of
    benefits to society. For this potential to be realized, the
    agricultural research system must take advantage of new opportunities
    and relationships. Changing public values and needs will create new
    market opportunities and will alter agriculture's relationship to the
    food and fiber system, the environment and the fabric of American
    society. Research will support agriculture as a positive economic,
    social, and environmental force and will help the sector to fulfill
    ever-evolving demands.''
        The remarkable success enjoyed by the food and agricultural system
    in this Nation depends heavily on our having a reservoir of basic
    scientific knowledge. Technology and mission-oriented applied research
    and problem solving projects must draw from this reservoir of
    scientific knowledge. I appreciate very much your support of the USDA
    flagship grant program, the National Research Initiative (NRI) with a
    significant increase of $46 million in the fiscal year 2003
    appropriations, raising the total funding level to $166 million.
    However, the NRI funding level is still only one third of the
    authorized level of $500 million. As a competitive program, the NRI is
    open to the entire research community and provides the most effective
    mechanism to attract the best minds in the nation to work on food and
    agricultural research, and to add to our science knowledge reservoir.
    For the fiscal year 2004 budget, we propose to increase the NRI to $200
    million.
        One of the most recent scientific breakthrough areas and one that
    represents immense opportunities for the food and agriculture sector is
    genomics research. Genomics is where 21st century biological science is
    going. Genomics and biotechnology provide powerful tools to address
    many of the thorny problems that have challenged production agriculture
    for years. Called the ``high speed biology,'' genomics permits rapid
    understanding and careful use of desired traits in microbes, plants,
    and animals. Where previously scientists worked at the cellular level,
    they can now work at the molecular-level. Genomics also adds to the
    basic science knowledge reservoir. As has been demonstrated in the
    study of the human genome, studying the metabolic pathways dictated by
    genetic sequences can lead to new knowledge that has unanticipated
    beneficial applications.
        Through the study of the genetic makeup of organisms, genomics
    links the properties of genes to how plants and animals function. For
    example, genomics can:
      --Eliminate the production of fungal toxins such as aflatoxin.
      --Prevent diseases in animals exposed to pathogens, such as foot and
            mouth disease.
      --Uniformly and reliably produce desirable nutritional
            characteristics in commodities such as golden rice, which
            contains high vitamin A and iron levels.
      --Develop rapid accurate diagnostic tools for monitoring and
            detecting animal and plant pathogens, such as Listeria.
      --Make production friendlier to the environment, tapping into the
            natural defensive resources of agricultural plants and animals.
      --Reduce or eliminate the use of many agricultural chemicals and
            antibiotics and make the food products that consumers want.
        ``Molecular-level understanding of life processes'' is one of six
    public research and development priorities set out in the fiscal year
    2004 budget memorandum from the Directors of the White House Offices of
    Science and Technology Policy and Management and Budget. In particular,
    the Directors note that ``new applications in health care, agriculture,
    energy, and environmental management,'' justify genomics as a priority.
    Agriculture lags behind the medical, energy-related, and non-
    agricultural basic sciences in making investments in this area. To be a
    world leader in agricultural genomics, USDA requires a sustained
    investment to engage in genomics research and to cooperate with other
    federal agencies.
        Both ARS and CSREES have significantly increased their genomics
    programs in recent years. However, fulfilling the promises of genomics
    will require additional investments. The President's fiscal year 2004
    budget provides increases of $13 million in ARS's agricultural genome
    budget and $10 million in CSREES' NRI to strengthen both agencies'
    genomics programs. An increase of $1.1 million in the ERS' budget will
    provide economic data and analysis that complements collateral
    biological and bioinformatics research, and serves as the basis for
    policy decisions arising from rapid genomics-based development in food
    and agriculture.
        In capturing the unique benefits of genomics research and
    development, USDA has collaborated with other science institutions,
    both in the United States and abroad. The goal is to achieve direct
    applications in food and agriculture that would not likely be addressed
    without USDA participation and targeted funding. USDA has worked
    closely with the National Science Foundation on the National Plant
    Genome Initiative and the Microbe Project. USDA is leading in the
    coordination of federal research activities related to Domestic Animal
    Genomics, including working closely with the National Institutes of
    Health.
        Our work with other agencies in various research areas is
    indicative of the growing collaborations in which REE agencies are
    participating. The REE agencies are working with the National
    Aeronautics and Space Administration on remote sensing, with the Food
    and Drug Administration and the Centers for Disease Control on food
    safety, with the Environmental Protection Agency on implementation of
    the Food Quality Protection Act, and with the Department of Defense and
    Department of Energy on biobased products and bioenergy research.
    Additionally, the new REE strategic plan asks the four REE agencies to
    provide increasing research, analytical, statistical, and educational
    services to other USDA agencies.
        The proposed budget provides additional funding for REE agencies to
    play a major role in strengthening the Nation's biosecurity. The safety
    of our food and security of our food supply are critical elements of
    homeland security. The budget provides ARS $11.5 million for
    biosecurity research with an additional amount for related research on
    emerging diseases that may be accidentally or intentionally introduced
    into the food system. Because of its size, complexity, and integration,
    U.S. agriculture is uniquely vulnerable to highly infectious diseases
    and pests, particularly diseases not endemic to the United States.
    Working cooperatively with APHIS, the budget provides CSREES with $16
    million to maintain a unified Federal-State network of public
    agricultural institutions to identify and rapidly respond to high-risk
    biological pathogen outbreaks in the food and agricultural system.
    Funding of $1 million will support ERS' effort to improve and maintain
    a security analysis system initiated with supplemental Homeland
    Security funds. Finally, the President's fiscal year 2004 provides ARS
    with $22 million to finance additional security assessments and
    implement security countermeasures at ARS research laboratories.
        Scientific and professional human capital is one of the most
    crucial variables affecting the future of our food and agriculture
    system. Increases in the budget supporting the research component of
    REE are complemented with increases in education, a critical function
    of REE. The President's budget provides an increase of $1.9 million for
    two higher education programs, Institution Challenge Grants to enhance
    institutional capacity and Graduate Fellowship Grants for the
    development of expertise. The budget also proposes funds for a program
    to further incorporate an international component into teaching,
    research, and extension programs at land-grant institutions.
        I would now like to turn briefly to the budgets of the four REE
    agencies.
        Agricultural Research Service.--The Agricultural Research Service
    fiscal year 2004 budget requests slightly over $1 billion in ongoing
    research and information programs and facilities. Within the total, the
    budget proposes increases dedicated toward higher priority program
    initiatives of national and regional importance, several of which I
    previously described. Offsetting these increases, the budget proposes
    redirection or termination of approximately $149 million in current
    programs. As the principal intramural biological and physical science
    research agency in the Department, ARS continues to play a critical
    role for the Department and the larger agricultural community in
    conducting both basic and mission-oriented research. Results from ARS'
    basic research provide the foundation for applied research carried out
    by ARS, academic institutions and private industry. ARS' applied
    research and technology development address the research needs of other
    USDA agencies, as well as of those engaged in the food and agriculture
    sector.
        Agriculture is vulnerable to changes in climate. Rising
    temperatures, changing amounts of precipitation, increased variability
    in weather, and increases in the frequency and intensity of extreme
    weather events like drought and floods are predicted to accompany the
    intensification of the greenhouse effect. While vulnerable to these
    environmental changes, agriculture also offers significant
    opportunities to mitigate the increase in greenhouse gases in the
    atmosphere. An increase of $6.3 million in the President's budget for
    climate change will support research providing information on balancing
    carbon storage and agricultural productivity in different agricultural
    systems across the Nation.
        The Abraham Lincoln National Agricultural Library (NAL), one of
    four national libraries, serves as a national resource for information
    on food and agricultural sciences. The proposed increase will enhance
    NAL's information technologies, increase the volume and quality of
    information available, reduce the cost of information and services, and
    develop specialized collections. This will include the first steps
    towards developing a National Digital Library for Agriculture in
    partnership with the land grant universities, to improve NAL's
    worldwide customers' access to key digital agricultural information.
    The President's budget also provides $2 million to continue a multi-
    year plan to address major facility deficiencies.
        As discussed above, the budget also proposes $22 million for
    security needs at ARS research laboratories.
        Cooperative State Research, Education, and Extension Service.--The
    President's fiscal year 2004 budget provides just over $1 billion for
    the Cooperative State Research, Education, and Extension Service. In
    providing critical funding for the research, education, and extension
    programs of the Land Grant system and other universities and
    organizations across the country, CSREES continues to play a central
    role in the generation of new knowledge and technology and the transfer
    of that knowledge and technology to stakeholders. Within the
    discretionary budget, the funding levels for the six formula programs
    are slightly higher than the fiscal year 2003 appropriations, due
    principally to restoration of the across-the-board cuts in fiscal year
    2003.
        In addition to the increases in the NRI and higher education
    programs described above, the CSREES budget includes increases to
    enhance the agency's capacity to serve its grantees through developing
    a new electronic grants application and reporting system and continuing
    the design and development of the Research, Education, and Economics
    Information system.
        The Government Paperwork Elimination Act (GPEA) mandates that
    electronic submission, maintenance or dissemination of information be
    available as a substitute for paper. GPEA has significant implications
    for the agency's management of its grant-making programs. The budget
    maintains support for CSREES's activities related to GPEA and
    eGovernment.
        Economic Research Service.--The Economic Research Service is
    provided $76.7 million in the President's fiscal year 2004 budget. As
    the Department's principal intramural economics and social science
    research agency, ERS conducts research and analysis on the efficiency,
    efficacy, and equity aspects of issues related to agriculture, food
    safety and human nutrition, the environment, and rural development. In
    addition to the increases described above in genomics and homeland
    security, the budget includes $9 million to fund ERS' Food Assistance
    and Nutrition Research Program. In light of the President's Initiative
    on ``Healthier America'' and the current obesity epidemic, data on
    consumer nutrition status is critically needed to serve the Nation.
        National Agricultural Statistics Service.--The National
    Agricultural Statistics Service budget requests $136.2 million, a
    decrease of $2.3 million over the fiscal year 2003 Act. NASS's
    comprehensive, reliable, and timely data are critical for policy
    decisions and to keep agricultural markets stable, and to ensure a
    level playing field for all users of agricultural statistics. The
    President's budget provides increases in several critical areas of the
    NASS program, as well as a decrease of approximately $16 millions in
    the Census of Agriculture, which reflects normal changes in the Census
    cycle.
        An increase of $4.8 million will be directed at restoring and
    modernizing the core survey and estimation program to meet the needs of
    data users at an improved level of precision. This program has not
    received an increase in funding since 1990, leading to a reduction in
    the quality of survey data on which estimates are based. Another
    increase of $1.6 million will incrementally improve statistically
    defensible survey precision for small area statistics that are widely
    used by USDA agencies, such as the Risk Management Agency for indemnity
    calculations.
        To minimize respondent burden, NASS is committed to developing a
    system that will allow producers and agri-businesses the option of
    electronically filling out and submitting surveys, as mandated by the
    GPEA. To that end, the budget requests $3.25 million for NASS's
    electronic data reporting initiative. By 2006, most NASS self-
    administered surveys will be available electronically and it is
    anticipated that the 2007 Census of Agriculture will be electronically
    collected.

                                    SUMMARY

        In summary, I want to reiterate that, given current budget
    constraints, the REE agencies' budgets present a balanced portfolio,
    with investments in cutting edge research such as genomics and in
    application of the research findings to such issues as biosecurity and
    food safety pathogens. The budget also provides new funding in
    education to ensure that the Nation has a strong cadre of professionals
    in the food and agricultural system. In addition, it recognizes that
    statistics and economic analysis are critical for informed decision
    making for all parties involved in the system. With these continued
    investments, REE will be ready to meet the challenges to agriculture
    and take advantage of the opportunities presented by cutting-edge
    science and technology. This concludes my statement. Thank you for your
    attention.
                                     ______

      Prepared Statement of Dr. Edward B. Knipling, Acting Administrator,
                         Agricultural Research Service

        Mr. Chairman, and members of the Subcommittee, I appreciate this
    opportunity to present the Agricultural Research Service's (ARS) budget
    recommendations for fiscal year 2004. The President's fiscal year 2004
    budget request for ARS Salaries and Expenses is $987,303,000. This
    represents a net decrease of $58.6 million from the fiscal year 2003
    adjusted appropriation level. This net decrease results from program
    additions and reductions, and increases for pay and operating costs.
    The fiscal year 2004 budget also proposes $24,000,000 for the ARS
    Buildings and Facilities account. Also included in the President's
    budget is the proposed transfer in appropriations from ARS to support
    activities included in the budget for the Department of Homeland
    Security (DHS).

                           PROPOSED PROGRAM INCREASES

        The fiscal year 2004 President's budget funds a number of new and
    expanded priority research initiatives as follows:
        Emerging Diseases of Plants and Animals ($12,100,000).--Emerging
    diseases are caused by previously unidentified pathogens or new
    manifestations of ``old'' diseases. Reemerging diseases occur after
    long quiescent periods or upon the introduction of a new pathogen into
    a native plant/animal population in a new geographical area. The
    globalization of trade, increased international travel of people and
    movement of goods, changing weather patterns, genetic shifts in
    pathogen populations, and changes in crop management practices all
    provide opportunities for the emergence or reemergence and spread of
    plant and animal diseases. ARS will use the proposed increase to
    develop sensitive diagnostic tests and vaccines to control exotic
    diseases. Prevention and control strategies will be developed for
    porcine reproductive respiratory syndrome, bovine spongiform
    encephalopathy, and Marek's disease (in chickens). Research will also
    be conducted on emerging and exotic plant diseases to minimize or
    prevent their establishment in the United States.
        Sequencing and Bioinformatics ($12,887,000).--The Nation's
    agricultural system today faces formidable challenges including new
    pests and pathogens from water and soil pollution, environmental
    regulations, and the extinction or inaccessibility of genetic
    resources. Genomics and biotechnology are critically important for
    maintaining and enhancing the production, quality, and safety of plant-
    and animal-based food products.
        With the proposed increase, ARS will identify the genes that
    influence disease resistance, reproduction, nutrition, and other
    economically important production traits in livestock and poultry.
    Research will identify the genes in Texas cattle fever tick that
    contribute to acaracide resistance and host function for babesiosis. In
    addition, research will identify and utilize genes and gene products
    that influence economically important traits in plants.
        Biosecurity Research ($11,500,000).--The General Accounting Office
    (GAO) has reported that certain countries are developing biological
    warfare agents directed at animal and plant agriculture. The GAO
    indicates that U.S. agriculture is a potential target. Disease
    outbreaks from a malicious introduction of pathogens could have
    profound impacts on the national infrastructure, the domestic economy,
    and export markets. Disease pathogens that could be used to debilitate
    U.S. agriculture include highly infectious viruses, bacteria,
    nematodes, fungi, and insects that attack major commodities, such as
    cattle, swine, poultry, cereals, vegetables, and fruits. With the
    proposed increase, ARS will develop more rapid and sensitive onsite
    pathogen detection and identification tests for animal pathogens. Also,
    ARS will develop a genomic analytic sequencing capability which will
    assist in determining threatening diseases'/pathogens' geographic
    origin and potential for spread.
        Biotechnology Risk Assessment ($3,725,000).--The National Academy
    of Sciences has identified several areas that need further study, such
    as, the characteristics of genetically engineered crops and the long
    term ecological impacts of these crops; the effects of genetically
    modified organisms on non-target organisms; and the gene spread from
    crops to surrounding vegetation. ARS will use the proposed increase to:
    determine the rates of gene flow, including transgenes, from crops to
    nearby vegetation; develop and test novel strategies to prevent pest
    populations from becoming resistant to plant incorporated protectants;
    and identify and develop gene technology that will limit transgene
    activity to specific tissues.
        Invasive Species ($4,202,000).--Invasive insects, weeds, and other
    pests cost the Nation well over $137 billion each year. Weeds,
    including leafy spurge, melaleuca, salt cedar, water hyacinth, purple
    loosestrife, and jointed goat grass, currently infest at least 100
    million acres in the United States. They reduce crop yields by
    approximately 12 percent and forage yields by 20 percent. Arthropods
    (insects and mites), such as the glassy-winged sharpshooter, silverleaf
    whitefly, Asian longhorned beetle, pink hibiscus mealybug, Russian
    wheat aphid, and Chinese soybean aphid, destroy 13 percent of crop
    production each year. With the proposed increased, ARS will perform
    research to develop attractants and biological control technologies for
    managing invasive insects/weeds. Research will also be conducted on the
    relationship of major invasive insects and their natural enemies.
        Agricultural Genetic Resources ($3,000,000).--Present support of
    the germplasm program is inadequate to prevent the risk of extinction
    and loss of genetic diversity. With the availability of new genomic
    tools, genetic diversity is extremely valuable for improving
    production. ARS will use the proposed increase to collect, identify,
    characterize, and maintain germplasm in centralized gene banks. ARS
    will also encourage germplasm exchange and distribute research
    quantities of healthy, pure, and adequately characterized germplasm.
        Managing Wastes to Enhance Air and Water Quality ($2,425,000).--The
    management of waste has become increasingly important because of its
    far-reaching impacts. Properly managed it can be used to improve soil
    properties, as a nutrient source for crops, and for alternative uses,
    such as energy production. Improperly used, the waste from 280,000
    animal feeding operations around the country poses a threat to soil,
    water, and air quality, and human and animal health. With the proposed
    increase, ARS will continue to develop cost effective technologies and
    management practices which enable producers to capture the value of
    manure and other byproducts without degrading environmental quality or
    posing a threat to human and animal health.
        Biobased Products and Bioenergy from Agricultural Commodities
    ($6,400,000).--Widely fluctuating energy prices and depressed
    agricultural commodity prices have contributed to a renewed emphasis on
    expanding the use of biobased industrial products (including fuels) to
    improve the Nation's energy security, balance of payments, environment,
    and rural economy. By expanding the development of biobased products
    and bioenergy, increased demand will be created for agricultural
    commodities to strengthen farm product prices and raise farm income;
    new opportunities will be provided for business development and
    employment growth in rural America; dependence on imported oil will be
    reduced and U.S. security enhanced; and environmental quality will be
    improved by reducing air pollution and greenhouse gas emissions. With
    the proposed increase, ARS will improve the quality and quantity of
    agricultural biomass feedstock for production of energy and biobased
    products. The conversion of agricultural materials and wastes to
    biofuels will be improved. In addition, technologies will be developed
    to produce biobased products from agricultural commodities and
    byproducts.
        Climate Change Research and Technology Initiatives ($6,300,000).--
    Climate change encompasses global and regional changes in the Earth's
    atmospheric, hydrological, and biological systems. Agriculture is
    vulnerable to these environmental changes. The objective of ARS' global
    change research is to develop the information and tools necessary for
    agriculture to mitigate or adapt to climate change. ARS has research
    programs on carbon cycle/storage, trace gases (methane and nitrous
    oxide), agricultural ecosystem impacts, and weather/water cycle
    changes. ARS will use the proposed increase to develop climate change
    mitigation technologies and practices for the agricultural sector.
    Research will include land use and land management impacts on carbon
    sequestration; measurement, verification, and modeling of carbon
    storage; and assessing and managing risks to agricultural production
    and water supplies from weather variability.
        Agricultural Information Services ($2,000,000).--ARS will use the
    proposed increase to begin implementation of the digital library
    initiatives recommended by the 2001 Interagency Panel for Assessment of
    the National Agricultural Library. These initiatives will provide
    improved access to electronic resources, delivery of digital
    information to USDA customers, and archiving of USDA digital
    publications. The development of information technology to manage and
    deliver information will also be continued.
        Information Technology Cyber Security ($3,000,000).--Information
    technology is critical for the delivery of ARS' research programs. The
    use of web-based technology commonly referred to as ``e-Government,''
    offers ARS the opportunity to improve the way it conducts business and
    exchanges information in achieving its research mission and objectives.
    As technology has enhanced the ability to share information
    instantaneously, it has also made ARS more vulnerable to cyber security
    attacks. ARS' mission critical information systems and networks are now
    exposed to an unprecedented level of risk. Of particular importance is
    the safety of pathogenic, genomic, and sensitive research information
    from being acquired or destroyed by unauthorized intruders through
    unprotected/undetected cyber links. ARS will use the proposed increase
    to increase the number of cyber security officers and improve and
    enhance cyber security tools, training and management plans. In
    addition, ARS' servers will be streamlined and centralized.

                            PROPOSED OPERATING COSTS

        In addition to the requested program initiatives, the budget
    provides funding to cover costs associated with pay raises effective in
    fiscal years 2002, 2003, and 2004. These funds, $31,567,000, are
    critically needed to avoid Agencywide erosion of base resources. The
    absorption of these costs would reduce the number of essential
    scientists and support staff needed to conduct the Nation's Federal
    agricultural research program. The absorption reduces funds available
    for costly laboratory equipment, materials, and extramural support
    essential to these programs.

                           PROPOSED PROGRAM DECREASES

        The President's budget for fiscal year 2004 addresses a number of
    national needs and Administration priorities. Two issues of major
    concern to the President and the American people are national defense
    and domestic security. In this regard, the Department of Agriculture
    and ARS, along with most other Federal departments and agencies, are
    seeking a slower rate of growth to accommodate the more urgent needs
    facing the Country. Furthermore, as a result of additional emergency
    spending in fiscal year 2002 and fiscal year 2003, higher deficit
    spending is projected this year and in fiscal year 2004, requiring
    governmentwide fiscal belt-tightening and the imposition of budget
    constraints to curtail spending.
        For these reasons the President's fiscal year 2004 budget proposes
    decreases in funds supporting ongoing programs in ARS. The program
    decreases recommended in the budget amount to $137,006,000.
    Approximately 96 percent of this reduction is derived from
    Congressionally-designated earmarks appropriated in fiscal years 2001,
    2002, and 2003. While these projects are considered to be important,
    they are less critical under the current fiscal and economic climate.
    The limited resources that are available are needed for higher priority
    initiatives. The Department is also proposing the termination of
    research currently carried out at Brawley, California; the
    Biotechnology Research and Development Corporation, Peoria, Illinois;
    and the Animal Health Consortium, Peoria, Illinois. The Department is
    also projecting savings associated with program and management
    efficiencies to be derived from enhanced information technology
    capabilities. The ARS budget also identifies resources from a number of
    research projects that will be redirected to meet higher priority
    research initiatives that target biosecurity, sequencing and
    bioinformatics, emerging and exotic diseases of plants and animals, and
    global climate change.

                TRANSFER TO THE DEPARTMENT OF HOMELAND SECURITY

        The Agency's budget reflects a decrease of $9.1 million. These
    funds finance the operating costs and half the research program
    currently conducted at the Plum Island Animal Disease Center,
    Greenport, New York. These funds will appear in the DHS budget.

                PROPOSED INCREASES FOR BUILDINGS AND FACILITIES

        The fiscal year 2004 budget recommends an increase of $24 million
    for ARS' Buildings and Facilities account. Most of this increase is for
    security at ARS' laboratories. Many of the Agency's laboratories are
    highly vulnerable to a terrorist attack.
        In the aftermath of the September 11, 2001 terrorist attack,
    Congress provided supplemental funds to USDA to conduct security
    assessments and begin to upgrade security at all of its research
    laboratories. ARS has laboratories located at more than 100 sites
    throughout the United States and overseas. ARS laboratories which were
    most at risk--i.e., the agency's five containment laboratories at Plum
    Island, New York; Ames, Iowa; Laramie, Wyoming; Athens, Georgia; and
    Frederick, Maryland--had security assessments conducted in fiscal year
    2002. The assessments identified possible threats and risks to known
    assets, and recommended countermeasures. ARS has initiated security
    measures at 24 research locations including all BSL-3 and BSL-2
    facilities with inventories of select agents. Other security measures
    include background investigations, additional security guards, access
    control systems, etc. The proposed increase in fiscal year 2004 will be
    used to finance additional security assessments and implement security
    countermeasures at ARS locations on a priority basis.
        The National Agricultural Library is one of four national libraries
    and the largest agricultural library in the world. The library houses a
    collection of more than 3.2 million items in 50 different languages. It
    serves as a national resource for information on agriculture and
    related services. Constructed in 1968, NAL's building requires major
    renovation. Since fiscal year 1998, ARS has received funds for
    renovation of the library's first floor and other floors and systems.
    In fiscal year 2004, ARS is requesting $2 million to continue
    addressing the major facility deficiencies.
        Mr. Chairman, this concludes my statement. I will be glad to answer
    any questions the Committee may have.
                                     ______

     Prepared Statement of Dr. Colien Hefferan, Administrator, Cooperative
                State Research, Education, and Extension Service

        Mr. Chairman and Members of the Committee, I appreciate the
    opportunity to submit the proposed fiscal year 2004 budget for the
    Cooperative State Research, Education, and Extension Service (CSREES),
    one of the four agencies in the Research, Education, and Economics
    (REE) mission area of the United States Department of Agriculture
    (USDA).
        The CSREES fiscal year 2004 budget proposal is just over $1
    billion. CSREES, in concert with the Secretary of Agriculture and the
    intent of Congress, works in partnership with the land-grant university
    system, other colleges and universities, and public and private
    research and education organizations to initiate and develop
    agricultural research, extension, and higher education programs. This
    partnership has a breadth of expertise that is ready to deliver
    solutions to problems facing U.S. agriculture today.
        The broad portfolio of CSREES programs has supported scientific
    discovery from idea to application. Formula funds have leveraged
    dollars from other sources, provided the start-up funds needed for an
    investigator to establish a research program and build the capacity to
    compete successfully in a competitive program, and allowed for a rapid
    response to emerging problems. Competitively funded research from the
    National Research Initiative (NRI) has supported individual
    investigators undertaking basic research aimed at generating new
    knowledge. Research results are applied to real life problems through
    the Cooperative Extension System's educational efforts. Because these
    efforts occur primarily at universities, they contribute to an
    environment that prepares students to meet the ongoing needs of
    agriculture, the environment, human health and well-being, and
    communities.
        CSREES continues to provide new opportunities for discoveries and
    advances in knowledge through our competitive programs such as the NRI
    and Integrated Programs. Funding for agricultural research,
    particularly that pursued at university campuses, has dramatically
    lagged behind funding for other disciplines. The $46 million increase
    in fiscal year 2003 for the NRI was a step in reaching the full
    authorization level for the NRI. The fiscal year 2004 budget request of
    $200 million is based on the same underlying policy objectives, but in
    a way that is consistent with increasing overall constraints on the
    Department's budget. The NRI will continue to support current high
    priority programs with an emphasis on critical areas. Increased
    partnerships with other Federal agencies on research topics of mutual
    interest will be possible. For example, we will be able to expand
    working relationships with the National Science Foundation and
    Department of Energy on research of the rice genome. The current
    contribution of this partnership has led to a high quality ``draft''
    sequence of the rice genome several years ahead of schedule. The
    ``draft'' sequence is providing valuable information for researchers
    studying rice and other cereals and, through genomics technology and
    plant breeding, will lead to improved cereal productivity, quality, and
    nutritional value. With sequencing complete, it is anticipated that
    this collaborative work will continue in developing a functional
    genomics program for rice to associate sequence information with
    pathways or networks of genes with the goal of increasing our knowledge
    of disease resistance, nutritional qualities, growth and development,
    fiber quality, oil content and other agriculturally important traits of
    rice. The fiscal year 2004 budget request continues support of genomics
    with a $10 million increase in animal genomics. NRI funds will be used
    to strengthen agricultural research at small and mid-sized institutions
    and in States that are less successful in the competitive grants arena.
    Innovative multidisciplinary research training will be provided for
    agriculture's future scientists in emerging areas such as agricultural
    biotechnology, agricultural bioinformatics and functional foods. The
    quality of science will increase as more of the best and brightest
    scientists from all areas of the United States, and all institutions,
    submit proposals to the NRI on critical issues such as emerging
    diseases of plants and animals, biosecurity, air quality and food and
    nutrition.
        CSREES is uniquely positioned to address research, education, and
    extension needs to meet the challenges to U.S. agriculture from new and
    emerging pests and diseases. Partnering with the University System,
    CSREES programs support a vast wealth of expertise in all fields of
    plant and animal sciences along with an immense extension and outreach
    capability that can be mobilized to provide an immediate response to
    critical issues. Program efforts will focus on early intervention
    strategies to prevent, manage or eradicate new and emerging plant and
    animal disease. Funding also will facilitate rapid response to the need
    for improved diagnostic tests for emerging disease agents by building
    on the expanding knowledge base of microbial genomics for both animal
    and plant diseases. The $2 million increase in the Critical Issues
    Program will be used to address emerging plant and animal diseases and
    pests such as the Southern pine beetle which is spreading rapidly
    across the Southern United States, work on resistant strain genetics
    for karnal bunt, Circovirus of swine which causes a multisystemic
    disease in piglets, and chronic wasting disease which is now a major
    wildlife health crisis in several States, and may be a vector for human
    health concerns.
        In continuing our efforts for agricultural security, CSREES,
    through cooperative efforts with the Animal and Plant Health Inspection
    Service, has established a unified Federal-State network of public
    agricultural institutions to identify and respond to high risk
    biological pathogens in the food and agricultural system. The core of
    the network is currently comprised of 5 hub animal diagnostic
    laboratories, 7 satellite animal diagnostic laboratories, and 5 plant
    diagnostic laboratories dispersed strategically around the country. The
    hub laboratories are responsible for deploying standardized diagnostic
    approaches for identification of exotic and domestic pests and
    pathogens that are of concern to the security of our food and
    agricultural production systems. The hub laboratories also serve as the
    repository for storing records of typical endemic and chronic pest and
    disease problems from the other diagnostic laboratories in their
    region. The budget proposal requests $16 million to maintain the
    national diagnostic laboratory network.
        Sustained support through our formula programs is providing the
    foundation for the Federal/State partnership that links science and
    technology development directly to the needs and interests of people.
    The formula programs provide discretionary resources that foster
    regional and national joint planning, encourage multi-state planning
    and program execution, and minimize duplication of efforts. Formula
    funding is the foundation from which a competitive grant funded program
    can be built by developing institutional infrastructure, supporting
    preliminary studies to strengthen competitive proposals and bridging
    gaps related to scope and continuity of grant supported programs. These
    funds, along with matching funds from the States, assure responsiveness
    to emerging issues such as foot-and-mouth disease, E. coli, Salmonella,
    Listeria, sorghum ergot, potato late blight, Russian wheat aphid, and
    swine waste. Formula funds also build and maintain a national base of
    scientists and extension educators who can quickly and effectively
    mobilize to address these types of critical issues. For example, the
    Nevada Cooperative Extension is increasing public awareness and
    education to motivate people to report infestations of tall whitetop,
    an invasive weed. The noxious weed looks like a delicate, harmless
    flower, but it is threatening water quality, wildlife habitat, and the
    economic stability of ranchers and farmers. Extension efforts in
    informing land-owners of the negative impacts of tall whitetop is a
    major step in controlling and eradicating the weed and preserving
    thousands of acres of Nevada's lands and waterways. Other important
    initiatives formula funds will be used to address include: financial
    security, child care, health, entrepreneurship, aquaculture and
    hydroponics, community revitalization, youth and youth-at-risk, and
    water management. In addition, formula funding supports training of
    future scientists and educators. Formula funds provide a platform to
    partner with other Federal, State, and county organizations for
    providing leadership, research, information, and education to meet the
    challenges facing communities.
        CSREES continues to expand diversity and opportunity with
    activities under 1890 formula and educational programs, and 1994 and
    Hispanic-Serving Institutions educational programs. Funding for our
    1890 formula programs provides a stable level of support for
    implementation of research and extension programming. Funding for the
    1994 Institutions strengthens the capacity of the Tribal Colleges to
    more firmly establish themselves as partners in the food and
    agricultural science and education system through expanding their
    linkages with 1862 and 1890 Institutions. Sustained funding for the
    Hispanic-Serving Institutions promotes and increases the ability of the
    institutions to carry out educational training programs in the food and
    agricultural sciences. This proven path of research, extension, and
    educational program development rapidly delivers new technologies, of
    all kinds, into the hands of all citizens, helping them solve problems
    important to their lives.
        CSREES also will more effectively reach under-served communities
    through the Outreach and Assistance for Socially Disadvantaged Farmers
    and Ranchers Program (OASDFR). Responsibility for this program was
    transferred to CSREES in fiscal year 2003 to award competitive multi-
    year projects to support disadvantaged farmers and ranchers. Increased
    funding for the OASDFR program will encourage and assist socially
    disadvantaged farmers and ranchers in their efforts to become or remain
    owners and operators by providing technical assistance, outreach, and
    education to promote fuller participation in all USDA programs.
        The higher education programs respond to the development of human
    capacity and the need for a highly trained cadre of quality scientists,
    engineers, managers, and technical specialists in the food and fiber
    system. The fiscal year 2004 budget provides a $1.7 million increase in
    CSREES higher education programs for the Food and Agricultural Sciences
    National Needs Graduate Fellowship and Tribal Education Equity and
    Endowment programs. The International Science and Education Grants
    program (ISEP) will support the land-grant community and other campuses
    in their efforts to be globally competitive by internationalizing their
    agricultural programs. ISEP is designed to assist land-grant and other
    campus faculty in bringing world issues and awareness into their
    agricultural teaching, research, and outreach programs. Other higher
    education programs will provide important and unique support to Tribal
    Colleges, the 1890 Land-Grant Colleges and Universities, and the 1862
    Land-Grant Universities as they pilot important new approaches to
    expanding their programs.
        Within the fiscal year 2004 budget request, is a proposed increase
    of $2.3 million for the Expanded Food and Nutrition Education Program
    (EFNEP). This reflects the Administration's support for strong
    nutrition programs for a healthier America. The EFNEP program reaches
    low income youth and families, with a heavy focus on the minority
    population, with nutrition education that leads to sustainable behavior
    change. Since the requested level exceeds that of the 1995 level, 1890
    Institutions will be eligible to receive funding under EFNEP, which
    reflects the Agency's commitment to more successfully reach minorities.
    Increased funding also will allow EFNEP to add a physical activity
    focus to help combat the rising problem of obesity in children and
    adults.
        The Administration strongly believes that peer-reviewed competitive
    programs that meet national needs are a much more effective use of
    taxpayer dollars than earmarks that are provided to a specific
    recipient for needs that are not national. In order to ensure the
    highest quality research for these national needs within available
    funding, the fiscal year 2004 budget has therefore proposed to
    eliminate earmark projects.
        In response to the university community's strong desire for Federal
    research agencies to support electronic grant activities, CSREES is
    committed to streamlining its grant award process and requests
    continued support in the fiscal year 2004 budget for this effort.
    Through participation in the development of a common Federal electronic
    application and reporting system, CSREES is implementing the capability
    to electronically receive and process the approximately 6,000 proposals
    submitted to the agency which will result in electronically awarding
    about 2,000 grants and cooperative agreements annually. The system also
    includes electronic distribution to reviewers nationwide, and support
    for electronic financial and technical reporting on awards. CSREES is
    examining how it can leverage its partnership with the land-grant
    university system to result in better access of research, education,
    and extension information products useful to the Nation as a whole.
    This concept, which has been termed e-Extension, could significantly
    extend the ability of these universities and the Department to provide
    synthesized and meaningful information to the public.
        CSREES, in collaboration with university and other partners,
    nationwide, continually meets the many challenges facing the food and
    fiber system. The programs administered by the agency reflect the
    commitment of the Administration to further strengthen the problem-
    solving capacity of Federally-supported agricultural research,
    extension, and higher education programs. In addition, we continue to
    enhance our responsiveness and flexibility in addressing critical
    agricultural issues.
        Mr. Chairman, this concludes my statement. I will be glad to answer
    any questions the Committee may have.
                                     ______

    Prepared Statement of Susan E. Offutt, Administrator, Economic Research
                                    Service

        Mr. Chairman and members of the Committee, I am pleased to have the
    opportunity to present the proposed fiscal year 2004 budget for the
    Economic Research Service (ERS).

    Mission
        The Economic Research Service informs and enhances public and
    private decision making on economic and policy issues related to
    agriculture, food, the environment, and rural development.

    Budget
        The Agency's request for 2004 is $76.7 million, which includes
    increases for two initiatives and pay costs. The Agency is requesting a
    $1.1 million increase to strengthen the economic information and
    analytical bases for genomics research, application, and education
    program decisions; and a $1 million increase for developing the
    Security Analysis System for U.S. agriculture (SASUSA).

    ERS Contributions to Mission Area Goals
        ERS shares five general goals with its fellow agencies in the
    Research, Education, and Economics (REE) mission area: (1) a highly
    competitive agricultural production system, (2) a safe and secure food
    supply, (3) a healthy and well nourished population, (4) harmony
    between agriculture and the environment, and (5) enhanced economic
    opportunity and quality of life for all Americans. These goals are
    fully consistent with the U.S. Department of Agriculture mission.
        Goal 1.--The U.S. agricultural production system is highly
    competitive in the global economy.
        ERS helps the U.S. food and agriculture sector adapt to changing
    market structure in rapidly globalizing, consumer-driven markets by
    analyzing the linkages between domestic and global food and commodity
    markets and the implications of alternative domestic and international
    policies on competitiveness. ERS economists analyze factors that drive
    change in the structure and performance of domestic and global food and
    agriculture markets; provide economic assessments of structural change
    and competition in the agricultural sector; analyze the price impacts
    of evolving structural changes in food retailing; analyze how
    international trade agreements and foreign trade restrictions affect
    U.S. agricultural production, exports, imports, and income; and provide
    economic analyses that determine how fundamental commodity market
    relationships are adjusting to changing trade, domestic policy, and
    structural conditions. Policy makers and the food and agriculture
    industry benefit from research contained in reports such as China's
    Food and Agriculture: Issues for the 21st Century (March 2002) that
    analyze driving forces in global markets, in this case the factors
    underlying China's potential as a growing market and competitor; and
    Vertical Coordination of Marketing Systems: Lessons from the Poultry,
    Egg and Pork Industries (May 2002) that analyze the economic forces
    leading to closer coordination of economic activity across the food
    marketing chain and measure the consumer benefits.
        ERS will continue to work closely with the World Agricultural
    Outlook Board (WAOB) and USDA agencies to provide short- and long-term
    projections of the United States and world agricultural production,
    consumption, and trade. In.2003, several initiatives will increase the
    accessibility, timeliness and breadth of the data and analysis. We are
    creating dynamic outlook pages that offer the latest outlook
    information, data, and links through a central location on the ERS
    website--In addition, USDA's agricultural baseline projections will be
    available on a more timely basis through the release of components as
    they are completed. ERS continues to work closely with the WAOB and
    other USDA agencies in developing a ``commodity centers of excellence''
    initiative that would provide ``one-stop shopping'' for key USDA data.
    The breadth of data was expanded in 2002 when ERS launched a unique
    data series of average monthly retail prices for red meat and poultry
    based on electronic supermarket scanner data.
        ERS continues to expand research on how the dynamics of consumer
    demand, notably growing consumption and trade in high value products,
    are shaping global markets. To date in 2003, ERS has organized
    workshops on global markets for high-value foods and specialized
    markets for grains. These workshops brought together international
    experts on the food system to discuss the economic implications of the
    growing importance of high value products and trade for the food and
    agricultural sector. A report analyzing the forces shaping trade in
    high value products will be released in 2003. These activities enhance
    our analytic understanding of these fundamental market relationships
    and continue to improve the analytical base for USDA's foreign market
    analysis and projections activity.
        ERS continues to conduct research to improve understanding among
    decision makers of changes in the agricultural sector structure (for
    example, the implications for producers of the increasing replacement
    of open markets by contractual arrangements and vertical integration).
    ERS is currently examining the potential efficiency-enhancing motives
    for the increasing use of contracts by food manufacturers and
    processors. ERS released two reports, A Comparison of Vertical
    Coordination in the U.S. Poultry, Egg, and Pork Industries (2002) and
    Vertical Coordination of Marketing Systems: Lessons from the Poultry,
    Egg, and Pork Industries (2002 which concluded that vertical
    coordination and integration of marketing systems are designed
    primarily to help meet the quality standards of today's consumers. Hog
    production, highlighted in Economic and Structural Relationships in
    U.S. Hog Production (AER-818), provides a good example of how economic
    factors can change animal industry structure and practices, and how
    these changes might affect the environment. Following up on the 2001
    reports, Concentration and Technology in Agricultural Input Industries
    and Public Sector Plant Breeding in a Privatizing World, ERS will
    publish The Seed Industry in U.S. Agriculture in 2003. This report
    reviews the factors affecting seed production, consumption, and seed
    markets, and summarizes the regulatory policy, including the
    intellectual property rights (IPR) relating to new plant varieties, the
    role of public and private R&D expenditures in plant breeding for U.S.
    agriculture, and the influence of concentration on market power and
    cost efficiency in the seed industry. At the farm level, the 2003
    Family Farm Report--Structural and Financial Characteristics of U.S.
    Farms, which will be published later this year, documents the ongoing
    changes in farms' structure, financial performance, and business
    relationships in response to consumer demands, competitive pressures,
    and changing opportunities for farm families.
        ERS analysis has supported implementation of the 2002 Farm Security
    and Rural Investment (FSRI) Act, and our ongoing research will provide
    objective analysis of the impacts of specific programs. Less than one
    week after passage of the new farm bill, ERS posted an extensive,
    provision-by-provision, ``side-by-side'' comparison of previous and new
    legislation that quickly became the most popular product ever posted on
    the ERS website. We also had major input into the analysis of the new
    farm bill for USDA's official impact analysis. This assessment provided
    the groundwork for an ERS report, The 2002 Farm Act: Provisions and
    Implications for Commodity Markets that analyzes the legislation's
    effects on agricultural production, commodity markets, and net farm
    income over the next 10 years.
        In addition, ERS will continue to work closely with the Foreign
    Agricultural Service and the Office of the U.S. Trade Representative to
    ensure that ongoing negotiations in the Doha Development Agenda under
    the auspices of the World Trade Organization and regional trade
    agreements are successful and advantageous for U.S. agriculture. In the
    negotiations, the U.S. seeks to minimize farm trade distortions while
    maintaining some level of domestic support. Central to a successful
    agreement is domestic and international consensus on the trade
    distorting impacts of various types of domestic agricultural policies,
    and a recent ERS publication is the first output from ongoing research
    on the potential distortions caused by U.S. policies. The report,
    Decoupled Payments: Household Income Transfers in Contemporary U.S.
    Agriculture, released in February 2002, analyzes the production and
    trade impacts of the Production Flexibility Contract (PFC) payments
    enacted under the 1996 Farm Act. Using the data on farm households from
    the Agricultural Resource Management Survey (ARMS), the report provides
    the first data-based analysis of direct payments, and finds little
    evidence that the PFC payments distorted markets.
        ERS analysis of global food security continues to be used by USDA,
    the Agency for International Development, and the Department of State
    in decisions about food aid. The analysis also supports decision-making
    to meet U.S. commitments to the World Food Summit, where 186 countries,
    including the United States, committed themselves to reducing the
    number of undernourished people by half by 2015. In June 2002, the
    Secretary of Agriculture joined Ministers and Heads of State from other
    countries to examine progress in meeting the goal. ERS analysis
    informed the delegation and was included in the official documents
    distributed on a CD to all participants. Included were ERS reports,
    Food Security Assessment 2001 and Issues in Food Security, that provide
    projections of future levels of food security for 67 low income
    countries and an analysis of the determinants of food security.
        Food price determination is increasingly important for
    understanding domestic and international market events and
    opportunities that promote the security of the U.S. food supply. ERS
    systematically examines the factors that help set retail prices,
    including an assessment of the roles of the transportation, processing,
    manufacturing, wholesaling and retailing sectors; the impact of imparts
    and exports; and linkages to the total economy. Also, ERS recently
    improved estimates of farm-to-retail price spreads to allow for a
    direct link between the demand for diverse products associated with
    today's modern food markets and the demand for marketing services.
        ERS analyses can help guide and evaluate resource allocation and
    management of public sector agricultural research--a key to maintaining
    increases in productivity that underlie a strong competitive position
    for U.S. farmers. ERS continues to study the economics of adopting
    genetically modified seed, the role of patents and intellectual
    property rights in fostering innovation, and the potential for
    technology transfer to less developed countries.
        Seed genetically engineered to control insects and weeds, initially
    introduced in 1995, now accounts for nearly 70 percent of U.S. soybean
    plantings and nearly half of major crop acreage (corn, soybeans, and
    cotton). ERS tracked the introduction of biotechnology into the
    agricultural production mainstream, published the first national data
    on adoption, and documented the impacts of adopting the technology on
    crop yield, pesticide use, production costs, and profits. The report,
    Adoption of Bioengineered Crops, issued in May 2002, examined the
    adoption pattern of bioengineered crops with input traits for pest
    management, and the farmlevel impacts of adopting bioengineered crops.
    Data from the ARMS were essential in completing this study.
        In a related report due out in 2003, ERS estimates the total
    benefits from bioengineered crop adoption, and their distribution
    between producers, biotech companies, consumers, and other
    stakeholders. In addition to biotech crops that already have a
    significant market share, ERS has examined the economics of emerging
    biotech crops, such as wheat. Biotech marketing issues have not been
    neglected, including estimating the costs of segregating biotech crops,
    the ramifications of differing consumer preferences and national
    biotech policies on trade flows, the role of the Government in
    facilitating market differentiation, and the economics of food
    labeling. ERS has also examined consumer attitudes toward biotechnology
    and the role of consumer preferences in shaping market trends. Research
    anticipating the next wave of biotechnology products for crops modified
    to target consumer needs, such as food with altered nutritional
    qualities (such as canola with high beta-carotene content), crops with
    improved processing characteristics (such as naturally-colored cotton),
    or plants that produce specialty chemicals or pharmaceuticals (such as
    rabies vaccine in corn), is also being undertaken. This sound research
    base has been invaluable in tempering exaggerated claims of costs and
    benefits from both sides of the debate.
        Recent innovations in agricultural biotechnology have raised
    significant policy questions concerning potential research delays, the
    optimal intellectual property design for maximizing dynamic innovation
    when innovation is sequential, and the potential effects of
    concentration of research and market power in the agricultural inputs
    industry. In cooperation with researchers at Rutgers University and the
    U.S. Patent Office, ERS is creating a classification system and on-line
    searchable database of agricultural biotechnology patents and licensing
    arrangements. This project will also identify who generates the
    innovations, who controls the innovations and, to the extent possible,
    who has access to the innovations.
        ERS helped the Secretary develop a presentation on the role of
    technology transfer in 21st Century agricultural trade for the 5th
    Quint Agricultural Ministerial meetings in Nara, Japan, in July, 2002.
    The thrust of the presentation was that research and development of
    agricultural technologies in developed countries can help developing
    countries strengthen their agricultural markets, eventually becoming
    better customers for U.S. farm exports. The presentation, and the
    research behind it, were highlighted in an organized symposium at the
    American Agricultural Economics Association (AAEA) meetings in 2002 and
    are featured on the ERS website. The thesis is the rationale for an
    international trade and technology exposition planned by the Secretary
    in 2003.
        ARMS data underlie important estimates of farm income and well-
    being, and constitute an essential component in much of ERS's research.
    In 2002, the popular farm financial management dataset, providing more
    than 5,000 tables covering farm businesses and the ERS farm typology
    for farms of all sizes and types across 9 ERS farm resource regions,
    was updated with 2001 data. Less well-known are the ARMS data on crop
    production practices, made available in 2002 for the first time in more
    than 180 tables on irrigation technology and water use, nutrient use
    and nutrient management practices, crop residue management practices,
    pest management practices and pesticide use, and crop seed variety.
        ERS provides regular analysis, based substantially on ARMS data, of
    the financial status of the farm sector and farm households. In
    addition to informing Federal, State and local policymakers about the
    viability of the farm sector and farm households, ERS income estimates
    provide official input into U.S. economic estimates disseminated by the
    Department of Commerce (DOC) and the Council of Economic Advisors. In
    Income, Wealth, and the Economic Well-Being of Farm Households,
    published in July 2002, ERS examines the conventional wisdom of
    agricultural policy since the 1930's that transfers of money to the
    farm sector translate into increased economic well-being of farm
    families. The report showed that neither change in income for the farm
    sector nor for any particular group of farm business can be presumed to
    reflect changes confronting farm households. Farm households draw
    income from various sources, including off-farm work, other businesses
    operated and, increasingly, nonfarm investments. Likewise, focusing on
    a single indicator of well-being, such as income, overlooks other
    indicators, such as the wealth held by the household and the level of
    consumption expenditures. Using an expanded definition of economic
    well-being, the report showed that farm households as a whole are
    better off than the average U.S. household, but that 6 percent remain
    economically disadvantaged.

                                    GENOMICS

        The request for an increase of $1,100,000 is necessary to
    strengthen the economic information and analytical bases for genomics
    research, application and education program decisions. ERS will play an
    integral part in the overall REE fiscal year 2004 genomics initiative
    by assuring that as biotechnological advances are made, the Department
    anticipates and understands their implications for consumer behavior,
    farm and food industry structure, and other social aspects of genomic
    developments. Experience with earlier applications of biotechnology to
    agriculture have demonstrated the importance of anticipating,
    monitoring and accommodating consumer demands and societal preferences
    to the extent science allows. The ERS initiative is designed
    specifically to complement collateral biological and bioinformatics
    research, and to serve as a basis for policy decisions likely to arise
    in the face of rapid genomics-based development in food and
    agriculture.
        Goal 2.--The food production system is safe and secure.
        ERS research is designed to support food safety decision-making in
    the public sector and to enhance the efficiency and effectiveness of
    public food safety policies and programs. The program focuses on
    valuing societal benefits of reducing and preventing illnesses, caused
    by microbial pathogens; assessing the costs of alternative food safety
    policies; studying industry's incentives, through private market forces
    and government regulation, to adopt food safety innovations; and
    analyzing consumer demand for food safety and the roles of consumer
    information, attitudes, and behaviors. ERS has worked closely with
    various USDA agencies and the Centers for Disease Control and
    Prevention (CDC) on various pathogen risk assessments and on analyzing
    the benefits and costs of implementing the Hazard Analysis and Critical
    Control Points (HACCP) rule. ERS and the Food Safety and Inspection
    Service (FSIS) work together to identify research projects and
    activities that address the needs of the Department.
        In fiscal year 2002, ERS published Consumer Food Safety Behavior. A
    Case Study in Hamburger Cooking and Ordering, which found that
    promoting the benefits to consumers of following food safety
    recommendations appears to be influencing cooking and eating behavior.
    In fiscal year 2003, ERS will report the findings of the first
    nationally representative post-NAACP survey of meat and poultry
    slaughter and processing plants, designed to understand how NAACP has
    affected firms' costs and investments in food safety control
    technologies. The results will provide a baseline for FSIS' future
    efforts to monitor industry investments in food safety processes and
    technologies.
        The ERS research program provides widely-cited quantitative
    estimates of the benefits of food safety risk reduction, such as
    reduced direct medical costs and indirect costs associated with
    productivity losses from foodbome illnesses caused by several major
    microbial pathogens. To be launched in fiscal year 2003, ERS has
    developed a web-based foodborne illness cost calculator--a tool that
    will allow users to explore and revise the assumptions behind the ERS
    estimates and develop their own cost estimates for specialized outbreak
    scenarios.

                            SECURITY ANALYSIS SYSTEM

        The request for an increase of $1,000,000 will fund the
    development, delivery and maintenance of a more extensive and
    systematic SAS-USA. SAS-USA supports assessment of potential and actual
    threats to U.S. agriculture, including analysis of spatial and economic
    consequences of threat scenarios such as a Foot and Mouth Disease
    outbreak. The development activities will integrate the data, analysis
    functions and supporting software to create the desirable system
    capabilities. SAS-USA will provide policy officials with the
    information they need to respond effectively to many threats and crises
    in the food and fiber system. The system also provides spatial analysis
    and display capabilities for an integrated database covering food and
    fiber production, processing, transportation, and marketing as well as
    related agricultural inputs and natural resources. SAS-USA presents a
    framework for information and data integration across the Department
    and promotes the development and application of appropriate standards
    and methods for data integration.
        Goal 3.--The Nation's population is healthy and well-nourished.
        ERS helps identify efficient and effective public policies that
    promote consumers' access to a wide variety of high-quality foods at
    affordable prices. ERS economists analyze factors affecting dietary
    changes, and nutrient intakes; as well as trends in America's eating
    habits; assess impacts of nutrition assessments and the implications
    for the individual, society, and agriculture; and provide economic
    evaluations of food and nutrition assistance programs. In fiscal year
    2002, ERS completed a major study of how the changing demographics of
    the Nation will affect `Americans' future food choices and eating
    habits. America's Changing Appetite: Food Consumption and Spending to
    2020 (2002) reported the impacts of aging, increased diversity,
    educational attainment, income growth, and population expansion on
    expenditures for different types of foods, commodity demand, and eating
    at home versus away from home. ERS also considers the implications of
    food consumption patterns and dietary choices for the structure of the
    food system. Farm Business Practices Coordinate Production with
    Consumer Preferences (2002) explains how consumer pressures placed on
    agriculture for variety, quality, and safety are affecting how the
    industry is organized, including the types of buying and selling
    arrangements within the food supply chain, and the application of
    information technologies.
        In fiscal year 2003, ERS research has a major focus on the economic
    dimensions of obesity, including understanding the societal costs of
    obesity, explaining obesity trends among different demographic and
    income groups, and assessing the benefits and costs of alternative
    options for influencing Americans' food choices and dietary behaviors,
    including roles for nutrition education and food assistance programs.
    ERS research on economic incentives and food choices is developing
    rigorous empirical studies of food demand, to inform discussion of
    topical dietrelated health policy issues.
        Through the Food Assistance and Nutrition Research Program (FANRP),
    ERS conducts studies and evaluations of the Nation's food and nutrition
    assistance programs. FANRP research is designed to meet the critical
    needs of USDA, Congress, program managers, policy officials, USDA
    program clients, the research community, and the public at large,
    concerning the design and effectiveness of food and nutrition
    assistance programs, diet quality, and nutrition education. FANRP
    research is conducted through internal research at ERS and through a
    portfolio of external research. Through partnerships with other
    agencies and organizations, FANRP is enhancing national surveys by
    adding a food and nutrition assistance dimension. FANRP's long-term
    research themes are dietary and nutritional outcomes, food and
    nutrition program targeting and delivery, and program dynamics and
    administration. Two Congressionally mandated studies have been recently
    published: Assessment of WIC Cost-Containment Practices (2003) and
    Infant Formula Prices and Availability (2003).
        ERS submitted to Congress a report that examined the effects of
    tiered meal reimbursement rates for family child care homes
    participating in the Child and Adult Care Food Program (CACFP). The
    study found that the family child care homes components of the CACFP
    became substantially more targeted towards low-income children, and the
    number and nutritional quality of meals and snacks in the homes with
    the lower reimbursements rates was maintained after tiering was
    introduced.
        ERS published findings of the first comprehensive government study
    of the Emergency Food Assistance.System (EFAS). The reports provide
    detailed information about the system's operations and its component
    organizations, such as food banks and food pantries. Findings from a
    follow-up survey of EFAS clients will be reported this year.
        ERS has completed the Congressionally mandated study, Assessment of
    WIC Cost-Containment Practices: A Final Report to Congress. WIC State
    agencies adopt various cost-containment practices to reduce food costs,
    such as limiting food-item selection of WIC participants, limiting
    authorized food vendors, and negotiating rebates with food
    manufacturers or suppliers. The study found that cost-containment
    practices can be relatively inexpensive to operate, reduce food package
    costs, and have few adverse impacts on WIC participants in terms of
    participant satisfaction, program participation, and product
    availability.
        The Nutrition Programs title of the 2002 Farm Act require ERS to
    conduct an evaluation of USDA's Fruit and Vegetable Pilot Program
    (FVPP) for the 2002-2003 school year. The FVPP provides free fruits and
    vegetables to children during nonlunch periods in 100 schools in 4
    States and the Zuni Pueblo Indian Reservation. The evaluation is
    currently being fielded and is on schedule for delivery to Congress by
    May 1, 2003.
        Goal 4.--Agriculture and the Environment are in Harmony.
        In this area, ERS research and analytical efforts, in cooperation
    with the Natural Resource Conservation Service (NRCS), support
    development of Federal farm, conservation, environmental, and rural
    policies and programs. These efforts require analyses of the
    profitability and environmental impacts of alternative production
    management systems in addition to the cost-effectiveness and equity
    impacts of public sector conservation policies and programs.
        With passage of the 2002 Farm Bill, USDA looked to ERS to provide
    comprehensive and detailed, yet understandable, information to public
    and private users, including information on the conservation title
    programs. In addition, ERS provided extensive support to other USDA
    agencies in developing rules for implementation of the 2002
    conservation programs. ERS participated in the Farm Service Agency
    (FSA) and the Natural Resources Conservation Service (NRCS) working
    groups on the Environmental Quality Incentives Program (EQIP), the
    Conservation Reserve Program (CRP), the Conservation Security Program
    (CSP), and implementation of conservation technical assistance by
    third-party technical service providers. ERS contributed substantially
    to the NRCS benefit-cost assessments for EQIP, GSP and the third-party
    technical service provider rule. ERS assisted FSA with rulemaking for
    the CRP program by suggesting ways to decrease the complexity of the
    Environmental Benefits Index (EBI) used by USDA county office staff, as
    well as methods to expand the EBI to include program impacts on
    nutrient loadings in ground and surface waters.
        ERS researchers have actively assisted USDA and the Environmental
    Protection Agency (EPA) in assessing the economic costs and benefits of
    changes to the rules governing confined animal feeding operations
    (CAFOs) under the Clean Water Act, signed on December 16, 2002, with
    revisions to the total maximum daily load (TMDL) provisions still being
    revised. Following up on the report Confined Animal Production and
    Manure Nutrients, published in 2001, a new report titled Manure
    Management for Water Quality: Costs of Land Applying Nutrients from
    Animal Feeding Operations, expected to be published in July 2003,
    analyzes the farm-, regional-, and national-level costs to the
    livestock and poultry sector of meeting manure management requirements
    similar to those in the December 2002 rule. Results indicate that
    meeting a manure nutrient application standard increases the costs of
    managing manure. Costs are a function of farm size, acres.of cropland
    on the farm, regional land use, willingness of landowners to substitute
    manure nutrients for commercial fertilizer, and whether a nitrogen or
    phosphorus standard is met.
        Public amenities provided by a rural agricultural landscape are
    important to many citizens and policymakers. Widespread development of
    farmland in some parts of the country is spawning an expanding array of
    farmland protection programs by county, State, and Federal governments,
    as well as by nonprofit organizations. All 50 States and the Federal
    Government have enacted farmland protection programs to help slow the
    conversion of farmland to developed uses. Following up on Development
    at the urban Fringe and Beyond. Impacts on Agriculture and Rural Land
    published in 2001, ERS published Farmland Protection: the Role. of
    Public Preferences for Rural Amenities, in October 2002. This report
    provides an overview of the rural amenities people care about that are
    related to preserving farmland in urbanizing areas. Because farmland
    protection programs can preserve only a fraction of land subject to
    urban conversion, understanding preference for rural amenities can be
    useful for program design. This report and its predecessor were of
    great interest to the NRCS Farmland and Ranchland Protection Program
    (FRPP) staff, as well as State and local farmland preservation
    officials. In consultation with FRPP staff, ERS is continuing research
    on farmland protection by examining the relative importance the public
    places on various rural amenities, looking at how farmland preservation
    effects land conversion rates, and analyzing the implications of FRPP's
    selection criteria.
        The Department's implementation of the final rule for organic
    production and marketing in October 2002 ensured that the goals of the
    Organic Foods Production Act of 1990 were met, including certification
    by a State or private agency accredited under the national program of
    ail but the smallest organic farmers and processors. ERS had a large
    impact on the program through its research and data collection on pre-
    existing State and private organic certifying organizations, organic
    production practices, and organic food marketing. The report Recent
    Growth Patterns in the U.S. Organic Markets was published in October
    2002 and two new datasets on organic production practices and organic
    produce prices were published Updating the initial report of organic
    production statistics in 2001, the report U.S. Organic Farming in 2001:
    Adoption of Certified System will be published in 2003. In September
    2002, ERS, the Agricultural Marketing Service (AMS), and the
    Agricultural Research Service (ARS) jointly hosted a workshop for the
    Organization for European Cooperation and Development (OECD) on organic
    agriculture that presented the latest research in this field to policy
    makers from European, Asian, and Latin American countries, as well as
    U.S. stakeholders. Participants also visited organic farms in Maryland
    and Virginia. The workshop also reviewed the market approaches and
    policies used to encourage, certify and regulate organic agriculture,
    and explored the trade effects of different policies.
        Goal 5.--Enhanced economic opportunity and quality of life for
    rural Americans.
        ERS research explores how investments in rural people, businesses,
    and communities affect the capacity of rural economies to prosper in
    the new and changing global marketplace. The Agency analyzes how
    demographic trends, employment opportunities and job training, Federal
    policies, and public investment in infrastructure and technology
    enhance economic opportunity and quality of life for rural Americans.
    Equally important is our commitment to help enhance the quality of life
    for the Nation's small farmers who are increasingly dependent on these
    rural economies for their employment and economic support.
        ERS analyzes changing economic and demographic trends in rural
    America, with particular attention to the implications of these changes
    for the employment, education, income, and housing patterns of low-
    income rural populations. Analysis of the 2000 Census data help to
    provide the most up-to-date information on the current conditions and
    trends affecting rural areas. ERS published Rural Economy at a Glance
    (2002), the first in a series of reports that highlight the latest
    social and economic data for rural areas, to help policymakers in their
    efforts to enhance the economic opportunity and quality of life for
    viral people.
        ERS researchers assess general approaches to economic development
    to determine when, where, and under what circumstances rural
    development strategies will be most successful. ERS analysts are
    leading a national research effort to assess the effectiveness of
    education as a rural development strategy, by analyzing the
    relationships between education and economic outcomes for the
    individual worker and the rural community. In addition, ERS researchers
    are working with USDA's Rural Development mission area to help design
    measurable performance indicators for its rural development programs.
        For over 30 years, ERS has captured aspects of the broad economic
    and social diversity among rural areas in various county
    classifications. These typologies have been widely used by policy
    analysts and public officials to determine eligibility for and
    effectiveness of Federal programs to assist rural America. ERS held a
    national conference on measuring rural diversity in 2002 to identify
    economic, social, demographic, and policy themes that currently
    characterize rural places. ERS researchers are now addressing how these
    themes can be translated into a new or refined county classification
    system that will be useful to policy decisionmakers.
        ERS also continues its long tradition of economic research on the
    welfare of disadvantaged population groups in rural areas; including
    low-income families, children, the elderly, and racial/ethnic groups,
    as well as the Federal assistance programs that serve them. Following
    the enactment of the Personal Responsibility and Work Opportunity
    Reconciliation Act of 1996, ERS led a national research effort to study
    the rural implications of welfare reform. A series of research studies,
    sponsored by ERS and published in a monograph, Rural Dimensions of
    Welfare Reform (2002), will help to inform the 2003 policy debate over
    reauthorization of welfare reform. Another study documents the reversal
    of the long-standing trend of Black migration loss from the South and
    connects these regional migration patterns to changes in economic
    development in the rural South. Other ERS research examines the rapid
    growth of Hispanics in rural areas and their role in affecting social
    and economic change in their local communities.
        ERS will use 2000 Census data on population characteristics and
    information on local government finances to identify some of the most
    common problems associated with sprawl, such as crowded schools,
    shortages of affordable housing, traffic congestion, increased
    transportation costs, and strained local government finances.
        The farm typology developed by ERS researchers, coupled with a new
    accounting stance that views the farm household as a more relevant
    decision unit than just the farm business, have been keys to greater
    insight into the factors affecting the well-being of farmers, reflected
    in the report Income, Wealth, and the Economic Well-Being of Farm
    Households, published in July 2002. Those insights lead to greater
    consideration of the roles of off-farm employment and wealth as factors
    in assessing farm household well-being and the importance and impact of
    farm safety net programs. A condensed version of the farm typology was
    an important feature in Secretary Veneman's statement of principles for
    farm policy, and it continues to inform debates about the incidence of
    farm profits and government payments.

                     CUSTOMERS, PARTNERS, AND STAKEHOLDERS

        The ultimate beneficiaries of ERS's program are the American
    people, whose well-being is improved by informed public and private
    decisionmaking, leading to more effective resource allocation. ERS
    shapes its program and products principally to serve key decision
    makers who routinely make or influence public policy and program
    decisions. This clientele includes White House and USDA policy
    officials and program administrators/managers; the U.S. Congress; other
    Federal agencies and State and local government officials; and domestic
    and international environmental, consumer, and other public
    organizations, including farm and industry groups interested in public
    policy issues.
        ERS depends heavily on working relationships with other
    organizations and individuals to accomplish its mission. Key partners
    include: the National Agricultural Statistics Service for primary data
    collection; universities for research collaboration; the media as
    disseminators of ERS analyses; and other government agencies and
    departments for data information and services.

                                CLOSING REMARKS

        I appreciate the support that this Committee has given ERS in the
    past and look forward to continue working with you and your staff to
    ensure that ERS makes the most effective and appropriate use of public
    resources. Thank you.
                                     ______

       Prepared Statement of R. Ronald Bosecker, Administrator, National
                         Agricultural Statistic Service

        Mr. Chairman and members of the Committee, I appreciate the
    opportunity to submit a statement for this Committee's consideration in
    support of the fiscal year 2004 budget request for the National
    Agricultural Statistics Service (NASS). This Agency administers the
    U.S. agricultural statistics program, created in USDA in 1863, and,
    beginning in 1997, has conducted the U.S. census of agriculture, first
    collected in 1840. Both programs support the basic mission of NASS to
    provide timely, accurate, and useful statistics in service to U.S.
    agriculture.
        The continual trend of American farms and ranches to make greater
    use of agricultural science and technology has increased the need for
    more detailed information. The periodic surveys and censuses conducted
    by NASS contribute significantly to the overall information base for
    policy makers, agricultural producers, handlers, processors,
    wholesalers, retailers, and ultimately, consumers. Voids in relevant,
    timely, accurate data contribute to wasteful inefficiencies throughout
    the entire production and marketing system.
        Official data collected by NASS are used for a variety of purposes.
    Absence or shortage of these data may result in a segment of
    agriculture having to operate with insufficient information; therefore,
    NASS strives to continuously produce relevant and timely reports, while
    reviewing priorities to consider emerging data needs. Analyses based on
    NASS data were used extensively during development of the Farm Security
    and Rural Investment Act of 2002. Additionally, the Act requires
    several types of new agricultural data and reinforces the importance of
    existing data series to ensure the continuation of farm security and
    rural investments. For example, the counter-cyclical payments
    established by the Act are determined in part by market year average
    prices determined by NASS. Each $0.01 change in the average corn price
    will result in a change of more than $75 million in counter-cyclical
    payments. Similarly large amounts could be misdirected for the other
    program crops. Additional important data for the Act include data that
    assists farmers in implementing conservation programs, data on organic
    agriculture production, and data that supports socially disadvantaged
    farmers and ranchers in receiving and participating equitably in the
    full range of agricultural programs offered by the Department. These
    are only a few specific data needs critical to the Act's successful
    implementation, but they clearly highlight the importance of a strong,
    reliable agricultural statistics program.
        NASS works cooperatively with each State Department of Agriculture
    throughout the year to provide commodity, environmental, economic, and
    demographic statistics for agriculture. This cooperative program, which
    began in 1917, has served the agricultural industry well and is often
    cited by others as an excellent model of successful State-Federal
    cooperation. This joint State-Federal program helps meet State and
    national data needs while minimizing overall costs by consolidating
    both staff and resources, eliminating duplication of effort, and
    reducing the reporting burden on the Nation's farm and ranch operators.
    The success of this partnership is being demonstrated by NASS through
    its State-Federal cooperation during the planning, collection, and
    dissemination of the 2002 Census of Agriculture. Improved quality,
    efforts to increase total response, and professional customer service
    through the use of a toll-free number are direct results of the State-
    Federal partnership. NASS's 46 field offices, which cover all 50 States
    and Puerto Rico, provide statistical information that serves national,
    State, and local data needs.
        NASS statistics contribute to providing fair markets where buyers
    and sellers alike have access to the same official statistics, at the
    same pre-announced time. This prevents markets from being unduly
    influenced by ``inside'' information which might unfairly affect market
    prices for the gain of an individual market participant. Empirical
    evidence indicates that an increase in information improves the
    efficiency of commodity markets. Information on the competitiveness of
    our Nation's agricultural industry has become increasingly important as
    producers rely more on the world market for their income.
        Through new technology, the agricultural sector in the United
    States is changing rapidly. This also means that the agricultural
    statistics program must be dynamic and able to respond to the demand
    for coverage of newly emerging products and changing industries. For
    example, during 2002, NASS issued the U.S. Dairy Herd Structure report.
    This report provided a summary of the changes in the structure of the
    U.S. dairy herd by size of operation and geographic location. NASS also
    issued an update of the U.S. Hog Breeding Structure report. This report
    built on information provided in 2001 and included data on the changes
    in the makeup of the breeding herd by size of operation and the
    efficiency of the breeding herd in recent years.
        Not only are NASS statistical reports important to assess the
    current supply of and demand for agricultural commodities, but they are
    also extremely valuable to producers, agribusinesses, farm
    organizations, commodity groups, economists, public officials, and
    others who use the data for decision making. Statistical data are used
    in decisions affecting agricultural policy, foreign trade,
    infrastructure, environmental programs, research, rural development,
    and many other activities.
        All reports issued by NASS's Agricultural Statistics Board are made
    available to the public at previously announced release times to ensure
    that everyone is given equal access to the information. NASS has been a
    leader among Federal agencies in providing electronic access to
    information. All of NASS's national statistical reports and data
    products, including graphics, are available on the Internet, as well as
    in printed form. Customers are able to electronically subscribe to NASS
    reports by clicking on the appropriate release. A summary of NASS and
    other USDA statistical data is produced annually in USDA's Agricultural
    Statistics, available on the Internet through the NASS Home Page, on
    CD-ROM disc, or in hard copy. All of NASS's 46 field offices have Home
    Pages on the Internet, which provide access to special statistical
    reports and information on current local commodity conditions and
    production.
        Beginning in fiscal year 1997, NASS received funding to conduct the
    census of agriculture on a 5-year cycle. The transfer of the
    responsibility for the census of agriculture to USDA streamlined
    Federal agricultural data collection activities and has improved the
    efficiency, timeliness, and quality of the census data. Data collection
    for the 2002 Census of Agriculture began in December 2002 and will
    culminate with the census release in February 2004.
        Statistical research is conducted to improve methods and techniques
    used in collecting and processing agricultural data. This research is
    directed toward providing higher quality census and survey data with
    less burden to respondents, producing more accurate and timely
    statistics for data users, and increasing the efficiency of the entire
    process. For example, NASS has been a leader in the research and
    development of the use of satellite imagery to improve agricultural
    information through its continued expansion of the Cropland Data Layer
    program. The program now includes geographic information data layers
    for eight major crop-producing States. The NASS statistical research
    program strives to improve methods and techniques for obtaining
    agricultural statistics with improved levels of accuracy. The growing
    diversity and specialization of the Nation's farm operations have
    greatly complicated procedures for producing accurate agricultural
    statistics. Developing new sampling and survey methodology, expanding
    modes of data collection including Internet contacts, and exploiting
    computer intensive processing technology enables NASS to keep pace with
    an increasingly complex agricultural industry. Considerable new
    research has been directed at improving the 2002 Census of Agriculture,
    including the successful use of optical scanning and Intelligent
    Character Recognition systems. NASS is also making advancements in
    Electronic Data Reporting, with the goal of giving the Nation's farmers
    and ranchers the opportunity to respond electronically to the 2007
    Census of Agriculture.
        Major Activities of the National Agricultural Statistics Service
    (NASS) The primary activity of NASS is to provide reliable data for
    decision making by conducting unbiased surveys each year and the census
    of agriculture every 5 years, to meet the current data needs of the
    agricultural industry. Farmers, ranchers, and agribusinesses
    voluntarily respond to a series of nationwide surveys about crops,
    livestock, prices, chemical use and other agricultural activities each
    year. Periodic surveys are conducted during the growing season to
    measure the impact of weather, pests, and other factors on crop
    production. Many crop surveys are supplemented by actual field
    observations in which various plant counts and measurements are made.
    Administrative data from other State and USDA agencies, as well as data
    on imports and exports, are thoroughly analyzed and utilized as
    appropriate. NASS prepares estimates for over 120 crops and 45
    livestock items which are published annually in over 400 separate
    reports.
        The census of agriculture provides national, State, and county data
    for the United States on the agricultural economy every 5 years. The
    census of agriculture is the only source for this information on a
    local level, which is extremely important to the agricultural
    community. Detailed information at the county level helps agricultural
    organizations, suppliers, handlers, processors, and wholesalers and
    retailers better plan their operations. Important demographic
    information supplied by the census of agriculture also provides a very
    valuable data base for developing public policy for rural areas.
        Approximately 60 percent of NASS's staff are located in the 46
    field offices; 24 of these offices are collocated with State
    Departments of Agriculture or land-grant universities. NASS's State
    Statistical Offices issue approximately 9,000 different reports each
    year and maintain Internet Home Pages to electronically provide their
    State information to the public.
        NASS has developed a broad environmental statistics program under
    the Department's water quality and food safety programs. Until 1991,
    there was a serious void in the availability of reliable pesticide
    usage data. Therefore, beginning in 1991 NASS cooperated with other
    USDA agencies, the Environmental Protection Agency (EPA), and the Food
    and Drug Administration, to implement comprehensive chemical usage
    surveys that collect data on certain crops in specified States. EPA
    uses the state and national level actual survey chemical data, rather
    than worst case scenarios, in the quantitative usage analysis for a
    chemical product's risk assessment. Beginning in fiscal year 1997, NASS
    also instituted survey programs to acquire more information on
    Integrated Pest Management (IPM), additional farm pesticide uses, and
    post-harvest application of pesticides and other chemicals applied to
    commodities after leaving the farm. These programs have resulted in
    significant new chemical use data, which are important additions to the
    data base. Surveys conducted in cooperation with the Economic Research
    Service also collect detailed economic and farming practice information
    to analyze the productivity and the profitability of different levels
    of chemical use. American farms and ranches manage nearly half the land
    mass in the U.S., underscoring the value of complete and accurate
    statistics on chemical use and farming practices to effectively address
    public concerns about the environmental effects of agricultural
    production.
        NASS conducts a number of special surveys as well as provides
    consulting services for many USDA agencies, other Federal or State
    agencies, universities, and agricultural organizations on a cost-
    reimbursable basis. Consulting services include assistance with survey
    methodology, questionnaire and sample design, information resource
    management, and statistical analysis. NASS has been very active in
    assisting USDA agencies in programs that monitor nutrition, food
    safety, environmental quality, and customer satisfaction. In
    cooperation with State Departments of Agriculture, land-grant
    universities, and industry groups, NASS conducted 164 special surveys
    in fiscal year 2002 covering a wide range of issues such as farm
    injury, nursery and horticulture, farm finance, fruits and nuts,
    vegetables, and cropping practices. All results from these reimbursable
    efforts are publicly available to benefit all of agriculture.
        NASS provides technical assistance and training to improve
    agricultural survey programs in other countries in cooperation with
    other Government agencies on a cost-reimbursable basis. NASS's
    international programs focus on developing and emerging market
    countries in Asia, Africa, Central and South America, and Eastern
    Europe. Accurate information is essential for the orderly marketing of
    farm products. NASS works directly with countries by assisting in the
    application of modern statistical methodology, including sample survey
    techniques. This past year, NASS provided assistance to China,
    Dominican Republic, Ecuador, Ethiopia, Honduras, Kazakhstan, Mexico,
    Nicaragua, Russia, South Africa, and Ukraine. In addition, NASS
    conducted training programs in the United States for 107 visitors
    representing 30 countries. These assistance and training activities
    promote better quality data and improved access to data from other
    countries.
        NASS annually seeks input on improvements and priorities from the
    public through displays at major commodity meetings, data user meetings
    with representatives from agribusinesses and commodity groups, special
    briefings for agricultural leaders during the release of major reports,
    and through numerous individual contacts, especially those made at the
    grass roots level through NASS's 46 field offices. As a result of these
    activities, the Agency has made adjustments to its agricultural
    statistics program, published reports, and electronic access
    capabilities to better meet the statistical needs of customers and
    stakeholders.

                             FISCAL YEAR 2004 PLANS

        The fiscal year 2004 budget request is for $136,182,000, which
    includes the following major initiatives.
        The 2004 budget includes $25,279,000 for the census of agriculture,
    which reflects the decrease in staffing and activity levels to be
    realized due to the cyclical nature of the 5-year census program. The
    available funding includes monies to finalize analysis, summary, and
    dissemination of the 2002 Census of Agriculture. The request also
    includes funding for follow-on census activities for the critically
    important and timely Farm and Ranch Irrigation Survey, planning for the
    Census of Horticultural Specialties, and enhancing list maintenance
    activities between census data collection years to ensure a high level
    of coverage.
        The budget requests an increase of $5,413,000 and 29 staff years to
    fund restoration and modernization of NASS's core survey and estimation
    program. Funding will be directed at beginning to restore and modernize
    the core survey and estimation program for NASS to meet the needs of
    data users at an improved level of precision for State, regional, and
    national estimates. The program covers most agricultural commodities
    produced in the United States, as well as economic, environmental, and
    demographic data. This program has not received an increase in funding
    since 1990, leading to a reduction in the quality of survey data on
    which estimates are based.
        The budget includes an increase of $1,600,000 and 6 staff years to
    provide for data acquisition for the annual integrated Locality Based
    Agricultural County Estimates/Small Area estimation program. Local area
    statistics are one of the most requested NASS data sets, and are widely
    used by private industry, Federal, State and local governments and
    universities. This funding supports the NASS goal to incrementally
    improve statistically defensible survey precision for small area
    statistics. Proper follow-up data collection activities and redesign of
    survey systems will improve the valuable annual county-level data. The
    Risk Management Agency (RMA) uses these statistics in indemnity
    calculations for Group Risk Plans and the Group Risk Revenue Plans as
    part of the risk rating process, which affects premiums paid by
    producers. The Farm Service Agency uses county estimates to weight
    posted county prices to national loan deficiency payments, and as an
    input to assist producers to update their base acreage and yields as
    directed by the Farm Security and Rural Investment Act of 2002. In
    addition, financial institutions, agriculture input suppliers,
    agricultural marketing firms, and transportation companies who provide
    billions of dollars of goods and services to farmers and ranchers
    utilize county level data to make informed business decisions.
        The budget also requests an increase of $4,750,000 and 2 staff
    years for collaborative e-Government efforts within NASS and across the
    USDA. The increase supports NASS's electronic data reporting initiative
    which will provide producers and agri-businesses the option of
    submitting reports electronically in order to reduce burden and meet
    the mandate of the Government Paperwork Elimination Act. Additionally,
    data provided to the public must be made available in the easiest, most
    useful, and most versatile manner. In between data collection and
    summary data dissemination, electronic processing improvements within
    NASS are critical to timely and efficient data management while
    safeguarding the security and confidentiality of sensitive data. The
    funding also supports NASS's role as the lead agency for two of the
    USDA's eGovernment initiatives, Survey Capability and Data Management.
        This concludes my statement, Mr. Chairman. Thank you for the
    opportunity to submit this statement for the record.

                             PAYMENTS TO PRODUCERS

        Senator Bennett. Thank you very much.
        As I listened to all of this testimony together as a body,
    I have some reactions, and I apologize if they are a little bit
    ragged because I haven't had a chance to think them through and
    tighten them up. But let's go into this for just a minute.
        Dr. Collins, it seems to me you were saying that payments
    go up in good times and payments go up in bad times. Is there
    ever any circumstance, any market situation where payments to
    the agriculture community can either level out or, glorious day
    for the taxpayer, start to come down because the market has
    taken over and farmers are prospering as a result of the market
    and payments don't need to be made? Could you address that?
        Dr. Collins. Certainly, Mr. Chairman. What you have
    described is a rare experience in recent years, but it has
    occurred, you know, over the last decade. It did occur in 1996.
    We had a very strong global economy. It was growing at 3 to 3.5
    percent, and I often use that 3 to 3.5 percent as sort of the
    threshold for which you see global economic growth effects on
    U.S. agriculture, and that is the way things were going in the
    mid-1990s. And we had a global drought. For example, the
    Australian wheat crop was cut in half, just like it was this
    past year. That led to record high farm prices, and we saw
    farmers' income from the marketplace was basically their total
    income. Government payments all but went to zero during that
    period.
        But that has been a rare experience in the last 15 years,
    and over the last 15 years generally farm payments have been
    high. They have been particularly high since the Asian currency
    crisis in 1998 and the slow growing economy ever since then.
        But 2 years ago, if you just looked on a calendar-year
    basis, we were paying farmers about $22 billion or so a year in
    Government payments. I think this year in 2003 they will be $17
    billion or so. So they are still high, but they have come down,
    and they have come down because prices have come up a little
    bit, but nowhere near the levels they were in the mid-1990s.
        Another factor in this as well is farm programs have
    changed since 1996 so that we are now making payments to
    farmers that are independent of prices, these so-called direct
    payments under the 2002 farm bill. Under the last farm bill,
    they were called--a great name--production flexibility contract
    payments. But those----
        Senator Bennett. Making it impenetrable for the non-
    informed to have any idea as to what you are doing.
        Dr. Collins. Which some people probably take as an
    objective of their work up here. But in the 1996 farm bill,
    those payments were about $4 billion a year. Now they are about
    $5.2 billion a year. And those are independent of prices. We
    are always going to make those payments, at least under the
    current legislation. For lots of reasons we decided to do that.
    So even today, if prices get very strong and go above the so-
    called target prices that we have in law, we are still going to
    be making payments to farmers because of those direct payments
    that we have in law.
        Senator Bennett. Sometime when we are not under this kind
    of pressure, I will have to have you explain to me why that is
    a good idea.
        Dr. Collins. I would be happy to do that.

                             GUARANTEED FARM LOANS

        Senator Bennett. Okay.
        Dr. Penn, on the same theme, we come to you, and you are
    involved with loan guarantees. Now, that immediately creates in
    my mind the question: What is the default rate? Do we get any
    interest benefit for having made a loan guarantee? I remember
    the great debate over loan guarantees to Chrysler, for example,
    when that corporation was in default and headed for bankruptcy
    and the country decided that that was not a good idea. And the
    United States made millions, ultimately, from Chrysler as they
    paid back the fee for the loan guarantees. We didn't have to
    make good on any of those guarantees, and we made a little
    money.
        Is that ever going to happen in agricultural loan
    guarantees? What is your failure rate, interest income? Help me
    understand how all that works.
        Dr. Penn. Okay. There are two loan guarantee programs in
    the mission area that I look after. One set of loan guarantees
    is to farmers. We guarantee loans that farmers may take out for
    land ownership and for operating expenses. This loan program
    comes out of the old Farmers Home Administration that Under
    Secretary Dorr mentioned. These are loans that are made
    largely----
        Senator Bennett. I am going to get to him.
        Dr. Penn. These are loans that are made largely to people
    who don't have an option in the commercial lending system for
    the most part. We make both direct loans and guaranteed loans,
    and the guaranteed loans are for people who have a little
    better credit rating than those for which we make direct loans.
    The loans are targeted in part to beginning farmers, minority
    farmers, socially disadvantaged farmers. And the thought is, of
    course, that the loans serve a social purpose, that they enable
    people to stay on the land and they enable people to stay in
    rural areas and to be engaged in agriculture.
        Now, this program has had a pretty checkered history in
    times past. It had default rates that approached 50 percent,
    but I understand now that the default rates for these loan
    programs are down on the order of 12 or 13 percent in the
    current period.
        And so this is thought to be a great improvement in the way
    these programs are operated, and they are very popular
    programs, as you can imagine. And I think that everyone
    acknowledges that they are run much more efficiently. They are
    run about as much like commercial loan programs as you can,
    recognizing, again, that these are for people who don't qualify
    for commercial loans and would have no other access to credit.

        [Clerk's Note.--The default rate that Dr. Penn refers to actually
    is more representative of the delinquency rate for the direct portion
    of the farm loan portfolio. Direct loans, and in particular emergency
    loans, experienced relatively high default/delinquency rates in years
    past, especially during the 1980's. The guaranteed loan program, on the
    other hand, has historically had a very low default rate. Over the last
    5 years, losses paid vs. unpaid principal outstanding on the guaranteed
    portfolio have ranged from a low of 0.6 percent to a high of 1
    percent.]

                            EXPORT CREDIT GUARANTEES

        The second set of loan guarantee programs that we operate
    in this mission area are the so-called GSM credits, and every
    year we guarantee something on the order of $3.5 billion in
    agricultural product sales to foreign customers. And this is a
    program that we think is very effective in helping us expand
    exports, and the default rate on that program in a normal year
    is very minimal. We typically don't have very much default in
    that program. The defaults that we do have come about from very
    unusual circumstances. Iraq is a big creditor to that program
    because of hostilities in previous times, as you can imagine.
    Poland defaulted back at the height of the Cold War. And there
    are some other notable cases like that. But, by and large,
    this, too, is a pretty effective program, and it provides
    enormous benefits in that it helps us expand our sales abroad
    and it is operated at relatively little cost to the Government.
        Unlike the loan to Chrysler, we don't make very much money
    on these, of course. We don't have an opportunity for that kind
    of revenue sharing.
        Senator Bennett. Well, first, you say that the default rate
    is at a minimum. What is your definition of a minimum?
        Dr. Penn. I don't know that exact number. I will have to
    get that number for you.
        Senator Bennett. It is in the single digits?
        Dr. Penn. Single digits. It is very small for that program.
        Senator Bennett. Low single digits?
        Dr. Penn. Yes.
        Senator Bennett. And you say you don't make very much
    money. Do you make enough money to cover the default rate? In
    other words, do you break even? Do you have any idea about
    that?
        Dr. Penn. I don't know about that. I will have to find that
    out for you.
        Senator Bennett. Could you find that out and let me know?
        Dr. Penn. I will do that, and we will look over a sweep of
    time, like 10 years or some period like that.
        [The information follows:]

                       Export Credit Program Default Rate

        The fiscal year 2003 default rate for the GSM Program is
    projected to be 7.7 percent. The average default rate for the
    last 5 years (1998 to 2002) is 6.7 percent.
        The subsidy required to support the GSM program is
    relatively low, but USDA does not break even. If the Department
    broke even or made money on this program, the program would
    have either a zero or a negative subsidy rate. While we try to
    minimize losses in this or any other loan program, it should be
    noted that these loan guarantees are not issued for the purpose
    of making money for the Government. They are issued to
    encourage exports to buyers in countries where credit is
    necessary to maintain or increase U.S. sales, but where
    financing may not be available without such credit guarantees.

                              FARM PROGRAM POLICY

        Senator Bennett. You know, I sit on the Banking Committee
    in my other life, and a 12- to 13-percent default rate would
    not be considered progress.
        Dr. Penn. Right.
        Senator Bennett. Now, I realize everything is relative.
    Coming down from 50, it is considered great progress. But the
    thought occurs to me, if these are people who would otherwise
    be unable to stay in farming if you didn't give them the money,
    and part of our problem is that we have surpluses, it is going
    to sound heartless but the laws of economics say that one of
    the ways you could resolve some of the pressures on the farm
    situation as a whole would be to say you folks ought to find
    another line of work, and particularly, if I recall your
    testimony correctly, a very large percentage of them already
    have found another line of work and are getting--what was the
    number?--three-quarters of their revenue from something else.
        Does it really make sense in terms of national policy for
    the Federal Government and the Federal taxpayer to be keeping
    excess capacity in place in this particular part of the economy
    to the tune of subsidizing bad credit risks at the rate of 13
    percent? Now, this is a policy question, obviously, that the
    Congress has to answer. But as I get myself into these issues,
    coming from a businessman's background, this is the obvious
    question that comes out of the testimony we have had here this
    morning.
        Do you have any comments? Or, Dr. Collins, you are sitting
    there at least paying attention.
        Mr. Dorr, I am going to get to you because we have got the
    same kinds of situations where you are, and any comments that
    any of you might have.
        Dr. Penn. Well, let me say that is the age-old dilemma--how
    do you allow resources to exit from any sector of the economy
    where new technologies are being introduced. And this is an
    age-old question in farm policy circles, keeping resources in
    when you have got an abundance of commodity on the market and
    people are always decrying low prices.
        But, on the other side of the question, there is the
    thought that there is some benefit in keeping people in rural
    areas and maintaining the areas' viability. I am sure Mr. Dorr
    will tell you all about worrying about the vitality of rural
    communities and keeping a critical mass there. And so there are
    trade-offs, I think, in providing subsidies to keep people in
    certain parts of the country or providing subsidies when they
    move to another part.
        So this has been an ongoing-old discussion, but I think it
    is one that the Congress has confirmed time after time. It is a
    decision made by the Congress, as you indicate.

                       RURAL DEVELOPMENT CREDIT PROGRAMS

        Senator Bennett. Well, let's get to Mr. Dorr. Here we have
    got people who, without this kind of assistance from the
    Federal Government, could not economically survive. So you are
    coming along and giving them Federal subsidies in the houses
    that they otherwise couldn't afford, and this becomes a double
    incentive for people to remain in an uneconomic kind of
    activity.
        Now, is that a harsh summary of where we are? I am
    deliberately putting it in as stark terms as possible in order
    to provoke conversation. But I find it very interesting when we
    are talking about rural development to hear you discuss multi-
    housing family projects. One doesn't think of multi-housing
    family projects in terms of rural areas. One thinks of wide
    open spaces. And if we are talking about the social good of
    being out where the deer and the antelope play, the deer and
    the antelope don't require a multi-housing family portfolio.
        So shifting the focus now to you and your area of
    responsibility, what is your default rate? What happens to any
    interest income that comes off of these loans? And is the
    Federal Government making enough money on the interest to cover
    all of its costs?
        Mr. Dorr. Well, they are obviously very thought-provoking
    questions, and as Dr. Penn has indicated, they are kind of age-
    old questions when it comes to what is occurring in rural
    America.
        Our programs run the gamut from housing to utilities to
    community facilities to a number of things. Interestingly
    enough--and I have said this before--our programs historically
    deal with the other 62 or 63 million rural Americans who aren't
    directly impacted by the traditional Title I and Title II
    programs.

                         DELINQUENCY AND DEFAULT RATES

        In our single-family housing program, in our direct
    program, our delinquency rate is running about 13.5 percent.
    The interesting thing about that is last January 30th, the
    Chase Home Finance folks made a major announcement of an
    additional commitment of a half trillion dollars of funds to
    the minority home ownership issue across the country. We were
    invited to attend, and at that particular event, we were told
    that one of the best places they liked to invest--and they have
    determined this over the last 6 to 8 years--is rural America.
    They made this announcement in front of a large group of folks,
    including a number of major money center bank officials. They
    said there are two reasons why they like to invest in rural
    America:
        Number one, it is a great place to invest. There are
    significant opportunities.
        And, number two, the default rate is less than what it is
    in urban areas. Low default rates in these rural, growing,
    regional, developing areas are, quite frankly, very intriguing.
        When you make the jump, for example, over to our community
    facilities programs, we have very, very low default rates. Just
    the other day I was looking at some where we actually had a
    negative subsidy rate relative to the way it was scored. These
    funds are typically used for fire houses, day-care centers,
    medical facilities, those sorts of things. And they seem to be
    quite effective.
        In our business and industry loan program, I think in 1983,
    our default rate was about 20.9 percent. In 2002, that default
    rate was down to a little over 10 percent. Our goal is to get
    it to 4 percent, and I think that we will make significant
    progress in that way.
        One of the other things that we do, however, is that we are
    involved in a number of entrepreneurial, value-added
    development and loan and loan guarantee programs, in
    conjunction with the ability to finance the build-out of the
    kind of infrastructure that rural America needs to grow. There
    are a number of areas of rural America that are growing, and
    they are benefiting from these programs and they are creating
    other job opportunities not directly related to production
    agriculture.
        So, in my view, there are a number of these programs that
    are quite successful, and have very reasonable default rates.
    We know that some of them have, at least at this time with the
    low interest rates we have, negative subsidy rates. So I think
    that there is some progress being made, quite frankly.
        Senator Bennett. The picture I am getting is that the
    Federal Government is doing everything it can to sustain people
    in an uneconomic activity. Obviously, I am very interested in
    that because of the number of rural people in Utah, and when I
    visit the rural communities in my State, they all complain that
    there is not enough economic activity and they all complain
    that their kids can't find jobs and they have to migrate to the
    cities and isn't it awful that we are losing this wonderful
    rural way of life.
        At the same time, I happen to have a steel mill in the
    State of Utah, and the steel mill is now closed. And they tried
    to get some Federal help to keep the steel mill alive, and the
    reality is that there is a world overcapacity for production of
    steel. And the world overcapacity of the production of steel is
    bringing the price of steel down. That is what happens.
        I keep saying to my colleagues, if I could control what we
    carve in marble around here, along with all of the pleasant
    Latin phrases--maybe I ought to figure out how this reads in
    Latin. You cannot repeal the law of supply and demand. We keep
    trying in Government, with wage and price controls and all
    other kinds of things.
        In the steel industry, people have finally resigned
    themselves to the fact that the law of supply and demand, which
    cannot be repealed, has decreed that some of these steel plants
    around the world are going to have to close until supply and
    demand come into equilibrium again. And some of them are going
    to be American plants. And, unfortunately, one of them happens
    to be in the State of Utah.
        Now, that is a wonderful plant. It is modernized and it is
    environmentally friendly, and in many ways it is probably the
    low-cost producer in the United States. But it is closed, for a
    variety of reasons that I won't bore you with. And unless the
    demand for steel around the world--because we are, again, in a
    global market--firms up rather dramatically rather soon, it is
    going to stay closed. And the people who used to work in the
    steel plant are going to have to do something else.
        The picture I am getting here is that the same forces would
    dictate that there are some farms that are going to have to
    disappear and, indeed, have been disappearing. But the Federal
    Government is going to stand here kicking and screaming to say
    we won't allow real market forces to take place here, and I
    guess we are back to Congress has made the decision that that
    would be just too socially disastrous to allow that to happen.
        But setting that aside for a moment--it is probably a good
    thing I am all alone.

                                 SUPPLY CONTROL

        None of my colleagues will have any memory of this, but
    setting that aside for a moment, from a straight economic
    analysis isn't it true that the Federal Government has
    perpetuated oversupply and thereby a situation where, if people
    are going to continue to live in that world, they are going to
    have to be subsidized by taxpayers?
        Dr. Collins. I will take a shot since you said from a
    straight economic point of view, and relieve my colleagues of
    having to answer that one.
        I think you are right. I think that has been the long-term
    history of farm programs. Some people call it a cheap-food
    policy. Other people call it trying to expand production as a
    policy objective. Other people call it trying to have a policy
    of place, where we ensure that there is adequate production
    regionally dispersed across a varied array of commodities so we
    can ensure the rural infrastructure.
        Whatever the policy objective that people put on it, I
    think the effect has been to cause production to be higher than
    it would probably otherwise be. That is demonstrated by 50
    years of supply control programs that we had in place until
    1996. And we still continue to have some forms of supply
    control programs, such as the Conservation Reserve Program,
    probably the single biggest one that we continue to have and
    have ever had in history.
        And now we have marketing assistance loan programs which
    economists call ``coupled.'' They are tied to production, they
    are tied to price, and they create distorted economic
    incentives.
        So I agree with that. The terms that you used in your
    discussion so far have been terms like ``economics'' and terms
    like ``social choice,'' and that is what a lot of this has come
    down to. It is the trade-off between the degree of efficiency
    you want in the agricultural sector versus social policy. To
    get efficiency in a sector like Dr. Penn described, one where
    technological change has caused rapid advances in production,
    then you are going to have resources leave the sector. You can
    define the word ``crisis'' by the speed with which resources
    have to leave the sector. And if they have to leave very
    rapidly, then people would call that a crisis. When there is a
    crisis, Congress addresses that with social policy, programs
    for places, and that is what we have had in agriculture.
        But, fortunately, there has been a great debate about this
    in recent years. The old theory about agriculture was you had
    inelastic demand, so if you got a sudden increase in production
    due to technology or good weather, that caused prices to go way
    down and people couldn't withstand those low prices, and they
    would be driven unnecessarily out of agriculture, so you had to
    provide them support. And when prices went way down, because
    supply was also inelastic, they wouldn't cut back on their
    production.
        So the old school story about agriculture was this
    inelastic supply and this inelastic demand prevented resources
    from leaving agriculture until people lost their farm and lost
    everything. And then a few years later, who knows? Demand might
    be better, and those people would unnecessarily have lost
    everything.
        So that was sort of the logic that drove these programs.
    But the vision of agriculture has changed a lot over the last
    20 years. Now we see an agriculture that is dominated by a
    small number of farms. They have highly skilled operators. They
    are well capitalized. There are all kinds of risk management
    tools available to them today. It is not the same farm that was
    there when these farm programs were designed.
        So there is this new thinking about how well farmers can
    respond versus the old thinking about how farmers can respond,
    and Congress is sort of torn between those two views. It has
    been slowly over time reforming farm programs to move them
    toward the new view, and I think we were on a good path to do
    that--until the last couple of years. The last couple of years
    have sort of knocked us off that path a little bit. And so
    where we go from here on out is going to be determined by
    people with vision like yours versus people who have other
    visions.
        Senator Bennett. You are making an assumption about me from
    my questions, but you are probably right.
        Let me ask if those farmers, as you describe them, who are
    now very large and well capitalized and very efficient and take
    advantage of all of the research that comes out of Dr. Jen's
    effort and so on, do they receive the bulk of the payments?
        Dr. Collins. They do. Payments historically are tied to
    production. They produce the most. They get most of the
    payments.
        Senator Bennett. That strikes me from an economic point of
    view as really quite perverse.
        Dr. Collins. Well, that is----
        Senator Bennett. You do not have to comment if you do not
    want to, but----
        Dr. Collins. No comment.
        Senator Bennett. Dr. Jen, let us get to you then. As you
    add to this over production by your research and demonstrate
    how people can get far better yield per acre and more nutrition
    per calorie or whatever it might be, what is the impact? I mean
    that is implied in my question. Is there in fact a significant
    impact towards this overall issue of imbalance between supply
    and demand? Are you fueling it, and does the money we put into
    research exacerbate the efficiency of everything, and thereby
    drive up the amount of support that taxpayers have to make?
        Dr. Jen. Mr. Chairman, that is a very difficult question to
    answer. I would like to choose probably----
        Senator Bennett. I will send you the easy ones in writing.

                      RESEARCH AND AGRICULTURAL PRODUCTION

        Dr. Jen. Thank you. Half a century ago, the U.S.
    agriculture's goal was mainly trying to win the war on hunger
    for this country, and I believe we pretty much have done that,
    and what we are trying to do now is eat better, and probably
    our next war is a war on obesity in this country.
        However, from a researcher and educator point of view--
    throw away my economist hat----
        Senator Bennett. Your biochemist hat. Go on.
        Dr. Jen. I think being the United States, being the most
    wealthy and number one country in this world, we probably
    should have a responsibility for trying to stamp out hunger in
    the world, and I do not believe that war is won. From that
    point of view, I think research and education and economic
    development, all those things that are in my mission area are
    probably needed. I think we have to try to balance how to help
    the developing countries, the rest of the world, to eat and
    stamp out hunger, yet at the same time how we can keep our
    producers on a competitive base and not lose money like you
    were saying. So I think from strictly an economic point of
    view, I would say that research is still needed.
        Senator Bennett. I am not implying that it is not.
        Dr. Jen. The other thing also is that I think we are facing
    new challenges. Even in production in our country, we are
    facing more challenges related to the environment, to limited
    resources. We are going to run out of water. We are going to
    run out of air, run out of land, as the population increases.
        So how do you produce products, food, to feed a growing
    population in the world I think is also going to be a part of
    the picture, and we are adjusting our research program, toward
    that goal.
        Lastly, it is interesting listening to my colleagues' and
    your discussion on the economy on the farm side. We deal with
    not only the production but also the value added, food
    processing and the consumer side on this. It just dawned on me
    that the U.S. food industry does not come to the Federal
    Government for any loans or grants, and they are competing
    fairly well on a worldwide basis.

                       AGRICULTURAL PRODUCT DISTRIBUTION

        Senator Bennett. Thank you very much. You see war on hunger
    and now a war on obesity. We have not solved the war on hunger
    in this country, not because we do not have the production
    capability to do so, indeed we do, and we have excess food
    sitting in silos various places. This is not the focus of the
    Department of Agriculture, but this is a distribution problem,
    not a production problem. We have hunger in the State of Utah,
    and I and my staff have gone down to the food bank and unloaded
    contributions that come from the Boy Scout drives when
    everybody leaves a couple of extra cans of tomatoes on their
    front porch and the Boy Scouts come and pick them up. At
    Christmastime everybody buys extra groceries. I have done it. I
    am sure everybody else has. You go to the supermarket, and
    standing out in front of the supermarket is somebody from the
    Salvation Army, and they do not just tinkle the bell and ask
    for quarters any more. They have shopping carts and say,
    ``While you are in there, buy some extra milk, baby formula,
    whatever, whether you have any babies or not, and then as you
    leave the supermarket, take that extra sack of food and drop it
    in here.'' Then it goes to the food bank, and they need totally
    unskilled labor like mine to unload it from the trucks as it
    comes in and put it in the places that will ultimately get it
    into the hands of the people who need the food.
        We underestimate the importance of a distribution system.
    The Russians used to be able to raise every bit as much wheat
    as they needed, and it rotted at the railhead because they did
    not have a distribution system to get it to their people in
    their cities, and they ended up importing wheat from the United
    States even though they could and did produce enough. This goes
    back to Mr. Lenin, who along with all of his other foolishness,
    foolishly assumed that the middle man was a capitalist tool and
    had to be eliminated, and Mr. Lenin had great efficiency in
    doing that. He shot them, and consequently doomed the Russian
    economy to 75 years of shortages because he would not pay the
    middle man for the value added that was involved in taking the
    product from the farm and delivering it to the customer. We
    still get some of that rhetoric as people say, ``A bushel of
    wheat is worth x at the farm and it costs y at the supermarket
    when it is a loaf of bread, and is that not terrible that the
    farmer is not getting as much money as the customer is
    paying?'' They do not realize that one of the reasons the
    farmer is not getting as much money as the customer is paying
    is because the customer does not live on the farm. The customer
    lives in New York City and there has to be somebody who
    refrigerates it and stores it and packages it and puts it on
    the supermarket shelf, and gives you the convenience at 7-11
    that you can walk in at 2:30 in the morning after the Senate
    has been in session and buy yourself a burrito or whatever it
    might be.
        The efficiency of the distribution system is incredible,
    but there are elements of American society to which there is no
    distribution system and therefore there is hunger in the United
    States, so it is not a production problem. It is a distribution
    problem.
        Dr. Jen. You are absolutely right, Mr. Chairman. I think I
    did say we have largely stamped out hunger.
        Senator Bennett. No, I am not quarreling with you. I am
    using your statement as a springboard to make another point for
    the record, and is this not really the problem in the world? Is
    there not really enough food being produced worldwide to feed
    everybody on the production side, and the difficulty is
    distribution? Is that not the problem? The French will not let
    genetically-modified food get into France and the Russians will
    not let chicken breasts get into Russia. There are political
    barriers. And then you get into the enormous problems of sub-
    Saharan Africa and certain parts of South America. It is not a
    production problem. We have the food. We would love to get rid
    of it under Public Law 480 or any other program. We would love
    to get rid of the surplus food around the world to feed people
    in the world. We cannot physically get it in there because of
    the distribution problem.
        Am I off base with all of this? Help me. I am just
    exploring with you now that I have the advantage of talking to
    you with no competition on either side. Help me understand all
    of these issues.
        Dr. Penn. I think you are right about the basic problem of
    world food supply and demand. I think there are 800 million
    people out of the 6 billion in the world today that suffer from
    hunger and malnutrition on an ongoing basis. We certainly have
    enough food in the world to feed those people. It is a matter
    of poverty and a matter of distribution, lack of physical
    infrastructure, lack of purchasing power, things of that
    nature.
        Also there is an ample amount of technology in the world
    today to enable a lot of countries to increase their yields.
    Yields in many parts of the developing world are a fourth or a
    half of what they are in the developed world, and with a little
    bit of existing technology, they could improve their food
    production and be much more capable of feeding their own
    people. As you know, the problems are political. There are
    hostilities. The problems still have to do with lack of
    development and capital mobilization.

                               AGRICULTURAL TRADE

        We are trying to address a lot of those problems on many
    fronts. Improved technology is an immediate one, a direct one.
    But this trade agenda that I mentioned is another way in which
    we are trying to indirectly get at the hunger and malnutrition
    problem. It is pretty clear that those economies around the
    world that develop, where consumer incomes grow and people get
    fed better, are ones that are open, are ones that are
    interconnected in the world, that trade, that attract capital,
    that bring in new technology and new management practices.
        That is what we think our trade agenda is all about, not
    only to expand trade and market opportunities in the short run
    for our farmers and ranchers. Over time as these economies
    grow, they become much better markets, as you said, for leg
    quarters rather than just number two yellow corn. They start
    buying meat and poultry products and dairy products and more
    processed foods, and that creates economic activity here at
    home. So it is sort of a win-win situation to both help combat
    hunger and malnutrition and at the same time to improve
    opportunities for people here at home.
        Senator Bennett. Then come around full circle, lest any of
    my rural friends who are listening or watching think I am
    willing to let rural America wither on the vine and die in the
    name of creative destruction, we could solve many of the
    problems in rural America of oversupply and thereby the
    requirement for Federal subsidy, if we could open up these
    markets. The farmers who are currently drawing Federal
    assistance and then creating some of the default rates that you
    were talking about, Dr. Penn, and that you were talking about,
    Mr. Dorr, those default rates would go down. And Dr. Collins,
    the Federal payments would go down if these world markets were
    opened up, because as the most efficient producer in the world,
    the American farmer, regardless of size, can compete very well
    with any other farmer anyplace else.
        If we go back to my analogy of the steel mill, it is the
    low-cost, high-efficiency steel mills that are going to survive
    in the period of lower capacity, and the American farmer is the
    low-cost most efficient farmer in the world, and he is the one,
    she is the one increasingly, that will survive and do well if
    we can get rid of some of these barriers. Is that a fair
    statement?

                             PRODUCTIVITY INCREASES

        Dr. Penn. That is very much a fair statement. And you make
    another important point, and that is that the world does not
    stand still. Dr. Jen and all of his fellow scientists are
    always out here trying to increase the productivity of American
    agriculture, and the 50-year trend in productivity growth in
    American agriculture is about 2 percent a year. So you can see
    in a 10-year span of time we will increase our capacity to
    produce food and fiber with a given set of resources by 20
    percent, not taking account of compounding. When you look at
    the domestic market growth, our population grows relatively
    slowly, and we increase our aggregate food consumption each
    year by about eight-tenths of 1 percent, so over a 10-year span
    of time our aggregate consumption will increase about 8 percent
    while we have increased our production capacity 20 percent.
        So we are constantly adding to this excess capacity which
    makes it all the more important that we get access to these
    growing markets, and it is in our best interest to see the
    developing countries of the world grow and mature so that they
    become better markets. It is a very dynamic situation.
        Senator Bennett. Mr. Dorr, access to these kinds of
    markets, would that not go a long way towards producing the
    sort of rural development that you are currently concerned
    about?

                                RURAL JOB GROWTH

        Mr. Dorr. I think that will clearly help manifest it. I
    think the other side of this issue is the fact that there was a
    recent report out of the Third District Federal Reserve Bank of
    Philadelphia, pointing out that much of the significant
    economic growth both in terms of new businesses as well as jobs
    and job growth opportunities during the course of the 1990s
    occurred in many of the rural areas in Pennsylvania. Clearly
    after having come in from the farm a couple of years ago and
    spending a great deal of time in these moving parking lots, I
    can understand why people are inclined to keep their rural
    residences. So I think there is a change in the economic
    structure that is attracting people to rural areas, and we are
    involved in building out the infrastructure and sustaining it.
    Once the things you discussed with Dr. Jen and Dr. Collins are
    manifested, with these other opportunities in which we are
    involved in terms of building out the infrastructure, I think
    the dynamics of rural America will change in many areas.

                           MAINTAINING RURAL AMERICA

        Senator Bennett. Thank you for this. This has been very
    helpful. I wanted just to close it off before I go into some of
    the specific questions, with the observation that people who
    live in rural areas are smarter than people who live in urban
    areas think they are, and one of the reasons they stay there is
    partly because of quality of life and partly because of an
    understanding that in the information age they can do the kind
    of things you just described. So a vibrant, rural America is
    important, but we should be doing what we can to see to it that
    it is vibrant because of its ability to compete in the future,
    rather than vibrant because of its nostalgia for the past.
        If we ever did allow rural America to shrivel up and blow
    away, we would pay a very significant price for that. I want to
    make that clear. From all of my conversation about the economic
    side of it, I want to make it clear that the long-term impact
    of having rural America dry up and blow away would be very
    significant.
        If I can just burden you with an observation from an
    entirely different circumstance, if you go back in history in
    the British Isles, there was a time when the English, for
    whatever geopolitical reason, decided it was in their national
    best interest to clear the highlands of Scotland. That is a
    very antiseptic term to describe what they did. Clearing the
    highlands meant literally driving everybody off the land. As a
    tourist now, if you go to Scotland 300, 400 years later after
    the clearing of the highlands, they are still clear. That is,
    you go through the highlands of Scotland and the scenery is
    wonderful, but the sense of desolation and barrenness from the
    fact that there has been no significant human inhabitancy there
    for all those years, since the English literally drove the
    Scots out of the highlands and into cities like Glasgow and
    Edinburgh, the sense of barrenness and desolation still hangs
    over the land. It is almost palpable as you walk around and
    say, what a price Great Britain has paid down through the
    centuries for the fact that people were driven out of this
    area.
        Now, we are never going to be quite that dramatic if rural
    America sees people leave, but nonetheless, there is a lesson
    there that I think we can pay attention to.
        Thank you for participating with me in this dialogue as I
    try to get my arms around what it is we are doing here and what
    it is you are doing. Now a few very parochial questions about
    some of the budget issues that you raised which is basically
    what we came to talk about.

                            PATENTS ON ARS PRODUCTS

        Dr. Jen, the Agricultural Research Service obtains patents
    for products and procedures which result from taxpayer
    sponsored research. Then the ARS licenses private industry to
    produce consumer goods that allow the technology and resulting
    beneficial projects to get in the hands of consumers. We have
    been talking about that in the distribution thing. I understand
    now that there are more than 600 new patents. How much money
    are we talking about? What is the average annual receipt from
    licensing these patents, and are those funds just deposited
    into the Treasury or does ARS get to keep the money, or do you
    have a pizza party at the USDA? What do you do with the money
    that comes from the licensing?
        Dr. Jen. I think----
        Senator Bennett. I am sorry. I should not be that light-
    hearted. Obviously, nobody has a pizza party on that.
        Dr. Jen. No. Actually, sometimes those patents do produce
    unexpected results. One of the patents that ARS had was to
    develop a pear bar from pears, and it is very healthy, almost
    like a candy or granola bar, but it is a very, very small kind
    of commodity. It was actually picked up by a rural community in
    Oregon, a town that was going out of existence. ARS licensed
    them to put up a little processing plant to produce it. It is
    now available in the Northwest United States, the plant employs
    90 or 100 people, and that little rural town is revived.
        Senator Bennett. But do you get any licensing fees from the
    pear bar?
        Dr. Jen. I believe we do, I think. But I do not know the
    exact number. I am handed just a list here. I think, for
    example, in 2002, the total license income is about $2\1/2\
    million. The total income is about $4 million. We do receive
    some funding out of licensing.
        Senator Bennett. Does that go into the General Fund or do
    you get to keep it?
        Dr. Jen. I believe this money goes back into the ARS
    Research Fund. Am I correct? 25 percent goes to the inventor,
    and 75 percent back to supporting the administrative operation.
        Senator Bennett. Who is the inventor?
        Dr. Jen. The scientist who has it.
        Senator Bennett. I am a private scientist and----
        Dr. Jen. No, no, no. The ARS scientist who develops it.
        Senator Bennett. So you could have theoretically a
    scientist who earns more money than the President?
        Dr. Jen. That certainly is possible. A lot of the faculty
    in the universities do that, too.
        Senator Bennett. So does the football coach.
        Dr. Jen. But I think the number of patents that have been
    licensed has not been very, very overwhelming.
        Senator Bennett. Thank you very much.

                    LAMB MEAT ADJUSTMENT ASSISTANCE PROGRAM

        Dr. Penn, last week 22 Senators sent Secretary Veneman a
    letter requesting that USDA continue for one additional year
    the Lamb Meat Adjustment Assistance Program, and in my State of
    Utah the lamb is very important, and this has benefited my
    producers. As you noted, all of you, that Utah is in the 5th
    year of a severe drought, and I understand you have stated that
    funding is not available to continue this program.
        I have come down from the lofty area of talking about the
    overall economic circumstance to taking care of my own
    constituents. So you will understand where I am on this. As of
    May 6th there was $298 million of uncommitted funds in Section
    32, a sum that in all likelihood will not be fully expended in
    the remaining 4\1/2\ months of fiscal year 2003, and you can
    see where this is going. I would very much appreciate it if you
    would sit down with Secretary Veneman and consider all of the
    issues confronting the lamb industry and see if there might be
    some reprogramming requests or other activity with some of this
    money to help us out.
        Dr. Penn. Mr. Chairman, I am aware of the program, and I am
    aware of the letter, and I am also very pleased to tell you
    that the responsibility for that program falls Under Secretary
    Bill Hawks' mission area, and you are going to be seeing Mr.
    Hawks next week, so I would hope that you would bring up that
    issue with him. I will make him aware----
        Senator Bennett. Approximately handed off, duly noted.
        Dr. Penn. I will make him aware of your concern, so he will
    be prepared with a good answer for you.

                             FOOD SUPPLIES IN IRAQ

        Senator Bennett. Dr. Penn, just to give you an opportunity
    to make a statement for the record, because of the various
    press reports around this issue, let us talk about Iraq for a
    minute and the current need for food in Iraq, and there are
    those who say we are in a humanitarian crisis there. There are
    those who say we are not. There are those who say the Iraqis
    have more food now than they did before the Americans and the
    British and the Poles and the Australians went in, and that
    whatever humanitarian problems there are in Iraq are a holdover
    from the old regime that we have not caught up to yet, and
    there are those who say, no, no, no, it is all our fault.
        I understand that these statements are against the backdrop
    of how people felt about the war prior to the war going in, but
    can we deal with this in a factual way? Can you give us some
    information with respect to food aid in Iraq? Do you believe
    that additional food is necessary? Is the distribution system
    adequate, and so on? Let us comment on this and try to help set
    the record straight.
        Dr. Penn. Well, thank you very much for that opportunity. I
    have noted the same stories that you have and there is a lot of
    conflicting information in the public domain now. Let me start
    by saying before the hostilities, the Iraqi people were about
    70 percent dependent upon imported food, and this food was
    largely paid for through the Oil-for-Food Program, which is a
    program that was operated jointly by the United Nations and the
    Iraqi authorities, and various countries contracted with the
    Oil-for-Food Authority to provide this 70 percent of the food
    that the Iraqi people needed.
        Before the hostilities started we of course were aware that
    they might begin, and were of course doing contingency planning
    to make sure that there was not a humanitarian crisis once
    hostilities began and once they ended. So there was a lot of
    activity to preposition food in the region, and we had reason
    to believe that there was a considerable amount of food in the
    country at the time hostilities started, that individual
    households would have had at least a month's supply and maybe
    more of food that was being distributed under the Saddam
    Hussein regime.
        The U.S. Agency for International Development made
    available $200 million to the World Food Program to preposition
    food, to get food in the region and have it available so that
    in that period when hostilities ended and before a new
    distribution system could be established, we could go in and
    make sure there was no humanitarian crisis.
        In addition to that, the U.S. Government has made available
    a substantial amount of resources to provide food for Iraq,
    again, to prevent the very kind of humanitarian crisis that you
    have talked about. We have drawn upon the Bill Emerson
    Humanitarian Trust, which is a food reserve once known as the
    Wheat Reserve. It was some of this surplus production that we
    have been talking about this morning that was put in a special
    reserve for emergency situations like this. So we have made
    available wheat and wheat flour, and rice for the Iraqi people
    and have begun shipments of that. It is my understanding now,
    from all of the information that I see in my position, that
    there is more than ample foodstuffs available in Iraq. This is
    especially true for wheat, for rice and for sugar. I am talking
    about the foreseeable future, and the foreseeable future being
    until the end of summer, let us say.
        There is a need for vegetable oil and pulses to round out
    the ration that the Iraqi families have received, and USAID is
    now in the process of purchasing pulses and vegetable oil to
    add to the rations that are being sent.
        As far as the information that I have available to me
    shows, there is no humanitarian crisis. I do think some of
    these stories about major problems there, about famine in the
    offing, are somewhat self-serving. We know about the size of
    the Iraqi wheat crop. We know that crop is being harvested now.
    Provision has been made for funds to be available to purchase
    that crop from Iraqi farmers. We think it is important to do
    that because as we have talked here this morning, the Iraqi
    farmers need incentives to go plan the wheat crop for next year
    and to begin to plot the irrigated rice crop and other things.
        So at the same time that we are trying to meet the
    immediate needs of the Iraqi people in terms of diet, we are
    also looking ahead to try to get as much production
    reinvigorated in the country as we possibly can.
        The last part of this is that the Oil-for-Food Program,
    which uses Iraqi petroleum money to purchase imported food, is
    slated to expire on June 3rd, and it is uncertain whether that
    program will be extended or whether that program will be
    terminated and the purchasing authority shifted back to Iraq.
    We just simply do not know at this point. That is being
    discussed. But the Iraqi people do have resources. They have
    petroleum resources, and so they do have money to buy food. It
    is not like Afghanistan or a lot of other developing countries'
    situations.
        Senator Bennett. Thank you. I appreciate your sharing that
    with us, and that will go a long way with meeting with some of
    the rumors, and as you say, self-serving statements as people
    try to rewrite history in order to validate their own
    prejudices with respect to the American initiative in Iraq.

                   CONSERVATION PROGRAM TECHNICAL ASSISTANCE

        Let us go back to the farm bill for just a minute, and
    there has been controversy over the funding for technical
    assistance for the mandatory conservation programs authorized
    in the 2002 farm bill, and in the fiscal year Omnibus Bill, the
    supplemental, we provided direction to USDA with respect to
    technical assistance funding, and I believe that there has been
    a partial fix at least as a result of the 2003 Omnibus Bill.
        Now, Mr. Rey and Dr. Penn, do you support the idea that
    funding of technical assistance for CRP and the Wetlands
    Reserve Program should be borne by the individual programs, and
    if so, do either of you have suggestions as to how we could do
    that better?
        Mr. Rey. Our suggestion is embodied in our 2004 budget
    proposal for the creation of a Farm Bill Technical Assistance
    account, and I think if the Congress were to adopt that
    proposal, what you would see is a more equitable distribution
    of the technical assistance burden across all the programs.
        Senator Bennett. Do you have any----
        Dr. Penn. I agree.

               RURAL DEVELOPMENT FIELD OFFICE CONSISTENCY REVIEW

        Senator Bennett. Mr. Dorr, Rural Development has embarked
    on a consistency review of all of its field offices. Could you
    share with us why you chose to initiate this review and what
    the field structure will look like when it is over, or what you
    hope it will look like, if you indeed have a predisposition as
    to where you hope this will come out? And give us the time
    frame in which the review would be completed.
        Mr. Dorr. The consistency review that you are referring to
    was actually initiated by my predecessor back in 2001, which
    was as a result of the reorganization that had taken place at
    USDA in the mid 1990s. It was determined at that point by both
    my predecessor and his staff, as well as a large number of our
    appointed State Directors and their program directors, that
    there was a difference of job descriptions and structures that
    made a high level of inconsistency in administering our
    programs across the country. A team of 10 State directors were
    appointed and they reviewed the situation.
        They concluded that there were two basic structures that
    could be implemented. One they called a two-tier structure and
    one a three-tier structure. After considerable evaluation their
    recommendations were accepted. The two-tier structure allows
    for a State staff with regional locations to deliver programs.
    A three-tier structure allows for a State office and some
    regional locations, as well as some local locations. The
    purpose for the two structures is to allow the State Directors
    and their program folks, who understand best how to implement
    those programs at the State level, to do so in a way that
    effects a consistent and a efficient delivery of our programs
    across the States.
        State plans were to be into our office by the end of April.
    They are undergoing review, and they will be evaluated in the
    context of the Secretary's overarching efforts, as well as in
    the context of appropriate civil rights, and national, State,
    and county organization review processes.

                         WATER AND WASTEWATER PROGRAMS

        Senator Bennett. Thank you. I have another question for
    you, Mr. Dorr, but first let me make a general observation
    about the State of Utah. Sixty-four percent of the State is
    managed by the Federal Government, and your colleague, Mr. Rey,
    oversees 13 percent of Utah's land through the Forest Service,
    and then over in the Department of Interior with the BLM, they
    have the bulk of the rest of it, but the Department of Defense
    owns a fairly large chunk of Utah land on which they drop bombs
    with a great regularity. In 18 of our 29 counties the Federal
    Government owns more than 50 percent of our land. There are
    some counties where the Federal Government or the State
    Government combined is up to something in excess of 90 percent
    of the land. So there is a constant day-in and day-out sense of
    the overwhelming presence of the Federal Government when you
    get out into rural Utah.
        It may not be coincidental that in these counties where the
    Federal Government manages more than 70 percent, that is 13 of
    the 18 to which I referred, these are the counties with the
    highest percentage of people living below the poverty line, and
    they probably would not be impressed with my esoteric
    discussion of economics here this morning, as I switch hats and
    stop being fairly academic about it, and now get real with real
    people living in real situations. So I am leading to a
    discussion of the grant programs for water and wastewater in
    these communities. This is not a case of people being involved
    in an uneconomic situation where they ought to change. It is a
    case where the county does not get the property taxes, even
    though we have built funds, payment in lieu of taxes funds,
    they are inadequate in really many instances to meet the
    challenges of these counties, and your budget proposes to
    reduce the Water and Waste Disposal Grant program by
    approximately $245 million.
        That leads to the obvious question, if your mission is to
    support the infrastructure of rural America, but being very
    parochial right now, the infrastructure of rural Utah, how can
    we make sure that the counties in this kind of a situation will
    be able to maintain safe drinking water and sewer
    infrastructure when the Federal Government, which occupies so
    much of their county, is in a position where they are cutting
    back dramatically on it?
        Mr. Dorr. That is a very appropriate question. Congress, in
    the last farm bill added about three-quarters of a billion
    dollars of additional funds to increase these water and
    wastewater programs, which our group at the Rural Utilities
    Service was able to get implemented and distributed to many of
    these communities by last August. We got the full sum out after
    we had utilized our 2002 appropriation.
        Quite frankly, we had an opportunity, as a result of
    Congress's largesse on that particular issue to address a lot
    of the backlog that we were facing.

                              LOAN TO GRANT RATIO

        Historically the loan and grant ratios of those programs,
    up until about the mid 1980s, had been in the 65 percent loan
    to 35 percent grant rate, perhaps 30/70. Over the last number
    of years they had migrated to a 60/40 loan to grant ratio. With
    the lowering of interest rates, the need to be careful with how
    the administration allocated resources, the decision was made
    in light of addressing the backlog of water projects last
    summer, that we would try to go with the 75/25 split on the
    loan to grant program, which does in fact maintain a total
    program approaching what we have this year of about $1.6
    billion.
        Senator Bennett. Thank you. I am just reminded that in Utah
    we get more grants than loans, so if the grants are cut off, we
    have a real problem, and I would appreciate it if you would pay
    a little attention to the problem.
        Mr. Dorr. We will look at it closely.

                       RESEARCH, PLANNING AND MANAGEMENT

        Senator Bennett. Get back to me on that. Thank you.
        In that same vein, Dr. Jen, the 2004 budget requests $67\1/
    2\ million for new ARS projects, emerging diseases, sequencing,
    bioinformatics, biosecurity and so on. On the one hand funding
    for waste management research in Mississippi is proposed for
    elimination, while on the other hand funding for managing
    wastes to enhance air and water quality is requested. Is there
    any coincidence or coordination between the fact that Chairman
    of this subcommittee is no longer from Mississippi? Is this
    sending a message that projects initiated by members of
    Congress is a direct result of the regional issues, like the
    one I have just raised with Mr. Dorr, is there the message that
    member projects are considered less important and that you say,
    well, it is nice that the member put that in, but we are going
    to do what we want? I am now asking a Senator Byrd type
    question.
        Dr. Jen. Absolutely not, Mr. Chairman. I do not know the
    specifics that you are talking about. We could get an answer
    for you from the staff. But research projects do come and go.
    Once a project is finished, it should be removed from the books
    and new research started. Constant reprogramming is going on
    all the time in the ARS, so from year to year there will be
    changes. I doubt very much, that it was not coincidental, sir.
        Senator Bennett. You think it is coincidental; it is not
    causal?
        Dr. Jen. That is right. No, it is not causal.
        Senator Bennett. In your 2004 budget request for ARS you
    assume the elimination of $132.7 million worth or research
    projects around the country, projects, livestock, rangeland
    studies, biotechnology research, grain disease research, things
    of that kind, and you get my attention when we are talking
    about bee research in my own State. We are ``The Beehive
    State.'' It is in the State seal. Now, all of these research
    projects were designed to address real problems facing farmers
    and ranchers, and the research is not yet complete. I can
    understand if we are cutting funds for areas where the research
    is done and saying we cannot afford to initiate any new
    research. But it seems to me penny wise and pound foolish if we
    say, okay, we are halfway there and now we are going to cut the
    funding. Does that not mean that the money that has already
    gone in has been wasted if the research is not completed, and
    that it is a better use of taxpayer dollars to finish what you
    have done, and then, as I say, if resources are considered
    scarce, say, all right, we cannot afford to launch these new
    projects, but we have to get the dollars' worth for the money
    we have already spent to finish up these old projects? Could
    you comment on that?
        Dr. Jen. In general I could say if we are trying to cut
    certain programs it does not necessarily mean that research may
    not be continuing. It may have been moved to another location
    to continue. Particularly I think in the beehive program there
    are five places in the United States that are doing that
    research. Given the multidisciplined nature, oftentimes
    consolidating those research projects into just one or two
    places will give better efficiency of the research dollar than
    doing it in five different places. So part of these adjustments
    are on that basis. It does not mean that the research is cut.
        And also I do not think research programs are normally
    terminated before they are completed. However, as research
    managers you do sometimes have to call the shots because if it
    is up to the researchers, generally, they find one result and
    create three more problems, so the researcher would continue on
    forever and expand for every single one of them. I think that
    is a general answer.
        Senator Bennett. That point is very well taken. I remember
    one university president said to me, about another project, he
    said: This is the perfect research project. The issue is too
    important and the solution can never be found.

                           COUNTRY OF ORIGIN LABELING

        Finally, one of the most contentious issues that I have
    discovered since I assumed this position is country of origin
    labeling. I did not really know anything about that until I got
    this assignment, and now I am hearing all kinds of things about
    that from a wide variety of directions.
        Dr. Jen, you oversee the Economic Research Service, and I
    think it would be very helpful for us to have some research on
    country of origin labeling, some research on the financial
    impact of it, some research on how customers will react.
        I will burden you with an experience in another field that
    may or may not have relevance here. Some years ago in the
    automotive field there was an initiative that was successful,
    to put domestic content labeling on automobiles, and it was
    initiated primarily by United Auto Workers, who felt that
    American purchasers would buy more American cars or would buy
    more products on which the UAW worked if they knew what
    percentage of the content in that car came from America and
    what percentage came from other countries. And great, great
    debate, and tremendous difficulty in the Congress getting
    domestic content legislation passed. I was familiar with that
    and all of the arguments about country of origin labeling come
    up. We had a discussion about that with Secretary Veneman.
        Domestic content legislation did pass and pretty soon they
    were putting on the label on the cars what percentage of the
    car was produced in the United States, and which percentage
    came elsewhere. And then someone did some research and they
    asked customers if they paid any attention to the domestic
    content label, and if they did, if it made any difference in
    their purchases. The answer came back the majority of
    automobile purchasers did not pay any attention whatsoever to
    the label, and those that did were looking for German or
    Japanese content which made them more likely to buy the car.
        Having gone through that experience and now being thrown
    into this country of origin labeling, if we can do it without a
    lot of money, I would like somebody to do some objective
    research to find out how customers will really react in the
    supermarket if they have country of origin labeling, and
    whether or not the reaction will be perverse to those who are
    pushing or the provision because the bureaucratic burden of
    country of origin labeling is turning out to be very
    substantial, and we had some of that discussion with Secretary
    Veneman in her testimony last week, and I think it is not going
    to go away as an issue. As I try to deal with the issue, I
    would be very grateful if I had some additional information
    that would come on the financial implications and the market
    implications of what this is going to do once it shows up on
    the supermarket shelf and is it all worth it.
        Dr. Jen. I think I will take your suggestion. We will ask
    ERS and see if, within the funding we have, that study can be
    done. I do know that ERS has been doing quite a bit of research
    related to what they call traceability, tracing the product
    from its origin which would be needed for the country of origin
    type of label. They recently had a presentation within the
    Department showing that economically it makes absolutely no
    sense for doing that.
        But what you are asking is if the consumer cares about the
    country of origin label, and I do not believe we have done
    that, but I could be wrong.
        Keith, do you know if we have done that?
        Dr. Collins. Mr. Chairman, yes, we have done some work on
    consumer valuation of label information like country of origin.
    Not only has USDA done some, but the university community has
    done a lot as well. I am not sure what you are going to see
    from that survey will satisfy you completely because economists
    take lots of different approaches and not surprisingly, they
    find lots of different answers.
        For country of origin labeling, one approach that has been
    taken is the so-called contingent valuation, where you ask a
    consumer, through a series of questions, how much they would be
    willing to pay for such label information. Not surprisingly,
    they are willing to pay a fair amount. When you add that up
    across 280 million people, it turns out to be a very large
    number.
        On the other hand, there are other studies that actually
    look at what consumers do pay when they have to pay for
    information like that, and not surprisingly, it turns out they
    will pay a lot less than they say they are willing to pay.
        So you get a range of benefit estimates. ERS has in fact
    done some work on a mandatory study we had to do a couple of
    years ago, that the Food Safety and Inspection Service did for
    the Congress on this issue, and they continue to work on this
    issue. I might say that the country of origin labeling proposed
    rule, being an economically significant rule, will have to have
    a very detailed cost benefit analysis in it. That is one that I
    will have to sign off on, so I would anticipate that that
    analysis will in fact be a state-of-the-art assessment of the
    benefits of country of origin labeling, as well as the costs
    that would be imposed on all of the different regulated
    commodities and entities that country of origin labeling would
    affect. Now, that may not come soon enough to satisfy your
    quest for the information, and I think if Dr. Jen is willing to
    ask ERS to help in that area, that would be very useful, I
    think.
        Senator Bennett. Thank you. In talking to meat packers,
    they say the cow does not care where it is born, that is, there
    is no DNA difference in the beef from a cow that is born on one
    side of an arbitrary geographic line than a cow that is born on
    the other side. If they come from exactly the same stock herd
    or stock background, and in most cases they do, that
    genetically there is absolutely no difference in the hamburger.
    You say the ground beef in this hamburger came x percent from
    Canada and x percent from the United States, this becomes maybe
    statistically true, but in terms of what the customer eats,
    there is absolutely no difference whatsoever.
        Dr. Collins. I think this debate will play out on a number
    of fronts. It will be not only whether consumers value this
    information in making more informed choices. It will be debated
    over whether it is a food safety issue. There are a lot of
    aspects to this.
        But as you say, we do have some experience with other
    industries. You mentioned automobiles. Another apparent one
    would be the Textile Labeling Act, which every time you look at
    the label on your shirt you know what countries your textiles
    and your clothes come from, and that has certainly not
    dissuaded people from now buying most of their apparel from
    overseas sources.
        The question is, is it going to be different for food. And
    I think I would, rather than try and opine on that here today,
    I would wait to see what we develop over the next year as we
    develop that rule, but surely the example you gave of German
    and Japanese cars, we have seen some of that in food as well.
    Like your, earlier mention of the lamb improvement program,
    there are a lot of people that prefer New Zealand in the United
    States, and will look for New Zealand lamb. So even in food we
    have seen some of the examples that you gave.

                              SUBCOMMITTEE RECESS

        Senator Bennett. None of them live in Utah.
        Thank you all. We appreciate this. I am particularly
    grateful to you for your willingness to participate in a
    dialogue aimed at trying to educate a new subcommittee
    chairman.
        The hearing is recessed.
        [Whereupon, at 11:31 a.m., Friday, May 16, the subcommittee
    was recessed, to reconvene subject to the call of the Chair.]

    AGRICULTURE, RURAL DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS FOR
                                FISCAL YEAR 2004

                                  ----------

                             THURSDAY, MAY 22, 2003

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:40 a.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Robert F. Bennett (chairman)
    presiding.
        Present: Senators Bennett, Cochran, Craig, Kohl, Dorgan,
    and Johnson.

                           DEPARTMENT OF AGRICULTURE

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

        Senator Bennett. The subcommittee will come to order. I
    apologize to our witnesses and to those who have come to hear
    them for the fact that we are a bit late. It reminds me, very
    early in my Senate career, we were having a meeting and I said
    to my secretary, ``Unless the White House calls, we don't want
    to be interrupted.'' And a few minutes later, she came in and
    said, ``You are not going to believe this, but the White House
    is calling.''
        So this morning, we had the President of the United States
    speaking to us and that is what caused the delay, and I assure
    you, it would require something of that level to cause us not
    to be prompt and we apologize to you.
        We appreciate very much the witnesses who are coming. This
    will be our final budget hearing. We have heard from the other
    under secretaries of the Department of Agriculture as well as
    from Secretary Veneman and it has been a very interesting
    series of hearings, and for me, coming new into this
    assignment, very informative, and I am very grateful and expect
    we will have the same kind of exchange here this morning.
        We do meet against the background of considerable concern,
    and I think we ought to use the hearing as a forum for
    addressing this concern. It has been on the front page of the
    newspapers and in the lead of various television shows, talking
    about bovine spongiform encephalopathy. For those that don't
    recognize that, and I will refer to it from now on as BSE, that
    is what the press has labeled ``mad cow'' disease.
        We should understand as we hold this hearing to talk about
    the safety of food in the United States that BSE has been
    discovered in a single cow in Alberta, Canada. We should
    applaud the USDA as well as the Food and Drug Administration
    for their diligence in monitoring this situation, and it is
    critical that USDA and FDA provide the public with a clear and
    consistent message. But I believe that message is being applied
    and we need to underscore it here today.
        The disease has been detected, it is being monitored, and
    the determination of the various agencies involved is to see to
    it that the United States is protected from the disease. We
    should also understand that the way the animal who had this,
    had BSE, was disposed of guarantees that it will not get into
    human consumption. There may be some tiny, tiny risk to
    animals, but there is no risk whatsoever to human beings as a
    result of this situation. That is at least the way it has been
    explained to me. If there is any correction that needs to be
    made, I would appreciate it if our witnesses would correct it.
        But the American consumer takes for granted that her food
    is safe. Sometimes they take for granted too much and do not
    give appropriate credit to people at the USDA and at FDA who
    continually monitor the safety of food and the domestic food
    supply. Their work goes unnoticed until some kind of emergency
    like this comes along. We should take this occasion, first, to
    assure the American people that their food is safe, and second,
    to pay tribute to those who monitor the situation 24/7 so that
    the American consumer can take it for granted that the food is
    safe.
        We will spend more time on that in the hearing this
    morning. But as the hearing begins, I wanted to make that front
    statement so that those who come for the opening of the hearing
    and then rush to meet their deadlines will at least take away
    the understanding that the discovery of BSE in a single cow in
    Alberta, Canada, is not reason for everybody to panic, to give
    up hamburgers or whatever else might be on their agenda for
    their food consumption.
        With that, Senator Craig, we would be happy to have
    whatever opening statement you might have.
        Senator Craig. Mr. Chairman, I will be brief, but I do
    believe it is an opportunity to talk about the issue that you
    have opened with this morning and I think it is important that
    we visit it. I am pleased to see Dr. Murano here with Food
    Safety and that is appropriate that we talk about BSE.
        I think it is important to say several things about it
    straightaway, and that is that we have been at the business of
    monitoring and watching this very, very closely for a long
    while. As we have been able to successfully declare our country
    clean of this, there is a reason for that, and I think the
    Department of Agriculture and USDA can be proud of that fact.
    We started a surveillance program in 1990, I believe, and moved
    forward and successfully banned when other countries have found
    that their herds were infected by it.
        One animal in Canada now, destroyed, did not get into the
    food chain, and other animals apparently destroyed that were
    with or in the same herd.
        Now, having said that, it is also important to say that BSE
    agent is not found in meat. Let me repeat that. It is not found
    in meat. It is found in the central nervous system tissue, such
    as brains and spinal cord and others. Those are not
    incorporated in hamburger or in a New York strip and it is
    important that we constantly repeat that. By the way, I had a
    nice piece of filet last night and it was well prepared and I
    enjoyed it.
        It is not a time for this country to panic. It is a time
    for this country to express some concern and to review it, as
    you plan to, and for us to review our systems. I have several
    questions I want to ask as it relates to the ban that we moved
    quickly to do with Canada on products coming in until such time
    as determinations are made. That sounds to me like the action
    taken appropriately. It is not something that we have dawdled
    about. It is something we have been involved in for a long
    time.
        What I think is important for this committee and for the
    record, Mr. Chairman, is that we at least affirm that and move
    forward based on what we know so that the American people can
    have a degree of confidence in, beyond current levels, their
    meat supply. What is important is for them to have a great deal
    of confidence in the broad sense that our foods in this country
    are safer and better prepared to arrive at the consumer's shelf
    than nearly any country in the world, and for that, we ought to
    be proud. Thank you.
        Senator Bennett. Thank you very much.
        Senator Kohl.
        Senator Kohl. Thank you, Mr. Chairman, for holding this
    propitious hearing this morning. I would like to welcome our
    witnesses again to this hearing, which turns out to be of some
    considerable importance, and a hearing that the American public
    will be very much interested in hearing what you have to say.
        I don't plan on making a long opening statement, but
    considering the announcement of BSE from Canada just this past
    Tuesday, this is clearly an important moment. Three of the most
    important Federal agencies regarding this particular issue are
    all in the same room together today and each of you play a key
    role in keeping our food supply safe and preventing diseases,
    such as BSE, from entering our country.
        Therefore, I would like to request that each of you address
    this issue in your opening statements and use this hearing as a
    forum to explain to the American eating public, which, after
    all, is everybody in our country, what this announcement means.
    Questions like how serious is this issue? What precautions are
    being taken? Should we, in fact, really be afraid? I think the
    American people need some answers, and this hearing will
    provide a unique opportunity for you to address them.
        With that, I welcome you again and turn back to our
    chairman.
        Senator Bennett. Thank you, Senator Kohl.
        Senator Johnson.
        Senator Johnson. Thank you, Mr. Chairman and Senator Kohl.
    I want to welcome Under Secretary Hawks, Under Secretary Bost,
    Under Secretary Murano today, as well as FDA Commissioner
    McClellan.
        We have a lot of timely and important issues to discuss,
    including one, implementation of country of origin labeling
    with Under Secretary Hawks. Secondly, the recent case of BSE in
    Canada, which deals with food safety, Under Secretary Murano,
    and FDA's ban on animal parts in ruminant feed with FDA
    Commissioner McClellan.
        Given the development of new drugs, advanced medical
    devices, and other products, I look forward to Commissioner
    McClellan's analysis of how these products can be made
    available to the public. And finally, the authorization of
    child nutrition programs are key.
        Let me address just very briefly the country of origin
    implementation issue. I know that Under Secretary Hawks has
    personally attended a number of the USDA listening sessions and
    I hope that USDA keeps an open mind about finding a reasonable
    method to, in good faith, implement country of origin labeling,
    because as written, the law permits USDA to use a great deal of
    discretion to implement labeling and model existing programs--
    school lunch, USDA grading system, certified Angus beef system,
    and so on, that have proven effective, workable, and
    inexpensive.
        Nevertheless, very frankly, there is a widely-held belief
    that is growing in rural America that the Department of
    Agriculture is not about to, in good faith, implement country
    of origin labeling and we need to disprove that and to make
    this system work, make it work effectively and inexpensively. I
    am concerned that some in USDA seem all too willing to create a
    new, unnecessary bureaucratic recordkeeping regime so that
    labeling will implode under its own weight before it is even
    implemented.
        Some hard-working public servants in the USDA, especially
    in the Ag Marketing Service, are moving ahead in good faith to
    implement a common sense country of origin labeling program and
    I commend these officials. On the other hand, I am very
    disappointed that some seem to be trying to politicize this
    effort and to cancel out the progress as we attempt to make
    implementation work. I hope these strong anti-labeling forces
    will let the real experts, our career officials at AMS, write a
    sensible and workable final rule for implementation.
        Let me say this about country of origin labeling and BSE.
    While country of origin labeling obviously does not prevent
    BSE, that is not the issue. The fact that consumers are unable
    to differentiate between U.S., Canadian, and beef from other
    nations is simply unacceptable. Country of origin labeling is
    not a food safety issue directly, but it is a consumer
    information issue and it is a consumer confidence issue. I was
    pleased that today, the Consumer Federation of America
    expressed their strong support for country of origin labeling.
        Let me just quickly touch on the FDA feed ban issue. I
    worked with Commissioner McClellan about the 1997 rule that
    feed mills in the United States prevent the commingling of
    animal proteins in ruminant feed. This has been a concern of
    mine for some time, largely because contaminated feed consumed
    by cattle is what we believe is a key causation for BSE in the
    first place.
        When I first began to examine the issue in 2001, I met with
    Dr. Steven Sundloft, Director of FDA's Center for Veterinary
    Medicine, and at our meeting, I learned at that time that 13
    percent of the feed mills regulated by FDA did not have systems
    in place to prevent the commingling of animal parts and feed.
    Furthermore, 15 to 20 percent of the feed mills failed to
    properly label feed, ``not approved for use with ruminants,''
    as such. Moreover, 80 percent of feed mill inspections were
    handled at the State level. FDA was not even doing most of the
    inspections.
        I believe FDA and the feed industry would agree with me
    that we should have improved the compliance rate with this rule
    since 2001. In fact, we ought to get 100 percent compliance.
    Unfortunately, that goal has not been reached. Consumer groups
    indicate that, currently, FDA has only ten of its own
    inspectors and still heavily relies on States to do the
    majority of the inspections of feed mills and rendering plants.
        I hear and I have read reports that as of March 23,
    inspections revealed that 14 percent of rendering facilities
    handling material prohibited for ruminant feed still did not
    have a system to prevent commingling of prohibited and non-
    prohibited material. Inspections also revealed that 33 percent
    of non-FDA-licensed feed mills had not labeled their products
    with the required caution statement about not feeding
    prohibited materials to ruminants, and that is unacceptable.
        GAO recently issued a report stating that FDA had not acted
    promptly to compel firms to comply with the feed ban rule. In
    fact, GAO identified some non-compliant companies that have not
    been reinspected for 2 or more years and instances where no
    enforcement action had been taken.
        Today, I call upon FDA to demand 100 percent compliance and
    insist that FDA explain the rationale for failing to promptly
    compel these feed mills to comply. The FDA needs to clarify how
    many feed mills and renderers are complying with the ban and
    whether firms are properly labeling prohibited material as
    such. Furthermore, FDA needs to explain how they will ensure
    universal 100 percent compliance with the ban, and if the
    States and/or FDA need further assistance from this committee
    and from Congress for that purpose.
        I look forward to discussion of the medical device and
    child nutrition issues.
        Again, I share the comments of my colleague from Idaho that
    American consumers can take great confidence in meat products
    available to them and their families in this country. We have
    the highest quality, safest food in the world, bar none. There
    is no cause for panic. There is no cause for excessive concern.
        But at the same time, we at the governmental level need to
    make sure that that confidence is strengthened and that there
    is no justification for a loss of confidence in the quality of
    American meat products won by more aggressive action, I
    believe, on the part of FDA, but secondly, also by empowering
    American consumers to be able to make knowing choices about
    whether they are consuming American meat products or not. That
    is a very simple, inexpensive, easily done effort and I think
    that we can get there.
        I look forward to this hearing today and the insights
    shared with us by this very distinguished panel, Mr. Chairman.
        Senator Bennett. Thank you. Senator Dorgan.
        Senator Dorgan. Mr. Chairman, thank you very much. I am
    going to have to go to the Commerce Committee, but I want to
    come back because I want to visit with the FDA. I believe that
    is the second panel.
        Senator Bennett. Yes, and we have asked the FDA
    Commissioner to be in the audience during the first panel
    because I think the combination of FDA and USDA in the present
    atmosphere is important. While it is an imposition on his time,
    I want him to hear the first testimony so that he can respond
    during the second panel.
        Senator Dorgan. I think that is an excellent idea and I
    regret I can't be here during all of it, but we have a hearing
    I have to be at over at Commerce, so I will be coming back.
        But I wanted to mention just one quick point on something I
    believe Senator Craig has said earlier, and I just heard my
    colleague from South Dakota say, about our food supply, about
    mad cow disease. Let me just say that what I heard in the last
    couple of days about this angers me for one reason. The head
    was cut off a slaughtered cow in January and we learn in the
    month of May that that cow had mad cow disease. Four months is
    an unforgivable amount of time.
        I don't know the consequences of all of this, but in this
    country, we have taken great steps. We made 20,000 tests,
    examinations, pathologies last year in this country to make
    sure that we have a safe supply of meat. Nine hundred such
    examinations were made in Canada last year. I am not suggesting
    the Canadian meat supply is unsafe, but I am saying that if
    there is a cow that in January is killed that has mad cow
    disease, then our country and the Canadians and consumers and
    the beef industry ought not know about it 4 months later. They
    ought to know about it 4 or 5 days later.
        There are only a couple of explanations for this. One, they
    knew about it earlier but didn't tell anybody. I doubt whether
    that is the case. I think that is not the case. It looks like
    the Canadians thought the cow had pneumonia and they either put
    the cow's head in a freezer or in some solution. Several months
    later, somebody drug it out and said, let us take a look at it,
    tested it, and then sent it off to Britain or to England for
    more testing.
        I think that is gross incompetence. We need to make certain
    that if there are ever questions about this, that there is
    testing and it is done aggressively and routinely and we get
    answers quickly and take actions immediately.
        I just got off the phone with the Agriculture Secretary,
    Ann Veneman, and I told her that yesterday I complimented her.
    She took exactly the right action. She was decisive and quick.
    We get a million head of cattle a year from Canada, a billion
    pounds of beef a year into this country from Canada. She shut
    it down right now, because at this point, we don't know all of
    the circumstances. And so I appreciate what she has done. She
    sent people to Canada immediately to be involved in this, and
    let us hope that this is one single isolated instance. Let us
    hope never again will we find that, in Canada or anywhere else,
    there is a case of mad cow disease that no one knows about for
    4 months. That is unforgivable.
        So that is another side of this issue that I don't think my
    colleague mentioned, but I certainly agree with all of his
    comments. I did not hear all of Senator Craig's comments, but I
    think I agree with what I heard he said and I think this timing
    issue is just critical.
        Senator Craig. I assure you, you always do agree with me,
    Byron.
        Senator Dorgan. Well, almost always, especially when we are
    talking about beef.
        Senator Craig. You have got it.
        Senator Dorgan. When we get too far afield of beef, it is
    not always the case.
        But Mr. Chairman, thank you very much for giving me the
    time.
        Senator Bennett. Thank you.
        We will now go to our witnesses. We will hear first from
    Eric Bost, the Under Secretary for Food, Nutrition, and
    Consumer Services, followed by Elsa Murano, Under Secretary for
    Food Safety, followed by William Hawks, Under Secretary for
    Marketing and Regulatory Programs.
        Thank you again for being here and for your service. Mr.
    Bost.

                       OPENING STATEMENT OF ERIC M. BOST

        Mr. Bost. Good morning, Mr. Chairman, members of the
    subcommittee. Thank you for this opportunity to present the
    Food, Nutrition, and Consumer Services budget request for
    fiscal year 2004. I have two of my staff members with me,
    Suzanne Biermann, who is Deputy Under Secretary, and also
    George Braley, who is the Associate Administrator for the Food
    and Nutrition Service.
        You have my written testimony, so I will try to be brief in
    terms of hitting some of the really important issues that I
    would like to talk about.
        The President's budget for fiscal year 2004 requests $44.2
    billion in new budget authority for the Department's nutrition
    programs. The budget is a clear reflection of the
    Administration's commitment to the nutrition safety net and to
    the associated activities President Bush expects us to achieve.
    The budget is constructed for results and the expectations are
    very clear. One, ensure access for eligible persons to these
    critical programs. Two, improve performance and program
    integrity. Three, address nutritional issues related to the
    problem of overweight and obesity in this country.
        Let us talk about ensuring access, more specifically, the
    Food Stamp Program. The Food Stamp Program request of $27.7
    billion will serve an average of 21.6 million persons each
    month, including restoration of eligibility to many legal
    immigrants as provided for in last year's Farm Bill. The
    Administration's budget continues the $2 billion reserve
    appropriated last year.
        The Child Nutrition Program's request of $11.4 billion
    supports an increase in school lunch participation from 28
    million children to over 29 million children and supports an
    increase in school breakfast participation of over one million
    children, from 8 million, which we are averaging this year, to
    about 9 million.
        The President's budget proposes $4.8 billion for the WIC
    Program to provide food, nutrition, and education and a link to
    health care to a monthly average of 7.8 million needy women and
    their children, a very clear sign of the President's commitment
    as he increased funding the second year in a row for this very
    critical program. The request also provides for a $150 million
    contingency fund, which we believe is unprecedented.
        One of the issues that is very important to the Secretary
    and I is to ensure program integrity in our programs. In terms
    of food stamps, funding to maintain our level of effort to
    reduce errors in the Food Stamp Program is also included in the
    President's proposal. The payment accuracy rate for the Food
    Stamp Program for fiscal year 2001 was 91.34, the best ever
    accuracy rate in the history of the Food Stamp Program. We will
    continue to work with our State partners to improve that.
        In terms of the WIC Program, the President's request
    provides for $30 million to support the enhancement and
    modernization of the WIC State Information Systems that will
    improve the management of this program, which I believe is long
    overdue. The President's request also provides for improving
    the eligibility determination system for the National School
    Lunch Program.
        One of the major issues we face in terms of nutrition in
    this country is the issue of the number of Americans who are
    overweight and obese. Sixty-two percent of all Americans in
    this country are overweight, a significant increase over the
    course of the last several years. As a part of the President's
    HealthierUS Initiative, nutrition assistance programs play a
    critical role in promoting good health and preventing diet-
    related diseases.
        As a part of the President's budget, this priority is
    clear. Some of the things we are interested in doing include:
    supporting breastfeeding promotion efforts and other activities
    in WIC; providing peer counseling and demonstration projects to
    evaluate how the program can be more efficiently used to combat
    obesity among our children; expanding the successful ``Eat
    Smart and Play Hard'' campaign to other nutrition programs;
    developing an integrated family-oriented approach to nutrition
    education that allows the Department to partner with multiple
    Federal agencies; promoting nutrition to all Americans,
    including resources to update and promote the Food Guide
    Pyramid; and one of our most popular programs, funding for both
    the WIC and Senior Farmers' Market Nutrition Programs.
        In conclusion, the President's direction has been very
    clear. The Administration's request has priorities to ensure
    access, maintain and improve integrity, and support efforts to
    address a public health threat of overweight and obesity. And
    given that we have spent a lot of time this morning talking
    about it, we truly believe we have one of the safest food
    programs in the entire world in terms of the foods that we
    provide to approximately 27 million children every day, as a
    part of the National School Lunch Program. Also, I would like
    to note, too, that there is a concerted, coordinated effort
    among all three of us to ensure that occurs on a daily basis.

                              PREPARED STATEMENTS

        Thank you for your time and attention and I would be happy
    to answer any questions that you may have.
        Senator Bennett. Thank you very much.
        Mr. Bost. Thank you, Mr. Chairman.
        [The statements follow:]

                       Prepared Statement of Eric M. Bost

        Thank you, Mr. Chairman, and members of the Subcommittee for
    allowing me this opportunity to present our budget request for fiscal
    year 2004.
        With your permission I would also like to introduce three members
    of the FNCS team accompanying me today. Suzanne Biermann, the Deputy
    Under Secretary for Food, Nutrition, and Consumer Services, Roberto
    Salazar, Administrator of the Food and Nutrition Service, and Dr. Eric
    Hentges, the Executive Director of the Center for Nutrition Policy and
    Promotion.
        The President's Budget for fiscal year 2004 requests $44.2 billion
    in new budget authority, reflecting the Administration's commitment to
    the nutrition safety net that protects the Nation's children and low-
    income households from hunger and malnutrition and motivates them to
    make smart food choices and engage in physical activity to promote
    their health and well-being. The purposes to which we will put this
    substantial commitment are clearly defined and tightly focused on the
    achievement of three critical outcomes. First, we intend to do our part
    to address both within nutrition assistance programs and, through the
    Center on Nutrition and Policy Promotion, in the general population,
    the growing public health threat of obesity. Secondly, we seek not just
    to maintain, but to improve the access of eligible persons to our
    programs. Finally, we will continue our pursuit of improved performance
    and program integrity.

                               COMBATING OBESITY

        The choices that consumers make related to their diet and physical
    activity have a major impact on their health. Poor diets and sedentary
    lifestyles cost this Nation dearly in medical costs, in lost
    productivity, and most sadly, in the premature deaths of over 300,000
    citizens annually. We are committed to do our part, within the larger
    framework of President Bush's HealthierUS initiative, to combat this
    epidemic. Nutrition assistance programs play a critical role in
    fostering good health and preventing diet-related health problems by
    ensuring access to nutritious food to those who need it, and by
    promoting better diets and physical activity through nutrition
    education to program participants.
        This budget request reflects this priority. We have requested $25
    million for peer counseling to enhance our breastfeeding promotion
    efforts in the WIC Program and demonstration projects to evaluate how
    WIC can be used to combat obesity among our children. We are also
    seeking to expand our very successful Eat Smart. Play Hard. campaign to
    other FNS programs beginning with WIC and Food Stamps. Finally, we are
    seeking resources to develop an integrated, family-oriented approach to
    nutrition education that cuts across all our programs. These activities
    allow the Department to partner with other Federal agencies as we work
    across Departments to meet the President's challenges for a
    HealthierUS.
        The need to improve diets to fight overweight and obesity extends
    to the general public as well. Our request also supports USDA's Center
    for Nutrition Policy and Promotion, which works with the Department of
    Health and Human Services and other agencies to promote good nutrition
    to all Americans. Within this budget request are resources to update
    and promote the Food Guide Pyramid, one of the foremost nutrition
    education tools in the Nation, to develop the next revision of the
    Dietary Guidelines for Americans and to support obesity prevention
    efforts for the general public as part of the President's HealthierUS
    initiative.

                            ENSURING PROGRAM ACCESS

        Ensuring access to the nutrition assistance programs is a top
    priority of this Administration. Our commitment is to ensure that every
    eligible person has access to the benefits they need. The Department's
    new Strategic Plan includes strategies to improve access to a number of
    underutilized programs and to pursue education and outreach efforts to
    make eligible people aware of nutrition assistance. At the most basic
    level, we have consistently designed the budget to ensure that the
    Programs are adequately funded to meet the demand for services. This
    includes proposing record funding levels over the past 2 years for the
    WIC Program and reinforcing that funding with a contingency fund. A
    similar reserve in the Food Stamp Program prevented any disruption in
    the flow of benefits to 19.8 million food stamp recipients last
    September when program needs exceeded the base appropriation. We are
    requesting the continuation of the Food Stamp reserve in fiscal year
    2004.
        As is clear in this budget request, we are committed to access as a
    key principle in our effort to improve the design and administration of
    the nutrition assistance programs.

                 STRENGTHENING INTEGRITY AND PROGRAM MANAGEMENT

        We are ever conscious of our responsibility to protect the American
    taxpayer's investment in the nutrition safety net. To maintain the
    public's trust, we are committed to the sound stewardship of those
    resources. This budget funds efforts to improve program management and
    integrity both at the Federal level and by our State partners. Also
    included is funding to maintain our level of effort to reduce errors in
    the Food Stamp Program. Our payment accuracy rate for fiscal year 2001,
    the most recent year with data available, was 91.34 percent. This is
    the best payment accuracy rate that the Food Stamp Program has ever
    experienced. We will continue our efforts and work with State partners
    to reduce errors even further.
        We are proposing targeted investment in new efforts to enhance
    program management and stewardship. For example, in the WIC Program,
    the President's request provides $30 million to support the enhancement
    and modernization of the State-level information systems that have
    become so important to proper management of the Program. This kind of
    improvement is essential to strengthening program management,
    maintaining a high level of program integrity and, to the extent
    possible, preventing errors and other problems before they occur.
        In the remainder of my remarks, I would like to highlight a few key
    components of our request.

                               FOOD STAMP PROGRAM

        The President's budget requests $27.7 billion for the Food Stamp
    Program, enough to serve an average of 21.6 million people each month.
    The request includes sufficient funds to support the changes enacted in
    last year's Farm Bill including the restoration of eligibility to many
    legal immigrants. Included in this amount, we also propose to continue
    the $2 billion benefit reserve. The importance of this reserve is
    especially critical in fiscal year 2004. While we anticipate a return
    to strong economic growth, predicting the turning point of program
    participation is challenging. The proposed contingency reserve will
    ensure the availability of benefits for eligible households should
    participation or food costs exceed current estimates.

                            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 child care settings every day. This level of funding will support an
    increase in daily School Lunch Program participation from the current
    28 million children to over 29 million children. This funding request
    also supports an increase in daily School Breakfast Program
    participation from the current 8 million to over 9 million children.
    Requested increases in these programs also reflect rising school
    enrollment, increases in payment rates to cover inflation, and higher
    levels of meal service among children in the free and reduced price
    categories.

                                      WIC

        The President's budget includes $4.8 billion for the Special
    Supplemental Nutrition Program for Women, Infants and Children, the WIC
    Program. This year's request will allow local communities to provide
    food, nutrition education, and a link to health care to a monthly
    average of 7.8 million needy women, infants and children during fiscal
    year 2004. The request provides for a contingency fund of $150 million.
    These resources can be used as needed if food costs or participation
    exceed current estimates.

                   COMMODITY SUPPLEMENTAL FOOD PROGRAM (CSFP)

        The budget requests $95.0 million for CSFP, which serves elderly
    people and women with infants and young children. The funds requested
    plus anticipated carry-over from fiscal year 2003, surplus donations
    and commodities currently in inventory will be sufficient to maintain
    this program in States that currently participate and those that join
    the program in fiscal year 2003.

                 THE EMERGENCY FOOD ASSISTANCE PROGRAM (TEFAP)

        As provided for in the Farm Bill, the budget requests $140 million
    for food in this important program. Our request for States' storage and
    distribution costs, a critical form of support for our Nation's food
    banks, is $50 million. Secretary Veneman has committed to ensuring the
    continuing flow of surplus commodities to TEFAP. Such 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 $144.8 million in this account, which includes an
    increase of $8 million and 13 staff years in our administrative budget.
    This increase supports the child nutrition program integrity initiative
    described earlier, as well as a number of initiatives under 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 0.5 percent of
    the program resources for which we have responsibility and sustains the
    program management and support activities of our roughly 1,700
    employees nationwide. I believe that we need these modest increases in
    funding in order to maintain accountability for our $44 billion
    portfolio and to assist States to effectively manage the programs and
    provide access to all eligible people.

                      CHILD NUTRITION ACT REAUTHORIZATION

        As I stated in my testimony before this Committee last year, I
    personally feel very fortunate to have the opportunity to participate
    in the reauthorization of important programs such as the school
    breakfast and lunch programs, the WIC Program, and the summer feeding
    program. Congress and the Administration face a range of important
    challenges in this reauthorization cycle. Among these is combating
    obesity among our youth, ensuring access to our programs, improving the
    nutritional content of meals, and enhancing program integrity and
    administration.
        Toward meeting these challenges, the Administration has established
    a set of principles to guide the reauthorization process. Key among
    these are:
      --Ensuring that all eligible children have access to program
            benefits--including streamlining the administration of programs
            to minimize burdens and increase meal reimbursements to provide
            support for quality program meals.
      --Supporting healthy school environments--providing financial
            incentives to schools that promote good nutrition, including
            serving meals that meet the dietary guidelines, offer healthy-
            choice alternatives, and provide nutrition education.
      --Strengthening program integrity--the budget also makes clear that
            if there are any savings resulting from integrity initiatives
            these funds would be reinvested into the Program to ensure the
            best outcomes for those in need.
        In sum, our request sets the right priorities to ensure access to
    the Federal nutrition assistance programs for the children and low-
    income people who need them, while maintaining and improving their
    integrity and supporting our efforts to address the growing public
    health threat of obesity. Thank you for your attention; I would be
    happy to answer any questions you may have.
                                     ______

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

        Thank you, Mr. Chairman, and members of the Subcommittee for
    allowing me this opportunity to present the budget request for the Food
    and Nutrition Service for fiscal year 2004.
        The mission of the Food and Nutrition Service is to increase food
    security and reduce hunger together with cooperating organizations by
    providing children and low-income people access to food and nutrition
    education in a manner that inspires public confidence and supports
    American agriculture. We are requesting a total of $44.2 billion to
    fulfill this mission through the Federal nutrition assistance programs.
        As the Under Secretary noted, the request for FNCS focuses on the
    accomplishment of three critical outcomes:
      --To address the emerging epidemic of obesity, especially among
            America's youth, by improving our programs' ability to support
            healthy eating and physical activity, including better
            integration of nutrition education into Federal nutrition
            assistance.
      --To improve access to these programs, to ensure that all those
            eligible are able to participate.
      --To enhance performance and integrity in the programs, to strengthen
            their operation and maximize their ability to serve eligible
            children and low-income people while safeguarding the
            taxpayer's investment in nutrition assistance. I'd like to
            offer you some details from our request that provide the link
            between the investments we intend to make and these important
            goals.

                               COMBATING OBESITY

        The budget request includes funding to promote healthy eating and
    physical activity to prevent nutrition related illnesses in America.
    These are core objectives of the nutrition assistance programs, as they
    represent a unique opportunity to reach populations that experience a
    disproportionate share of diet-related problems and risk factors
    including overweight and obesity.
        FNS is working on a number of fronts to harness the power of the
    nutrition assistance programs to combat obesity, such as:
      --As part of the President's HealthierUS initiative, we are pursuing
            a vigorous nutrition promotion campaign, Eat Smart. Play Hard.
            The campaign is designed to motivate healthy eating and more
            physical activity;
      --We are working to improve the nutritional content of school meals,
            food packages and other benefits to ensure that they continue
            to contribute to a healthful diet;
      --We are expanding and improving program-based nutrition education,
            such as Team Nutrition, and other nutrition services to improve
            healthy eating skills of participants;
      --We have made significant improvements in the nutritional quality of
            school meals, lowering the percentage of calories from fat and
            saturated fat as well as reducing levels of sodium and
            cholesterol; and
      --We are enhancing our support of breastfeeding, a proven strategy to
            reduce the early incidence of obesity, through peer counseling
            and exploring other ways in which WIC can assist in the battle
            against childhood obesity.
        In addition, FNS and the Center on Nutrition Policy and Promotion
    are working in partnership with other USDA agencies, the National
    Cancer Institute and the Centers for Disease Control and Prevention, to
    increase the consumption of fruits and vegetables to 5 to 9 servings
    per day for a healthier eating pattern.

                            ENSURING PROGRAM ACCESS

        The budget request includes funding to support initiatives to
    ensure access for low-income individuals who are eligible to
    participate in our programs. While the Food Stamp Program reaches tens
    of millions of low-income Americans every month, many others who are
    eligible for benefits, including many seniors and the working poor, do
    not participate. To better reach these eligible nonparticipants, we
    have launched a major new public information campaign, ``Food Stamps
    Make America Stronger'', awarded grants to 33 local and state
    organizations over the last 2 years to assist the working poor,
    elderly, legal immigrants, and other low-income families and
    individuals, and are prepared to award another $5 million in grants
    this year to help States improve the food stamp application process as
    authorized by the Farm Bill.
        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 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 efforts to reach out to that community in fiscal
    year 2004.

                 STRENGTHENING INTEGRITY AND PROGRAM MANAGEMENT

        We are requesting additional funding in the President's budget to
    strengthen integrity and program management both at the Federal and
    State levels. In the Food Stamp Program, FNS administers a quality
    control system that encourages payment accuracy by establishing fiscal
    liabilities and incentives based on State performance in benefit
    determinations. In fiscal year 2001, the rate of overissuance was 6.47
    percent ($1 billion) and the rate of underissuance was 2.19 percent
    ($340 million) for a combined payment error rate of 8.66 percent, the
    lowest in the history of the program. We expect performance to have
    improved in fiscal year 2002. But continued vigilance will be needed to
    sustain and to continue to improve on this record. One factor as we
    continue our commitment to performance is that food stamp caseloads in
    virtually every State are rising, while at the same time many States
    face significant budget deficits.
        Another focus of our integrity efforts is improving the accuracy of
    certifications for free and reduced price school meals. As you know,
    FNS has been analyzing this problem for a number of years; while we do
    not have a measure of its full extent, the indications are clear that
    the problem is real, and may have worsened in recent years.
        Inaccurate certifications represent a risk that free and reduced
    price meals could be provided to ineligible participants. Furthermore,
    certifications are used to distribute billions in Federal, State, and
    local education aid; errors can undermine targeting of aid to those
    most in need.
        USDA has been working for a number of years to collect additional
    information to learn more about the problem, and to identify potential
    solutions. Current efforts include pilot-tests of alternative free and
    reduced-price eligibility determination systems, administrative reviews
    of the current verification process in a number of school districts,
    and a study to assess the eligibility status of families selected for
    income verification.
        The President's Budget proposes to improve the accuracy of
    eligibility decisions and to reinvest any savings from improved payment
    accuracy in ways that strengthen the program, ensure the access of all
    eligible children and improve the nutritional quality of meals. We have
    had a continuing dialogue with the Congress, the school food service
    community and program advocates trying to find a solution to this
    problem that does not deter eligible children from participation in the
    program and does not impose undue burdens on local program
    administrations. This will be an issue in the upcoming reauthorization
    of the Child Nutrition Programs. In the meantime, we will soon be
    issuing a final regulation that will require local agencies to report
    certification verification results to State agencies. The States, in
    turn, will use this information and meal data to target technical
    assistance activities to school food authorities with the highest
    levels of verification errors.
        FNS is addressing Child and Adult Care Food Program (CACFP)
    management weaknesses identified by Federal and State reviews and in
    OIG audits. A regulatory proposal published in September 2000, proposed
    changes to State and local monitoring and training requirements. An
    interim rule that implemented statutory changes to the CACFP was
    published in June 2002, and training on the rule was provided to State
    and Federal CACFP staff during the fall of 2002. A second interim rule
    will be published during the summer of 2003 to implement the remaining
    provisions.
        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

        We are requesting $27.7 billion for the Food Stamp Program,
    including a $2 billion benefit reserve as appropriated in fiscal year
    2003. This proposed reserve would be available for eligible households
    in case participation exceeds current estimates. Participation is
    estimated to increase by 871,000 to a level of 21.6 million
    participants in fiscal year 2004. This level of funding will also
    support approximately 200,000 new recipients covered under the 2002
    Farm Bill changes to eligibility requirements for legal immigrants and
    other individuals.

                            CHILD NUTRITION PROGRAMS

        For these programs, we are requesting a total of $11.4 billion. The
    budget request will support the daily participation of over 29 million
    children in the School Lunch Program and over 9 million children a day
    in the School Breakfast Program. The cost of snacks served under the
    after school National School Lunch Program is also included in this
    request. We estimated 41 million meals above the fiscal year 2003
    estimate in the Child and Adult Care Food Program. The request also
    includes additional funding to support increases in school enrollment,
    increases in payment rates to cover inflation, a higher proportion of
    meals served to children in the free and reduced price categories and
    to support efforts to improve integrity.

    SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS AND CHILDREN
                                     (WIC)

        The President's request of $4.8 billion will enable us to provide
    benefits to a monthly average of 7.8 million needy women, infants and
    children during fiscal year 2004. This is a record-level request that
    shows the Administration's commitment to this effective and critical
    program for mothers and their young children. We believe this funding
    will provide benefits and services to all who are eligible and wish to
    participate. In October of 2002, WIC participation reached a record
    high of over 7.66 million participants. Since then, participation has
    fallen, consistent with historical trends toward lower participation in
    the winter months than during the rest of the year. We expect program
    demand to grow throughout the spring and summer. This request supports
    a $150 million contingency fund to allow WIC to serve all eligible
    persons seeking benefits should funding be insufficient for any reason.

                 THE EMERGENCY FOOD ASSISTANCE PROGRAM (TEFAP)

        We are requesting $140 million, as provided for in the Farm Bill,
    to purchase commodities for this program. Our funding of States and
    local agencies costs associated with the distribution of commodities is
    a vitally important part of our support of the TEFAP community and we
    are requesting $50 million for this purpose. As Under Secretary Bost
    has noted in his testimony, Secretary Veneman has committed the
    Department to a continuing flow of surplus commodities to TEFAP at
    levels comparable to recent years. These surplus commodities are an
    essential resource to the food banks and significantly enhance their
    ability to serve the needy in their communities.

                       NUTRITION PROGRAMS ADMINISTRATION

        Our Nutrition Programs Administration (NPA) request for fiscal year
    2004 is $144.8 million, an increase of approximately $8 million over
    the fiscal year 2003 enacted level. We are requesting approximately
    $2.9 million for pay cost increases and $1 million to fund 13
    additional staff years to enhance program integrity in the Child
    Nutrition Programs. The request also includes an increase of $4.0
    million to enable us to expand our initiatives to combat obesity,
    reduce diet-related disease among all Americans, and support the
    President's HealthierUS intiative. The Center for Nutrition Policy and
    Promotion, also included in this budget request, will continue the
    process of updating the Food Guide Pyramid, one of the Nation's most
    important nutrition education tools; updating the Interactive Healthy
    Eating Index; working jointly with the Department of Health and Human
    Services on the updated Dietary Guidelines for Americans; and begin
    development of an obesity prevention campaign. As noted by Under
    Secretary Bost, FNS will be expanding its very effective Eat Smart.
    Play Hard. campaign to WIC, Food Stamp and possibly other nutrition
    assistance programs. The agency will also initiate development of
    family-oriented, nutrition education messages that are useful and
    relevant across the full range of our programs.
        Thank you for the opportunity to present this written testimony.

        Senator Bennett. Dr. Murano.

                            STATEMENT OF ELSA MURANO

        Dr. Murano. Good morning, Mr. Chairman, members of the
    subcommittee. We have the safest food supply in the world, and
    I say that with all confidence because I know when one looks at
    the rates of illness per 100,000 people in a population in any
    country, we do have the lowest. So I am very proud to say that
    unequivocally here.
        The safety of our food supply, as you have all stated, is
    one of the most important issues that we face. The public
    expects its food to be safe, and as a public health official, I
    take very seriously my job to meet that expectation. I came to
    Washington to do that job.
        Providing consumers with a safe food supply is an ongoing
    challenge, however. On the one hand, we must rapidly respond to
    day-to-day events, such as product recalls, outbreaks of
    foodborne illness, and reports of potential food safety
    hazards, like we have this week. On the other hand, we must
    have a solid food safety infrastructure, strong policies in
    place, and the appropriate expertise available to handle these
    day-to-day events. These cannot be developed in days, weeks, or
    even months. They require long-term efforts and resources. In
    other words, it is not enough to say that we are doing
    everything we can to protect the public health. We must be able
    to back up such statements with concrete actions.
        So let me use BSE as an example. Our efforts to guard
    against BSE in the United States began in 1989, as you know,
    when FSIS, in cooperation with other government agencies that
    are appearing before you today, APHIS and FDA, took a series of
    preventive actions to protect against this animal disease,
    which can potentially have human health implications. Mr.
    Hawks, I am sure, will mention some of these, and certainly Mr.
    Johnson has mentioned the ban on the use of ruminant materials
    in animal feed, and also the ban on the import of animals from
    countries that are known to have BSE.
        In addition, FSIS is finalizing a rule to ban the use of
    air-injected stunning and has also implemented a rigorous
    process verification program of beef that is produced by
    advanced meat recovery systems to ensure that high-risk
    materials are absent from our beef supply.
        So in the same manner, while outbreaks of foodborne illness
    continue to occur, we have made significant improvements to our
    food safety programs to minimize their occurrence and their
    effects. For example, we are now using epidemiological evidence
    to link cases of foodborne illness to specific products that we
    regulate. This means that an outbreak can be traced to its
    source more quickly, potentially reducing the number of
    illnesses.
        In March of 2003, the Centers for Disease Control and
    Prevention reported that the rate of foodborne illness across
    the board is down 16 percent over the last few years, and this
    is good news, indeed.
        The behind-the-scenes work that FSIS carries out is
    detailed in my statement for the record, but let me just point
    out a few highlights of our accomplishments this last year and
    a half. We have introduced more highly skilled scientific
    experts into our workforce, including consumer safety officers
    and Public Health Service commissioned officers, and we have
    taken the first steps towards revitalizing our training and
    education programs to better prepare our inspectors, and our
    employees, to function in a public health agency, which is what
    FSIS is.
        Recognizing that E. coli O157:H7 is more prevalent than
    previously thought, we directed establishments to reassess
    their HACCP plans for this pathogen, and we are verifying that
    these reassessments have taken place.
        We completed our risk assessment on Listeria monocytogenes
    and issued a directive stating that FSIS would intensify its
    testing program for this pathogen in instances where plants
    either don't have adequate controls or have these controls but
    don't share their data with us.
        To improve the security of the food supply, we hired 20 new
    import surveillance officers. We assessed vulnerabilities from
    farm to table, developed and distributed guidelines to industry
    on plant security, and have done many, many other functions
    that I will be happy to visit with you about.
        We are carrying out our reorganization of the Food Safety
    and Inspection Service to better prepare the agency to meet its
    public health goals. This includes a new internal review
    office. It is our own quality control office, if you will, so
    that we don't wait for OIG reports or GAO reports to tell us
    where our vulnerabilities or weaknesses may be.
        And last but not least, to take our food safety message
    directly to the people who need it, we are sending our new USDA
    Food Safety Mobile to strategic locations throughout the
    country.

                              PREPARED STATEMENTS

        Mr. Chairman, in the interest of time, I will not go on and
    tell you the specifics of our budget request. I think you have
    them before you. So I will close my comments and pledge to you
    that we continue to do everything that we can to show the
    public that they do have a safe food supply and that they can
    rely on that fact, and so with that, I will yield to Mr. Hawks.
        Senator Bennett. Thank you very much.
        [The statements follow:]

                     Prepared Statement of Dr. Elsa Murano

        Mr. Chairman and Members of the Subcommittee, I am pleased to
    appear before you today to discuss the fiscal year 2004 budget for food
    safety within the Department of Agriculture (USDA). I am Dr. Elsa
    Murano, Under Secretary for Food Safety. With me today are Dr. Merle D.
    Pierson, Deputy Under Secretary for Food Safety; Dr. Garry McKee,
    Administrator of the Food Safety and Inspection Service (FSIS); and Ms.
    Linda Swacina, Associate Administrator.
        The safety of our food supply is one of the most important issues
    we face not only at USDA, but as a nation: there is nothing more
    personal or vital to all of us than the food we provide to our
    families. President Bush's budget for fiscal year 2004 includes record-
    level support for USDA's food safety programs and their basic mission
    of providing continuous food safety inspection in each meat, poultry,
    and egg products establishment in the country. The additional $42
    million requested for FSIS will be used to fund several important
    initiatives that I would like to review with you in a moment.
        Before I cover those initiatives that will be implemented from the
    additional $42 million requested for FSIS, I want to discuss what has
    happened in the past year, our progress on the five goals to improve
    food safety, our efforts to improve international food safety, and our
    plans for the future.

    What Has Happened During the Past Year
        We have the best food production and processing systems in the
    world, providing consumers with the most abundant and safest food
    supply. However, last year was a testament that maintaining the safety
    of our food is an ongoing challenge. We faced two major recalls, one
    caused by Listeria monocytogenes, another caused by E. coli O157:H7.
        We take our public health mission very seriously, and we will do
    what is necessary to accomplish that mission. According to the Centers
    for Disease Control and Prevention (CDC), over the past decade, there
    has been a major Listeriosis outbreak associated with ready-to-eat
    products in the United States every 2 to 4 years. In addition, E. coli
    O157:H7 outbreaks due to consumption of undercooked hamburgers are
    almost an annual occurrence.
        Despite these challenges, we have made significant improvements to
    our food safety program. We believe that the Pathogen Reduction/Hazard
    Analysis and Critical Control Point (PR/HACCP) rule in 1996 has made
    food safer. In May 2002, the CDC reported that the rate of foodborne
    illnesses, across the board, is down 21 percent.
        We have also made great strides in improving the technical and
    scientific knowledge of our inspection force. With the introduction of
    the Consumer Safety Officer corps we have introduced highly-skilled,
    scientific experts into the field to reinforce our veterinarians and
    front-line inspectors. We are driven by the fact that the enormity of
    our responsibility cries out for a science-based system and we continue
    to incorporate state-of-the-art science into the inspection process at
    every opportunity.
        Those strides are great, but we need to address how we are going to
    protect public health further. Throughout my career as a researcher, I
    have become keenly aware of the importance of sound scientific studies
    and how these can help provide us with the critical information and
    practical application of science we need to make decisions that will
    truly reduce the risk of foodborne illness. I have also observed the
    need for a proactive approach, one that does not simply react to food
    safety crises, but rather anticipates risks and prepares to mitigate
    their potential for harm. We need to improve across the board in
    everything we do including our public education campaigns; laboratory
    testing; inspector training; and in-plant inspection.

    The Five Goals To Improve Food Safety
        I want to review some of the achievements we have made in improving
    food safety. Last year when I testified before this Committee, I
    outlined to you five goals that I intended to pursue in the coming year
    to ensure that we are proactive in protecting public health. We have
    pursued these goals with vigor, and we continue to do so. I am proud to
    report that much has been accomplished over the last year in our
    pursuit of these goals to ensure the safety of the nation's food
    supply.
        Before I cover our accomplishments under each of the five goals, I
    would like to review them quickly. They are:
      --Ensure that policy decisions are based on science;
      --Improve the management and effectiveness of FSIS programs;
      --Improve coordination of food safety activities with other public
            health agencies;
      --Protect meat, poultry, and egg products against intentional harm;
            and
      --Enhance public education efforts.

    Goal #1: Ensure that Policy Decisions are Based on Science
        My first goal is to ensure that policy decisions are based on
    science. As I mentioned earlier, employing science is the only way we
    are going to break the cycle of foodborne illness. My background as a
    researcher in food safety has shown me the importance of utilizing
    science in formulating regulatory policy.
        If we take a look at two of the pathogens that have recently been
    on our radar screen--E. coli O157:H7 and Listeria monocytogenes--then
    we see that these organisms are representative of the universe of
    microbial hazards that pose the biggest threat to the safety of our
    food supply.
        The first one, E. coli O157:H7, comes to us through live animals
    that may have the organism on their bodies or in their intestinal
    tracts. Thus, its control hinges on minimizing its presence in the
    intestinal tract of food animals and in preventing its contents from
    reaching raw products derived from these animals.
        The second pathogen, Listeria monocytogenes, is an environmental
    pathogen carried by personnel, equipment and water, which can spread
    the pathogen when they contact food. Thus, its control hinges on
    finding where it might be harbored in the environment of the food
    processing plant and eliminating it so as to prevent contamination of
    food-contact surfaces.
        Risk assessments help give us a picture of the pervasiveness of
    these organisms. Risk assessments are scientifically-based processes of
    estimating the likelihood of exposure to a hazard and the resulting
    public health impact. They provide a solid foundation from which we
    base policies on science.
        The benefits of using them can be seen in our initiatives on E.
    coli O157:H7 and Listeria monocytogenes last year. We learned from our
    risk assessment on E. coli O157:H7 that the pathogen was not the
    proverbial needle in a haystack we once believed. On the contrary, it
    was much more prevalent than previously thought, which meant that we
    had to take a hard, new look at our strategies to address its
    occurrence. Not all establishments were implementing HACCP systems that
    were effective for controlling E. coli O157:H7. Others were not
    correctly validating the interventions used to control the pathogen. We
    realized that simply focusing on grinding operations was not effective;
    therefore, in order to be efficient, we also needed to focus on the
    production process, the slaughter process, and trimmings as
    contributors to the problem.
        In November, we issued a directive to our inspectors to make sure
    that establishments producing ready-to-eat meat and poultry products
    are preventing Listeria monocytogenes contamination. This directive was
    absolutely necessary given the gravity of the Northeastern Listeriosis
    outbreak in the fall. Furthermore, we recently completed a draft risk
    assessment on Listeria, which evaluates the factors that may contribute
    to the overall risk to public health. The information developed during
    the risk assessment process is critical to exploring a variety of risk
    management scenarios and we plan to examine different combinations of
    testing and intervention that present possibilities for future policy
    making. We used the risk assessment as we worked on a final rule to
    reduce Listeria in processing plants producing ready-to-eat meat and
    poultry products. We have moved as rapidly as we can to develop this
    final rule while using sound science as the basis and expect to publish
    it in the Federal Register soon.
        In a perfect world, risk assessments would be completed before risk
    management strategies are developed. But in the real world, we may not
    have this luxury. We must design risk management strategies based on
    what we know today and improve them as more information becomes
    available.
        Another way we have based policy decisions on science has been
    through a series of scientific symposia we hosted on specific issues
    ranging from applied epidemiology, pathogen reduction, and Listeria.
    These symposia offer an opportunity to hear from experts in academia
    and government and allow for a dialogue on how we can improve the
    scientific basis for our food safety programs and policies.
        Most recently, on April 29, FSIS sponsored the Second Scientific
    Symposium on Applied Epidemiology. This meeting was the second in a
    series of meetings aimed at aiding FSIS in developing a framework for
    how the agency will conduct public health investigations and integrate
    the scientific principles of applied epidemiology into its food safety
    activities. The successful meeting served as an open forum to discuss
    the agency's approach to investigations of foodborne illnesses
    associated with meat, poultry, and egg products and the progress the
    agency has made using epidemiology as a basis for regulatory decision
    making.

    Goal #2: Improve the Management and Effectiveness of FSIS Programs
        The second goal I'd like to discuss is improving the management and
    effectiveness of FSIS programs. In order to fulfill this goal, we
    needed to select a leader to head FSIS through one of its most profound
    transformations toward a public health mission.
        I was looking for certain traits in this individual. These included
    a scientific background, strong management skills, a sense of
    accountability to everybody in the organization, and most important, a
    proven track record of public health service and commitment. This
    person would also have to be a motivator.
        I am truly proud to say that I have found all these traits in the
    selection of Dr. Garry McKee, who started with FSIS on September 1,
    2002. In this very short time he has made a very positive impression on
    agency employees and constituents alike. Dr. McKee is a committed
    public health professional with over 30 years of public health
    experience and a proven leader in managing public health programs and
    personnel. He brings unparalleled enthusiasm, determination, and
    commitment toward public health to the helm of FSIS and I certainly
    believe that his tenure will be regarded in the future as a significant
    turning point in FSIS' long history.
        The selection of an Administrator was critical, but so too was the
    reorganization of the agency that began last year. This reorganization
    will prepare the agency to better meet its public health and food
    safety goals. The purpose for this reorganization is to increase
    accountability, enhance communication, and improve overall efficiency.
        This reorganization will also ensure that the principles of public
    health and food safety cut across the entire spectrum of FSIS' work. We
    have added four assistant administrators for Food Security; Program
    Evaluation, Enforcement, and Review; Communications, Outreach and
    External Review; and International Coordination to strengthen the
    working relationship between our various offices.
        With Dr. McKee's leadership, we are already seeing increased
    accountability for all FSIS employees; improved communication and
    cooperation that flows smoothly and quickly throughout the
    organization, as well as laterally across all divisions and to outside
    agencies; and increased efficiency in the agency's programs. As a
    public health agency, lives depend on our programs and operations to
    work as a well-oiled machine.
        Another key to enhancing the consistency and effectiveness of FSIS
    inspection entails a revitalization of training and education programs
    conducted by the agency to instruct our workforce on HACCP sanitation
    procedures and other regulatory measures. The agency is in the process
    of redesigning current training programs to enhance distance learning
    opportunities and improve hands-on training methods. We realize that
    our workforce is the backbone of FSIS. We rely on our field employees
    to be in every meat, poultry, and egg products plant, ensuring that the
    plants are producing products that are safe, wholesome, and accurately
    labeled. Our frontline employees are responsible for making the
    critical determination that products are not adulterated and are safe
    to eat. They are also responsible for identifying and preventing
    intentional threats to the food supply. As a result, we believe that it
    is absolutely necessary to have a scientifically- and technically-
    trained workforce that is dedicated to ensuring a safe supply of meat,
    poultry, and egg products. FSIS is refocusing and retooling its
    training efforts because a well-trained and competent workforce is a
    key element to the success of our critical food safety and public
    health mission.
        We have also strengthened our workforce's ability to enforce the
    HMSA. All of the over 7,600 FSIS inspection personnel are expected to
    enforce the Humane Methods of Slaughter Act (HMSA) and take enforcement
    action for humane handling and slaughter violations. FSIS has
    inspection personnel trained in humane methods of handling and
    slaughter in all of the nearly 900 federally inspected U.S. livestock
    slaughter establishments. In addition to their food safety-related
    inspection responsibilities, these veterinarians and inspectors are
    charged with observing the methods by which livestock are slaughtered.
    FSIS inspectors and veterinarians, who provide continuous inspection in
    every slaughter facility, are required to take immediate enforcement
    action when a violation is observed. FSIS personnel who fail to enforce
    the HMSA are considered negligent in their duties and are subject to
    disciplinary action. FSIS has taken, and will continue to take,
    enforcement actions against plants that do not follow humane handling
    requirements.
        In addition, FSIS used funding allocated in the fiscal year 2001
    Supplemental bill to hire 17 veterinarians to serve as District
    Veterinary Medical Specialists (DVMS) in each of the agency's
    districts. The DVMS reported for duty on December 30, 2001. The DVMS
    have been trained in all aspects related to humane handling and
    slaughter, including antemortem inspection, humane handling
    regulations, the HMSA, stunning methodologies, assessing consciousness,
    enforcement procedures related to humane handling, and workplace
    violence. They also serve as the program coordinators for all humane
    handling issues within their districts and are providing training to
    newly hired in-plant Veterinary Medical Officers on the agency's humane
    handling and slaughter responsibilities.
        In addition to our reorganization and training efforts, FSIS is
    continuing the pilot inspection system, known as the HACCP-based
    Inspection Models Project, or HIMP, to address the online slaughter
    process. I view HIMP as a means of increasing the effectiveness of our
    inspection force and the efficiency of our food safety systems, while
    in no way compromising food safety or our process control system.
        Under HIMP, one FSIS inspector inspects each carcass at the end of
    the line, while other FSIS inspectors are given the freedom to move
    throughout the facility and the slaughter line to ensure that the
    plant's critical control points in its food safety system are
    effectively preventing and stopping pathogens and other food safety
    hazards, resulting in more intense and effective inspection and
    verification activities. In June 2002, FSIS made data from the National
    Alliance for Food Safety (NAFS) available comparing HIMP and
    traditional inspection, which indicate that HIMP is at least equal to
    the traditional inspection system. In September 2002, an independent
    review of the HIMP data concluded that ``the HIMP system compared
    favorably to the traditional system of inspection.'' FSIS is encouraged
    by this data and we intend to use these results to further modernize
    our inspection system to most effectively prevent and control food
    safety hazards.

    Goal #3: Improve Coordination of Food Safety Activities with Other
            Public Health Agencies
        We have also made progress with the third goal to improve
    coordination of food safety activities with other public health
    agencies. I am a strong believer that by working together, all the
    agencies with public health responsibilities can best utilize our
    resources to ensure a safe food supply.
        An example of our progress in this area was an unprecedented
    investigation that we coordinated with the CDC and other State and
    local public health agencies on the Northeastern listeriosis outbreak
    last year. FSIS dispatched seven teams beginning in early September to
    affected Northeastern States and used information provided by CDC to
    test products and visit plants that were suspected of being linked to
    the outbreak. More than 400 tests were taken in the course of the
    investigation. When we first suspected that a turkey product caused the
    outbreak, we took the necessary steps to identify the plant. When the
    plant was identified, FSIS immediately conducted a recall and sent a
    team of specialists to the establishment to identify and help correct
    any problems in the plant. We spent an enormous amount of time and
    resources investigating this outbreak including creating a team of more
    than 50 laboratory scientists, regional epidemiologists, consumer
    safety officers, compliance officers, field personnel and headquarters
    management to work closely with CDC and State and local public health
    officials to locate the source.
        This effort was enhanced by our cadre of FSIS epidemiologists, many
    of which are Public Health Service (PHS) Commissioned Officers. We
    believe so strongly in the significant role the PHS can play in helping
    FSIS carry out its food safety mission that on April 17, 2003, we
    signed a Memorandum of Agreement (MOA) with the U.S. Department of
    Health and Human Services' PHS Commissioned Corps, to expand the role
    and number of PHS Officers detailed to FSIS. The addition of these PHS
    Commissioned Officers will enhance FSIS' capabilities for rapid
    response during heightened security alerts or an actual threat to food
    security.
        Another example is our very close working relationship with the
    Food and Drug Administration Commissioner, Dr. Mark McClellan. We have
    established regular meetings with Dr. McClellan's office to increase
    our interaction on issues of mutual concern and to discuss policy
    positions of common interest.
        States are also an integral part of the U.S. food safety system. We
    are working to update and strengthen the Federal State review process
    through a number of means. FSIS is working diligently to address the
    congressional mandate in the 2002 Farm Bill requiring us to carry out a
    comprehensive review of State Meat and Poultry Inspection programs. The
    agency has also published voluntary security guidelines to help State-
    inspected plants that produce meat, poultry, and egg products in
    identifying ways to strengthen their security plans to protect against
    acts of bioterrorism.
        Another area in which we are making major strides is our
    cooperation with States through the sharing of recall information. In
    July 2002, FSIS published a final rule allowing the agency to share a
    firm's distribution list with State and Federal agencies in the event
    of a meat or poultry recall through a Memorandum of Understanding. This
    change allows for better communication and coordination between FSIS
    and the numerous State and Federal agencies that are involved in
    product recalls.

    Goal #4: Protect Meat, Poultry, and Egg Products Against Intentional
            Harm
        Close coordination with other public health agencies is also very
    important in protecting the food supply against intentional harm, which
    leads me to the fourth goal. Since the attacks on September 11, 2001,
    FSIS has strengthened coordination and preparation efforts to prevent,
    detect, and respond to food-related emergencies resulting from acts of
    terrorism, and ensure the safety of meat, poultry, and egg products
    that come to us from other countries. 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.
        We have implemented several measures to protect the public from
    contaminated product entering the United States from abroad. In
    addition to reinspecting imported product, FSIS continually assesses
    foreign establishments to make sure their sanitation and inspection
    procedures are equivalent to those in the United States.
        To augment the efforts of traditional FSIS import inspectors, FSIS
    has also added 20 new import surveillance liaison inspectors who are on
    duty at ports-of-entry. Where traditional USDA import inspectors
    examine each shipment and conduct reinspection activities, these new
    import surveillance liaison inspectors conduct a broader range of
    surveillance activities at each import facility and serve as liaisons
    to improve coordination with other agencies concerned with the safety
    of imported food products, such as the Department of Homeland Security.
        Furthermore, FSIS introduced the new Automated Import Information
    System (AIIS), which focuses on a foreign country's inspection system
    as a whole, rather than on individual plants. This system, using
    statistics, chooses imports for reinspection based on the annual volume
    of shipments from the exporting country. Previously, for all countries
    except Canada, reinspection was randomly assigned based on an
    establishment's compliance history. The new system is user-friendly and
    allows inspectors at all ports-of-entry to share data. It also allows
    managers to have easier access to inspection reports. The new AIIS also
    provides better tracking of shipments once they enter the United
    States, and FSIS' next step is to integrate the system with USDA's
    Animal and Plant Health Inspection Service (APHIS) and the U.S. Customs
    systems to further strengthen the food safety system against
    intentional attacks.
        Besides our initiatives to screen imported products, we have
    conducted a vulnerability assessment to be used as a tool for
    determining the most vulnerable products, likely agents, and potential
    sites for deliberate adulteration of domestically produced meat,
    poultry, and egg products. The assessment was conducted using a farm-
    to-table approach based on current knowledge of the industrial
    processes used in the production of these products and the potential
    biological and chemical agents that could be introduced. The assessment
    was concluded in June 2002 and the information obtained is being used
    to develop risk management strategies, including ensuring that our
    laboratories are equipped with the methods and personnel necessary for
    detecting agents of concern.
        We are also developing a vulnerability assessment of the import
    system to identify points in the production of imported products where
    biological, chemical, and radiological contaminants could be
    intentionally added to foods being brought into the United States. FSIS
    used the risk analysis framework to conduct a relative risk ranking to
    be used to allocate resources to monitor U.S. ports-of-entry for those
    food commodities that pose the greatest risk, examine different
    intervention strategies for preventing or reducing risks, develop
    biohazard identification protocols, and target training of personnel
    and develop educational campaigns to increase awareness. This
    assessment is expected to be completed in September 2003.
        We have taken preparation for food safety emergencies to a higher
    level with simulation exercises. Earlier this year, we conducted an
    exercise known as ``Crimson Winter'' to familiarize our managers and
    staff with the operating environment that would exist during an
    outbreak of foodborne disease--the cause being intentional or
    unintentional. This exercise was very constructive for our senior
    management, emergency response team, our partners in the Food Threat
    Preparedness Network, and other relevant Federal and State agencies.

    Goal #5: Enhance Public Education Efforts
        Finally, goal number five is to engage in proactive education
    programs. Food safety education is a critical element of the risk
    analysis framework, which includes risk assessment, risk management,
    and risk communication. It is a risk management strategy because
    educating food preparers is an important way to reduce the risk of
    foodborne illness. Education is also a risk communication function
    because it serves to alert the public about a hazard that exists and
    can be addressed by safe food handling and food selection.
        As we continue to examine emerging and existing food safety
    problems, it is important that we remember that reducing foodborne
    illness requires numerous interventions all along the farm-to-table
    chain. We must consider all the strategies available to us--and
    education is one of them--to make the food supply safer. That is why we
    continually look for the most cost-effective ways to get the food
    safety message out to all food handlers from coast to coast.
        I have been busy travelling around the Nation conducting media
    interviews and delivering food safety education messages through an
    aggressive campaign. This is why we have pursued an even greater amount
    of coordination among government, industry, and consumer groups to
    deliver food safety messages to all food handlers and preparers.
        One of FSIS' key public health missions is to educate the public
    about the hazards of foodborne illness, as well as to teach safe food
    handling techniques to ensure the safety of meat, poultry, and egg
    products. Since we are trying to share our food safety message with all
    segments of the population, such as consumers, food preparers,
    educators, children, physicians, public health officials, and industry,
    this is a formidable task.
        Because we are tasked with spreading our food safety message to so
    many people with a limited amount of resources, FSIS is developing a
    comprehensive and sustainable mass media campaign that leverages
    traditional and non-traditional media outlets throughout the country to
    get this important message out. To carry out this function, FSIS has
    requested $1.5 million in the fiscal year 2004 budget for the
    development of this food safety education campaign. Some of the funds
    will be used to consult expert assistance on the design of a mass media
    food safety campaign. The agency intends to combine the expertise of
    the consultant with that of its traditional food safety education
    partners, as well as others with expertise in the delivery of public
    health and food safety messages.
        The development of this food safety campaign is the next step in
    the agency's efforts to continuously enhance the delivery of important
    and life-saving food safety messages to the public. Currently, FSIS
    Food Safety Education staff is working with traditional media sources,
    food handlers and preparers, as well as other ``food safety education
    audiences'' to refine food safety messages and lay the groundwork for
    future development of a wider mass media education campaign.
        To this end, the agency is sending the USDA Food Safety Mobile to
    strategic locations throughout the country to research and develop this
    important food safety education campaign. While delivering important
    food safety messages to the public, the Mobile is providing valuable
    first hand insight on how future mass media messages and education
    campaigns should be constructed and delivered. FSIS will combine this
    research with the expert consultation it will seek in fiscal year 2004
    from food safety education professionals and develop a much broader and
    sustainable mass media campaign.
        Also last year, FSIS partnered with the Food and Nutrition Service
    to provide new educational materials to schools and child care
    facilities. We are also actively engaged in the Partnership for Food
    Safety Education, which is a public-private coalition dedicated to
    educating the public about safe food handling preparation to help
    reduce foodborne illness.
        We all have to realize as well that education is not just about the
    basics of food handling. There are many new effective products and
    technologies in the marketplace that can be used to reduce pathogens
    and food preparers need to be educated about them. Basic and thorough
    education is needed to inform and change possible misconceptions about
    their applications.
        Irradiation is a good example of a technology that is misunderstood
    by the public. We were charged by Congress in the recent Farm Bill to
    conduct an education program on the availability and safety of new
    technologies, including irradiation, that eliminate or substantially
    reduce the levels of pathogens in meat and poultry products. Last year
    we convened a meeting with a group of the foremost experts on
    pasteurization/irradiation to start developing an education program. We
    expect much to come out of this group as we continue to develop and
    deliver an effective education program for pasteurization/irradiation.

    Efforts to Improve International Safety
        The U.S. food safety system is the gold standard for the world.
    Because we have the same safety requirements for the U.S. meat and
    poultry produced for export and for products entering the United
    States, our efforts to continually improve our food safety system have
    a global impact.
        We are fully committed to working with our international partners
    in ensuring a safe global food supply. Under my direction, the Office
    of Food Safety leads the U.S. office of the Codex Alimentarius
    Commission, which is an international standard-setting body for food
    safety. Our active leadership in Codex contributes to decisions that
    have profound effects on national economies and the health and well
    being of citizens around the world. That is why FSIS strives to educate
    the public, our U.S. partners, and interested partners around the world
    about the important role Codex plays in developing science-based global
    food safety standards. It is in our national interest to maintain our
    leadership role in Codex in order to ensure food safety regulations
    around the world are reasonable, equitable, and achievable.
        Another example of our commitment to international food safety is
    through education. Last year, we cosponsored with the U.S. Department
    of Health and Human Services the ``Thinking Globally--Working Locally:
    A Conference on Food Safety Education.'' The conference included
    breakout sessions, workshops, and tours focusing on the food safety
    education implications of the global food supply. Over 600 participants
    from the United States and abroad attended.
        We also reached out to rural women worldwide through participation
    in the Third International Congress on Women in Agriculture held in
    Spain last year. We delivered our food safety education message at this
    conference to help strengthen our message throughout the world.

    Risk Assessment
        While FSIS has been able to use risk assessments to better shape
    our policy, we also need to make sure that the risk assessments that we
    carry out address the agency's needs. Our talented and dedicated
    leadership team has made it clear to the FSIS workforce and to industry
    that science will dictate our food safety programs. At the moment,
    there is no formal infrastructure for science-based policy making. We
    are working hard to rectify this. You cannot craft a solution in this
    highly complex food production world if you have not specifically
    identified the problem.
        We need a central, state-of-the-art source for the development of
    risk assessment models. We are working now on designing such a plan. It
    is getting increasingly difficult to manage a threat when we are unsure
    of its pervasiveness. Risk assessment provides this vital data. The
    benefits of using risk assessments can be seen in our recent
    initiatives on E. coli O157:H7 and Listeria monocytogenes that I
    discussed earlier. This process needs to be strengthened, formalized,
    and continually supported in order to be used to its full potential. By
    strengthening the agency's reliance on risk assessments to shape future
    policy, we will be better prepared to fight the war on pathogens.
        To be effective, we need to both analyze current threats to the
    food supply and anticipate problems that may arise. There are times
    when we work in a completely reactive mode and I do not think this
    serves us well when we try to anticipate new challenges.
        I am well aware that there are gaps in our current universe of food
    safety research and until we close the gaps we will not be able to
    fully understand, or control, the farm-to-table continuum. We need to
    bring the brightest food safety minds from throughout the country
    together in a way that will help the Federal government, industry,
    foodservice and the American people.

    Validated Decontamination Methods
        We need to focus on the application of validated decontamination
    methods in order to reduce pathogens. A conscious effort has been made
    when drafting FSIS' Notices and Directives to encourage industry to
    utilize new decontamination technologies. Scientific and technical
    innovation that keeps our food safer should be encouraged. Therefore,
    we intend to consider further ways to validate these technologies in
    order to ensure their ability to reduce foodborne pathogens.
        We believe that new technology provides a great opportunity to
    enhance the safety of meat, poultry, and egg products. Thus, the agency
    continues steps to encourage and provide opportunities for
    technological advances and innovation under the PR/HACCP rules. We
    recently announced new procedures for new technology intended for use
    in establishments. These procedures were designed to encourage
    innovation by eliminating undue delays in the development, testing, and
    use of new technology. This will allow FSIS to respond efficiently and
    expeditiously when technological innovations become available and help,
    not hinder, in the implementation of these food safety tools.

    Initiatives from the fiscal year 2004 Budget Request
        At this time, I would like to focus on the initiatives of the
    fiscal year 2004 food safety budget request and indicate how this
    additional funding will help us reach our goals. I firmly believe these
    resources will help us make the necessary improvements aimed at
    protecting the health and safety of the public we serve.
        The fiscal year 2004 budget request supports FSIS' basic mission of
    ensuring continuous inspection in each meat, poultry, and egg products
    establishment in our country and reinspection of imported product. It
    also reflects President Bush's deep concern about ensuring a strong
    food safety system. His record level budget request for food safety
    programs will allow FSIS to continue working to fully implement the
    goals we have laid out, but will also allow us to pursue new
    initiatives.
        USDA's food safety budget requests a program level of $899 million,
    an increase of $42 million over the enacted level for fiscal year 2003.
    This funding represents a $148 million, or 23 percent, increase for
    USDA food safety activities since fiscal year 2000. The $42 million
    increase in the fiscal year 2004 budget to strengthen FSIS' food safety
    program encompasses $23.6 million in increases to cover raises in
    employees' salaries and benefits, the costs of inflation, and FSIS'
    support of State-inspection programs.
        The other part of the budget increase covers $19.3 million in
    initiatives to fund the hiring of more food safety inspectors, provide
    specialized scientific and technical training for the inspection
    workforce, increase microbiological testing and sampling, strengthen
    foreign surveillance programs, and increase our public education
    efforts.
        As I mentioned, it is absolutely necessary that we use science to
    improve food safety. One of the ways the President's budget helps us do
    that is through the $1.7 million to do baseline studies on a variety of
    pathogens, including E. coli O157:H7. This funding will strengthen the
    backbone of effective policy making by allowing us to collect data on
    the presence of microbial hazards, which is a crucial component used in
    developing risk assessment models.
        Another means of employing science is the strategy of equipping our
    frontline workforce with scientific and technical expertise. The $5.7
    million requested in the President's budget will help us expand our in-
    depth HACCP and Sanitation Standard Operating Procedure (SSOP) training
    to all of our veterinarians and inspectors. With these resources, we
    will be able to increase consistency, effectiveness and accuracy of
    food inspection, thus making our food safer.
        Along with this notion of a well-trained inspection workforce, is
    the fact that FSIS needs to have a full complement of inspectors. For
    this purpose, the President's budget requested $4.3 million in funding
    to increase our workforce to 7,680 in-plant staff by adding 80 new
    positions. These 80 positions are necessary to ensure continuous
    inspection of all meat, poultry, and egg products plants.
        When a foodborne outbreak occurs, it is essential to identify the
    source of the outbreak so that the agency can take swift action to
    prevent further illnesses and warn the public of the adulterated
    product. Therefore, the fiscal year 2004 budget request includes $4.5
    million to provide additional microbiologists, chemists, laboratory
    technicians, and other personnel to increase the agency's ability to
    identify adulterants in meat, poultry, and egg products. This funding
    will help the agency develop analytical methods to test food products
    for chemical, biological, and radiological contamination. This
    initiative will also increase sampling of ready-to-eat products for the
    presence of bacteria such as Listeria monocytogenes and Salmonella.
    With this funding, FSIS will increase sampling of these products from
    10,000 to 15,000 annually and will add the capability to conduct 5,000
    Listeria monocytogenes environmental samples annually. The agency also
    plans to increase sampling of raw ground beef and raw ground beef
    ingredients for E. coli O157:H7 from 7,000 to 15,000 samples annually.
        Additionally, the President's budget includes $1.8 million to
    increase the number of foreign program auditors, thereby strengthening
    our oversight at the location where the food is actually produced or
    manufactured for export to the United States. This augments our
    existing strong system of ensuring that imported food is safe.
        Our public education effort, which I discussed earlier in our five
    goals, is one avenue we are aggressively taking to make sure that all
    food handlers and preparers follow safe food handling practices to
    reduce foodborne illness. The President's budget request for an
    additional $1.5 million for food safety education will allow the agency
    to continue to research and develop a sustainable and comprehensive
    mass media campaign across the country.
        Finally, the fiscal year 2004 budget request includes a proposal to
    recover the costs of providing inspection services beyond an approved
    eight-hour primary shift. FSIS already collects $102 million in
    reimbursable fees to recover the costs associated with overtime,
    holiday, and voluntary inspection services. FSIS has submitted
    legislation to Congress to allow the agency to collect user fees for
    inspection services beyond one approved eight-hour shift per day. If
    approved by Congress, it will enable the agency to collect
    approximately $122 million in user fees and reduce our appropriated
    request from $797 million to $675 million. This will result in a
    savings for the American taxpayer.
    Closing
        In closing, I want to emphasize that we already have a strong food
    safety infrastructure in place. We have made great progress in
    achieving the goals we have set for ourselves. We have a strong
    leadership team to direct us toward improving our ultimate goal of
    protecting public health.
        The President's budget for fiscal year 2004 provides us with a
    historic opportunity to--not only do what is right--but to do what is
    needed, which is to employ science to its fullest potential to make
    food in the United States as safe as possible. With the support and
    assistance of this Administration and Congress, I am confident we can
    do just that.
        This concludes my written statement. I want to thank the Chairman
    and Members of the Subcommittee for the opportunity to testify on
    behalf of USDA's Office of Food Safety. I welcome your questions.
                                     ______

     Prepared Statement of Garry L. McKee, Administrator, Food Safety and
                               Inspection Service

        Mr. Chairman and Members of the Subcommittee, I am pleased to have
    the opportunity to provide a statement on the current status of Food
    Safety and Inspection Service (FSIS) programs and on the fiscal year
    2004 budget request for food safety within the U.S. Department of
    Agriculture (USDA).
        Before I move into the details of my statement, I'd like to take
    this opportunity to introduce myself, since this is my first time
    before the Subcommittee. I've been with FSIS for a short period of
    time. Although I came to FSIS from the Wyoming Department of Health, I
    am a proud Oklahoman at heart. I graduated from Southwestern Oklahoma
    State University and the University of Oklahoma, concentrating on
    microbiology and public health. Having been in the public health field
    for more than 30 years, I am very comfortable with the public health
    mission of FSIS.
        Today I would like share with you the steps FSIS is taking to
    become a world-class public health agency. These will include:
      --FSIS' Year in Review;
      --Three Functions of a Successful Public Health Model;
      --FSIS Accomplishments Towards Becoming a World-Class Public Health
            Agency;
      --FSIS Partnerships; and
      --The proposed fiscal year 2004 FSIS Budget.

                              FSIS' YEAR IN REVIEW

        If you would allow me a moment, I would like to share some of FSIS'
    accomplishments over the past year so you can gain a better
    understanding of the way our budget is structured. As you know, under
    the Federal Meat Inspection Act, the Poultry Products Inspection Act,
    and the Egg Products Inspection Act, FSIS inspects meat, poultry, and
    egg products sold in interstate commerce and reinspects imported
    products, to ensure that they meet U.S. food safety standards.
        It is FSIS' mission to ensure that all meat, poultry, and egg
    products for use as human food are safe, secure, wholesome, and
    accurately labeled. More than 7,600 inspection personnel verify that
    regulations regarding food safety, and other consumer protection
    concerns, such as labeling, are met in over 6,300 Federal meat,
    poultry, and egg processing plants, each and every day they are in
    operation. FSIS has jurisdiction over products that generate more than
    $120 billion in sales, which represents one-third of all consumer
    spending on food. In addition, since September 11th, our workforce has
    been on heightened alert and is diligently monitoring all of these
    plants to ensure that there is no intentional biosecurity breach that
    could harm our Nation's food supply.
        Throughout 2002, FSIS was hard at work, protecting the safety of
    meat, poultry, and egg products. In fiscal year 2002, FSIS inspectors
    monitored the processing of 92.6 billion pounds of meat and poultry and
    inspected 3.7 billion pounds of liquid egg products. Inspectors at our
    110 import inspection stations monitored the importation of 3.9 billion
    pounds of meat and poultry products from 27 of 33 foreign countries
    meeting U.S. equivalency requirements and choosing to import to the
    United States last year. FSIS also facilitated the exportation of over
    11 billion pounds of meat and poultry products worth $7.5 billion to
    over 100 countries. In addition, FSIS spread the food safety message to
    approximately 90 million people through the media, the FSIS web site,
    and the USDA Meat and Poultry Hotline. FSIS also diligently continued
    its duty of protecting the public health, by overseeing the voluntary
    recall of any meat, poultry, and egg products that may have been
    potentially contaminated. As you can see, we have had quite a busy
    year.

                            IMPROVING PUBLIC HEALTH

        I have spent my entire career in this field and am devoted to
    administering under its protocols and scientific foundations. Public
    health is my number one priority. Thus, we are building FSIS into a
    recognized, credible, world-class public health agency that is a model
    for all other public health institutions.
        What does a ``world-class'' public health agency mean? Frankly, it
    means that we need to be the experts in improving the safety of meat,
    poultry, and egg products for the American people. We must also ensure
    that our food supply is safe and secure from bioterrorist attacks,
    intentional tampering, or other forms of adulteration. While I believe
    that FSIS has made considerable progress towards these goals, more can
    be done to make this agency the top-notch public health regulatory
    agency we envision it can be. All of the nearly 10,000 employees at
    FSIS are committed to achieving this vision.
    Three Functions of a Successful Public Health Model
        In order to make FSIS a world-class public health agency, there are
    three parts of a successful public health model that FSIS must
    implement. First, FSIS must assess public health problems using
    science, such as surveillance, data collection, monitoring, risk
    assessment, and forecasting trends. Dr. Murano and I believe that
    science is the absolute best and most reliable tool we have to address
    the public health issue of food safety. In order to accomplish our
    goals, we must continue to make significant, science-based policy
    improvements that can measurably improve public health. By relying on
    science in our decision-making, we take the guesswork out of our
    policy-making process. Science is the weapon that will lead our
    workforce to victory in our declared war on pathogens.
        Our assessment activities will help FSIS carry out the second part
    of a successful public health model, which is policy development. FSIS
    must continue to develop and implement policies to reduce the risk of
    foodborne illnesses using science-based knowledge. Once we identify a
    problem or hazard, we need to craft an effective solution. As a public
    health agency, we are equipped for this problem-solving role with our
    technical knowledge and expertise. Policy development activities
    include planning and priority-setting, the development of regulations,
    directives, and other policy vehicles, mobilizing resources, training,
    constituency building, distribution of public information, and
    encouragement of public and private sector cooperation.
        Finally, FSIS must assure the American public that we are carrying
    out our jobs effectively through enforcement of established statutory
    and regulatory responsibilities. We will hold industry, as well as
    ourselves, responsible for ensuring that meat, poultry, and egg
    products are safe, wholesome, and accurately labeled. By successfully
    carrying out our food safety mission, we are assuring the public that
    the USDA mark of inspection found on meat, poultry, and egg products
    means what it says.
        By carrying out these functions, FSIS is protecting the public from
    foodborne illnesses. But, protecting public health also means ensuring
    the security of our food, which is a vital component of Homeland
    Security--a growing source of concern. The tragic events of September
    11th, as well as current threat assessments, have made Americans more
    aware that the unthinkable could become a reality. Biological,
    chemical, and radiological threats to our Nation's food supply are
    plausible from those intent on harming our Nation through any possible
    means. Since the terrorist attacks on America, food security has been
    the highest priority at FSIS and we continue to take steps to ensure
    that we are prepared to prevent and respond to any potential or actual
    threats to our Nation.
        Now I'd like to share with you some specific examples of how FSIS
    is ensuring the safety of our meat, poultry, and egg products.

                          BETTER ADDRESSING PATHOGENS

    E. coli O157:H7
        The issue of E. coli O157:H7 in ground beef emerged in the 1990s
    and FSIS' microbiological testing program to detect E. coli O157:H7 in
    raw ground beef began in October 1994. Since then, over 57,000 raw
    ground beef samples have been analyzed. Each month, a random sample
    from the approximately 1,700 establishments that produce ground beef
    under FSIS inspection and the 100,000 retail stores that grind beef on
    a regular basis, are selected for sample collection. In 2002, over
    7,000 samples were analyzed for E. coli O157:H7. Since FSIS' E. coli
    O157:H7 testing program began, it has been continuously amended to
    incorporate the most up-to-date data and technologies.
        Data from the Agricultural Research Service (ARS) and the Centers
    for Disease Control and Prevention (CDC), as well as FSIS' draft risk
    assessment of E. coli O157:H7, indicated that E. coli O157:H7 was more
    prevalent than previously believed. The data led FSIS to further
    strengthen its E. coli O157:H7 policies and implement additional
    safeguards to increase food safety. In an October 2002 Federal Register
    Notice, FSIS published a series of new measures designed to reduce the
    incidence of E. coli O157:H7 contamination in raw ground beef. For
    instance, all facilities handling raw ground beef must reassess their
    Hazard Analysis and Critical Control Point (HACCP) plans and decide
    whether E. coli O157:H7 is a pathogen reasonably likely to occur in
    their products. In addition, establishments that receive product for
    grinding may determine that no additional steps are necessary at
    grinding facilities to address E. coli O157:H7, but only if appropriate
    purchase specifications are built into their food safety system.
    However, these specifications require that all suppliers must have one
    or more validated critical control points to eliminate or reduce E.
    coli O157:H7 below detectable levels and some means to ensure that
    these specifications are met.
        FSIS has set deadlines for completion of the reassessments, in
    order to ensure that all plants have reassessed their HACCP plans to
    account for E. coli O157:H7. Large plants, those with 500 or more
    employees, were required to comply by December 6, 2002; small plants,
    or those with less than 500, by February 4, 2003; and very small
    plants, those having fewer than 10 employees or annual sales of less
    than $2.5 million, were required to comply by April 7, 2003. FSIS
    Consumer Safety Officers (CSO) are completing extensive scientific
    reviews of plant HACCP plans and Sanitation Standard Operating
    Procedures (SSOPs) to ensure the reassessments are successfully
    addressing E. coli O157:H7 concerns, as well as all other aspects of
    HACCP regulations.
        FSIS is also modifying its current E. coli O157:H7 sampling and
    testing program to include all plants. In the past, FSIS did not
    typically collect raw ground beef samples at establishments that
    conducted their own E. coli O157:H7 testing. However, FSIS has found
    that, in spite of this private-sector testing, some of these
    establishments have had problems with E. coli O157:H7 contamination. In
    response, FSIS issued a notice on April 18, 2003, to revise its current
    directive to discontinue all exemptions from FSIS sampling and testing
    for E. coli O157:H7.
        FSIS is also developing a risk-based verification program that
    takes into account factors such as volume of production and
    effectiveness of interventions in determining testing frequencies. In
    addition to continuing to test for E. coli O157:H7 in ground beef, FSIS
    is considering testing for E. coli O157:H7 in trimmings and other
    intact materials used in non-intact product and beef carcasses and
    parts that will be processed into non-intact product. We believe that
    controls to reduce the risk of E. coli O157:H7 on intact product may be
    among the most effective ways to control the hazard overall and that
    these changes are critical to protecting public health.

    Listeria Monocytogenes
        Following a recent voluntary recall of ready-to-eat poultry
    products due to potential contamination with Listeria monocytogenes,
    FSIS implemented a new policy to improve testing programs for Listeria
    monocytogenes in the environment of plants producing ready-to-eat
    products, such as deli meats and hot dogs. In November 2002, the agency
    released a directive announcing that plants producing high- and medium-
    risk, ready-to-eat products that do not have a scientifically-based,
    validated program in place for the control of Listeria monocytogenes,
    will be subject to an intensified FSIS testing program. In December
    2002, the agency completed a survey to identify plants that will be
    considered for intensified testing. This new risk-based policy will
    allow FSIS to confirm an establishment's commitment to zero tolerance
    for Listeria monocytogenes on product and product contact surfaces.
        On February 14, 2003, FSIS released its draft risk assessment that
    provides a vital tool to estimate the public health impacts of various
    control measures for reducing the risk of Listeria monocytogenes. This
    draft risk assessment suggests that a combination of testing,
    sanitation, and other interventions exhibited greater benefits than
    when each step was used alone. It also suggests that product contact
    testing, used in conjunction with enhanced sanitation procedures, can
    lead to a reduction in Listeria-related illness. In addition, the risk
    assessment demonstrated that the use of intervention steps, such as
    post-packaging pasteurization or the introduction of growth inhibitors,
    showed dramatic public health benefits.
        FSIS utilized information gained from the risk assessment to
    proceed on an effective regulatory approach to reduce Listeria
    monocytogenes in processing plants producing ready-to-eat meat and
    poultry products. FSIS is working to publish a final rule for Listeria
    monocytogenes in ready-to-eat products and hopes to have it ready as
    quickly as possible.

    Scientific Symposia
        We have also greatly increased our efforts to incorporate a broad
    range of scientific thinking on food safety issues in order to
    effectively combat harmful pathogens. In 2002, FSIS initiated a series
    of nine scientific symposia aimed at generating dialogue on important
    issues among public health experts, industry, advocacy groups,
    consumers, academia, and the public. These meetings allowed the agency
    to gather input on what scientific solutions would best address public
    health concerns. For example, FSIS held a scientific symposium on
    pathogen reduction in May 2002, to discuss the appropriate role of
    microbial testing in food safety and other food safety concerns. In
    November 2002, the agency held a Listeria summit to discuss the public
    health impact of Listeria monocytogenes. In February, the agency held a
    meeting to discuss the results of the draft risk assessment on Listeria
    monocytogenes. And just last month, we held a public meeting to discuss
    the agency's use of epidemiology as a basis for regulatory decision
    making. We believe the symposia allowed us to be as inclusive as
    possible, as well as gain valuable information and insight. Therefore,
    the agency has planned additional symposia in fiscal year 2003 on such
    topics as risk analysis, and HACCP and poultry processing.

                            PUBLIC HEALTH MANAGEMENT

        A world-class public health agency must run like clockwork in order
    to quickly and successfully prevent or respond to food safety
    emergencies. This requires a common dedication and focus at all levels,
    from headquarters management to the frontline employees in plants in
    the most rural parts of America. Therefore, FSIS has implemented an
    array of measures over the past year to enhance accountability, build
    professionalism, and ensure a coordinated public health approach to
    food safety.

    FSIS Reorganization
        On our way to becoming a world-class public health agency, it
    became apparent that the structure of FSIS needed to be reorganized to
    efficiently and effectively meet our goals, carry out our critical
    functions, and protect public health. I have made it a top priority to
    restructure the agency in a way that prepares FSIS to meet its public
    health and food safety goals in a logical and streamlined fashion. This
    reorganization will increase accountability for all FSIS employees and
    refocus the duties of many employees.
        The reorganization will ensure that the principles of public health
    and food safety cut across the entire spectrum of FSIS' critical public
    health mission. We have added four assistant administrators in key
    areas--for Food Security; Program Evaluation, Enforcement, and Review;
    Communication, Outreach, and External Affairs; and International
    Coordination. These additions will strengthen the bonds between our
    various offices and make our operational models more coherent and
    responsive. For example, the assistant administrator of Food Security
    will tie together all Homeland Security activities within the agency,
    so that our policy makers, our scientists, our field staff, and our
    management are all working together to ensure that we are prepared to
    prevent and respond to any bioterrorist attack.

    Program Evaluation, Enforcement and Review
        In fiscal year 2002, FSIS created the Program Evaluation,
    Enforcement and Review (PEER) office to serve as the agency's quality
    control team. This office's mission is to ensure that effectiveness,
    efficiency, consistency, and accountability become the rule at FSIS.
    This new office will ensure 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. This office also
    conducts program audits, reviews, assessments, and evaluations in an
    effort to ensure that they are performing as needed or uncover
    difficulties early on, before they reach the problem stage. Lastly,
    this office also helps ensure that the agency has an effective,
    efficient, timely, and aggressive program for dealing with those who
    violate the meat and poultry laws.

    Improved Communications
        Our food safety message is most effective when every person along
    the farm-to-table continuum is aware of its importance and, just as
    importantly, understands it. As part of the FSIS reorganization, we
    created the Office of Communication, Outreach, and External Affairs.
    This office is tasked with spreading the food safety message to our
    many constituents whether in Congress, industry, advocacy groups, the
    public, or the media. We devote a great deal of energy and resources
    into translating highly technical food safety information and making it
    accessible and understandable at many different levels. But
    communication is a two-way street and we make every effort to receive
    and process input from our constituents so that we are aware of, and
    sensitive to, their range of viewpoints. We are always looking to
    improve our public health mission and communication is one of our most
    critical tools.

    Automated Import Inspection System
        FSIS is also improving its management effectiveness on the
    international level. All imported meat and poultry is inspected in its
    country of origin, as well as visually reinspected by FSIS before being
    released in the United States. Additionally, FSIS tests imported
    products for residues, microbiology, and food chemistry. In fiscal year
    2002, FSIS introduced the new Automated Import Information System
    (AIIS). This system focuses on a foreign country's inspection system as
    a whole, rather than on individual plants, to statistically choose
    imports for reinspection based on the annual volume of shipments from
    the exporting country. Previously, for all countries except Canada,
    reinspection was randomly assigned based on an establishment's
    compliance history. The new system is user-friendly and allows
    inspectors at all ports-of-entry to share data. It also allows managers
    to have instant access to inspection reports. The new AIIS system also
    provides better tracking of shipments once they enter the United
    States. The next step is for FSIS to integrate our system with USDA's
    Animal and Plant Health Inspection Service (APHIS) and the U.S. Customs
    systems to further strengthen the food safety system against
    intentional attacks.

                       WORKFORCE AND TRAINING INITIATIVES

        Our workforce is the backbone of FSIS. We rely on our field
    employees to be in every meat, poultry, and egg products plant,
    ensuring that the plants are producing products that are safe,
    wholesome, and accurately labeled. Our frontline employees are the ones
    we rely on to make the critical determination that products are not
    adulterated and are safe to eat. They are also responsible for
    identifying and preventing intentional threats to the food supply. For
    this reason, I have made training my top priority as FSIS
    Administrator. I am personally overseeing the changes the agency is
    implementing in our training programs and believe it is absolutely
    critical that we have a scientifically- and technically-trained
    workforce that is dedicated to ensuring a safe supply of meat, poultry,
    and egg products. A well-trained and competent workforce is a key
    element to making any institution successful. I am committed to
    achieving the aggressive public health goals we have set at FSIS
    through improving our employees' skill level, which will in turn, make
    us better guardians of the public health and safety.

    Consumer Safety Officers
        Let me give you an example. To achieve our public health goals,
    FSIS recognized the need for frontline employees to have a scientific
    and technical background. Therefore, the agency created the Consumer
    Safety Officer (CSO) series to reflect our increasing reliance on
    science and technology. CSOs have a scientific and technical background
    and receive additional agency training that enables them to assess and
    verify the design of food safety systems. FSIS trained 104 employees as
    CSOs in fiscal year 2002, and plans to train an additional 105 in
    fiscal year 2003. The agency is extending CSO training to its
    Veterinary Medical Officers (VMOs) to raise scientific and technical
    knowledge within the agency.

    Humane Handling and Slaughter Initiatives
        We have also strengthened our workforce's ability to enforce the
    HMSA. All of the over 7,600 FSIS inspection personnel are expected to
    enforce the Humane Methods of Slaughter Act (HMSA) and take enforcement
    action for humane handling and slaughter violations. FSIS has
    inspection personnel trained in humane methods of handling and
    slaughter in all of the nearly 900 federally inspected U.S. livestock
    slaughter establishments. In addition to their food safety-related
    inspection responsibilities, these veterinarians and inspectors are
    charged with observing the methods by which livestock are slaughtered.
    FSIS inspectors and veterinarians, who provide continuous inspection in
    every slaughter facility, are required to take immediate enforcement
    action when a violation is observed. FSIS personnel who fail to enforce
    the HMSA are considered negligent in their duties and are subject to
    disciplinary action. FSIS has taken, and will continue to take,
    enforcement actions against plants that do not follow humane handling
    requirements.
        In addition, FSIS used funding allocated in the fiscal year 2001
    Supplemental bill to hire 17 veterinarians to serve as District
    Veterinary Medical Specialists (DVMS) in each of the agency's
    districts. The DVMS reported for duty on December 30, 2001. The DVMS
    have been trained in all aspects related to humane handling and
    slaughter, including antemortem inspection, humane handling
    regulations, the HMSA, stunning methodologies, assessing consciousness,
    enforcement procedures related to humane handling, and workplace
    violence. They also serve as the program coordinators for all humane
    handling issues within their districts and are providing training to
    newly hired in-plant VMOs on the agency's humane handling and slaughter
    responsibilities.

    Chief Veterinarian
        In fiscal year 2002, FSIS established a Chief Veterinary Medical
    Officer position to promote the education, training, and professional
    development of the agency's approximately 1,100 veterinarians. In
    addition, FSIS veterinarians have completed a survey to determine what
    skills they possess and to help the agency assess how it can harness
    their skills to help meet its ever-evolving goals.

    Inspection Coordinator Training
        Becoming a world-class public health agency requires that FSIS
    increase technical training and the scientific expertise of our
    workforce. Inspection Coordinators (ICs) in each District were trained
    to increase their HACCP expertise, particularly with respect to HACCP
    plan design and scientific support for HACCP plans. The ICs often
    participate in, or lead, in-depth verification reviews (IDVs) to assess
    whether an establishment is carrying out activities that meet
    requirements of the FSIS Pathogen Reduction (PR)/HACCP rule. This
    training will enhance their ability to do a more effective job and will
    also provide Districts with an additional resource capable of
    conducting comprehensive food safety assessments. In response to a
    Government Accounting Office recommendation that FSIS strengthen basic
    training for its inspectors, the agency has begun to reinforce HACCP,
    SSOPs, and Sanitation Performance Standards knowledge, through training
    of its entire in-plant workforce. In April 2003, the agency's Consumer
    Safety Inspectors began this food safety regulatory essentials
    training. I will discuss in greater detail this key aspect of our
    fiscal year 2004 budget request in a moment.

    Compliance Officer Training
        In fiscal year 2002, FSIS conducted a Compliance Officers (COs)
    training program at the Federal Law Enforcement Training Center in New
    Mexico. Nineteen Federal and three State COs completed the three-week
    course on basic safety training. In addition, sixty-one COs and three
    CSOs completed three specialized one-week safety courses, especially
    designed for FSIS. Also, twelve COs completed a one-week Instructor
    Verbal Judo Course designed to instruct them how to teach other
    employees how to better handle stressful situations they may encounter
    as part of their jobs. All of these training programs are the building
    blocks to the model public health agency I envision for FSIS.
        In-Plant Performance System In October 2002, FSIS implemented the
    In-Plant Performance System (IPPS), which puts in place a formal
    process so frontline supervisors can be sure that inspection personnel
    carry out their assigned job responsibilities. All field supervisors
    have been trained to use this system. Performance reviews have resulted
    in several letters of caution and instruction to employees who were not
    performing at the expected level. More importantly, the reviews have
    highlighted what we are doing right, as well as steps we can take to
    make even more improvements.

    HIMP
        As you know, in 1997, FSIS initiated the HACCP-based Inspection
    Models Project (HIMP) pilot program. The goal of HIMP is to improve
    public health by enabling FSIS to maintain the same level of consumer
    protection with fewer inspectors tied to the slaughter line, thus
    resulting in more intense and effective inspection and verification
    activities. In June 2002, FSIS made data from the National Alliance for
    Food Safety (NAFS) available comparing HIMP and traditional inspection,
    which indicate that HIMP is at least equal to the traditional
    inspection system. In September 2002, an independent review of the HIMP
    data concluded that ``the HIMP system compared favorably to the
    traditional system of inspection.'' FSIS is encouraged by this data and
    we intend to use these results to further modernize our inspection
    system to most effectively prevent and control food safety hazards.
    Homeland Security Training FSIS has also initiated a comprehensive 2-
    year training and education effort designed to ensure that every FSIS
    employee fully understands his or her role and responsibility in
    preventing or responding to an attack on the food supply. In addition,
    FSIS has developed multimedia tools covering food security initiatives,
    emergency response procedures, and guidelines for food processors for
    use in training all frontline supervisors. These have been shared with
    our State and local partners, as well as industry, to address their
    biosecurity awareness and training needs.
        In addition, FSIS personnel have been trained in the application of
    the agency's voluntary food security guidelines. This guidance promotes
    an exchange of information between FSIS, industry, and other agencies
    such as the Food and Drug Administration (FDA), on the subject of food
    security, as well as heightens industry's awareness of food security
    practices. FSIS is also working in cooperation with other Federal and
    State agencies such as APHIS, CDC, the Environmental Protection Agency,
    and the Department of Defense to develop biosecurity plans and training
    programs to identify and minimize food security risks.

                           HOMELAND SECURITY EFFORTS

        The events of September 11th and subsequent vulnerability
    assessments revealed the need for a more integrated and coordinated
    plan to protect meat, poultry, and egg products. Immediately following
    September 11th, FSIS established the Food Biosecurity Action Team (F-
    BAT), charged with coordinating all activities pertaining to
    biosecurity, countering terrorism, and emergency preparedness within
    the agency. These activities are coordinated with USDA's Homeland
    Security Council, other government agencies and industry.

    Office of Food Security and Emergency Preparedness
        The creation of the Office of Food Security and Emergency
    Preparedness took over F-BAT's role as the centralized office within
    the agency that serves as an interface with USDA's Homeland Security
    Council and represents the agency on all food security matters
    throughout the Federal government as well as State and local
    activities. The Office's mission is to prepare for, prevent, and
    coordinate a response to intentional acts and other major events
    threatening the U.S. food supply. It is comprised of two staffs, an
    External Relations and Emergency Preparedness Staff, in addition to a
    Scientific and Technical Support Staff. The External Relations staff's
    primary responsibility is to develop and maintain the extensive network
    of Federal and State relationships necessary to mobilize for a food-
    related emergency. The Scientific staff provides science-based support
    for emergency response and prepares contingency plans for minimizing
    risk to the safety and security of the food supply, as well as to first
    responders.

    Tabletop Exercises
        FSIS has conducted a number of simulation exercises at the Federal,
    State, and local levels to test its preparedness and response to an
    attack on the food supply. These exercises give agency employees the
    opportunity to simulate their actions in response to a threat on the
    food supply. One exercise earlier this year, ``Crimson Winter,'' proved
    very successful because it allowed the agency to recognize and correct
    vulnerabilities in its Homeland Security response plans.

    Bioterrorism Vulnerability Assessment for Domestic and Imported
            Products
        FSIS has conducted a food security vulnerability assessment to be
    used for determining the most vulnerable products, likely agents, and
    potential sites for deliberate adulteration of domestically produced
    meat, poultry, and egg products. The assessment was conducted using a
    farm-to-table approach based on current knowledge of the industrial
    processes used in the production of these products and the potential
    biological and chemical agents that could be introduced. The assessment
    was concluded in June 2002, and the information obtained is being used
    to develop risk management strategies, including ensuring that our
    laboratories are equipped with methods and personnel for detecting
    agents of concern.
        A vulnerability assessment of the import system is also being
    developed to identify points in the production of imported products
    where biological, chemical, and radiological contaminants could be
    intentionally added to foods being brought into the United States. FSIS
    used the risk analysis framework to conduct a relative risk ranking to
    be used to allocate resources to monitor U.S. ports of entry for those
    food commodities that pose the greatest risk, examine different
    intervention strategies for preventing or reducing risks, develop
    biohazard identification protocols, and target training of personnel
    and develop educational campaigns to increase awareness. This
    assessment is expected to be completed in September 2003.

    Import Surveillance Liaison Inspector
        Soon after the terrorist attacks on the United States, FSIS
    inspectors nationwide were placed on heightened alert, a condition that
    remains in effect today. Using funds provided by the fiscal year 2001
    Homeland Security Supplemental Appropriations bill, FSIS created a new
    position, that of the import surveillance liaison inspector. As of
    March 1, 20 new import inspectors are on duty at ports of entry to
    augment the efforts of traditional FSIS import inspectors assigned to
    the 146 import establishments in the country. Where traditional USDA
    import inspectors examine each shipment and conduct reinspection
    activities, these new import surveillance liaison inspectors conduct a
    broader range of surveillance activities at each import facility, as
    well as extensive records review. These inspectors not only improve the
    agency's ability to ensure the safety of imported meat, poultry, and
    egg products, but as liaisons, they also improve our coordination with
    other agencies (e.g., U.S. Customs, APHIS) concerned with the safety of
    imported food products. We are looking at ways, in the future, to both
    increase the number of liaison officers and to expand and enhance their
    roles.

    FSIS Food Security Initiatives
        In early February 2003, FSIS released a report titled, Protecting
    America's Meat, Poultry and Egg Products. The report, prepared by the
    Office of Food Security and Emergency Preparedness, outlines FSIS' food
    security initiatives. Some of the initiatives included in the report
    are assessing potential vulnerabilities along the farm-to-table
    continuum, enhancing security features at all FSIS laboratories, and
    strengthening FSIS coordination and cooperation with law enforcement
    agencies.

                               FSIS PARTNERSHIPS

        FSIS plays an essential role in ensuring that the meat, poultry,
    and egg products that we eat are safe. While we mainly focus on the
    processing of these products, we have a responsibility to the American
    people to make sure that the entire food chain is strong. Food safety
    is a team effort and we are always working to strengthen all the links
    in this food chain. However, it requires that everyone involved in the
    process, from the farmer to the consumer, carries out his or her
    responsibility in ensuring that the food we eat is safe and safely
    prepared. FSIS works with industry, consumers, and our sister agencies
    on a daily basis in this effort to reduce to the greatest extent
    possible foodborne contamination.

    Industry Outreach
        FSIS strives to maintain a healthy and direct relationship with the
    meat, poultry, and egg products industries. We work with industry to
    prevent harmful pathogens from entering the food supply. FSIS was there
    to provide guidance when the HACCP program was first implemented, and
    we continue to provide guidance to help plants correctly implement the
    program through our veterinarians, on-line inspectors, and consumer
    safety officers. But now that HACCP has been introduced and
    implemented, we are in the next phase, which is enforcement. We will
    hold industry, and ourselves, responsible for successfully operating
    under the PR/HACCP model.
        In fiscal year 2002, FSIS made significant achievements in its
    Small and Very Small Plant Outreach Program. This program, introduced
    in 1998, was designed to develop and provide technical guidance and
    assistance to meet the specific needs of small plants, with ten or more
    employees, but fewer than 500, and very small plants with fewer than 10
    employees, or annual sales of less than $2.5 million. FSIS held more
    than 30 courses targeting these segments of the industry across the
    country. The courses focused on HACCP food safety systems and were
    provided through cooperative agreements with nine universities.
        Part of the agency's outreach effort also includes keeping the
    meat, poultry, and egg products industry informed of changes and
    innovations in food safety, as well as the standards and requirements
    they must meet to operate a safe food production facility. In fiscal
    year 2002, FSIS made improvements to the agency's labeling and
    standards policy web site, which was introduced in 2002 as a new,
    business-friendly web site providing essential information to small and
    very small plants. The site is geared towards helping small businesses
    understand the fundamentals of labeling and standards and to provide a
    key contact on our staff to answer related questions. FSIS also
    provides a staff liaison charged with facilitating resolution of small
    business issues on a one-on-one basis. The Labeling Policy Staff
    receive over 400 inquiries a month for labeling guidance.
        In May 2002, FSIS published voluntary security guidelines to assist
    Federal- and State-inspected meat, poultry, and egg products plants in
    identifying ways to strengthen their security plans to protect against
    acts of bioterrorism. FSIS provided these guidelines to field employees
    who will assist plants that seek further clarification or advice. They
    were designed for plants that may not have access to specialized
    security planning advice. These voluntary guidelines are available in
    English, Spanish, Vietnamese, Korean, and Mandarin Chinese, both in
    print and on the FSIS web site.

    Food Safety Education
        While a meat processing plant might produce a perfectly safe
    hamburger, innocent mistakes made by a food preparer could taint a
    product with harmful bacteria and create a potentially unsafe meal.
    Food can become contaminated at any step in the food chain. Thus, FSIS
    is committed to spreading the food safety message in order to further
    reduce the incidence of foodborne illness. Food safety education is
    certainly not a substitute for, but rather a complement to, science-
    based food safety policies. I would like nothing better than to tell
    people that they do not need to worry about how they handle and prepare
    their food because the government has taken care of the problem. But,
    as I said before, food safety is a team effort and must be carried out
    at all stages of the food production and preparation chain.
        We will continue to strive for greater reductions in harmful
    pathogens in meat, poultry, and egg products production facilities. But
    regardless of what we can accomplish, food preparers always will have
    an important role in keeping food safe. Because of this, we have
    designed our FSIS food safety education programs to increase consumer
    knowledge and change behaviors in order to prevent foodborne illness.
    The agency develops educational materials based on up-to-date
    scientific and consumer research. Our programs target the general
    public, as well as those groups who face increased risks from foodborne
    illness--the very young, the elderly, pregnant women, people with
    chronic diseases, and people with compromised immune systems.
        One of FSIS' key public health missions is to educate the public
    about the hazards of foodborne illness, as well as to teach safe food
    handling techniques to ensure the safety of meat, poultry, and egg
    products. Since we are trying to share our food safety message with all
    consumers, food preparers, educators, children, physicians, public
    health officials, and industry, this is a formidable task.
        Because we are tasked with spreading our food safety message to so
    many with only a limited amount of resources, FSIS is developing a
    comprehensive and sustainable mass media campaign to most effectively
    utilize the agency's scarce resources. FSIS has requested $1.5 million
    in its fiscal year 2004 budget to seek expert assistance from an
    outside professional public relations firm to further develop and carry
    out this campaign.
        FSIS has already started to develop this campaign with the new USDA
    Food Safety Mobile. The Food Safety Mobile is traveling the country to
    educate the public about the importance of food safety, but at the same
    time, we are learning important lessons about the best way to get our
    message across in order to reach the most people through events and the
    media. We will use the information that we learn from this new campaign
    to determine how to best utilize our resources and best meet our food
    safety education goals in the future.
        FSIS also carried out a number of other food safety education
    campaigns in fiscal year 2002. In September, the agency held the
    ``Thinking Globally--Working Locally: A Conference on Food Safety
    Education.'' The conference included breakout sessions, workshops, and
    tours focusing on the food safety education implications of the global
    food supply. Over 600 participants from the United States and abroad
    attended.
        During its 18th year in existence, the USDA Meat and Poultry
    Hotline handled nearly 86,000 calls concerning safe food handling
    practices in the home. Last year, the Hotline expanded its service to
    include recorded messages and live assistance in Spanish. In addition,
    the agency's two main e-mail addresses received over 5,200 inquiries
    and comments about food safety.

    Coordination on International Activities
        As one of several key U.S. agencies responsible for food safety,
    FSIS actively participates in developing international food safety
    standards through the Codex Alimentarius Commission. The U.S. Codex
    Office, under the leadership of the Office of Food Safety, is located
    within FSIS. The agency served as the head of U.S. Delegations to the
    Executive Committee of the Codex Alimentarius Commission meeting and to
    the Codex Committee on General Principles. In 2002, FSIS announced 17
    public meetings on Codex standard setting activities and hosted foreign
    government officials at various workshops about important Codex issues.
        Our leadership at Codex is instrumental in realizing global food
    safety standards are reasonable, equitable, and achievable. America is
    the gold standard for food safety programs. Successful participation in
    the Codex leadership is a vital national interest and will raise food
    safety standards around the world. FSIS remains committed to working
    through Codex to continue to stress the role of science in
    international standard setting.

    Other Public Health Agencies
        Because food safety is important at each stage in the entire farm-
    to-table continuum, FSIS works with other government agencies to make
    sure the U.S. produces safe meat, poultry, and egg products. We have
    partnerships with other Federal public health agencies, regulatory
    agencies, State governments, and research institutions, in order to
    share ideas and concerns, and maintain an open dialogue concerning food
    safety. By doing so, we are helping each agency achieve its respective
    vision, which ultimately helps us paint the big picture--improving
    public health.
        Ensuring public health depends on scientific research. Food safety
    research carried out by ARS plays a critical role in assisting FSIS to
    evolve into a model public health agency. This is especially true
    because our environment is certainly not static. We constantly need to
    study the factors that change the prevalence rate of pathogens. These
    factors could be on the farm, around the farm, in transportation, at
    the plant, or en route to the consumer. ARS and FSIS work cooperatively
    to ensure that food safety research is appropriately addressed in
    USDA's research agenda.
        An integral part of the fight against foodborne illness is early
    detection. In fiscal year 2002, FSIS completed its seventh full year of
    a partnership with the Department of Health and Human Service's CDC and
    FDA to track and respond to foodborne diseases in five States and parts
    of four more. This effort, called FoodNet, serves as an early warning
    system for foodborne illnesses. FoodNet, for the first time, identified
    a downward trend in the incidence of foodborne disease from 1996-2001.
    We look forward to continuing this partnership and learning more about
    foodborne illnesses in order to strengthen our efforts against them.
        On April 17, 2003, FSIS signed a Memorandum of Agreement (MOA) with
    the U.S. Department of Health and Human Services' Public Health Service
    (PHS) Commissioned Corps, to expand the role and number of PHS Officers
    detailed to FSIS. PHS Officers are highly-trained health experts who
    bring diverse backgrounds and experience in support of the FSIS public
    health mission. Flexible deployment rules allow the PHS Officers to
    instantly respond to emergencies, such as a foodborne illness outbreak,
    and shifting priorities within the agency. This enhances FSIS
    capabilities for rapid response during heightened security alerts or an
    actual threat to food security. The new agreement will incorporate
    approximately 30 additional PHS Officers nationwide across all program
    areas in the agency where there is a greater demand for scientific
    knowledge and judgment. The PHS Officers will work as permanent staff
    members alongside their agency counterparts as veterinarians,
    scientists, dietitians, environmental health officers, physicians and
    nurses.
        In fiscal year 2002, FSIS initiated eight cooperative agreements
    with States to raise awareness and understanding of the risks of
    handling meat, poultry, and egg products by retail stores and food
    service establishments. These agreements benefit those State and local
    agencies responsible for inspecting these establishments, as well as
    managers and owners. Additionally, FSIS field epidemiologists assisted
    local and State health departments with over 30 outbreak or emergency-
    related investigations due to such causes as E. coli O157:H7, Listeria,
    and Salmonella. Many of these investigations involved multiple States
    and localities.
        In addition, as of July 31, 2002, FSIS can now share product
    distribution lists of establishments conducting recalls with State and
    Federal agencies with which the agency has negotiated memoranda of
    understanding. This new policy will allow FSIS to better work with its
    partners throughout the Nation to more quickly and effectively carry
    out recalls of potentially contaminated product.

                        FISCAL YEAR 2004 BUDGET REQUEST

        Now that I have provided a synopsis of FSIS' progress, I would like
    to present an overview of the fiscal year 2004 budget request for FSIS.
    The budget request for fiscal year 2004 would fund those programs
    previously discussed and will help FSIS reach the goal of becoming a
    world-class public health agency. By incorporating the principles of
    public health into all of our operations, we will be modernizing our
    inspection system to meet the goals and challenges of food safety in
    the 21st century. Implementation of these budget initiatives is
    imperative to helping us attain the public health vision we have set
    for FSIS. In fiscal year 2004, FSIS is requesting a program level of
    $899 million, a net increase of about $42 million over the enacted
    level for fiscal year 2003. Under current law, we are requesting an
    appropriation of $797 million and $102 million in existing user fees.

    Supporting FSIS' Basic Mission
        The FSIS budget request for fiscal year 2004 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 2004 budget includes $23.6 million in increases to cover
    pay and employee benefit costs, inflation, and the agency's support of
    State-inspection programs. The budget reflects the proposed fiscal year
    2004 pay raise of 2.0 percent for Federal and State program personnel
    and the annualized cost of the 4.1 percent pay increase for 2003. These
    costs also include a total net increase of approximately $853,000 for
    state food safety and inspection. This includes Federal control of the
    Commonwealth of Virginia's inspection program beginning in July 2003,
    as well as the initiation of Maine's State inspection program.

    New Initiatives
        The fiscal year 2004 request includes a $19.3 million increase for
    new initiatives that support the Department's goals for FSIS. While the
    implementation of the HACCP system has provided a solid base for FSIS
    to carry out its goal of protecting the Nation's food supply, more can
    be done to strengthen this foundation. Thus, the fiscal year 2004
    budget requests an increase of $5.7 million to enhance the agency's
    ability to train its workforce, which I mentioned earlier is my top
    priority. This will allow FSIS to re-tool and expand its existing
    training programs by incorporating a public health focus and
    integrating scientific and technical principles, including HACCP
    validation, with training on technical and regulatory approaches to
    inspection. In addition to increasing the technical skills of our
    employees, the agency intends to use training opportunities to
    strengthen the management capabilities of our workforce as well.
    Additionally, the agency plans to enhance training by taking the
    training opportunities we offer into the field. Employees would have a
    variety of training options, including the ability to take courses
    taught by university professors near their work sites.
        The fiscal year 2004 budget includes an increase of $4.3 million to
    cover costs associated with funding 7,680 in-plant personnel in meat,
    poultry, and egg products plants. This is an increase of 80 slaughter
    inspectors and is necessary due to industry growth. The increase will
    allow the agency to ensure continuous inspection in each meat, poultry,
    and egg products establishment.
        To achieve the agency's goal of applying science to all policy
    decisions, the fiscal year 2004 budget includes a new $1.7 million
    initiative to establish a continuous baseline program for risk
    assessments and performance measurement. While the agency has
    previously conducted baseline studies using its internal laboratory
    resources, this new initiative would include laboratory analyses using
    outside laboratories, would repeat each baseline study every 3 years to
    provide longitudinal data to track performance, and would provide
    scientific data needed for ongoing risk assessments. The use of
    nationwide microbiological baseline studies will improve data quality
    and help us further incorporate risk management into all regulatory and
    policy actions.
        When a foodborne outbreak occurs, it is essential to identify the
    source of the outbreak so that the agency can take swift action to
    prevent further illnesses and warn the public of the product
    adulteration. Therefore, the fiscal year 2004 budget request includes
    $4.5 million to provide additional microbiologists, chemists,
    laboratory technicians, and other personnel to increase the agency's
    ability to identify adulterants in meat, poultry, and egg products.
    This funding will help the agency develop analytical methods to test
    food products for chemical, biological, and radiological contamination.
    This initiative will also increase sampling of ready-to-eat products
    for the presence of bacteria such as Listeria monocytogenes and
    Salmonella. FSIS will increase sampling of these products from 10,000
    to 15,000 annually and will add the capability to conduct 5,000
    Listeria monocytogenes environmental samples annually. The agency also
    plans to increase sampling of raw ground beef and raw ground beef
    ingredients for E. coli O157:H7 from 7,000 to 15,000 samples annually.
        As I mentioned earlier, education and outreach have always been
    important aspects of FSIS' mission and this is again reflected in the
    fiscal year 2004 budget request. The agency is requesting a $1.5
    million increase to design a mass media campaign aimed at improving
    safe food handling practices of consumers at home. Emphasis will be
    placed on a program that communicates with under-served groups and uses
    mass media outlets to leverage limited education funding. Performance
    measures will be incorporated to evaluate the effectiveness of the
    campaign at spreading the food safety message.
        It is important that foreign products meet U.S. standards.
    Therefore, the fiscal year 2004 budget request includes $1.8 million to
    increase FSIS equivalence reviews in exporting countries. In recent
    years, FSIS has experienced a rise in applications from foreign
    countries to export meat and poultry products to the United States.
    This funding is necessary for the agency to hire additional foreign
    auditors to meet the demands of increased foreign inspection system
    audits. This will help ensure that foreign meat, poultry, and egg
    products establishments are shipping product to the United States that
    meets the same standard of safety required in U.S. establishments.

    User Fee Proposal
        FSIS' fiscal year 2004 budget also includes a legislative proposal
    to recover the costs of providing inspection services beyond an
    approved 8-hour primary shift. FSIS collects $102 million in user fees
    annually to recover the costs of overtime, holiday, and voluntary
    inspection. If enacted, the level of appropriated funds needed would be
    reduced from $797 million to $675 million to reflect an increase in
    user fee funding of $122 million. This will result in savings for the
    American taxpayer.

                                    CLOSING

        Let me restate that we all have a role to play in improving public
    health. We will continue to hold ourselves and industry to a higher
    standard. This is not a pain-free process, but there will be tangible,
    and measurable, benefits for the American people. Our workforce has
    been reinvigorated by this challenge and we will deliver.
        Mr. Chairman, this concludes my prepared statement. Thank you for
    the opportunity to submit testimony to the Subcommittee on how FSIS is
    working with Congress and other partners to become a first class public
    health agency. It is my hope that we can work together to make further
    improvements to our food safety system and continue to have the safest
    food supply in the world. I look forward to working with you to ensure
    that the vision of FSIS as a world-class public health agency is
    realized.

        Senator Bennett. Mr. Hawks
        Mr. Hawks. Thank you, Mr. Chairman, members of the
    Committee. It is a pleasure to be with you today to present the
    Marketing and Regulatory Programs' budget for 2004 [sic]. That
    budget represents the Animal and Plant Health Inspection
    Service, Agriculture Marketing Service, and Grain Inspection,
    Packers and Stockyards Administration. I am pleased to have
    with me today my deputy, Dr. Chuck Lambert. I have Kevin Shea
    representing the Administrator's Office from APHIS; Donna
    Reifschneider, the Administrator of Grain Inspection, Packers
    and Stockyards; and A.J. Yates, the Administrator of AMS.
        We have a motto in MRP and that is ``Working together
    works.'' In doing that, we have set several goals. The number
    one goal is to build broader bridges. When we say build broader
    bridges, we mean to help the outreach with the members of this
    committee, members of Congress, and our constituents to work
    through the issues that we have to deal with.
        The next goal is to move more product. That one is pretty
    self-evident. And the next one is, invest in infrastructure. We
    feel that a healthy agriculture is an exportable and a saleable
    agriculture.
        The next one is to grow our people. We feel that we must
    recruit, retain, and reward well-qualified people for our
    mission area within USDA as well as all of USDA.
        The last goal is to sell agriculture as a profession. So we
    feel that that is very important, and I personally feel that
    agriculture is a great profession.
        The budget that we have presented to you is approximately
    $1.2 billion. Three-hundred-and-eighty-two million dollars of
    that is funded by user fees. I will, in light of your request,
    this morning, deviate from my prepared remarks and address some
    of the issues that you had raised.
        The actions that we have taken, the reaction to the finding
    of the BSE case in Canada, were immediate. I had an opportunity
    to do an opening session for the Office of International
    Epizootics in Paris on Sunday afternoon. We were there with the
    chief veterinary officers from around the world. We, I think,
    took appropriate action, immediate action. As you know, the
    borders were closed at 1:30 Eastern Daylight Time on Tuesday.
    We found out about the BSE case, the confirmed BSE case,
    earlier that morning.
        We in APHIS are doing an extensive surveillance program. We
    had started that surveillance program last year. We tested
    20,000 samples of the most likely candidates for BSE. That is
    actually over four times what the Office of International
    Epizootics recognizes as the standard.
        So we feel that within APHIS, within USDA, we have a well-
    coordinated effort and are moving forward to address this
    situation, and I would concur with my colleagues and all of you
    here. We do have the safest food supply anywhere in the world
    and beef is what is for dinner tonight.
        With the Grain Inspection, Packers and Stockyards, it is
    our intent to have fair and competitive trade in grain and
    poultry and meat. For Agriculture Marketing Service, it is our
    goal to help market more products and to find ways to improve
    the profitability of farmers.

                              PREPARED STATEMENTS

        Mr. Chairman, in light of our time, I would like to close
    with that and say I would be happy to respond to any questions
    that this Committee has. Thank you, sir.
        Senator Bennett. Thank you.
        [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 2004 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. Bobby Acord, 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 which demonstrate that
    working together works.
        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.
        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, bricks and
    mortar 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 calibre 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 they carry out programs costing $1.2 billion; with $382
    million funded by user fees paid by the beneficiaries of the services.
        On the appropriation side, under current law, the Animal and Plant
    Health Inspection Service is requesting $694.9 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 $41.7 million, and the Agricultural Marketing Service is
    requesting $102.9 million.
        Legislation will be submitted, which if enacted would recover $36.5
    million more in user fees. This legislation would authorize new license
    fees to recover the cost of administering the Packers and Stockyards
    (P&S) Act, additional license fees for facilities regulated under the
    Animal Welfare Act and additional grain inspection fees for developing
    grain standards. I will use the remainder of my time to highlight the
    major activities and their 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. The APHIS mission satisfies five strategic goals. They
    include:
      --Safeguarding plant and animal resources from foreign pests and
            diseases;
      --Minimizing production losses and export market disruptions by
            quickly detecting and responding to outbreaks of agricultural
            pests and diseases;
      --Minimizing risks to agricultural production, natural resources, and
            human health and safety by effectively managing pests and
            diseases and wildlife damages;
      --Ensuring the humane care and treatment of animals; and
      --Developing safe and effective scientific pest and disease control
            methods.
        APHIS builds bridges by working in concert with its stakeholders--
    States, 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
    helping move more U.S. product.
        APHIS' charge is a difficult one to meet and their excellence has
    been recognized. Progressive Farmer, one of America's best known
    agricultural publications, has always selected an individual as its
    ``Person of the Year.'' This year, however, Progressive Farmer selected
    8,700 of them--all the men and women of APHIS--to receive the 2003
    People of the Year award. I am proud of their efforts, and appreciate
    the recognition bestowed upon them.
        I would like to highlight some key aspects of the APHIS programs:
        Homeland Security and Agricultural Border Protection.--
    Traditionally, APHIS' Agricultural Quarantine Inspection (AQI) program
    has had responsibility for excluding agricultural health threats.
    Annually, thousands of inspectors have inspected hundreds of thousands
    of cargo shipments and tens of millions of passengers' baggage arriving
    in the United States. They have intercepted tons of materials whose
    entry could jeopardize the agricultural sector. They have successfully
    excluded such threats as foot-and-mouth disease (FMD) and bovine
    spongiform encephalopathy (BSE), which could have devastated not only
    the agricultural sector, but other sectors of the economy as well.
        That responsibility is now shared with the Department of Homeland
    Security (DHS). While most AQI staff are reassigned to the new
    Department, USDA retains the responsibility for promulgating
    regulations related to entry of passengers and commodities into the
    United States. We intend to work closely with our counterparts in DHS.
    USDA retains the direct role of ensuring that passengers and cargoes
    traveling from Hawaii and Puerto Rico comply with specified regulations
    to protect the health of the agricultural sector on the Mainland,
    including necessary quarantines. We retain responsibility for
    collecting the user fees and will be periodically reimbursing DHS for
    their inspection services.
        Emergency Pest and Disease Programs.--The Administration is
    concerned about rising Federal costs of emergency pest and disease
    control activities, and the budget request assumes cost-sharing for
    such outbreaks. Cost-sharing levels are set by consideration of several
    factors applied to specific outbreaks. A proposed rule is expected to
    be published which will improve the Federal/cooperator partnership by
    establishing consistent criteria for determining Federal and non-
    Federal responsibilities, providing a more equitable and justifiable
    allocation of responsibility among all parties, and permitting State
    and local governments to better anticipate and plan for future needs.
    Without additional support on the part of cooperators in some programs,
    however, program operations could be reduced.
        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 $1.1 billion in export markets in fiscal year 2001 by
    helping resolve individual trade issues abroad. In 2002, APHIS resolved
    problems facing shipments of about $52 million of U.S. agricultural
    products held at ports of entry in foreign countries. This included
    about $16 million for fruit; $10 million for grain; $10 million for
    oilseeds and oilseed products; $5 million for animals and animal
    products; $4 million for cotton; $2 million for vegetables; and $5
    million in other products.
        Biotechnology.--Recent developments in biotechnology underscore the
    need for effective regulation to ensure protection of the environment
    and food supply, reduce market uncertainties, and to encourage
    development of a technology that holds great promise. APHIS has
    recently established a new Biotechnology Regulatory Services unit to
    consolidate and better coordinate our services and activities in this
    area. The new unit focuses on both plant-based biotechnology and
    transgenic arthropods. We also will be examining ways to regulate
    transgenic animals. By consolidating these activities into one unit, we
    will bring greater focus to our domestic and international policy
    coordination and development as well as our risk assessment,
    permitting, and compliance programs.

                           APHIS' 2004 BUDGET REQUEST

        In a year of many pressing high-priority items for taxpayer
    dollars, the budget request proposes about $695 million for salaries
    and expenses. Notable shifts in budget priorities include:
        A total of about $156 million for Foreign Pest and Disease
    Exclusion.--Efforts will be enhanced to exclude Classical Swine Fever
    from the United States and to improve our means of tracking animal and
    animal products entering and leaving the country. Decreases include
    those in Agricultural Quarantine Inspection activities and, in keeping
    with cost-sharing provisions, reductions in fruit fly exclusion and
    detection activities.
        A total of about $142 million for Plant and Animal Health
    Monitoring.--Experience gained from abroad about FMD and BSE highlights
    the need for rapid detection and response to agricultural health
    threats. Long-standing efforts have kept those diseases and others out
    of the United States, and vigilant surveillance and monitoring will
    still be done by APHIS. Increases would boost the availability of FMD
    vaccines from 19.5 million doses to 20.75 million doses, and support
    efforts to address increased incidence of smuggling and other threats
    from regulatory violations.
        A total of $302 million for Pest and Disease Management Programs.--
    Once pests and disease are detected, prompt eradication reduces overall
    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 includes a doubling of funding for efforts against
    chronic wasting disease, and other increases for low-pathogenic avian
    influenza and golden nematode activities. The budget also proposes a
    slight increase for wildlife services operations to enhance control
    over hazardous materials used in wildlife control activities.
        Successes in boll weevil eradication and plum pox efforts allow
    some program reductions. The decrease stems from greater cost-sharing
    expected to be provided by cooperators and a 35 percent reduction in
    the estimate of planned program acres. Such cost-sharing would reduce
    Federal funding by about $32 million for efforts against Asian
    Longhorned Beetle, citrus canker, Mediterranean fruit fly (as mentioned
    above), plum pox virus, scrapie, and tuberculosis. However, the Federal
    Government would still pay over 50 percent of the cost of these
    programs.
        A total of $15 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 2003, to collect $7.8
    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.
        A total of about $69 million for Scientific and Technical
    Services.--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 reaching
    consumers. The request would enhance biosecurity activities, the
    national animal health laboratory network, and physical security at
    select facilities.
        Increased funds of $6.6 million for Biotechnology.--The budget
    includes a crosscutting trade-related and biotechnology proposal in the
    Office of the Secretary. The Department anticipates a growing demand
    for trade negotiating efforts and biotechnology activities, including
    regulatory, market access and removal of trade barriers. Increased
    APHIS efforts related to biotechnology may be funded from these
    appropriations.

            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 the Packers
    and Stockyards Programs (P&SP) is to promote a fair, open and
    competitive marketing environment for the livestock, meat, and poultry
    industries. Currently, with 169 employees, P&SP monitors the livestock,
    meatpacking, and poultry industries, estimated by the Department of
    Commerce to have an annual wholesale value of over $115 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 1,400 investigations in fiscal year 2002 to
    enforce the Packers and Stockyards Act for livestock producers and
    poultry growers. More than 90 percent of identified violations were
    corrected (or issues resolved) within one year of the investigation's
    starting date.
        The Swine Contract Library, mandated in the 2000 Appropriations
    Act, is in the final testing stage. The web-based computer system will
    be capable of receiving contracts, extracting unique contract
    provisions and posting summary information. GIPSA is making the
    necessary revisions to the final rule which would implement the Swine
    Contract Library. It is a sizable and complex undertaking to assure
    that the confidentiality requirements of the Act are maintained. For
    example, a single type of contract, received from less than 10 packers,
    can include more than 300 unique contract provisions to capture all of
    the ledger contracts priced off swine or pork market prices.
        Federal Grain Inspection Service.--GIPSA(s 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 (USGSA)
    and the Agricultural Marketing Act of 1946 (AMA). 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 created a long-term temporary assignment in Malaysia to
    assist the Southeast Asian agricultural attaches and cooperator
    organizations by providing technical assistance and education to
    customers of U.S. grain which would maintain and expand U.S. grain
    markets. This and other technical trade assistance, such as that
    provided to Mexico, facilitate the marketing of U.S. grain exports.
        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.
        GIPSA received almost 3,000 comments on the advance notice of
    proposed rulemaking regarding how USDA can best facilitate the
    marketing of grains, oilseeds, fruits, vegetables, and nuts in today's
    evolving marketplace. A Process Verification Program is being
    considered for applying internationally-recognized quality management
    standards to verify that a biotech related quality control process has
    been used to produce a product rather than relying on end product
    testing. This would allow producers, marketers, suppliers, and
    processors to assure customers of their processes to provide consistent
    quality products.
        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
    (adjusted for inflation), decreased from $0.29 per metric ton in fiscal
    year 1998 to $0.26 per metric ton in fiscal year 2002. With the USDA
    export certificates that grain exporters received at this cost,
    exporters marketed over $15 billion worth of cereals and oilseeds.
    Likewise, here at home, buyers and handlers requested over 1.8 million
    domestic inspections that facilitated the trading of more than 131
    million metric tons of cereals 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
    2002, FGIS received only 9 quality complaints and no quantity
    complaints from importers on grains inspected under the U.S. Grain
    Standards Act. These involved 197,423 metric tons, or about 0.2 percent
    by weight, of the total amount of grain exported during the year.

                          GIPSA'S 2004 BUDGET REQUEST

        For 2004, the budget proposes a program level for salaries and
    expenses of $41.7 million. Of this amount, about $18.1 million is
    devoted to grain inspection activities for standardization, compliance,
    and methods development and approximately $23.5 million is for Packers
    and Stockyards Programs. The 2004 budget includes:
        An increase of about $1 million to implement a new Pilot Audit
    Program.--The P&SP has never audited a large packer. As a pilot, this
    initiative would audit the top four steer and heifer meatpackers who
    handle 80 percent of the slaughter. The audits are anticipated to
    result in substantially better understanding of their financial
    operations to the regulated industry and lead to better financial
    protection of producers.
        An increase of $500,000 to enhance compliance and review the
    Packers and Stockyards Act.--Efforts will respond to a GAO
    recommendation to provide industry participants with clarification of
    GIPSA's views on competitive activities. Further, given changes in the
    livestock sector, the P&SP is preparing to undertake a complete review
    of the Packers and Stockyards Act and its regulations. These activities
    may result in a future increase in the number of investigations
    conducted and monies recovered or returned to the regulated industries.
    Biotechnology Funds. Some of the $6.6 million requested to support
    crosscutting trade and biotechnology activities in the Office of the
    Secretary may be applied to GIPSA's trade and biotechnology efforts.
        New User fees.--New user fees, similar to those proposed for fiscal
    year 2003, 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 $5 million to cover these
    costs. Also, the Packers and Stockyards program would be funded by new
    license fees of about $24 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 AMS is 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 variety of
    voluntary fee-based services and publicly funded activities that help
    our customers find ways to better market food and fiber products and
    improve their profitability.
        AMS continually monitors the needs of the agricultural industry,
    develops strong partnerships with cooperating State agencies, and
    identifies new technology that can be used to improve their
    effectiveness. AMS depends on strong cooperative partnerships with
    State programs and other Federal agencies to facilitate the collection
    and dissemination of information, provide inspections, and otherwise
    maximize the value of State and Federal programs by sharing and
    coordinating the use of available resources. Through increased
    cooperation, AMS has been able to achieve a number of programmatic
    goals.
        Global Agricultural Marketing.--AMS offers a range of services that
    give sellers of agricultural products a competitive advantage in the
    global marketplace. In 2002, AMS initiated the Global Market Expansion
    program to strengthen the support of export marketing for U.S.
    agricultural products. Under this activity, AMS experts served on, and
    in several cases headed, U.S. delegations to meetings of international
    food and fiber standards-setting organizations. AMS also provided
    technical expertise to the U.S. trade officials in negotiations on
    international standards. As an example of the critical role AMS plays
    in the development of international standards, AMS provided the
    technical support necessary to dissuade China from adopting cotton
    standards that lack recognized measurement technologies and could have
    posed a barrier to U.S. cotton exports. AMS also led the development of
    lamb and poultry quality standards that will serve as models for
    government and industry throughout Europe. Through such participation,
    AMS is able to influence the design of food quality standards and model
    inspection protocols so that they are fair to U.S. shippers and they do
    not become barriers to U.S. agricultural trade. In 2004, AMS will
    continue to do its part in helping to reduce trade barriers relating to
    commodity standards and product testing by serving as delegates and by
    leading international committees and organizations.
        Science and Technology Programs.--Through cooperative relationships
    with the States, AMS is in a unique position to effectively and
    efficiently develop scientific data that is needed to support domestic
    and export marketing of U.S. food products. The Pesticide Data Program
    (PDP) is a unique and valuable source of statistically valid data on
    pesticide residues in food and water. The program provides information
    to the Environmental Protection Agency that is vital for realistic
    assessments of dietary risk from pesticides on food commodities
    available in the marketplace. PDP is instrumental in providing data
    that addresses domestic and international public concerns about the
    effects of agricultural pesticides on human health and environmental
    quality. Exporters use PDP data to verify for foreign governments and
    buyers that U.S. agricultural commodities are safe for consumption.
    Importantly, PDP is built on Federal-State partnerships with 10
    States--California, Colorado, Florida, Maryland, Michigan, New York,
    Ohio, Texas, Washington and Wisconsin. These States collect and test
    commodities for pesticide residues.
        AMS' experience with PDP provided the foundation for initiating the
    Microbiological Data Program. MDP is designed to gather baseline data
    to assess the risks of microbial contamination of fruits and
    vegetables, if any. Using the PDP programmatic framework, AMS collects
    information regarding the incidence, number and species of foodborne
    pathogens and indicator organisms on domestic and imported fresh fruits
    and vegetables. In fiscal year 2002, AMS worked with cooperating States
    and interested industry parties to initiate microbiological data
    collection and testing. AMS developed operating procedures with FDA,
    the Centers for Disease Control and Prevention, and State laboratories.
    During 10 months of sample testing, approximately 19,000 analyses were
    performed on 9,400 samples. The first report will be published this
    year with calendar year 2002 data. The data will be provided to public
    health agencies and the food industry for decision-making and
    evaluation of procedures intended to reduce or eliminate harmful
    microorganisms from foods.
        National Organic Certification Program.--On October 21, 2002, the
    Secretary launched the implementation of AMS' National Organic
    Standards Program, which for the first time provides consistent
    labeling of agricultural products coast to coast. The organic standards
    were developed with extensive industry input and hundreds of thousands
    of public comments. Thanks to this effort, any organic agricultural
    product must meet USDA standards in order to be sold as ``organic.''
    Today, consumers know the exact organic content of the food they buy.
    Consumers can tell organically produced food from conventionally
    produced food by looking at package labels and watching for signs in
    the supermarket.
        On August 23, 2002, AMS announced that Federal funds appropriated
    in the Agriculture Risk Protection Act of 2000 and those made available
    by the Farm Bill were available to defray the cost of organic
    certification. AMS has entered into cooperative agreements with 45
    States to distribute the funds. The remaining 5 States do not charge
    fees for organic certification and are not eligible for cost-sharing
    funds.
        As directed by the Farm Bill, AMS is drafting a report to Congress
    on the availability of key inputs into organic production, including
    the availability of organically produced feedstuffs for the organic
    production of livestock. AMS has contracted with Iowa State University
    to survey grain producers and dealers in Midwestern States to ascertain
    planting and harvesting intentions for the years 2002-2004. This report
    should be completed this spring.
        Country of Origin Labeling.--The 2002 Farm Bill requires USDA to
    issue country of origin labeling guidelines for use by retailers who
    wish to voluntarily notify their customers of the country of origin of
    beef, lamb, pork, fish, perishable agricultural commodities, and
    peanuts. AMS published the guidelines for voluntary country of origin
    labeling in October 2002 and is collecting comments on their utility
    through April of this year. We have already conducted six of the twelve
    listening sessions held throughout the country regarding the
    implementation of these guidelines. After these comments are evaluated,
    the program will begin developing the mandatory requirements, which are
    to be published by September 30, 2004.

                            AMS' 2004 BUDGET REQUEST

        For AMS, the budget proposes a program level of $297 million, of
    which over 65 percent will be funded through user fees. The budget
    requests an appropriation of $76 million for Marketing Services and
    Payments to States, including increased funding for paycosts, in order
    to maintain existing program operations. The budget includes a request
    for $26.4 million in Section 32, including increases for paycosts,
    associated with administering marketing agreements and orders and
    commodity procurement programs.

                                   CONCLUSION

        This concludes my statement. I am looking forward to working with
    the Committee on the 2004 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 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 Bobby R. Acord, 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. Since appearing before you last year,
    APHIS continued its vigilant effort to prevent foreign agricultural
    pests and diseases from entering the United States. We also heightened
    our efforts to keep American agricultural products moving overseas. It
    is in the context of these two broad objectives that I want to report
    on our fiscal year 2002 highlights, and our fiscal year 2004 budget
    request.
        APHIS' mission has been constantly evolving--right along with the
    evolution of food production and marketing practices of the past 100
    plus years and the Federal government's involvement in protecting and
    serving U.S. agriculture. APHIS currently relies on a set of
    interlocking protection strategies to meet the expectations of its
    traditional agricultural stakeholders and to ensure that it has the
    capacity to address the needs of non-agricultural stakeholders. These
    strategies enable us to achieve our two main goals--to safeguard the
    health of animals, plants, and ecosystems in the United States and to
    facilitate safe agricultural trade. Hence our mission--To protect the
    health and value of America's agricultural and natural resources.
    safeguarding the health of america's agricultural and natural resources
        American Agriculture can produce abundantly and export food and
    fiber to the rest of the world only if it is healthy and free of the
    many pests and diseases that plague most of the world. Other countries
    will accept our exports only if the products are believed to be free of
    pests and diseases. It is APHIS' responsibility to provide leadership
    in agricultural health. There are five components in this first goal of
    our mission. The first component is to keep foreign pests and diseases
    far away from the U.S. border.
        Conduct Offshore Threat Assessment and Risk Reduction. APHIS is
    building bridges with foreign countries to prevent the import of pests
    and diseases by allowing only healthy plants and animals and related
    products to the United States. APHIS' staff is a vital link between
    U.S. markets and foreign businesses that want to trade in these
    commodities.
        Our Foreign Animal Diseases (FAD) and Foot-and-Mouth Disease (FMD)
    program works to detect and control outbreaks of animal diseases in
    foreign countries, again far from our shores. APHIS' key strategy to
    prevent the movement of FMD northward from South America is to maintain
    an FMD-free area along the Colombia-Panama border. Our efforts have
    effectively prevented a reintroduction of FMD into Mexico and the
    United States. That Central America has never had an outbreak of FMD
    demonstrates the effectiveness of the prevention activities throughout
    the region. Also, the FAD program has been expanding to address
    additional geographical areas and diseases. For example, animal health
    experts have been stationed in China and southern Africa to address
    potential threats from those regions.
        Our Fruit Fly Exclusion and Detection program is working towards
    establishing and maintaining a fly-free barrier in Central America to
    prevent the spread of Medfly into the United States. In 1999, program
    personnel quickly and effectively responded to an emergency situation
    in Mexico that could have resulted in the establishment of Medfly in
    the United States by 2005. Since then, APHIS has been working in
    cooperation with Mexico and Guatemala to carry out Medfly eradication
    and control activities in those countries to prevent the spread of
    Medfly through Mexico into the United States. The economic significance
    of keeping this foreign pest at bay is apparent from the costs that
    could result from the establishment of Medfly into the United States.
    For example, the total cost to Florida's agricultural producers if
    Medfly were to become established in that state could total $33 million
    annually.
        We continue significant progress towards protecting the United
    States from overland transmission of screwworm, a parasite that
    produces flesh-eating larvae. Screwworm infestations decrease the value
    of and can eventually even kill livestock. The Screwworm program
    consists of cooperative programs with Mexico, countries of Central
    America, and Panama. The goal of eradicating the pest to the Darien Gap
    in Panama is nearly complete, and the time has come to establish a
    permanent barrier against the pest. Once the barrier is in place, U.S.
    livestock producers will be securely protected against this costly
    pest.
        APHIS works closely with foreign countries to set up preclearance
    programs. These preclearance programs facilitate the smooth trade of
    agricultural products to U.S. markets and ensure that the products are
    pest- and disease-free before they touch U.S. shores. One of the most
    successful of these preclearance programs is in Holland, where APHIS
    officials have been inspecting tulips, daffodils, and other flower
    bulbs since 1951. In Chile, APHIS has been inspecting all fruits and
    vegetables destined for U.S. consumers since 1981.
        APHIS is participating in the first passenger pre-departure
    inspection program with a foreign government in the Dominican Republic
    to mitigate the risk of Classical Swine Fever. Working with the
    government of the Dominican Republic, APHIS inspects air and ferry
    passengers destined for the United States mainland and Puerto Rico to
    ensure they are not carrying prohibited plant and animal products or
    animal byproducts. So far, the program has been an effective means of
    protecting the multi-billion dollar U.S. pork industry. By performing
    inspections off shore, we reduce the chance of the disease being
    brought to the United States mainland.
        In our Tropical Bont Tick program, APHIS employees are preventing
    the introduction of heartwater and increased levels of dermatophilosis
    into the livestock industry and wildlife populations of the United
    States from Caribbean islands infested with tropical bont ticks. The
    cooperative program has eradicated ticks from 6 of the 9 islands
    involved so far, towards a goal of eradicating this pest from the
    Western Hemisphere.
        Regulate and monitor to reduce the risk of introduction of exotic
    invasive species While our first component includes offshore
    activities, the second component requires vigilant monitoring efforts
    at first points of entry into the United States. We must have intensive
    searches and aggressively enforce our regulations.
        To reduce the threat of agricultural pests and diseases reaching
    the mainland United States, APHIS screens passengers and passenger
    baggage in Hawaii and Puerto Rico prior to departure. In fiscal year
    2002, APHIS inspected over 1.5 million passengers before their
    departures from Hawaii and Puerto Rico. Again, by inspecting passengers
    offshore, we reduce the chance of them bringing pests or disease from
    those areas. In addition, passenger preclearance programs exist in
    Canada, the Bahamas, Bermuda, and Aruba. Program activities include
    inspecting aircraft and passenger baggage for prohibited agricultural
    products and ensuring passengers and crew departing from these foreign
    locations are in compliance with our regulatory requirements. APHIS
    works in coordination with the other U.S. Federal Inspection Service
    (FIS) Agencies--Customs and Immigration--to insure all passengers are
    in compliance with the U.S., FIS laws and regulations at these
    locations. Because these passengers go through the thorough FIS
    inspection, they arrive in the United States at a domestic terminal;
    they are not subject to FIS inspectional activities upon arrival.
    Operations of these programs were transferred to the Department of
    Homeland Security, along with other FIS components. APHIS also
    cooperates with the U.S. Department of Defense in inspecting military
    passengers and equipment prior to their returning from overseas. During
    fiscal year 2002, the military preclearance program expanded to include
    personnel stationed overseas in Afghanistan and Uzbekistan as part of
    Operation Enduring Freedom. In total, APHIS inspectors cleared over 9
    million passengers en route to the United States.
        Part of APHIS' strategy is to respond to threats of intentional
    introduction of illegal products. We have increased the capacity of the
    Smuggling Interdiction and Trade Compliance (SITC) staff and field
    personnel. The staff analyzes pathways, prosecutes smugglers, and
    provides outreach to increase industry compliance with our regulatory
    requirements. APHIS personnel have worked closely with other Federal
    agencies and local cooperators, focusing specifically on the illegal
    movement of agricultural plant and animal products into the United
    States. SITC began expanding their activities in fiscal year 2001 to
    respond to the spread of foot-and-mouth disease worldwide.
        The program used supplemental funding in fiscal year 2002 to
    further increase staffing and apply new methods towards smuggling
    reduction. APHIS seized nearly 2.7 million prohibited plant and animal
    products, at markets, warehouses, and ports of entry. When we detect a
    prohibited item, we identify the item's origin and the responsible
    shippers, importers, and broker. By maintaining relevant information in
    databases, the program can target specific commodities and importers.
    SITC also worked with private industry on five national recalls of
    prohibited commodities, including South African and Argentine lemons
    and Mexican lemon grass and mangoes.
        APHIS, through its Animal and Plant Health Regulatory Enforcement
    program ensures uniform compliance with Federal laws and regulations
    through a combination of sound enforcement and strong educational
    efforts. We investigate violations, collect evidence, issue and collect
    civil penalties, and develop alleged violation cases for formal
    prosecution.
        APHIS continues to work to improve the timeliness and quality of
    investigations despite a continuing increase in the number and scope of
    violations. APHIS personnel conducted 927 investigations involving
    plant quarantine violations in fiscal year 2002 resulting in 139
    warnings, 363 civil penalty stipulations, 21 Administrative Law Judge
    decisions, and approximately $508,000 in fines. APHIS also conducted
    widespread market surveillance activity to intercept prohibited foreign
    fruits and vegetables illegally smuggled into the United States.
    Significant cases involved the illegal importation of Mexican avocados
    into the United States and tracing the distribution of Spanish
    Clementine oranges infested with Mediterranean fruit fly.
        We conducted 413 investigations involving animal health programs in
    fiscal year 2002, resulting in 114 warnings, 34 civil penalty
    stipulations, 9 Administrative Law Judge decisions, and approximately
    $46,000 in fines. In addition, APHIS took several hundred
    administrative actions on animal health program violations disclosed at
    the border ports by agricultural quarantine inspectors. The alleged
    violations were concentrated in veterinary accreditation, animal
    identification, brucellosis, pseudorabies, and import/export programs.
    We provided significant enforcement support during the Avian Influenza
    eradication effort in Virginia poultry and at New York live bird
    markets.
        Using supplemental funds, APHIS hired additional investigators to
    address the growing threats to our nation's agriculture and food supply
    from bioterrorism threats, illegal activities such as smuggling, and
    violations of the Swine Health Protection Act, principally in Puerto
    Rico, Arkansas, Hawaii, and Florida. Violations of the Act can have
    huge ramifications--foreign officials identified illegal practices
    associated with prohibited feeding of garbage to swine as the source of
    the devastating Foot-and-Mouth Disease outbreak in the United Kingdom
    in fiscal year 2001.
        Ensure safe research, release, and movement of agricultural
    biotechnology events, veterinary biologics, and other organisms The
    third component of our safeguarding goal addresses the rapidly moving
    advances in laboratory practices and biotechnology. The United States
    leads the world in the safe development and commercialization of
    biotechnology-derived crops. Along with the Environmental Protection
    Agency and the Food and Drug Administration, APHIS works to ensure that
    these products will not harm agriculture, the environment, or human
    health. Specifically, APHIS regulates the movement, importation, and
    field testing of bioengineered plants and microorganisms through
    permitting to ensure that field testing of transgenic plants does not
    lead to unwanted environmental effects.
        APHIS has recently established a new biotechnology unit and is
    proposing a shift in the program line item structure to consolidate and
    better coordinate our services and activities in this area. The new
    unit and program line item, Biotechnology Regulatory Services, is
    responsible for programs focusing on both plant-based biotechnology and
    transgenic arthropods. We also will be examining ways to regulate
    transgenic animals. By consolidating these activities into one unit, we
    will bring greater focus to our domestic and international policy
    coordination and development and our risk assessment, permitting, and
    compliance programs.
        Our Veterinary Biologics program works to provide pure, safe,
    potent, and effective veterinary biological products in the United
    States. Program activities include licensing veterinary biological
    products, inspecting licensed manufacturing facilities, testing
    statistically based samplings of licensed products, and issuing permits
    for product importation. In fiscal year 2002, APHIS issued 106 product
    licenses. Veterinarians and animal owners now have 19 new products for
    the diagnosis, prevention, or treatment of animal diseases. The Agency
    also terminated 76 product licenses for obsolete products.
        APHIS provided oversight to over 2,512 active licensed or permitted
    products for the control of 196 animal diseases in fiscal year 2002.
    APHIS approved 16,796 serials of veterinary biologics in fiscal year
    2002, while rejecting 28 serials for failing to meet Agency
    requirements. The Agency conducted 831 tests on 228 of the 12,059
    serials eligible for testing. APHIS performed 58 regulatory actions and
    28 investigations of possible regulation violations. APHIS shipped
    4,272 vials of reagents to facilitate testing consistency and quality
    by biologics manufacturers and other regulatory authorities. In
    addition, APHIS developed 4 new reagents.
        In APHIS' Plant Methods Development Laboratories program, the
    Center for Plant Health Science and Technology provides advanced
    scientific and technological capabilities to protect and improve our
    nation's agriculture and public health. Methods development supports
    APHIS programs by optimizing existing pest management practices and by
    developing new technologies for pest exclusion, detection, survey, and
    management. We accomplish this by evaluating biocontrol organisms,
    evaluating new biological and chemical materials, adapting or inventing
    equipment, providing technical consultation and training, collecting
    and disseminating pertinent information, participating in strategic and
    tactical planning, serving as a liaison with the research community,
    and integrating technological advancements into integrated pest
    management systems. This system maintains both rapid response and long
    range capabilities for serving APHIS and stakeholders.
        Manage issues related to the health of U.S. animal and plant
    resources and conflicts with wildlife. The fourth safeguarding
    component involves diligent control and eradication efforts relating to
    pest, disease, and wildlife conflicts that already exist in the United
    States. In cooperation with the States, APHIS works to improve the
    general health of our Nation's multi-billion dollar agriculture
    industry through management techniques designed to eradicate harmful
    pests and diseases, or, if eradication is not feasible, minimize their
    economic impact. We monitor endemic diseases and pests through surveys
    to detect their location and through inspections aimed at preventing
    their spread into noninfested parts of the country. We also monitor and
    enforce compliance with requirements of the Animal Welfare Act and the
    Horse Protection Act.
        The Boll Weevil Eradication Program (BWEP)--which has been a model
    of cooperation between Federal and State regulatory officials,
    extension and research personnel, and cotton producers--continued
    reducing and ultimately eliminating losses caused by the boll weevil.
    This program's fiscal year 2002 performance target was 7 million
    cumulative weevil-free acres of the 16 million acres of U.S. cotton
    produced. The actual number of weevil-free acres in fiscal year 2002
    was 6.5 million. This result was attributable to a slight reduction in
    acres planted and interruptions in aerial treatments resulting from the
    events of September 11, 2001. The 6.5 million acres are in the
    program's post-eradication phase, while 9.2 million acres are in the
    active phase, and the remaining 300,000 acres are expected to join the
    BWEP by fiscal year 2005.
        The cooperative pink bollworm exclusion program continued
    protecting 700,000 cotton acres in the San Joaquin Valley of California
    through extensive surveys and preventative sterile moth releases. As a
    result of the efforts of local growers and APHIS personnel, no new
    infestations have been found outside the regulated area since fiscal
    year 2000. APHIS is continuing to work with collaborators in
    universities, industry, and the Agricultural Research Service to refine
    a biologically based pink bollworm eradication system. In addition,
    APHIS began a cooperative area-wide Pink Bollworm/Boll Weevil
    Eradication Program with growers, State, and Federal cooperators in
    parts of New Mexico, Texas, and northern Mexico, where the pests are
    still present.
        The State-Federal Cooperative Brucellosis Program works to
    eradicate Brucella abortus from the bovine population and Brucella suis
    from the swine population of the United States. This program protects
    the cattle and swine industries. In fiscal year 2002, the National
    Brucellosis Eradication Program continued to center around finding and
    eliminating the last vestiges of brucellosis in the United States. The
    program increased emphasis on surveillance and the testing of adjacent,
    contact, and community herds. There were 9 affected cattle herds
    disclosed in fiscal year 2002, compared to 6 in fiscal year 2001, and
    14 in fiscal year 2000. The nine affected herds were in Texas,
    Missouri, South Dakota, Oklahoma, and Idaho.
        We also continued the Accelerated Pseudorabies Eradication Program,
    Scrapie Flock Certification Program, and Bovine Tuberculosis
    Eradication Program, among other animal health programs.
        Before I move on to describe our Wildlife Services program, let me
    emphasize how important APHIS' relationships are with our State and
    Tribal partners in conducting these eradication and control programs.
    Federal-State-Tribal cooperation is essential for these types of
    programs to succeed, in addition to the support we receive from
    academia and industry.
        APHIS' Wildlife Services (WS) operation provides Federal leadership
    in managing wildlife conflict. Part of the program's mainstay is
    protecting American agricultural resources. In fiscal year 2002, APHIS
    carried out various activities related to Bovine Tuberculosis (TB) in
    wildlife populations. We began a pilot project providing fencing around
    feed storage areas on farms to prevent the transmission of bovine TB
    between cattle and deer. The goal of the pilot project is to determine
    fencing designs that are both effective and practical. Additionally we
    recorded observations of wildlife patterns on many of the bovine TB
    positive farms to determine what activities may contribute to
    transmission.
        Protecting human health and safety also is a part of APHIS/WS
    operations. APHIS assisted the Colorado Division of Wildlife and the
    Wisconsin Department of Natural Resources with surveillance and disease
    management strategies to reduce the prevalence of Chronic Wasting
    Disease (CWD) in wild cervid populations. APHIS worked closely with
    State wildlife agencies, the U.S. Fish and Wildlife Service, and local
    governments in addressing increased problems with non-migratory,
    resident Canada geese in fiscal year 2002. With the current population
    exceeding 2 million geese and increasing exponentially, this growing
    bird population is a primary concern in the eastern and the central
    United States and increasing in the west. Problems include threats to
    public safety at airports and air bases, contamination of water
    supplies and recreational beaches, and damage to lawns, turf areas, and
    agricultural resources such as seed production.
        To protect both humans and livestock, APHIS/WS also continued an
    oral rabies vaccination (ORV) program. The goal of this program is to
    establish and maintain immunization barriers to contain specific
    strains of rabies in wildlife populations. To stop the spread of
    raccoon rabies westward, APHIS extended an older ORV barrier in the
    northeastern States and Ohio into West Virginia, through western
    Virginia, and into eastern Tennessee. Program officials also continued
    to distribute ORV baits in the Northeast. To stop the disease's spread
    in coyotes and gray foxes in Texas, program officials also continued
    the ORV program in that state.
        APHIS also works to protect natural resources and property. In
    Maryland, APHIS is cooperating with several governmental and private
    partners in managing nutria. Nutria are non-native to North America and
    are impacting sensitive marshes of the Chesapeake Bay. APHIS continues
    to cooperate with various State and Federal agencies to protect
    reintroduced black-footed ferrets from predators and to monitor for
    diseases that may impact ferrets in Montana, Wyoming, Colorado, and
    other States where they have been reintroduced. The Agency's beaver
    damage management activities in Alabama, Florida, Georgia, Kentucky,
    Louisiana, Maine, Mississippi, North Carolina, South Carolina,
    Tennessee, Wisconsin, and Virginia throughout fiscal year 2002 averted
    impending beaver damage to forest and agricultural resources,
    waterways, and highway infrastructures. Humans and wildlife continue to
    compete for habitat as both populations increase. In fiscal year 2002,
    APHIS provided technical assistance to approximately 60,000 individuals
    in urban and suburban areas concerned with wildlife damage to property;
    we now have a 1-800 Nuisance Wildlife Hotline services in cooperation
    with State Agencies in four States.
        APHIS' Wildlife Services (WS) Methods Development program conducts
    programs to develop new or improved methods for reducing wildlife/
    agriculture conflicts. The National Wildlife Research Center (NWRC) of
    APHIS' Wildlife Services program provides 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.
        WS methods development activities include methods to manage and
    resolve wildlife disease impacts on agriculture and methods to reduce
    invasive species damage to agriculture and natural resources. For
    example, the program has developed methods to mitigate blackbird damage
    to sunflowers and rice, methods to reduce bird hazards to aviation,
    techniques to control mountain beaver and bear damage to western
    forests, methods to reduce rat damage to sugarcane and macadamia nuts,
    methods for reducing cormorant depredation at aquaculture facilities;
    and approaches to reduce coyote damage to livestock. APHIS develops
    analytical chemistry methodology to support the registration and re-
    registration of chemicals for small mammals, for bird and predator
    control, and for the identification of potential repellents to support
    non-lethal wildlife damage management control strategies. During fiscal
    year 2002, approximately 75 percent of WS methods development resources
    went toward non-lethal approaches to wildlife damage management.
        APHIS' Animal Welfare program continues to focus its resources on
    conducting quality inspections under the Animal Welfare Act at USDA
    licensed and registered facilities. The use of the program's risk-based
    inspection system concentrates activities on facilities where animal
    welfare concerns are the greatest. With the funding increase in fiscal
    year 2002, APHIS hired 16 new animal care inspectors who, by the end of
    the fiscal year, were being trained and had started to conduct
    inspections. As a result, the number of inspections increased by 1
    percent, continuing the upward trend in inspections that began in
    fiscal year 2001, following a sustained period of decline throughout
    the 1990s. By the end of fiscal year 2002, the number of animal care
    inspectors stood at 98, an increase of 53 percent from the low of 64 at
    the end of fiscal year 1998.
        In the Horse Protection program, APHIS has been working for nearly
    a decade with Horse Industry Organizations (HIOs) certified under the
    Horse Protection Act to develop a partnership whereby the HIOs can
    assume greater responsibility for self-regulation. The current plan
    began with the 2001 horse show season and ends in December 2003. APHIS
    plans to continue offering the plan in fiscal year 2003, possibly with
    some modifications, for those HIOs wishing to use it.
        Respond to emergencies and emerging issues--surveillance, quick
    detection, containment, and eradication. The fifth component of APHIS'
    safeguarding system requires that we move quickly when an outbreak or
    other emergency situation does occur. Quick action will help safeguard
    other resources and will reduce adverse trade implications for our
    products. 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. In addition to
    unintentional introductions of foreign animal diseases, the EMS
    addresses intentional introductions and emerging diseases that could
    pose a threat to animal agriculture. With full readiness to deal with
    animal health outbreaks, we can reduce the threat of the outbreak on
    the Nation's food supply and economic well-being. While APHIS conducts
    the majority of its work related to animal emergency management within
    this program, activities such as foreign animal disease investigations
    and training are funded within the animal health monitoring and
    surveillance program.
        In fiscal year 2002, APHIS developed and participated in many
    State-level test exercises to increase the confidence and capability of
    the first responders to an animal health emergency in the United
    States. APHIS also participated in the development and implementation
    of an international animal health test exercise in Australia.
        In addition, APHIS initiated the distribution of $18.5 million in
    Homeland Security Supplemental funds to States and Tribal Nations to
    help bolster their emergency preparedness and surveillance efforts. Of
    this, $11 million went to States and Tribal Nations to enhance
    emergency preparedness efforts, $4.5 million went to States to enhance
    animal health surveillance, and $3 million is going toward the purchase
    of carcass disposal systems for three States: California, Wisconsin,
    and Texas.
        Through the Pest Detection program, APHIS and the States
    participate in the Cooperative Agricultural Pests Survey (CAPS)
    program, which provides the domestic infrastructure necessary for early
    detection of plant pests and weeds that enter into the United States or
    expand into new areas. Survey targets include weeds, plant diseases,
    insects, nematodes, and other invertebrate organisms. Program
    activities include evaluating pest risks, conducting detection surveys,
    responding to detections in a timely manner, collecting and reporting
    data, developing State Pest Lists, assessing risk and analyzing
    pathways, and communicating with the public.
        Using funds provided in the fiscal year 2002 Homeland Security
    Supplemental appropriation, APHIS has begun efforts to significantly
    strengthen our pest detection capabilities. We are in the process of
    hiring 26 personnel trained in pest detection technologies at key U.S.
    locations to coordinate and oversee early detection surveys in
    cooperation with the States. In addition, we obligated $4 million in
    fiscal year 2002 to expand cooperative agreements for implementation of
    the CAPS surveys within all the States. We have also begun to train
    identifiers and procure up-to-date surveillance equipment to ensure
    that data are of high quality and standardized across the country. This
    equipment will also allow us to conduct research to develop better
    survey tools and techniques and undertake pathway analyses to
    facilitate interception. We obligated an additional $4.5 million from
    the Homeland Security supplemental appropriation for fiscal year 2003
    CAPS agreements to sustain these efforts. The States are using this
    money to build survey infrastructure. These activities include hiring
    survey coordinators and purchasing equipment.
        APHIS' Animal Health Monitoring and Surveillance program maintains
    a cadre of trained professionals to quickly detect potential animal
    health emergencies. APHIS continually evaluates its means and methods
    for safeguarding American agriculture from foreign animal disease, such
    as bovine spongiform encephalopathy (BSE). To date, no case of BSE has
    ever been detected in the United States although more than 46,475
    samples have been tested. This program also surveys for poultry,
    miscellaneous equine, and other animal diseases.
        Through early detection and rapid response programs, APHIS is
    prepared to respond immediately to potential animal and plant health
    emergencies. In fiscal year 2002, APHIS took quick action on the
    following plant and animal situations: Asian Longhorned Beetle, Low
    Pathogenic Avian Influenza, Chronic Wasting Disease, Citrus Canker,
    Classical Swine Fever, Infectious Salmon Anemia, Karnal Bunt,
    Mediterranean Fruit Fly, Pierce's Disease/Glassy-winged Sharpshooter,
    Rabies, and Scrapie. The Secretary used her authority to transfer in
    2002 over $200 million to battle these pests and diseases. Without the
    quick detection and early, rapid response, the cost to control the
    outbreak would have undoubtedly been higher. As of May 2, 2003, the
    Secretary has transferred over $276.67 million to quickly detect,
    control the spread of, and eliminate pests and diseases such as
    tuberculosis, exotic Newcastle disease, Mediterranean fruit fly,
    chronic wasting disease, and Glassy-winged Sharpshooter, Spring Viremia
    of Carp, and Emerald Ash Borer.
    Facilitate Safe Agricultural Trade
        The second goal in our mission is to facilitate agricultural trade.
    The key to assuring trading partners of the health of our products is a
    credible system to assess American agriculture and document that it is
    healthy and that other countries have nothing to fear from our exports.
    This is the first component in facilitating trade. We must also certify
    the health of our agricultural exports, resolve trade barriers, and
    provide expertise and training in animal and plant health.
        Document the health status of U.S. agriculture and related
    ecosystems. The World Trade Organization 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 is founded on
    the long-standing idea that import requirements should be based on
    geography and science rather than on politics.
        APHIS' Pest Detection program provides documentation of our pest
    status in plant resources. Examples of observations include taking
    grain samples for Karnal bunt, setting traps for fruit flies, or
    checking trees for citrus canker and plum pox. A ``negative''
    observation is registered when we do not find the plant pest; a
    ``positive'' observation is recorded when we do. Both positive and
    negative results yield valuable and useful information for trade
    discussions, as can be seen with Leek moth, which affects onions and
    garlic. We continue to show that the United States does not have this
    pest based on continuing negative survey results.
        We also conduct delimiting surveys for plant pests that have
    invaded the United States and may be expanding their range. These
    include apple ermine moth, cereal leaf beetle, citrus leaf miner, pine
    shoot beetle, and several other bark beetles. The program manages data
    for other species including gypsy moth, imported fire ant,
    Mediterranean fruit fly, pink bollworm, giant Salvinia, golden
    nematode, and other regulated, cooperative program pests. Surveys for
    these pests also assist in the export of U.S. agricultural commodities.
        APHIS continued using the CAPS network to conduct the Karnal Bunt
    (KB) National Survey in response to the 1996 detection of the disease
    in Arizona and the 2000 detection in northern Texas. By collecting
    extensive survey data demonstrating the limited distribution of KB in
    the United States, APHIS provides assurance to all trade partners that
    KB is not present in major wheat-producing areas of the United States,
    thereby insuring annual agricultural exports of up to $3.5 billion.
    Plum pox is another project in which the collection of national data
    has helped to keep budwood markets open by showing the absence of the
    pest from various areas around the United States.
        The Agency's proactive National Animal Health Monitoring and
    Surveillance (NAHMS) program produced and interpreted scientifically
    valid information for policy makers, producers, and consumers. NAHMS
    delivered objective information addressing animal health as it pertains
    to U.S. trade, agricultural productivity, public health, and on-farm
    quality assurance. Collaborative information sharing and producer
    confidentiality are cornerstones of the program. Through effective
    partnerships with animal commodity producer groups, State governments,
    university researchers, and other Federal agencies, the program met
    producers' and the U.S. public's information demands in a cost-
    effective, collaborative manner while minimizing duplication of effort.
        Certify the health of animals and plants and related products for
    export and interstate commerce APHIS' Import/Export program regulates
    the importation of animals and animal products and promotes markets
    abroad by ensuring that U.S. origin animals and animal products meet
    health and welfare requirements of recipient countries. The program
    issued point of origin certificates for the export of approximately 909
    thousand head of livestock, 30.2 million live poultry, 74.8 million
    eggs, 30 million day-old chicks, 9.3 million live fish, 103.2 million
    aquatic embryos and eggs, 10.3 million doses of semen, and 11,908 non-
    aquatic embryos.
        Because international standards are science-based, several
    countries--including Argentina, Brazil, the Dominican Republic,
    Ecuador, Mexico, and Peru--placed restrictions on U.S. horses and birds
    in fiscal year 2002 due the presence of West Nile Virus in the United
    States. Other disease events, such as the diagnosis of Low Pathogenic
    Avian Influenza in several Eastern states in fiscal year 2002 and
    Exotic Newcastle Disease in California, Nevada, and Arizona in late
    2002 and early 2003, also resulted in restrictions, significantly
    impacting live animal exports.
        Through the Agricultural Quarantine Inspection program's EXCERT
    (export certification) system, APHIS facilitates the export of
    agriculture shipments. Over 4,000 certifying officials can access the
    information on certification requirements online. In fiscal year 2002,
    APHIS issued over 380,000 certificates for agriculture shipments. APHIS
    export certifications ensure that U.S. products meet the agricultural
    requirements of the country of destination. In fiscal year 2002, APHIS
    began the pilot phase of the Phytosanitary Certificate Issuance and
    Tracking database. This database captures export application
    information, documents inspection and certification information, and
    prints an original phytosanitary certificate on secure paper. The pilot
    phase involves 10 field locations, representing several State and
    County cooperators. APHIS will retain this certification responsibility
    while inspection operations are transferred to the Department of
    Homeland Security.
        In fiscal year 2002, APHIS' Veterinary Biologics program issued
    4,385 official certificates that indicate licensed production and
    testing facilities and products have met or exceeded marketing
    requirements. The regulated industry used these certificates to
    register their products for sale in foreign countries. The confidence
    that foreign regulators have in the U.S. veterinary biologics
    licensing, testing, and inspection system is reflected in their
    readiness to accept our products. Center for Veterinary Biologics (CVB)
    officials provided informational presentations at international
    conferences to bolster foreign regulators' confidence.
        Resolve trade barrier issues related to animal and plant health. As
    modern trade agreements prohibit onerous tariffs and similar trade
    barriers, some countries may resort to ``sanitary and phytosanitary''
    concerns--that is, claims that American agricultural exports carry
    pests and diseases not present in their countries. Those claims may not
    be science-based. APHIS fills the crucial role of gathering and
    analyzing the scientific evidence to refute such claims or recommend
    measures to reduce the impact of other country's SPS concerns.
        Officials with the Trade Issue Resolution and Management program
    work to minimize trade disruptions caused by animal and plant health
    issues. Personnel overseas participate in negotiations, work with
    standard-setting organizations, and facilitate the capacity of
    countries to recognize and respond to agriculture health issues that
    restrict trade. They coordinate these activities with domestic staff
    who resolve issues that trading partners may have with U.S. products or
    handle negotiations on bilateral or multilateral issues. APHIS' efforts
    contributed to the opening or retention of $1.1 billion in export
    markets in fiscal year 2001, the latest data available. These
    accomplishments related to products as diverse as cherries, tobacco,
    and poultry.
        The job of ensuring that animal and plant health issues are not
    used unfairly as barriers to trade gets more complicated as trade
    increases. Recent agreements and the efforts of the World Trade
    Organization have reduced the traditional barriers to trade in
    agricultural products. Countries wishing to protect their markets from
    competition may turn to sanitary and phyosanitary (SPS) barriers. To
    retain or open markets, APHIS technical experts must be ready to
    respond to challenges involving new animal and plant health issues.
        Even though USDA, with APHIS assistance, persuades other countries
    to accept American exports in principle, the importing country may
    attempt to stop the entry on actual shipments. Attaches are uniquely
    positioned to respond to day-to-day problems with individual shipments
    that are detained in ports overseas. Sometimes the problems arise from
    a misunderstanding of a regulation, or the problem may be as simple as
    an incorrect notation on a phytosanitary certificate. Having these
    shipments detained could be costly for the exporter, whose product may
    spoil while the importing country is deciding on what to do with it. In
    fiscal year 2002, attaches' actions saved more than $53.2 million worth
    of products for agricultural exporters. For example, in May 2002, an
    APHIS attache resolved an issue causing the detention of a $3 million
    shipment of rice to Costa Rica.
        During fiscal year 2002, APHIS negotiated 44 new or revised export
    protocols for exporting poultry, livestock, and germplasm to numerous
    countries in the Americas, including Argentina, Bolivia, Brazil, Chile,
    the Dominican Republic, Ecuador, Guatemala, Mexico, Panama, and Peru.
    In addition, APHIS negotiated protocols with the Czech Republic for
    bovine semen and embryos, and with Lithuania, Hungary, and Estonia, for
    bovine embryos. Currently, APHIS is negotiating protocols with Peru and
    Nicaragua.
        Increased trade in and concerns over genetically engineered
    products--particularly crops--have heightened international initiatives
    to harmonize and address assessments of products from both
    environmental and food safety perspectives. This has also led to
    discussion of mechanisms to address trade in these products, both
    bilaterally and multilaterally. A primary objective of APHIS'
    harmonization efforts is to maintain and enhance the use of science-
    based decision making, and to promote the credibility of U.S.
    regulatory bodies as independent, objective evaluators of product
    safety. APHIS has participated in the development of guidance and
    technical approaches in the Codex Alimentarius, the International Plant
    Protection Organization (IPPC), the North American Plant Protection
    Organization (NAPPO), the Cartagena Protocol on Biosafety, and the
    Organization for Economic Cooperation and Development (OECD). APHIS
    continued a joint project under the Transatlantic Economic Partnership
    (TEP) aimed at European Union and U.S. regulatory authorities accepting
    common data requirements as the basis for approval of biotechnology
    products. Success in the TEP process will facilitate a harmonized
    approval process for genetically modified organisms between North
    America and Europe.
        Provide expertise and training in animal and plant health To
    facilitate agricultural trade, APHIS must provide technical services
    and information about animal and plant health to USDA's Foreign
    Agricultural Service and the U.S. Trade Representative, who have
    primary responsibility to negotiate trade agreements with other
    countries. We also need to help developing countries meet SPS Agreement
    requirements--which include having regulatory mechanisms in place to
    ensure the safe release and movement of agricultural products--and we
    need to help these countries build better animal and plant surveillance
    capacity. Only through actively helping build health infrastructures
    can we be assured that other countries are sending healthy agricultural
    products to the United States. With the increasing volume of trade and
    movement of passengers, APHIS will likely have to rely more on the
    sanitary and phytosanitary export certificates of our trading partners.
    Trade is a two-way street; we cannot increase exports and
    simultaneously engage in protectionist practices. APHIS must protect
    U.S. agriculture from incursions of foreign pests and diseases without
    restricting trade. Trade agreements and the World Trade Organization
    oblige us to move quickly on foreign countries' requests to import into
    the United States. We also put together or participate in technical
    assistance projects with trading partners and potential trading
    partners. These technical assistance projects serve two roles. First,
    they assure trading partners that U.S. products are safe because they
    clearly explain U.S. sanitary and phytosanitary procedures. Secondly,
    they help other countries develop a regulatory infrastructure that will
    make it possible to safely take part in trade. Particularly aimed at
    developing countries, these projects aim to build new markets for U.S
    products while helping those countries build their own agricultural
    industries.
        The technical assistance projects we administer vary worldwide in
    terms of the means of information dispersal. Examples include
    epidemiology training for visitors from overseas or distance learning
    modules on SPS principles. The modules, which are available in a
    variety of media, are administered via attaches worldwide. APHIS also
    participates in the Foreign Agricultural Service's Cochran Fellowship
    program, which funds training programs for senior- and mid-level
    agriculturists from middle income countries and emerging democracies.
    In recent years, the Cochran program has funded numerous training
    programs related to the SPS issues of food safety, animal health, and
    plant quarantine.
        The Veterinary Biologics program continued efforts to reduce trade
    measures limiting the sale of veterinary biological products overseas.
    Program officials continued technical and harmonization discussions
    with representatives of the American, Asian, European and U.S.
    biologics industries and regulatory officials. APHIS held individual
    meetings with regulatory officials from Australia and New Zealand to
    facilitate exchange of information and encourage discussions of
    regulatory issues.
        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 2002, the Agency's National Veterinary Services
    Laboratories (NVSL) continued efforts in the veterinary diagnostics
    program to safeguard the United States from adverse animal health
    events. APHIS, along with the Cooperative State Research, Education,
    and Extension Service, the American Association of Veterinary
    Laboratory Diagnosticians Executive Board, and State laboratory
    directors, developed a pilot program of the National Animal Health
    Laboratory Network. The network is a national strategy to meld the
    nation's Federal, State, and local resources in order to respond to any
    type of animal health emergency, including bioterrorist events, newly
    emerging diseases, and foreign animal disease agents that threaten the
    nation's food supply and public health. During fiscal year 2002, USDA
    provided a total of $15.25 million in Homeland Security funding to 12
    State diagnostic laboratories to use for improving biosecurity of
    facilities, communicating results, buying equipment, standardizing
    methods, and quality assurance.
        During fiscal year 2002, NVSL provided training to 798 State,
    Federal, private, and foreign participants for a total of approximately
    303 training days. This included 13 formal APHIS training courses
    focusing on scrapie, tuberculosis, equine infectious anemia, blue
    tongue, bovine leukosis virus, brucellosis, leptospirosis, and lab
    biosafety. Six foreign animal disease training schools were also
    conducted at the Foreign Animal Disease Diagnostic Laboratory on Plum
    Island for a total of 197 participants. In addition to the formal
    courses, NVSL also provided bench training in EIA, brucellosis,
    Johne's, Salmonella, pseudorabies, scrapie, avian influenza (AI), West
    Nile virus, and contagious equine metritis.

                        FISCAL YEAR 2004 BUDGET REQUEST

        American agriculture is a tremendous resource. To protect this
    resource, we must safeguard the health of our animals, plants, and
    ecosystems. The value of this resource is increased when you consider
    the economic benefits of trading our agricultural products overseas for
    other goods and services. Safeguarding our agricultural wealth and
    facilitating safe agricultural trade go hand in hand and require
    several activities. To carry out these activities, we request $694.9
    million for the salaries and expenses account. We request a pay
    increase of $9.3 million and a decrease of slightly more than $1
    million because of information technology procurement efficiencies. Our
    requested program level changes are outlined below. In our building and
    facilities account, we request $5 million, a decrease of $5 million for
    a one-time project from fiscal year 2003 level, to carry out basic
    maintenance and repair activities.
        The proposed funding for the Agricultural Quarantine Inspection
    (AQI) appropriated program reflects funding of future activities for
    the Automated Targeting System through mandatory, rather than
    discretionary funding. In addition, the $21.3 million request for AQI
    excludes the border inspection programs that have been transferred to
    the Department of Homeland Security (DHS). The fiscal year 2004 budget
    also recognizes the transfer of the Plum Island Animal Disease Center
    to DHS, which will receive some program funds and necessary funding to
    operate the facility. Both USDA and DHS will share program funds to
    reflect their needs, working closely to keep agricultural pests and
    diseases out of the United States.
        Funding for ongoing programs to combat pests and disease is based
    on the recognition that the Federal Government, and affected States and
    localities, as well as producers and other private cooperators benefit
    from eradication. Therefore, we will be proposing a rule in the Federal
    Register to solicit public comment prior to finalizing before October
    1, 2003 which establishes criteria to share program responsibilities in
    a reasonable manner. For that reason, the fiscal year 2004 budget
    allocates funding among the Federal Government and cooperators based on
    consistent program criteria which recognizes a significant Federal
    responsibility, and takes into account cooperator ability to pay as
    well as other risk based factors. Federal funding for these ongoing
    programs would still range from 57 percent to 70 percent, and could in
    other circumstances be as great as 100 percent.
        The budget includes a total of $26.7 million for the boll weevil
    program, based on a 20 percent Federal cost share and a reduction of 35
    percent in program acres based on long-term program goals.
        To successfully safeguard the health of agricultural animals,
    plants, and ecosystems in the United States, we must begin overseas
    where those pests and diseases currently exist. To enhance our offshore
    threat assessment and risk reduction activities, APHIS requests a total
    of $1 million for classical swine fever eradication in the Dominican
    Republic and Haiti and $2.9 million to eradicate tropical bont tick
    from Antigua and prevent its spread to other islands.
        To reduce the risk of introduction of exotic invasive species, we
    must enhance our regulatory enforcement and monitoring activities. We
    request $881,000 for an aerial sterile Medfly preventive release
    program in California and Florida. A total of $9.6 million is proposed
    for the animal and plant health regulatory enforcement program
    including funds to continue Homeland Security Supplemental funded
    investigations of alleged violations, search garbage feeding
    operations, and document enforcement actions. An import/export program
    increase of $2.8 million will allow us to complete and maintain an
    animal tracking system and place database managers to identify pathways
    of exotic animal disease. We request $2.9 million to make a number of
    improvements associated with biosecurity. These include connecting
    field activities electronically to our Emergency Management Operations
    Center, enhancing identification protocols and analytical capabilities,
    developing a network of Foreign Animal disease diagnosticians, and
    conducting biosecurity awareness campaigns. We are proposing a total of
    $6.3 million to continue increased security at mission critical
    facilities.
        To address the threat of biological terrorism directed at the
    nation's animal food supply, the Agency proposes an increase of $1.4
    million in the veterinary biologics program and an increase of $3.3
    million in the veterinary diagnostics program for enhanced laboratory
    network activities, anthrax diagnostics, and security clearances.
        To prepare for the unlikely event of foot-and-mouth (FMD) entering
    the United States, we request $560,000 to increase the North American
    FMD vaccine bank doses by 1.25 million to 20.75 million.
        The continued existence of pests and diseases in the United States
    hurts the American producer in several ways. First, their existence
    reduces yields and increases costs. Second, other countries will cite
    them as reasons to prohibit or place restrictions on our exports. APHIS
    has requests to address some of the most devastating pests and
    diseases. We propose $15 million in our chronic wasting disease program
    to increase grants to States and to assist in surveillance, disease
    management, diagnostic testing, communications, and information
    management. We need an additional $329,000 in the golden nematode
    program for increased surveillance, equipment, and cooperative
    agreement funding. We request $2 million to assist States in a long-
    range low pathogenic avian influenza control and prevention program. To
    ensure we can account for all hazardous materials used in our wildlife
    services operations program, we request $1 million to create a
    hazardous materials database. We request a total of $3.5 million in the
    plum pox virus program to continue recent program success in
    eliminating and not finding any more disease.
        The APHIS request does not contain an increase in the trade issues
    resolution and management program to enhance our ability to resolve
    trade barrier issues related to animal and plant health or in the
    biotechnology regulatory services program to improve existing products
    and spawn new technologies. The Office of the Secretary requests $6.6
    million to be allocated among USDA Agencies for negotiating and
    monitoring trade agreements and for technical trade support in the
    areas of biotechnology regulatory services and sanitary and phyto-
    sanitary issues.
        We also propose a reduction of $7.7 million associated with animal
    welfare user fees. This will allow the industry to cover an estimated
    50 percent of the cost of enforcing the animal welfare regulations.

                                   CONCLUSION

        Simply stated, APHIS' mission is to protect the health and value of
    America's agricultural and natural resources. This mission carries two
    goals--to safeguard the health of animals, plants, and ecosystems in
    the United States and to facilitate safe agricultural trade. Our
    safeguarding goal requires us to: (1) conduct offshore threat
    assessment and risk reduction, (2) regulate and monitor to reduce the
    risk of introduction of exotic invasive species, (3) ensure safe
    research, release, and movement of agricultural biotechnology events,
    veterinary biologics, and other organisms, (4) manage issues related to
    the health of U.S. animal and plant resources and conflicts with
    wildlife, and (5) respond to emergencies and emerging issues--
    surveillance, quick detection, containment, and eradication. Our
    facilitating trade goal requires that we: (1) document the health
    status of U.S. agriculture and related ecosystems, (2) certify the
    health of animals and plants and related products for export and
    interstate commerce, (3) resolve trade barrier issues related to animal
    and plant health, and (4) provide expertise and training in animal and
    plant health. There is a continuum between the goals and a connected,
    inseparable relationship among the objectives. We cannot improve, or
    strengthen one goal without improving or strengthening the other.
        I am proud of the APHIS mission, its goals, and its objectives. I
    also am proud of all of the men and women of APHIS who have dedicated
    their careers to improving the health and profitability of America's
    animal and plant resources. Their dedicated efforts, coupled with the
    Committee's unwavering support, have truly helped American agricultural
    producers overcome pests, diseases, and economic uncertainty. I will
    close by saying that Progressive Farmer, one of America's oldest and
    most widely circulated agricultural publications selected ``The People
    of APHIS'' as winners of the 2003 People of the Year recognition. Since
    1937, this is the first time the award has gone to a group of people.
    This indeed is quite an honor and recognizes the character and
    dedication of everyone at APHIS.
        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 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--AMS--
    in presenting our fiscal year 2004 budget proposal.

                                    MISSION

        AMS activities support agricultural marketing. Formally stated, the
    Agency's mission is 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 variety of
    voluntary fee-based services and publicly funded activities that help
    our customers find ways to better market food and fiber products and
    improve their profitability. AMS helps to make the Nation's
    agricultural markets work efficiently by making sure that all producers
    and traders have equal access to market information; by assuring them
    that quality and other product representations are accurately
    described; by providing pesticide residue and microbiological data that
    support science-based risk assessment; by providing ``how to''
    technical expertise to growers, shippers, and market facilities; by
    helping to develop improved or alternative market outlets; and by
    helping producers adjust to consumer trends.
        To be successful, we continually monitor the needs of our customers
    in the agricultural industry, develop strong partnerships with
    cooperating State agencies, and adopt new technology to improve our
    effectiveness. Since most of our user-funded services are voluntary, we
    always remain conscious of cost while being responsive to customer
    needs.
        AMS depends on strong cooperative partnerships with States and
    other Federal agencies. Our Market News, Shell Egg Surveillance,
    Pesticide Data, Microbiological Data, Pesticide Recordkeeping, and
    Federal Seed programs all depend on their State partners to help
    collect and disseminate information, provide inspections, and otherwise
    maximize the value of State and Federal programs by sharing and
    coordinating the use of available resources.
        One of the ways we continue to improve our service is through
    public electronic access to information and services. AMS offers online
    application for services, filing for protection under the Perishable
    Agricultural Commodities Act, public comment on rulemaking, and bidding
    on Federal commodity purchases. Market news users can now access all
    current market news reports through the AMS Internet home page
    (www.ams.usda.gov), use search engines to retrieve recent historical
    data from an 18-month archive, and link to other Internet sites that
    carry related information.
        For fiscal year 2004, AMS will maintain a high level of program
    delivery while continuing to implement program enhancements without an
    increase in funding. Therefore, I would like to describe some of AMS'
    significant accomplishments during fiscal year 2002 and our activities
    in 2003.

                         GLOBAL AGRICULTURAL MARKETING

        AMS offers a range of services that give sellers of agricultural
    products a competitive advantage in the global marketplace. For
    example, our Transportation Services and Pesticide Data Programs
    provide information to facilitate agricultural commodity exports. Our
    AMS grading and laboratory testing programs offer product, production
    process, and equipment certifications to support compliance with export
    specifications.
        We initiated our Global Market Expansion program in fiscal year
    2002 to strengthen our support of export marketing for agricultural
    products. Under this activity, AMS participates in international
    standards organizations such as United Nations Codex Alimentarius
    Commission committees, International Dairy Federation Standing
    Committees, U.N. Economic Commission for Europe, Organization for
    Economic Cooperation and Development Seed Scheme, International
    Standards Organization, International Seed Testing Association, North
    American Free Trade Agreement Working Groups, World Meat Congress,
    International Calibration Cotton Standards Committee, International
    Textile Manufacturers Federation, U.S. National Committee for the
    International Institute of Refrigeration Working Committees, and
    several bilateral Consultative Committees on Agriculture. AMS experts
    served on, and in several cases headed, U.S. delegations to meetings of
    these international food and fiber standards-setting organizations.
        AMS also provides technical expertise in negotiations on
    international standards. In 2002, we worked with U.S. trade officials
    to delay China's adoption of cotton standards that lack recognized
    measurement technologies and could have posed a barrier to U.S. cotton
    exports. AMS led the development of lamb and poultry quality standards
    that will serve as models for government and industry throughout
    Europe. We actively participated in developing a model export
    certificate for milk and milk products, international dairy standards
    and a code of hygienic practices for milk and milk products. We
    provided expertise on finalizing the technical requirements for testing
    meat products for hormones and veterinary drugs destined for export to
    the European Union and helped develop the U.S./Chile free trade
    agreement that will make U.S. beef eligible for export to Chile.
        Through such participation, AMS is able to influence the design of
    food quality standards and model inspection protocols so that they are
    fair to U.S. shippers and they do not become barriers to U.S.
    agricultural trade. The Agency will continue to do its part in helping
    to reduce trade barriers relating to commodity standards and product
    testing by serving as delegates and by leading international committees
    and organizations.
        For fiscal year 2003, AMS is expanding Market News reporting on
    international markets so that U.S. growers and traders have the
    information they need to make informed production and sales decisions.
    Market news reports provide access to a centralized, consistent, public
    source of timely information on international prices and trade volume.
    The foundation for enhanced reporting from Western Hemisphere countries
    has already been laid through AMS' initiation of the Market Information
    Organization of the Americas (MIOA). The MIOA brings together market
    reporting services from 18 countries in North, South, and Central
    America to harmonize product definitions, reporting formats, and
    information exchange.

                                 PESTICIDE DATA

        AMS supports domestic and export marketing of U.S. food products
    through its Pesticide Data Program (PDP). PDP is a unique and valuable
    source of statistically valid data on pesticide residues in food and
    water. The program provides information to the Environmental Protection
    Agency that is vital for realistic assessments of dietary risk from
    pesticides on food commodities available in the marketplace. The data
    collected benefits growers by enabling regulators to make better-
    informed decisions on pesticides. Furthermore, PDP is instrumental in
    providing data that addresses domestic and international public
    concerns about the effects of agricultural pesticides on human health
    and environmental quality. Exporters use PDP data to verify for foreign
    governments and buyers that U.S. agricultural commodities are safe for
    consumption.
        Over the past 11 years, the program has tested 57 commodities,
    including fruit and vegetables, grains, milk, peanut butter, poultry,
    beef, juices, and drinking water. The results from PDP testing provide
    comparative pesticide residue data between fresh versus processed
    commodities, and an in-depth comparison for selected domestic versus
    imported commodities. Of the more than 12,000 samples tested in
    calendar year 2001, 82 percent were domestically produced and 18
    percent were imported. PDP procedures are designed to detect, verify,
    and report low-level pesticide concentrations. Pesticide residues only
    exceeded established tolerance levels in three-tenths of 1 percent of
    the samples, although residues were detected on 56 percent of all
    samples. In fiscal year 2002, the program performed over 100,000
    analyses on 13,000 samples.
        In March 2001, the program began testing finished drinking water
    samples. During fiscal year 2002, the drinking water survey was
    expanded to include sampling in Colorado, Kansas and Texas, while
    continuing sampling of municipal water systems in California and New
    York.
        Importantly, PDP is built on Federal-State partnerships with 10
    States--California, Colorado, Florida, Maryland, Michigan, New York,
    Ohio, Texas, Washington and Wisconsin. These States collect and test
    commodities for pesticide residues. In 2003, AMS received additional
    funding for PDP. Most of the increase will be used to offset rising
    operational costs at the State level. These funds will support
    infrastructure improvements and allow the Pesticide Data Program to add
    data on new commodities and residues. We also plan to complete the
    effort to achieve International Standards Organization accreditation
    for our PDP laboratories.

                              MICROBIOLOGICAL DATA

        Our experience in establishing a successful data collection program
    was of enormous assistance in initiating our Microbiological Data
    Program. MDP is designed to gather baseline data to assess the risks of
    microbial contamination of fruits and vegetables, if any. The program
    collects information regarding the incidence, number and species of
    foodborne pathogens and indicator organisms on domestic and imported
    fresh fruits and vegetables.
        In fiscal year 2002, AMS worked with cooperating States and
    interested industry parties to initiate microbiological data collection
    and testing. AMS developed operating procedures with FDA, the Centers
    for Disease Control and Prevention (CDC), and State laboratories.
    Samples of five commodities were collected in the ten cooperating
    States and were tested in State and Federal laboratories. During 10
    months of sample testing, approximately 19,000 analyses were performed
    on 9,400 samples. The first report will be published during 2003 with
    calendar year 2002 data. The data will be provided to public health
    agencies and the food industry for decision-making and evaluation of
    procedures intended to reduce or eliminate harmful microorganisms from
    foods.

                     NATIONAL ORGANIC CERTIFICATION PROGRAM

        The purpose of AMS' National Organic Certification program is to
    facilitate trading of organic products by verifying for buyers and
    consumers across the United States and internationally that U.S.
    organic food labeling is accurate and consistent. The program
    established national standards for organic production and handling, and
    is accrediting certification agents who can now conduct annual on-site
    inspections to verify that organic products meet these standards. The
    program has received 134 applications for accreditation. Fifty-three of
    the applicants were private domestic certification agents; 20 were
    State certification agents; and 61 were foreign. Through March 14,
    2003, AMS has accredited 84 applicants, 37 of whom have been site-
    evaluated for compliance with the program. AMS has also implemented a
    program to approve State organic programs for production and handling
    operations within that State. State organic programs will administer a
    compliance program for enforcement of the National Organic Program and
    any more restrictive requirements approved by the Secretary. Six States
    have applied and are under review or are providing more information.
        AMS entered into cooperative agreements with 14 States to
    distribute to organic producers the cost share funds authorized under
    the Federal Crop Insurance Act. The National Organic Certification
    Cost-Share Program, authorized by the Farm Security and Rural
    Investment Act of 2002, made funds available to assist certified
    organic producers and handlers in all States. To date, we have
    agreements with 44 States to distribute these cost share funds.
        As of October 21, 2002, use of the official USDA organic seal is
    permitted for certified organic fresh and processed products. Also,
    during 2002, AMS developed procedures for enforcement, appeals,
    international recognitions, and authorization to issue export
    certificates. Consequently, the organic seal can be used as a marketing
    tool for exported products. AMS has recognized the conformity
    assessment programs of four foreign governments, worked with the
    Foreign Agricultural Service to negotiate recognition of the U.S.
    organic program by the Japanese Ministry of Agriculture and begun
    equivalency negotiations with the European Union.

                        MANDATORY PRICE REPORTING SYSTEM

        AMS' Livestock Mandatory Price Reporting (LMPR) program addresses
    concerns about market concentration in the livestock industry and
    resulting price discovery problems in the marketplace. On April 2,
    2001, AMS implemented the LMPR system to meet the requirements of the
    Livestock Mandatory Reporting Act.
        Mandatory reporting provides marketing information on 80 to 95
    percent of the volume of all cattle, boxed beef, slaughter hogs, sheep,
    lamb meat and imported lamb meat traded. Large volume packers and
    importers report the details of their transactions to AMS. Mandatory
    reports include information on pricing, contracting for purchase, and
    other market transaction data for livestock and livestock products.
    Specifically, mandatory market news covers the prior day swine market;
    forward contract and formula marketing arrangement cattle purchases;
    packer-owned cattle and sheep information; and sales of imported boxed
    lamb cuts.
        LMPR is an ambitious effort to provide livestock market information
    on a near real-time basis over the Internet. Packers submit data by
    lot, several times a day to AMS via a secure Internet connection. AMS'
    automated system processes thousands of pieces of market information
    from the livestock industry and generates market news reports within
    one hour after receipt of the data. During 2002, AMS was able to
    release data through the electronic system within an hour of receipt 95
    percent of the time.
        The system is designed to protect the confidentiality of packers.
    No data has been released that compromised the identity of source
    packers. The confidentiality provisions were modified in August 2002,
    which resulted in the release of 95 percent, or 86 of the originally
    anticipated 91 mandatory reports. The remaining reports represent
    thinly traded items and we continue to search for ways to report the
    data while maintaining confidentiality. In addition to the original set
    of reports, AMS has developed and begun releasing 16 new reports that
    improve the marketing information available on the cattle and boxed
    beef markets. In November 2002, the program began releasing cattle
    reports utilizing new formats to provide the industry with more
    regional information and volume accumulation data. AMS developed the
    new formats based on incoming data and feedback from the industry
    concerning the data most important in assessing market conditions. AMS
    continues to work to improve security and expand or improve on existing
    reports. Authorization for mandatory reporting expires at the end of
    fiscal year 2004.

                           COUNTRY OF ORIGIN LABELING

        The 2002 Farm Bill (Farm Security and Rural Investment Act of 2002)
    required USDA to issue voluntary country of origin labeling guidelines
    for use by retailers who wish to notify their customers of the country
    of origin of beef, lamb, pork, fish, perishable agricultural
    commodities, and peanuts. The voluntary country of origin labeling
    guidelines were published in October 2002 and comments on their utility
    were received until April 2003. Over 1000 comments were received.
        The country of origin labeling provisions of the 2002 Farm Bill
    also require USDA to publish regulations implementing a mandatory
    country of origin labeling program by September 30, 2004. AMS has begun
    the process of developing the mandatory regulations. To assist in this
    process, USDA has scheduled a series of 12 listening and education
    sessions across the United States to receive input from interested
    parties. USDA plans to publish the regulations implementing the
    mandatory program as a proposed rule and will provide a 90-day comment
    period for interested parties.

                   WHOLESALE, FARMERS AND ALTERNATIVE MARKETS

        AMS supports direct marketing to help growers sell their farm
    products directly to consumers, enhancing the farmers' ability to
    thrive in their businesses. Direct marketing includes farmers markets,
    pick-your-own farms, roadside stands, subscription farming, community-
    supported agriculture, and catalog sales. Direct marketing has been
    gaining in popularity and especially benefits small and medium-sized
    farm operators. Farmers markets, for example, are an integral part of
    the urban/farm marketing chain. In 2002, the National Farmers Market
    Directory listed over 3,100 farmers markets in the U.S. AMS has been
    working with FNS to coordinate AMS' farmers market development
    activities with FNS' nutrition programs. A report on this effort is
    nearing completion and will be forwarded to Congress upon final
    approval.

                              SECURITY INITIATIVES

        In cooperation with Departmental planners, AMS has developed a
    comprehensive strategy to address homeland security issues. AMS has a
    fully-developed and tested Continuity of Operations Plan and two fully
    equipped emergency relocation sites. We have identified our mission
    critical facilities and have strengthened the security of those
    facilities by installing emergency power generators, access control
    systems, intrusion detectors, and additional exterior lighting. The
    Agency has expanded its written instructions and is developing a
    training program for inspectors, auditors, and graders on monitoring
    for and reporting contamination or tampering of food products. AMS is
    currently establishing a small office of safety and security to focus
    on these issues and to coordinate improvements in security measures.

                             ELECTRONIC GOVERNMENT

        AMS has taken a leadership role in the transition to electronic
    government. We are working closely with USDA partners to establish
    electronic access to core services. AMS led the business case for the
    Department's web portal project and is conducting an Agency portal
    pilot for market news information. We have also worked to create real-
    time interaction with our customers. A system known as e-Work allows
    customers to electronically submit information forms to AMS. The system
    then processes the forms and generates messages to the customer
    advising them of the status of their request. In other initiatives, AMS
    was one of the first agencies in USDA to use electronic authentication
    in its Livestock Mandatory Price Reporting system. Our Food Quality
    Assurance program is creating a website for use by institutional food
    service professionals to learn about sources of new products or find
    locations approved to further process USDA-purchased commodities. In
    addition, AMS is working with FNS and FSA to modernize the current
    commodity purchase management system to a web-based supply chain
    management system. We will continue to look for ways to provide our
    customers with better access to our services.

                             BUDGET REQUEST SUMMARY

        AMS has proposed no funding increases for program activities for
    fiscal year 2004. Instead, we will continue our efforts to improve our
    efficiency and customer service with the funding currently available.
    Our total budget request includes $75 million for Marketing Services,
    which includes an increase for pay costs, partially offset by a
    decrease for savings associated with information technology
    centralization and improvement. We also include a decrease of $1
    million for the Pesticide Data Program. This funding was provided in
    fiscal year 2003 for increased testing of drinking water.
        We are requesting the current funding level of $1.3 million for
    Federal-State Marketing Improvement Program grants under Payments to
    States and Possessions. Our request for $26.4 million in Section 32
    Administrative funds includes an increase for pay costs.
        AMS will continue its mission to assist the agricultural industry
    by facilitating domestic and international marketing. Thank you for
    this opportunity to present our budget proposal.
                                     ______

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

        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 2004
    budget proposal.
        GIPSA is part of USDA's Marketing and Regulatory Programs, which
    works to ensure a productive and 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 a regulatory capacity, with an emphasis on service
    to the regulated industries. 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 supervises 14 State and 43 designated private agencies for
    grain inspection and weighing services at domestic locations; provides
    supervision and other services from 20 field offices; and handles
    appeals of grain inspection services in Kansas City, Missouri. GIPSA
    also maintains 3 Packers and Stockyards Programs regional offices that
    specialize in poultry, hogs, and cattle/sheep.
        For fiscal year 2004, the budget proposes a program level for
    salaries and expenses of about $42 million. Of this amount, $18 million
    is devoted to grain inspection activities for standardization,
    compliance, and methods development, and $24 million is for Packers and
    Stockyards Programs.
        The 2004 budget includes two program increases. I will mention
    these now, but expand on these increases when I discuss the budget in
    more detail.
        About $1 million of the increase is to implement a new pilot
    program to audit the steer and heifer meatpackers. The Packers and
    Stockyards Programs have never audited a large packer. We anticipate
    that an audit of large meatpackers will result in substantially better
    protection to the regulated industries. $0.5 million of the increase is
    to conduct a comprehensive, industry-wide review of the Packers and
    Stockyards Act and regulations. Given dramatic structural changes in
    the industries covered under the P&S Act, the Packers and Stockyards
    Programs are preparing to undertake a complete review of the Packers
    and Stockyards Act and its regulations, something that has not been
    done to date.
        In addition to these increases, the Administration proposes an
    increase in the budget of the Office of the Secretary to support
    crosscutting trade and biotechnology activities of the Department,
    including regulatory, market access and trade barrier removal
    activities. Increased GIPSA efforts related to biotechnology may be
    funded from the proposed Office of the Secretary funds.
        The Administration also proposes that GIPSA implement two new user
    fee proposals. New user fees would be charged to recover the costs of
    developing, reviewing, and maintaining official U.S. grain standards
    used the by the grain industry. Those who receive, ship, store, or
    process grain would be charged fees estimated to total about $5 million
    to cover these costs. Also, the Administration proposes that the
    Packers and Stockyards Programs be funded by new license fees of about
    $24 million that would be required of packers, live poultry dealers,
    poultry processors, stockyard owners, market agencies, and dealers, as
    defined under the Packers and Stockyards Act.
        I would like to discuss the activities of the Packers and
    Stockyards Programs and Federal Grain Inspection Service relative to
    the fiscal year 2004 budget.

                        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 169 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 2002, 6,024 market agencies and
    dealers, and 2,064 packer buyers were registered with GIPSA. In
    addition, there were 1,510 facilities that provided stockyard services,
    with an estimated 6,000 slaughtering and processing packers, meat
    distributors, brokers and dealers, and 205 poultry firms 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 1,400 investigations. As a
    result of these investigations, the Packers and Stockyards Programs
    helped restore over $37 million to the livestock, meatpacking, and
    poultry industries. This is the largest amount GIPSA has ever reported
    to Congress and constitutes more than double 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 $4.3 million
    being restored to custodial accounts that are established and
    maintained for the benefit of livestock sellers. Livestock sellers
    recovered over $3.2 million under the P&S Act's packer trust
    provisions. During fiscal year 2002, 81 insolvent dealers, market
    agencies and packers corrected or reduced their insolvencies by $26.6
    million. In addition, GIPSA's financial investigator's analyzed eight
    complex packer trusts and one poultry trust in which filed claims
    exceeded $15 million; GIPSA also analyzed more than 800 bond claims
    exceeding $30 million. I would note that GIPSA provides its analysis as
    a courtesy to the industry; it 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 and, in fiscal year 2002,
    targeted its resources at working with industry members to secure
    appropriate bonding levels. While the overall numbers of individuals
    required to be bonded under the P&S Act dropped, the total value of
    bonds available to unpaid sellers increased by $13 million. 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
    State assistance in testing every scale used to weight livestock or
    live poultry twice a year. In addition, GIPSA initiated or completed 63
    investigations of weight and price manipulation of livestock. Some of
    these investigations are on-going. GIPSA also investigated the
    operations of 53 live poultry dealers; most of these investigations
    examined whether live poultry dealers were in compliance with contracts
    entered into with poultry growers. We are continuing to work with
    members of the regulated industries to develop industry standards on
    new technologies that are entering the marketplace to evaluate and
    price livestock purchased on a carcass merit basis.
        GIPSA continues to develop its Competition Program, and GIPSA's
    Competition Program is starting to yield results. Last year, GIPSA
    hired a new Competition Branch Chief who works very closely with the
    Deputy Administrator, the Office of the General Counsel, and the
    competition units in the field office to fully implement the
    recommendations contained in the September 2000 General Accounting
    Office report. During fiscal year 2002, the Competition Branch
    evaluated 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, two resulted in a letter of
    notice that brought the firm into compliance with the P&S Act; the
    remaining complaints were not supported by evidence. In addition to
    these investigations, the Competition Program, with the Commodities
    Futures Trading Commission (CFTC), investigated the sharp decline of
    livestock prices that followed the events of September 11, 2001 to
    determine if packers were taking advantage of the situation in
    violation of the P&S Act. GIPSA and the CFTC also conducted a joint
    review of the cash and futures markets based on rumors of foot and
    mouth disease in Kansas. GIPSA continues to work closely with the CFTC,
    attending CFTC Commissioner briefings on the cattle, hog, and meat
    markets.
        Competition investigations are complex, and the results are not
    immediately visible. P&SP often attempts to resolve competitive issues
    informally, rather than go through the litigation process because of
    the resources, cost, and time involved. For example, the USDA's
    Judicial Officer just issued a decision in which he found that a major
    packer violated the P&S Act as we alleged in a complaint filed in 1999.
    While this may seem like a long time to resolve a complaint, it is
    comparable to private litigation. The competition program currently has
    several major investigations on-going. In addition to these
    investigations, the Competition Program is working more closely with
    the regulated industries, especially packers, to address the
    competitive implications of new practices prior to their
    implementation.
        GIPSA's Rapid Response Teams remain a powerful tool to address
    urgent industry issues that place the industries in imminent financial
    harm. For example, after one of the major meatpackers declared
    bankruptcy on a Friday afternoon, we had rapid response teams in place
    at each of its plants and in its corporate offices on Monday morning to
    ascertain the financial condition of its slaughter operations. Last
    year, GIPSA rapid response teams investigated 40 situations across the
    Nation. During fiscal year 2002, these rapid response investigations
    contributed to returning $4.2 million to livestock producers and
    poultry growers.
        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 2002, GIPSA, with assistance from the
    Office of the General Counsel, filed 23 administrative or justice
    complaints alleging violations of the P&S Act. This represents more
    than a 50 percent increase over the number of complaints filed in
    fiscal year 2001.
        GIPSA also has cooperative agreements with qualified researchers
    and research institutions that contribute valuable information to
    GIPSA's economic understanding of the livestock, meatpacking, and
    poultry industries. Two reports were completed in fiscal year 2002.
    Four cooperative agreements remain on-going.
        GIPSA completed three additional reports that were submitted to
    Congress: ``Assessment Report of the Cattle and Hog Industries,
    Calendar Year 2001,'' ``Captive Supply of Cattle and GIPSA's Reporting
    of Captive Supply,'' and ``Packers and Stockyards Programs Statistical
    Report 2000.'' Each of these reports is available on the GIPSA website.
        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 118
    callers. These calls were in addition to calls received in our regional
    offices. GIPSA also increased its outreach activities. GIPSA conducted
    32 orientation sessions for new auction market owners and managers and
    12 feed mill orientations to educate them about their fiduciary and
    other responsibilities under the P&S Act. GIPSA's Deputy Administrator
    met with top officials from the largest six steer and heifer packers to
    discuss issues of concern to the Agency and to the packers. These
    visits protect livestock producers and poultry growers who rely on P&SP
    to promote a fair, competitive, and financially sound marketplace.
    GIPSA personnel regularly participate in meetings with industry
    associations at the local, State, and national levels. During these
    meetings, GIPSA officials share our concerns, and listen to the
    concerns expressed by industry participants to ensure that we continue
    to remain abreast of problems and concerns in the livestock, meat, and
    poultry industries, and to better understand the marketing options and
    constraints these industries face. On the front lines, GIPSA's resident
    agents, situated at 28 locations across the Nation, maintain open
    communications with State officials to discuss areas of overlapping
    jurisdiction.
        GIPSA is now in the process of updating memoranda of understanding
    with all 50 States to ensure that we maintain solid working
    relationships with our State partners. GIPSA recognizes that it is
    essential to stay in touch with growers, producers, and Federal and
    State representatives to understand, stay abreast of, and anticipate
    issues confronting the industries it regulates. To this end, GIPSA
    officials participated in several committees, including a commission
    established by the Governor of Missouri to address marketing issues on
    livestock and a task force established by the National Pork Producers
    Council to address hog marketing issues. GIPSA's outreach efforts have
    fostered a broader base of understanding with those we regulate and
    those intended to benefit from the protections of the P&S Act. We will
    continue and expand this effort.

                        FEDERAL GRAIN INSPECTION SERVICE

        The Federal Grain Inspection Service (FGIS), provides the U.S.
    grain market with Federal quality standards and a uniform system for
    applying these standards. FGIS has both service and regulatory roles,
    and was founded to provide impartial, accurate quality and quantity
    measurements to create an environment that promotes fairness and
    efficiency. GIPSA administers uniform, national grain inspection and
    weighing programs established by the U.S. Grain Standards Act, as
    amended.
        Under provisions of the Grain Standards Act, most grain exported
    from the United States must be officially weighed. A similar
    requirement exists for inspection, except for grain which is not sold
    or described by grade. Inter-company barge grain received at export
    port locations also must be officially weighed. And, the Act requires
    that all corn exported from the United States be tested for aflatoxin
    prior to shipment, unless the contract stipulates that testing is not
    required.
        Mandatory inspection and weighing services are provided by GIPSA on
    a fee basis at 38 export elevators, including 5 floating elevators.
    Under a cooperative agreement with GIPSA, the Canadian Grain Commission
    provides official services, with GIPSA oversight, at seven locations in
    Canada exporting U.S. grain. Eight delegated States provide official
    services at an additional 19 export elevators under GIPSA oversight.
        Grain exporters shipping less than 15,000 metric tons of grain
    abroad annually are exempt from mandatory official inspection and
    weighing requirements. Grain exported by train or truck to Canada or
    Mexico also is exempt from official inspection and weighing
    requirements.
        Official inspection and weighing of U.S. grain in domestic commerce
    are performed upon request and require payment of a fee by the
    applicant for services. Domestic inspection and weighing services are
    provided by 58 designated agencies that employ personnel licensed by
    GIPSA to provide such services in accordance with regulations and
    instructions.
        Under the Agricultural Marketing Act of 1946, GIPSA administers and
    enforces certain inspection and standardization activities related to
    rice, pulses, lentils, and processed grain products such as flour and
    corn meal, as well as other agricultural commodities. Services under
    the Agricultural Marketing Act are performed upon request on a fee
    basis for both domestic and export shipments by either GIPSA employees
    or individual contractors, or through cooperative agreements with
    States.
        GIPSA knows that customers also want more information about the
    products they are purchasing and consuming. Some of the attributes that
    they want are impossible, impractical, or expensive to be determined by
    traditional testing. That is why GIPSA is developing a process
    verification program that should help us mirror some of the identity
    preservation and marketing systems currently used in the private
    sector.
        Field dried corn would be one example of a quality attribute that
    can't be determined by testing. Process verification is one way that
    GIPSA could meet the demand for this kind of information. That does not
    eliminate the need for our traditional testing, but adds important
    information to the marketing of the product.
        In a recent customer survey, 20 percent of industry folks consider
    the need to handle identity preserved grain important today. But more
    than two-thirds of the same folks think this will be important in five
    years. The message here is clear. The changing market demands a way to
    document and validate product differentiation in the very near future.
        We have received inquiries from a wide range of agri-businesses. We
    have been contacted by individual producers, national and State
    producer associations, feed manufacturers, coop and multi-national
    grain companies and others. The underlying theme is that they're
    seeking to preserve their differences in the marketplace by getting
    third-party verification of their quality management systems.
        Today, protecting the identity of a specialty corn or other process
    has some value. In the future, this ability will be very important to a
    growing part of the marketplace.
        The change in customer wants and needs leads us to continually
    examine how we support and facilitate the grain markets. As the grain
    markets evolve in response global trade, increased consumer demands,
    and technological advances, GIPSA is working with market participants
    to ensure that the inspection system and grain standards best reflect
    the overall market needs.
        To achieve this, we will introduce new internet-based services to
    improve the internal efficiencies of our operations and to deliver our
    customers with high speed, quality grain inspection results. At the
    touch of a button, buyer and seller will have the necessary quality
    information to process sales transactions effectively and efficiently.
    Our aim is to be able to provide internet-based service that connects
    us, the official system, and our customers in an electronic business
    environment where we can interact with greater speed and efficiency.
        We are also working with market participants to determine how best
    the grain standards can reflect the market value of future products.
    Breeders are working with end users to tailor corn for specific end
    uses. These advances have already created value-added markets, such as
    nutritionally dense corn and high extractable starch corn. Further
    developments could lead to the subdivision of traditional commodity
    corn into multiple end-use types, such as poultry, swine or cattle feed
    corn. The standards will help the market assess the value of the
    commodity in light of specific end uses.
        And most of all, our aim is to be flexible, so that we can serve a
    larger portion of the grain markets. Reacting to market conditions that
    we face today is insufficient. Anticipating what the market will need
    tomorrow is necessary. Our efforts are focused on the future as we work
    to anticipate marketing needs in a rapidly changing environment.
        Further, from the almost 3,000 comments received on our advance
    notice of proposed rulemaking that sought public comment on how USDA
    can best facilitate the marketing of grains, oilseeds, fruits,
    vegetables, and nuts in today's evolving marketplace, GIPSA is
    considering proposing a Process Verification Program to apply
    internationally-recognized quality management standards to verify the
    quality process, whether related to biotechnology or not, used to
    supply a product rather than testing the actual grain itself (e.g.,
    non-genetically-modified corn). This would allow producers, marketers,
    suppliers, and processors to assure customers of their processes to
    provide consistent quality products.

                              2004 BUDGET REQUEST

        To fund these initiatives, GIPSA's budget request for fiscal year
    2004 is $41.7 million under current law for salaries and expenses and
    $42.5 million for our Inspection and Weighing Services. There is an
    increase of $612,000 for pay costs contained in the budget. GIPSA will
    also be submitting legislation to collect $28.8 million in new user
    fees in fiscal year 2004, $5.2 million for the grain standardization
    activities and $23.5 million for the Packers and Stockyards Programs.
        The President's fiscal year 2004 budget proposes a current law
    request for grain inspection of $18.1 million. The only changes from
    fiscal year 2003 budget levels are an increase of $282,000 for pay
    costs and a decrease of $56,000 for Information Technology savings.
        The President's fiscal year 2004 budget proposes a current law
    request for Packers and Stockyards Programs of $23.5 million. As I
    mentioned before, there are proposed increases of $994,000 to implement
    a pilot program to audit the steer and heifer meatpackers to be offset
    by proposed user fees, and $500,000 to enhance compliance and review
    the Packers and Stockyards Act. Additional changes from fiscal year
    2003 budget levels are an increase of $330,000 for pay costs and a
    decrease of $67,000 for Information Technology savings.
        A credible auditing program is an essential and cost-effective tool
    that P&SP needs to successfully administer the Packers and Stockyards
    Act. A credible auditing program is one that audits submitted financial
    information to determine whether: (1) the information is supported by
    the firm's records, (2) the firm is in compliance with the P&S Act's
    reporting and financial requirements, and (3) the financial information
    raises any concerns under the P&S Act's competition provisions. This is
    why P&SP proposes to do this by establishing a more formal ``Task Force
    to Audit the Annual Reports of the Steer and Heifer Meatpackers,'' as a
    pilot program.
        Although P&SP's monitoring program results in correcting many
    bonding and solvency problems, it is critically important to note that
    P&SP has never audited a large packer. Since the four largest packers
    account for more than 80 percent of the steers and heifers purchased
    for slaughter annually, this represents a significant vulnerability in
    the program's resident expertise. As a result of this, the industry is
    vulnerable to repercussions that can follow from any incorrect
    reporting submitted by a large packer, whether or not intentional, that
    P&SP does not have the ability to address.
        To fill this void, P&SP proposes to hire a specialized group of
    eight staff, consisting of seven accountants and one economist, which
    will develop a program to conduct these audits within two fiscal years.
    During the first fiscal year, P&SP will focus on identifying, hiring,
    and training individuals with the necessary expertise. The training
    will be obtained from a credible accounting firm with expertise in the
    meatpacking industry.
        Through our increasingly frequent and substantive conversations
    with industry, we have been able to build relationships that allow us
    the opportunity to help firms steer clear of difficulties they may
    encounter with the P&S Act. Too often, our intervention in a firm's
    financial difficulties comes at a stage too late for us to protect the
    interests of the producers. Through a credible audit program, GIPSA can
    help industry avoid larger problems later on, as well as better protect
    producers.
        P&SP does anticipate that this pilot program will result in a small
    increase in the number of investigations and an increase in the monies
    recovered or returned to the regulated industries. But that is not the
    goal of this proposal. It is not our intent to engage in these audits
    just to see what we can find. Even if P&SP is unable to show actual
    monies returned to the industry, the audits are anticipated to result
    in substantially better financial protection to the regulated
    industries through heightened scrutiny of the financial instruments
    that these meatpackers have in place to protect producers in the event
    of financial failures.
        The second increase is for $500,000 to allow GIPSA to engage in a
    comprehensive internal and external review of the Packers and
    Stockyards Act and regulations.
        The Packers and Stockyards Act of 1921 has not undergone any
    significant reviews since its enactment, despite substantial and
    controversial structural changes experienced by the regulated
    industries during the same time period. To conduct a comprehensive
    review of the P&S Act, P&SP must incorporate individual industry
    members and industry groups in the process. P&SP will sponsor industry-
    wide meetings to hear more about the challenges, concerns, and problems
    facing those directly involved in the livestock, meat, and poultry
    industries within the context of the Packers and Stockyards Act.
        Packers and Stockyards Programs anticipates that building bridges
    and reviewing the Packers and Stockyards Act with market participants
    will result in a better understanding of the P&S Act and regulations by
    industry, as well as offer the Agency a better understanding of the
    industry's needs in the changing marketplace. By working with all
    segments of the regulated industry, P&SP feels it can be better
    positioned to meet the current and future needs of market participants,
    and help the Agency become more relevant to current and future industry
    operations.
        In a September 2000 report to Congress by the General Accounting
    Office titled ``Actions Needed to Improve Investigation of Competitive
    Practices'' (GAO/RCED-00-242), a recommendation was included that GIPSA
    provide industry participants with clarification and views on
    competitive activities. P&SP responded rapidly to that recommendation,
    dramatically increasing its presence and participation at industry
    events and meetings. The requested funds will further allow P&SP to
    meet this demand for clear, concise information that can be shared with
    industry stakeholders.

                                   CONCLUSION

        Mr. Chairman, Members of the Committee, I would like to conclude my
    testimony on the fiscal year 2004 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 at this time.
        Thank you.

        Senator Bennett. Senator Cochran
        Senator Cochran. Mr. Chairman, I simply wanted to join you
    in welcoming this panel of witnesses and congratulating them
    for the fine work they are doing to help assure that we do
    maintain the safest food supply in the world. I am convinced
    they are doing a good job and I am here to find out if the
    budget request is adequate to enable them to continue their
    fine work. Thank you.
        Senator Bennett. Thank you very much.

                               OBESITY IN AMERICA

        Mr. Bost, you told us that combatting obesity was one of
    the three main issues you were addressing and gave a statistic
    that I had not heard before, that 62 percent of Americans are
    obese. Now, I hesitate to do this, but I am going to do it
    anyway because I think there is a great deal of confusion, and
    frankly, it includes some members of this subcommittee. I have
    mentioned that I am going to do this to some members of the
    subcommittee and they said, good.
        The pyramid that you and--I say ``you,'' I mean the USDA--
    has been pushing among school children, it is on display
    everywhere. It is on just about every cereal box that gets
    sold. It is, if I can mix metaphors a little, the Good
    Housekeeping Seal of Approval for the way to eat, and it calls
    for a substantial consumption of carbohydrates.
        We have got the Atkins diet that has millions of people
    believing that carbohydrates make you fat. Recently, the Zone
    came out. That got introduced in my family and there are
    members of my family who follow the Zone and have lost
    substantial amounts of weight as they have cut down on their
    consumption of carbohydrates.
        I have brought along, perhaps as the most provocative one,
    a recent one that has come to my attention called the
    Schwartzbein Principle. Not to tout this particular one, but to
    outline the claims that are being made, lose body fat and
    transform body composition. Improve metabolism. Prevent and
    correct chronic conditions and diseases. Reverse accelerated
    metabolic aging. Quit addictions and food cravings and cure
    depression and mood swings.
        The doctor who started out, as she says in her opening
    chapters, urging people to follow the food pyramid and
    discovered that her patients were getting sicker, and then went
    in a different direction and now attacks the food pyramid as
    the problem, gives case studies here, admittedly anecdotal, of
    how cutting back on carbohydrates and increasing consumption of
    the right kinds of fat and protein did, indeed, all of the
    things that are listed on the front of this book.
        Now, I am not going to in any sense suggest that this is,
    indeed, the patent medicine to solve all those problems. But
    coming again and again from a wide variety of folks who look at
    our eating habits, the assertion that Americans consume too
    many carbohydrates and that too many carbohydrates are, in
    fact, responsible for Americans' obesity is something that I
    think needs to be examined.
        Now, you are talking about sending out the pyramid for
    comment, and I think that is a salutary thing because it
    implies that you are open-minded about the pyramid and open to
    further evidence with respect to it. Dr. Murano, you talked
    about getting the best science possible to deal with food
    safety, and what I am raising with you here this morning is can
    we get the best science to deal with this issue of how we eat.
        If, in fact, we as Americans have been moving in the
    direction of the food pyramid starting in the very early years
    of grade school, and it is included in all of the literature
    around and Americans do, indeed, go in this direction, and if,
    in fact, 62 percent of us are obese, I think there is at least
    an indication that we ought to look for the possibility of a
    cause-and-effect relationship here.
        As I say, there is a member of this subcommittee, and I
    will let him speak for himself when he returns if he decides to
    get into this, who has accepted the notion that carbohydrates
    make you fat and has himself lost 20 to 30 pounds as he has
    gone in that direction and says he feels better than he has
    felt for a long time.
        I don't think this is a trivial issue and I don't think it
    is an issue of fad diets, because there is empirical evidence
    in the millions of people who have abandoned a high-
    carbohydrate diet in favor of more protein and more fat in
    their diet who have, in fact, conquered the obesity situation.
    Are they endangering their lives? I know there are some
    physicians who say they are by moving in this other direction.
        This is the bottom line of what I am saying. The place
    where I would like to be able to go to get a definitive answer
    to this question based on the soundest science, the most
    comprehensive tests over the widest range of people, so that it
    is not anecdotal, it is not a doctor saying, ``I treated 12
    people and produced this kind of result,'' but a test that
    stands or passes the challenge of being scientifically sound
    says, this is the way to eat in order to avoid obesity.
        Now, do you have enough budget flexibility to address this
    kind of challenge and do you have access to the kinds of
    scientists who would do these sorts of tests, or are these
    sorts of tests out there so that we can, in fact, turn to USDA
    and say, you are the final word and if you eat the way USDA
    says to eat, you won't get fat and you won't get sick. You will
    improve your metabolism. You will quit addictions and food
    cravings and whatever and you don't need to buy a fad diet
    book.
        Mr. Bost. Mr. Chairman, this is a highly complex and a
    significantly difficult issue, but let me respond to some of
    the things that you talked about. First and foremost, the
    statistics would indicate that 62 percent of all Americans are
    overweight. That means over their ideal body weight. Thirty
    percent are obese. The troubling thing about the 30 percent
    figure is that it took us almost 15 years to go from 20 to 30
    percent. We are anticipating that it is only going to take us
    about 5 or 6 years to go from 30 to 40 percent which is
    essentially 30 pounds over our ideal body weight.
        Senator Bennett. Thank you for correcting me on that. I got
    the wrong statistic.

                   FOOD GUIDE PYRAMID AND DIETARY GUIDELINES

        Mr. Bost. Right. In terms of the Food Guide Pyramid itself,
    it is a guide along with the Dietary Guidelines--they go hand-
    in-hand. The Dietary Guidelines are summarized in a book, that
    has as many as 20 or 30 pages and is currently in the review
    process. The request to nominations to the Review Board just
    went to the Federal Register. The Secretary of Health and Human
    Services and Secretary Veneman will essentially appoint
    scientists, the leading experts in the field, to start the
    process now of reviewing the Dietary Guidelines. That process
    will flow into a review of the Food Guide Pyramid itself, which
    essentially will come under review the latter part of 2004 and
    2005.
        With that said, I think it is really important to note that
    you made reference to three or four different diets. If we go
    into a bookstore today, you will see hundreds of books in terms
    of diets, and the thing that it says to me is the fact that one
    specific diet does not work for everyone. There are some people
    that talk about the Atkins diet, and that works for some
    people. That diet doesn't work for everyone.
        If you decrease what you eat, increase your level of
    physical activity, increase your consumption of fresh fruits
    and vegetables, you will lose weight and you will move toward a
    healthy lifestyle.
        The problem with us as Americans is this. We love to eat.
    We love a good deal--super-size it. We don't like for people to
    tell us what to do, and we don't exercise enough. Instead of
    walking up one flight of stairs, we will catch the elevator.
    Instead of parking at the farthest parking lot when we go to
    the mall, we will drive around for 30 minutes to try to get the
    closest one.
        All of those things contribute to the types of health
    problems that we are experiencing. Last year alone, we spent
    $117 billion in terms of obesity-related health problems
    because we are overweight in this country.
        There are some steps that we are taking, but it comes down
    to essentially this. We need to look at doing some things that
    will result in a behavioral change among all of us, especially
    among adults who essentially make purchases for our children,
    so they can provide healthier alternatives in the National
    School Lunch Program.
        In terms of the Dietary Guidelines, they are currently
    under review. We will bring the best scientists the world has
    to offer to come to the table to have this discussion and to
    provide us with recommendations.
        But the problem is this, and I use this example all the
    time when I go around the country and talk about it. We could
    do a survey this morning in this room and I would guarantee you
    that at least 95 percent of all the people in this room could
    answer this question. What has more calories and fat, a
    doughnut or an apple? But, what are you going to eat?
        The issue is us making informed decisions, striking that
    balance in terms of what we can do to start this issue. It has
    to be a behavior change. All of the diets that you have, all of
    the guidebooks, all of the information that USDA provides, all
    of the information experts provide, is not going to do any good
    unless we follow it, and that is what it comes down to.

                              OVERWEIGHT CHILDREN

        One final point, and specifically regarding our children.
    When we look at the statistics in terms of what has
    significantly contributed to the issues of our children being
    overweight, it comes down to a couple of things, increased TV
    watching and increased computer use. There is only one State in
    the country right now that has mandated physical education in
    schools K through 12, Illinois. Our kids don't go outside and
    play and there is a limited level of physical activity among
    them. They don't walk to school anymore and they eat all the
    wrong things. As parents, we have to take some responsibility
    for that because we buy the food that our children eat at home.
    All of those factors contribute to the types of health problems
    that we are experiencing.
        I don't want to paint the picture that we are not doing
    some things and that we are not taking some steps to address
    this issue because in the National School Lunch Program and the
    reauthorization of the Child Nutrition Programs, we put some
    recommendations forward to Chairman Cochran's committee that I
    know they are considering. But it starts with adults taking
    some personal responsibility for addressing this issue, and
    that is what we are trying to achieve in terms of having that
    behavioral change.
        A personal example, 3 years ago, I lost 70 pounds. I could
    not do the Atkins diet. It did not work for me. I went to a
    low-calorie diet where I decreased the amount of calories that
    I took, and increased my physical activity. Not everything
    works for everyone, and that is why it is called Dietary
    Guidelines.
        In the Food Guide Pyramid itself, it says serving size.
    There was an article just this week alone talking about the
    average serving size for some things is less than 2 or 3
    ounces, but as an American--the perfect example, and I promise
    I will be quiet on this, is people say, well, I have stopped
    eating that doughnut for breakfast. I eat a bagel now. Have you
    seen the size of bagels in this country?
        Five hundred, 600 calories. You are not going to lose any
    weight by eating a 700-calorie bagel in the morning as opposed
    to a doughnut. In some instances, it would be better for you to
    eat the one doughnut.
        Senator Bennett. I can see that----
        Mr. Bost. I know more about this subject than I want to
    know.
        Senator Bennett. I can see that I touched a hot button.
        I want to observe the time limit more strictly than I did
    in my previous hearing, so I will wait for a later chance to
    follow up, but thank you for your attention to this issue and
    for your personal passion to see to it that we address it.
    Again, my only closing comment is I want to be able to look to
    USDA as the real expert rather than the bookshelf, where there
    are dozens of experts shouting for my attention. I would hope
    that the pyramid and the guidelines would be based on the very
    best information and that people would be open-minded to some
    of the suggestions that we take a look at how many
    carbohydrates we do have recommended.
        Senator Kohl.

                            CHRONIC WASTING DISEASE

        Senator Kohl. Thank you very much, Senator Bennett.
        Mr. Hawks, in February of 2002, chronic wasting disease was
    discovered, as you know, in Wisconsin deer, and today, we have
    more than 200 positive cases identified. Last year, this
    subcommittee provided nearly $15 million in APHIS funding to
    respond to this disease all across the country, and Wisconsin's
    share of it was a little bit more than $800,000 out of the $15
    million.
        Wisconsin officials are in constant contact with us here
    and they have informed us that they need over $5 million in
    fiscal year 2004 for continued chronic wasting disease testing
    and monitoring. Do you intend to respond to their needs?
    Particularly now with the outbreak of something like mad cow,
    we understand how important it is to ensure the safety of our
    animals in this country, and testing, diagnosis, and research,
    as you know, are the most critical factors here. Money is what
    it takes to get that done. How do you respond?
        Mr. Hawks. Senator Kohl, I certainly enjoyed being in
    Wisconsin with you last year and doing a press conference with
    you there in Madison as this became high on all of our radar
    screens. As you are aware, we worked with you and other members
    of the delegation from Wisconsin, with Wisconsin being a high
    prevalent State, a State that causes great concern to all of
    us.
        We will take the appropriate action, but the amount of
    funds that we have, the resources, Wisconsin will certainly--we
    will respond to your needs.
        Senator Kohl. I know it is hard for you to be specific and
    I know how tight money is, but you can expect, and I am sure
    you can appreciate, how I will be on you and at you with a
    sense of urgency to try and find some way to increase the
    amount of funding that we can get in Wisconsin.
        Mr. Hawks. I certainly understand and certainly appreciate
    that, Senator, and I look forward to working with you. As this
    Committee goes through the appropriation process, we will make
    sure that it is appropriately addressed.
        Senator Kohl. Thank you, Mr. Hawks.

                                      BSE

        Mr. Hawks. Thank you.
        Senator Kohl. To get back to BSE, exporting beef from
    Canada into the United States is a huge industry up there. In
    fact, almost 80 percent of the beef that they raise winds up
    getting exported to the United States for our consumption. So
    their testing procedures, of course, are critical, and now we
    have found out that a test that was administered in January
    finally evidenced a result in May, that there is at least one
    case up there of mad cow disease. But how they test and how
    frequently they test, how accurately they test is of enormous
    importance to us. It is at the same level of importance to us
    as how we test here in the United States.
        So Mr. Hawks, you must have some great concerns about that,
    and perhaps you do also, Dr. Murano, and I think we would like
    to hear about your thoughts and what your intentions are with
    respect to ensuring the American eating public that the beef
    that is imported here from Canada, which is, as I said, an
    enormous quantity, is safe. Mr. Hawks?
        Mr. Hawks. Yes, sure, Senator Kohl. We do have concerns
    which obviously show in the actions that we took just the day
    before yesterday. From USDA, we have five veterinarians that
    are in Canada or that will be there today. Four of them is from
    APHIS. One of them is from FSIS to try to work with our
    counterparts in Canada to look at their testing protocols and
    to make sure that we are doing everything we can to assist in
    this situation.
        So we do have those concerns, but the fact of the matter
    is, here in this country, we feel extremely confident of our
    testing regimens, our protocols that we have in place. As I
    stated in my opening comments, last year, we did a little over
    20,000 tests on the most likely candidates for BSE, and they
    were all negative. We are on track to do a few more tests than
    that this year. Compared to standards recognized by the Office
    of International Epizootics, we are testing four times the
    amount.
        So we feel real confident, but also recognize that we must
    work with our Canadian counterparts to make sure that their
    testing is appropriate, as well. I will ask Dr. Murano to
    address the food safety issue because I deal with the animal
    disease component, so I will get Dr. Murano to answer that.
        Senator Kohl. Dr. Murano.

                              IMPORT REINSPECTION

        Dr. Murano. Senator Kohl, certainly, you know that import
    inspection, or reinspection, as we call it, of meat and poultry
    that is imported into the United States is an extremely high
    priority with us at FSIS.
        When this incident happened this week, I will tell you that
    I was on the phone with our counterparts in the Canadian Food
    Inspection Agency telling them, first of all, to explain to us
    what took so long to get that test result, and the basic answer
    for them is that it was in the pipeline for them to get the
    sample analyzed. So it wasn't that they held onto it or
    anything to that effect, but that is not good enough. If they
    have a backlog with their testing, they have got to do
    something about it, and if we need to help them, then that is
    what we need to do. That is on the animal testing.
        On testing that we do to ensure that there is no central
    nervous system tissue in products, they are also responsible
    for doing that and this is something that I have personally
    spoken to them about to say, this is something you must do. You
    must be on top of it. We will lend you all the assistance that
    we can. If you need us to help you with the training of your
    laboratory people so that you have more people to do this,
    whatever it takes is what we will do.
        Senator Kohl, in our budget request, for example, for this
    year, we have requested $1.8 million to increase the number of
    foreign program auditors from FSIS. It is because of that
    commitment that we have to ensure that it shouldn't matter
    where your food came from that is at your table at dinnertime.
    It is the USDA's responsibility to make sure that the food
    supply is as safe as possible, and that includes, obviously,
    making sure that what is imported undergoes the same rigorous
    oversight and scrutiny as the food that we make for ourselves
    right here in the United States.

                          FOREIGN FOOD SAFETY SYSTEMS

        Senator Kohl. I would agree, no question as a matter of
    principle. Would you say, based on all the information you
    have, that the beef that is imported from Canada undergoes the
    same safety inspection as the beef that we raise here?
        Dr. Murano. It does, and I can tell you that because we
    audit their program on at least annual basis, not only in
    Canada but other countries. We are in Mexico this week, for
    example, as part of our regular auditing function.
        So that is our responsibility, to make sure that these
    countries that export meat and poultry to the United States
    have equivalent systems. That means they have to have an
    inspector in every plant, every day. They have to have a HACCP-
    based system, which is a preventative system that our meat and
    poultry plants here in the United States have to have, with our
    verification being conducted through microbiological testing
    and so forth. They have to have all of that the same as we have
    here in the United States, and they do in Canada.
        Senator Kohl. Well, not to pursue it unduly, but we have a
    testing system that gives us a result in how many days? Mr.
    Hawks.
        Mr. Hawks. Yes, sir, Senator Kohl. I probably should have
    responded to that one. Eight days, and we have no backlog, so
    when----
        Senator Kohl. That is great.
        Mr. Hawks [continuing]. We take a sample here, we get the
    result within 8 days.

                                  BSE TESTING

        Senator Kohl. But they apparently have a testing procedure
    that yields a result in several months? Or is there something
    here that we are not tracking?
        Dr. Murano. No, as I was explaining, and Mr. Hawks can tell
    you more, the test that you are referring to is on the animal.
    It is not something we do at FSIS. It is akin to the APHIS
    surveillance that they do on animals.
        So my understanding from the Canadians is that they had a
    backlog of samples to analyze. It is not that their test is any
    different than ours. It is the same test. But their backlog
    caused their delay in having that sample collected in January,
    not analyzed until now.
        Senator Kohl. But that kind of a backlog would not be
    tolerated by you here.
        Dr. Murano. No.
        Senator Kohl. So that the fact that they have it up there
    is as intolerable as it would be if it were true here in the
    United States, because as I said, 80 percent of the cattle that
    they raise winds up being exported to us. So whatever problems
    they have are our problems, isn't that true?
        Dr. Murano. I think you are absolutely right. The testing
    of the products, of the meat and poultry that I referred to,
    they have the same systems that we have, with no backlog. This
    is a testing of the animal, and I will defer to Mr. Hawks to
    get his comments as to what he believes in terms of their
    programs in animal health, what should be the equivalence that
    is expected of other countries.
        Mr. Hawks. Yes, sir. I think they have adequate testing in
    place, but obviously, this cow was actually slaughtered on the
    31st of January. The conditions of the cow--it was not
    suspected, it was not showing neurological signs--so it was a
    routine surveillance method.
        Having said that, I will back up and say again that we do
    our routine surveillance within 8 days of the sample being
    taken. So it is something that obviously we should be
    addressing with our counterparts in Canada.
        Senator Kohl. Thank you. Thank you, Mr. Chairman.
        Senator Bennett. Thank you. Senator Cochran?

                              FSIS BUDGET REQUEST

        Senator Cochran. Mr. Chairman, I am impressed with what we
    have heard this morning, particularly with respect to food
    safety issues. I am interested to know, however, whether or not
    the budget request is going to be sufficient for us to continue
    to maintain the high-quality procedures and processes that we
    now have in place and are using to ensure that our food supply
    is safe and wholesome and fit for human consumption. Mr. Bost,
    I guess we should ask you that, or Dr. Murano.
        Dr. Murano. Certainly, Mr. Chairman, you know that this
    2004 budget request is really a record-level increase in our
    budget that the President is requesting. It is $42 million over
    what we had before, and so in these times of budgetary
    constraints and fiscal conservatism, if you will, it shows a
    commitment of this Administration that we are putting so much
    importance in food safety that we are asking for record level
    funding for the Food Safety and Inspection Service.
        It has to do not only with adequately being able to pay the
    salaries of our inspectors, who do the work of food safety out
    in the field and are the ones who deserve all the credit for
    our accomplishments.
        But also, we are requesting money to conduct baseline
    studies, to continue the science-based policy making that we
    have been undertaking over the last couple of years and money
    to really overhaul the training of our inspectors, which is
    very much needed. That is money that is so crucial to have
    because it will ensure that our inspectors continue to be the
    best trained and that they continue to avail themselves of the
    state-of-the-art knowledge in food safety implementation so
    that they can continue to do a good job. We are also requesting
    money for additional microbiologists and laboratory personnel
    so that we can continue to do all the work that needs to be
    done in laboratory sample analysis and so forth.
        So, we are very confident that these requests are certainly
    what we need to meet the challenges that I mentioned in my
    opening remarks.
        Senator Cochran. Thank you.

                                  FOOD SAFETY

        Mr. Bost. And Senator Cochran, let me add to that. We all
    have a very important part of the food safety picture in this
    country and we want to ensure that all the food, that is
    supplied to our school children is safe. For my piece of it, by
    the time we get it, most of the issues are directly related to
    the handling of the food itself.
        As I testified in front of you, I guess about a month or so
    ago, what we want to do is to ensure that staff who work in the
    National School Lunch Program receive a high level of training
    so that they can ensure that the food that they receive remains
    safe. And so our request is to ensure that we do that. We
    believe that we have the resources to do that. We can always--I
    am not going to say that you ever have enough, but we could
    always use more, but we think we have adequate funding to start
    that process for food safety persons.
        Senator Cochran. Mr. Hawks.
        Mr. Hawks. Yes, sir, Senator Cochran. It is certainly a
    pleasure to be here and to respond to questions from a friend
    from Mississippi. We feel like this Committee and this Congress
    have been extremely generous with us over the past 2 years.
    Since coming here for the supplemental defense appropriation,
    we were able to take those funds to improve our laboratory
    conditions, to improve our surveillance methods. We were able
    to work with the States. So we think that we have adequate
    funding. The President's budget is adequate to continue this
    process.
        I would like to, if I may, take the time to go back just a
    little bit to the BSE and say that, for the record----
        Senator Cochran. Can you tell us how to pronounce what that
    stands for?
        Mr. Hawks. Bovine spongiform encephalopathy, you have got
    it, Senator. I pronounced that in Paris on Sunday and my staff
    that was with me told me that I need to practice, so I have
    been practicing before coming here today.
        But that particular animal did not go into the food chain.
    While there was a delay in testing, that animal did not go in
    the food chain, so I think that is important for me to point
    out. It's just an oversight on my part earlier.
        Senator Cochran. Thank you very much. I appreciate the good
    job you continue to do, as well.
        Senator Bennett. Senator Johnson?

                         CANADIAN LIVESTOCK PROHIBITION

        Senator Johnson. Thank you, Mr. Chairman.
        Would it not make sense to maintain the prohibition on
    Canadian livestock and meat exports into the United States
    until the United States can be comfortable that they have
    eliminated their backlog and that their inspection regime is
    essentially on a par with that in the United States?
        Dr. Murano. Well, Senator, let me make sure that everybody
    understands. Their inspection of products, beef and poultry
    products, is the same as the United States. The issue at hand
    here is on the live animal, and the animal disease surveillance
    program that they have. And certainly, we need to make sure
    that there is no question in anybody's mind as to whether all
    the facts have been ascertained in terms of any cases of BSE
    anywhere in the world, Canada, or any other countries.
        And so I will venture to say that the Secretary of
    Agriculture will certainly be very cautious in lifting that
    ban. She will take all the information that is available as it
    comes in terms of the samples that are still in the backlog and
    other information that is appropriate and will not do anything
    until she is confident that it is safe to lift that ban, and I
    will guarantee you that that is exactly what she is thinking.
        Senator Johnson. Well, it concerns me that they may use the
    same science ultimately as we use in the United States, but if
    there is a 4-month backlog in this particular instance, that
    gives rise to great concern that what would have happened if
    that animal had been exported into the United States during
    that interim period.
        Dr. Murano. Well, that animal would not have, because
    remember, it was an animal that had pneumonia and when the
    animal was put down, the normal thing that happens, just like
    we do here in the United States, those animals are condemned.
    Any animal that is diseased is not allowed in the food supply,
    whether it is BSE, pneumonia, or anything. So that animal would
    not have entered the food supply anyway. It just so happens
    that as they tested it, it came out positive for BSE.
        Senator Johnson. When we say the animal is not in the food
    supply, just so I understand this, it is my understanding that
    the carcass of this animal was, in fact, ground up and used as
    animal feed. Is that correct or not correct?
        Dr. Murano. I understand, that it did not enter the human
    food supply. So let me allow Mr. Hawks to tell you more about
    that.
        Mr. Hawks. Senator, I am under the impression that that
    animal, as we said, did not go into the food chain. I would
    have to clarify what actually happened, in the rendering
    process. So I apologize for not having that answer.
        Dr. Murano. But it certainly did not----
        Senator Johnson. One of my concerns would be if that did,
    in fact, wind up as animal feed, that, in turn, then, was--
    whether there are animals that could have fed on that.
        Dr. Murano. I follow you, and that would not happen because
    Canada has a feed ban, just like we do.
        Senator Johnson. All right. I appreciate your response
    here. It would appear to me that because of the 4-month
    backlog, however, our Canadian friends have some work to do----
        Dr. Murano. Yes, they do.
        Senator Johnson [continuing]. In order to allow our
    consumers to have the confidence they deserve to have, and I
    would hope that our USDA will be very aggressive in working
    with Canada in that regard.

                           COUNTRY OF ORIGIN LABELING

        Mr. Hawks, on the country of origin labeling issue, in
    general terms, the United States only imports around 2 million
    head of live cattle but slaughters 28 million head. Obviously,
    most of the cattle we slaughter are of U.S. origin. Doesn't it
    make sense to USDA that tracking of 2 million imported cattle
    would be less costly than keeping track of the 28 million
    within the United States?
        Mr. Hawks. Senator, I certainly understand your question,
    and having been through several of these country of origin
    listening sessions, I will say to you that I am committed. I
    will personally be at those sessions, or my Administrator of
    AMS will be at every one of those to listen and to hear the
    comments.
        But to be very candid with you, it is the assessment of our
    attorneys that we could not do that as the law is written
    simply because it requires all products to be labeled with
    country of origin. So the law does not allow us to do that, as
    written.
        Senator Johnson. It would seem--many of my constituents
    have suggested if you label imported animal, then it is obvious
    that the other animals are, in fact, United States animals.
        Mr. Hawks. That is understood, but as we have had numerous
    sessions with our attorneys to help us interpret the law as
    written, it requires every product in the retail market to be
    labeled. And then it is the specificity of the law--born,
    raised, and slaughtered. It is giving us great difficulty to
    look at it from that perspective.
        Senator Johnson. The country of origin labeling law gave
    USDA discretion to create an audit verification system, but not
    a mandatory system, to help verify the origin of livestock. We
    included many existing industry practices and USDA programs to
    model in order to achieve voluntary audits. Some of these
    models include the USDA grade stamp program, that is to say,
    ``choice,'' ``select,'' et cetera, ``certified Angus beef'' and
    other breed programs, beef quality assurance, Hazard Analysis
    Critical Control Points, HACCP, the National School Lunch
    Program, the Market Access Program, and the voluntary born and
    raised in the USA label used by Carolyn Kerry of California.
        To what extent is USDA looking at using these existing
    models rather than reinventing the wheel to implement country
    of origin labeling?
        Mr. Hawks. Senator, as I said, as we go around the country,
    we are listening to all of the concerns, the issues that are
    being raised. So we are evaluating everything that is out
    there. However, the requirement is a retail labeling law, so it
    is controlled more from the retail, and the law also goes on to
    say that everyone that is supplying product into that retail
    market is required to provide the verifiable information as to
    the country of origin.
        So we will be continuing to look at all of these and try to
    come up with something that is reasonable, but it is actually
    the retail market that is going to drive that.

                             ANIMAL IDENTIFICATION

        Senator Johnson. Would you agree that the law prohibits on-
    farm mandatory animal identification and does not permit third-
    party mandates by packers?
        Mr. Hawks. I will agree that it absolute prohibits
    mandatory identification for the purpose of country of origin
    labeling. As to the third-party audits, I would say that that
    is a proven practice. It is something that is not unreasonable
    and I would say the retailer would have the right to require
    that in that case.
        Senator Bennett. The time is expired----
        Senator Johnson. My time is expired. I will continue with
    some other questions and we may submit at a later time, as
    well. Thank you, Mr. Chairman.
        Senator Bennett. We can come back to this. I want to pursue
    this same question on a quick second round because I think
    Senator Johnson is focusing on one of the most contentious
    problems we deal with. A number of producers are in favor of a
    system that would allow farmers to self-certify. In your
    opinion, is self-certification legal?
        Mr. Hawks. In my opinion, self-certification in and of
    itself would not fulfill the requirement.
        Senator Bennett. Congress made the law. Congress can unmake
    the law. If we should amend the law to allow self-
    certification, do you think that would be adequate to achieve
    the goals that we are looking for here?
        Mr. Hawks. Senator, as you say, Congress makes the law. It
    is my job to implement it. So as you move forward, any
    decisions that you make, I would be happy to work with you to
    help implement those provisions that you put in.
        Senator Bennett. You are beginning to sound a little bit
    like Mr. Greenspan who testified before us yesterday at the
    Joint Economic Committee.
        But let us assume that Congress changes the law and allows
    self-certification. Do you have any idea of how farmers' would
    handle animals that are commingled?
        Mr. Hawks. The animals that are commingled would cause a
    real serious problem as I see it. If you have animals coming in
    from Canada, if you have animals coming in from Mexico and then
    you have a self-certification, I think it would be very
    difficult because it is ultimately the farmers responsibility
    to provide that chain of custody, that information up through
    the system to the retailer. So it could potentially be
    problematic.
        Senator Bennett. And the $10,000 fine per violation, it is
    the retailer, not the----
        Mr. Hawks. The fine would hit the retailer, that is
    correct, but that fine would also fall back on the supply chain
    as you go up, as well, because the law also requires those in
    the chain to provide information to that retailer--it actually
    mandates that they provide that information to the retailer. So
    then they would be subject to fines, as well. So it is sort of
    like a domino effect.
        Senator Bennett. I see. So the retailers probably would not
    accept self-certification?
        Mr. Hawks. It would be probably difficult. If I was a
    retailer, I would be very cautious in accepting that.
        Senator Bennett. Okay. Thank you.
        Does anyone else want a second round on this panel?

                    FRESH FRUIT AND VEGETABLE PILOT PROJECTS

        Senator Kohl. I would just like to ask Mr. Bost one quick
    question, Mr. Chairman. Mr. Bost, the 2002 farm bill provided
    $6 million for a fresh fruit and vegetable pilot program for
    the 2002-2003 year. The program provided fresh fruits and
    vegetables free to children in 107 elementary and secondary
    schools across four States. Preliminary evaluation of the
    program by USDA indicated that it was a very successful program
    and that, overwhelmingly, the schools hope that it could be
    continued as well as expanded to other schools. Do you have
    plans to do that?
        Mr. Bost. The formula, as you noted, essentially provided
    us with the authority to do it this year and it was supposed to
    end. I believe that both the House and the Senate have approved
    an extension of the $6 million that was appropriated, so the
    program will go on until it is complete.
        As a part of the Child Nutrition reauthorization, as I
    testified in front of Chairman Cochran about a month or so ago,
    we are looking at the possibility of extending these pilot
    projects in those existing States and also adding two or three
    additional States. The question is going to be where we get the
    money from. It was very well received by administrators,
    educators and teachers. The children loved it. It has been one
    of the most successful nutrition programs that we have
    implemented since I have been Under Secretary in terms of the
    positive feedback that we have received.
        In addition the program is also being implemented and
    carried out on one of our Indian reservations, and very well
    received there, too.
        Senator Kohl. If you are as enthusiastic as you say you
    are, and I believe that is true, I would like to work with you
    to see that we get some additional funding, not only to
    continue with the program but to expand it and grow it.
        Mr. Bost. We are always happy to work with you.
        Senator Kohl. Thank you.
        Mr. Bost. Thank you.
        Senator Bennett. Senator Johnson, do you want to----
        Senator Johnson. No.
        Senator Bennett. Thank you all. We appreciate, again, your
    testimony and we appreciate your willingness to render public
    service to the citizens of the country.
        Mr. Bost. Thank you, Mr. Chairman.
        Dr. Murano. Thank you.
        Mr. Hawks. Thank you.
                    DEPARTMENT OF HEALTH AND HUMAN SERVICES

                          Food and Drug Administration

    STATEMENT OF HON. MARK B. McCLELLAN, COMMISSIONER
    ACCOMPANIED BY JEFFREY WEBER, ASSOCIATE COMMISSIONER FOR MANAGEMENT AND
                SYSTEMS

        Senator Bennett. We will now proceed to hear from the
    Commissioner of the Food and Drug Administration, who has been
    very patient with us listening this morning.
        We are happy to welcome the Honorable Mark McClellan, who
    is the Commissioner of Food and Drugs, accompanied by Jeffrey
    Weber, the Associate Commissioner for Management and Systems at
    the Food and Drug Administration.
        Mr. McClellan, thank you very much for your willingness to
    sit through the earlier conversation. I am grateful to you for
    your willingness to do that. I think given the concern about
    food and safety that is currently highlighted in the news, it
    is important that we demonstrate that FDA and USDA are both on
    the same page. We need to have something of a calming effect,
    if we can, on some of the hysteria that seems to arise whenever
    the media gets something of this kind.
        Thank you for being with us and we look forward now to your
    testimony.
        Dr. McClellan. Thank you, Mr. Chairman. I am happy to be
    here. I enjoyed the opportunity to sit with very capable staff
    from USDA that we work with very closely.
        It is a pleasure to be here with you today, Mr. Chairman,
    Senator Kohl, Senator Johnson, for my first Senate
    Appropriations hearing on FDA's budget, and I understand it is
    your first as Chairman of the subcommittee, as well. Hopefully,
    this is the start of a great new tradition. I am sure that you
    are enjoying your new responsibilities as much as I am enjoying
    mine. We are all making a very real difference in people's
    lives.
        FDA is a vitally important public health agency. All
    Americans have long depended on us to have confidence and the
    safety and security of many products they use every day and
    many that they depend on for improving or even saving their
    lives.
        Mr. Chairman, you have a detailed statement for the record.
    This morning, I would just like to highlight some of my top
    priorities for the agency. These priorities are from the FDA's
    new strategic action plan, which reflects the ideas of our own
    staff, the public health priorities of the Secretary and the
    President, and special concerns that I have heard about from
    many of you and your very capable staffs.
        First, to do the most effective job possible, FDA must base
    its regulatory work on the principle of efficient risk
    management. That is kind of a mouthful for a principle, but the
    idea is to use the latest biomedical science and risk
    management science to find the best ways to reduce the risk
    facing the public and to do it as efficiently as possible.
    Since our challenges and the new opportunities we face are
    greater than ever, this use of up-to-date science is essential
    in enabling the agency to fulfill its mission.
        We are regulating more and more complex food products than
    ever before. Over the past decade, the number of food import
    shipments has increased more than four-fold. We are expecting
    over six million shipments in 2004. Americans are eating more
    diverse fresh, uncooked products than ever, and we have got to
    focus not just on the safety of our food supply, but on its
    security against deliberate attack.
        We are facing a broader array of more complex medical
    products than ever before. The traditional distinctions between
    drugs and devices are breaking down as we see more products
    that include both. The traditional methods of bringing
    blockbuster drugs to market are in the process of being
    replaced with more sophisticated methods based on new
    breakthroughs in genomics and proteomics that will lead to more
    individualized patient treatments in the years ahead. The
    doubling of the NIH budget over the past 5 years promises the
    development of even more valuable treatments going forward.
        The products that we regulate, including foods and medical
    treatments, are increasingly important in international trade
    negotiations and in steps to make the global markets for
    medical products more efficient. This is all potentially very
    good news for Americans. More diverse and innovative products
    hold the promise of better, longer, more fulfilling lives, but
    that promise will only be fulfilled if the agency continues to
    fulfill its responsibilities to help make sure that all of
    these products are safe and can do what they are supposed to
    do.
        As we face these increasing responsibilities, it is
    critical for the agency to get the most out of our limited
    resources through regulatory processes that do as much as
    possible to reduce the risk facing the public and to get the
    most bang for our regulatory buck. Recent legislation supported
    by your appropriations in the 2003 budget provide new
    opportunities for us to do this through our expanded food
    security authorities and personnel, through newly implemented
    legislation on pharmaceutical and medical device user fees, and
    through other new initiatives on such critical topics as
    patient safety. We owe it to the American public to make the
    most of these new opportunities.
        We are seeking to improve the quality and efficiency of the
    process of developing new medical technologies. We are also
    conducting a major overhaul of our oversight of the processes
    that medical manufacturers rely on to help ensure that medical
    products are safe and effective and of high quality. We are
    implementing a new risk-based import security strategy. We are
    taking new steps on many other pressing issues, ranging from
    bioengineered products, to dietary supplements including
    ephedra, to generic drugs, to veterinary medicines, in all
    cases using the best science and our statutory authorities to
    make sure the agency is having the maximum impact on the public
    health that is possible under the law.
        At your request this morning, I want to add some remarks
    about bovine spongiform encephalopathy, BSE. It is a good
    example of our use of risk management techniques quickly and
    effectively to be prepared for new public threats. Since the
    early days of this disease, FDA and USDA have worked
    aggressively to protect Americans from BSE and to develop and
    evaluate contingency plans for further developments in the
    course of the disease. With the most recent news of a single
    BSE-positive cow in Northern Alberta, we are responding
    immediately with additional steps for the protection of the
    American public.
        These include, first, adding Canada to the list of
    countries in FDA's import alerts related to BSE. Under these
    alerts, FDA stops a wide variety of products, such as animal
    feed and human food with bovine-derived materials from being
    imported into the United States from BSE countries.
        Second, we are using the FDA's BSE response plan, which has
    already been developed, for guidance on responding to this
    threat quickly and effectively.
        Third, we are communicating closely with Canadian
    officials. We have offered to send FDA experts to Canada, as
    well, to assist them in their investigation and to learn from
    this case. As we learn more of the facts of this incident in
    Canada, we will continue to act promptly to assure that
    scientifically-appropriate safeguards in place in the United
    States will protect the public health as effectively as
    possible.
        As you know, BSE does not spread naturally from cow to cow.
    Instead, the infectious agent is passed only when a BSE prion-
    infected protein from a rendered BSE-infected animal is added
    to animal feed and subsequently fed to cows. So fourth, and
    most importantly in our response, our animal feed rule
    prohibits the use of most mammalian protein in feeds for use in
    ruminant animals, such as cow. This rule has become one of the
    essential firewalls against the spread of BSE in the United
    States, as Senator Johnson noted. Even if an infected animal
    were ever to be found in the United States, and none have been,
    this rule would prevent the spread of the disease.
        In the past several years since the data was collected that
    the GAO report relied on, the report that Senator Johnson
    mentioned from 2002, we have taken a number of steps to respond
    to the concerns raised there. I agree with you, Senator
    Johnson, that we need to be extremely vigilant on this issue.
        So we have ramped up our inspections of animal feed
    manufacturers, feed mills, all other firms responsible for
    keeping--that use ruminant protein to make sure that it stays
    out of cattle feed, and at this point this morning, I can
    report to you that we have 99.3 percent compliance. That is 0.7
    percent of the inspections of all of these firms, this entire
    universe of firms handling the bovine material related to feed,
    that may be out of compliance, and for those small fraction
    that are out of compliance, we are following up very quickly.
    We have had follow-up visits within 30 days to these firms. We
    have issued 59 warning letters involving 42 product recalls
    involving 241 products.
        So we are very much concerned with making sure this program
    works effectively. We are spending $22 million on this program
    this year. Our inspectors are working with the States closely.
    We have conducted a number of training sessions. We have
    developed a standardized form. We are implementing checks to
    make sure that all of the inspectors doing these activities,
    the Federal inspectors from FDA as well as our State partners,
    are following consistent and appropriate procedures in their
    inspectional activities.
        And just to be clear, these inspections cover all of the
    issues that you raise. There can be no commingling of
    materials, no mislabeling of foods containing prohibited
    materials in order for a firm to be in compliance, and we
    expect 100 percent compliance. We are pushing and aiming for
    full compliance. We are inspecting every plant every year to
    make sure they are in compliance and we are doing rapid follow-
    ups on the small number of plants that are not.
        Our work on BSE underscores the fact that FDA is, above
    all, a public health agency. So let me mention again a few of
    the other top priorities here at FDA.
        One of these areas is patient safety, preventing adverse
    events. Improper use of pharmaceuticals alone accounts for
    thousands of deaths, millions of hospitalizations, and many
    billions of costs and avoidable medical complications each
    year. FDA has recently announced a set of new programs to
    reduce preventable adverse events involving the products that
    we regulate, and that includes preventable food illnesses and
    reactions as well as medical adverse events.
        A third priority for us is getting better information to
    consumers about how they can improve their own health, and you
    all have already touched on that in the previous panel this
    morning. We all know that informed consumers are our greatest
    public health asset. By making the right decisions, individual
    Americans can do more to improve their health and their quality
    of life than the newest medical technology can do for them
    overall from a public health standpoint, as powerful as those
    new technologies may be. And we are taking many new steps to
    help the public get the best science-based information about
    the health consequences of the products that we regulate.
        The fourth priority involves protecting the country against
    terrorism. There is no challenge more urgent in this post-
    September 11 world than to engage in the steps needed to
    protect our citizens from deliberate attacks that may involve
    the food supply and to provide good medical countermeasures for
    the agents of terrorism. We are putting in extra hours in many
    of our medical products centers to make available safer, more
    effective treatments and prevention methods for biological,
    chemical, and radiological attacks. We are also an integral
    part of the President's proposal for Project BioShield to
    create the next generation of better, safer medical
    countermeasures as quickly as possible.
        Of course, our largest anti-terrorism program involves the
    security of our food supply. Through new statutory authorities
    and new regulations that we are in the process of issuing right
    now, as quickly as possible, and new personnel as well as new
    strategies to make our food supply not only safer, but more
    secure, we are trying to provide a new level of security for
    the American food supply against deliberate kinds of attacks on
    it.
        Finally, the most important resource our agency possesses
    is its talented and dedicated professional staff. Some of our
    most important dedicated professionals are with me here this
    morning a couple rows behind me. There are some new faces in
    our program. There is Jeff Weber's face, which is not new but
    is a very effective one in working with us and working with
    your Committee. We are working hard to attract support and
    retain highly qualified professionals in order for the agency
    to be able to adapt and carry out all of the activities that I
    have outlined. We need to provide the most public health
    protection for every public health dollar invested and our
    staff is the first and the most important part of fulfilling
    that mission.
        So I appreciate your attention this morning to FDA. I can
    assure you that the priorities that we discuss are going to
    guide our agency's actions during my tenure as Commissioner. We
    have a budget request of $1.7 billion to support these top
    priorities as well as our other safety and security mission
    activities. It includes a set of proposals, new initiatives
    that I won't go through in any more detail now. You have got
    them in front of you.
        But I want to conclude by saying that I very much look
    forward to continuing to work with this subcommittee to achieve
    our mutual goal of moving FDA forward, because that is so
    important for protecting and promoting the health of Americans.
    Thank you for your time this morning.

                               PREPARED STATEMENT

        Senator Bennett. Thank you very much and for your response
    to the issue that we discussed in such detail with the first
    panel. That is very helpful.
        [The statement follows:]

                    Prepared Statement of Mark B. McClellan

        Mr. Chairman and distinguished members of the Subcommittee, I am
    honored to be with you today as we discuss FDA's 2004 budget request. I
    want to thank you for your interest in the Food and Drug Administration
    and to reaffirm the importance of the FDA and its enormous contribution
    to our nation's health.
        As a practicing internist and a former professor of both economics
    and medicine I was well aware of the importance of the FDA and its
    enormous contribution to our nation's health. Now, as the Commissioner
    of FDA, I have quickly come to understand that ensuring adequate and
    properly targeted resources is vital to the continued success of the
    agency and the success of the President's efforts to promote quality
    health.
        I find it a rewarding and exciting time to be at the FDA. The
    challenges we face in promoting and protecting the public health are
    greater than ever. The agency is charged with regulating activities
    which have increased in volume and complexity, a trend likely to
    continue. There are additional drugs and medical devices available to
    save and improve lives, and even more to come. There are increasingly
    diverse food products--giving consumers more food options to meet their
    needs more productively than ever. And we are adding to these choices
    by importing a larger volume and greater diversity of foods than ever
    before. There are also broader choices in cosmetics.
        The result is, Americans have more opportunities to improve and
    enjoy their lives--and these are good things for Americans. At the same
    time, however, they present unprecedented challenges for FDA in meeting
    our regulatory responsibilities. Even as the complexity of these
    products increases, we must continue our commitment to making sure safe
    and effective new food and drug products reach consumers in a timely
    fashion. We have responsibilities over 20 percent of the consumer
    economy--an amount that's growing every year. All of this has immensely
    complicated FDA's mission. The FDA also must think critically and
    carefully about how it uses its resources to improve the public health.
    Mastering this great responsibility in the 21st Century requires FDA to
    meet some unprecedented challenges.
        I believe there are five major steps we need to take to conquer the
    challenges we face. A strong FDA that attracts and retains the most
    talented scientists; dynamic and responsive regulation utilizing new
    and better ways to reduce risks to the public health; promoting quick
    access to new medical technologies that are safe and effective thus
    helping to reduce adverse events involving FDA-regulated products;
    helping consumers get truthful and non-misleading information about the
    products they use; and, quick responses to the more pressing challenges
    of bioterrorism and food security. These are among the many critical
    steps the agency must take as it looks forward into the 21st century. I
    would like to first cover the challenges and our strategic planning
    effort, which include these steps, and then will discuss the specifics
    of FDA's budget request.

    Strategic Planning
        To meld it all together--the new challenges, the new opportunities
    and the steps to be taken, we have undertaken a major strategic action
    plan within the agency utilizing creative thinking from inside and
    around the agency we have undertaken a major strategic action planning
    effort. Under the leadership of FDA's Executive Council we established
    five broad strategic goals to frame the Agency's future. FDA's
    leadership is now finalizing a strategic framework to identify
    objectives and strategies within each of these goals. Cross-cutting
    work groups, led by members of the senior management team, were
    established for each goal area. Each group initiated its work based on
    the Secretary's and my priorities, proposed initiatives, and a broad
    range of objectives and strategies that are already underway or
    proposed in recent planning initiatives. Our steps have included
    leadership development of agency strategic objectives; development of
    the long-range strategic plan based on the framework; and translation
    of the strategic plan into a specific action plan for the remainder of
    fiscal year 2003 and 2004. This effort encompasses the 5 critical
    challenges and lays the foundation for our action plan. I look forward
    to discussing this with you as this effort matures. Now lets review the
    steps we are taking to address the challenges ahead.

    Strong FDA
        The critical challenge for a strong FDA remains. Essential to the
    success of the agency is its professional workforce and their ability
    to maintain a high level of public trust in FDA's activities. Two-
    thirds of the money we're appropriated each year is spent on our
    highly-skilled workforce to carry out FDA's complicated mission. Our
    contributions are primarily a reflection of our professional services.
        An organization that can keep up with the rapid changes in the
    industries it regulates, and one capable of developing and implementing
    effective and innovative public health measures, requires a very
    special workforce. So our mission depends more than ever on a solid
    cadre of experienced physicians, toxicologists, chemists,
    statisticians, mathematicians and other highly qualified and dedicated
    professionals. Their expertise is essential for making our regulatory
    decisions balanced and fair, and for keeping us on the cutting edge of
    the technology and sciences used by industry. A clear sense of mission
    is not enough to attract and keep the best and brightest, highly
    motivated employees who are essential to meeting the challenges that
    the FDA faces in the 21st century. As FDA Commissioner, it is one of my
    foremost goals to make sure that the FDA's working environment
    encourages creativity, efficiency, and superior performance--an
    environment which attracts and retains top-quality scientists, and
    enables them to do top-quality work as part of an effective team.
        To attract and keep high-caliber employees who are responsive to
    the changing needs of the agency, we need to be responsive to their
    diverse needs. FDA is already leading the way with many such workforce
    initiatives already. Our employees can take advantage of flexible work
    schedules, including an ``any-80'' program that can fit the difficult
    schedules of two working parents, sick kids and sick parents, and other
    outside commitments. About one-fifth of our employees take advantage of
    our flexi-placing program, which permits telecommuting. And we support
    employees with child care, elder care, and other distinctive needs.
        In a recent survey conducted by OPM to gauge how Federal employees
    feel about their jobs, FDA did very well compared to other government
    agencies and the private sector, especially in how our employees feel
    that their individual work here relates to Agency's core mission. About
    73 percent said that they found FDA a friendly place to work, 82
    percent said their supervisor supports their need to balance work and
    family issues, and 65 percent said they would recommend the FDA as a
    place to work. We're doing well. We want to do better.
        We must reward employees who distinguish themselves and who remain
    committed to our agency despite attractive outside job offers. On the
    one hand, I'm glad that so many of our employees have other good
    options. That tells me that we are attracting very talented people. On
    the other hand, I don't want to lose them. We therefore offer a range
    of programs to help recruit and retain talented staff, including
    expansions of retention bonuses for employees in fields with a
    particularly high turnover. In collaboration with the National Treasury
    Employees Union, we are also working to provide additional financial
    rewards for high performing workers
        FDA must encourage fresh perspectives and plan for transitions as
    well. For some of our workers, spending time here as well as in
    academics or industry is the most rewarding career path, because it is
    the best way to keep up with rapid scientific change. And more than 30
    percent of our workforce will be eligible for retirement in less than 5
    years. So we are working to develop succession plans and career
    development plans. And we are expanding career options, such as new
    fellowships and part-time appointments at our devices center, to
    support combining work at FDA with work in an academic agency.
        We will continue to find better ways to support our work
    environment. The enormity of our task also compels us to seek new ways
    to augment our available resources. One such opportunity is to use the
    accumulated experience of FDA alumni. I'm very pleased that scores of
    alumni from around the country have come together to establish the FDA
    Alumni Association. The FDAAA can offer much to help us meet our
    challenges.

    Risk Management
        Second, to strengthen our agency's ability to meet the challenges
    of food and drug regulation in the 21st century, we must rely on the
    best science available. Risk management is one of the many areas of
    regulatory science FDA has long used in addressing risks to public
    health and finding the best science for managing them. We must use
    creative thinking and science-based risk management to increase public
    health benefits while minimizing the public health risks. We must work
    to ensure that our regulations and our decisions are firmly anchored in
    the latest science; that they are fair; that they are dynamic; that
    they are focused on public health risks; that they are cost-effective;
    and above all, that they are responsive to the changing circumstances
    we face.
        We must do all we can to ease the regulatory burden. We need to
    adjust our policies, methods and practices to the increasing volume,
    variety and complexity of products under our purview, as well as to
    increased threats--such as bioterrorism. We have to broaden the
    application of the science of risk management through a committed,
    constant and consistent effort to find ways to reduce health risks and
    increase health benefits to the public as efficiently as possible.
        Earlier this year as part of our response to this challenge--to
    make sure we have regulatory processes that are as efficient and up-to-
    date as possible--we announced a major new medical technology
    development initiative with three main elements. The new initiative
    includes a detailed plan for an overhaul of the practices on which the
    FDA as well as manufacturers rely on to ensure that pharmaceutical
    products are safe. The new initiative will encourage manufacturing
    innovation while continuing to assure the highest drug quality.
        First, we are conducting a ``root cause analysis'' of recent
    ``multiple cycle'' product approvals--products that required two or
    more ``rounds'' of review before they could be approved. An extra round
    means at least an extra 10 months or more, which can add many millions
    to the cost of new products. It also delays availability to patients
    who might benefit from the product. Second, we are developing ``quality
    systems'' for our review procedures. The idea is to apply best
    management practices internally to our review processes, such as using
    peer review programs for reviewers to exchange ideas and use each
    others' experience to learn about best practices. Third we will work to
    publish new guidance documents. These new guidances will be in areas we
    think the regulatory pathways could be improved or better defined. We
    expect to learn something from outside experts in the open process of
    developing guidances. The new guidances will include product guidances
    for treating obesity, diabetes, and cancer. We think that new
    regulatory standards can reduce the time and cost of product
    development.
        We are already advancing changes that will help us achieve these
    three new goals. For example, we have developed a detailed plan for an
    overhaul of the practices on which the FDA as well as manufacturers
    rely on to ensure that pharmaceutical products are safe. GMP policies
    haven't been updated in 25 years. Meanwhile, best practices in
    manufacturing technologies and methods have undergone significant
    progress over that time. We are developing new GMPs based on the latest
    science of risk management and quality assurance. The new standards are
    being designed to encourage innovation in manufacturing and technology;
    coordinate submission review and inspection programs; and ensure their
    consistent application by all three FDA centers that regulate
    pharmaceutical products. This includes new guidance from CBER on the
    manufacturing requirements for novel technologies such as cell
    processing and gene therapy operations. The medical device user fee act
    also significantly expands FDA's informal policy of allowing third
    parties to conduct facility inspections under more closely supervised
    conditions, to give some manufacturers the flexibility to have their
    inspections carried out more quickly without sacrificing stringent
    safety standards.
        For food, there are several issues that are very much at the center
    of our attention. One of them is ensuring the safety of genetically
    modified feed and foods, and strengthening the public's confidence in
    these new products. Genetically engineered crops are increasingly
    common Field tests of new plants in the United States have increased
    more than eight-fold in the last 8 years, and bioengineered crops are
    now grown on 130 million acres world-wide. The public's concern about
    these food products is also strong, as was recently illustrated by the
    media coverage of the commingling of small amounts of bioengineered
    corn with soybeans that had been intended for consumption.
        In the last 10 years, the FDA has evaluated more than 50 new
    varieties of bioengineered plants submitted to our agency. The basis of
    this cooperation was an FDA policy, supported by the industry, of
    voluntary consultation before the bio-rengineered products are
    marketed. To help expand similar protections beyond the U.S. borders,
    FDA's scientists have worked with the Codex Alimentarius Commission of
    the World Health Organization/Food and Agriculture Organization, WHO/
    FAO to draft guidelines for the assessment of safety of foods derived
    from rDNA plants. And to get the best outside advice on food
    biotechnology issues, the FDA has established a new Food Biotechnology
    Subcommittee of its Food Advisory Committee.
        Currently, as part of a project organized by the White House Office
    of Science and Technology Policy, we are preparing draft guidance for
    industry to provide early food safety evaluations for new proteins in
    bioengineered crops for food or feed. If developers establish that
    these new proteins are safe for consumption--meaning, that they do not
    raise questions about their allergenicity and toxicity--then the foods
    containing low levels of these innovative plants could be marketed
    without comprehensive review. We will remain vigilant in addressing
    concerns about genetically modified food and feed.
        Next, I want to bring you up-to-date on the FDA's progress in
    addressing an issue that has stirred great interest among food
    scientists. I am referring to the studies released that show that
    baked, fried or roasted foods rich in carbohydrates--including such
    dietary staples as bread--contain acrylamide, which, at high doses, is
    a known animal carcinogen. In soft bread, the reported levels of
    acrylamide range from 30 micrograms to 162 micrograms per kilogram, and
    in potato chips, to mention another example, the range is from 1.4
    micrograms to 100 micrograms per ounce.
        Acrylamide is well known to manufacturers who use it for water
    treatment and production of dies and plastics, but it is largely a
    terra incognita for food scientists. Given the key role of
    carbohydrates in our diet, it's been incumbent on our scientific
    community to subject acrylamide to a close scrutiny. Some of the
    questions that need to be answered are, for example, is it genotoxic?
    How is it formed? What is its level of exposure in the general
    population? What is its bioavailability in food? And what are the
    biomarkers of acrylamide exposure? And, what steps can be taken to
    reduce the levels of acrylamide in food?
        FDA is making a significant contribution to this research. Our
    agency has developed a method for measuring levels of acrylamide in
    foods, and used it so far on about 300 types of products, including
    cereals, breads, and chips. We're developing an understanding how
    acrylamide is formed, which is very important for finding ways how to
    keep it out of food; and we are probing the chemical's toxicity.
    Recently, we reported these and other findings to our Food Advisory
    Committee.
        With regard to chronic wasting disease, CWD, it has now been found
    in farmed or wild deer and elk in 12 states and two provinces in
    Canada. CWD belongs to a group of transmissible spongiform
    encephalopathies, or prion diseases, which also includes BSE in cattle,
    scrapie in sheep and goats, and classical and variant Creutzfeldt-Jacob
    diseases in humans. There are currently no vaccines or treatments
    available for these diseases which are invariably fatal. Compared to
    other TSEs, CWD spreads readily between susceptible species. However,
    because CWD's route of transmission is poorly understood, there is
    considerable uncertainty whether CWD poses a threat to humans or
    livestock is high, also not be used in animal feed.
        In order to minimize any risk to public health, FDA publicly
    announced last November that material from CWD-positive animals should
    not be rendered for use in feed for any animal species. FDA further
    recommended that animals from positive captive herds and animals from
    high risk areas, such as those parts of Colorado, Wyoming and Wisconsin
    where the prevalence of CW is high, also not be used in animal food.
    FDA is also collaborating with other Federal agencies in studies of the
    risk of CWD in the food supply, and the transmissibility of CWD to
    humans.
        These are but a few of the initiatives that are on our agenda, as
    you will here there are several more projects such as, preparing good
    manufacturing practices for dietary supplements; trying to improve the
    food labeling with respect to allergens; doubling our food inspections
    at the ports of entry; and we are stepping up our enforcement against
    potentially harmful nutritional supplements. We even test typical home-
    cooked meals for residues of pesticides and other contaminants.

    Medical Errors/Patient Safety
        A third critical step of our agency is to reduce adverse health
    events involving the products we regulate. Health problems associated
    with adverse events are far too common, carry a staggering economic tab
    and a large number of them are preventable. The statistics on the
    prevalence of avoidable health complications that often involve the use
    of FDA-regulated products presents a huge challenge for our agency and
    for all of us.
        One type of an often preventable adverse events results from
    foodborne disease. According to a 1999 survey by the Centers for
    Disease Control and Prevention,CDC, foodborne diseases cause annually
    76 million cases of illness, 325,000 hospitalizations, 5,000 deaths,
    and an economic damage of up to $23 billion. In addition, inadvertently
    consumed food allergens result in thousands of avoidable emergency room
    visits.
        Another often preventable adverse event is the misuse of
    pharmaceuticals which is associated with thousands of deaths and about
    3 million hospital admissions a year. It is estimated that our
    pharmacists will fill 3.1 billion prescriptions by the end of this
    year, 60 percent more than 10 years ago. Manufacturers worldwide are
    increasingly presenting their new pharmaceuticals for FDA's review and
    approval: 60 percent of the world's drugs are introduced first in the
    United States. In 2000, the economic cost of drug-associated errors
    alone was estimated to reach over $75 billion a year. Finding creative
    ways to prevent even a fraction of the preventable medical errors, will
    improve the lives of hundreds of thousands of Americans, and greatly
    reduce the burden on our health care systems.
        The FDA's MedWatch program is a system of voluntary reporting of
    adverse events associated with the use of agency-approved products. The
    agency's MedWatch program receives about 250,000 voluntary adverse
    event and medical product problem reports each year, mostly from health
    care professionals and consumers. Our Vaccine Adverse Event Reporting
    System, VAERS is shared with CDC and includes participation by large
    health plans. The Centers for Education and Research on Therapeutics,
    CERTs, which was authorized by the FDA Modernization Act and is
    administered through grants from AHRQ, is helping collect information
    on safe and effective use of FDA-approved medications. And we see the
    most promising emergence of increasingly sophisticated electronic
    databases that make possible public-private collaboration in learning
    more about the ways to improve the safety of medical treatments.
    Another bright spot is MedSun, FDA's pilot program for devices that
    requires rapid adverse event reporting on medical devices by a group of
    hospitals and nursing homes. The system advances the public's health by
    giving FDA quicker and more detailed information, without identifying
    involved individuals, on potential problems with health care products
    in actual medical practice. FDA's VAERS received more than 14,000
    reports of adverse reactions in fiscal year 2002, most of which were
    volunteered by health care providers, patients and their parents. I am
    looking forward to the debut in June of the newest adverse event
    reporting system in FDA, the Center for Food Safety and Applied
    Nutrition Adverse Events Reporting System, CAERS will track voluntary
    submitted food and cosmetic adverse reports and incorporates some of
    the latest technology.
        But that's not all FDA is doing. Recently, FDA made some additional
    major patient safety announcements. These included a proposed rule to
    require a universal barcoding system for prescription medications, to
    support the development of better systems to support health
    professionals. The proposed barcode rule would apply to all
    prescription drug products, including biological products and vaccines,
    except for physician samples, as well as over-the-counter drugs that
    are commonly used in hospitals. The proposed rule, if finalized, could
    reduce by half or more the large number of medication errors that occur
    at the dispensing and administration stage, by helping to make sure
    that the right patient gets the right drug at the right time.
        A second proposed action the FDA recently announced--revamping of
    our manufacturer reporting requirements for adverse events--aims to
    enhance the agency's ability to effectively monitor and improve the
    safe use of medications including drugs and biologics. Among other
    things, the proposed rule would improve the quality and usefulness of
    safety reports submitted to the agency, by giving us more detailed
    information on serious actual and potential adverse events, especially
    those involving new products where toxicities are not yet thoroughly
    understood. It also uses standards that we have developed with
    regulatory agencies around the world to develop, so that manufacturers
    can submit one accurate and complete report to agencies rather than
    many. The proposal will require the submission of all suspected serious
    reactions for blood and blood products, not just deaths. These
    provisions would provide FDA with more useful, timely, and extensive
    information to support quicker, more effective actions by the agency to
    prevent adverse events.
        FDA is also working to reduce adverse events associated with
    dietary supplements. With new evidence in the medical literature and in
    adverse event reports there are reasons for the heightened concern that
    dietary supplements containing ephedra, consequently FDA and HHS
    announced a series of steps recently to protect Americans from the
    potentially serious risks of these dietary supplements. The law
    governing dietary supplement requires us to prove, scientifically and
    legally, that a supplement presents an unreasonable risk in order for
    us to take regulatory action. Thus, we are seeking rapid public comment
    on the new evidence on health risks associated with ephedra to
    establish an up-to-date record as quickly as possible, to support
    restrictions on ephedra-containing products and the need for a strong
    new warning label on any ephedra products that continue to be marketed.
    We are also executing a series of actions against ephedra products
    making unsubstantiated claims, for example about sports performance
    enhancement, and against manufacturers that are marketing street drugs
    not dietary supplements.
        To help consumers continue to get unadulterated dietary
    supplements, we also proposed a major new regulation to require good
    manufacturing processes in their production, packing, and holding. The
    proposed rule would, for the first time, establish standards to help
    ensure that dietary supplements and dietary ingredients are produced
    without contaminants or impurities.
        I intend to expand the use of new information technology, IT, to
    improve our understanding of what causes preventable adverse events. In
    medical care, it is conceivable to develop of an electronic network
    that would provide automatic updates on adverse events and the
    circumstances that may have contributed to their occurrence. Such
    information network could also enable the FDA to disseminate
    automatically updated, relevant information on medical labels and
    warnings, and thereby help prevent the adverse events from happening
    again. Our agency is already conducting pilot IT programs in our
    centers for medical devices, drugs, and biologics.
        Potential health benefits can result from an effective use of
    today's IT. For example, IT can help professionals monitor the
    patient's progress and deliver a health care that ``gets it right.''
    Many of the new, complex treatments have an inherently higher potential
    for toxicity, and their use requires careful monitoring for liver,
    kidney and other toxicities, as well as for interactions with the
    patient's conditions and other medical treatments. The technology can
    also aid in the sophisticated monitoring and support required by many
    seriously ill patients who have undergone complex and sometimes
    lifesaving surgical procedures. Used comprehensively IT would form the
    backbone of a National Health Information Infrastructure, a system
    capable of rapidly and securely transmitting significant health-related
    data to institutions and public health professionals who need them to
    ensure better care for patients. My vision is for the FDA to support
    and use these new tools of health information technology and their
    incorporation in this system, and pen new opportunities for advancing
    our mission of promoting the public health. The Administration's
    Consolidated Health Information E-Government initiative, to which FDA
    is contributing, is working to establish broad health data information
    standards that will apply to all agencies.
        These and other advancements are part of a vision of what can be
    accomplished if all of us in government, the health professions,
    academia and industry continue to work toward better health information
    systems--and more generally, toward a health care system that helps
    patients and health professionals make better decisions supported by
    safer and more effective medical treatments.
        We have a major opportunity to help people improve their health by
    providing them with the up-to-date information they need to choose a
    healthy way to live. As the Secretary pointed out this is a human
    tragedy and a shocking result of a failure to realize many of the
    potential benefits of modern medical treatments. In my new post, I look
    forward to supporting FDA's efforts to fulfill its important role in
    this process, and to help secure the benefits of a robust 21st century
    health care system.

    Consumer Information
        A fourth step to address FDA priorities is to help consumers get
    reliable, accurate, and relevant information about the FDA-regulated
    products. For all that the new medical technologies in the review
    pipeline can accomplish, they cannot match the public health benefits
    of sound lifestyle and dietary choices that individuals can make
    themselves. It is also vitally important for consumers to have accurate
    and truthful information about the risks and benefits of the medical
    products they use. Americans increasingly want to learn more about what
    they can do personally to maintain or improve their health. That's why
    I am placing such a high priority on clearly communicating that
    information--not only to consumers, but to health care providers and
    others who can help ensure that consumers make important decisions
    about their own health on the basis of reliable information.
        To mention a couple of familiar examples, our agency is introducing
    more and better information about the foods and dietary supplements to
    help American consumers prevent diseases and improve their health by
    making sound dietary decisions. One effort is nutrition labeling, which
    encourages shoppers to select foods low in cholesterol and saturated
    fats, and high in fiber. We will soon be adding a requirement to
    include ``transfat'' on the nutrition label.
        But consumers today expect us to do still more, and we must not
    disappoint them. We must disseminate up-to-date and reliable scientific
    information on the health effects of foods and nutritional supplements;
    and we must make sure that the ads and claims for medical products,
    foods, and dietary supplements are truthful and not misleading.
    Moreover, we must make use of all means to get this information to
    consumers in a way that would most benefit their health.
        There is no example more persuasive of the need for innovative
    approaches than the national epidemic of obesity. This is a very
    serious, and growing, public health problem. According to a CDC survey,
    in 1985 fewer than 14 percent of Americans were overweight.
        Today, more than a third of our adult population is obese, 64
    percent of U.S. adults are obese or overweight, and 15 percent of 12-19
    year-olds are overweight. The health consequences include greater
    incidence of diabetes, stroke, coronary artery disease, cardiovascular
    disease, and high blood pressure--and that's not the complete list. The
    economic costs of diseases linked with excess weight run into hundreds
    of billions of dollars each year.
        Although the FDA has approved drugs for curbing appetite and
    breaking down dietary fat, their use usually does not result in a
    weight loss greater than 10 percent. There is no better remedy for
    excessive weight than healthy lifestyle choices--and to make these
    choices, consumers need better information on how their diet affects
    their health. Our agency has been helping to provide such information
    through educational articles, guidelines and press releases.
        But FDA cannot achieve the goal of a well-informed public through
    labeling requirements and agency educational campaigns alone. We also
    need to find better ways to encourage food producers to compete on the
    basis of scientifically sound nutritional claims. As a recent study by
    the Federal Trade Commission noted, ads with scientifically-based
    health claims can have substantial positive effects on the choices of
    consumers. Here is one area where we may be able to get more useful
    nutritional information to consumers.
        By putting credible, science-based information in the hands of
    consumers, we hope to foster competition based on the real nutritional
    value of foods rather than on portion size or spurious and unreliable
    claims. Such labeling can help empower consumers to make smart, healthy
    choices about the foods that they buy and consume.
        Our consumer health information initiative includes three related
    actions. First, we will issue guidance on qualified health claims for
    conventional foods and dietary supplements. Any such claims must be
    pre-approved by FDA and meet the ``weight of the scientific evidence''
    standard, including support by a credible body of scientific evidence;
    Second we will strengthen enforcement of dietary supplement rules.
    Today, FDA is emphasizing its commitment to carrying out the intent of
    Congress in the Dietary Supplement Health and Education Act of 1994 by
    outlining its enforcement strategy against false or misleading claims
    about dietary supplements. As an example of its commitment to strong
    enforcement, FDA has seized dietary supplements making unapproved drug
    claims. Third, we have established a Task Force on Consumer Health
    Information for Better Nutrition. This task force will develop a
    framework to help consumers obtain accurate, up-to-date, and science-
    based information about conventional food and dietary supplements. This
    includes the development of additional scientific guidance on how the
    ``weight of the evidence'' standard will be applied, as well as the
    development of regulations. Our mission at FDA is to improve health
    outcomes for the nation, and some of the best opportunities for
    improving health involve informed choices by consumers. Through the
    Better Health Better Information initiative, we are committed to
    improving opportunities for consumers to get scientifically accurate
    information about the health consequences of the foods they consume,
    and to enhancing our enforcement efforts against those who would make
    false or misleading claims for their products.

    Counterterrorism
        A fifth step in meeting our challenges is to address the critical
    additional responsibilities--the nation's front lines against
    terrorism. Helping protect our homeland is a privilege and our
    paramount public health job, and we are doing all we can to deserve the
    trust placed in our agency. Our product centers responsible for
    pharmaceutical products are working to adapt their approval processes
    to the unique challenges of developing safer and more effective
    treatments for anthrax, smallpox, plague and other potential agents of
    bioterrorism. Our center for medical devices is supporting the
    development of methods for detecting biological agents with
    bioterrorism potential, and for radiological decontamination. These new
    tools are needed now, and we are doing our best to help bring them to
    the nation's defense as quickly as possible.
        A new initiative recently announced by the President Bush is
    Project BioShield--a comprehensive effort to develop and make available
    modern, effective countermeasures against biological and other
    dangerous agents. This major cooperative effort will be a joint
    activity of the new Department of Homeland Security and the Department
    of Health and Human Services. The BioShield program which Congress is
    currently considering will ensure resources to develop next-generation
    countermeasures for smallpox, anthrax, and botulinum toxin; expand
    research and development at NIH so that it in order to speed research
    and development on medical countermeasures based on the most promising
    recent scientific discoveries and make promising treatments available
    quickly for emergencies. The BioShield program would provide FDA with
    the ability to make new and promising treatments under development
    available quickly in emergency situations--potentially saving many more
    lives than treatments otherwise available today.
        The President believes, by bringing researchers, medical experts,
    and the biomedical industry together in a new and focused way, our
    Nation can achieve the same kind of treatment breakthroughs for bio-
    terrorism and other terrorism threats that have been achieved to the
    threat of heart disease, cancer, and many other serious illnesses.
        We have no responsibility more important and challenging than to
    protect the safety and security of the United States food supply. This
    is especially true as 80 percent of food products are within the FDA's
    purview. We are also involved in ensuring the safety of many new types
    of food. We all know the problem of food safety did not originate in
    September of last year. During the last decade, rising incidence of
    food contamination with Listeria, Salmonella and other pathogens--
    combined with our more diverse and aging population, greater preference
    for prepared foods, and rapidly growing food imports--have sharply
    increased foodborne outbreaks that produced the CDC statistics I
    mentioned.
        This past year the CDC reported a 21-percent decline in illnesses
    from four more common serious foodborne pathogens, and a food safety
    survey conducted in 2001 reported substantial improvement in the way
    our consumers handle food. But the terrorist attacks last year
    highlighted new potential risks of deliberate food contamination. To
    counter this unprecedented menace requires new thinking on how to
    better safeguard our food.
        Much work toward this goal has already been done. In the fall of
    last year, for example, our agency initiated a scientific assessment of
    the vulnerability of various categories of food to intentional
    contamination. The appraisal utilized an analytical framework called
    operational risk management that considers both the severity of the
    public health and economic impact of a potential bioterrorist attack on
    our food supply, and the likelihood of such an event taking place. The
    FDA has developed two guidance documents--one each for domestic food
    producers and for food importers--on how to protect their products
    against intentional contamination. And, we are developing additional
    guidance directed at the retail and cosmetic sectors.
        One special emphasis is on the security of our food imports, the
    volume of which is increasing by as much as 21 percent a year. In
    particular, the FDA is taking part in two multi-agency efforts to give
    our bioterrorism counter-measures greater scientific depth and
    geographic distribution. Thanks to the leadership of the Undersecretary
    of the Food Safety and Inspection Service, (FSIS), we have joined with
    FSIS and several other Federal agencies in laying the groundwork for
    PrepNet, a network focused on the prevention of--and response to--the
    introduction of microbial, chemical, radiological or physical
    contaminants into the food supply. And we are developing plans for
    cooperative work with and expansion of CDC's cooperative Laboratory
    Response Network that will upgrade our ability to quickly recognize and
    identify a terrorist attack on food.
        Our efforts to improve food security have received strong support
    from the President, the Secretary of Health and Human Services, and
    you--the Congress. Thanks to a supplemental appropriation of $151
    million received in fiscal year 2002, we have been able to hire several
    hundred new employees whose job will be to keep watch on imports and
    whatever other avenues our enemies might try to use to contaminate our
    food or tamper with other regulated products. But it is important to
    keep in mind that reducing risks to food security requires more than
    hiring inspectors. Even with the great expansion of FDA's presence in
    the nation's ports of entry, we will be able to inspect only a fraction
    of the 5.6 million food shipments that will be imported this year.
        We need to find innovative ways to make our foods more secure
    without adding unnecessary costs. Thus additional efforts are in the
    works. One is the implementation of the Public Health Security and
    Bioterrorism Preparedness and Response Act of 2002, which gives the FDA
    greater control over food in general, and imported food in particular.
    Secondly, several weeks ago we announced a set of new food security
    measures as part of Operation Liberty Shield. Operation Liberty Shield
    is a comprehensive, multi-agency national plan designed to increase
    protections for America's citizens and infrastructure while maintaining
    the free flow of goods and people across our border with minimal
    disruption to our economy and way of life.
        The Bioterrorism Act contains a number of food provisions which
    require new regulations. We have now published four proposed
    regulations, three of which are mandated to be in effect by December
    12, 2003. This project is on the fast track, and I am committed to
    issuing the final rules by their statutory deadline. The registration
    of will require all facilities that manufacture, process, pack or hold
    food for consumption in the United States to register with the FDA by
    mid-December, 2003. A second regulation will require importers to
    provide the FDA with a prior notice of food shipments that includes
    information about the shipment's contents and origin, as well as the
    anticipated port of entry. A third regulation will obligate food
    businesses to maintain records to enable us to determine where the food
    came from and who was its subsequent recipient, so that we can quickly
    trace any food contamination back to the source. The fourth regulation
    authorizes the FDA to order the detention of food on the basis of
    credible evidence or information that it poses a serious health threat
    to humans or animals.
        Liberty Shield, our newest undertaking, focuses on published
    common-sense food guidance documents on food security relevant to just
    about all firms involved in food production, ranging from the smallest
    mom-and-pop operations and county fairs to the largest food producers.
    The guidances cover all major sectors of food production, distribution,
    and use.
        Another focus of Operation Liberty Shield, is increased food
    inspections and sampling for important agents of terrorism. We have
    recently invested over $1 million in emergency funds to purchase test
    kits that enable us to sample for these agents, and we are starting to
    use these kits more widely in our inspections and testing of both
    domestically produced and imported foods.
        We'll be undertaking further efforts to work with the food industry
    as we carry out investigations and import audits, and as we implement
    new procedures, to make sure the measures lead to the greatest benefits
    for food security without imposing unnecessary costs or regulatory
    burdens on food production, processing, and distribution. And we want
    to make sure firms remain aware of potential terrorist activities,
    especially as they relate to raw material shipments, inventory
    quarantine procedures, sourcing of foreign products or ingredients, and
    vulnerable operations
        Over the coming years, I believe the best solution will be the
    adoption of a risk-based import surveillance system to replace our
    current import program, which is fully linked with U.S. Customs entry
    processes--processes that have historically been designed to address
    revenue and trade issues, not public health issues. We're moving in the
    direction of a modern, risk-based system for food imports already. This
    includes shifting toward a ``life cycle'' approach. I am confident of
    our agency's ability to rise to the many new challenges we face and I
    look forward to working with you. Now for the budget request

    Fiscal Year 2004 Budget Request
        As I have mentioned, pivotal to the continued success of the FDA
    and the success of the President's efforts to promote health care
    quality is the FDA budget Our fiscal year 2004 President's budget
    request totals $1.7 billion, including $1.4 billion in budget authority
    and $307 million in user fees. Budget authority increases above the
    fiscal year 2003 Appropriation total $82.6 million and savings related
    to the President's initiatives total $58.2 million. The agency's
    reductions include transferring funding to the new Department of
    Homeland Security, management savings due to de-layering, and
    information technology consolidations. The user fee increases total $37
    million. The full time employee total equals 10,753, which includes the
    adjustment for management savings.
        We believe our budget request will allow FDA to fund ongoing
    operations at the current level and also support more than 1,000
    recently hired investigators and analytical staff to fight
    counterrorism. In the near future, FDA will be challenged to resolve
    complex issues connected with emerging technological and demographic
    developments that include the human genome project, breakthrough device
    technology, and biotechnology medicines and development. Our specific
    budget initiatives as compared with our fiscal year 2003 President's
    request parallels our top priorities.
        The President's 2004 Budget was developed within a framework that
    set a proposed total for discretionary spending in 2004, and each
    agency and program request reflects the Administration's relative
    priority for that operation, activity or Program. Thus, the fiscal year
    2004 budget has not changed based on the program or agency levels
    included in the 2003 Omnibus bill the Congress approved in mid-
    February. We recognize that you may believe there is a need to reorder
    and adjust some of these priorities and the Administration intends to
    work with you to remain within the 2004 top line amount.

    Cost of Living $31.4 million
        Essential to FDA's success is its dedicated professional staff. FDA
    is a people-intensive Agency where payroll accounts for over 60 percent
    of the budget. Forty-five percent of that workforce is dedicated to
    ``front line'' efforts such as foreign and domestic inspections and
    coordination with States and cooperative education programs. The budget
    request includes $23.283 million in inflationary cost-of-living
    adjustments which will be used to support the level of existing
    programs and also provide a minimum level of support to the hundreds of
    investigators and analytical staff hired in fiscal year 2002 for
    Counterterrorism activities. And, the request includes an additional
    $8.108 million that will be used, in part, to defray other pay costs,
    making up the difference between a 3.1 percent versus a 4.1 percent pay
    increase.
        As I have said, the importance and complexity of the FDA's work
    will only increase in the years to come. Thus the continued success of
    our mission depends on the experienced and highly dedicated
    professionals who can make our regulatory decisions balanced and fair
    keeping us on the cutting edge of the technology and sciences used by
    industry. Making sure FDA's working environment encourages creativity,
    efficiency and performance is one of my goals.

    Secretarial Initiative: Protecting Our Homeland: Food Safety--
            Counterterrorism $20.5 million
        FDA has limited capacity to monitor or control the flow of imported
    foods, inspect domestic manufacturers, and detect foodborne pathogens
    before they cause human illness. When these limitations are combined
    with the possibility of deliberate attempts to contaminate the food
    supply at any point along the food production, processing and
    distribution chain, the risks are greatly increased. We believe that a
    coordinated approach with state, Federal and local partners, offers a
    better means of identifying and containing outbreaks associated with
    deliberate attempts to contaminate the food supply.
        One key food provision of the Bioterrorism Act is the requirement
    for registration of domestic and foreign food facilities that
    manufacture, process, pack, or hold food for human or animal
    consumption in the United States to register with the agency by
    December 12, 2003. FDA also plans to have its registration system
    operational by October 12, 2003, to accept early registrations.
        Improving the FDA's food safety inspection, detection and
    monitoring capabilities is and has been a top priority of the
    Department and the agency before the events of September 11. This FDA
    effort is the latest in a series of measures to build stronger
    safeguards for the American people.
        We believe these measures will bolster our ability to regulate
    effectively the more than 400,000 domestic and foreign facilities that
    deal with food within our country. Our ability to efficiently and
    effectively help protect the nation's food supply is a critical part in
    our agency's counterterrorism mission. Thanks to the leadership of
    Senators Gregg and Kennedy, and Representatives Tauzin and Dingell, the
    Bioterrorism Act gives FDA this important new authority.
        FDA will also provide grants to states for inspections under
    section 311 of the Bioterrorism Act, conduct direct Federal food
    inspections, and improve Center and Field laboratory preparedness. By
    increasing the number of state contracts, grants and partnerships, we
    believe it will ensure application of appropriate preventative controls
    to ensure a safe, wholesome, and nutritious food supply. We expect the
    initial grants to be used by the states to build their infrastructure
    so that they may become part of the Laboratory Response Network. With
    better assessment capabilities of the risks to FDA regulated products
    we will focus efforts by directing the grants toward risk based
    inspectional activities or additional laboratory capability.
        The infrastructure needed to support the Laboratory Response
    Network, LRN for counterterrorism coordinated by the CDC, provide
    integrated laboratory solutions and disseminated testing capacity to
    support public health preparedness and response to an act of
    counterrorism involving the food supply, FDA will develop scientific
    practices, expand Federal, State and local involvement in our eLEXNET
    system by having 79 laboratories around the country participate in a
    common shared microbial agent electronic data system, while assuring
    coordination with other members of the Public health Information
    Network. The total effect is the creation of a safety net that
    significantly reduces the probability that terrorists will ever achieve
    their aims, and minimizes the impact of these threats if they do occur.

    Secretarial Initiative: Realizing the Possibilities of 21st Century
            Health Care: Patient Safety $4 million
        FDA's public health and safety role requires a rigorous and
    effective postmarket surveillance activity. When FDA approves drugs and
    other medical products such as devices, it has completed a thorough
    review to determine that these products are safe when they are
    marketed. That is not always the end of the story. New safety findings
    may emerge after approval, when a wider patient population uses
    products. In some cases, products may not be used safely to prevent
    harm. It is important for FDA to continually monitor these products and
    track trends associated with them. A critical task of the agency is to
    reduce adverse health events, a large number of which are preventable.
    Medical errors are estimated to account for 40,000 to 100,000 deaths
    per year in hospitals alone.
        The requested increase of $4 million, coupled with the $3 million
    from our Generics Drug request will allow FDA to expand the use of new
    information technology to improve our understanding of what causes
    preventable adverse events. FDA will continue to conduct pilot IT
    programs for medical devices, drugs, generic drugs and biologics as
    well as continue the implementation of Phase III to include drug
    products into the Medical Device Surveillance Network, MedSun. FDA's
    new safety initiative, using modern health information systems, will
    provide faster and more complete information on safety problems
    associated with drugs and devices so adverse events involving these
    products can be avoided. Additionally, FDA will place greater emphasis
    on preventing adverse events involving generic drugs.

    Generic Drugs Program $13 million
        According to the Congressional Budget Office, generic drugs save
    consumers an estimated $8 to $10 billion a year at retail pharmacies.
    Billions more are saved when hospitals use generic drugs. A generic
    drug is identical, or bioequivalent to a brand name drug in dosage
    form, safety, strength, route of administration, quality, performance
    characteristics and intended use. Although generic drugs are
    therapeutically identical to their branded counterparts, they are
    typically sold at substantial discounts from the branded price.
        Brand-name drug innovation requires great investment of scientific
    effort and other resources, with an uncertain return. We all therefore
    recognize that innovators must be able to receive adequate compensation
    through our patent system. Otherwise, pharmaceutical research and the
    development of better medical treatments could come to a halt.
        But it is also clear that the high prices of many innovative drugs
    in the United States, where they are not restricted by government
    controls, are sustaining pharmaceutical research and development
    worldwide. This is good for pharmaceutical innovation, but it also
    creates a serious challenge for many of our patients, who are having
    difficulty paying the high and rising costs of up-to-date drug
    treatment.
        This is where the generic drug industry plays an essential role in
    promoting the health of Americans. Generic drug manufacturers produce
    medications that are just as safe and effective as their brand
    counterparts, and part of the FDA's mission is to make sure that's the
    case. Yet the prices of generics are much lower: a generic version of a
    $72 average brand-name prescription costs about $17. And thanks to more
    brand-name medications coming off patent--over 200 of them in the next
    few years--as well as to the ever-improving scientific knowledge and
    public awareness about the benefits of generic drugs, the health and
    economic benefits of using generic drugs are constantly growing.
        Encouraging rapid and fair access to generic medications after the
    expiration of appropriate patent protection is, therefore, one of my
    major priorities as FDA Commissioner. Americans need more generic drugs
    more than ever, and the FDA has to do its part to make these products
    available. There are many steps involved in achieving this goal, and I
    want to walk through some of them
        One part of achieving this goal--reducing the net review time--is
    largely under the control of the FDA. It's a function of the efficiency
    of our review process and our available resources. Our Office of
    Generic Drugs (OGD), has been making progress in this area. Despite the
    growth in the submissions of original abbreviated new drug applications
    (ANDAs) from 309 in 1999 to 361 in 2002, our generics program during
    the same time increased the proportion of applications reviewed within
    180 days from about 28 percent to 80 percent. The average time required
    for a first review of an ANDA is down to 100 days, from 135-140 days in
    the late 1990s.
        These substantial improvements were made possible by rising
    efficiency in the generics office, as well as by increased resources.
    The appropriations for this office increased by $1.4 million in 2001,
    by $2.5 million in 2002, and another $5.3 million in 2003. I thank you
    for your continued support of this vital program. We can and will do
    more to improve the efficiency of our reviews, and acting quickly on
    generic drug applications is well worth even greater FDA resources.
    Moreover, we hope and expect that the number of generic applications
    will continue to grow above this year's record level of almost 400
    ANDAs. We will use the $13 million requested in 2004 to improve our
    reviews and to handle the growing workload. It will increase the size
    of the generics programs by about 30 percent.
        With this funding request, we will be able to hire about 40
    additional staff in generic drugs, and add to OGD an additional
    division for the review of chemistry. This expansion should help reduce
    the average review time by at least 2 months, move up the proportion of
    180-day reviews still closer to the 100 percent goal, and further
    reduce the waiting time in the ANDA queue. What we need is actual
    improvement in generic drug availability. And to get more generics in
    the pharmacies and to our patients' bedsides, we have to meet two
    additional requirements.
        First, the products we review must be safe and effective--meaning,
    they must demonstrate therapeutic equivalence to the brand drug, and
    they must be appropriately labeled and safely manufactured. And second,
    there must be the minimum of legal challenges to the marketing of
    generic drugs. And in considering both of these very important factors,
    we see some positive developments--as well as some concerns.
        On the positive side, the number of full and tentative generic
    applications approved has gone up significantly, from 242 in 1999 to
    384 last year--an all-time record. On the other hand, median time to
    the issuance of an approval or ``tentative approval'' letter--which
    used to be longer than 2 years--is yet to drop below 18 months. That
    means, even as we are making large strides in reducing our review time,
    there is still substantial room for improvement in total time to
    approval. And although many generic applications have been approved
    within 1 year, this timeframe is still the exception rather than the
    rule. Moreover, even after the FDA issued a tentative approval, some
    potentially important generic drugs have remained unavailable because
    of legal challenges.
        The reason that total time to approval or tentative approval is not
    declining as much as we might hope is that, very often, multiple review
    cycles are required. Unfortunately, a large share of the initial
    generic applications are not up to the FDA's requirements. And this
    critical obstacle to increasing generic drug availability cannot be
    removed by the FDA alone
        The second main obstacle to effective communications has been FDA's
    internal policies that discouraged early consultations between OGD
    reviewers and sponsors of ANDAs. In part, these policies were necessary
    because the generic drugs staff has been--and is--overwhelmed with
    review work, and could not take on additional tasks.
        We are considering modifications to our policies on communications
    involving generic applications during the review process. I have
    therefore asked the Director of our Center for Drug Evaluation and
    Research (CDER), and the Director of the Office of Generic Drugs to
    lead an effort to identify steps, such as improving the clarity,
    consistency, and timeliness of our guidance and communications for
    generic drug applicants, to help improve the level of understanding and
    quality of applications by generic manufacturers.
        A third key factor affecting the availability of safe and effective
    generic drugs is manufacturing processes. To ensure safety and prevent
    adulteration, generic manufacturers must comply with Good Manufacturing
    Practices. Pharmaceutical GMPs, and the system that enforces them,
    still get the job done. But they have not been updated in many years,
    and it's time for reform to make sure that we have a GMP system that
    achieves its critical goals as efficiently as possible.
        I will now turn to another critical factor affecting generic drug
    availability: uncertainties in the legal landscape that generic
    manufacturers face. Recently, as you well know, there has been
    tremendous interest in whether reforms are needed in FDA's regulations
    to implement the Hatch-Waxman law that governs generic drug
    competition, or whether there need to be reforms in the law itself.
        While hundreds of generic drugs enter the market each year without
    substantial legal obstacles, some aspects of FDA's current
    interpretation of the law have been associated with disruptions,
    delays, uncertainty, and added costs for some generic manufacturers who
    are trying to compete fairly against some of the most important brand-
    name drugs in the country. On occasion, generic manufacturers who have
    geared up to compete following the expiration of what they thought were
    the relevant brand-name patents, only to learn that they had new
    patents to contend with. This practice lead to the repeated use of the
    so-called ``30-month stays'' of full approval of ANDAs and 505(b)(2)
    applications.
        To address this problem, the FDA proposed a new regulation last
    fall. The proposed rule would allow only a single 30-month stay per
    generic drug application. The proposed rule would clarify that certain
    types of patents are not allowed to be submitted for listing in the
    Orange Book, while others for method of use, formulation process,
    product by process, and different forms of the pending or approved drug
    substance must be submitted for listing. Further, the proposal would
    substantially strengthen the signed declaration accompanying the patent
    submission. These measures should reduce the submission of patents for
    Orange Book listing that do not represent true innovation.

    Secretarial Initiative: Accelerating the Availability of Lower Cost
            Drugs--Improving Health Sciences: Over-the-Counter Drugs (OTC)
            $1 million
        OTC drugs play an increasingly vital role in America's health care
    system, and provide an effective means to significantly reduce consumer
    prescription costs for specified ailments. The trend to self-medication
    has increased significantly in recent years as health care costs have
    risen and consumers want to be empowered to treat minor ailments with
    safe and effective OTC drug products.
        The increase will support the hiring and training of seven FTE to
    improve the OTC drug review process so that FDA is better equipped to
    provide the consumer faster access to OTC drug products without
    compromising safety issues; expedite the review of Rx-to-OTC switches;
    and, develop and work toward finalizing standards--monographs--for
    analgesic, antiseptic, laxative, and sunscreen drug products for OTC
    use. All of these efforts help produce significant consumer benefits
    such as significantly reducing and/or eliminating all unsafe and
    ineffective products from the OTC market; providing greater and broader
    access to OTC drug products; reducing some health care costs; and
    increasing competition.

    Best Pharmaceuticals for Children Act $5 million
        Pediatric provisions included in the FDA Modernization Act of 1997
    have had a profound impact on the study of drugs used for children. On
    January 4, 2002, Congress enacted the Best Pharmaceuticals for Children
    Act (BPCA), to continue providing incentives for the effective
    development and dissemination of information on how to properly use
    therapies in children.
        Currently there is still not enough information regarding the
    pediatric use of about 75 percent of prescription medicines. Prior to
    implementation of the pediatric provision, 80 percent of medications
    had not been tested on children, forcing pediatricians to guess at
    dosage for children, subjecting our children to dangerous health risk
    in terms of under dosing or over dosing. This is a particularly serious
    and dangerous situation for the newborn and those infants born
    prematurely. We know the bodily functions of infants are different than
    adults and in particular their response to various therapies. We
    believe this provision will continue to result in pediatric patients
    being given medicines that have been properly evaluated for their use
    in the intended populations.
        With the increase, FDA seeks to expand availability of drugs for
    children. We will strengthen our coordination with NIH on ensuring the
    safety and efficiency of pediatric drugs. FDA and the NIH will develop,
    prioritize, and publish an annual list of approved drugs for which
    there is a referral, an approved or pending new drug application, or no
    patent or market exclusivity protection and for when additional
    pediatric safety and effectiveness studies are needed, establish a
    research fund for the study of drugs that no longer have exclusivity or
    patent protection and specifies the process for obtaining contracts;
    provide a public summary of all studies. In fiscal year 2003 NIH
    received $25 million to expand the availability of drugs for children,
    in fiscal year 2004 NIH is requesting an additional $25 million for a
    total of $50 million was to support this effort.
        FDA will hire new staff for our Center for Drug Evaluation and
    Research, CDER to continue to define, develop, issue, and track written
    requests for pediatric studies; publish the final study reports on the
    docket; review submitted results from these pediatric studies within 6
    months; oversee ethical issues related to studies; and disseminate
    appropriate information to the public. The increase will also support
    the hiring of 4 FTE in the Office of Pediatric Therapeutics, under the
    heading of Other Activities, to address all activities related to the
    increasing number of new pediatric studies submitted by the
    pharmaceutical sponsors.

    Secretarial Initiative: Improving Departmental Management
        FDA is also supporting various administration and department
    initiatives associated with the President's Management Agenda by
    consolidating human and IT resources to achieve greater efficiencies
    and economies of scale; consolidating the biologic therapeutic review
    function into the similar drug review function to achieve greater
    consistency and less duplication of effort, conducting outsourcing
    studies and improving management to achieve cost savings and maximum
    efficiencies; organizational de-layering for faster decision-making and
    better communications; and, implementing a new financial management
    system to provide agency managers with timely and consistent financial
    information.
        FDA plans a major consolidation of its Headquarters Offices in the
    Washington D.C. metro area going from 16 locations to two--White Oak
    and College Park, Maryland. These locations were selected to create
    greater economies of scale and scope with the co-locating,
    standardizing and modernizing document handling; sharing facilities
    such as libraries and conference areas; reducing redundancies in a wide
    range of administrative management tasks; allowing the conversion to a
    single computer network; and significantly reducing management layers.
    College Park has been completed.

    Center for Drug Evalutation and Research Move $6 million
        FDA headquarters currently occupies approximately 40 buildings in
    16 locations. A long term goal has been for these facilities to be
    consolidated into two locations which will result in considerable
    annual operating savings. Receipt of the request will complete the
    second phase of the CDER relocation. This portion of the second phase
    will consolidate the offices and laboratories of CDER into one office
    and laboratory complex, enhancing communication, primarily by
    supporting cabling and relocation services.
    Arkansas Regional Lab $3.5 million
        FDA is also strengthening its analytical capabilities in the field
    by completing Phase III of the Arkansas Regional Laboratory multi-
    purpose facility to support the increased need for domestic and import
    inspections efforts.
        FDA's field laboratories provide critical laboratory and analytical
    support to domestic and import inspection efforts and are a key element
    to the FDA science base. These laboratories provide a cost-effective
    critical mass of scientific expertise in the fields of chemistry,
    microbiology, pesticide chemistry, animal drug research, and total diet
    research. ARL, located in the middle of the United States, will provide
    critical laboratory analysis for FDA-regulated products in a seventeen-
    state radius.
        Completion of Phase III of the ARL will enable FDA to fully utilize
    Building 50 and effectively collaborate with the National Center for
    Toxicological Research on scientific issues critical to the Agency and
    the American public. One of the issues addresses FDA's preparedness for
    counterterrorism events. The Jefferson Laboratories are developing DNA-
    based or mass spectrometry based technologies to permit the analyses of
    products for chemical and microbiological hazards. These methods will
    assist public health officials in identifying the type of hazard and
    its appropriate counter-measure.
        Without these funds, Phase III will not be completed in a timely
    manner and that delay may adversely impact FDA efforts to finalize
    development of methods, which could be used for chemical and
    microbiological hazards.

    Unified Financial Management System $2.3 million
        FDA's management needs timely, reliable, and current information.
    The DHHS Unified Financial Management System, UFMS, is designed to
    provide financial information in a manner that will enable FDA to
    maintain its clean audit opinion and meet all other financial
    information management requirements.
        FDA is performing various preparatory activities such as
    consolidating fifteen agency location codes to one; standardizing
    computer financial systems by implementing web-based versions; and,
    preparing its financial community for changes. Additional funding in
    fiscal year 2004 will enable the FDA to implement its portion of UFMS
    titled, Financial Enterprise Solution by beginning to design and test
    the General Ledger with payroll interface, which will account for over
    60 percent of FDA's transactions; and purchase software licenses,
    hardware, training and program support and meet increased contractor
    costs for site implementation.

    Rent Redistribution $10 million
        FDA is working with GSA to obtain space around the country to
    accommodate the more than 800 counterterrorism personnel hired with
    fiscal year 2002 Emergency Supplemental Appropriation. FDA anticipates
    redistributing some funds in fiscal year 2003 for GSA rent costs, and
    we are working to determine the exact amount of this redistribution.
    FDA expects its GSA rent costs to increase by at least $10 million in
    fiscal year 2004. In an effort to achieve additional management
    efficiencies, FDA intends to redirect funds from the programs,
    including field activities, to cover cost increases. Similar
    redistribution of increased GSA rent costs may all take place in fiscal
    year 2003.

    Reorganizations and Improving Management
        To meet my priorities of a strong and effective organization, risk
    reduction, counterterrorism and food security, and reducing medical
    errors and consumer communications, FDA has reorganized and several
    functions within the Office of the Commissioner. These include the
    Office of the Senior Associate Commissioner, the Office of Crisis
    Management, the Office of Legislation and the Office of Combination
    Products. In addition, the therapeutic biologics review function is
    being transferred from CBER to CDER to consolidate the similar drug
    review functions. Organizational de-layering to achieve a flat,
    streamlined Agency where decision-making and better communications
    exists is being aggressively pursued. FDA is also consolidating its
    administrative functions into a Shared Services Organization, SSO. The
    SSO concept will allow FDA to provide administrative support functions
    to Agency components to meet critical mission needs in the most
    efficient and effective manner possible. Similarly, FDA actively
    participated in leadership with the Department in the 40 to 4 Human
    Resource, (HR) consolidation effort. FDA's HR Director chaired the
    Department's workgroup of Operating Division representatives to design
    the new 40 to 4 HR consolidation initiative. FDA also conducted the
    pilot of a web-based application process called ``quickhire'' which is
    the system to be used supporting operations at the four HR centers. In
    preparation for the 40 to 4 consolidation, FDA consolidated its six
    personnel offices into one in 2002.
        As we prepare to transition FDA's HR staff to the Department's
    Rockville Service Center, scheduled to begin operation on October, 1,
    2003, I will continue to support the Department's consolidation
    initiative. These efforts will place the Agency in a position to more
    effectively and efficiently meet the challenges of providing better
    protection to consumers and promoting better health.

    Management Savings $25.7 million
        Management savings in fiscal year 2004 will contribute to an
    environment in which the FDA functions effectively as a single agency
    that consistently supports top-quality work by all of its employees.
        The challenges facing FDA cannot be confronted adequately without
    adequate resources in the right places. By rightsizing the Agency is
    thinking critically and carefully about how it uses its resources to
    improve the public health. Innovation and change is the norm in the
    American health care system, and programs must be designed with the
    future in mind.
        To accomplish this, FDA is conducting sourcing studies and
    improving management to achieve cost savings and maximum efficiencies
    for a fiscal year 2004 savings of $25.698 million and 199 FTE.

    IT Consolidation $29.6 million
        Information technology infrastructure functions are also being
    consolidated. This consolidation effort will reduce IT infrastructure
    and development expenditures in fiscal year 2004 by $29.587 million.
    Similar systems will be combined, IT processes reviewed and there will
    be reduced efforts on lower priority projects. Standardization of
    management processes will be fostered to increase the effectiveness of
    IT even as overall costs are reduced.

    User Fees--Current Law User Fees $31.7 million
        The budget request includes $249.825 million in PDUFA III user fees
    for the drug and biological product review process, an increase of
    $26.925 million over fiscal year 2003. This consists of pay and
    inflationary increases and new initiatives included in the PDUFA III
    legislation.
        In addition, the request includes $29.190 million for MDUFMA to
    significantly improve the medical device review process. This is a
    $4.065 million increase over fiscal year 2003. Our Medical Device and
    Radiological Health program has re-engineered itself over the last
    decade to accomplish more and has changed its strategic direction by
    consciously shifting its focus to high-risk, high-impact products to
    optimize the effect on public health. Other innovations brought by the
    FDA Modernization Act have streamlined the processing of premarket
    notifications (510(k)s) by using accredited third parties. The results
    were improvements in the review times and review processes. MDUFMA
    builds on these successes by providing medical device user fees
    beginning with fiscal year 2003 submissions, authorizing the use of
    accredited third parties to conduct quality systems/GMP inspections
    under very rigorous conditions, providing for effective FDA oversight
    of reprocessed single-use devices, improving the focus on devices
    intended for pediatric populations, improving the coordination of
    reviews that involve combination products, and more.
        MDUFMA commits FDA to a comprehensive set of challenging
    performance goals that will lead to substantial improvements in the
    timeliness of device reviews. MDUFMA user fees, and the additional
    appropriations you provide for this important program, will ensure
    FDA's ability to bring new medical technologies to health care
    professionals and patients more ability to bring new medical
    technologies to health care professionals and patients more rapidly,
    through a strengthened program that can meet the public's expectation
    that the medical devices they use are safe and effective. These
    resources will also help us meet the challenges now facing us from the
    medical device industry that include increasingly cutting edge and
    complex technologies that are being applied to current medical device
    products being developed and a shortage of the right scientific
    expertise needed to review these products. We must ensure that our
    science base is up to date, that our reviewers receive appropriate
    training, improve our outreach to industry and other stakeholders, and
    improve our review information system. We believe the increase will
    work to enhance our infrastructure, respond to the expected growth in
    the number of PMA applications the Agency receives, and improve our
    performance.
        The request also includes $23.225 million in other user fees for
    mammography inspections, export certifications and color
    certifications, an increase of $.735 million over fiscal year 2003.

    Proposed User Fees--Animal Drug Review User Fees $5 million
        A new user fee is proposed for the review of animal drug products.
    This proposal is patterned after the successful Prescription Drug User
    Fee Act, PDUFA that has enabled FDA to add over 1,000 employees to the
    drug review process over the last 10 years. With this $5 million
    request, FDA would improve and expedite the review of animal drug
    preapprovals.

    Closing
        I thank you for your commitment and continued support of FDA. We
    all have a shared responsibility of bringing to American homes safe,
    varied and plentiful food, and products devoted to providing the public
    with a healthy lifestye and healthy choices. I look forward to a long
    and harmonious working relationship with you, the Congress and other
    interested parties as we collaborate to promote and protect the health
    of our people.

                            MEDICAL DEVICE USER FEES

        Senator Bennett. I am sure it will come as no surprise to
    you that since assuming this position, I have heard from a lot
    of folks about MDUFMA, the Medical Device User Fee. I have
    tried to understand this. Let me see if I have got it right.
        The medical device people agreed some time ago that they
    would start to pay a user fee if in response they would get
    faster turnaround times, the argument being, well, we just
    don't have the resources within FDA to give you the turnaround
    times on approvals that you say you need and they say it is so
    important. Their reaction was, it is so important to us to get
    rapid turnaround times for our applications that we will pay
    for it.
        And so a deal was struck whereby they would pay, and let me
    see if I have the numbers right, $150 million in user fees over
    the next 5 years and the government would match these funds
    with a $15 million increase for the Center for Devices and
    Radiological Health in each of the fiscal years 2003, 2004, and
    2005. In other words, the user fees, if I can add it correctly,
    add up to $150 million and the Feds say, we will put in another
    $45 million, so we approach an additional $200 million to try
    to get faster service out of the government.
        This was enacted into law in October of 2002, after the
    2003 budget request was received. Now, my predecessor as
    chairman of the subcommittee, Senator Cochran, was unable to
    get more than $4 million in 2003 as a start on this, but that
    was a good start and a significant downpayment of the $15
    million that was envisioned.
        So now we get your budget and you are increasing it by $1
    million and we are going the other direction. I understand,
    having been in the executive branch, the kinds of pressures
    that you are under from OMB and the kinds of things that
    happen, and I am not going to ask you, did you recommend that
    we were going to the $15 million and then did the people at OMB
    cut you back. That is the kind of internal negotiations that go
    on and I am not going to go there.
        But one of the things I learned as a businessman is that a
    deal is a deal, and we are in a situation where the industry is
    coming up with an additional $150 million in user fees and
    someone in the budgetary process is saying, that is wonderful.
    Let us take that $150 million and spend it someplace else. In
    other words, money is fungible and if we have got an extra $150
    million coming in from another source, we will use that to
    offset money that we would otherwise have spent to try to get
    this up here. As you can understand, these folks feel somewhat
    badly used.
        So my question to you is what your suggestions are as to
    how we get out of this and if this subcommittee were to earmark
    some additional money to get close to the $15 million that was
    agreed to, can you help us find the offsets as to where it
    might come from?
        Dr. McClellan. Mr. Chairman, MDUFMA is one of those terms
    that, probably like you, I hadn't heard much before coming into
    government work and starting to work on important issues
    related to the development and use of new medical technologies.
    But I think your understanding of the program is extremely good
    and I think your awareness and attention to this issue is
    extremely important.
        There are many breakthroughs occurring in medical devices
    today. We recently approved a new drug-eluding stint that will
    significantly reduce the rate of complications after many heart
    procedures for the millions of Americans suffering from heart
    disease. We need to make those newer, safer, more effective
    treatments available to the public as quickly as possible.
        The FDA has long supported user fee programs like MDUFMA in
    other areas of medical technology. We have got a prescription
    drug user fee program that works for drugs and biologics
    extremely well in helping us reduce approval times and getting
    safe and effective products out there to the public more
    quickly, and we support it and we still support an effective
    medical device program. We are trying to get the Senate to act
    very soon on an animal drug user fee program, as well.
        This is an issue where from--I know you are experienced in
    the executive branch and in the Senate--you are right, a deal
    is a deal, but sometimes new programs take a little bit of
    extra effort to get off the ground effectively, and I want to
    tell you right now that I at FDA, Secretary Thompson at the
    Department, and everyone in this administration who cares about
    this issue is fully committed to the goals of the Medical
    Device User Fee Program.
        At FDA, what we have done is we have already started to
    hire some of the new people under the user fees that the
    companies are paying now. We are doing this with the full
    expectation that this is going to be a long-term program, that
    it is going to lead to some significant improvements in our
    approval times, which are too long today for priority medical
    devices. So we have got about 40 hires that we are in the
    process of making now for medical reviewers and other experts
    to help us improve the job that we are doing on medical devices
    and we are making some longer-term plans to help make sure that
    this program works.
        This is a matter that, as you know, has been under
    considerable discussion recently with the industry, with many
    people in the administration and many members on the Hill, and
    I want to thank you and I want to thank Senator Cochran for
    their efforts in helping to get this program off the ground.
        I appreciate your telling me you don't have to hear from me
    about discussions internally with OMB, but I think I can tell
    you that I have had a lot of discussions with senior officials
    in OMB and I think I can tell you that the entire
    administration is committed to making sure this program works,
    that it is made permanent, that we do get the significant kinds
    of improvements in device review performance that the program
    envisions, and we have got a little bit more work to do to get
    there.
        So we intend, OMB intends, the entire administration
    intends to work closely with this committee and with other key
    appropriations and authorizing committees in Congress to make
    this program work.
        With respect to earmarks, that is obviously something that
    is going to continue to come up in these appropriations
    discussions and I know and trust that we are going to have
    ample opportunity to talk with you about ways to make this
    program happen without getting in the way of other key
    priorities for the FDA. As you well know, we have got a
    tremendous amount of responsibilities at the agency. We have
    got a budget that we are trying to do the most with in order to
    meet those responsibilities and so we need to be very careful
    about any kind of earmarks that would take funds away from
    other key priorities.
        So I can't tell you right now that we are going to have
    that $15 million right now in the budget for this year. I can
    tell you that we, that OMB, that everyone in the administration
    is committed to finding a way to make this program work, to
    make it sustainable, make it permanent, make it have triggers
    that won't need to kick in because we are meeting our
    performance goals, and it is going to take a little bit of work
    in the weeks and months ahead to do that, but we are going to
    do that.
        Senator Bennett. Well, thank you. Talk about imposing new
    user fees in new areas will impact how well those user fees are
    responded to, because if, indeed, you have the reputation of
    inducing, if you will, people to agree to a user fee by saying,
    and we will raise ours on this side if you raise yours on
    yours, and then when that user fee turns into really nothing
    more than a tax that goes into the general fund and gets used
    fungibly for something else, it is going to be very difficult--
    --
        Dr. McClellan. The companies that are paying the user fees
    have an expectation that they are going to get significant
    performance improvements in response to that and we have got to
    fulfill those expectations.
        Senator Bennett. You have got to fulfill that, and I will
    do what I can to try to help----
        Dr. McClellan. I appreciate that, and I will look forward
    to working with you on this in the weeks ahead.

                               DRUG REIMPORTATION

        Senator Bennett. My time is going down, but very quickly,
    this isn't ``beat up on Canada'' day, but could you talk about
    the reimportation of drugs and the safety of drugs, that people
    go to Canada to buy drugs and then bring them back into the
    United States.
        Dr. McClellan. We are working hard on that issue, as well.
    As you probably know from our--as I am sure you know from our
    previous discussions, one of my top priorities at the agency is
    to do all we can to do our job more efficiently, because in
    many ways, in reducing the costs of the drug development
    process, making generic drugs more quickly available, helping
    to prevent medical errors, getting consumers better information
    about how to use pharmaceuticals, are many things that FDA can
    do to help drive down the costs that people are paying. The
    problems with affordability of medical care today are very much
    in front on my mind and the mind of millions of Americans, so
    many things that we are doing to help people reduce costs of
    drugs while still making sure they have safe and effective
    drugs.
        Where I have concerns is when people have to cut corners,
    when, because of affordability concerns, they take risks that
    involve the use of products that may not be as safe or as
    effective. And the problem with reimported drugs that come into
    this country outside our regulatory system is that we can't
    provide assurances about the safety or effectiveness of those
    drugs. Because I care a lot about this, we have had a lot of
    discussions with the Canadian authorities in recent months
    about steps that might be possible to take to provide more of
    those kinds of assurances.
        Canada recently issued a guidance about the safety and
    effectiveness of drugs that come through Canada. But in putting
    that out, they also clarified in a letter to the Washington
    Post just yesterday that they can't assure the safety of
    imported drugs coming illegally into the United States, that
    is, coming in outside of our regulatory system. We can't,
    either, because they are outside of our regulatory scheme.
        And so there is a real concern there. We have got to find
    better ways to make affordable treatments available.
    Reimportation of illegal drugs, or importation of illegal
    drugs, since you often can't tell the difference, is not a safe
    and effective solution.
        Senator Bennett. Thank you. Senator Kohl.

                            CHRONIC WASTING DISEASE

        Senator Kohl. Thank you, Mr. Chairman.
        Dr. McClellan, yesterday in the Washington Post, it was
    reported that in Canada, there was a large elk herd living near
    the area where the infected cow was found and that chronic
    wasting disease was common among that elk herd. When asked
    whether or not chronic wasting disease could have jumped from
    the elk to this particular cow and turned into mad cow disease,
    Dr. Lester Crawford, your Deputy Commissioner, stated that
    there are no known cases of this happening, but, and I quote
    him, ``you really can't entirely predict what a prion-related
    disease will do.''
        Obviously, this statement is alarming because in States
    like Wisconsin, where CWD has been found, we also have a large
    cattle/cow presence. So do you have some clarification or some
    words of comfort that you can offer in addition or in
    correction, to some extent, to what was said by your Deputy
    Commissioner yesterday?
        Dr. McClellan. Senator, it is a good question, and let me
    just be very clear that what I can say is based on the best and
    latest available science, and what the science tells us is
    there is no evidence that chronic wasting disease, which is
    another prion disease, has any association with BSE, has jumped
    species or in any way could cause BSE in ruminant animals.
        As you know, the elk and game animals in which CWD is
    present are different from the ruminant animals that are
    carriers and that are subject to BSE. They are different
    illnesses and there is no evidence of transfer between species.
    Moreover, as I understand the facts, that elk herd that you
    mentioned in Alberta was something like 100 miles away from
    where the affected cow was, so no opportunity there physically
    for any kind of transmission to occur even if there was some
    evidence that transmission could occur, and as I said, there is
    no scientific evidence that it does occur. So at this point, I
    don't see any evidence that CWD has any association or
    connection to this BSE case.
        Just an added word about my Deputy Commissioner. He is one
    of the foremost experts on animal health in public policy today
    and I think the country can be very confident that FDA is
    taking effective action on these important issues related to
    BSE and CWD in Wisconsin as a result of his contributions and
    hard work at the agency, and his views on this issue are
    exactly the same as mine.
        Senator Kohl. I do appreciate that and the clarification is
    very helpful. Thank you very much, Mr. Chairman.
        Senator Bennett. Thank you. Senator Cochran.
        Senator Cochran. Mr. Chairman, thank you very much for the
    good job you are doing, Mr. McClellan.
        Dr. McClellan. Thank you, Senator.

             RELATIONSHIP WITH THE DEPARTMENT OF HOMELAND SECURITY

        Senator Cochran. You are off to a good start and we
    appreciate that good effort.
        The Department of Homeland Security has been created and
    with it has come some new responsibilities. One example is
    transfer of some authority from the Animal and Plant Health and
    Inspection Service to Homeland Security and Plum Island, the
    facilities there.
        The question is, though, since FDA, your agency, and the
    Department of Agriculture continue to be responsible for food
    safety, however, to what extent are you working with the
    Department of Homeland Security to ensure that you have
    whatever information you need that they may be able to share
    with you so that your agency and the Department of Agriculture
    can continue to carry out your responsibilities to quickly
    identify and respond to outbreaks of foodborne diseases?
        Dr. McClellan. Senator, we are working extensively now with
    the new Department of Homeland Security. This is actually a big
    boom for food security efforts in this country. The Department
    has a strong commitment and some important expertise. One of
    their under secretaries comes from doing security work for a
    major soft drink company, for example, so they have got some
    important expertise to contribute in food and drink security,
    as well, in this country.
        I want to thank you for your efforts now on homeland
    security. We certainly miss you here. No disrespect to the new
    chairman, but it is very useful from my standpoint to have
    somebody in your position who understands the complexity of
    food security issues and all of the resources that we have
    available and where we need to improve them to keep the
    country's food supply secure.
        So far, I think we are off to a good start. The Department
    of Homeland Security is staffing up now. We have regular
    interagency meetings with them on food security issues and also
    agriculture security issues that involve USDA, as well. We are
    also supported in this effort by the White House's Homeland
    Security Council, which has a number of specific directorates
    that work on issues like developing countermeasures and
    protecting the infrastructure that bear, as well as public
    health, that bear on supporting our activities.
        Some of the specific issues that you mentioned, such as
    making sure that intelligence information is shared
    effectively, making sure that the USDA and FDA are using the
    same kinds of simulation models and expert input in developing
    our strategies for our respective roles in protecting and
    securing the food supply, in these and many other areas, the
    Department is very helpful and I will look forward to continue
    working with you to make sure that whole process of
    coordination and support works well.
        Senator Cochran. In this budget that is before us for
    review, is there funding requested to support these
    interactions?
        Dr. McClellan. There is substantial new funding requested
    in this budget for our food security efforts, over $20 million
    in new funding in the 2004 budget. That includes funding that
    is going to go to States to help them improve their inspections
    related to food security issues, help improve our nationwide
    food laboratory network. We have recently announced some other
    programs with CDC and the like to do that, as well. We are
    implementing new information systems. We are taking a lot of
    steps.
        In all of these areas, homeland security coordination is
    built in. Our methods of implementing all these steps involves
    some important input from Homeland Security. So, for example,
    in the work that we are doing with the States, the overall
    guidance for that work comes out of interagency working groups
    that the Department of Homeland Security participates in and
    the White House Homeland Security Council chairs in many cases.

                              DRUG COUNTERFEITING

        Senator Cochran. The chairman asked you about the
    reimportation of drugs from Canada and what your views were
    about that. We also had brought to our attention last year,
    your predecessor came to a meeting with Senator Kohl and me
    about the dangers associated with counterfeiting of drugs and
    the dangers in policing that, that over-the-counter drugs in
    many instances had been counterfeited in countries outside the
    United States and that customers were now buying drugs off the
    Internet from overseas sources.
        What are the dangers associated with that and do you have
    in your budget any funding requests that would help you get the
    word out or publicize the danger so that consumers would be
    aware of the dangers in connection with these practices?
        Dr. McClellan. The dangers are serious, and I just want to
    give you a ``for example.'' Yesterday, we were involved in a
    criminal investigation and operation in the State of Florida
    that took action against some individuals who are involved in
    manufacturing a counterfeit drug and trying to sell a
    counterfeit version of a drug called Procrit. It is one that is
    potentially life-saving for people who have low blood counts
    and this counterfeit version was not an effective drug. It was
    actually non-sterile water which could have caused infections
    as well as not providing the intended treatment.
        I am worried about this. We are seeing more of it as the
    technologies available to people who don't have the best
    interests of the American public at heart get better and get
    used more widely, and as people worry more about the costs of
    prescription drugs, we are seeing more efforts to introduce
    counterfeit drugs into the system as well as more efforts by
    illicit Internet groups. For example, we announced an action
    recently involving a company in Belize that was offering
    products over the Internet. They didn't obviously identify on
    their site that they are in Belize. We had to trace back the
    site's address and so forth. Obviously, we can't provide any
    assurances about the safety or effectiveness of these products.
        We are devoting some additional time and effort and
    attention inside the agency to find better ways, working with
    everyone involved in the drug distribution system, to protect
    Americans from these growing threats, and I think we are going
    to be able to do that in the months ahead.
        But part of the effort here is also publicizing
    information. We put out a number of brochures and educational
    materials that can provide guidance to people about how they
    can buy drugs safely over the Internet. There are some
    perfectly legitimate providers there and they can provide
    access to treatments that may be hard for people to get if they
    live in rural areas and the like. But they need to follow the
    advice that we give to avoid some of these kinds of illicit
    drugs that come outside of the system of drug regulation that
    the FDA provides, and outside that system that we are very
    determined to protect the integrity of, outside that system, we
    can't assure safety and effectiveness.
        We are working with pharmacies. We are working with various
    public health organizations to try to get this message out, and
    I think we need to do more of it. It is a growing concern at
    the agency.
        Senator Cochran. Thank you. Mr. Chairman, my time has
    expired. I do want to submit a few questions for the record,
    particularly one related to the Center for Food Safety and
    Applied Nutrition at FDA and its collaboration with the
    National Center for Natural Products Research at the University
    of Mississippi.
        Dr. McClellan. That has been a very effective collaboration
    for us, learning more about dietary supplements, which is a big
    concern of mine. Thank you.
        Senator Bennett. The questions will be included in the
    record.

                          ANIMAL FEED RULE COMPLIANCE

        Senator Johnson. Thank you, Mr. McClellan, for joining us
    this morning. The references to reports as of March 23 relative
    to 14 percent of rendering facilities handling material,
    prohibited ruminant feed, not having a system to prevent
    commingling, and 33 percent of non-FDA-licensed feed mills
    having not labeled their products came from a letter from a
    group of consumer organizations sent to USDA Secretary Veneman
    and HHS Secretary Thompson just yesterday. It is my
    understanding that your assertion is that their numbers are
    simply incorrect.
        Dr. McClellan. Well, they are outdated. My understanding is
    that their statements were based on a GAO report from 2002,
    which, in turn, was based on data and information collected in
    2000. I think the GAO report highlighted the need for us to be
    particularly vigilant in this area because the food ban is
    absolutely one of the critical firewalls of protecting
    Americans and protecting our cattle if there were ever a case
    of BSE discovered in this country. Remember, because of the
    way, as you well know, because of the way that BSE is
    transmitted, it has to go through the food supply, through the
    feed that cows eat. And so you have to have an infected cow
    being rendered into animal feed for this ban to have a
    protective effect.
        Right now, we don't have any infected cows in the United
    States, despite an awful lot of testing by USDA of at-risk
    animals, and so this ban is an additional firewall of
    protection for the country and we need to make sure that it
    works. And that is why, over the past year since that GAO
    report, we have really stepped up our efforts and we would be
    happy to provide your staff with the full set of information,
    the latest numbers. But we are at over 99 percent substantial
    compliance with the feed ban and we are aiming for total
    compliance and we are going to do everything we can to get
    there.

                            ANIMAL FEED INSPECTIONS

        Senator Johnson. It is my understanding that 80 percent of
    the feed mill inspections are handled at the State level and
    you only really have about ten personnel involved. Are you
    comfortable with that----
        Dr. McClellan. Well, we have more than----
        Senator Johnson [continuing]. The State-FDA partnership?
        Dr. McClellan. We have more than ten personnel involved in
    this inspection activity. As I mentioned earlier, we spend over
    $22 million of our budget on these BSE-related activities and
    close to $11 million of that is for field inspection activities
    by our personnel.
        We do rely a lot on our State partners in this effort and
    that is why we put a lot of work into training and monitoring
    programs to make sure they are doing the job. We have conducted
    a massive training program to ensure that State inspectors are
    every bit as informed as our FDA inspectors and we also have
    held training programs at several locations throughout the
    United States to give them an opportunity to participate
    actively in these education activities.
        In addition, we have standardized and computerized the
    inspection forms to minimize inconsistencies and minimize human
    errors and we have implemented computerized checks in case we
    see something that shouldn't be there. We have improved our
    whole computer information support system for this very
    important activity.
        All of these activities were implemented in response to the
    kinds of concerns that you raised. I want to thank you for
    that, and that were raised by the GAO report, and I want to
    continue to work closely with you and your staff to make sure
    we are taking all necessary steps to make sure that this feed
    ban works effectively.
        Our staffing levels are at a much higher level than ten for
    this effort. For example, in the 2002 budget where we started
    establishing this $22 million line item, I think we had close
    to 200 staff in activities related to this BSE program. But
    like I said, we will be happy to follow up with you and your
    staff to make sure we are doing everything appropriate on this
    very important issue.
        Senator Johnson. Very good. Senator Dorgan is here, and he
    may have some questions about the Canadian reimportation of
    prescription drugs issues, but I do want to just very quickly
    allude to the fact that I have a great number of my
    constituents who rely on a regular basis on purchasing
    prescription drugs from Canada and they are FDA-approved,
    branded, and very effective drugs.
        It seems to me that it should not be rocket science to
    figure out a monitoring system. Granted, this is a very
    roundabout way of dealing with America's prescription drug
    pricing issues, but it seems to me that in the meantime, the
    alternative, although you talk about risk of drugs from Canada,
    the alternative is an even larger risk that people simply are
    not going to take prescription drugs because they can't afford
    them. My constituents literally are choosing between groceries
    and staying on their prescriptions. This is not only a crisis,
    it is an urgent crisis.
        In a more perfect world, we would do a number of things
    legislatively to address the problem. America remains the only
    major industrialized society in the world that does not
    negotiate on behalf of its citizens a better price. And so my
    constituents are buying these drugs at less than half the
    price. Not only that, they are going to Mexico, which I would
    caution my citizens about. But I have my constituents telling
    me that they snowbird to Texas to pay for their entire stay on
    the prescriptions they buy in Mexico. It has become, as you
    know, a bit of an industry in both those countries.
        I have had people tell me that at one time it used to be
    the border towns were various kinds of tourist attractions, now
    it is pharmacia, pharmacia, pharmacia as they go across the
    border. And even in Mexico, although I would urge caution
    there, a lot of people are staying alive literally because they
    are buying their drugs in Canada and Mexico and not paying the
    prices that they have to pay in the United States.
        I just simply want to tell you what you already know, but
    also urge you to work with us constructively to devise a system
    whereby we can provide whatever additional assurances,
    particularly relative to Canada, that reimportation would allow
    us to do. It is a band-aid in a way because we need to address
    this in the context of Medicare and other kinds of things, but
    we will need the FDA's cooperation for that legislation which I
    am convinced will pass once again to make that work.
        Let me just ask you very quickly, because my time is
    expiring, make sure that I understand on the user fees for
    medical devices. You are using 100 percent of the user fees
    towards the purpose of expediting that program? You are not
    pocketing the money and using it, as Senator Bennett caused me
    some concern, talking about the money being fungible and
    heavens knows what the money is being used for, as simply
    another tax. While we are not fully matching it, you are at
    least using this new revenue flow, revenue stream, for the
    purpose it was designed, do I understand you correctly on that?

                            MEDICAL DEVICE USER FEES

        Dr. McClellan. You understand us correctly. The budget was
    passed late this year for 2003. As soon as it was approved back
    in February, we started the process of hiring the new reviewers
    and other medical experts who will make this program work
    better. We have got a process ongoing now. It is going to get
    40 more expert staff into the program as soon as possible to
    improve the way that we are handling device reviews.
        Like I said before, we are going to build on that effort.
    We want to make this program permanent and successful.
        Senator Johnson. My time is expired. I do have a couple
    other questions that, with Mr. McClellan's agreement, I would
    like to submit to the FDA.
        Senator Bennett. They will be submitted. We will have a
    second round, if you desire.
        Senator Johnson. I am going to have to excuse myself,
    unfortunately, fairly soon here for, as usual, other
    conflicting, overlapping investigations, but thank you, Mr.
    Chairman.
        Senator Bennett. Senator Dorgan.

                               DRUG REIMPORTATION

        Senator Dorgan. Mr. Chairman, thank you. Let me follow up
    on the questions that my colleague has asked with respect to
    reimportation.
        I want to talk to you about a February 12 letter from the
    FDA. First, let me tell you about a woman named Sylvia Miller
    who I accompanied, along with other senior citizens, to a one-
    room drug store in Emerson, Canada, five miles north of the
    North Dakota-Canadian border. This drug store in Emerson,
    Canada, was visited by a group of senior citizens accompanied
    by myself. Sylvia Miller was among them. She purchased
    Coumadin, Zestril, Glucophage, and Serevent, among other
    things, and saved about $150 by buying her medications in a
    small one-room pharmacy.
        I didn't think and don't think, and she didn't think, and I
    expect you don't think there was any concern about tainted
    medicine or counterfeit medicine. This is a chain of supply
    that is almost identical to ours and she was purchasing at a
    licensed pharmacist in Emerson, Canada.
        February 12, your agency sent out a letter that was signed
    by----
        Dr. McClellan. Mr. Bill Hubbard, probably.
        Senator Dorgan [continuing]. By Dr. Bill Hubbard, and let
    me just read what it says. It talks about reimportation. It
    says, those who can be found civilly and criminally liable
    include all those who cause a prohibited act, those who aid and
    abet a criminal violation of the act or conspire to violate the
    act can be found criminally liable.
        The result of this letter is that Blue Cross-Blue Shield of
    North Dakota then put out a missive in North Dakota saying, we
    can no longer cover with our insurance policies the purchase of
    prescription drugs in Canada by citizens who have our policies.
    So North Dakotans are now told because of your February 12
    letter that prescription drugs purchased in Canada will not be
    covered by Blue Cross-Blue Shield.
        Was that the intent of this letter? Would you really have
    intended, for example, to tell a Sylvia Miller, if she had Blue
    Cross-Blue Shield, if you drive to Emerson, Canada, and buy a
    prescription drug from a licensed pharmacist, it is FDA's
    judgment that an insurance company could be held criminally
    liable for aiding and abetting that and, therefore, they should
    cut off insurance coverage for those prescription drugs?
        Dr. McClellan. That is a question that several insurance
    companies have asked following the letter. My understanding
    from our discussions with a number of insurance companies, the
    American Association of Health Plans, and others is that there
    are no companies out there actively encouraging people to go to
    Canada to buy drugs.
        Senator Dorgan. That is not the question. You are not
    answering the question I have asked.
        Dr. McClellan. Well, you know, what we did there was
    restate what has long been FDA policy, and the FDA policy is,
    as you know, Senator, that personal importation of drugs is
    allowed. We have got a lot of good medical treatments out there
    and they are not affordable because Medicare does not have
    decent prescription drug coverage and it needs it now, so I
    have got a lot of sympathy for your constituent. But FDA has a
    policy on personal importation. If people go across the border
    and bring back a personal supply, even though that is
    technically illegal, we are not enforcing the law against those
    individual persons.
        So when they go over and they go to a Canadian pharmacy
    that provides drugs to Canadians, and they are not FDA-approved
    but they are approved by the Canadian agency, I can understand
    how she would, in the circumstances she is in, because Medicare
    doesn't cover drugs, would feel like that is what she has to
    do.
        That is very different than an insurance company going out
    and actively encouraging people to buy drugs illegally over the
    Internet.
        Senator Dorgan. Mr. McClellan, I am sorry. I have limited
    time. You are answering a question I haven't asked you. There
    is no evidence that any insurance company in the history of
    America has encouraged people to go across some country's
    border to buy prescription drugs. I have never even heard of
    that. I am asking you----
        Dr. McClellan. That is what I am saying. That is the
    relevant issue.
        Senator Dorgan. So what is the deal? Why are you talking
    about that? I am asking you a very specific question. I would
    like an answer, if you could.
        Dr. McClellan. Because what the companies wanted to know
    from us, and what we clarified since that letter, is we are not
    actively encouraging any Americans to go anywhere to buy
    prescription drugs illegally outside the system. We are taking
    all reasonable steps to make sure that people are getting legal
    treatments, FDA approved, safe and effective treatments. Do we
    need to do anything else? And the answer is no. They should
    just continue following the policies that they have been
    following.
        Senator Dorgan. Let me re-ask the question, then.
        Dr. McClellan. And I will re-answer the question.
        Senator Dorgan. You have not answered it. You have not
    answered it, with all due respect. The question is this. If
    Sylvia Miller is able to go to Canada and bring a personal
    supply of drugs back, a 30-day supply of drugs, for example, or
    a 90-day supply of drugs, whatever that might be, is it your
    intention to threaten insurance companies who might cover that
    because they have a policy that covers prescription drugs for
    that particular policy holder? Is it your intention to say to
    insurance companies with the February 12 letter, don't you dare
    reimburse your members, because if so, you may be abetting this
    and you may be liable for criminal prosecution? Is that really
    your intent?
        Dr. McClellan. Our intent, and our discussions with the
    industry, and our understanding of the way that the industry
    has responded to this----
        Senator Dorgan. Let us talk about your discussions with the
    industry, then, because----
        Dr. McClellan [continuing]. Is that no companies are
    changing their policies--no companies have had to change their
    policies about coverage because none of them are actively
    encouraging people to go get prescriptions. Is it possible that
    under a policy someone goes across the border and gets a
    prescription and gets it covered? Certainly, it is possible,
    but that is different from a company actively encouraging
    people to use potentially unsafe drugs.
        Senator Dorgan. Do you believe an insurance company should
    prohibit coverage when an American senior citizen, for example,
    goes over and brings a prescription drug back and is allowed to
    bring it back by your own testimony? Do you believe the
    insurance company should prohibit payment for that, because
    that is what is happening. Blue Cross and Blue Shield of North
    Dakota has put out an announcement, ``We will now no longer
    cover these.''
        The fact is, we are not talking about a lot of money. We
    are not talking about a lot of consumers. But the fact is, they
    have cut this off because of your letter and I am asking
    whether the FDA letter intends that to be the case.
        Dr. McClellan. I am happy to talk with any company in this
    country to clarify what FDA's policies are and are not. This is
    not something that is aimed at your constituent going across
    the border to go to a reputable Canadian drug store and
    personally buy prescriptions that she thinks are safe.
        There are some real concerns, and I am sure you wouldn't
    want insurance companies or anyone else to encourage Americans
    to buy drugs over the Internet where the drugs may not be safe
    or they are not approved by us or the Canadians have explicitly
    said they can't assure the safety and where the consumer may
    not even know where the drug is coming from. I am sure that is
    not what you would want us to encourage.
        Senator Dorgan. Different subject, but thanks for raising
    it. My question remains, do you want the FDA to be on record,
    which it is, telling an insurance company that they may be
    criminally liable, so be sure and tell your policy holders they
    will not cover prescription drugs that they now purchase in a
    trip to Canada, because that is where we are and I am asking
    whether that is what your intent is and you have not yet
    answered what----
        Dr. McClellan. I will tell you what my intent is. What I
    hope people are telling their policy holders is the same thing
    that we are telling the public, which is that drugs that are
    not approved by the FDA, that are not legally obtainable in the
    United States cannot have safety assurances that we would vouch
    for. We cannot assure that they are safe and effective.
        We have had a lot of discussions with the Canadian
    government about this, Senator, in recent months because I am
    very concerned about the safety of drugs that all Americans are
    doing, and the upshot of those discussions is reflected in what
    the Canadian government said yesterday in the Washington Post,
    is that they can't assure the safety of drugs coming to
    Americans from outside the United States. We obviously can't
    assure it because it is outside of our regulatory sphere. So
    this is a real area of concern.
        I think what this also highlights for your constituent is
    that it would be very important for the Senate to act as
    quickly as possible to pass a real Medicare prescription drug
    benefit so that she can get affordable medications. There are
    too many Americans like her who are facing a choice between
    buying drugs that they can afford and buying drugs that they
    can be sure are safe and effective and do what the drugs need
    to do. That is not a good position for health policy to be in
    and I am sure we share the goal of getting this addressed as
    soon as possible.
        Reimportation of illegal drugs is not a cornerstone for a
    safe and effective public health policy in this country. It
    shouldn't be. We can do better and we should do better.
        Senator Dorgan. Well, the great part about this country is
    you and I have the right to disagree about that. I profoundly
    disagree about what you have just said. When Sylvia Miller goes
    to a pharmacy in Emerson, Canada, if you know anything about
    the chain of supply in Canada, and you do, you understand that
    the purchase of Coumadin in that drug store is as safe as
    purchasing Coumadin at a drug store in downtown Washington,
    D.C. You know that and there isn't any way you would try to
    refute that. But that is not what I am asking about----
        Dr. McClellan. And I am not----
        Senator Dorgan. I am asking a very simple question of you.
    Is it----
        Dr. McClellan. And just to be clear, I am not refuting that
    a drug that Sylvia Miller goes and buys in a Canadian pharmacy
    is very likely to be safe and that the Canadian government does
    a very good job of assuring the safety and effectiveness of
    medications for their own citizens purchased in their own
    pharmacies.
        The problem today is that the vast majority of Americans
    who are buying drugs from outside our regulatory system are not
    doing what Sylvia Miller does. They are buying over the
    Internet from sites that may be in Canada, that may not. We
    have seen a lot of the products coming into the country. In
    many cases, they are not labeled properly. They are the wrong
    amounts. They don't come with the risk management and warning
    information that a doctor and pharmacist in this country would
    provide. This is not a safe and effective medical system for
    providing prescription drugs and we need to do better.
        Senator Dorgan. Well, the pharmaceutical industry spends a
    great amount of money advertising your position, but frankly, I
    am talking to you about a narrower issue here this morning and
    I have not yet received an answer.
        Dr. McClellan. Maybe the best thing.
        Senator Dorgan. Wait a minute. Let me finish the question.
    Do you believe that Blue Cross and Blue Shield of North Dakota
    should cover a prescription drug that is an FDA-approved drug
    purchased at a drug store in Emerson, Canada, brought back for
    personal use by a senior citizen in North Dakota? Should Blue
    Cross and Blue Shield cover that if that person has a policy
    that provides prescription drug coverage, or should Blue Cross-
    Blue Shield be potentially liable for criminal sanctions,
    according to your letter? Which do you believe?
        Dr. McClellan. I don't think that there is anything in our
    letter that expressly and in general prohibits Blue Cross-Blue
    Shield of North Dakota from covering a prescription that one of
    their members may have purchased in Canada on a personal use
    basis. That is consistent with our policy of personal
    importation.
        That is very different from Blue Cross-Blue Shield of
    anywhere encouraging or advocating or taking steps to promote
    the use of illegal pharmaceuticals in this country, and I would
    be happy, again, just to make sure--I am sorry we are not quite
    connecting on this because it is an important public health
    issue--I would be happy to talk with representatives from this
    company and get them in touch with our staff to clarify exactly
    what the letter means.
        We have had these discussions with insurance companies and
    I am very confident that most insurance companies in this
    country are interested in paying for drugs that are safe and
    effective and that promote the public health as a result. And
    so I don't think there is any conflict between their policies
    and what our letter says and I am happy to get our staff to
    verify that Blue Cross of your State is not an exception to
    that rule.
        Senator Dorgan. Mr. Chairman, thanks for your patience. If
    you are saying that there is nothing that prohibits this
    insurance company from covering a prescription drug purchased
    from a pharmacy in Canada, then we need to resolve it with this
    insurance company. We have got some folks out there who would
    expect to have their prescription drugs covered and they are
    now not covered because of your February 12 letter and because
    of its interpretation. I just read part of it. If I were the
    insurance company, I would interpret it the same way.
        But if you say that is not what you intend, you don't
    intend to prohibit this company from covering that circumstance
    I described, if that is the case, then let us do a U-turn on
    this letter, or at least redescribe what you intend in the
    letter so that Blue Cross-Blue Shield of my State knows that.
        Look, I don't know you from a cord of wood. I mean, we
    don't exchange Christmas cards and you are probably
    extraordinarily competent. In fact, a colleague of mine was
    just telling me that they have very high regard for you. What
    angers me is that people who can't afford to get knocked around
    in this system all the time, just all the time. The woman I
    discussed here is just one, but she is trying to live on a very
    small amount of money, trying to buy prescription drugs. She
    has to take ten of them. And so in this circumstance, she was
    trying to access a less expensive prescription drug that she
    knows and I know is safe because the chain of custody in Canada
    is identical to ours.
        Frankly, I just get angry when I see this letter, which is
    parroting the pharmaceutical industry's advertisements about
    why we shouldn't have the ability to go to Canada. Why
    shouldn't there be free trade in prescription drugs, as long as
    we can guarantee safety? I don't think there is any question
    that we can.
        Do you know that almost every day, a semi-truckload will
    come to the U.S. border with Canadian meat. Do you know what
    they do? They say, well, if it was inspected in the Canadian
    plant, it is good enough for us. They run it right through the
    border. But we can't do that with prescription drugs that go
    from a manufacturer that is inspected by the FDA, a drug that
    is approved by the FDA, goes into a chain of custody from the
    manufacturer to a wholesaler to the drug store that is
    licensed. We can't do that? Of course, we can. You know that.
        Look, I think I have made my point. I think you have told
    me some new information here finally. I don't intend to be
    rude, Dr. McClellan. I want you to do your job and do it well.
    I want the FDA to be on the side of consumers, and Mr.
    Chairman, thank you for giving me the opportunity.
        Dr. McClellan. Mr. Chairman, if I could have just a
    minute----
        Senator Bennett. Surely. There is no one waiting for a
    third round.
        Dr. McClellan [continuing]. And I do want to thank you,
    Senator. I mean, look, we are both frustrated about this issue.
    Drugs should be more affordable in this country. I am trying to
    do everything I can at FDA for our part of getting the costs of
    drugs and other medical treatments down.
        But as FDA Commissioner, I have to pay a lot of attention,
    for the reasons that you just mentioned, to making sure that
    the treatments are safe and effective and to protect the
    integrity of the assurances that we give to the public about
    the safety and effectiveness of drugs.
        I am not a cord of wood. I am a doctor and I am a health
    policy person, but I am not a lawyer. So we probably need to
    get our lawyers to talk to the company lawyers and just make
    sure we get the clarification here. I think everybody has got
    the same goal of getting safe and effective treatments to
    people at the lowest possible cost, and I will get you on our
    Christmas card list.
        Senator Dorgan. Well, Commissioner, I am not a lawyer,
    either, so we have something in common. Let me make sure you
    are on my list, as well, and we will exchange this coming year
    and begin to visit. Thank you for answering the question.
        Senator Bennett. I am not a lawyer, either, so that brings
    us all around.
        Thank you very much for your testimony this morning. One or
    two quick things in conclusion.
        I think one of the values of this hearing is that we have
    seen a greater degree of coordination about BSE statements
    coming out of the government than has been the case in the
    past, and I would hope you and the folks at USDA and anyone
    else who is involved could talk to each other as well as talk
    to the press with the responses that are being demanded because
    it is very helpful to get the total picture.
        The additional information you have given about what
    happens to a slaughtered animal whose carcass is then rendered
    and that is avoided getting it into feed that would go to a
    ruminant animal is something that was not in the USDA
    statement, not that they avoided it, but it was simply they
    dealt with their side of it, you dealt with your side of it,
    and putting the two together should have a much greater calming
    effect than taking either one by itself.
        So I would hope, to the degree you can, there could be some
    coordination there in the public statements on this.
        Dr. McClellan. Absolutely.

                                   NUTRITION

        Senator Bennett. And finally, you heard my conversation
    with Under Secretary Bost, which, as I say, I touched one of
    his hot buttons. You have a role in the question of nutrition
    and, of course, as we get into the whole issue of obesity, we
    get into the area of drugs because a lot of people are treated
    with drugs, either in an attempt to deal with conditions that
    trigger overeating--insulin is a very, very major player in the
    whole question of weight management.
        Indeed, that is the thing that was driving this book. The
    woman was an endocrinologist who was dealing with diabetics and
    with insulin. That led her into her conclusion that too high an
    intake of carbohydrates was part of the problem and her
    subsequent examination of the pyramid, and the same thing is
    true with Dr. Sears and the writing that he has done in his
    book ``The Zone'' and the people who are following that diet.
        Can there be some greater coordination, a greater breakdown
    of silos, if you will, between FDA and USDA on some of these
    nutrition issues so that we can come to the Federal Government
    as the final arbiter that says, this is the way Americans
    should eat. These are the manifestations. USDA, as they
    construct the pyramid, at least from my perception, probably is
    a little isolated from the endocrinologists, the study of
    insulin, the study of impact on blood sugars and drugs that are
    created to deal with that, and a little cross-fertilization in
    this area could be very helpful.
        Also, do USDA scientists--you say you are a doctor. There
    is a whole series of studies that are done in NIH that could
    impact our whole approach to nutrition. One of the things that
    is frustrating to me as I come into government is the discovery
    that we do live in a world of silos and stovepipes and
    particularly in the budgetary process. We appropriate money for
    this and they are studying something. Then we appropriate money
    for this and they may be studying the same thing from a
    slightly different point of view. Then we appropriate money for
    this and they are studying the same thing from a slightly
    different point of view.
        We could not only save some money, but more importantly, we
    could get much better results if the stovepipes kind of
    disappeared and people began to coordinate and cooperate and
    just talk to each other across agency lines.
        So I would leave you with that admonition at the close of
    the hearing here. Any response? No response is necessary, but
    if you have any, of course, I would be happy to receive it.
        Dr. McClellan. I would be glad to, at the risk of taking up
    a couple more minutes of your time. This issue of coordination
    and the importance of good diets and promoting the public
    health is a top priority of Secretary Thompson's. He has made
    many of the same points that you have.
        Public health is a very complex topic, public health and
    diet, and there are some good reasons to have some specialized
    expertise focus in different places. But I particularly
    appreciate your emphasis on making sure that each of these
    silos of expertise is working together effectively towards the
    overall public health goals that we need to support, and I
    agree with you, as well, that there are few more urgent than
    trying to do more to help people find safe and effective ways
    of watching their diet in a way that reduces obesity.
        Right now, we are clearly doing badly. We have already gone
    over the statistics. Under Secretary Bost cited some of them.
    We need better treatments. Many people today are turning to
    smoking cigarettes or using unproven dietary supplements in an
    effort to lose weight and that is just not a safe way to go
    about this.
        The main public health message that we have learned from
    the various types of research is pretty simple at a basic
    level, which, as Under Secretary Bost said, it is what you take
    in and what goes out--in terms of calories and what goes out in
    terms of energy expenditures that contribute to whether you are
    gaining or losing weight or not, and while we at FDA don't
    regulate those kinds of books that you put up there, that is
    not a medical product, I would also add the admonishment that
    if it sounds too good to be true, it probably is.
        For some of these diets, even though they have been shown
    to have some short-term effects on weight, what you really need
    is a sustained long-term weight loss program and a sustained
    long-term balanced diet, with calories in equaling calories
    out, and most of those diets don't do so well from a long-term
    standpoint, which is what you really need to improve health.
        And to do that, we need to find some better approaches. We
    are working on new medications at FDA. One of our priority
    areas for new guidance to industry is in obesity, is in better
    obesity treatments, and that is an effort that NIH is working
    closely with us in. We are trying to encourage industry to do
    more to compete about the health consequences of their foods
    and the health consequences of eating those foods as part of a
    good diet so that we don't see competition just around taste
    and product price and whether it is super-sized or not and
    whether it springs ready-to-eat out of a box, but also around
    what it does for your health.
        FDA hasn't done as much in the past, I think, as it should
    to encourage that kind of competition, and we are working with
    experts from many government agencies on the right way to go
    about that. We have got a task force right now that includes
    NIH, the Federal Trade Commission, and we have been in
    consultation with the USDA experts, as well.
        So I think with your leadership on encouraging more of this
    kind of interaction and more focused effort against these
    important and urgent public health problems related to obesity
    and good nutrition, we can make more progress, and I look
    forward to working with you on that and all the many other
    issues that no doubt we will have interactions about going
    forward.
        Senator Bennett. Thank you very much. Again, completely
    anecdotal, but I am aware of a woman who had very serious
    obesity problems and she dieted very strictly and she was on
    the treadmill every day and she continued to gain weight. It
    was very frustrating to her and she had a number of other
    problems.
        She finally went to a doctor who said, you have got an
    endocrine imbalance here, prescribed some prescription drugs,
    and she could eat more than she had been eating before, trying
    just to cut down on everything and exercise and all the rest of
    it. She could satisfy her cravings for more nourishment and, in
    fact, lose weight in the process because there were changes in
    her metabolism that were stimulated by the prescription drugs
    that she took. Her husband commented to me, ``I am glad to have
    her back. This is the woman that I married,'' whereas
    psychologically and emotionally, the woman he had married had
    disappeared in the process.
        So there is, in addition to all of the things that Under
    Secretary Bost appropriately said about quit being a couch
    potato and quit sitting in front of the computer, walk to
    school instead of ride the bus and so on, there is clear
    evidence that many of the things you deal with and the things
    that USDA deals with are interrelated in these complicated
    mechanisms we call our bodies.

                         ADDITIONAL COMMITTEE QUESTIONS

        The more we can get the Federal Government to spend its
    research dollars intelligently on this and then communicate
    intelligently so that ordinary people can say, well, this is
    the final word, rather than I have to go to the bookstore and
    rifle through 50 books and hope I find the one book that
    applies to me, is what I am hoping for eventually.
        [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

                             animal drug user fees
        Question. Dr. McClellan, I noted that your budget request assumes
    the enactment of a new animal drug user fee to expedite the review of
    applications for animal drugs. As you know, this falls under the
    jurisdiction of the House and Senate authorizing committees. What is
    the status of approval of this new user fee?
        Answer. You are correct; the first step in making this important
    FDA program enhancement a reality in fiscal year 2004 is obtaining
    authorization. The bill, S. 313, ``The Animal Drug User Fee Act of
    2003'' passed by unanimous consent in the Senate on June 3, 2003. A
    companion bill, H.R. 1260, was introduced with bipartisan support in
    the House. The measure, as passed by the Senate, requires an
    appropriations action before FDA has the full legislative authority it
    needs to collect and spend these fees.
        Question. What would be the impact on the center for veterinary
    medicine if this fee proposal is not enacted?
        Answer. Congressional authorization of this user fee proposal to
    support significant improvements in CVM's new animal drug evaluation
    process is critical to achieving the Center's initiatives for a
    sustainable and predictable animal drug review process.
        Without the additional resources the user fees are designed to
    provide, review performance will not improve. Existing delays in review
    times are already close to exceeding the timeframe within which a new
    animal drug sponsor can recoup its investment in drug development for
    most animal drugs. Failure to promote safe and effective new animal
    drug development may also result in increasing compliance problems
    associated with illegal drug use, illegal compounding of unapproved
    animal drugs, use of unapproved chemicals and drugs in food-producing
    animals, and a resulting increase in tissue residue violations both
    detected and undetected.
        Alternatively, if ADUFA is enacted, the general public as well as
    industry will benefit from faster animal drug approvals. This will
    provide greater public health protection by helping ensure that animal
    drug products that are shown to be safe and effective are readily
    available; speed public access to new and more cost efficient animal
    drug products; promote animal health by increasing the availability and
    diversity of safe and effective drug products that relieve animal pain
    and suffering without compromising public health; provide the animal
    health industry significant benefits from earlier marketing of products
    and more predictable review processes; and, decrease incentives for
    marketing unapproved animal drug products that have not been shown to
    be safe and effective through the animal drug approval process.

                                 GENERIC DRUGS

        Question. I noted in your budget justification the emphasis you
    have placed on approving new generic drug applications--$13 million and
    40 new staff have been requested for fiscal year 2004. How long does it
    currently take the FDA to complete the review of a generic drug
    application?
        Answer. During fiscal year 2002, the Office of Generic Drugs
    approved 295 applications with a median approval time of 18.3 months
    and an average approval time of 21.4 months. Currently the Agency is
    reviewing the vast majority, over 80 percent, of applications within
    180 days.
        Question. Why does it take so long?
        Answer. Studies of the FDA processes for new drugs have shown that
    early communications and guidance can improve drug applications and
    allow deficiencies to be corrected during the initial review, rather
    than having to wait for additional review cycles to fix problems. In
    addition, generic manufacturers have expressed interest in finding ways
    to improve the quality of their applications, so that more applications
    can be approved on the first round of review. Therefore, FDA is
    implementing a new system of early communications with generic drug
    manufacturers who submit applications. FDA also will provide additional
    guidance for generic manufacturers preparing and submitting quality,
    complete applications.
        Various interested parties also raise numerous scientific issues
    when generic products are anticipated. The discussion of these issues
    is critical as it ensures full consideration of all possible scientific
    aspects of the product. However, the full examination of these
    questions can delay the action on generic drug applications. In
    addition, with the advancement of science, new and more challenging
    issues are being raised. There are products for which efficient,
    reliable methods for the demonstration of bioequivalence have not been
    successfully developed.
        Question. What do you plan to do with this funding and staff to
    shorten that length of time?
        Answer. FDA generally can approve generic drugs for the marketplace
    as soon as the patent protection on brand-name drugs expires or when a
    court determines that the generic product will not infringe on the
    innovator's patent or that the patent is invalid. The generics'
    manufacturers must demonstrate to the FDA that their products are
    therapeutically equivalent to an approved brand-name drug in terms of
    safety, strength, quality, purity, performance, intended use and other
    characteristics.
        The proposed increase in the FDA's generics budget will allow FDA
    to hire 40 experts in its generic drugs program to review generic drug
    applications more quickly and initiate targeted research to expand the
    range of generic drugs available to consumers. FDA also has begun
    internal reforms to improve the efficiency of its review process for
    generic drugs. In particular, FDA is implementing a new system of early
    communications with generic drug manufacturers who submit applications.
    FDA also will provide additional guidance for generic manufacturers
    preparing and submitting quality, complete applications.
        Studies of the FDA processes for new drugs indicate that such
    communications and guidance can improve drug applications and allow
    deficiencies to be corrected during the initial review, rather than
    having to wait for additional review cycles to fix problems. In
    addition, generic manufacturers have expressed interest in finding ways
    to improve the quality of their applications, so that more applications
    can be approved on the first round of review.
        The new resources and other reforms are expected to reduce the
    total time to approval for most new generic drugs by 3 months or more
    over the next 3 to 5 years. Because these changes will generally
    accelerate the approval for all generic drugs, most Americans who take
    generic drugs will benefit.
        The FDA also will expand its educational programs and partnerships
    involving generic drugs, to help consumers get accurate information
    about the availability of generic drugs for their health needs and to
    help ensure that consumers are aware that FDA-approved generic drugs
    are as safe and effective as their brand-name counterparts. FDA will
    also undertake more scientific studies of generic drug
    ``bioequivalence'' to expedite the determination of whether the generic
    copy of a drug works in the same way as the original product, and will
    enhance monitoring of the safety of generic drugs on the market.

                        RX TO OVER-THE-COUNTER SWITCHES

        Question. During our recent conversation, Dr. McClellan, you
    mentioned to me your efforts to move more and more medications from
    requiring a prescription to being available over the counter. One of
    your reasons, as I recall, was to reduce out-of-pocket costs to
    consumers by not requiring them to pay for a doctor visit as well as a
    prescription. This would be especially beneficial to those who do not
    have health insurance.
        There is another side to that coin--the very real danger of self-
    medicating. There are some products that should not be used in
    conjunction with others. While these dangers might be listed on the
    package, many times the print is very small. How do you decide which
    drugs no longer require a prescription?
        Answer. Two of the options available to FDA to switch a drug
    subject to an approved new drug application from prescription, Rx, to
    over-the-counter status are voluntary submission and rulemaking.
        The simplest, voluntary submission, is when a sponsor voluntarily
    submits a supplemental NDA to make the switch. The second option,
    rulemaking, is permitted under section 503(b)(3) of the Federal Food,
    Drug, and Cosmetic Act. That provision allows the Agency to remove the
    Rx restriction from a drug such restriction is not necessary for the
    protection of the public health. In both instances, FDA must determine
    that the legal and safety standards for OTC marketing are satisfied
    prior to allowing the switch. Some factor the Agency considers when
    determining Rx-to-OTC switch candidates are: an acceptable margin of
    safety based on prior prescription marketing experience; low misuse and
    abuse potential; a reasonable therapeutic index of safety; and, self
    treatment and self monitoring with minimal physician intervention.
        Question. Does the manufacturer request this switch?
        Answer. Historically, the majority of drugs that have been switched
    from prescription only to over-the-counter, OTC, status have been at
    the initiation of the sponsor. However, FDA's regulations allow for any
    interested party to petition the agency to request to switch a product
    from prescription to OTC status.
        Question. What steps do you take to make sure that these drugs are
    being used appropriately once they are so widely available?
        Answer. Sponsors of approved NDAs are required to file periodic
    safety reports and these are monitored for adverse events. The Agency
    also maintains a voluntary reporting system, Medwatch, that is
    available to all consumers and health care professionals to report
    adverse events for both prescription and over-the-counter products. In
    some cases, use studies are conducted prior to switching a drug from
    prescription to OTC as one way to help ensure that the consumer can
    appropriately use a product in an OTC setting.
        Also, a regulation that will be fully implemented by May 2005
    standardizes the labeling format that will improve the labeling on
    drugs Americans use most, OTC drugs. By clearly showing a drug's
    ingredients, dose and warnings, the new labeling will make it easier
    for consumers to understand information about a drug's benefits and
    risks as well as its proper use.

                            MEDICAL DEVICE USER FEES

        Question. Dr. McClellan, the FDA budget assumes that at least
    $29,190,000 will become available from the medical device user fees
    authorized under current law. These funds are to be used to decrease
    the time necessary for medical device reviews conducted by the Center
    for Devices and Radiological Health (CDRH). Prior to the enactment of
    the medical device user fee and modernization act of 2002, how much
    money was spent for this review responsibility?
        Answer. We are currently developing the base line data on how much
    we spent on the process for the review of medical devices, as recently
    defined in the Medical Device User Fee and Modernization Act, MDUFMA,
    in fiscal year 2002--the year before MDUFMA was enacted. We do not have
    these data yet in large part because the new statutory definition cuts
    across our traditional accounting categories. The results, when we have
    them, will be published in the MDUFMA Financial Report that is due to
    Congress at the end of January 2004.
        Question. Of the amounts specifically appropriated to the FDA, not
    including MDUFMA funds, how much is expected to be spent for this
    activity in fiscal year 2004?
        Answer. Because the new statutory definition cuts across our
    traditional accounting categories, we do not currently have an accurate
    estimate on fiscal year 2004 funding. We estimate that it will be at
    least what was spent on the process in fiscal year 2002, but will have
    more accurate data when we complete data gathering for the MDUFMA
    Financial Report.
        Question. How many full-time employees were assigned to these
    reviews prior to the enactment of MDUFMA?
        Answer. Approximately 730 FTEs were spent on the process in fiscal
    year 2002. However, we will have more accurate information when we
    complete some data gathering that is currently underway. We expect this
    information to be published in the MDUFMA Financial Report that is due
    to Congress at the end of January 2004.
        Question. Not including MDUFMA funds, how many full-time employees
    will be assigned to these reviews in fiscal year 2004?
        Answer. We anticipate that the agency will assign at least the same
    amount of FTE on the process in fiscal year 2004 as in fiscal year
    2002. However, we will be able to provide better data once we have
    completed data gathering for the MDUFMA Financial Report.
        Question. I noted that of the amount available from MDUFMA,
    $15,808,000 will be provided to CDRH. Of the remainder, $7,026,000
    would be transferred to the Center for Biologics Evaluation and
    Research, $642,000 would be transferred to the Office of the
    Commissioner, $2,501,000 would be utilized by the Office of Management
    and Systems, $350,000 would go to the Office of Planning, Policy and
    Legislation, and a total of $2,863,000 would be applied to rent-related
    costs.
        What contributions are made to the review of medical device
    applications by each of the entities listed above?
        Answer. Device application review is done both in the Center for
    Devices and Radiological Health, CDRH, and in the Center for Biologics
    Evaluation and Research, CBER. Most of the review work is done in CDRH,
    but a significant amount is done in CBER--especially review of
    diagnostic devices and test kits that incorporate biologics or are used
    in blood testing work. Resources are allocated between those components
    in proportion to the amount of device review work that is done by each
    center, and keeping in mind that all of the appropriated increases, in
    the devices and radiological health line of the appropriation, are
    provided to CDRH and the field.
        Increases are included in the rent line because additional space
    will have to be acquired to house the additional staff the agency
    expects to hire over each year--from an additional 120 FTE in fiscal
    year 2004 to 265 additional FTE dedicated to this process by 2007.
        Increases are also included in funds for the Office of Management
    and Systems, which collects and manages the fee revenue, hires
    additional staff, coordinates the acquisition and management of the
    additional space, provides IT support, and reports to Congress on the
    financial aspects of the program each year.
        The Office of Policy and Planning is responsible for the annual
    MDUFMA performance report to Congress and for assisting with other
    management responsibilities for the program, such as the annual
    stakeholders meetings.
        FDA has also allocated funds to the Office of Combination Products,
    which was mandated by the Medical Device User Fee Act to streamline the
    processing of complex drug-device, drug-biologic, and device-biologic
    combination products that play an increasingly significant role in
    health care.
        Question. Before enactment of the medical device user fee
    authority, how were these responsibilities funded and in what amounts?
        Answer. All of the items previously mentioned are related to the
    implementation of MDUFMA. These activities are over and above any
    previous resources available to the agency. As a result of MDUFMA, FDA
    has expanded work related to the review of medical devices by the
    Center for Devices and Radiological Health as well as the Center for
    Biologics Evaluation and Research. The additional responsibilities that
    are being funded by MDUFMA in the Other Activities line of the budget
    by the Office of Management and Systems, the Office of Policy and
    Planning, and the Office of Combination Products were not necessary
    prior to the enactment of MDUFMA. Under MDUFMA, FDA must collect and
    manage the fee revenue, hire additional staff, coordinate the
    acquisition and management of the additional space for staff, provide
    IT support, report to Congress on the financial and performance aspects
    of the program each year, assist with management responsibilities for
    the program such as the annual stakeholders meetings, and assist in the
    streamlining of the processing of complex combination products.
        Question. Has there been any reduction in these amounts since the
    enactment of MDUFMA?
        Answer. We will have more accurate information when we complete
    some data gathering that is currently underway. However, the reductions
    related to the Devices and Radiological Health program in the fiscal
    year 2004 request reflect management savings and IT consolidation and
    should not impact the resources directly devoted to the review process.
    User fee collections under MDUFMA are not considered an offset for this
    program. They are used exclusively for the review of new devices and
    related costs. FDA supports the goals of MDUFMA, and is committed to
    making the medical device user fee program a success.

                 DRUG EFFICACY STUDY IMPLEMENTATION MONOGRAPHS

        Question. Dr. McClellan, FDA's recent enforcement activity with
    regard to single entity extended release guaifenesin has focused
    attention on many prescription products that have apparently been
    marketed for decades without significant safety or effectiveness
    concerns, but at the same time are outside of the current FDA drug
    approval process. I understand that the FDA has given careful
    consideration to many competing concerns, including upholding the
    integrity of the new drug approval process, ensuring the availability
    of affordable medicines, and not unnecessarily disrupting patients and
    physicians, as well and manufacturers and distributors and the people
    they employ. Would the FDA consider establishing a monograph system
    similar to the over-the-counter (OTC) monograph system to deal with
    these older products?
        Answer. FDA believes it would not be feasible to establish a
    monograph system for certain older prescription drug products. Such a
    system would have to be developed through notice and comment
    rulemaking, based on publicly available data, and would be limited to
    products that have been marketed to a material extent and for a
    material time and that can be established as generally recognized as
    safe and effective. It would take many years to develop and implement
    such a system and would require substantial additional resources.
    Because of its complexity, we anticipate that developing a monograph
    system and individual monographs for prescription drugs would be
    extremely resource intensive and time-consuming.
        Furthermore, many prescription drugs are associated with serious
    toxicity or potential harmful effects and are often for serious
    indications. Therefore, the types of prescription drugs that would be
    appropriate for consideration as generally recognized as safe and
    effective under a monograph system could be very limited. In addition,
    some categories of drugs would not be appropriate for monographs in any
    case because they have unique performance characteristics that require
    review under an application instead of under the general criteria found
    in monographs. For example, the safety and effectiveness of controlled
    release dosage forms are highly dependent on the specific formulation,
    and it would be difficult to ensure the safety and effectiveness of
    these drugs using a categorical approach such as a monograph system.
        Question. Does the FDA have the authority under existing law to
    establish a monograph system for older prescription products?
        Answer. FDA believes that it would be theoretically possible, but
    infeasible, to establish a monograph system for certain older
    prescription drug products. Such a system would have to be developed
    through notice and comment rulemaking, based on publicly available
    data, and would be limited to products that have been marketed to a
    material extent and for a material time and that can be established as
    generally recognized as safe and effective. It would take many years to
    develop and implement such a system and would require substantial
    additional resources. Because of its complexity, we anticipate that
    developing a monograph system and individual monographs for
    prescription drugs would be extremely resource intensive and time-
    consuming.
        Furthermore, many prescription drugs are associated with serious
    toxicity or potential for harmful effects and are often for serious
    indications. Therefore, the types of prescription drugs that would be
    appropriate for consideration as generally recognized as safe and
    effective under a monograph system could be very limited. In addition,
    some categories of drugs would not be appropriate for monographs in any
    case because they have unique performance characteristics that require
    review under an application instead of under the general criteria found
    in monographs. For example, the safety and effectiveness of controlled
    release dosage forms are highly dependent on the specific formulation,
    and it would be difficult to ensure the safety and effectiveness of
    these drugs using a categorical approach such as a monograph system.
        Question. Under the monograph system for OTC drugs, does the FDA
    have the authority to take action against products when there are
    substantial questions regarding safety and efficacy even if the
    monograph has not been finalized?
        Answer. FDA has the authority to take action against an OTC drug
    subject to a pending monograph when substantial questions regarding
    safety and efficacy are evidenced. If the drug contains an ingredient
    that is explicitly prohibited by regulation, 21 CFR 310.545, has label
    deficiencies that constitute a potential hazard to health, or is
    adulterated, FDA Compliance Policy Guide 450.200.

                                  GUAIFENESIN

        Question. With regard to single entity extended release
    guaifenesin, I understand that in February of this year, manufacturers
    and distributors were granted a grace period until November 2003 to
    obtain new drug approvals for their products. Affected companies
    obviously would need time to develop the information necessary for a
    new drug application (NDA) submission.
        In light of the fact that FDA's own figures indicate that the
    median time to approval for standard NDAs has steadied at 12 to 14
    months, was that a realistic grace period?
        Answer. FDA exercised its enforcement discretion and granted a
    grace period to prevent undue hardship to the consuming public and the
    industry that could result from an abrupt cessation of such products'
    supply. Among other things, this grace period had to be limited in
    order to preserve the incentives for companies to develop and submit
    new drug applications, as required by law. The new drug approval
    process plays an essential role in assuring that all drugs are both
    safe and effective. In addition, because FDA had determined that the
    single-ingredient, extended release guaifenesin drug products were on
    the market illegally, a decision to leave them on the market
    indefinitely could have run afoul of the Court's ruling in Hoffmann-
    LaRoche v. Weinberger, 425 F.Supp. 890 (D.D.C. 1975).
        Finally, single-ingredient, extended release guaifenesin
    manufacturers actually had much more than the 2 years notice provided
    to manufacturers of products subject to the cough/cold monograph. The
    Agency, by regulation, has identified certain drugs as requiring new
    drug applications for marketing, including all extended release dosage
    form drug products [21 CFR 310.502(a)(14)]. The Agency's interpretation
    of that regulation has not changed since it was publicly announced in
    1959. It appears that the Warning Letter recipients all began
    manufacturing their products after that public announcement. When
    guaifenesin was considered for OTC marketing by the Agency in
    rulemaking proceedings, the Agency repeatedly reaffirmed, in the
    Federal Register, the existence of the longstanding Agency policy
    requiring new drug application approval prior to marketing extended
    release drug products. FDA Compliance Policy Guide section 440.100 (CPG
    7132c.02) has also clearly stated for many years that any drug on the
    market without FDA approval is subject to regulatory action ``if it is
    identical or related to a post-1962 NDA approved for safety and
    effectiveness.'' Thus, the manufacturers of single ingredient extended
    release guaifenesin products had ample notice that they faced immediate
    removal from the market.
        Question. I note that on December 23 of last year, the FDA
    finalized the OTC monograph for cough and cold products with more than
    one active ingredient, so-called ``combination cough/cold products.''
    Manufacturers and distributors are not required to come into full
    compliance with the monograph until December 2004. Why were these OTC
    products given 2 years to conform to the monograph or come off the
    market when single entry extended release guaifenesin prescribed by
    physicians has to come off the market at the end of a 9-month grace
    period?
        Answer. The final monograph for cough/cold combination drug
    products that issued in December 2002, was developed under the OTC Drug
    Review process. The monograph set forth the criteria for such drugs to
    be generally recognized as safe and effective, i.e. not unapproved new
    drugs. The rulemaking process, established in 1972, provided that OTC
    drug products would not be deemed to be unapproved new drugs until
    after the effective date of the final monograph. In other words, the
    OTC Review process itself provided for a period of time during which a
    firm could bring its product into compliance with a final monograph and
    permitted continued marketing during such time period. In the case of
    the cough/cold drug products, the 2-year time period was determined to
    be reasonable and necessary to enable affected drug manufacturers to
    reformulate and print new labels to comply with the final rule.
        The recent action taken by FDA with regard to single-ingredient,
    extended release guaifenesin drug products involved the issuance of
    Warning Letters in October 2002 to manufacturers and distributors of
    such drug products, advising those firms that their drugs were
    unapproved new drugs. In that case, FDA exercised its enforcement
    discretion and granted a grace period to prevent undue hardship to the
    consuming public and the industry that could result from an abrupt
    cessation of such products' supply. Among other things, this grace
    period had to be limited in order to preserve the incentives for
    companies to develop and submit new drug applications, as required by
    law. The new drug approval process plays an essential role in assuring
    that all drugs are both safe and effective. In addition, because FDA
    had determined that the single-ingredient, extended release guaifenesin
    drug products were on the market illegally, a decision to leave them on
    the market indefinitely could have run afoul of the Court's ruling in
    Hoffmann-LaRoche v. Weinberger, 425 F.Supp. 890 (D.D.C. 1975).
        Finally, single-ingredient, extended release guaifenesin
    manufacturers actually had much more than the 2 years notice provided
    to manufacturers of products subject to the cough/cold monograph. The
    Agency, by regulation, has identified certain drugs as requiring new
    drug applications for marketing, including all extended release dosage
    form drug products [21 CFR 310.502(a)(14)]. The Agency's interpretation
    of that regulation has not changed since it was publicly announced in
    1959. It appears that the Warning Letter recipients all began
    manufacturing their products after that public announcement. When
    guaifenesin was considered for OTC marketing by the Agency in
    rulemaking proceedings, the Agency repeatedly reaffirmed, in the
    Federal Register, the existence of the longstanding Agency policy
    requiring new drug application approval prior to marketing extended
    release drug products. FDA Compliance Policy Guide section 440.100 (CPG
    7132c.02) has also clearly stated for many years that any drug on the
    market without FDA approval is subject to regulatory action ``if it is
    identical or related to a post-1962 NDA approved for safety and
    effectiveness.'' Thus, the manufacturers of single ingredient extended
    release guaifenesin products had ample notice that they faced immediate
    removal from the market.

                              DIETARY SUPPLEMENTS

        Question. Dietary supplements are products that are regulated as a
    food product. These are products made from herbs or certain ingredients
    and these products are not permitted to make claims that they ``cure
    diseases.'' Rather, they are permitted to make ``structure and
    function'' claims, as long as there is scientific information
    supporting these claims.
        The law is clear. If there is a safety concern about a product and
    the product causes a substantial risk of harm, then FDA may withdraw
    the product from the marketplace. However, if the scientific evidence
    is not clear, the Dietary Supplement law permits the agency to take
    other actions.
        The FDA is the administrative body that we have authorized to make
    sound scientific judgments within, let me repeat, within the parameters
    of the law.
        Let's talk about what has occurred to date. Dr. McClellan I
    understand that you have taken very swift action on the issue of
    ephedra and have proposed rules to require very strong warning labels
    on dietary supplement products that contain ephedra. In addition, I
    understand you propose that these products not be used by children or
    by athletes as an athletic performance enhancer.
        Dr. McClellan, I also understand that you have reviewed various
    scientific studies, including one commissioned by the FDA that looked
    at the adverse event reports. It is my understanding that the Rand
    Institute, an independent think tank, conducted a study and reviewed
    these reports on ephedra leading up to this regulatory process. They
    stopped short of saying that ephedra caused the adverse events.
        Do you intend to finalize these rules in the near future? Will you
    commission additional studies on this matter or do you feel you are
    getting additional information through rulemaking?
        I believe that the Agency is taking the correct approach: they are
    evaluating the law; they are looking at the scientific evidence; they
    are taking strong administrative action; and I believe that it is
    consistent with their mission in overseeing products under their
    authority.
        Answer. The agency remains very much concerned about the safety of
    dietary supplements containing ephedrine alkaloids. The agency is
    currently examining all comments to its March Federal Register notice.
    Upon consideration of all the comments, the agency will take the most
    appropriate action consistent with the law to best protect public
    health. The actions may or may not necessitate rulemaking. If the
    agency issues a rule, it may include labeling, as well as marketing
    restrictions. We do not anticipate commissioning any further studies at
    this time.
                                     ______

                  Questions Submitted by Senator Thad Cochran

                              DIETARY SUPPLEMENTS

        Question. The FDA has the primary role in regulating as well as
    assuring the safety of dietary supplements, like Ephedra. Scientific
    data are critical for developing policies regarding dietary supplements
    and for demonstrating safety. I understand that a number of scientific
    studies have yielded questionable results due to a lack of quality of
    the supplements being tested. Would a source of standardized products
    improve the scientific testing of these products as well as the safety
    of these products for consumers?
        Answer. Scientific data establishing the botanical and chemical
    profiles of authenticated botanical ingredients, such as ephedra,
    provide the essential basis for developing standards that can be used
    in a variety of ways to enhance scientific research and regulatory
    decisions. Such standards can provide a basis for evaluating Good
    Manufacturing Practices, GMP, in order to confirm that the ingredient
    used in a product is the ingredient intended for use. Adulterations or
    mis-identifications can more easily become apparent. This use has value
    for FDA in enforcement actions, for industry in establishing and
    monitoring GMP provisions, and for researchers in characterizing the
    test substance used in their own studies and for comparing results
    across studies performed by different laboratories.
        Validated analytical methods for detecting contaminants in
    botanical and other dietary supplement ingredients are valuable to
    regulators, researchers, and manufacturers. If such methods were widely
    available, they would help ensure that supplement ingredients do not
    contain unsafe levels of contaminants such as heavy metals, pesticides,
    and drugs.
        Sound scientific information on the botanical and chemical profiles
    of authenticated botanical ingredients and validated analytical methods
    for contaminants and adulterants would help assure the standardization
    of test products for research and the purity of marketed products.

                 NATIONAL CENTER FOR NATURAL PRODUCTS RESEARCH

        Question. I have followed with interest the collaboration between
    the FDA's Center for Food Safety and Applied Nutrition, and the
    National Center for Natural Products Research at the University of
    Mississippi. The FDA has indicated it has plans to expand this
    relationship. Can you comment on the value of this collaboration? Does
    the Center for Drug Evaluation and Research also plan to undertake
    similar collaborations in order to deal with dietary supplements that
    may be submitted for approval as drug products?
        Answer. Under the Dietary Supplement Health and Education Act of
    1994, DSHEA, FDA has primary responsibility for ensuring that
    appropriate regulatory actions are taken against marketed dietary
    supplement products that present significant health risks or bear false
    or misleading label claims. Policy decisions that require the
    evaluation of risks and claims need to have a sound scientific base.
    For botanical dietary supplements, development of such a science base
    is especially problematic because of several unique features, including
    the complexity of the constituents, variability of sourcing, lack of
    availability of reference materials, lack of manufacturing controls,
    and new and rapidly expanding uses in the marketplace. The existing
    cooperative agreement between the University of Mississippi, National
    Center for Natural Products Research, NCNPR, and FDA was established to
    address these critical research issues.
        In September 2001, FDA implemented a cooperative agreement with the
    National Center for Natural Products Research, NCNPR. This agreement
    was amended in September 2002, to increase overall funding of the
    project. The agreement between FDA and NCNPR creates a partnership that
    allows for more efficient use of resources to identify and analyze
    specific components in botanical dietary ingredients, thereby enhancing
    overall public health by ensuring that dietary supplements are safe and
    their labeling is not misleading.
        Accomplishments to date have included collection and chemical
    profiling of a number of botanicals, e.g., a variety of ephedra
    species, aristolochia and asarum species. Scientific workshops have
    either been held such as the ``Authentication of Botanicals'' in August
    2002, or are planned--such as ``Use of Hepatoxicity Methods to Evaluate
    Safety of Botanicals'' in September 2003. In addition, collaborations
    have occurred between NCNPR staff and FDA's National Center for
    Toxicological Research, with the methods validation project co-funded
    by FDA and NIH with the Association of Official Analytical Chemists,
    AOAC, with NIH's Office of Dietary Supplements, NIH/ODS and their
    Clinical Research Program for Dietary Supplements, and with the
    National Toxicology Program NIEHS/NIH-sponsored research in botanical
    safety.
        Future plans include the continuation of the basic efforts on
    collection and chemical profiling of authenticated botanical materials
    noted above with the inclusion of additional botanicals as current
    efforts are completed, holding additional scientific conferences and
    workshops, and continuation of collaborations between individual
    scientists at FDA's Center for Food Safety and Applied Nutrition,
    CFSAN, and NCNPR including the sharing of samples and research data.
    This expansion will greatly enhance the already useful chemical
    profiling information that FDA is receiving from the NCNPR/University
    of Mississippi collaborative agreement in that it will provide a more
    complete body of evidence on which to evaluate safety. Activities
    carried out under the Cooperative Agreement contribute significantly to
    the Center's dietary supplement program and expand the capabilities of
    researchers at both Centers.
        A dietary supplement submitted for approval as a drug product and
    intended for use in the diagnosis, cure, mitigation, treatment, or
    prevention of disease would undergo our new drug application, NDA,
    review process. We would seek expert advice through Advisory Committees
    when necessary.

                CITIZENS' PETITION--CFC GAS AND ASTHMA PRODUCTS

        Question. Please provide us the status, within the FDA, of the
    citizens' petition that calls for the removal of certain asthma
    products, called metered-dose inhalers, from the list of essential uses
    for CFC gas.
        Answer. The American Lung Association's, ALA, citizen petition
    requesting the elimination of the essential use designation for
    albuterol presents serious and complex policy issues.
        Section 2.125(f) specifies the 4 criteria for determining that a
    use of an ozone-depleting substance is no longer essential. A citizen
    petition must present ``compelling evidence'' that all criteria are
    met. The second criterion is that ``supplies and production capacity
    for the non-ODS product's exist or will exist at levels sufficient to
    meet patient need.'' ALA states that information that will support
    their desired finding on this criterion is proprietary, but it can be
    developed in the course of rulemaking. We have not received any
    comments providing information on supplies and production capacity of
    alternatives.

                        RX TO OVER-THE-COUNTER SWITCHES

        Question. As you point out in your statement, nonprescription drugs
    are becoming more important in our health care system as more products
    switch from prescription to over-the-counter status. The Administration
    has requested an additional $1 million to ``improve the OTC drug review
    process'' through hiring and training personnel. In your opinion, what
    impact do these products have on the health of Americans? Will the
    additional funds be used to complete the switch applications that are
    currently pending or initiate new switches?
        Answer. Over-the-counter, OTC, drugs play an increasingly vital
    role in America's health care system. With reports of rapidly
    increasing spending on prescription drugs, interest in finding ways to
    curb those costs is also intensifying. The trend to patient directed-
    medication has increased greatly in recent years as health care costs
    have risen and consumers want to be empowered to treat minor ailments
    with safe and effective OTC drug products. The mission of OTC drug
    review at FDA is to protect and promote the health of Americans by
    providing access to important safe and effective OTC drug products.
        The requested increase in funding will be used to hire and train
    seven additional FTEs to improve the OTC drug review process, develop
    and work toward finalizing OTC drug monographs, and conduct consumer
    behavior research that would be used to identify and manage potential
    risks of OTC drugs. Additional staff will assist in expediting all
    processes within the review division, making available OTC products in
    a timely manner.
                                     ______

               Questions Submitted by Senator Christopher S. Bond

                            MEDICAL DEVICE USER FEES

        Question. Dr. McClellan, you're to be congratulated for your role
    in reaching a deal with the medical device industry that requires them
    to pay $150 million in user fees over the next 5 years. This deal also
    requires the government to match industry funds with a relatively
    modest $45 million increase to be attained over the years 2003-05. I'm
    disappointed that the Administration's budget for fiscal year 2004
    fails to provide the funds required under this agreement in fiscal year
    2004. Yet, you've proposed new increases in other areas of FDA
    activity. Can you assure me that, notwithstanding your proposed new
    initiatives in non-device areas, you will meet your obligations under
    the device user fee agreement?
        Answer. FDA assures you that it looks forward to working with
    Congress and industry to ensure the device user fee program is
    successful. FDA is committed to meeting the performance goals, as
    stated in the goals letter. We have already begun discussions within
    the Administration to find ways to fund this program appropriately in
    fiscal year 2005 and beyond to ensure that this important program does
    not sunset.
        Question. The user fee agreement only requires you to meet current
    performance for the first 3 years of the program, even as you collect
    fees from industry. Yet I understand the agency's position is that you
    can't meet these modest goals without the additional funds that are to
    come from appropriations.
        With the $15 million increase we appropriated to CDRH for fiscal
    year 2003 plus the $27 million in user fees industry will pay, the CDRH
    budget is substantially larger in fiscal year 2003 than it was in the
    previous fiscal year. I've noticed that you propose a number of
    management efficiencies at the agency. In addition, you announced new
    initiatives to help speed multi-cycle reviews of promising new medical
    technologies through FDA. Why can't you meet the modest performance
    goals required by the device user fee agreement using these
    efficiencies combined with the increased funds that Congress and the
    device industry are already giving you?
        Answer. The appropriations for devices and radiological health in
    fiscal year 2003 provided an increase of $12.5 million over the fiscal
    year 2002 appropriation. Of this amount, $5.2 million was to fund the
    costs of the Federal pay increase for existing employees, $3.4 million
    was to enhance the counterterrorism capabilities of FDA's field
    operations. The increase of $1.5 million and 1 FTE for patient safety/
    medical errors and the additional $4.0 million added by Congress gave
    us some additional device review capabilities--as will the management
    efficiencies that we expect to achieve in fiscal year 2004. These
    amounts were offset by the $1.7 million rescission of 0.65 percent.
        We fully expect to meet the only performance goal that applies for
    fiscal year 2003 and fiscal year 2004--complete action on 90 percent of
    the amendments containing complete responses to an ``approvable''
    within 30 days. The more challenging MDUFMA goals take effect in fiscal
    year 2005, and become increasingly more challenging each subsequent
    year through fiscal year 2007. We allowed more time before these goals
    take effect because we will have to hire and train additional staff to
    be able to meet these goals.
        Question. Passage of the device user fee agreement was the
    culmination of a 10-year effort to win over the strong resistance to
    user fees of many in the device sector and in Congress. I understand
    that if FDA does not receive a $45 million increase for the device
    program by fiscal year 2005, the user fee agreement terminates and the
    agency loses the ability to collect fees from industry in the remaining
    2 years of the program. Given the history of the user fee issue in the
    device sector, I suspect you'll lose this program and any chance of
    collecting fees from the industry again if you don't find a way to meet
    the performance goals. What is your plan to avoid losing this program
    and this funding source that I suspect you need and want?
        Answer. The agency looks forward to working with Congress and
    industry to ensure the device user fee program is successful. FDA is
    committed to meeting the performance goals, as stated in the goals
    letter. We have already begun discussions within the Administration to
    find ways to fund this program appropriately in fiscal year 2005 and
    beyond to ensure that this important program does not sunset.
                                     ______

                    Questions Submitted by Senator Herb Kohl

                        BOVINE SPONGIFORM ENCEPHALOPATHY

        Question. Dr. McClellan, as you know, in the 1990s, during the BSE
    crisis in Britain, millions of cattle were slaughtered and burned, and
    significant amounts of feed were removed from the market. In 1997, FDA
    banned the use of certain contents in animal feed in order to try and
    stop the spread of BSE. What has FDA done to make sure that none of the
    feed removed from the market in Europe, or any of the remains of the
    destroyed cattle, have entered the United States on the black market in
    our animal feed?
        Answer. FDA has prioritized the review of our import entries to
    make sure that all of the possible commodities that might be or contain
    the mammalian proteins prohibited from use in ruminant feed are
    reviewed before entry into the United States. In addition, we have an
    Import Alert in place which instructs the FDA import personnel to
    detain without physical examination any product that is or contains any
    animal protein product from the countries identified by USDA/APHIS as
    ``restricted'' either because they have identified a case of BSE in
    that country or they are at risk for BSE because they have open
    commerce with those countries. That includes all of the European
    countries, Japan, and Israel, as well as Canada.
        We also have an ongoing assignment to collect samples and analyze
    animal feed products using feed microscopy from the BSE positive or
    suspect countries in which the documents indicate no processed animal
    protein is present to be assured that products are not being entered
    through intentional or inadvertent mislabeling. To date none of these
    samples have found the presence of processed animal protein.
        On an ongoing basis, FDA meets with USDA and Customs to coordinate
    the U.S. review and response to products offered for entry into the
    United States.
        Question. How is the FDA involved in the investigation of the
    Canadian case, especially in regard to tracing the feed that this herd
    consumed?
        Answer. FDA is working cooperatively with Canada in the
    investigation of this incident. Technical counterparts are
    communicating on a regular basis as the investigation unfolds. A
    representative from FDA's Center for Veterinary Medicine spent a week
    in Canada working with CFIA officials. FDA was notified by CFIA about
    pet foods that were potentially contaminated with rendered material
    from the BSE positive cow in Canada and shipped to the United States.
    The firm has asked for return of all suspect products and FDA has
    issued notices to alert consumers about this information. FDA is
    currently part of a daily interagency conference call that shares
    information on the investigation of this incident. The call includes
    representatives from USDA/FSIS and APHIS, as well as CDC. Each of those
    agencies is working with their respective Canadian counterparts.

                           REGULATION OF ANIMAL FEED

        Question. Please explain specifically how FDA regulates animal
    feed. Specifically, are there inspectors in all plants? Is there
    testing at the borders? How does FDA actually enforce its feeding ban?
        Answer. FDA regulates animal feed through the administration of the
    Federal Food, Drug, and Cosmetic Act, the Act. Animal feed is food
    under the Act. In general, food must be truthfully labeled and may not
    be adulterated. The Act, among other things, prohibits the interstate
    shipment of adulterated or misbranded food, and the adulteration or
    misbranding of food after receipt in interstate commerce. What
    constitutes adulteration or misbranding is defined in the Act. Food
    additives must be shown to be safe prior to their use in food. In
    addition, drugs are often administered to animals through feed and
    therefore, many animal feeds contain drug products and are called
    medicated feeds. The drugs go through a pre-approval process, and the
    medicated feeds must be manufactured in conformance with Current Good
    Manufacturing Practices regulations to assure appropriate controls are
    in place for the manufacture, processing, and distribution of the
    medicated feeds. Generally, feed mills that use potent drugs that
    require pre-slaughter withdrawal must be licensed by FDA to receive and
    manufacture feed containing those drugs.
        The regulation of animal feed, as with most FDA regulated
    commodities, begins with inspection of the manufacturing and
    distributing operations for feed and feed ingredients. The inspections
    are physical and include discussion with management and employees;
    plant walk through and observation of the processing; examination of
    equipment, plant premises, and grounds; and, review of records.
    Inspections are generally conducted biennially if certain potent drugs
    are used, and on an as needed basis for other firms. FDA is not in the
    plant at all times. However, we may conduct inspections multiple times
    during the year if there is a need; for example, to follow-up on an
    inspection that found violations of the law, to confirm that
    commitments to compliance were implemented, or when new information
    arises that indicates a possible violation of the law. We also work
    cooperatively with our state counterparts who may also be conducting
    inspections of a plant at various times throughout the year. We may
    also collect samples for analysis during the inspection or at sales or
    use locations.
        FDA is notified of shipments of imported products. We may review
    the incoming documents for the shipment, physically examine the
    shipment, and collect samples for analysis. Products that are not
    acceptable for distribution in the United States are refused entry. In
    some circumstances, the owner may be able to recondition the product so
    that it would be acceptable such as by making labeling changes where
    the basis for refusal is improper labeling. FDA would monitor the
    reconditioning and examine the shipment before permitting entry.
        Under the BSE feed ban, certain mammalian proteins are deemed food
    additives when used in ruminant feed; these are referred to as
    prohibited material. They have not been shown safe for use in those
    feeds and are therefore not permitted. Any ruminant feed containing
    these proteins would be adulterated. For non-ruminant feeds that do
    contain these proteins, the feed ban requires measures to prevent
    commingling and cross contamination, record keeping, and caution
    statement labeling.
        FDA has taken a multipronged approach to enforcement of the feed
    ban. FDA, in conjunction with the states and trade associations, has
    done extensive education of the regulated industries. We also conduct
    100 percent inspections of all renderers, protein blenders, and feed
    mills, as well as a percentage of other firms such as distributors and
    ruminant feeders. We have pursued enforcement action for firms that
    have failed to bring their operation into compliance. As of May 2,
    2003, 59 Warning Letters have been issued, and 42 firms have recalled
    over 241 products. The Act provides additional enforcement tools
    including seizure of violative product, injunction, and prosecution.
    Currently, we are conducting inspections of all firms that handle
    prohibited material annually. We also give priority for inspection to
    any firm that was found out of compliance on the previous inspection
    and any firm that we have information indicating possible violations
    are occurring.
        Additional enforcement activities include the development of a new
    BSE Compliance Program with input from a wide range of FDA and state
    officials, and two national meetings to introduce the Program. The
    purpose of the Program is to provide complete instructions to FDA and
    State investigators in conducting domestic BSE inspections and
    evaluating imported animal feed products from BSE-at-risk countries.
    FDA has also worked with a contractor to incorporate the BSE feed ban
    inspection information into the FDA FACTS System providing increased
    data integrity, increased ability to obtain information on the
    inspection obligations and their status, and enhanced ability to
    monitor compliance activities. Part of this database enhancement
    included a new BSE inspection checklist to improve data reporting for
    inspection. We have also trained field employees in the use of this new
    checklist and on the present BSE regulatory strategy. FDA also
    initiated training and installation of the Harvard BSE Risk Assessment
    simulation to enable FDA to test proposed risk management strategies in
    terms of the effects on the spread and the rate of disappearance of BSE
    should BSE be accidentally introduced into the country. In addition,
    FDA conducted a series of interagency tests of the FDA BSE Response
    Plan, and a satellite-training course on the BSE Contingency Plan. FDA
    revised the BSE Response Plan and published it on FDA's web site. FDA
    presented a national satellite broadcast, entitled ``BSE Import Safety
    Net'', to FDA, U.S. Customs Service and USDA inspection and compliance
    personnel. FDA is still physically collecting and analyzing import
    samples from known BSE countries identified as at-risk for BSE, for the
    presence of mammalian protein; no processed protein should be coming in
    from at-risk countries. This assignment to date has not found any
    violations.

                             ADMINISTRATIVE SAVINGS

        Question. FDA's fiscal year 2004 budget request is approximately
    $24.5 million above the fiscal year 2003 appropriated level, not
    including user fees. When looking at the budget, I was pleased to see
    that the request includes increases for food safety, patient safety,
    over-the-counter and generic drugs, and other increases totaling
    approximately $79.5 million. However, in order to pay for these
    increases, the budget proposes cuts of approximately $58 million. The
    explanations for these cuts in the budget is very brief, and I would
    like more information on them. The budget includes a cut of $28 million
    for ``management savings'', and states that it will be accomplished by,
    and I quote, ``reallocating resources, realigning and reorganizing
    functions.'' What specifically does this mean, and how was this savings
    amount formulated? What effect will this have on FDA employees?
        Answer. FDA is supporting various administration and department
    initiatives associated with the President's Management Agenda by
    consolidating human and IT resources to achieve greater efficiencies
    and economies of scale; consolidating the biologic therapeutic review
    function into the similar drug review function to achieve greater
    consistency and less duplication of effort, conducting outsourcing
    studies and rightsizing to achieve cost savings and maximum
    efficiencies; organizational de-layering for faster decision-making and
    better communications; and, implementing a new financial management
    system to provide agency managers with timely and consistent financial
    information.
        Organizational de-layering to achieve a flat, streamlined Agency
    where decision-making and better communications exists is being
    aggressively pursued. FDA is also consolidating its administrative
    functions into a Shared Services Organization, SSO. The SSO concept
    will allow FDA to provide administrative support functions to Agency
    components to meet critical mission needs in the most efficient and
    effective manner possible. These efforts will place the Agency in a
    position to more effectively and efficiently meet the challenges of
    providing better protection to consumers and promoting better health.
        As a result of the planned efficiencies expected from the migrating
    to shared services and results of our competitive sourcing initiatives,
    we expect to realize the savings as depicted in the budget.
        Question. The budget also states that IT infrastructure functions
    are being consolidated, and the budget supports DHHS efforts to
    ``improve the HHS Information Technology Enterprise Structure.'' These
    activities are resulting in a $29.5 million cut in FDA's budget. How
    was this savings amount formulated, and how much of it is actually
    showing up in the Department's fiscal year 2004 budget? Specifically,
    what is not being done or funded in order to come up with this money?
    Will we be seeing further ``IT savings'' in order to improve the DHHS
    IT system?
        Answer. IT consolidations will result in improved processes that
    will ensure that the Agency commits to the right projects for the right
    cost. FDA's budget request includes savings of $29.6 million in the IT
    budget from both ongoing infrastructure consolidation efforts as well
    as reduced expenditures through the consolidation, streamlining,
    postponement or elimination of specific lower priority projects.
        The Agency will fully implement its IT infrastructure consolidation
    by October 2003, thereby reducing infrastructure expenditures in fiscal
    year 2004 by $15.0 million. These reductions will be achieved, in part,
    by the ability of the Agency's Chief Information Officer, CIO, to
    exercise better control over IT decision making, including the
    identification of inefficiencies as targets for reduction. The CIO will
    also look for opportunities that, based on a sound business approach
    using a rigorous cost-benefit analysis, would benefit from the
    integration of new technology. As a further by-product of
    consolidation, the Agency will also foster standardization of
    management processes, thereby increasing the effectiveness of IT even
    as FDA reduces overall costs. These improved processes will ensure that
    the Agency commits to the right projects for the right cost.
        Additionally, FDA will reduce spending on development of specific
    IT systems across the entire Agency by $14.6 million. Managers of
    information technology organizations allocated reductions to the
    development of IT systems based upon one of three rationales for
    increased efficiencies. First, consolidation of similar systems either
    within FDA or the Department will provide savings in the cost of
    contracts and government personnel while reducing unnecessary
    duplication. Second, streamlining work processes and underlying IT
    processes will provide additional savings. Some of the improvements to
    IT processes will include better project management, more reliable
    tools to estimate costs and schedules for use in improved contract
    performance management, and consistent development practices. Third,
    lower priority projects will be scaled back or eliminated where
    reasonable to do so. The impact of reducing efforts on lower priority
    projects will be mitigated by improvement in work processes achieved
    through consolidation and streamlining efforts.

                            MEDICAL DEVICE USER FEES

        Question. Dr. McClellan, as you're aware, last year the Congress
    passed the Medical Device User Fee and Modernization Act, which
    requires the medical device industry to pay a portion of the cost for
    FDA to approve their products. Although I am not on the authorizing
    committee that put this bill together, I understand that there are
    requirements for certain levels of appropriated funding, and if this
    funding isn't provided, the program sunsets after 5 years. I also
    understand that FDA was consulted regularly when this bill was being
    developed--and was supportive of it. However, I don't see any increase
    in FDA's budget to help meet these appropriations targets. Further, I
    have been told that FDA now needs an increase of $22 million in
    appropriated funds this year, strictly for medical device review
    activities, in order to meet its targets set by law. Why did FDA agree
    to these appropriations targets if it had no intention of requesting
    funding to meet them?
        Answer. The Administration has to balance the many competing
    demands of each component within the Federal government with the total
    resources available. As a result, the fiscal year 2004 President's
    budget request for the Food and Drug Administration fell below the
    levels specified in MDUFMA. We support the goals of MDUFMA, and are
    committed to making the medical device user fee program a success.
        Question. If Congress provides FDA with the President's budget
    request this year, please explain what effect that will have on the
    implementation of MDUFMA--will FDA still be able to meet its
    performance goals for this year?
        Answer. The agency is committed to meeting the MDUFMA goals to the
    maximum extent possible with the resources that are available. We want
    the program to be as successful as the prescription drug user fee
    program. We fully expect to meet the performance goals that apply for
    fiscal year 2003 and fiscal year 2004--complete action on 90 percent of
    the amendments containing complete responses to an ``approvable''
    within 30 days. The more challenging MDUFMA goals do not take effect
    until fiscal year 2005, and become increasingly more challenging each
    subsequent year through fiscal year 2007. We have allowed more time
    before these goals take effect because we will have to hire and train
    additional staff to be able to meet these goals.
        Question. Does FDA plan to request the necessary funding in the
    future to meet the MDUFMA appropriations requirements in order to both
    help FDA meet its performance goals, and to prevent the program from
    expiring?
        Answer. The agency looks forward to working with Congress and
    industry to ensure the device user fee program is successful. FDA is
    committed to meeting the performance goals, as stated in the goals
    letter. Agency leadership has already begun discussions within the
    Administration to find ways to fund this program to ensure its success.
        Question. The President's fiscal year 2004 CDRH appropriations
    request is $185 million, is a decrease of $9 million from the fiscal
    year 2003 appropriated level of $193 million. At the same time, CDRH is
    proposing to collect $16 million in collecting user fees in fiscal year
    2004. One could assume from these facts alone that these user fees,
    which were meant to be additive in nature, and not to replace
    appropriated funds, are doing just that. Please explain.
        Answer. One of the provisions of MDUFMA requires that the funds
    from fees must be in addition to an appropriation amount that is as
    great as the amount FDA spent on the device review process from
    appropriations in fiscal year 2002--the year before MDUFMA went into
    effect--adjusted for inflation. This provision is meant to assure that
    appropriated resources available for device review are increased for
    inflation each year, and that the funding from fees is over and above a
    set level of appropriations, after adjustment for inflation. We are
    committed to working with Congress and the Administration to ensure
    that this intent of MDUFMA is realized. The reductions for the Device
    and Radiological Health program reflect management savings and IT
    consolidation, as discussed previously, and should not impact the
    resources directly devoted to the review process.

                       SEVERE ACUTE RESPIRATORY SYNDROME

        Question. We have all been reading the news stories and following
    the development of SARS. So far, we in this country have been very
    lucky, but just this week Secretary Thompson said that he believes we
    will see SARS deaths here. Hopefully, though, the efforts of the FDA,
    CDC, and other governmental and private entities will make us as
    prepared as we can be in the event of an outbreak in the United States.
    I read the statement that Dr. Lumpkin, the FDA Principal Associate
    Commissioner, gave to a House Committee a few weeks ago, outlining
    several steps FDA is taking in regard to SARS. This included working to
    identify the virus, working on drugs to treat and vaccines to prevent
    the virus, ensuring there are enough medical products available to deal
    with SARS, and protecting our blood supply. Often, when emergencies
    such as this arise, there is a need for supplemental funding beyond
    what is in the budget. Please briefly describe for us the activities
    FDA is undertaking in regard to SARS. Is there, or do you anticipate a
    need for additional funding to help fully fund all of FDA's SARS-
    related activities?
        Answer. FDA is carefully tracking the scientific progress in
    defining, treating and, ultimately, defeating SARS to ensure that all
    FDA resources are aggressively and effectively deployed in the battle
    against this new virus.
        FDA's Center for Biologics Evaluation and Research--CBER--is
    working with other government agencies and the private sector to
    address many of the most difficult early issues in vaccine development.
    As this program is in its infancy, much painstaking work must be
    accomplished to assure that the development and manufacturing processes
    meet the standards required to produce safe and effective vaccines
        On April 17, 2003, FDA issued guidance to the Nation's blood
    establishments on measures for further safeguarding the blood supply
    against SARS including recommendations for deferral of certain donors.
    FDA took this interim measure to assure the safety of the blood supply
    while more is learned about the disease. At this time, it is unknown
    whether SARS can be transmitted through blood. If tests are developed
    that can detect SARS in blood, adaptation of those tests to screen
    blood donations is likely and would be helpful. FDA will work with
    manufacturers to facilitate the development of those tests. In
    addition, manufacturers of products made from blood, for example
    plasma-derived therapeutics, may need to evaluate their need for viral
    inactivation methods to be sure that their processes are capable of
    removing the virus. FDA will work with these manufactures to validate
    and implement any new necessary processes as rapidly as possible.
        FDA will continue to monitor this evolving situation and intends to
    make any revisions or additions as needed to preserve the safety and
    availability of the blood supply, based on the best available
    information. For example, FDA's guidance may be modified based on
    further scientific research on whether the causal agent of SARS may be
    present in the blood of persons subject to this interim deferral. As in
    any deferral decision, the need to evaluate the effect on supply also
    must be considered.
        FDA's Center for Devices and Radiological Health--CDRH--is working
    with CDC, who along with others in the SARS Laboratory Network
    organized by World Health Organization--WHO--is helping further the
    scientific understanding of the virus. A diagnostic test for SARS,
    based on the detection of RNA sequences in the novel coronavirus, is
    currently under development along with an enzyme-linked immunosorbent
    assay--ELISA--test for antibodies to the SARS-related virus. The first
    of these tests, using polymerase chain reaction--PCR--technology, will
    help with acute diagnoses of patients, while the ELISA test will be
    used to confirm a case during or after convalescence. CDC developed
    these prototype experimental reagents over the past 2 months in an
    effort to address this unmet public health need. FDA rapidly reviewed
    information for the investigational use of this test, and is working
    closely with CDC to develop appropriate information for patients and
    health professionals, and an approach for further evaluation of this
    new test. This test methodology will be distributed to approximately
    100 specialized laboratories around the country. Under the terms of
    this test's wider distribution, patients and practitioners will receive
    clear information about the test when it is used to assist in
    diagnosing SARS. Hopefully, this information will facilitate the
    development and evaluation of an approved diagnostic test as quickly as
    possible.
        CDRH is reaching out to industry to ensure that any development
    plans for new tests are well designed and that premarketing
    applications submitted to the Agency are of such quality that a
    priority review can swiftly proceed. In addition, FDA has already
    cleared or approved dozens of tests for use in differential diagnosis
    of acute respiratory syndromes and has put in place a postmarket
    surveillance program to measure how well these tests are working. These
    tests do not diagnose SARS; rather they help to diagnose other
    conditions that may have symptoms similar to SARS. In this way SARS can
    be ruled out as the diagnosis in these patients. CDRH is also
    monitoring the Internet to see if products are being sold with false
    claims of detecting the SARS virus. If such products are found FDA will
    take action to protect consumers from being harmed by them.
        FDA's Center for Drug Evaluation and Research--CDER--is currently
    working with the private sector and other governmental agencies to
    identify drugs that may have utility in the treatment of SARS. CDER has
    contacted pharmaceutical companies in order to help identify candidate
    drugs with potential utility for the treatment of SARS. CDER has also
    helped to facilitate communications between companies and other
    governmental agencies--NIH and the U.S. Army Medical Research Institute
    for Infectious Diseases, USAMARID--involved with the preliminary
    evaluation of these drugs in screening tests. Sixteen drugs from nine
    companies were identified as candidate drugs for preliminary testing to
    evaluate whether the compounds have activity in vitro against the SARS
    coronavirus.
        CDER has worked closely with CDC on the development of an
    investigational protocol for the treatment of patients with SARS. This
    protocol provides a mechanism for patients with suspected SARS that
    meet certain medical criteria to be treated with intravenous
    ribavarin--an investigational antiviral drug not otherwise available.
    The study provides a means for patients to receive intravenous
    ribavarin, an agent that may have therapeutic utility for SARS.
        CDER is working with NIH and CDC regarding the possible development
    of a controlled clinical trial to critically evaluate the utility of
    therapeutic agents for the treatment of SARS. Similar to CDER's
    interactions to interactions with the CDC on CDC's protocol, CDER has
    been in contact with members of the Collaborative Antiviral Study Group
    and NIH in order to facilitate and expedite the review of any protocol
    under development for the treatment of SARS.
        CDER is involved in ongoing monitoring of the supplies of the drug
    ribavarin, which is available in several formulations. This work allows
    CDER to keep abreast of the current levels of ribavarin supplies in
    order to be able to forecast how much drug may be available to meet
    potential future clinical needs.
        SARS was first detected after the budget was submitted to Congress,
    and as a result, was not addressed in the request.
        Question. Has funding been diverted from other activities because
    of the SARS effort? If so, which activities?
        Answer. In fiscal year 2003, the Center for Biologics Evaluation
    and Research, CBER, is redirecting an estimated $1.3 million of its
    resources to SARS-related activities. Many of the CBER staff who
    currently perform regulatory policy, review and research are the same
    staff who also focus on other areas such as West Nile virus, and
    counterterrorism.
        In fiscal year 2003, the Center for Devices and Radiological
    Health, CDRH, is redirecting an estimated $200,000 of their resources
    to SARS-related activities. CDRH redirected some of their efforts away
    from routine premarket application review to address SARS-related
    concerns and applications.
        The Center for Drug Evaluation and Research, CDER, has not diverted
    any funds from other activities for SARS efforts since this is part of
    the CDER's Emergency Preparedness readiness efforts. The Center will
    continue to promote and protect public health by assuring that safe and
    effective drugs, including all SARS-related drug products, are
    available.

               BIOTERRORISM PREPAREDNESS AND RESPONSE ACT OF 2002

        Question. The Bioterrorism Preparedness and Response Act of 2002,
    the Bioterrorism Act, required FDA to implement several changes to
    strengthen its' food safety regulations, including the development of a
    system to register products manufactured abroad, by December 12 of this
    year. Four major proposed rules have been published since January, and
    I understand that approximately $12 million from fiscal year 2002
    supplemental funding has already been spent on the registration system.
    Further, the budget requests an increase of $20.5 million for food
    safety, in part to fund the implementation of the new food safety
    requirements and registration system. Specifically, what has the $12
    million in funding been spent for, and what remains to be done on the
    registration system?
        Answer. FDA has allocated approximately $12.3 million from base
    resources for the registration and prior notice systems in fiscal year
    2003. Approximately $4.3 million of this funding is from the fiscal
    year 2002 counterterrorism supplemental. Funds for the registration
    system include hardware, software, and contractor services for the
    design, development, testing, and implementation of the web-based
    electronic registration system. The registration system funding also
    includes funding for office space, hardware, software, and contractor
    services for the design, development, and initial staffing for the
    paper registration process, as well as the Help Desk for electronic and
    paper registration. The Help Desk will also handle calls about use of
    the prior notice electronic system also required by the Bioterrorism
    Act.
        The electronic registration system is currently being developed and
    tested. A prototype has been successfully demonstrated to food industry
    and foreign embassy representatives at four public meetings. The
    project is on time, and the goal is to have the electronic registration
    system operational by October 12, 2003 allowing 2 months for facilities
    to register before the December 12, 2003 deadline. The paper
    registration process has been designed. The design of the Help Desk and
    the implementation of the paper process are in the final stages of
    contract award. The Help Desk implementation will be awarded once the
    design is completed.
        The prior notice system has been allocated funds for infrastructure
    design, procurement, setup, operations and maintenance of computer
    system hardware, system/database software and licensing, and contractor
    services for the design, development, testing, and implementation of
    the web-based electronic prior notice system. Funding will also be
    utilized for extensive enhancements required to the Operational and
    Administrative System for Import Support, OASIS, system to support
    prior notice.
        The Bureau of Customs and Border Protection, CBP, is cooperating
    with FDA to permit current filers to use the existing Automated
    Commercial System, ACS, software to submit prior notice. FDA will
    develop and maintain two separate interfaces. The first expands the
    current Automated Commercial System--OASIS interface to incorporate the
    requirements for prior notice. The second is the web interface to
    capture prior notice for types of entries that have traditionally been
    exempt from Customs entry--i.e. mail, low dollar value entries, etc.
        FDA is integrating the prior notice requirements into the OASIS
    import entry processing system and making modifications to FDA's OASIS
    and Automated Commercial System interface. Additional modifications to
    the data warehouse decision support system will support the matching,
    standardization and validation of registration and prior notice
    information, ensuring high quality, consistent data. Enhancements to
    the automated import screening process to validate registration and
    prior notice will support inputs from both the web-based system and
    ACS. The existing entry review process in OASIS will be modified to
    support manual review of food articles that do not pass the automated
    screening processes. Prior Notice requirements will be met through
    enhancements to the import reporting database.
        The web-based electronic prior notice system prototype is on
    schedule for completion the last week in July. The goal is to have the
    web-based electronic Prior Notice system and the new ACS-OASIS
    interfaces operational by the December 12, 2003 deadline.
        In fiscal year 2004, FDA has requested $10.5 million of the $20.5
    million for operations and maintenance costs of the registration and
    prior notice systems, for hardware and software maintenance,
    telecommunications, facility lease, and contract labor. The request
    also includes funding for operations and maintenance of the labor-
    intensive paper registration system and combined Help Desk.
        Question. How has FDA been working with industry and consumer
    groups to make sure that these rules are as stringent as necessary
    while not excessively burdensome?
        Answer. President Bush signed the Public Health Security and
    Bioterrorism Preparedness and Response Act of 2002--the Bioterrorism
    Act--Public Law 107-188, into law on June 12, 2002. The Bioterrorism
    Act requires the Secretary of Health and Human Services, acting through
    the Food and Drug Administration FDA, to develop regulations by
    December 12, 2003, to implement Section 305--Registration of Food and
    Animal Feed Facilities--and Section 307--Prior Notice of Imported Food
    Shipments. If FDA fails to issue final regulations by December 12,
    2003, the Bioterrorism Act still requires domestic and foreign
    facilities to register with FDA by this date, and requires FDA to
    receive prior notice of imported food shipments of not less than 8
    hours or more than 5 days beginning December 12, 2003. The Bioterrorism
    Act further specifies that imported food from unregistered facilities,
    or food offered for import without adequate prior notice, must be held
    at the U.S. port of entry until the facility is registered and/or FDA
    has received adequate prior notice. The Bioterrorism Act requires FDA
    to develop and issue final regulations by December 12, 2003, to
    implement section 306--Establishment and Maintenance of Records. FDA is
    developing a regulation to implement the expedited enforcement
    procedures for perishable foods required by Section 303--Administrative
    Detention. Both HHS and FDA are committed to meeting the statutory
    deadlines in the Bioterrorism Act, and FDA has been devoting extensive
    resources to this effort.
        By typical rulemaking standards, the statutory timeframes for
    having final rules in effect within 18 months of enactment is an
    expedited one. To ensure the registration and prior notice rules can
    take effect by December 12, 2003, FDA is required to propose rules,
    take comment, and publish final rules within 16 months of enactment.
    Notwithstanding this ambitious time frame, FDA recognized the
    significant impact these regulations could have on its stakeholders,
    both domestic and foreign. Accordingly, FDA began its outreach
    activities for developing these regulations by issuing a ``Dear
    Colleague'' letter to stakeholders, including states, foreign
    embassies, trade associations, industry, sister agencies, and consumer
    groups. The letter explained the new regulatory requirements in the Act
    and FDA's timeline for implementing them. The letter also invited
    stakeholders to submit comments to FDA by August 30, 2002, that FDA
    committed to considering as we developed the proposed rules. We
    requested comments on stakeholders' areas of concern and suggestions
    for addressing them while meeting the statutory requirements.
        In July and August, FDA also held six constituent briefings with
    stakeholders that approximately 88 organizations, 36 embassies, 52
    organizations attended. During these public meetings, FDA explained the
    provisions in the Bioterrorism Act, and again solicited comments by
    August 30, 2002. In addition, FDA opened a public docket for each
    regulation to receive these comments. FDA received over 150 comments
    during this early comment period that we considered as we developed the
    proposed regulations. Comments were submitted by 24 trade associations,
    8 foreign embassies, 7 foreign countries, 17 individual companies, 8
    consumers and consumer groups, and 2 other agencies or state
    associations. FDA also met with officials at HHS and the Office of
    Management and Budget, OMB.
        Beginning in September 2002, FDA senior staff with responsibility
    for developing the regulations began weekly meetings with their
    counterparts within the Department of Treasury, U.S. Customs Service,
    to discuss implementation of the Bioterrorism Act's provisions,
    particularly with respect to the registration and prior notice
    rulemakings. The input we received from Customs is reflected in the
    proposals that FDA developed.
        In September and October 2002, FDA briefed HHS and OMB officials,
    respectively, on FDA's concepts for the proposed regulations and
    obtained early feedback before we began drafting the proposed rules. In
    mid-November 2002, FDA then briefed the other Federal agencies who had
    stakeholders potentially affected by the proposed rules and/or who had
    an interest in the safety and security of the U.S. food supply to
    explain the proposed rules, prior to sending the draft proposed rules
    to DHHS and OMB. As part of its review under Executive Order 12866, OMB
    sent both draft rules to other Federal agencies for review and comment,
    and forwarded all the comments it received from those agencies, as well
    as its own comments, to FDA for consideration. FDA made changes to the
    draft proposed rules to address the comments we received.
        FDA sent the proposed registration and prior notice rules to the
    Office of Federal Register on January 29, 2002, where they were placed
    on immediate display. We also posted the proposed rules on our website
    on this date. The rules were officially published jointly by FDA and
    the Department of Treasury on February 3, 2003, 68 FR 5378 and 68 FR
    5428, respectively with a 60-day comment period. The comment period
    closed on April 4, 2003. FDA currently is reviewing the comments and
    determining what changes should be made to the rules before finalizing
    them. HHS' and FDA's goal is to publish the final rules by October 10,
    2003, which will allow them to take effect under the Congressional
    Review Act by the statutory deadline of December 12, 2003. FDA can
    begin accepting registrations from facilities upon OMB approval and the
    publication of the final regulation so that if FDA publishes the rule
    as planned, facilities will have 2 months to register before the
    statutory deadline.
        FDA also published notices of proposed rulemaking in the Federal
    Register to implement sections 303 and 306 on May 9, 2003, see 68 FR
    25241 and 68 FR 25187, respectively. The deadline for comment on these
    proposed rules is July 8, 2003. During the public comment period,
    members of the public--both domestic and foreign--can submit comments
    and supporting data for the Agency to consider as we develop the final
    rules. FDA is committed to working with our stakeholders as we develop
    all four of these regulations, and we will comply fully with our
    international trade obligations, including the applicable World Trade
    Organization agreements and the North America Free Trade Agreement.
        FDA has taken extraordinary steps to reach out to both our domestic
    stakeholders and our international partners to advise everyone about
    the proposed rules. To date, FDA senior officials and staff have
    participated in over 80 meetings, both domestic and abroad. In
    addition, the Foreign Agricultural Service at the United States
    Department of Agriculture has held multiple meetings in the countries
    in which they are located to explain the new requirements. Other
    international organizations, such as the Inter-American Institute for
    Cooperation on Agriculture in Costa Rica, also have held meetings using
    FDA's documents and other outreach materials. We have received numerous
    compliments from all affected parties on our efforts to reach out to
    affected stakeholders, explain the new requirements in the Bioterrorism
    Act and FDA's proposed rules implementing them, and to solicit their
    comments.
        FDA began by holding a public meeting, via satellite downlink, to
    discuss the registration and prior notice proposed regulations on
    January 29, 2003, 1:00-3:00 p.m. EST. Nearly 1,000 participants in
    North and South America, and the Caribbean viewed the live broadcast.
    The meeting was later re-broadcast to Europe to Asia, Africa, and the
    Pacific. FDA held a similar public meeting, via satellite downlink, to
    discuss the recordkeeping and administrative detention proposed
    regulations on May 7, 2003, 1:00-3:00 p.m. eastern standard time.
    Participants in North and South America, and the Caribbean viewed the
    broadcast live. The meeting was re-broadcast to Europe to Asia, Africa,
    and the Pacific. Transcripts of both broadcasts, as well as copies of
    the videotape itself, are available on FDA's website in English,
    French, and Spanish.
        FDA has developed fact sheets, talking points, and a Powerpoint
    presentation presenting an overview of the proposed rules in English,
    French, and Spanish that others may use to help communicate the
    requirements of the proposed rules. These materials also are posted on
    FDA's website. In addition, as stakeholders translate these materials
    into additional languages, FDA posts the additional translations on our
    website. Currently, there are approximately ten different language
    versions available for some of these materials, including Ukrainian,
    Slovene, Serbian, Russian, Romanian, Polish, Hungarian, Czech,
    Croatian, and Bulgarian.
        FDA also has been working with several sister agencies to ensure a
    broad dissemination of information and outreach materials, specifically
    those addressing international outreach. These agencies include the
    United States Trade Representative, USTR, the United States Department
    of Agriculture, Foreign Agricultural Service, FAS, the Animal, Plant
    Health Inspection Service APHIS, and the Grain Inspection, Packers and
    Stockyards Administration, GIPSA, the Department of State, the
    Department of Commerce, and the Bureau of Alcohol, Tobacco, and
    Firearms, within the Department of Treasury. This collaboration led to
    the development of the fact sheets on the legislation and a flyer on
    registration that were circulated to FAS officers abroad, an
    informational email and cable to the posts, fact sheets on the two new
    proposed rules, press releases, transcripts, and a computer disk that
    FDA will include in packets sent to FAS officers. These materials will
    be used by embassy staff to actively and aggressively disseminate
    information on the legislation and the proposed rules at trade shows,
    industry meetings, and as a regular part of their interaction with our
    trading partners.
        In addition to the above outreach activities, FDA has attended
    numerous meetings both domestically and abroad during the public
    comment periods on the rules to ensure both that affected parties are
    aware of the proposed requirements and can provide meaningful comments
    to FDA for the agency to consider as we develop the final rules. These
    interactions have been invaluable for both stakeholders and for the
    agency to hear firsthand the suggestions from affected parties.
        FDA is taking steps to implement the statute with provisions that
    are as stringent as necessary while not excessively burdensome. During
    our development efforts at both the proposed and final rule stages, we
    estimate the costs and benefits for several regulatory options of
    varying degrees of stringency. These options vary both the number of
    regulatory requirements and the coverage of the regulation, and provide
    varying benefits. We published our cost-benefit analyses for many of
    these options in the proposed rule and solicited comment on them. In
    response to comments we received during the public comment period that
    ended on April 4, 2003, we are revising the cost-benefit analysis of
    some of the options we presented in the proposal and adding some new
    options. This presentation of options allows FDA and HHS to see the
    trade-offs between costs and benefits of various regulatory options,
    which in turn allows them to choose the regulatory option that most
    completely supports the statutory requirements with provisions that are
    as stringent as necessary while not excessively burdensome. We also
    fully consider our obligations under international treaties and
    agreements to ensure that we implement the statute in a way that is not
    more burdensome than necessary.
        Also, since the beginning of our regulatory development efforts,
    FDA has collaborated with U.S. Customs on the implementation of this
    rule. Both the registration and prior notice proposed rules were co-
    signed by the Department of Treasury and the Department of Health and
    Human Services. During our discussions preceding issuance of the
    proposed rule and as stated therein, Customs had informed FDA that it
    could not modify its existing Automated Commercial System, ACS, by the
    statutory deadline to receive the mandatory prior notifications. As a
    result, FDA began development of a stand-alone system that would
    receive the prior notices. The two agencies have continued our
    collaboration, and recently issued a joint press release in which we
    announced that importers, in most circumstances, will be able to
    provide the required information to FDA using ACS, making it easier for
    them to comply with the new law. As we continue our work to finalize
    the rule, we continue to meet weekly with Customs to streamline the
    requirements and implementation to the fullest extent feasible in a
    continued effort to make the rule no more burdensome than necessary.
        Question. Are further increases anticipated in future years as
    these rules go into effect?
        Answer. Out-year budget plans have not been developed, and we will
    continue to balance competing priorities when requesting funding.
        During fiscal year 2005, FDA will be implementing its Import
    Strategic Plan which will mesh with the Prior Notice and Registration
    Systems. As the Agency gains experience with the Import Strategic Plan,
    the experience will inform our budget recommendation.

                                 GENERIC DRUGS

        Question. Dr. McClellan, last year, the Senate included a $750,000
    increase above the President's request in order to decrease the FDA
    review time for generic drugs, and requested a report on what types of
    information should and should not be in the FDA ``Orange Book.'' This
    year, the FDA budget request includes an increase of $13 million to
    hire additional employees to reduce review times and support the
    implementation of improved regulations governing generic drug
    competition. What is the status of the ``orange book'' report?
        Answer. The ``orange book'' report to Congress is currently in the
    clearance process. However, on October 24, 2002, the Agency published
    its proposed rule, ``Applications for FDA Approval to Market a New
    Drug: Patent Listing Requirements and Application of 30-Month Stays on
    Approval of Abbreviated New Drug Applications Certifying That a Patent
    Claiming a Drug is Invalid or Will Not be Infringed.'' The comment
    period has closed and the final rule is expected to publish soon.
        In this proposed rule, the Agency proposed to amend its patent
    submission and listing requirements for NDAs. The proposed rule
    clarified the types of patents that must and must not be submitted for
    listing and revised the declaration that NDA applicants must provide
    when submitting their patents for listing to help ensure that NDA
    applicants only submit appropriate patents and therefore make the
    patent listing process more efficient.
        The proposal also would revise the regulations regarding the
    effective date of approval for ANDAs and certain applications submitted
    under section 505(b)(2) of the Federal Food, Drug and Cosmetic Act. If
    the ANDA or 505(b)(2) application contains a certification that a
    listed patent is invalid or will not be infringed and the patent owner
    or NDA holder brings a suit for patent infringement, the approval of
    that application is delayed up to 30 months while the litigation is on
    going. Currently there is the opportunity for multiple 30-month stays
    of approval. The proposal would permit only one opportunity for a 30-
    month stay per application that will streamline the ANDA and 505(b)(2)
    application approval process.
        Question. What are the specific goals for review times, if this
    increased funding is provided?
        Answer. The proposed increase in the FDA's generics budget will
    allow FDA to hire 40 experts in its generic drugs program to review
    generic drug applications more quickly and initiate targeted research
    to expand the range of generic drugs available to consumers. It is our
    goal to complete review and action upon original generic drug
    applications, accepted for filing, within 6 months after the submission
    date 85 percent of the time for fiscal year 2004.
        FDA also has begun internal reforms to improve the efficiency of
    its review process for generic drugs. In particular, FDA is
    implementing a new system of early communications with generic drug
    manufacturers who submit applications. FDA also will provide additional
    guidance for generic manufacturers preparing and submitting quality,
    complete applications.
        Studies of the FDA processes for new drugs indicate that such
    communications and guidance can improve drug applications and allow
    deficiencies to be corrected during the initial review, rather than
    having to wait for additional review cycles to fix problems. In
    addition, generic manufacturers have expressed interest in finding ways
    to improve the quality of their applications, so that more applications
    can be approved on the first round of review. The new resources and
    other reforms are expected to reduce the total time to approval for
    most new generic drugs by 3 months or more over the next 3 to 5 years.
    Because these changes will generally accelerate the approval for all
    generic drugs, most Americans who take generic drugs will benefit.
        The FDA also will expand its educational programs and partnerships
    involving generic drugs, to help consumers get accurate information
    about the availability of generic drugs for their health needs and to
    help ensure that consumers are aware that FDA-approved generic drugs
    are as safe and effective as their brand-name counterparts. FDA will
    also undertake more scientific studies of generic drug
    ``bioequivalence'' to expedite the determination of whether the generic
    copy of a drug works in the same way as the original product, and will
    enhance monitoring of the safety of generic drugs on the market.

                                  DRUG PRICES

        Question. Dr. McClellan, you mentioned several times during your
    exchange with Senator Dorgan the need for this country to find a way to
    provide safe, effective, FDA-approved drugs to the American people at a
    low cost, both through the Medicaid and Medicare programs. Recently,
    the Supreme Court ruled that the state of Maine could use their power
    as a bulk purchaser of drugs for Medicaid patients to bargain with drug
    companies to make cheaper drugs available to the state's non-Medicaid
    population. Currently, there is some controversy around this decision,
    and Secretary Thompson has apparently not yet decided what course of
    action to take. It seems that Maine has perhaps found a way to do just
    what you suggested in your testimony--providing safe, effective, FDA-
    approved drugs at a lower cost to its' population. If the Secretary
    asked for your opinion on whether or not he should allow Maine to do
    what they have proposed, how would you respond?
        Answer. If Secretary Thompson were to ask my opinion on this issue,
    I would tell him that if he concludes that the Maine proposal is
    appropriate and legal under the Medicaid and Medicare programs, there
    is nothing to suggest that the safety and effectiveness of the FDA-
    approved drugs purchased under the program would be compromised.

                                PRODUCT RECALLS

        Question. Recently, several lots of the popular drug Lipitor were
    recalled. I have been contacted by constituents, who, upon hearing of
    the recall, called their pharmacists to determine whether or not their
    product was included in it, and whose pharmacists were not aware that
    any product had been recalled. When a product is recalled, what
    responsibility is held by the FDA, the drug manufacturer, the
    pharmacists, and others who may be involved in the production or
    delivery of the drug, in order to make sure that the message gets to
    consumers quickly?
        Answer. FDA assesses each recall situation on an individual basis
    to determine what type of public notification is necessary, taking into
    account factors such as the degree of health hazard, the type and scope
    of distribution, and the likelihood that product remains on the market.
    At a minimum, FDA publishes a Weekly Enforcement Report that includes a
    listing of each new recall after it has been classified, which can take
    some time. This weekly report is made available to the media and is
    posted on FDA's public web site, www.fda.gov, under the heading
    ``Safety Alerts and Recalls.''
        When FDA determines that a product being recalled presents a
    serious hazard to health that requires a public warning, FDA ordinarily
    gives the recalling firm an opportunity to issue such a public notice,
    requesting that FDA be given the opportunity prior to its issuance to
    review and comment on its adequacy. If the recalling firm cannot or
    does not issue a public warning when deemed necessary by FDA, then FDA
    issues such a public notice itself. The Federal Food, Drug, and
    Cosmetic Act does not give FDA the authority to order a drug firm to
    recall a product or to issue a public warning, so such actions are
    voluntary on the part of the firm. The nature of the public notice will
    vary depending on the circumstances. For example, it might be a general
    public warning through the general news media, either national or local
    as appropriate, or it might be through specialized news media such as
    professional or trade press, or to specific segments of the
    distribution chain such as pharmacists, doctors, or hospitals. For
    Class I recalls, which represent the most serious degree of health
    hazard and usually involve a public warning, the warning notices are
    also promptly posted on FDA's web site under ``Safety Alerts and
    Recalls.''
        Recalling firms are usually the company responsible for the
    distribution of the violative product in interstate commerce. In most
    cases the recalling firm is also the manufacturer, but it may be a
    distributor, especially if the product has been imported or distributed
    by someone other than the manufacturer. The recalling firm has the
    primary responsibility to issue any necessary public warning as well as
    issuing the recall notification to their direct accounts, to whom it
    shipped the product. Direct accounts, generally wholesale distributors,
    are usually requested to notify their customers--e.g., chain stores--
    down to the retail level--e.g., pharmacies. Recalls of products that
    have the potential to present a serious health risk, such as
    counterfeit drug products, are normally extended to the user or
    consumer level. In such a case, because recalling firms do not have
    information on the identity of the consumer, the recalling firm is
    usually expected to issue an appropriate press release, as described
    above, to alert the public so that it is aware of the hazard and can
    take the necessary steps to remedy the situation.
        FDA works closely with the recalling firm to ensure that it
    conducts an effective recall. To this end, FDA may issue a statement on
    the recall, especially on a prescription counterfeit drug, to warn
    physicians, pharmacists, nurses, and all other health care
    professionals, trade groups, and consumers that a counterfeit drug may
    be on the market. In this situation with counterfeit Lipitor, the
    distributor Albers Medical Distributors, Inc. issued a recall notice on
    May 22, 2003, and FDA issued two talk papers on May 23, 2003, and June
    3, 2003, to alert the public. In addition, Pfizer, Inc. issued a news
    release on June 3, 2003, to further notify U.S. pharmacists of the
    counterfeit Lipitor.
        Question. Are there different procedures in place for different
    types of recalls (i.e. different types of products or the danger posed
    by the recalled product)?
        Answer. Although the basic recall procedures are the same, the
    specific details on how a recall is handled vary with the
    circumstances. For each recall, a specific recall strategy is developed
    by FDA, or by the recalling firm with FDA's review of the adequacy of
    the strategy. The strategy takes into account factors such as FDA's
    evaluation of the health hazard, the type of the product and how it is
    used, the distribution pattern, the degree to which product is expected
    to remain on the market, the degree to which the product and the
    deficiency is easily identifiable, and the possible need for continued
    availability of essential products. For each recall, the strategy
    addresses the depth of the recall--e.g., wholesale, retail, or consumer
    level-the possible need for a public warning and what form it needs to
    take, what method and level of effectiveness checks the recalling firm
    will conduct at consignees, what audit checks FDA will conduct, and any
    other recall implementation factors.
        The specific strategy and the urgency of a specific recall vary
    considerably depending on FDA's assessment of the health hazard
    involved. FDA assigns a numerical recall classification--i.e., I, II,
    or III-to each particular product recall to indicate the relative
    degree of health hazard presented by the product being recalled. Class
    I is a situation in which there is a reasonable probability that the
    use of, or exposure to, a violative product will cause serious adverse
    health consequences or death. Class II is a situation in which use of,
    or exposure to, a violative product may cause temporary or medically
    reversible adverse health consequences or where the probability of
    serious adverse health consequences is remote. Class III is a situation
    in which use of, or exposure to, a violative product is not likely to
    cause adverse health consequences.
        Although the recall health hazard classification heavily influences
    the recall strategy, the recall classification does not automatically
    trigger a public warning or a particular depth of recall. For example,
    although in practice most Class I recalls are determined to warrant a
    public warning, such a warning may not be appropriate or necessary if
    the distribution of the article was quite limited, easily identified,
    and all units can be quickly and effectively retrieved. Some Class II
    recalls may be found to require a public warning, whereas others may
    not. FDA would not usually expect Class III recalls to require public
    warnings, but it is possible a recalling firm might voluntarily issue
    such a notice on its own volition. Each recall has to be evaluated on a
    case-by-case basis and decisions on the recall strategy must be
    appropriate to the particular situation.

                                 MEDICAL GASSES

        Question. Dr. McClellan, as I understand it, FDA has now issued one
    draft guidance that addresses the general good manufacturing practices
    (GMPs) that apply to the medical gas industry, and is still working on
    another draft guidance that will be specific to the validation of air
    separation units (ASUs). Can you tell me the status of your efforts?
        Answer. The Agency has issued the medical gas cGMP guidance
    document and is currently in the process of developing draft guidance
    on the validation of ASU requirements. The guidance development process
    will be consistent with the Agency's good guidance practices and will
    allow for extensive industry input and interaction. In fact, the Agency
    has already met with the Compressed Gas Association, CGA, on March 7;
    April 18; June 18; July 11; August 29; November 6, 2002, and on
    February 12, 2003, to discuss technical ASU validation issues including
    risk-models. We will continue to meet and solicit the industry's input
    on technical issues as we develop the ASU guidance document. Once draft
    guidance is issued, there will be a comment period, and the Agency will
    review and seriously consider all comments received during the comment
    period before finalizing the guidance.
        Question. Is the FDA utilizing a risk-based approach with respect
    to both guidances?
        Answer. These guidances are based on extensive input and comments
    received from industry over several years, and includes risk-based
    thinking on these issues. There will be ample opportunity for comment
    and meetings with stakeholders before final guidances are developed to
    ensure that the available scientific evidence is fully considered in
    our efforts to develop a risk-based approach on this topic.
        Question. It is also my understanding that the medical gas industry
    has developed a consensus risk-based model for ASU validation that will
    be the basis for a new industry standard. Can you tell me whether FDA
    plans to use the industry model or perform an independent risk
    assessment as the basis for the ASU guidance recommendations?
        Answer. The Agency has met extensively with the Compressed Gas
    Association, CGA, and discussed the industry's proposed risk-based
    model for ASU validation. The agency found those meetings to be very
    valuable and productive, and a shared understanding was achieved on
    many issues that will be reflected in the draft guidance that the
    Agency intends to develop on the subject. The draft guidance will
    reflect a risk-based approach, including important aspects of the model
    that was discussed. There will be further opportunities to discuss this
    matter to ensure that any unresolved issues can be fully considered
    before the conclusion of the guidance development process.

                              COLOR CERTIFICATION

        Question. I understand that, under the FFDCA, the FDA certified
    color regulatory program is paid for by an industry user fee. I have
    been contacted by a company located in Wisconsin that participates in
    this user fee program. They state that the FDA has moved this program
    into significantly larger and more expensive space, even though there
    has been no increase in programmatic responsibilities or staff.
    Specifically, they claim that while the color certification program
    used to run out of 10,000 square feet of space at a cost of $20 per
    square foot, they have moved to a new, 35,000 square foot space at a
    cost of $52 per square foot. Also, security costs have increased from
    $10,000 in previous years to over $300,000 this year. Further, it is my
    understanding that in previous years these companies have received a
    rebate from the FDA for unused funds, and that these rebates, which
    some companies had come to depend on, will no longer be given.
        What is the justification for moving to this larger, significantly
    more expensive, space? What is the justification for the increase in
    the security costs?
        Answer. The General Services Administration, GSA, required FDA to
    vacate Federal Building 8 by December 31, 2002, and to prepare that
    building for other uses. FDA was forced to set up a temporary location
    for the color certification function while new space is being made
    available in College Park, Maryland. GSA had only one facility
    available for FDA for this purpose in Chantilly, Virginia. The color
    certification staff moved from Federal Building 8 to the interim space
    in Chantilly, Virginia in October 2002. While the Federal Building 8
    space housed a majority of CFSAN staff including color certification,
    the Chantilly space is solely for work done by the color certification
    staff. The interim space provided by GSA is larger than FDA requested;
    unfortunately, there is not an easy way to divide the space so that FDA
    could use less. FDA's Associate Commissioner for Management and Systems
    visited the space to review the situation. In fiscal year 2003, FDA
    will have to use funding in the color certification account to pay for
    approximately $1.8 million in rent and related costs for the Chantilly
    location and about $1.5 million for buildout for College Park. The
    first phase of the move of the color certification operation from
    Federal Building 8 to interim space in Chantilly, Virginia took place
    November 2002 and the second and final phase was completed in December
    2002. FDA senior management has met with industry staff more than once
    to review these costs.
        When the color certification program was housed at Federal Building
    8, a proportionate share of security services at Federal Building 8 was
    applied to the color certification program. In contrast, the interim
    office in Chantilly is used only for the color certification program.
    In fiscal year 2003, after the events of September 11, all Federal
    facilities have new security requirements. For both of these reasons
    the security costs applicable to the certification function have risen
    significantly.
        The fees for certification of colors have not been raised since
    1993. Consequently, FDA's fee income for this function has been
    relatively steady. Naturally, as the employees receive pay raises, and
    as general inflation affects other costs, FDA's costs tend to rise
    gradually over time. During fiscal year 2002, FDA made a refund to the
    industry of $1 million in fees that had been collected over a period of
    years but were not needed by the agency at that time. This was in part
    due to the fact that FDA's rent costs related to this function were
    reduced in fiscal year 2001 due to GSA reducing the overall rent cost
    for Federal Building 8; the costs to this fund were reduced further in
    fiscal year 2002 because GSA did not charge FDA rent for the building,
    but only utilities costs and other costs of operating the building.
    Combined, this Fund saved about $800,000 in space costs during fiscal
    years 2001 and 2002 due to these cost reductions.
        In fiscal year 2003, however, FDA has had to incur significantly
    higher rent costs for a temporary laboratory for this function in
    Chantilly, VA, and has also had to provide funding to GSA for the
    buildout costs of a building in College Park, Maryland, near the
    present Harvey Wiley building occupied by FDA. This additional building
    is being prepared to house the color certification function on a
    permanent basis.
        While FDA currently expects to have sufficient funds in this
    account to be able to absorb these costs during fiscal year 2003, the
    agency will not have any funds with which to make any refund to the
    industry. It should also be noted that refunds of fees are not a
    regular event--before the refund made during fiscal year 2002, the last
    prior refund was in 1990.
        Question. What effect is this going to have on the amount of the
    user fees that the color certification industry is required to pay?
        Answer. For fiscal year 2002, the fee income in this fund was about
    $5 million, and expenses were only about $4 million because the fund
    had very low costs for space since the agency was not being charged
    rent for Federal Building 8. However, in fiscal year 2003, we expect
    total expenses to be about $7.5 million, while income remains around $5
    million. Therefore, most of the surplus money in this fund will be
    depleted. For fiscal year 2004, projected expenses for this activity
    are estimated at about $6 million. The agency expects to need to raise
    the fees for color certification, because the current level of income
    is not enough to meet the costs of the function on a continuing basis.
        Question. As the sole provider of funding for this new space, was
    the industry consulted prior to the move?
        Answer. Yes. FDA senior management has met with industry staff more
    than once to review these costs. In fact, when FDA staff met with
    industry representatives prior to the refund that was made to industry
    during fiscal year 2002, we explained that there would be some
    substantial costs due to this necessary relocation of the program. At
    the meeting industry representatives were notified that we would be
    moving to interim space and funds to cover buildout costs for the
    permanent facility would also be required.
        Question. Do you believe the sole responsibility for paying for
    what, at first glance, appears to be unnecessary increases in space and
    security costs, should lie with the color certification industry?
        Answer. The law requires that the fees support all costs of the
    color certification function, and the agency is using fees that have
    been built up in this account to meet the increased facilities costs
    being incurred in fiscal year 2003. The agency did make a refund to the
    industry of $1 million during fiscal year 2002, but it is not possible
    to make another refund now during fiscal year 2003 without jeopardizing
    FDA's ability to keep a reasonable amount of funds in this account to
    assure continued service to the color industry. The agency expects to
    have a balance in this account on September 30, 2003, of only about $1
    million in total.
        Question. How has the FDA responded to the concerns of the color
    certification industry?
        Answer. FDA senior management has met with industry staff more than
    once to review these costs. In fact, when FDA staff met with industry
    representatives prior to the refund that was made to industry during
    fiscal year 2002, we explained that there would be some substantial
    costs due to this necessary relocation of the program. Also, it is
    likely that the fees will need to be raised at some point during fiscal
    year 2004, and the agency has informed the industry's representatives
    of that likelihood. During a meeting with industry representatives in
    December 2002, all costs for the program were explained.
        Question. What is the FDA's plans regarding a rebate for this
    industry, and if one is not going to be provided, why?
        Answer. During fiscal year 2002, FDA made a refund to the industry
    of $1 million in fees that had been collected over a period of years
    but were not needed by agency at that time. This was in part due to the
    fact that FDA's rent costs related to this function were reduced in
    fiscal year 2001 due to GSA reducing the overall rent cost for Federal
    Building 8; the costs to this fund were reduced further in fiscal year
    2002 because GSA did not charge FDA rent for the building, but only
    utilities costs and other costs of operating the building. Combined,
    this Fund saved about $800,000 in space costs during fiscal years 2001
    and 2002 due to these cost reductions.
        In fiscal year 2003, however, FDA has incurred significantly higher
    rent costs for a temporary laboratory for this function in Chantilly,
    VA, the only facility GSA had available for this purpose. FDA has also
    had to provide funding to GSA for the buildout costs of a building in
    College Park, Maryland, near the present Harvey Wiley building occupied
    by FDA. This additional building is being prepared to house the color
    certification function on a permanent basis.
        While FDA currently expects to have sufficient funds in this
    account to be able to absorb these costs during fiscal year 2003, the
    agency will not have any funds with which to make any refund to the
    industry. It should also be noted that refunds of fees are not a
    regular event--before the refund made during fiscal year 2002, the last
    prior refund was in 1990. Also, it is likely that the fees will need to
    be raised at some point during fiscal year 2004, and the agency has
    informed the industry's representatives of that likelihood.

                                  BLOOD SAFETY

        Question. Dr. McClellan, according to a December 2002 Associated
    Press report, FDA found more than 200 safety violations by the blood-
    collecting unit of the Red Cross, and has asked a court to hold the Red
    Cross in contempt for several years of safety violations. It is my
    understanding that FDA and the Red Cross are now working to improve the
    safety standards of the Red Cross. Can you please provide me with
    information on how FDA is working with the Red Cross to improve their
    safety standards?
        Answer. Since May of 1993, the American Red Cross-ARC-has been
    under a Consent Decree of Permanent Injunction that required ARC to
    establish clear lines of managerial control over a newly established
    comprehensive quality assurance system in all regions; to enhance
    training programs; and to improve computer systems, records management,
    and policies for investigating and reporting problems, including
    adverse reactions. In August 2000, concerns arising from an inspection
    of ARC's national headquarters for blood services revealing that ARC
    had not adequately corrected serious violations of blood supply rules
    recurring over the past 17 years prompted FDA to begin negotiations
    with ARC to revise the 1993 Decree.
        After extensive discussions and mediation efforts, ARC agreed to
    sign an Amended Consent Decree of Permanent Injunction, containing
    substantial revisions to the original Consent Decree designed to
    improve safety standards at ARC. The Amended Consent Decree, which the
    United States District Judge signed on April 15, 2003, is the
    culmination of these negotiations.
        The Amended Consent Decree includes the important substantive
    provisions from the original Decree, and updates them to provide a
    series of clear deadlines for completing specific requirements of the
    Decree. Importantly, the provisions were also revised to address
    additional types of violations observed since the original Decree was
    signed in 1993. The Amended Decree also includes a comprehensive
    financial penalty scheme that requires ARC to pay substantial financial
    penalties if, in the future, ARC fails to comply with FDA laws and
    regulations aimed at ensuring the safety of the Nation's blood supply.
        FDA expects that ARC will concentrate fully on responding to the
    Agency's concerns about blood safety, and to its responsibilities as a
    major supplier of the Nation's blood, by implementing the systems
    required by the Amended Consent Decree. By doing so, ARC will avoid the
    need for FDA to use financial penalties to force ARC to improve its
    operations, to promptly correct problems when they are discovered, and
    to take action proactively to prevent further violations from
    occurring.

                               HOMELAND SECURITY

        Question. How many FTEs are currently on detail to the Department
    of Homeland Security?
        Answer. No FDA staff are on detail to the Department of Homeland
    Security. However, FDA is working extensively with the Department of
    Homeland Security. We participate in regular interagency meetings with
    DHS on food security issues and also agriculture security issues that
    involve the Department of Agriculture.
        Question. How long is the average detail to DHS?
        Answer. Currently, FDA does not have any employees detailed to the
    Department of Homeland Security.
        Question. What effect, if any, is this having on the workload of
    employees at FDA? Are there effects on performance?
        Answer. The workload of FDA employees and Agency performance levels
    will not be affected by work being conducted in collaboration with the
    Department of Homeland Security.
                                     ______

                   Questions Submitted by Senator Tom Harkin

                                   SHELLFISH

        Question. Two years ago the GAO reported to Senator Lugar and me
    about the failure of FDA and the Interstate Shellfish Sanitation
    Conference to adequately protect consumers from unsafe shellfish. The
    FDA continues to fund campaigns to educate vulnerable consumers about
    avoiding raw Gulf Coast shellfish that may be contaminated by deadly
    Vibrio vulnificus bacteria. Those efforts have failed, in part because
    they failed to inform consumers which shellfish were safer to eat, such
    as those harvested from colder waters or even Gulf Coast shellfish that
    were processed to eliminate deadly bacteria. Will you work with the
    ISSC to ensure that future campaigns will inform all consumers that raw
    shellfish harvested from cold waters and processed Gulf Coast shellfish
    are safer than raw, unprocessed Gulf shellfish harvested during warmer
    months?
        Answer. We continue to believe that immuno-compromised individuals
    should avoid raw animal protein generally, including raw molluscan
    shellfish. Immuno-compromised persons should only eat molluscan
    shellfish that are fully cooked because there can be viruses or other
    pathogens in raw seafood that are potential risks to immuno-compromised
    persons in addition to Vibrio vulnificus. Consequently, FDA education
    efforts and the current Interstate Shellfish Sanitation Conference,
    ISSC, education efforts advise immuno-compromised individuals to avoid
    raw molluscan shellfish.
        Moreover, the issue of differentiating some oysters from others is
    complicated. For example, we have been working with ISSC to increase
    the number of oysters that have been processed to kill Vibrio
    vulnificus. However, we have been advised by the ISSC that doctors in
    Texas declined to dispense ISSC education materials that suggested that
    their immuno-compromised patients could safely eat oysters that had
    been processed to kill Vibrio vulnificus. These doctors insisted that
    their patients completely avoid raw shellfish. We continue to consider
    the question of how to be supportive of new technologies, such as post
    harvest treatments, that kill Vibrio vulnificus while at the same time
    fully protecting immuno-compromised individuals.

                                 METHYLMERCURY

        Question. Eight percent of U.S. women of childbearing age have
    mercury levels in their blood that are high enough to raise concerns.
    Although the FDA is responsible for ensuring the safety of commercial
    seafood, it currently conducts little monitoring of mercury levels in
    seafood and does not focus on the species, like tuna (canned and
    fresh), that are most popular with consumers. When will FDA establish a
    comprehensive plan to monitor mercury levels in a wide variety of fish,
    especially popular species? Does the agency have the resources to test
    mercury levels in a statistically significant number of tuna and other
    popular species?
        Answer. FDA is conducting a study to measure mercury levels in a
    variety of 12 different domestic and imported commercial fish. This
    study is designed to augment the current data set FDA has on mercury
    levels in fish. Most of FDA's monitoring of methylmercury in commercial
    seafood has been undertaken as part of the Total Diet Study. The Total
    Diet Study, sometimes called the Market Basket Study, is an on-going
    FDA program that determines levels of various pesticide residues,
    contaminants, including methylmercury, and nutrients in foods. The
    purpose of the study is to estimate the intake of these substances in
    representative diets of specific age-sex groups in the United States to
    determine potentially unsafe dietary conditions. To accomplish this
    goal, FDA purchases foods from supermarkets or grocery stores four
    times per year, one from each of four geographic regions of the
    country. The most frequently consumed foods are collected based on food
    consumption data. Therefore, those fish most frequently consumed are
    those that are tested.

                             LISTERIA MONOCYTOGENES

        Question. Listeria monocytogenes causes 2,500 illnesses and 500
    deaths each year, according to the Centers for Disease Control and
    Prevention. More than 3 years ago, FDA committed to amend its
    regulations to better protect consumers from Listeria in smoked
    seafood, fresh cheeses, and other FDA-regulated ready-to-eat foods.
    When will you issue a proposed rule to require Listeria testing in
    facilities that produce ready-to-eat foods? Do you have the resources
    to expedite this rulemaking?
        Answer. Listeria monocytogenes, LM, a harmful bacterium that can be
    found in a variety of foods, causes an estimated 2,500 illnesses and
    500 deaths in the United States each year. In pregnant women, LM-caused
    illness can result in miscarriage, fetal death, or severe illness in or
    death of a newborn infant.
        The Department of Health and Human Services and the U.S. Department
    of Agriculture have reviewed ongoing LM prevention and control
    activities and developed a joint action plan in 2001, which includes
    immediate, short-term, and long-term activities targeted at the serious
    problem of LM-caused illness. The Plan can be found at the following
    internet address, http://www.foodsafety.gov/dms/lmriplan.html.
        The action plan is a multi-pronged collaborative effort to decrease
    the number of cases of human listeriosis. The plan takes into
    consideration the results of the DHHS and USDA draft risk assessment of
    foodborne LM in ready-to-eat foods, which was published in January 2001
    along with the draft LM action plan.
        FDA plans to issue the final risk assessment and model during the
    summer of 2003, and the draft LM action plan will be updated
    accordingly based on this new information. Some of the on-going items
    include expanding PulseNet to enhance consumer and health care provider
    information and enhance disease surveillance and outbreak response.
    Some of the items being considered for the future include continuing
    education efforts, issuing draft FDA guidance for food processors,
    redirecting regulatory strategies, working with other Federal agencies
    on safety-based date labeling and coordinating research activities on
    the development of better methods of detection and quantification of
    LM.
        Following the publication of the final LM Risk Assessment, we will
    determine where we need to focus our efforts to protect the public
    health.
                                     ______

                   Questions Submitted by Senator Tim Johnson

                               TISSUE REGULATIONS

        Question. I understand that FDA has delayed regulation of the human
    tissue transplant market for more than 6 years, even though the agency
    acknowledges that the use of infected tissues poses a serious threat to
    public health. During a recent Governmental Affairs hearing, the FDA
    Director of the Center for Biologics Evaluation and Research said that
    FDA will adopt new rules for tissue banks, but did not indicate when.
    While the implementation of such regulations continues to be delayed,
    people are dying as a result of receiving contaminated tissues
    Commissioner. What I would like to know is, what exactly is your time
    line for rolling out regulations for the tissue transplant industry?
        Answer. FDA has had regulations in place for some human tissues
    since 1993. These regulations require tissue establishments to test
    human tissue donors for HIV-1, HIV-2, hepatitis B, and hepatitis C;
    prepare and follow written procedures for disease testing, assessing
    relevant medical records, and identifying quarantined tissue; prepare,
    validate and follow written procedures for prevention of infectious
    disease contamination or cross-contamination by tissue during
    processing; and, maintain records. The regulations also authorize FDA
    to inspect tissue establishments, to quarantine imported human tissue,
    and to require retention, recall, and/or destruction of violative
    tissue. FDA considers these rules to be an interim measure, until FDA
    finalizes the more comprehensive regulatory scheme developed in FDA's
    tissue action plan.
        Implementation of the tissue action plan is a top priority for the
    Agency at this time. We are in the process of finalizing a proposal for
    review and clearance by the Administration. Though we do not have a
    precise target date for publication of the final rules, you can be sure
    that it is a top priority for Dr. McClellan and Dr. Goodman.

                            MEDICAL DEVICE USER FEES

        Question. The MDUFMA user fee agreement was designed to create a
    stable and sufficient funding base for the rapidly expanding portfolio
    of increasingly complex devices that CDRH must regulate and approve. As
    Chairman Bennett pointed out at the hearing, substituting user fee
    money for budget money essentially amounts to a tax increase on
    innovation. If you combine $15,150,000 in user fees to a $6,000,000
    drop in the fiscal year 2004 base funding for CDRH proposed by the
    Administration, doesn't the overall CDRH budget increase by a total of
    only $9,150,000 in the Administration's proposed fiscal year 2004
    budget? Isn't this the type of budget gimmick that the user fee trigger
    was designed to avoid? Why does your budget request prioritize millions
    of dollars of discretionary spending over the requirements of the
    MDUFMA law?
        Answer. One of the provisions of MDUFMA requires that the funds
    from fees must be in addition to an appropriation amount that is as
    great as the amount FDA spent on the device review process from
    appropriations in fiscal year 2002--the year before MDUFMA went into
    effect--adjusted for inflation. This provision is meant to ensure that
    appropriated resources available for device review are increased for
    inflation each year, and that the funding from fees is over and above a
    set level of appropriations, after adjustment for inflation. We are
    committed to working within the Administration and with Congress to
    ensure that the intent of MDUFMA is realized. The reductions for the
    Device and Radiological Health program reflect management savings and
    IT consolidation and should not impact the resources directly devoted
    to the review process. User fee collections under MDUFMA are not
    considered an offset for this program. They are used exclusively for
    the review of new devices and related costs. FDA supports the goals of
    MDUFMA, and is committed to making the medical device user fee program
    a success.
        Question. If Congress does not appropriate the remainder of the $45
    million MDUFMA target for CDRH budget, the user fee program will end
    and FDA will face the loss of up to $35 million per year in user fee
    money. This would create a dramatic revenue loss for CDRH and FDA, and
    cause patients to wait longer for the approval of new devices. What
    mechanisms does FDA have in place to assure that this will not happen?
        Answer. The agency looks forward to working with Congress and
    industry to ensure the device user fee program is successful. FDA is
    committed to meeting the performance goals, as stated in the goals
    letter. We have already begun discussions within the Administration to
    find ways to fund this program appropriately in fiscal year 2005 and
    beyond to ensure that this important program does not sunset. FDA is
    committed to the goals of the Medical Device User Fee program and we
    are committed to finding a way to make the MDUFMA program work, to make
    it sustainable, make it permanent, and avoid having the trigger kick in
    because we are meeting our performance goals.

                            GENERIC DRUGS EDUCATION

        Question. In fiscal year 2002, this committee appropriated $250,000
    for the Office of Generic Drugs to do outreach and education on the
    safety and efficacy of generic drugs. What is the status of these
    activities at this point and where do you hope to go in the future in
    this regard?
        Answer. FDA has embarked on a multimedia educational program to
    build consumer and health-care professionals' confidence in the safety
    and effectiveness of generic drugs. The primary audience for the
    educational program has been consumers. The messages being conveyed are
    that generic drugs are reviewed and approved by the FDA, and that they
    are safe, effective and manufactured under FDA's quality standards. FDA
    has developed and distributed three print public service announcements,
    brochures, newspaper articles, and an FDA Consumer Magazine article.
        Congress recommended an additional $150,000 for this program in the
    fiscal year 2003 appropriation and FDA expects to spend this amount by
    the end of the fiscal year. With these funds FDA has also pursued the
    possibility of expanding the audience for this campaign by conducting
    focus groups for pharmacists and physicians.
        In fiscal year 2004, $400,000 has been proposed to support the
    generic drug education program for its third year. The work for fiscal
    year 2004 is building upon plans previously established to further
    communicate a standard message for the public. These funds will be used
    to continue support for FDA's multimedia educational program to build
    consumer and health-care professionals' confidence in the safety and
    effectiveness of generic drugs. FDA will continue to convey the message
    that generic drugs are reviewed and approved by the Agency, and they
    are safe, effective and manufactured under the Agency's quality
    standards. The campaigns will continue to include the distribution of
    print public service announcements, brochures, newspaper articles, and
    FDA Consumer Magazine articles. In addition, funds will be used to take
    information from focus groups for pharmacists and physicians to develop
    educational programs for those professionals.

                              DRUG COUNTERFEITING

        Question. I know that you are concerned about the quality and
    safety of prescription drugs re-imported from Canada, yet as you know,
    we are learning more and more about the problem of drug counterfeiting
    inside U.S. borders. Pharmacists are worried because some of the fakes
    are so good it is hard to tell what is counterfeit and what is real.
    Part of the problem appears to stem from the quick expansion of the
    secondary wholesaler industry. I was shocked to hear in a recent
    article on this issue that a drug might be bought and sold up to 6 or
    more times before reaching the consumer. Most wholesalers are doing a
    good job, but counterfeiting by a few bad eggs is becoming an
    increasing problem, which really concerns me. What is FDA doing to
    better monitor drug counterfeiting and diversion within the United
    States? What specific plans does FDA have to increase regulation of the
    secondary drug wholesaler market?
        Answer. The overall quality of drug products that consumers
    purchase from U.S. pharmacies remains high. The American public can be
    confident that these medications are safe and effective. FDA cannot,
    however, offer the same assurance to the public about the safety and
    quality of drugs purchased by consumers from foreign sources.
        FDA takes very seriously any allegations or information regarding
    the counterfeiting or adulteration of drug products. As the drug
    manufacturing and distribution system has become more global in nature,
    the challenge of protecting against counterfeit, adulterated or
    substandard drugs has become more difficult. The Agency is concerned
    about a spate of drug counterfeiting and tampering cases that have
    occurred in recent months, and is aggressively pursuing these types of
    enforcement cases.
        FDA is working on a number of fronts to address the influx of
    unapproved and counterfeit prescription drugs coming into the United
    States from foreign sources. These efforts include: educating the
    public to the significant potential safety issues presented by the
    purchase of drugs from foreign countries; working with professional
    groups to disseminate FDA's message on the potential dangers of
    Internet drug sales; partnering with state governments and other
    Federal agencies to develop more effective enforcement strategies; and,
    undertaking monitoring of and enforcement against Internet pharmacy
    outlets that present the most significant concerns. Recent high-profile
    regulatory actions send a strong message that FDA is actively working
    to take strong steps to protect the public from conduct that threatens
    the U.S. drug supply.
        The Agency has responded to the challenge of counterfeit drugs and
    diversion in the secondary market by employing a risk-based enforcement
    strategy to deploy our existing enforcement resources in the face of
    multiple priorities, including homeland security, food safety and
    counterfeit drugs. As an example, the Agency utilizes Import Alerts to
    identify particular shipments that may pose significant potential risk
    to public health. In the case of the increased volume of unapproved
    sildenafil, also known as generic Viagra, arriving at the Miami
    facility, the Agency has issued an Import Alert to instruct field
    personnel to work with the BCBP to detain all such shipments from
    specific manufacturers, distributors and countries of origin.
        FDA is also developing an new initiative on counterfeit drugs which
    includes creating an internal task force to explore the use of modern
    technologies and other measures such as partnering with State and
    Federal law enforcement agencies for stronger enforcement that will
    make it more difficult for counterfeit drugs to get distributed with--
    or deliberately substituted for--safe and effective drugs.
        FDA's Office of Criminal Investigations, or OCI, works with state
    and other Federal investigative agencies and prosecutors to uncover
    violations of the FD&C Act and other laws with respect to unapproved,
    misbranded, illegally imported, or otherwise unsafe or substandard drug
    products.
        OCI has opened 73 counterfeit drug cases since October 1996.
    Investigations have so far netted 44 arrests and 27 convictions. Fines
    and/or restitution have been imposed in excess of $250,000. FDA has
    seen a gradual, but troubling, increase in the incidence of finished
    dosage form counterfeit activity. Much of this activity has targeted
    high volume, high cost drugs where counterfeiters attempt to obtain the
    highest return possible in a short time period. Many of these drugs are
    used for treating cancer and AIDS patients. The public perception of a
    more dramatic increase in counterfeit drug activity stems from the fact
    that the latest several counterfeits have appeared in the wholesale
    market and received wider distribution than has been the case
    historically.
        On April 22, 2003, the Pharmaceutical Research and Manufacturers of
    America, or PhRMA, which represents the country's major research-based
    pharmaceutical and biotechnology companies, announced the adoption of a
    voluntary program to report suspected instances of drug counterfeiting
    to FDA. The information provided by PhRMA members under this program
    will be helpful to the Agency because it will assist FDA in carrying
    out its responsibilities to protect the safety and integrity of the
    Nation's drug supply by enhancing the Agency's ability to detect
    quickly and remove counterfeit drugs from the marketplace.
        Under this program, PhRMA member companies have agreed to notify
    FDA's OCI within 5 working days of determining that there is a
    reasonable basis to believe that a product has been counterfeited. The
    program also applies to counterfeits discovered in foreign countries if
    there is clear evidence that the counterfeits are intended for
    distribution in the U.S. Drug manufacturers already conduct their own
    investigations of suspected distribution of counterfeit drugs. This
    formal collaborative agreement will strengthen FDA's ability to assure
    the safety and effectiveness of drugs used by U.S. Consumers. The
    reporting program went into effect on May 1, 2003.

                         ADDITIONAL SUBMITTED STATEMENT

        Clerk's Note.--The Subcommittee has received a statement
    from the Medical Device Manufacturers Association which will be
    inserted in the record at this point.]

       Prepared Statement of the Medical Device Manufacturers Association

        We would like to thank the Subcommittee for the opportunity to
    submit comments on the subject of medical device user fees. The Medical
    Device Manufacturers Association (MDMA) is a national trade association
    based in Washington, D.C. that represents and serves the innovators and
    entrepreneurs in the medical device industry. The thousands of
    innovative companies that MDMA represents, including over 160 dues
    paying members, consist of manufacturers of medical devices, diagnostic
    products, and health care information systems. MDMA seeks to improve
    the quality of patient care by encouraging the development of new
    medical technology and fostering the availability of innovative
    products in the marketplace.
        The device user fee program has been an area deep concern for our
    members since the Medical Device User Fee and Modernization Act
    (MDUFMA, Public Law 107-250) was signed into law in October 2002. As
    you know, we are philosophically opposed to the idea of device user
    fees; however, we intend to meet our obligations under the agreement
    negotiated in MDUFMA.
        MDUFMA was designed to provide an enhanced and expeditious review
    process for medical devices by imposing fees on premarket approval
    applications, supplements, and 510(k) submissions reviewed by the
    Center for Devices and Radiological Health (CDRH) at the Food and Drug
    Administration (FDA). The law provides for shared responsibility
    between manufacturers and the government to fund the program. Over 5
    years, the manufacturers' fees and Congressional appropriations would
    provide CDRH with $225 million in additional resources in exchange for
    strong new review performance goals for the agency. The performance
    goals set out in the letter accompanying the bill are conditioned on
    FDA receiving money from both industry and Congress. Thus, without
    adequate Congressional support, manufacturers will not see the benefits
    from their user fee payments.
        While MDUFMA ensures industry funding of $81 million over 3 years,
    with additional industry funds in later years if the program continues,
    the performance goals agreed to in MDUFMA are conditioned on FDA
    receiving an additional $45 million in federal appropriations during
    the first 3 years of the program (fiscal years 2003-2005). If Congress
    fails to appropriate these funds, the program will sunset in fiscal
    year 2006, without industry receiving the improved review times agreed
    to in MDUFMA. Without the additional Congressional appropriations,
    device manufacturers fear that their user fee contributions over the
    next 3 years will not have the desired effect of more expeditious
    reviews.
        To fully fund the FDA and allow them to meet the performance goals
    included in MDUFMA, Congress would need to appropriate $205,720,000 for
    CDRH for each of fiscal years 2003-2005, with inflationary adjustments.
    So far, Congress has not provided the needed support. In fiscal year
    2003, the appropriation for CDRH was $194,720,000, which represents
    only a $4 million increase from the fiscal year 2002 figure--not even
    enough to cover salary increases--and leaves CDRH $11 million short of
    the fiscal year 2003 target of $205,720,000. This shortfall needs to be
    made up in the next 2 years to avoid the program's sunset. If Congress
    maintains the fiscal year 2003 level in fiscal year 2004, the funding
    level will be $22 million in deficit.
        Potentially making matters even worse, the President's fiscal year
    2004 budget request for CDRH is $184,543,000, more than a $10 million
    cut from the actual fiscal year 2003 appropriation. Cutting the budget
    by this much would result in a $32 million shortfall leading up to
    fiscal year 2005, not including inflationary adjustments. Potentially
    there would be a need for a $50 million plus appropriation in fiscal
    year 2005 in order to maintain the user fee program.
        Recent statistics show that the FDA device reviews are still taking
    far too long. The average approval time for premarket applications is
    364 days--more than twice the statutory target of 180 days. In
    addition, approval times for 510(k)s are on the rise, up to a 96-day
    average. MDUFMA performance goals would require FDA to approve 90
    percent of PMAs within 320 days by 2007. This will not be attainable
    unless FDA receives the additional Congressional appropriations
    authorized in MDUFMA. Furthermore, a massive third year appropriation
    would not be a reasonable solution. FDA needs this money this year so
    that it will have the ability to hire the staff needed to meet the
    performance goals.
        We recognize that Congress must make difficult decisions among many
    competing spending priorities. However, we encourage Members to
    consider the importance of supporting faster FDA reviews of innovative
    devices. Many of these devices present significant scientific
    advancements that need to be brought to the health care market as
    quickly as possible. Diagnostic products and other innovative
    technologies for use by public health workers are especially timely,
    though these technological breakthroughs are of little use if the FDA
    cannot review them in a timely fashion. Bottling up new devices in the
    FDA review pipeline only serves to harm patients who could benefit from
    access to the latest treatments and devices.
        Congress should be committed to appropriating adequate resources to
    ensure that new products can get to the market as quickly as possible.
    MDMA is working to ensure that Congress appropriates the money now so
    that patients will have access to innovative products faster through
    improved review times. We strongly encourage the Subcommittee to
    appropriate the funding amounts established in MDUFMA so that the FDA
    will be able to achieve the performance targets that device
    manufacturers are currently paying for.
        Without adequate Congressional support, the intent of MDUFMA will
    fail completely. Now that industry is ``paying in'' in the form of a
    user fee, manufacturers should receive something in return. The
    industry's $81 million contribution in fees over the next 3 years
    should result in receiving the benefit of improved performance goals.
    However, if Congress does not meet its obligations as agreed to in
    MDUFMA, MDMA will not support future user fee proposals.
        MDMA thanks the Subcommittee for the opportunity to present our
    views on this matter, and we look forward to working with you in the
    future to continue to improve the FDA to ensure that patients have
    access to the latest in medical technology.

                             CONCLUSION OF HEARINGS

        Dr. McClellan. I agree with that.
        Senator Bennett. Thank you very much.
        Dr. McClellan. Thank you, Mr. Chairman.
        Senator Bennett. The subcommittee is recessed.
        [Whereupon, at 12:13 p.m., Thursday, May 22, the hearings
    were concluded, and the subcommittee was recessed, to reconvene
    subject to the call of the Chair.]

    AGRICULTURE, RURAL DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS FOR
                                FISCAL YEAR 2004

                                  ----------

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.

                           NONDEPARTMENTAL WITNESSES

        [The following testimonies were received by the
    Subcommittee on Agriculture, Rural Development, and Related
    Agencies for inclusion in the record. The submitted materials
    relate to the fiscal year 2004 budget request for programs
    within the subcommittee's jurisdiction.]

                   Prepared Statement of the Ad Hoc Coalition

        Mr. Chairman, Members of the Subcommittee, this statement is
    respectfully submitted on behalf of the ad hoc coalition \1\ composed
    of the organizations listed below. The coalition supports sustained
    funding for Title I of Public Law 480 at a baseline level that will
    ensure the continued viability of the program as a long-term food aid
    and market development initiative for American agriculture.
    ---------------------------------------------------------------------------
        \1\ The ad hoc coalition is composed of American Maritime Congress,
    American Soybean Association, Liberty Maritime Corporation, Maritime
    Institute for Research and Industrial Development, National Association
    of Wheat Growers, National Barley Growers Association, National Corn
    Growers Association, National Council of Farmer Cooperatives, National
    Sunflower Association, Sealift, Inc., TECO Transport Corporation,
    Transportation Institute, USA Rice Federation, U.S. Canola Association,
    U.S. Wheat Associates, Inc., Wheat Export Trade Education Committee.
    ---------------------------------------------------------------------------
        This statement is submitted at a critical time when anticipated
    worldwide requirements for American food assistance are extremely high,
    and are likely to grow substantially higher in the coming weeks and
    months. At least 30 million people are at risk of starvation in
    Southern and Eastern Africa through the end of September of this year.
    In the immediate aftermath of hostilities in Iraq, the United States
    could be required to replace the commodities previously distributed to
    23 million people under the oil for food program. In his State of the
    Union Address, President Bush celebrated our commitment to provide one-
    half of worldwide food aid needs on a sustained basis. Unfortunately,
    there is a strong likelihood that the United States will be unable to
    meet this commitment without additional resources from Congress, both
    for the remainder of fiscal year 2003 and through fiscal year 2004. In
    the statement that follows, our coalition supports funding levels for
    title I and other food aid programs that are needed to fulfill our
    moral obligations and promote the long-term interests of American
    agriculture.

                     GUIDING PRINCIPLES OF FOOD AID POLICY

       Mr. Chairman, the coalition respectfully suggests that American
    food assistance policy is well-established and founded on certain
    guiding principles, including the following:
      --Meeting America's humanitarian obligation to sustain food
            assistance programs, U.S. participation in which should
            constitute more than 50 percent of all food aid worldwide.
      --Employing food assistance programs to promote long-term market
            development for American agriculture on commercial terms.
      --Employing food assistance programs to promote respect worldwide for
            American values and our economic system, thereby enhancing
            goodwill toward America among disadvantaged populations that
            are breeding grounds for terrorism.

                        CURRENT FOOD AID PROGRAM LEVELS

        Mr. Chairman, these principles of American food aid policy have
    enjoyed broad, bipartisan support in Congress for many decades. Our
    commitment to serve them has made the United States the world's leader
    in providing food assistance, and has strengthened American agriculture
    by supporting the development of long-term markets for U.S. products.
    In recent years, however, food aid shipments have declined markedly. In
    fiscal year 2000, the United States programmed more than 6.7 million
    tons of food aid to 95 countries, consisting of 35 different
    commodities with a commodity value of $1.4 billion. In fiscal year
    2001, our food aid program declined to 6.36 million tons of assistance
    to 45 countries, valued at $1.28 billion. The decline continued in
    fiscal year 2002: In the fiscal year ending September 30, 2002, the
    United States programmed 4.67 million tons of food aid for shipment to
    84 countries. This assistance consisted of 26 different products, with
    a commodity value of $1.092 billion.
        The administration's preliminary plan for the current fiscal year
    provided for less than 3.85 million tons of food aid. In the
    Consolidated Appropriations Resolution, 2003, Congress appropriated an
    additional $250 million for Public Law 480 Title II grants, and
    provided that such funding would remain available until the end of
    fiscal year 2004. Even with this emergency supplemental funding, the
    total tonnage of commodities shipped in the current fiscal year likely
    will be less than in fiscal year 2002. This would represent the third
    straight year of reduced availability of critically needed U.S. food
    aid.

                THE ADMINISTRATION'S BUDGET FOR FISCAL YEAR 2004

        For fiscal year 2004, the administration has requested
    appropriations for the Food for Peace Title I program which would
    support $132 million in direct loans. This represents a significant
    reduction from that approved by Congress for the fiscal year 2003
    program, which received subsidy budget authority sufficient to support
    a direct loan program of $154.7 million. The combined request for the
    Food for Peace Titles I and II would provide funding to support a
    program level of 3.1 million metric tons of grain equivalent--a
    reduction of 200,000 tons from the program level established for fiscal
    year 2003 (which includes $135 million in carryover funding from prior
    years). Also in fiscal year 2004, the administration's USDA Budget
    Summary notes that the Bill Emerson Humanitarian Trust currently holds
    approximately 2.0 million metric tons of wheat, of which up to 500,000
    tons would be available to support Title II donations in response to
    unanticipated needs for emergency assistance. The Title II program, as
    noted above, will also be supplemented by $250 million in emergency
    funding provided in the 2003 omnibus appropriations bill, to the extent
    that any such funding remains available for obligation following the
    emergency shipments required for the balance of the current fiscal
    year.
        As required by the 2002 Farm Bill, the administration has announced
    that it will meet the annual minimum tonnage level of 400,000 metric
    tons for that portion of the Food for Progress program carried out with
    CCC funding. Under authority provided by section 416(b) of the
    Agricultural Act of 1949, the administration estimates that surplus
    nonfat dry milk will be made available for donation in fiscal year
    2004, with the value of assistance and associated costs estimated at
    $118 million. This represents another sharp reduction in donations
    under the 416(b) program, which is CCC-funded. Finally, the McGovern-
    Dole International Food for Education and Child Nutrition Program
    (``IFEP''), under terms of the 2002 Farm Bill, will be funded in fiscal
    year 2004 by direct appropriations. The administration's request is $50
    million, which represents a 50 percent reduction in the CCC-funded
    program level for fiscal year 2003.

                      RESTORATION OF FOOD AID PROGRAMMING

        Mr. Chairman, the coalition urges that food aid be restored to
    sustainable levels in the range of 6.0 million to 7.0 million metric
    tons of grain equivalent in each fiscal year, beginning in fiscal year
    2004. In fiscal year 2004, this would require an increase in Title I
    baseline funding, along with greater use of existing authorities of the
    Commodity Credit Corporation, as recommended by the Conference on the
    Consolidated Appropriations Resolution, 2003.
        The baseline for the Food for Peace Title II program has been
    increased from $850 million in fiscal year 2002 to $1.185 billion in
    fiscal year 2004. The coalition commends Congress and the
    administration for this initiative, which represents an increase of
    nearly 40 percent in Title II baseline funding. This action underscores
    the importance of the Title II donation program, and the coalition
    strongly supports the administration's Title II request.
        The Title I program, however, must also be restored to reasonable
    levels if the United States is to take full advantage of the unique
    market-development potential of this historic initiative. The special
    features of the Title I program are important to American agriculture
    and remain a significant element of U.S. food aid policy, as discussed
    below.

                       ADVANTAGES OF THE TITLE I PROGRAM

        Mr. Chairman, the Title I program offers countries long-term loans
    and concessional payment terms for the purchase of U.S. agricultural
    commodities. As such, Title I has advantages over other food aid
    programs.
      --Resource Efficient.--Because Title I is a concessional loan
            program, appropriations required to support Title I, under the
            terms of the Federal Credit Reform Act of 1990, cover only the
            subsidy cost, and not the full commodity value. In the
            President's budget for fiscal year 2004, the subsidy cost of
            the Title I program is established for the fiscal year at 78.90
            percent. Thus, under the Title I program, Congress ships $1.00
            worth of U.S. agricultural products at an appropriated cost of
            about 79 cents. Moreover, Title I currently recovers more
            dollars for the U.S. Treasury in loan repayments than it costs
            in annual outlays.
      --GATT-Legal.--The Title I program promotes market development while
            remaining fully sanctioned by international trade
            organizations. The high degree of concessionality of Title I
            has resulted in its classification as a donation program for
            GATT purposes.
      --Commercial Sales Stepping Stone.--The Title I program is designed
            to operate in markets which are neither poor enough to warrant
            donations nor rich enough to purchase commodities on commercial
            terms. Over the decades, numerous countries have graduated from
            Title I partners to commercial markets for a broad range of
            U.S. agricultural products. In fact, 43 of the top 50 consumer
            nations of American agricultural products were once recipients
            of U.S. foreign aid in some form. Tomorrow's commercial
            commodity markets are today's Title I partners.

                        CONCLUSIONS AND RECOMMENDATIONS

        Mr. Chairman, the coalition is committed to maintaining U.S. food
    assistance programs at responsible levels in order to meet humanitarian
    needs and promote the interests of American agriculture. Our
    recommendation is to maintain annual shipments of food assistance at
    program levels of between 6.0 million and 7.0 million metric tons of
    grain equivalent. This can be accomplished, as in the past, with a
    blend of programs supported by direct appropriations and by CCC program
    authorities.
        The administration proposes funding for Title I which would support
    a direct loan level of $132 million. This is well below the
    appropriation for fiscal year 2003, which supports new direct loans of
    $154.7 million. Our coalition opposes the continued erosion of the
    Title I program, and strongly believes, as demonstrated above, that
    Title I funding should be restored to levels which will ensure the
    program's long-term viability as a flexible and significant policy
    initiative.
        The coalition recommends the following:
      --Title I program levels should be increased in fiscal year 2004, and
            responsibly increased again in succeeding years, so that the
            unique advantages of the program, highlighted above, are not
            lost.
      --The fiscal year 2003 program level of $100 million for the
            McGovern-Dole IFEP should be maintained in fiscal year 2004.
            This action, together with full funding of the administration's
            Title II request, would help ensure that the United States
            fulfills its moral obligation to provide not less than one-half
            of the world's food aid in fiscal year 2004.
      --In committee report language, the House Appropriations Committee
            should restate its directive to the administration to make
            greater use of existing CCC authorities to expand food aid to
            regions in critical need.
        Mr. Chairman, American farmers require strong commercial markets to
    maintain their share of world agricultural trade. These markets are
    initially developed and often revitalized by Title I concessional
    sales. This program, which has been a bulwark of American food aid
    policy since the days of the Marshall Plan, deserves the strong support
    of your subcommittee, the Congress and the entire nation.
        The Title I program delivers more food assistance per dollar of
    investment than any other program. The Title I program, moreover, is
    fully consistent with the administration's position that aid to
    developing countries be tied to their adoption of reforms and policies
    that make development both lasting and effective.
        With strong Congressional support, the Food for Peace Title I
    program will continue to promote American commercial interests and
    humanitarian values. The funding of Title I, accordingly, should be
    increased to ensure that this historic program is restored to its
    proper place in U.S. food assistance policy.
                                     ______

       Prepared Statement of the Advanced Medical Technology Association

        The Advanced Medical Technology Association (AdvaMed) is pleased to
    provide this testimony on behalf of our member companies and the
    patients and health care systems we serve around the world. AdvaMed is
    the largest medical technology trade association in the world,
    representing more than 1,100 medical device, diagnostic products, and
    health information systems manufacturers of all sizes. AdvaMed member
    firms provide nearly 90 percent of the $75 billion of health care
    technology products purchased annually in the U.S. and nearly 70
    percent of the $170 billion worldwide market in medical technologies.

    Summary
        America is on the cusp of an unprecedented revolution in medical
    technology driven by major public and private investments in pure
    research and computer technology, as well as a multi-billion dollar
    commitment from Congress to double medical research at NIH and unravel
    the human genome. At the same time, the growing number and complexity
    of new medical devices throughout the last decade, coupled with a drop
    in the absolute number of reviewers at FDA's Center for Devices and
    Radiological Health (CDRH) has resulted in severe budget strain and
    increasing delays in approval of new medical technologies at CDRH.
        Late last year, Congress unanimously passed H.R. 5651, The Medical
    Device User Fee and Modernization Act (MDUFMA) to give CDRH additional
    resources and expertise to help provide timely patient access to new
    medical technologies. Over the next 5 years, MDUFMA requires the device
    industry to contribute $150 million in user fees to expand resources
    and expertise at FDA.
        Continuation of the user fee program is contingent upon Congress
    providing an increase of $15 million over the CDRH base budget
    ($205,720,000 adjusted for inflation) in each of the first 3 years of
    this agreement. This provision ensures user-fee funds do not displace
    congressional appropriations, and allows CDRH to upgrade information
    technology and other infrastructure necessary to carry-out a user-fee
    program and to meet the modest performance goals.
        Congress provided only $4 million of the $15 million appropriations
    target in fiscal year 2003. If MDUFMA's cumulative funding requirement
    is not reached, the program will sunset at the end of fiscal year 2005
    and an important source of new resources for the agency could be lost.
    Accordingly, we request that you include $27.3 million in additional
    appropriations to help meet the cumulative funding goal of the user fee
    legislation. The total CDRH funding for fiscal year 2004 that we
    request (including industry-paid user fees) is $237,218,720.

    Passage of the Medical Device User Fee and Modernization Act (MDUFMA)
        FDA's Center for Devices and Radiological Health has faced
    increasing challenges as a result of dwindling resources and
    accelerating innovation. Staff levels have dropped by eight percent
    since 1995. The average total review time for premarket approval
    applications has risen to 411 days, more than twice the statutory
    review time. A science panel warned in a recent report that
    increasingly rapid advances in technology ``threaten to overwhelm''
    CDRH's limited resources.
        H.R. 5651 addresses these challenges by establishing user fees for
    premarket submissions and mandating regulatory reforms to improve the
    timeliness of FDA reviews. The bill also includes provisions to
    strengthen FDA regulation of reprocessed disposable devices.
        The user fee provisions of the bill would establish fees for
    premarket approval applications, supplements and 510(k) submissions.
    These fees, combined with funds from increased appropriations, will
    provide FDA's device program with approximately $225 million in
    additional resources over the next 5 years. A letter agreement
    accompanying the bill sets strong performance goals for the agency.
        Key regulatory reforms in the bill will:
      --Eliminate bureaucratic delays in review of combination products by
            establishing a new office to oversee these technologies;
      --Authorize FDA to accredit third-party inspectors to audit medical
            technology companies with a good track record of compliance;
      --Encourage timely, thorough premarket reviews by codifying the PMA
            ``modular review'' program and extending the third-party review
            program for 510(k)s;
      --Permit electronic device labeling and electronic facility
            registration.
        From bioengineered organs and implantable artificial hearts to
    gene-based diagnostic tests and molecular imaging systems, America's
    medical technology companies are developing thousands of promising new
    tests and treatments. AdvaMed believes full implementation of MDUFMA
    will help ensure these advances reach the millions of patients who need
    them.

    New FDA Statistics Highlight Pressing Need for MDUFMA Implementation
        The fiscal year 2002 premarket review statistics released by FDA's
    Office of Device Evaluation (ODE) illustrate the ongoing challenges
    facing FDA's device program and the need for rapid implementation of
    MDUFMA.
        Staffers in FDA's device program deserve much credit for working to
    keep pace with rapidly advancing medical technology. In 2002, they
    acted on many life-saving and life-improving advances, including an
    improved smallpox vaccine delivery system, cardiac resynchronization
    therapy for heart failure, stents to improve the treatment of neck
    aneurysms and intracranial stroke, and implantable defibrillators for a
    new indication that can save the lives of thousands more patients.
        Statistics in the ODE annual report, however, show that FDA still
    is taking far too long to act on many of these important innovations.
    For example, the average total FDA review time at the 90th percentile
    of premarket approval applications (which typically are required for
    more advanced medical technologies) was 405 days in 1999 (the most
    recent year with complete data). Under the user fee provisions of H.R.
    5651, FDA will have to approve 90 percent of PMAs within 320 days by
    2007.
        Review times for 510(k)s also are on the rise, according to the
    report. Total FDA review time for the 90th percentile of 510(k)s rose
    to 164 days in 2001. The statutory review time for 510(k)s is 90 days.
        AdvaMed also is concerned that, as in 2001, ODE saw a net loss in
    scientific and medical personnel last year, losing three scientific
    reviewers and six medical officers. As FDA implements H.R. 5651, it
    will be important for it to make the greatest use possible of external
    sources of scientific expertise in the review process. AdvaMed is
    working closely with FDA and Congress to ensure that MDUFMA is
    implemented as quickly and effectively as possible. This will enable
    FDA to report substantially improved premarket review times in the
    coming years.

    Conclusion
        AdvaMed urges this Subcommittee to work with the FDA to fully
    implement MDUFMA as soon as possible to ready FDA for the coming era of
    biomedical innovation and ensure that patients enjoy timely access to
    the coming dramatic breakthroughs in medicine. AdvaMed thanks the
    committee for this opportunity to present our views and we look forward
    to working with you to help prepare FDA for the coming revolution in
    medical technology. AdvaMed and the industry stand ready to meet its
    part of this bargain. The industry has agreed to provide $150 million
    in industry funds to upgrade FDA's ability to quickly evaluate new
    medical products. The agreement reflects the culmination of a 10-year
    hard-fought debate within the device industry about whether to proceed
    with a user fee approach to improving review times at the FDA. This
    program terminates in 2005 if the increased funding for CDRH does not
    materialize. Our membership is counting on the Federal government to
    meet its part of the bargain by providing the additional funding called
    for in the user fee agreement. If we fail here, we will have lost for
    the foreseeable future the many benefits that AdvaMed believes can come
    from a user fee program.
                                     ______

     Prepared Statement of the Alachua County Board of County Commissioners

        Thank you for allowing the Alachua County Board of County
    Commissioners to submit this written testimony to your Subcommittee
    regarding a comprehensive, multi-year project to provide critical
    utility services to underserved communities located in Alachua County,
    Florida. For fiscal year 2004, the County is seeking $5 million in
    Federal funds from the Rural Development Administration to aid with a
    county-wide partnership that includes the enhancement, expansion and
    refurbishment of potable water and central wastewater systems in and
    adjacent to seven small municipalities within Alachua County.
        Without a safe and reliable source of public utilities, the
    residents who live in the rural incorporated communities of Alachua
    County must rely upon the use of inadequate water systems and septic
    tanks for their utility services. In addition to the health and safety
    concerns, this lack of a public utility infrastructure serves as a
    deterrent to these areas' economic revitalization. Historically, there
    are numerous health risks associated with malfunctioning septic tanks,
    including the possible contamination of ground water that could lead to
    the development of diseases within the area.
        Alachua County, Florida is located in the north-central portion of
    the State with a population of approximately 225,000. There are nine
    separate municipal governments within Alachua County. According to a
    recent Census Bureau estimate, almost 20 percent of all residents in
    the county are living below the Federal poverty level. Gainesville, the
    county seat, is the largest city with approximately half of the
    county's population and is also home of the prestigious University of
    Florida, the largest university in the Southeastern United States. The
    remaining eight municipalities are considered rural farm communities
    with populations less than 6,000 residents. For seven of these
    communities, efforts to provide adequate potable water and wastewater
    utility services produce funding dilemmas for the municipal
    governments. Because of the significant utility infrastructure facility
    costs required, coupled with relatively low densities of potential
    customers, total debt financing of the utility systems results in cost-
    prohibitive rates for end users. Without the infusion of external grant
    dollars, these communities face the potential of health and
    environmental risks associated with inadequate potable water delivery
    systems and degrading septic systems, as well as stagnated economic
    growth.
        The communities of Alachua, Archer, High Springs, Hawthorne,
    Micanopy, Newberry, and Waldo are all currently struggling with this
    issue. In an effort to avoid the problems seen throughout Florida
    associated with urban sprawl, Alachua County's growth management goals
    seek to direct growth within the existing communities. However, unless
    solutions for the utility infrastructure funding predicament can be
    found, the small communities will be unable to adequately provide for
    growing populations.
        In conclusion, Alachua County seeks Federal dollars for this
    comprehensive, multi-year partnership designed to assist the small
    communities' efforts to enhance, expand and refurbish existing utility
    systems. Current aggregated estimates for this countywide, multi-year
    initiative equal approximately $25 million. A Federal appropriation of
    $5 million in fiscal year 2004 will allow for the most critical
    projects to commence, while additional sources of funding are sought at
    the State and local level.
        We would like to take this opportunity to thank the Subcommittee
    for including language in the House fiscal year 2003 Agriculture
    Appropriations bill on behalf of this project and want to assure you
    that we are submitting a proposal to the Department of Agriculture
    pursuant to that language. However, the County is in immediate need of
    $5 million in dedicated Federal funding in order to help protect the
    health and welfare of these low-income communities and to spur their
    respective economic growth.
        Thank you for your consideration.
                                     ______

           Prepared Statement of the American Farm Bureau Federation

        The American Farm Bureau Federation supports full funding for the
    Farm Security and Rural Investment Act of 2002 (FSRIA). We oppose any
    reduction or redirection of funds from any farm bill title or program.
        Unfavorable weather conditions, uncertainties involved with
    international trade, the value of the dollar and record high input
    costs have converged to produce a turbulent and difficult time for
    agriculture. The industry has suffered through several consecutive
    years of historic low market prices and weather disasters. The new farm
    law helps address problems faced by American farmers and ranchers and
    it provides unprecedented funds for our nation's conservation needs.
    Changes in farm bill programs would be devastating not only to farmers
    and ranchers but the rural economy as well. Consequently, Farm Bureau
    strongly encourages you to fully fund FSRIA in the fiscal year 2004
    appropriations process.
        Full funding of farm bill commodity programs is essential. It is
    imperative that counter-cyclical payment rates, loan rates and direct
    payments be preserved as adopted in FSRIA. We are adamantly opposed to
    any changes in the current payment limitations of $40,000 for direct
    payments, $65,000 for counter-cyclical payments and $75,000 for loan
    deficiency payments (LDP) and marketing loan gains (MLG), including a
    separate payment limitation for the peanut program. Current rules on
    spouses, three-entities, generic certificates and actively engaged
    requirements should be retained.
        Farm bill conservation programs should be fully funded. Full
    implementation of the Environmental Quality Incentive Program (EQIP)
    and Conservation Security Program (CSP) is key to assisting
    agricultural producers in complying with environmental regulations and
    addressing important conservation issues nationwide. Program funding
    for technical assistance is essential if conservation programs are to
    be successful.
               farm bureau fiscal year 2004 appropriations issues
        In addition to full farm bill funding, Farm Bureau has identified
    four USDA program areas for which priority fiscal year 2004 funding is
    essential. They are:
      --programs to expand foreign markets for U.S. agriculture;
      --programs to ensure the development and use of biotechnology
            products;
      --programs to promote the use of alternative energy; and
      --programs key to the proper implementation of the Food Quality
            Protection Act (FQPA).
            programs to expand foreign markets for u.s. agriculture
        Creating new overseas markets and expanding those we have is
    essential for a healthy agricultural economy. Continued funding of
    export development programs is fundamental to improving farm income in
    the short and long term. Farm Bureau recommends maximum funding of all
    export development programs consistent with our commitments under World
    Trade Organization rules.
        Expanding international trade is also straining the capacity of
    U.S. agencies to monitor and enforce compliance with the terms of trade
    agreements including, but not limited to, imported product inspection
    and verification; imported and domestic pest detection, control and
    eradication; and negotiation, implementation and enforcement of
    sanitary and phytosanitary measures. The failure to detect, control and
    eradicate invasive pests from foreign sources is costing U.S. farmers,
    ranchers and local governments hundreds of millions of dollars for
    control and eradication programs, and in lost sales opportunities,
    annually. Greater effort must be dedicated to the technical capacity of
    the U.S. to trade.
        Animal & Plant Health Inspection Service (APHIS)--Trade Issues
    Resolution and Management.--Farm Bureau supports $5 million above the
    current budget level. As negotiators from other Federal agencies and
    industry try to open up foreign markets to U.S. exports, they
    consistently find that other countries are raising pest and disease
    concerns, real or contrived, to resist allowing American products to
    enter. Also, officials from other countries often attempt to refuse
    entry to perfectly healthy American products under the guise of a
    technicality or flimsy suspicion. Only APHIS can deal with these
    issues. This requires placing more APHIS officers overseas where they
    can monitor pest and disease situations, negotiate protocols with other
    countries, and intervene when foreign officials wrongfully prevent the
    entry of American exports. It is expensive to station U.S. employees
    overseas because of the high cost of living in some cities and the high
    cost of providing security and other services though the State
    Department. It can cost several hundred thousand dollars to move an
    employee to a foreign location, and a similar amount to keep them
    there. A $5 million increase would allow APHIS to place 20 employees in
    key locations throughout the world, especially in burgeoning Asia
    markets.
        Animal & Plant Health Inspection Service (APHIS)--Pest Detection.--
    Farm Bureau supports $15 million above the current level for pest
    detection at APHIS. The fiscal year 2003 appropriations made a good
    start on improving APHIS' woefully under funded plant pest and diseases
    detection program, increasing it from $7 million to about $22 million.
    However, this pales in comparison to the $93 million appropriated for
    animal health monitoring and surveillance. While we all hope that the
    move to the Department of Homeland Security will not reduce the
    emphasis on agriculture inspection at the borders, an enhanced domestic
    pest detection program would offer a degree of insurance. Even with a
    solid border inspection program, we believe that we are vulnerable to
    the fast spread of plant pests.
        Foreign Agricultural Service (FAS).--Farm Bureau supports an
    overall increase in funding for the Foreign Agricultural Service's
    international programs and activities.
        GSM Credits.--Farm Bureau supports the full funding of the GSM
    credit guarantee programs. These important export credit guarantee
    programs can help make commercial financing available for imports of
    U.S. food and agricultural products via a deferred payment plan.
        Public Law 480.--Farm Bureau supports increased funding for Public
    Law 480 programs, the primary means by which the United States provides
    foreign food assistance. The Public Law 480 programs provide
    humanitarian and public relations benefits, positively impacts market
    prices and helps develop long-term commercial export markets. Farm
    Bureau believes that the USDA is best positioned to administer all
    programs of the Public Law 480.
        Market Access Program (MAP) and Foreign Market Development Program
    (FMD).--Congress should fully fund the MAP and FMD programs as
    authorized. These programs need the expertise of a fully supported
    Foreign Agricultural Service that is expanded to cover all existing and
    potential market posts.
        Export Enhancement Program (EEP).--The Farm Security and Rural
    Investment Act of 2002 authorizes direct export subsidies of U.S.
    agricultural products through the EEP program through fiscal year 2007
    to counter the unfair trading practices of foreign countries. Farm
    Bureau supports the full funding and use of this program in all
    countries, and for all commodities, where the U.S. faces unfair
    competition.
        Dairy Export Incentive Programs (DEIP).--Farm Bureau supports full
    funding and use of the Dairy Export Incentive Program to allow U.S.
    dairy producers to compete with foreign nations that subsidize their
    commodity exports.
        International Food for Education Program (IFEP).--Farm Bureau
    supports funding IFEP at $50 million. The program's demonstration
    effort, the Global Food for Education program, has yielded substantial
    information to help the IFEP be an effective platform for delivering
    both food aid and educational assistance.
      programs to ensure the development and use of biotechnology products
        Biotechnology is an extremely promising development in agriculture
    and all reasonable efforts must be undertaken to allow the promise to
    be realized. Environmental activists and foreign governments are
    attempting to scare consumers, both here and abroad, into questioning
    the use new technology. The integrity of the technology is clearly
    being challenged and the platform of safety upon which the technology
    is built must be absolutely uncompromised.
        USDA must take the lead in biotechnology coordination efforts. It
    is essential that the Department act in a timely manner to evaluate and
    move approved products and technologies to the marketplace. USDA should
    develop a positive national strategy for biotechnology research,
    development and consumer education.
        Animal Plant Health Inspection Service (APHIS).--APHIS plays an
    important role in overseeing the permit process for products of
    biotechnology. Funding and personnel are essential for ensuring public
    confidence in biotechnology. Farm Bureau recommends adding $6 million
    of funding to expand APHIS staff in order to implement the current
    regulatory system and helps ensure the trust of consumers and trading
    partners. Continuing the current $2 million appropriation simply will
    not allow any progress and the industry may suffer irreversible losses.
        Codex Alimentanus Commission.--Farm Bureau supports adequate
    funding for the U.S. CODEX office so that it can adequately represent
    American interests in this important body, which develops the
    international food safety standards used as guidance by the World Trade
    Organization. Increasingly, biotechnology is the focus of CODEX
    discussions where an ongoing international effort is being led by the
    European Union to place limits on our ability to export products of
    biotechnology by incorporating the precautionary principle into the
    CODEX general principles or biotechnology labeling discussions.
        Agriculture Research Service (ARS).--Farm Bureau supports
    sufficient funding for plant-breeding research programs because they
    are important for maintaining a broad-based research.

               PROGRAMS TO PROMOTE THE USE OF ALTERNATIVE ENERGY

        The development of alternative energy sources is not only
    significant to the advancement of American agriculture but also vital
    to enhancing our nation's energy security. The United States currently
    imports over 56 percent of its energy needs from foreign sources. This
    lack of energy independence has led to price instabilities in the most
    basic of energy sources and will lead to production agriculture
    spending between $1-2 billion more to plant this year's crop than last
    year. Renewable energy sources such as ethanol, biodiesel, wind
    generation and biomass can reduce the current overreliance on foreign
    energy sources.
        The 2002 farm bill contained an energy title that includes
    provisions for Federal procurement of bio-based products, bio-refinery
    development grants, a biodiesel fuel education program, renewable
    energy development program, renewable energy systems, a bioenergy
    program and biomass research and development. These programs will
    assist rural economic development as well as increase our nation's
    energy independence. These important programs to promote alternative
    energy sources should be fully funded at authorized levels to further
    advance these important programs and to achieve the goals of the energy
    title.
        We support USDA research on the increased production of all forms
    of renewable fuels from agricultural resources for energy use including
    research and demonstration programs that use ethanol as a fuel for fuel
    cell engine development.

         PROGRAMS KEY TO THE PROPER IMPLEMENTATION OF THE FOOD QUALITY
                                 PROTECTION ACT

        USDA plays a crucial role in achieving proper implementation of the
    Food Quality Protection Act (FQPA). USDA must continue to work with
    EPA, agricultural producers, food processors and registrants to ensure
    that farm data and agricultural interests are properly considered and
    fully represented in the tolerance reassessment and pesticide re-
    registration process.
        By the time we reach the 2006 FQPA deadline for reassessment,
    nearly 6,000 separate food and feed tolerances will have been
    reassessed for nearly 400 different active ingredients. That process
    affects nearly 600 specialty crops, all major row crops and animal
    production. In order to participate fully and effectively in the
    tolerance reassessment process, USDA must have all the resources
    necessary to provide economic benefit and use information to EPA.
        Funding should be increased to the following offices and programs
    that are vital to proper implementation of FQPA:
        Office of Pest Management Policy (OPMP).--OPMP has the primary
    responsibility for coordination of USDA's FQPA obligations and
    interaction with EPA. Major funding increases are necessary to review
    the tolerance reassessments, particularly dietary and worker exposure
    information; to identify critical use, benefit and alternatives
    information; and to work with grower organizations to develop strategic
    pest management plans. We recommend that funding for OPMP be doubled
    from 2003 budget levels. Further, additional funding to OPMP should be
    designated under the Secretary of Agriculture's office, rather than an
    add-on to the ARS budget.
        Agriculture Research Service (ARS).--Integrated Pest Management
    (IPM) research, minor use tolerance research (IR-4) and research on
    alternatives to methyl bromide must continue to receive adequate
    funding to fully address the unique concerns of these programs.
    Research is also needed to identify new biological pest control
    measures and to control pesticide migration.
        Cooperative State Research, Education and Extension Service
    (CSREES).--Full funding should be provided for IPM research grants, IPM
    application work, pest management alternatives program, expert IPM
    decision support system, minor crop pest management project (IR-4),
    crops at risk from FQPA implementation, FQPA risk avoidance and
    mitigation program for major food crop systems, methyl bromide
    transition program, regional crop information and policy centers,
    Pesticide Impact Assessment Program (PIAP) and the pesticide applicator
    training program.
        Economic Research Service (ERS).--ERS programs provide USDA and EPA
    with unique data information and they should be properly funded
    including IPM research, pesticide use analysis program and the National
    Agriculture Pesticide Impact Assessment Program (NAPIAP).
        FQPA Implementation.--Additional funding for proper implementation
    of FQPA is needed in the following programs: National Agriculture
    Statistics Service (NASS) pesticide use surveys; Food Safety Inspection
    Service (FSIS) increased residue sampling and analysis; Agricultural
    Marketing Service (AMS); and, the Pesticide Data Program (PDP).
        Administration.--Funding must not be diverted away from USDA
    programs that do not benefit U.S. agriculture. Neither fund should be
    diverted to foreign or international groups whose goal it is to
    exclusively help production competitors in other nations.
                                     ______

     Prepared Statement of the American Indian Higher Education Consortium

        Mr. Chairman and Members of the Subcommittee, on behalf of the
    American Indian Higher Education Consortium (AIHEC) and the 31 Tribal
    Colleges and Universities that comprise the list of 1994 Land Grant
    Institutions, thank you for this opportunity to share our funding
    requests for fiscal year 2004.
        This statement is presented in three parts: (a) a summary of our
    fiscal year 2004 funding requests, (b) a brief background on Tribal
    Colleges and Universities, and (c) an outline of the 1994 Tribal
    College Land Grant Institutions' plan using our land grant programs to
    fulfill the agricultural potential of American Indian communities, and
    to ensure that American Indians have the skills needed to maximize the
    economic development potential of our resources.

                              SUMMARY OF REQUESTS

        We respectfully request the following funding levels for fiscal
    year 2004 for our established land grant programs within the
    Cooperative State Research, Education, and Extension Service (CSREES)
    and Rural Development. In CSREES, we specifically request: $12 million
    payment into the Native American endowment fund--an increase of $4.9
    million over fiscal year 2003; $3.1 million for the higher education
    equity grants--an increase of $1,411,050; $5 million for the 1994
    institutions' competitive extension grants program--an increase of
    $1,635,015; $3 million for the 1994 Institutions' competitive research
    grants program--an increase of $1,907,150; and in Rural Development's
    RCAP program, that $5 million for each of the next five fiscal years be
    targeted for tribal college community facilities grants in Rural
    Development's Rural Community Advancement Program (RCAP), to help
    address the critical facilities and infrastructure needs at the 1994
    Institutions that impede our ability to participate fully as land grant
    partners. This competitive tribal college program has been allocated $4
    million in each fiscal year beginning in fiscal year 2001.

                 BACKGROUND ON TRIBAL COLLEGES AND UNIVERSITIES

        The first Morrill Act was enacted in 1862 specifically to bring
    education to the people and to serve their fundamental needs. Today,
    over 140 years after enactment of the first land grant legislation the
    1994 Land Grant Institutions, more than any other higher education
    institutions, truly exemplify the original intent of the land grant
    legislation, as they are truly community-based institutions.
        The Tribal College Movement was launched in 1968 with the
    establishment of Navajo Community College, now Dine College, serving
    the Navajo Nation. A succession of tribal colleges soon followed,
    primarily in the Northern Plains region. In 1972, the first six
    tribally controlled colleges established the American Indian Higher
    Education Consortium to provide a support network for member
    institutions. Today, AIHEC represents 34 Tribal Colleges and
    Universities--31 of which comprise the list of 1994 Land Grant
    Institutions--located in 12 states begun specifically to serve the
    higher education needs of American Indian students. Collectively, they
    serve 30,000 full- and part-time students from over 250 Federally
    recognized tribes.
        The vast majority of the 1994 Institutions is accredited by
    independent, regional accreditation agencies and like all institutions,
    must undergo stringent performance reviews on a periodic basis. White
    Earth Tribal & Community College, the newest 1994 Institution, is in
    the pre-candidacy stage. Tribal colleges serve as community centers,
    providing libraries, tribal archives, career centers, economic
    development and business centers, public meeting places, and child care
    centers. Despite our many obligations, functions, and notable
    achievements, tribal colleges remain the most poorly funded
    institutions of higher education in this country. Most of the 1994 Land
    Grant Institutions are located on Federal trust territory. Therefore,
    states have no obligation and in most cases, provide no funding to
    tribal colleges. In fact, most states do not even fund our institutions
    for the non-Indian state residents attending our colleges, leaving the
    tribal colleges to absorb the per student operations costs for the
    approximately 20 percent non-Indian students enrolled in our
    institutions. Unlike our state land grant partners, our institutions do
    not benefit from the economy of size--where the cost per student to
    operate an institution is diminished by the sheer size of the student
    body.
        As a result of 200 years of Federal Indian policy--including
    policies of termination, assimilation and relocation--many reservation
    residents live in abject poverty comparable to that found in Third
    World nations. Through the efforts of tribal colleges, American Indian
    communities are receiving services they need to reestablish themselves
    as responsible, productive, and self-reliant. It would be regrettable
    not to expand the very modest investment in, and capitalize on, the
    human resources that will help open new avenues to economic
    development, specifically through enhancing the 1994 Institutions' Land
    Grant programs, and securing adequate access to information technology.

         1994 LAND GRANT PROGRAMS--AMBITIOUS EFFORTS TO REACH ECONOMIC
                             DEVELOPMENT POTENTIAL

        Sadly, due to lack of expertise and training, millions of acres on
    our reservations lie fallow, under-used, or have been developed through
    methods that render the resources non-renewable. The Equity in
    Educational Land Grant Status Act of 1994 is our hope for rectifying
    this situation. Our current land grant programs are small, yet very
    important to us. It is essential that American Indians learn more about
    new and evolving technologies for managing our lands. We are committed
    to being productive contributors to the agricultural base of the nation
    and the world.
        Extension Programs.--The 1994 Institutions' extension program
    strengthens communities through outreach programs designed to bolster
    economic development; community resources; family and youth
    development; natural resources development; agriculture; as well as
    health and nutrition awareness.
        In fiscal year 2003, $3,387,000 was appropriated for the 1994
    Institutions' competitive extension grants. Additional funding is
    needed to support these vital programs, designed to address the
    inadequate extension services provided on Indian reservations by the
    states. It is important to note that the 1994 extension program is
    specifically designed to complement and build upon the Indian
    Reservation Extension Agent program, and is not duplicative of other
    extension activities. For the reasons outlined above, we request the
    Subcommittee further support this program by appropriating $5 million
    to sustain the growth and further success of these essential community
    based programs.
        Native American Endowment Fund.--Endowment installments paid into
    the 1994 Institutions' account remain with the U.S. Treasury--only the
    interest is distributed annually to our colleges. The latest annual
    interest yield (fiscal year 2002) distributed among the 30 eligible
    1994 Land Grant Institutions totaled $1,427,750.
        Just as other land grant institutions historically received large
    grants of land or endowments in lieu of land, this money assists 1994
    Land Grant Institutions in establishing and strengthening our academic
    programs in such areas as curricula development, faculty preparation,
    instruction delivery, and as of fiscal year 2001 to help address our
    critical facilities and infrastructure issues. Many of the colleges
    have used the endowment funds in conjunction with the Education Equity
    Grant funds to develop and implement their programs. As earlier stated,
    tribal colleges often serve as primary community centers and although
    conditions at some have improved substantially, many of the colleges
    still operate under deplorable conditions. Most of the tribal colleges
    cite improved facilities as one of their top priorities. For example
    Lac Courte Oreilles Ojibwa Community College in Hayward, Wisconsin has
    reported an immediate need for substantial renovations to replace
    construction materials that have exceeded their effective life span,
    and to upgrade existing buildings due to accessibility and safety
    concerns.
        An increase in the endowment payments would increase the size of
    the corpus and thereby increase the annual interest yield available to
    the 1994 Land Grant Institutions. This additional funding would be very
    helpful in our efforts to continue to support faculty and staff
    positions and program needs within Agriculture and Natural Resources
    Departments, as well as to help address the critical and very expensive
    facilities needs at our institutions. Currently the amount that each
    college receives from this endowment is very limited. It is not close
    to adequate to address the curricula development and instruction
    delivery issues and also make even a dent in the necessary facilities
    projects at the colleges. In order for the 1994 Institutions to become
    full partners in this nation's great land grant system, we need and
    deserve the facilities and infrastructure necessary to engage in
    education and research programs vital to the future health and well
    being of our reservation communities. We respectfully request the
    subcommittee build upon this much needed base fund by increasing the
    fiscal year 2004 endowment fund payment to $12 million.
        1994 Institutions' Educational Equity Grant Program.--Closely
    linked with the endowment fund, this program currently provides just
    under $50,000 per 1994 Institution to assist in academic programs.
    Through the modest appropriations made available since fiscal year
    1996, the tribal colleges have been able to begin to support courses
    and planning activities specifically targeted to meet the unique needs
    of our respective communities.
        The 1994 Institutions have developed and implemented courses and
    programs in natural resource management; environmental sciences;
    horticulture; forestry; buffalo production and management; and food
    science and nutrition--to address epidemic rates of diabetes and
    cardiovascular disease on reservations. Haskell Indian Nations
    University in Lawrence, KS has used these funds to upgrade and equip a
    plant science laboratory to enhance the academic quality of teaching
    and to achieve more effective use of facilities for the Environmental
    Science Program. The plant science laboratory will directly serve
    Botany and Ethnobiology courses, which are offered in Haskell's
    Environmental Science baccalaureate degree program. If more funds were
    available through the Educational Equity Grant Program, tribal colleges
    could channel more of their endowment yield to supplement other
    facilities funding in order to address critical infrastructure issues.
    Authorized at $100,000 per 1994 Institution, this program was
    appropriated $1,688,950 in fiscal year 2003. We respectfully request
    full funding of $3.1 million to allow the colleges to build upon the
    courses and activities that the initial funding launched.
        1994 Research Program.--As the 1994 Land Grant Institutions have
    begun to enter into partnerships with 1862/1890 Land Grants through
    research projects, impressive efforts to address economic development
    through land use have come to light. Our research program illustrates
    an ideal combination of Federal resources and tribal college-state
    institution expertise, with the overall impact being far greater than
    the sum of its parts. We recognize the budget constraints that Congress
    is working under. However, we believe that $1.1 million, our fiscal
    year 2003 appropriated level, is simply not adequate when there are 30
    institutions currently eligible to compete for these precious research
    dollars. This research program is vital to ensuring that tribal
    colleges finally become full partners in the nation's land grant
    system. Many of our institutions are currently conducting agriculture-
    based applied research, yet finding the resources to conduct this
    research to meet their communities' needs is a constant challenge. This
    research authority opens the door to new funding opportunities to
    maintain and expand the research projects begun at the 1994
    Institutions, but only if adequate funds are appropriated. The
    following is an example of the initial projects funded under this vital
    new program:
        Oglala Lakota College on the Pine Ridge Reservation in South Dakota
    has begun to investigate the impacts of free-range management on range
    soil and water, and bison diet quality. The investigation is being
    conducted on previously cattle-grazed land. Because bison behavior
    varies from that of cattle, soil/water and range plant characteristics
    may change over time. As bison grazing continues, initial
    characteristics and changes in rangeland environments will be monitored
    and documented. Composition and forage quality as well as the soil
    quality of three ecosystems in the bison grazed areas will ultimately
    be determined. Electronic workshop/class and outreach materials will be
    developed from this study by integrating technical and cultural
    knowledge about bison. Oglala Lakota College, South Dakota State
    University and other tribal colleges will benefit from the resulting
    material. Information will be disseminated through lay publications,
    field days, and special workshops.
        Other projects begun in the initial round of programs funded
    include soil and water quality projects, amphibian propagation,
    pesticide and wildlife research, range cattle species enhancement, and
    native plant preservation for medicinal and economic purposes. We
    strongly urge the Subcommittee to fund this program at $3 million to
    enable our institutions to develop and strengthen their research
    potential.
        Rural Community Advancement Program (RCAP).--Beginning in fiscal
    year 2001, each year $4 million of the RCAP funds appropriated for
    loans and grants to benefit Federally recognized Native American Tribes
    have been targeted for community facility grants for tribal college
    improvements. As stated earlier, the facilities at many of the 1994
    Land Grant Institutions are in desperate need of repair and in many
    cases replacement. We urge the Subcommittee to designate $5 million of
    the Native American RCAP funds to address the critical need for
    improving the facilities at the 31 Tribal College Land Grant
    Institutions. Additionally, we respectfully request report language
    directing the Department of Agriculture to target a minimum of $5
    million for each of the next five fiscal years to allow our
    institutions the means to solidly address our critical facilities
    needs.

                                   CONCLUSION

        The 1994 Land Grant Institutions have proven to be efficient and
    effective tools for bringing education opportunities to American
    Indians and hope for self-sufficiency to some of this nation's poorest
    regions. The modest Federal investment in the 1994 Land Grant
    Institutions has already paid great dividends in terms of increased
    employment, education, and economic development. Continuation of this
    investment makes sound moral and fiscal sense. American Indian
    reservation communities are second to none in their need for effective
    land grant programs and as earlier stated no institutions better
    exemplify the original intent of the land grant concept than the 1994
    Land Grant Institutions.
        We appreciate your long-standing support of the Tribal Colleges and
    Universities and are also grateful for your commitment to making our
    communities self-sufficient. We look forward to continuing our
    partnership with you, the U.S. Department of Agriculture, and the other
    members of the nation's land grant system--a partnership that will
    bring equal educational, agricultural, and economic opportunities to
    Indian Country.
        Thank you for this opportunity to present our funding proposals to
    this Subcommittee. We respectfully request your continued support and
    full consideration of our fiscal year 2004 appropriations requests.
                                     ______

          Prepared Statement of the American Society for Microbiology

        The American Society for Microbiology (ASM), the largest single
    life science organization in the world, comprised of more than 42,000
    members, appreciates the opportunity to provide written testimony on
    the fiscal year 2004 budget for the U.S. Department of Agriculture
    (USDA) research and education programs.
        The ASM represents scientists who work in academic, medical,
    governmental and industrial institutions worldwide and are involved in
    research to improve human health, the environment, and agriculture.
    Microbiological research related to agriculture is important to
    understanding foodborne diseases, new and emerging plant and animal
    diseases, soil erosion and soil biology, agricultural biotechnology,
    and the development of new agricultural products and processes. The ASM
    is a member of the Coalition on Funding Agricultural Research Missions
    (CoFARM), which represents scientific societies and organizations
    involved in formulating research directions and needs for agricultural
    research and supports the recommendation to increase the USDA's entire
    research portfolio.
        Advances in agricultural research continue to allow the United
    States to produce agricultural goods that are unrivaled in the world
    today. However, U.S. agriculture faces new challenges, including the
    threats of new and reemerging diseases, climate change, public concern
    about food security and its impact on the environment and fears about
    agroterrorism. Unfortunately, public investment in agricultural
    research has been stagnant for several years, impeding scientific
    advancement and progress, despite the recognized importance of the
    agricultural sector to the economy. According to the National Science
    Foundation's (NSF) Division of Science Resources Studies, agricultural
    research made up only 4 percent of all public funds devoted to basic
    research and only 2 percent of total R&D expenditures in fiscal year
    2000. Furthermore, indirect costs associated with research are not at
    prevailing negotiated rates and are adversely affecting the direction
    of research. This is and will lead to unintended consequences in
    research priority setting in recipient institutions.
        Agricultural research has led to many advances, including
    biotechnology, which contributes to a more abundant and nutritious food
    supply and a more environmentally friendly food production process,
    while reducing agriculture's reliance on chemical fertilizers,
    pesticides, and fungicides. With the advent of genomics, a critical
    research need in agriculture, we have entered a new era of scientific
    discovery in the agricultural field.
        It is critical to increase the visibility and investment in
    research to respond to these challenges. The ASM encourages the
    Subcommittee to build upon the renewed focus on agricultural research
    supported in the Administration's fiscal year 2004 USDA budget. This
    will not only benefit U.S. agriculture but also the health and well-
    being of every American. Many health related conditions are due to poor
    nutrition and lack of understanding the old adage--you are what you
    eat. Major health care costs could be reduced if the American public
    were educated more in food nutrition and health.

    Infectious Diseases in Plants and Animals
        It is important to recognize a growing threat to the U.S.
    agricultural system that requires immediate attention--the threat of
    new and emerging infectious diseases. Like the human population, U.S.
    agriculture is also experiencing severe problems caused by new and
    emerging infectious diseases in plants and animals. Changes in
    agricultural practices, population growth, climate, microbial
    evolution, animal migration, and international trade and travel are all
    factors in introducing new plant and animal diseases into the U.S.
    agriculture system and natural resources, such as oak trees in
    California and predicted soybean rust. The lack of knowledge to manage
    effectively and control new and reemerging infectious diseases often
    leads to very serious consequences from lost productivity from
    quarantines to embargoes, and the destruction of plants and animals to
    control the spread of diseases. For example, citrus canker has cost
    millions in tree destruction in Florida. Research, monitoring,
    surveillance, and new sources of resistant genetic material, including
    the use of biotechnology, may enable continued growth of citrus trees
    commercially and by homeowners. New technologies, e.g. the polymerase
    chain reaction, now enables us to detect minute quantities of
    etiological agents, including those previously ascribed to
    physiological problems in plants, such as the class of viruses known as
    luteoviruses.

    Cooperative State Research, Education and Extension Service
        The ASM strongly supports competitive research and believes that
    the federal government should provide more opportunities for scientists
    to compete for federal research dollars across all agencies and
    scientific fields. In 1989, the Board on Agriculture of the National
    Research Council (NRC) recommended that public investment through
    competitive research grants in agriculture, food, and the environment
    be made a national priority. The NRC recommendation became the National
    Research Initiative Competitive Grants Program (NRI), which supports
    fundamental research on key agricultural problems including food
    safety, plant and animal genetics, and water quality (National Research
    Initiative: a Vital Competitive Grants Program in Food, Fiber, and
    Natural-Resources Research, NRC, 2000). The NRI enables USDA to develop
    new partnerships with other Federal agencies (e.g., the National
    Science Foundation: The Microbe Project) that advance the agricultural
    science enterprise.
        The ASM commends the Administration and Congress for recognizing
    the funding gap in competitive, peer-reviewed research in its fiscal
    year 2003 appropriations for the NRI ($167 million). The ASM supports
    additional funding for the NRI that will encourage agricultural science
    to tackle the many research needs in today's agriculture, such as,
    expanded research in microbial genomics, allergens in food,
    pharmaceutical and industrial products arising from biotechnology, and
    the possibility of agroterrorism as we face the threat of biological
    weapons.
        The ASM urges the Subcommittee to fund the NRI at the President's
    requested $200 million budget for fiscal year 2004. This level of
    funding ensures the commitment of the USDA to the competitive merit
    review process, provides funds for fundamental research with long-term
    potential for new discoveries, and improves human resource
    opportunities in agricultural research. The NRI has yielded extensive
    scientific advancements that are comparable to some of those made at
    other agencies that fund peer-reviewed research. For instance:
      --One of the most challenging bacterial diseases in cattle causes a
            wasting, chronic diarrhea. The genome of Mycobacterium
            paratuberculosis was recently sequenced, years ahead of
            predicted schedule. Specific regions contributing to disease
            were identified and are now being tested in diagnostic tests.
            These genes and their products may also be the missing links
            for an effective vaccine.
      --Food safety is a continuing challenge. Millions of foodborne
            illnesses occur yearly, including cases associated with the
            consumption of raw fruits and vegetables. These notoriously
            difficult to treat products are being evaluated by mild heat
            treatments to determine efficacy in producing safer and longer-
            lasting fresh products.

    Agricultural Research Service
        The ASM recommends that the Subcommittee build upon the
    Administration's proposed $1 billion budget for fiscal year 2004, which
    is an $18 million decrease from fiscal year 2003. The Agricultural
    Research Service (ARS) is the principal in-house research agency in the
    area of natural and biological sciences for the USDA.
        United States agriculture is experiencing severe problems because
    of new and reemerging infectious diseases in plants and animals, a
    threat, which requires immediate attention. The imminent threats of
    foot-and-mouth disease (FMD) in animals and plum pox in plants are
    examples requiring new and extensive research. Agroterrorism could also
    present a serious threat to the agricultural system and requires a
    renewed focus on animal and plant pathogens. Therefore, the ASM
    recommends that increased funding in this area be distributed equally
    between plant (emerging and exotic diseases of plants ($3.4 million
    fiscal year 2004 increase)) and animal research (emerging, reemerging,
    and exotic diseases of animals ($8.3 million fiscal year 2004
    increase)) at $10 million each for fiscal year 2004. This increase will
    allow ARS to focus on improving pest and disease management with
    biologically based technologies, genetics and genome mapping, and food
    safety. Furthermore, the ARS needs to focus additional resources in the
    area of rapid and accurate detection systems for animal and plant
    diseases and pathogens and effective treatment protocols. These tools
    remain a key component in the nation's efforts to safeguard the food
    supply from natural and manmade events. The ASM encourages Congress to
    increase funding in this high-payoff applied research.
        The ASM also believes continued support of agricultural genomic
    research is a critical component of our nation's research enterprise.
    Increasingly, environmental factors are requiring new and novel
    solutions to plant production, protection (pest), nutritional content
    and food safety that are being addressed through genomic research. For
    example, ARS research recently (2003) found genetic markers near the
    first two of the four genes that may determine soybean resistance to
    cyst nematodes. These microscopic roundworms rob farmers of around 220
    million bushels a year. This type of high-payoff research not only
    improves agricultural product health and cost, but also makes U.S.
    products more competitive and environmentally benign. The ASM is
    pleased to see the Administration recognizes the promise of genomic
    research through the allocation of an additional $3.5 million for
    animal genomics. Research will also focus on developing diagnostic and
    vaccine technologies that will ultimately improve the nation's ability
    to control disease outbreaks, and mitigate the threats to the nation's
    animal, plant, and grain products.

    Animal and Plant Health Inspection Service
        The Animal and Plant Health Inspection Service (APHIS) has the
    critical role of policing the U.S. infrastructure that is in place to
    prevent, diagnose and respond to infectious diseases and pests. With
    the U.S. food system becoming increasingly susceptible to foreign
    diseases and pest through trade, the United States must upgrade its
    biosafety systems to address these threats. APHIS requires new,
    accurate and cost effective diagnostic tools and updated information
    technology. APHIS's long-term efforts have kept FMD and BSE out of the
    United States to date; however, APHIS needs new resources to increase
    the availability of vaccines and support efforts that could combat the
    potential release of these agents.
        The ASM does not believe the Administration's budget reflects
    APHIS's daunting task of combating animal and plant diseases and pests.
    The ASM recommends that Congress increase funding for APHIS to $1
    billion, which is level with fiscal year 2003. This level of funding
    would reflect APHIS's role in addressing animal and plant health
    monitoring and outbreak management.

    Food Safety
        Foodborne illness continues to pose a major public health problem
    in the United States. The ASM urges Congress to match or exceed the
    President's $675 million for the Food Safety and Inspection Service.
        The U.S. food system must confront microorganisms that continue to
    adapt to their changing environments and begin to ``out smart'' current
    techniques to control their presence. Many foodborne microbes have
    developed resistance to conventional food preservation and disinfection
    techniques and continue to proliferate. It is also important to note
    that the diversity of microorganisms affecting food safety changes with
    time, processing techniques, location and other factors. Continued and
    sustained research is vital if the nation's food supply is to meet the
    expectations of the American consumer and trading partners.

    Microbial Genomics
        Microbes are involved in all aspects of agriculture, from
    beneficial uses of microbes in food (e.g., yogurt), to pest controls,
    to the spread of disease in plants and animals, and the contamination
    of the food supply. Studying the genomes of agricultural microbes is
    expected to enable development of new technologies to provide improved
    foods and better pathogen control to protect the nation's crops, to
    reduce the incidence of plant and animal disease, and to ensure a safer
    food supply. Thus, ASM is supportive of microbial genomics through ARS
    and the NRI program. Microbial sequencing is also expected to lead to
    speedier and more accurate identification of microbes, identify targets
    for intervention, as well as potential new antimicrobial agents.
    Coordination and cooperation with the National Science Foundation and
    the Department of Energy in this area is particularly promising; as is
    the interagency working group on microbes that focuses on sequencing
    and bioinformatics (i.e., The Microbe Project).

    Biobased Products
        The ASM continues to support the promising research to accelerate
    the conversion of agricultural materials and byproducts into biofuels,
    such as soybean oil conversion into (bio)diesel fuel. Such scientific
    advancements in biobased product research have the added benefit of
    enhancing farm income, strengthening U.S. energy security, rural
    revitalization, and environmental stewardship. ASM believes agriculture
    can play a positive role in achieving U.S. energy security and
    encourages the Subcommittee to consider the benefit biofuels represent
    to the entire agricultural and consumer community.
        The ASM encourages Congress give high priority to agricultural
    research for fiscal year 2004. Many of today's scientific achievements
    leading to the development of biotechnology, genetically modified
    foods, improved crops and plant-based products and an improved
    environment have their roots in the basic research conducted by the
    USDA. The future holds many challenges from the monitoring of the
    ecological impact of transgenic plants to research in plant and animal
    diseases that is requisite to combating agricultural bioterrorism. We
    urge the Administration and Congress to assist the USDA to address
    these issues.
        The ASM appreciates the opportunity to provide written testimony
    and would be pleased to assist the Subcommittee as the Department of
    Agriculture bill is considered throughout the congressional process.
                                     ______

          Prepared Statement of the American Society for Microbiology

        The American Society for Microbiology (ASM), the largest single
    life sciences society representing over 40,000 scientists, recommends
    that Congress increase the Administration's proposed Food and Drug
    Administration (FDA) budget of $1.7 billion for fiscal year 2004, which
    represents an increase of $59 million over fiscal year 2003, or only 3
    percent. Sufficient financial resources must be allocated to the FDA in
    order for this crucial agency to continue its science-based oversight
    of public health and safety. The FDA's current priorities reflect its
    diverse roles in protecting and improving the well-being of individual
    Americans, ensuring homeland security against potential terrorist
    attacks, reducing the numbers of adverse health events associated with
    the food supply and health care products, distributing accurate
    information about FDA regulated products, and basing its decisions on
    solid science.
        The agency has been and will be responsible for much of the
    nation's countermeasures against potential biological and chemical
    terrorist attack. But the FDA's long-standing responsibilities also
    influence the day-to-day, ordinary aspects of American life. In 2002
    alone, the FDA evaluated and approved for marketing nearly 5,000 new
    drugs, biologics, medical devices and animal drugs. At the same time,
    its personnel monitored about eight million import shipments. Consumers
    spend 25 cents of every consumer dollar--nearly $1.5 trillion--on
    products regulated by the agency, including therapeutic drugs, medical
    devices, and most of the nation's food supply. Public trust in the FDA
    reflects how well the agency fulfills these broad-based and complex
    responsibilities.
        The ASM urges Congress to fully support the FDA's role as protector
    of public health. Adequate funding will ensure that the agency can
    still perform counter-terrorism, consumer product safety, and food
    safety within the context of scientific research, complete and accurate
    information, and productive collaborations with stakeholders.

    Science-Based Security and Safety
        The protective mission of the FDA is a complicated mixture of law
    and science--as the numbers of new products, food imports, and
    potential health threats increase, so do the added regulations,
    invested stakeholders, and revised responsibilities. The ASM recognizes
    that the FDA's principal strength is the up-to-date information from
    which the agency determines its new-product evaluations and its
    regulation enforcement. Only strong funding will assure that this
    science-based decision-making continues at all of the FDA's research
    centers. Research by agency personnel, combined with data gathered from
    outside research groups, ensure that safe and effective products reach
    the market and that these products remain safe after market approval.
    In the approval of new vaccines or the inspection of shellfish, FDA
    personnel rely on the latest in scientific evidence and technology.
        New technologies like nucleic acid amplification testing (NAT) have
    significant potential in protecting the nation's health and thus must
    be included among the FDA's diverse research capabilities. The agency's
    Center for Biologics Evaluation and Research (CBER), which is
    responsible for the safety of the nation's blood supply, has in recent
    years approved NAT-based blood testing procedures. These tests
    currently screen all donated blood in the United States for HIV and
    hepatitis C infection, and the FDA is studying their potential to
    screen for West Nile virus (WNV). Concerned with any new and emerging
    health threat, CBER scientists also are conducting studies and
    gathering extramural evidence on innovative WNV vaccines and
    treatments. This characteristic scientific readiness against new
    threats like WNV infection and bovine spongiform encephalopathy (BSE or
    ``mad cow disease'') should be supported with adequate funding.

    Counter-Terrorism and Project Bioshield
        Unfortunately the threats to public health have expanded
    dramatically to include both real and potential acts of terrorism and
    bioterrorism. The political environment overseas further intensifies
    the dire possibilities for biological and chemical terrorism against
    American citizens, and thus intensifies the crucial protective role of
    the FDA. Part of the Administration's proposed fiscal year 2004 budget
    for the FDA falls under the Public Health Security and Bioterrorism
    Preparedness and Response Act of 2002--a reflection of the FDA's
    deserved reputation for assessing and managing such threats. In his
    recent State of the Union address, President Bush announced Project
    BioShield, a science-based program that further enlarges the FDA's
    counter-terrorism activities and increases pressure on the agency's
    funding resources.
        Under Project BioShield, research and public health agencies--in
    particular the FDA and the National Institutes of Health--will
    collaborate with the new Department of Homeland Security to develop and
    make available more modern, up-to-date diagnostic tests, drugs, and
    vaccines against intentional attack with biological and chemical
    weapons. The program authorizes further stockpiles of the latest
    vaccines or drugs against such bioweapons as the infectious agents of
    smallpox, anthrax, and plague, as well as botulinum toxin and Ebola
    virus. The FDA also will be responsible for limited emergency-use
    authorization of promising medical countermeasures that have not
    completed standard review protocols. To do so, agency scientists must
    be fully informed on all scientific advances in medicine. Medical
    innovations such as recombinant DNA technology and molecular
    engineering, which are being studied in a number of other diseases,
    have potential against bioterrorism agents as well.
        The Bioterrorism Act of 2002 mandated a comprehensive plan to
    protect against the intentional contamination of food and water
    supplies and of medical therapeutics and devices. As the food
    regulatory arm of the Federal Government, the FDA is responsible for
    developing the appropriate food safety measures. The agency also
    assures the adequate and safe supply of drugs and devices important to
    the nation's health, and thus has multiple roles within the war on
    terrorism.
        The FDA's Center for Food Safety and Applied Nutrition (CFSAN) has
    already completed a number of activities aimed at enhancing the
    security of the national food supply. During fiscal year 2002, more
    than 600 new food inspectors and laboratory personnel were hired and
    more than 34,000 food import examinations conducted. The CFSAN's
    intramural research program shifted more resources to developing rapid
    test methods for microorganisms and chemical agents considered serious
    bioterrorism agents. The Center also initiated a nationwide Laboratory
    Response Network to identify local laboratory capabilities related to
    intentional contamination. Classified threat assessments done by CFSAN
    personnel have delineated the relative risks of contamination among
    different categories of food. New regulations currently under review
    include registration with the FDA of all domestic and foreign food-
    related facilities with U.S. markets, and tighter regulations covering
    imported foods and food-origin record keeping.
        Under the 2002 legislation, the FDA likewise works with other
    Federal agencies to assure adequate supplies of therapies and vaccines
    that might be needed against bioterrorist attacks. Within the past
    year, the agency's Center for Drug Evaluation and Research (CDER)
    released evaluations of drugs for inhalation anthrax and called for
    scientific studies on new treatments for human plague. It also approved
    use of a drug to counter nerve gas poisoning among U.S. military
    personnel in combat and announced effective use of treatment for human
    contamination with radioactive substances.
        The FDA mission against terrorism depends on the ability to mount a
    rapid and effective response against a range of possible weapons and
    avenues of attack. Along with the requisite scientific efforts made
    throughout the agency, effective countermeasures also depend upon well-
    coordinated cooperation with agencies at all Federal, State, and local
    levels, as well as advanced information-sharing systems. Concerned by
    the potential for bioterrorism, the ASM urges the Congress to place a
    high priority on significant funding for all branches of the FDA.

    Consumer Product Safety
        To safeguard public health, the FDA has the primary responsibility
    for ensuring that safe and effective products reach the marketplace and
    that those products remain safe and effective. This includes synthetic
    drugs, biologics, blood for transfusion, vaccines, medical devices such
    as cardiac implants and hearing aids, cosmetics and more. Not only is
    the FDA responsible for approving the sale and/or use of these products
    in a timely manner, it must track unfortunate outcomes such as medical
    errors involving FDA-approved products and the development of
    antimicrobial-resistant microorganisms. All these efforts require the
    FDA to have expertise in knowledge management, information gathering
    systems, quantitative risk assessment and computer modeling, plus the
    capability to rapidly disseminate information to the public and the
    private sectors. Within this complex regulatory environment, the FDA is
    trying to streamline procedures while encouraging research on a broader
    range of specific diseases.
        Last year the FDA's approval of nearly 5,000 new drugs, biologics,
    medical devices and animal drugs represented an increase of almost 400
    new products over 2001. They included a new diphtheria-pertussis-
    tetanus vaccine for children and a new drug to treat non-Hodgkins
    lymphoma. But there were few advances against certain serious diseases
    such as diabetes and obesity. In response to unmet needs, in January
    the FDA announced an initiative to improve the development and
    availability of innovative medical products, involving all of the
    agency's medical product review centers--i.e., biologics, drugs,
    devices, and veterinary medicine. It will shorten the amount of time
    for FDA review without diminishing standards, and facilitate new
    product development through better industry guidelines on specific
    diseases and technologies. The initiative also identified three key
    areas of emerging technology that will receive more FDA resources:
    pharmacogenomics/pharmacogenetics, cell and gene therapy, and novel
    drug delivery systems. As elsewhere in the FDA, academic, industry, and
    patient groups will be solicited as partners in the discovery process.

    Medical Errors
        Despite evaluation and regulation of products, adverse events do
    occur. Medical errors related to drugs are estimated to cause from
    40,000 to 100,000 in-hospital deaths each year. An Institute of
    Medicine report estimates that these adverse events increase the
    nation's hospitalization bill by up to $17 billion annually, and that
    drug-related problems outside the hospital may add another $76-plus
    billion to the nation's health care costs. Each year the FDA's MedWatch
    program and CDER's adverse event report system receive more than
    250,000 reports associated with FDA-regulated drugs. CBER and the
    Centers for Disease Control and Prevention jointly manage the Vaccine
    Adverse Event Reporting System, another post-market surveillance
    system. The FDA and its centers are working nationally and
    internationally to reduce the incidence of these errors, through
    education of patients and health care professionals and in some cases
    withdrawal of the product from the marketplace.

    Antibiotic Resistance
        The misuse of antimicrobial drugs has had other serious side-
    effects of particular concern to the ASM membership--the emergence of
    disease-causing microorganisms resistant to the drugs traditionally
    used to treat infectious diseases. The CDC estimates that half of the
    100 million prescriptions written by U.S. physicians each year are
    unnecessary, a practice that inevitably increases the numbers of
    resistant bacteria. About 70 percent of bacteria that cause infections
    in hospitals are now resistant to at least one of the drugs most
    commonly used to treat those infections. A Harvard study just published
    concludes that there likely will be a sharp rise in the strains of
    Streptococcus pneumoniae resistant to both penicillin and erythromycin.
    The FDA, concerned about the waning usefulness of traditional drugs,
    announced this February new drug labeling directed at physicians and
    designed to reduce antimicrobial prescriptions.

    Food Safety
        Although foodborne illness still accounts for about 76 million
    illnesses in this country, the U.S. food supply is among the safest in
    the world. The FDA's Center for Food Safety and Applied Nutrition
    (CFSAN) is responsible for safeguarding 80 percent of all food consumed
    (the Department of Agriculture regulates meat, poultry, and some egg
    products). The Center and the FDA field inspectors are responsible for
    $240 billion worth of domestic food, $15 billion worth of imported
    foods, and $15 billion worth of cosmetics. Products are inspected for
    microbial and chemical contamination and for false labeling, while
    increasingly more production facilities are examined for FDA-developed
    Hazard Analysis and Critical Control Point protocols. The FDA's
    stewardship of food safety has emerged as a major component of the war
    against terrorism.
        Like all other groups within the FDA, the CFSAN has a tremendous
    responsibility of impressive scope, yet it strives to make science-
    based decisions and policies and to disseminate accurate and timely
    information. Not only does the FDA succeed admirably in its efforts to
    protect the American public, but, it is respected internationally for
    its global influence. The ASM urges the Congress to appropriate an
    aggressive FDA budget and thus continue the robust and highly diverse
    ways in which the FDA preserves public health and national security.
                                     ______

     Prepared Statement of the American Society of Plant Biologists (ASPB)

        The American Society of Plant Biologists (ASPB), representing
    nearly 6,000 plant scientists, appreciates this opportunity to submit
    comments to the Subcommittee for its consideration of fiscal year 2004
    appropriations for research sponsored by the Department of Agriculture.
        Support by the Subcommittee for the National Research Initiative
    Competitive Grants Program (NRI) and the Agricultural Research Service
    (ARS) contributes to important advances in fundamental and applied
    research in agriculture.
        ASPB greatly appreciates the tremendous successful effort by the
    Subcommittee to increase support for the NRI by some 38 percent to $166
    million for fiscal year 2003! We urge the Subcommittee to continue to
    place an emphasis on core areas of plant research sponsored by the NRI,
    including plant biochemistry, genetic mechanisms, growth and
    development, plant response to the environment, genomic research and
    invasive plants. Advances in these areas of research will make a major
    contribution to increased crop production by America's farmers.
        The National Research Council Board on Agriculture and Natural
    Resources Committee report on the NRI in 2000 strongly endorsed support
    for this competitive grants program. The NRC committee ``found the NRI
    to have financed high-quality scientific work within congressional
    guidelines. . . . The committee reiterates the extraordinary importance
    of public merit-based peer-reviewed research in food, fiber and natural
    resources. In the committee's opinion, past public research and current
    private activities cannot meet the needs that are being created by
    population growth, climate change and natural resource deterioration or
    the challenges related to food safety and nutrition and to the growing
    convergence of foods and medical research.''
        The NRC committee recommended that a major emphasis of the NRI
    continue to be the support of high-risk research with potential long-
    term payoffs. Much of this research would be classified as fundamental
    in the traditional use of this term.
        A major conclusion of the NRC committee was that, ``Without a
    dramatically enhanced commitment to merit-based peer-reviewed, food,
    fiber and natural resources research, the nation places itself at
    risk.'' Continued support for a balanced research portfolio in the
    Department including intramural and extramural research is needed to
    address the many and sometimes devastating problems farmers face in
    growing crops. ARS continues to address very effectively many important
    research questions for American agriculture, including many that are
    national in scope and best addressed by a Federal agency. American
    farmers and consumers are well-served by the large number of successful
    research efforts of ARS scientists.
        In addition to the direct benefits to farmers and consumers that
    result from the leading research discoveries sponsored by the NRI and
    ARS, increased support for these programs will help maintain the
    strength and vigor of the nation's agricultural research community.
        Helping American farmers meet the food production needs of the
    nation's 290 million people and millions more overseas places huge
    demands on the research community. With more former farmlands sprouting
    townhouses, and other non-agricultural development, there are increased
    demands on the research community to help boost crop yields per acre.
    At the same time, the research community is called upon to find more
    environmentally benign approaches to increase yields. We believe that
    these goals of producing higher crop yields on the same or less acreage
    in a manner that is friendlier to the environment could be met with
    increased emphasis on support for ARS-and NRI-sponsored plant research.
        For example, research sponsored by the NRI and ARS is leading to
    plants engineered to tolerate higher levels of salinity. This will help
    farmers salvage more of their crops in dry seasons. Increased tolerance
    of future engineered plants to environmental stresses of cold and
    freezing will be a boon to growers. The Federal Government will
    experience savings in emergency spending for crop disasters--some
    disasters that will be avoided through use of new, enhanced plants.
        Much progress has been made in fighting plant diseases with crops
    engineered to resist pests. At the same time, the usage of harsh
    chemical pesticides has been reduced through the use of genetically
    engineered crops. Research sponsored by the NRI and ARS contributed
    knowledge leading to the development of these superior crops. Increased
    support for the NRI and ARS will lead to more varieties of enhanced
    crops resistant to devastating diseases.
        We urge the Subcommittee to increase support for the NRI and ARS in
    fiscal year 2004. As requested by the President, ASPB urges
    appropriating $200 million to the NRI in fiscal year 2004. We urge a
    significant increase for ARS over the fiscal year 2003 appropriation.
        Again, thank you for this opportunity to submit comments to the
    Subcommittee. We deeply appreciate the Subcommittee's leadership in
    support of plant research, which has been essential to producing and
    securing the nation's food supply.
                                     ______

      Prepared Statement of the Association of State Dam Safety Officials

        Dear Chairman Bennett and Members of the Subcommittee: The
    Association of State Dam Safety Officials is pleased to offer this
    testimony on the President's proposed budget for the Department of
    Agriculture for fiscal year 2004, specifically in support of the
    Watershed Rehabilitation Program.
        The Association of State Dam Safety Officials is a national non-
    profit organization of more than 2,000 state, federal and local dam
    safety professionals and private sector individuals dedicated to
    improving dam safety through research, education and communications.
    Our goal simply is to save lives, prevent damage to property and to
    maintain the benefits of dams by preventing dam failures. Several
    dramatic dam failures in the United States called attention to the
    catastrophic consequences of failures. The failure of the Federal Teton
    Dam in 1976 caused 14 deaths and over $1 billion in damages, and is a
    constant reminder of the potential consequences associated with dams
    and the obligations to assure that dams are properly constructed,
    operated and maintained.
        The Administration's proposed budget includes only $10 million in
    discretionary appropriations to fund rehabilitation of unsafe and
    seriously deficient dams that were originally constructed under USDA
    Watershed Programs. The Association of State Dam Safety Officials
    respectfully requests that this Subcommittee appropriate the full
    amount authorized by the 2002 Farm Bill, which includes $55 million in
    discretionary funds and $50 million in Commodity Credit Corporation
    (CCC) funding.

    The Problem
        The United States Department of Agriculture (USDA) under
    authorities granted by Congress beginning in the 1940s provided
    technical and financial assistance to local sponsors and constructed
    small watershed dams. These dams, completed primarily under the
    authority of Public Law 534 and Public Law 566 provided important
    benefits including flood protection, municipal and rural water
    supplies, irrigation, recreation, water quality, sediment removal and
    habitat. The USDA, in partnership with these local sponsors constructed
    nearly 11,000 small watershed dams across the country in 47 states.
        Dams constructed under these USDA programs have provided local
    communities with years of critical service. They have provided flood
    protection for many homes and businesses, and the local transportation
    infrastructure. Many communities rely on watershed dams for drinking
    water and many farmers depend on those dams for necessary irrigation
    water to grow food and fiber.
        However, these dams are aging and many are starting to reach the
    end of their design life. Many watershed dams no longer are able to
    continue to provide the benefits that the local communities have
    counted on for so many years, such as the expected level of flood
    protection. Many dams are unable to continue to provide the same
    storage volume for drinking water; and many of them are so filed with
    sediment that they cannot provide water quality and sediment removal
    functions. More alarming is the recognition that as these dams continue
    to age and deteriorate they threaten the very same local communities
    that have relied on them for protection and for quality of life
    improvements. Approximately 450 small watershed dams will reach the end
    of their expected design life by 2005; and over 1,800 will reach their
    design life expectancy by 2010.
        The challenge is enormous, as the local sponsors cannot shoulder
    the entire burden alone. Without a fully funded Watershed
    Rehabilitation Program, the flood protection provided by these dams
    will be diminished, irrigation and drinking storage will be reduced and
    water quality will continue to decline. However, the most dramatic
    consequences from the aging and deterioration of these dams without
    their rehabilitation will undoubtedly be to increase the probability of
    a tragic failure. Dam failures cause lives to be lost, downstream
    property to be destroyed and damage to critical public infrastructure
    (roads, bridges, water treatment facilities). The cost of just one dam
    failure, measured in loss of life, property damage and clean up costs,
    could easily exceed the entire cost of the Watershed Rehabilitation
    authorization.
        Often, development, attracted by the benefits provided by the dam,
    have significantly altered the upstream watershed and increased runoff
    and sediment transport to the dam. In addition, it is very common to
    see major downstream development in the area below the dam, within the
    dam failure flood zone, which causes dam safety officials great
    concern, as the dams no longer meet minimum dam safety requirements.
    These development consequences are typically beyond the control of the
    local sponsoring organizations, yet they are responsible to compliance
    with the state dam safety standards.
        Many of the small watershed dams do not have Emergency Action
    Plans, essential for saving lives in the event of a dam failure. These
    plans provide for surveillance of the dam, notification of emergency
    management officials, evacuation plans, and most importantly the
    identity of the areas below the dam that would be flooded in the event
    of a dam failure. Without these plans, a local downstream community
    would have little chance of receiving adequate and timely warning in
    order to evacuate their homes and businesses. Critical to this plan is
    the completion of dam failure modeling to clearly map the downstream
    area flooded form a failure, often called the ``danger reach''.
    Rehabilitation funded under this program should include this, as part
    of the rehabilitation design and planning package. Considering the
    security threat alerts that so often include potential actions against
    dams, these plans are even more critical.

    Examples
        Iowa has been well served by their 1,300 watershed dams, including
    500 in the Little Sioux River Basin. Currently, 65 of the watershed
    dams have exceeded their design life of 50 years and within five more
    years 100 more will exceed their design life. There are 92 project
    requests seeking assistance, which total nearly $10 million in
    rehabilitation costs. These 92 dams pose a risk to 180 people and $3.3
    million in downstream infrastructure.
        Local sponsors in Pennsylvania have submitted 22 requests for
    watershed rehabilitation projects. The total rehabilitation costs for
    these 22 dams is $2.4 million, yet these dams return $10.7 million in
    annual benefits; and leave 14,000 people and $414 million of
    infrastructure at risk from a failure.
        In Texas, there are nearly 2,000 USDA Watershed Dams that provide
    important irrigation water, critical flood protection and many other
    benefits. 65 watershed dams have already exceeded the 50-year design
    life, while another 340 more watershed dams will exceed their design
    life in just five years.
        There are currently requests from sponsors to rehabilitate 198
    watershed dams in Texas. These dams pose a threat to almost 20,000
    people living below them; and $87 million of public infrastructure is
    also risk. Yet, these 198 dams also provide $13 million in benefits
    each year to Texan constituents who continue to rely on them. The
    estimated costs to rehabilitate these 198 watershed dams are
    approximately $60 million.
        Georgia is another state that has benefited from these federal
    programs as there are 357 small watershed dams, with 128 current
    requests from local sponsors for assistance from USDA to conduct
    rehabilitation including extending the service life of the dams. There
    are nearly 6,000 people and over $1.5 billion of infrastructure at risk
    downstream from these dams. The annual benefits from these watershed
    dams are $17 million. The estimated rehabilitation costs for these 128
    dams is $86 million, which represents the largest identified need of
    any state in the country.
        Gwinett County, Georgia offers a dramatic example of changes in the
    watershed due to development beyond the control of the local sponsors.
    In the 1960's the population of Gwinett County was approximately 70,000
    and the dams were primarily constructed to provide protection for
    agricultural areas. Today, there are 650,000 residents in Gwinett
    County with several hundred living below these dams that no longer meet
    dam safety standards.
        In Missouri, there are 770 watershed dams with 189 requests for
    rehabilitation assistance to date. The estimate to rehabilitate these
    dams is just over $15 million. These dams provide $1.3 million in
    annual benefits and pose a risk to nearly $3 million of downstream
    infrastructure.
        Table 1 attached to this testimony lists, by state, the total
    number of USDA watershed dams currently identified as needing
    rehabilitation, the range of range of years the dams were constructed,
    the population and infrastructure at risk, the annual benefits derived
    from the dams and the estimated costs for rehabilitation.

    Request
        Mr. Chairman and Members of this subcommittee, the Association of
    State Dam Safety Officials see this full funding of this program as
    critical to the safety of the nation's dams as well as the lives and
    property downstream. Identifying a funding source for rehabilitating
    and securing our country's dams is a major challenge. For the 11,000
    small watershed dams created through a highly successful program
    administered by the Federal government, Congress and the Administration
    should reconfirm their commitment to the structures and the American
    people who depend on the continuing benefits provided by these dams.
    These same people need to be secure that the dams the United States
    help them build will not fail or diminish their function.
        ASDSO asks that the Subcommittee view funding the Rehabilitation of
    Watershed Dams as a significant re-investment in the benefits of the
    program and an investment in the safety of these dams. Therefore, this
    association respectfully requests that this Subcommittee provide
    additional appropriations beyond the Administration's request to fully
    fund this critical program at the $105 million authorized level.
        Thank you Mr. Chairman and members of the Subcommittee for this
    opportunity to submit this testimony. We look forward to working with
    the Subcommittee and staff in any way to advance the safety of dams in
    the United States.

                            TABLE 1.--SUMMARY OF PROJECT SPONSOR REQUESTS--REHABILITATION OF AGING DAMS--NATIONAL SUMMARY APRIL 2001
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  Annual
                                               Total number      Number of          Dam        Pop. at risk    Infrastr. at      benefits       Rehab cost
                      State                     of projects   rehab requests   construction     number est.     risk dollar      provided       dollar est
                                                   dams                       range of years                       est.         dollar est.
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    AK......................................               0               0              to  ..............  ..............  ..............  ..............
    AL......................................             105              64    1960 to 1955           3,805     $19,380,000      $5,634,000     $20,217,500
    AR......................................             170              28    1954 to 1986             245       8,655,000       2,131,743      12,983,800
    AZ......................................              25              22    1954 to 1988          75,560     178,330,000      28,440,000      51,000,000
    CA......................................               3               1    1955 to 1955          10,000      25,000,000       3,000,000         500,000
    CO......................................             144               9    1957 to 1982          55,580      70,000,000       3,743,000      11,900,000
    CT......................................              31               2    1961 to 1988           1,000       3,000,000         150,000         200,000
    DE......................................               0               0              to  ..............  ..............  ..............  ..............
    FL......................................              10               0              to  ..............  ..............  ..............  ..............
    GA......................................             357             128    1953 to 1993           5,931   1,583,258,241      17,465,239      86,287,500
    HI......................................               4               0              to  ..............  ..............  ..............  ..............
    IA......................................           1,325              92    1948 to 1984             180       3,311,000         551,000       9,838,000
    ID......................................               3               1    1970 to 1970           5,000      10,000,000         675,000       2,000,000
    IL......................................              64              10    1960 to 1975             840       2,050,000         106,900       1,977,300
    IN......................................             110              14    1961 to 1973           1,101      38,150,000       1,344,460       4,400,000
    KS......................................             809              62    1954 to 1989              39       4,051,700       1,820,100      13,869,700
    KY......................................             200              22    1957 to 1975          12,100      16,700,000       2,902,800      11,700,000
    LA......................................              35               0              to  ..............  ..............  ..............  ..............
    MA......................................              29              15    1960 to 1982          61,108       3,300,000      12,175,000       3,300,000
    MD......................................              16               0              to  ..............  ..............  ..............  ..............
    ME......................................              16               3    1965 to 1975               0               0           6,000          30,000
    MI......................................              13               0              to  ..............  ..............  ..............
    MN......................................              44               5    1957 to 1963              18         380,000          29,000         430,000
    MO......................................             770             189    1954 to 1982               0       2,829,825       1,299,810      15,170,000
    MS......................................             578              57    1957 to 1995           1,953      18,355,000       3,764,600      11,430,000
    MT......................................              16               7    1962 to 1975             365      21,000,000       2,465,900       1,520,000
    NC......................................              98              54    1954 to 1992             688       1,337,520         717,300       7,748,125
    ND......................................              48               2    1962 to 1979             250       5,500,000       1,200,000       1,350,000
    NE......................................             723              98    1954 to 1997           1,401      15,937,000      10,327,691      11,081,000
    NH......................................              24               0              to  ..............  ..............  ..............  ..............
    NJ......................................              20               1    1962 to 1961              25          60,000          21,500         200,000
    NM......................................              78              12    1975 to 1962           2,256     154,900,000       1,333,000       8,400,000
    NV......................................               8               0              to  ..............  ..............  ..............  ..............
    NY......................................              55              53    1955 to 1097          78,428       1,747,949       2,240,455       2,265,250
    OH......................................              61              30    1955 to 1976             720      13,250,000       2,355,000       7,550,000
    OK......................................           2,087              83    1949 to 1977           5,245      27,625,000       2,823,706      47,997,000
    OR......................................               5               2    1967 to 1969             125       1,100,000       1,400,000         200,000
    PA......................................              87              22    1960 to 1994          14,640     414,000,000      10,735,000       2,437,000
    PR......................................               2               0              to  ..............  ..............  ..............  ..............
    RI......................................               0               0              to  ..............  ..............  ..............  ..............
    SC......................................              86              39    1960 to 1985          69,335      62,868,000       1,532,700       1,619,500
    SD......................................              55               6    1960 to 1983               0         140,000         125,000         275,000
    TN......................................             140               0              to  ..............  ..............  ..............  ..............
    TX......................................           2,038             198    1948 to 1987          19,677      87,104,000      13,315,700      59,805,000
    UT......................................              25               0              to  ..............  ..............  ..............  ..............
    VA......................................             145              12    1956 to 1974           1,183      17,906,216         355,201      10,000,000
    VT......................................               4               4    1968 to 1973             960      25,000,000         292,000         800,000
    WA......................................               3               0              to  ..............  ..............  ..............  ..............
    WI......................................              86               8    1956 to 1970             292       1,623,100         444,500       2,430,000
    WV......................................             167              93    1954 to 1992          13,969      76,587,670       7,658,767      99,013,310
    WY......................................              13               0              to  ..............  ..............  ..............  ..............
                                             ---------------------------------------------------------------------------------------------------------------
          National Totals...................          10,935           1,448    1948 to 1997         444,019   2,914,437,221     144,582,072     521,924,985
    --------------------------------------------------------------------------------------------------------------------------------------------------------

                                     ______

    Prepared Statement of the Bear Trust International, Boone and Crockett
       Club, Bowhunting Preservation Alliance, Buckmasters American Deer
        Foundation, Campfire Club of America, Congressional Sportsmen's
      Foundation, Conservation Force, Foundation for North American Wild
       Sheep, Houston Safari Club, International Association of Fish and
         Wildlife Agencies, Izaak Walton League of America, Mule Deer
       Foundation, National Rifle Association, National Shooting Sports
    Foundation, National Trappers Association, Pope and Young Club, Quality
      Deer Management Association, Rocky Mountain Elk Foundation, Ruffed
         Grouse Society, Safari Club International, Shikar Safari Club
    International, The Wildlife Society, Wildlife Management Institute, and
                           Whitetails Unlimited, Inc.

        Dear Chairman Bennett and Sen. Kohl: We urge you to include
    adequate funding in the fiscal year 2004 federal budget to fully
    implement the National Plan to Assist States, Federal Agencies and
    Tribes in Managing Chronic Wasting Disease in Captive and Free Ranging
    Cervids. We specifically ask your subcommittee to appropriate $7.75
    million for agency programs within Department of the Interior and,
    further, $20.46 million for non-matching state and tribal grants to be
    administered either through USDA-Animal and Plant Health Inspection
    Service (APHIS) or the U.S. Fish and Wildlife Service (USFWS).
        Chronic Wasting Disease (CWD) is always fatal for deer and elk. It
    has been found in either captive or free-ranging wildlife in 12 states
    and 2 Canadian provinces. Left unmanaged, this disease has the
    potential to devastate local deer and elk populations. Moreover,
    improper management of CWD will stimulate a major economic loss for
    state agencies and private businesses that rely on hunting and wildlife
    associated tourism for their livelihood. According to the USFWS's 2001
    National Survey of Fishing, Hunting, and Wildlife-Associated
    Recreation, 10.9 million sportsmen and women spent 153 million days
    hunting big game in 2001. Collectively, they spent $10.1 billion to
    purchase necessary equipment and to cover trip-related costs. And
    within Colorado, the Division of Wildlife estimated that deer and elk
    hunters generated $599 million for the state's economy in 2001.
    Furthermore, the Division collected $44 million through deer and elk
    license sales, which represented 54 percent of the agency's $81.9
    million budget for 2001.
        In May 2002, the House Resources Subcommittees on Forests and
    Forest Health and Fisheries Conservation, Wildlife and Oceans held a
    joint oversight hearing on the CWD crisis. Invited witnesses were asked
    to provide suggestions as to how Congress and the federal government
    could most effectively assist states in the fight against CWD.
    Resultantly, the U.S. Department of Agriculture (USDA) and U.S.
    Department of the Interior (DOI) were directed to prepare a national
    plan to address CWD.
        A national CWD task force was quickly formed to ensure that federal
    and state agencies cooperated in the development and implementation of
    an effective national CWD strategy and program. Membership for the task
    force, and its associated working groups, totaled 75 professionals who
    were knowledgeable in wildlife health, wildlife management, wildlife
    biology and livestock health and represented a myriad of state and
    federal wildlife management and animal health agencies, as well as
    universities.
        On June 26, 2002 the task force released the National Plan to
    Assist States, Federal Agencies and Tribes in Managing Chronic Wasting
    Disease in Captive and Free Ranging Cervids, also known as the National
    CWD Plan. This plan represents the most current scientific knowledge on
    CWD, and delineates a strategy to identify the extent of the disease
    and management actions necessary to limit its spread. An Implementation
    Document was then developed to identify who will be responsible for
    individual projects, how these projects will help control CWD, how much
    money is necessary to implement the projects, and when each project
    should be completed. The Implementation Document, dated October 16,
    2002, was provided to Bobby Acord, Director of APHIS, and Steve
    Williams, Director of the U. S. Fish and Wildlife Service. It is our
    understanding that the document has since been provided to the Office
    of Management and Budget for review and analysis. Both documents are
    available at http://www.cwd-info.org/index.php/fuseaction/
    policy.policy.
        According to the National CWD Plan, the primary federal role will
    be to provide coordination and assistance with research, surveillance,
    disease management, diagnostic testing, technology, communications,
    information dissemination, education and funding for state CWD
    programs. Federal agencies will provide tools and financial assistance
    to states and help develop consensus-based approaches to CWD control.
        The federal funding requirements identified in the Implementation
    Document total $108 million over a three year period. It is important
    to recognize that not all CWD funding has been or will be federal
    dollars. For example, it is estimated that the states of Colorado,
    Nebraska, and Wisconsin expended $3.6 million to combat CWD during
    2002. In Colorado, a portion of that money was used to cull
    approximately 450 mule deer and 200 elk, further evidence of the
    mounting need to protect the viability of wild and captive cervid
    populations.
        We are concerned that the collaborative science-based
    recommendations in the National CWD Plan and its associated
    Implementation Document have not been given due consideration during
    the development of the fiscal year 2004 budget. The Implementation
    Document recommends $13.6 million for USDA, $7.75 million for DOI and
    $20.46 million for state and tribal grants during the first year.
    However, the Administration only requested $14 million for USDA, of
    which only $7 million is for Plan activities. Moreover, DOI would
    receive $2.4 million under the Administration's request, less than half
    of what the Implementation Document's authors recommended, and the
    states would receive nothing. We believe this spending request is
    woefully inadequate to effectively implement the National CWD Plan.
        In summary, we urge you to include in the fiscal year 2004 federal
    budget the funding necessary to fully implement year one of the
    National CWD Plan. Both the DOI and the USDA Agriculture have been
    assisting states and tribes to the extent that their budgets permit;
    however, significant additional funding is needed to implement the
    actions and programs outlined in the National CWD Plan and its
    associated Implementation Document. Since the management of resident
    wildlife is the responsibility of the appropriate state wildlife
    agency, in addition to funding the CWD activities of both the DOI and
    USDA, the federal budget appropriation must provide funding that will
    be passed on to the states through a grant program that requires no
    match. The states have already spent millions of dollars on this issue
    and need federal funding assistance to continue the battle.
        Thank you for reviewing our comments, and we look forward to
    working with you on this important issue throughout the appropriations
    process.
                                     ______

              Prepared Statement of Bob Lawrence & Associates Inc.

        Mr. Chairman and Members of the Subcommittee: My name is Bob
    Lawrence, and I am President of Bob Lawrence & Associates, Inc., a
    consulting firm located in Alexandria, Virginia. With me today is Jim
    Goldwater, a Vice President with my firm. We are here today to request
    full funding of the Department of Agriculture's conservation programs,
    as authorized in last year's Farm Bill. These programs provide valuable
    assistance to farmers and ranchers striving to preserve and enhance
    both water quality and water quantity. Specifically, for the
    Environmental Quality Incentives Program (EQIP), we support the
    Department's request of $850 M. For the Ground & Surface Water
    Conservation Program, we request the Authorized level of $60 M, as
    opposed to the Budget Request of $51 M, and for the Conservation
    Security Program, we request the maximum allowed under the formula
    created in the new Farm Bill.
        Mr. Chairman, for the past 16 years, it has been the pleasure of
    our firm to provide consulting services to the modern, mechanized
    irrigation industry, and during those years, we have developed a deep
    admiration for the dedicated, ethical approach of this industry and the
    dramatic improvements that the industry has made to efficient water
    use, prevention of non-point source pollution through reductions in the
    application of chemicals, pesticides, and fertilizers, and significant
    increases in quality crop production. Similar improvements have
    occurred in the turf and landscape portions of the irrigation industry,
    resulting in the quality use of reclaimed water, increases in water use
    efficiency, such as irrigation scheduling, and efficient application
    resulting in chemical reductions. The reductions in water use as well
    as water waste offer the additional benefit of helping to minimize
    future droughts. For these reasons, we commend the United States
    Congress for its vision and leadership by including important
    irrigation provisions in the landmark Conservation title in last year's
    Farm Bill, and for ensuring that improvements in the use of
    agricultural irrigation are eligible for assistance under these
    Conservation programs. A brief description of each program follows:
        EQIP.--The Environmental Quality Incentives Program provides
    incentive assistance to ranchers and farmers to install, maintain, or
    upgrade conservation measures (including water quality enhancement,
    erosion control, and enhanced irrigation management) on more than 17
    million acres of agricultural land. Funds are split between livestock
    (60 percent) and crop producers (40 percent).
        The Ground and Surface Water Conservation Program, which falls
    under the EQIP umbrella, provides cost-shared, low-interest loans, and
    incentive payments to encourage ground and surface water conservation.
    Under the Farm Bill conference agreement, water conservation activities
    that are eligible for incentive payments and cost-share include ``low-
    energy precision irrigation systems, low-flow irrigation systems . . .
    and conversion from gravity or flood irrigation to higher efficiency
    systems.'' The agreement also authorizes assistance ``to improve
    irrigation systems and to enhance irrigation efficiencies,'' language
    which we proposed. Assistance is also authorized to ``mitigate the
    effects of drought.'' Clearly, this program is timely and addresses the
    heart of present, national, farm problems.
        The Conservation Security Program.--This new program was created to
    assist agricultural producers to maintain or adopt conservation
    practices on private agricultural land. It is intended to help the
    producers implement programs to address resource problems, including
    soil, air, water, plant and animal, and energy conservation.
    Specifically defined practices include ``water conservation (including
    through irrigation) and water quality management.''
        During consideration of the Farm Bill in the last Congress, the
    domestic irrigation industry which we represented justified greater
    national acceptance of and commitment to efficient irrigation
    technology in a number of ways. These included the following:
      --In the United States, streams, lakes, and aquifers hold 75 percent
            of our fresh water. According to the U.S. Geological Survey, of
            the remaining 25 percent, agriculture uses about 80 percent.
      --Since agriculture accounts for most of the country's daily water
            consumption, solutions for both water quality and quantity
            problems are likely to involve agriculture.
      --Conservation and improved efficiency offer the greatest
            opportunities for helping to address water resource protection.
      --According to the Farm and Ranch Irrigation Survey, pressurized
            irrigation is substantially more efficient than gravity (flood)
            systems. For example, on virtually the same amount of
            agricultural land, pressurized irrigation used just 37 percent
            of the water used for agricultural purposes, while flood
            accounted for 63 percent.
      --Irrigated acres account for only 15 percent of U.S. farmland but
            produce 38 percent of farm revenue, according to the National
            Research Council.
      --Sound water management practices, including the deployment of
            modern irrigation technology, can help preserve limited water
            supplies during incidents of drought.
      --The National Oceanic and Atmospheric Administration has estimated
            that drought causes annual economic losses of $6-8 billion,
            more than the losses caused by floods or hurricanes.
      --The reduction in the amount of water applied each year by
            agriculture adopting more efficient technology practices equals
            the water needed for the annual personal use of every man,
            woman, and child in the nation's 29 largest cities.
      --Control of nonpoint source pollution, particularly that caused by
            agricultural activities including animal waste production, is a
            preeminent water quality concern, since runoff from farming and
            urban areas causes over 50 percent of the nation's nonpoint
            source pollution.
      --The development and deployment of more efficient irrigation
            technologies can substantially enhance water quality by
            preventing erosion of top soil and reducing nonpoint source
            pollution through such means as limiting the amounts of
            pesticides, chemicals, and fertilizers applied. Greater
            utilization of efficient irrigation will also contribute
            significantly to the protection of watersheds, aquifers, and
            other water sources.
      --Modern irrigation technology can also reduce the amount of water
            lost through inefficient or outdated systems. It allows the
            agriculture, turf and landscape, and golf course industries to
            apply water more efficiently, taking into consideration time of
            day, local topography and soil conditions, the size and
            configuration of the area requiring irrigation, and weather.
            Proper irrigation system scheduling minimizes and can even
            eliminate wasteful application by considering such factors as
            natural rainfall and saturated soils.
      --Landscaping can increase residential property values by 7 percent
            and add as much as 15 percent to the selling price of a home.
        In Conclusion, Mr. Chairman, let us reaffirm that the many benefits
    offered by modern irrigation technology can help us address a variety
    of problems faced by the agricultural community--indeed, the entire
    country--today. The Conservation programs listed above, and the
    incentives provided by these programs, will enable many, many farmers
    and ranchers to implement critical and timely solutions, thereby
    strengthening our agricultural community and improving our air and
    water environments.
        We thank you for the opportunity to present this testimony.
                                     ______

     Prepared Statement of the California Industry and Government Central
     California Ozone Study Coalition on behalf of the California Industry
    and Government Central California Ozone Study Coalition we are pleased
     to submit this statement for the record in support of our fiscal year
    2004 funding request of $500,000 for CSREES for the Central California
                               Ozone Study (CCOS)

        Most of central California does not attain Federal health-based
    standards for ozone and particulate matter. The San Joaquin Valley is
    developing new State Implementation Plans (SIPs) for the Federal ozone
    and particulate matter standards in the 2002 to 2004 timeframe. The San
    Francisco Bay Area has committed to update their ozone SIP in 2004
    based on new technical data, and the Sacramento area also plans to re-
    evaluate their ozone SIP in that timeframe. In addition, none of these
    areas attain the new Federal 8-hour ozone standard. SIPs for the 8-hour
    standard will be due in the 2007 timeframe--and must include an
    evaluation of the impact of transported air pollution on downwind areas
    such as the Mountain Counties. Photochemical air quality modeling will
    be necessary to prepare SIPs that are approvable by the U.S.
    Environmental Protection Agency.
        The Central California Ozone Study (CCOS) is designed to enable
    central California to meet Clean Air Act requirements for ozone SIPs as
    well as advance fundamental science for use nationwide. The CCOS field
    measurement program was conducted during the summer of 2000 in
    conjunction with the California Regional PM10/
    PM2.5 Air Quality Study (CRPAQS), a major study of the
    origin, nature and extent of excessive levels of fine particles in
    central California. CCOS includes an ozone field study, a deposition
    study, data analysis, evaluations of model performance, and a
    retrospective look at previous SIP modeling. The CCOS study area
    extends over central and most of northern California. The goal of the
    CCOS is to better understand the nature of the ozone problem across the
    region, providing a strong scientific foundation for preparing the next
    round of State and Federal attainment plans. The study includes six
    main components, some of which have been completed:
      --Developed the design of the field study.
      --Conducted an intensive field monitoring study from June 1 to
            September 30, 2000.
      --Developing an emission inventory to support modeling.
      --Developing and evaluating a photochemical model for the region.
      --Designing and conducting a deposition field study.
      --Evaluating emission control strategies for the next ozone
            attainment plans.
        The CCOS is directed by Policy and Technical Committees consisting
    of representatives from Federal, State and local governments, as well
    as private industry. These committees, which managed the San Joaquin
    Valley Ozone Study and currently manage the California Regional
    PM10/PM2.5 Air Quality Study, are landmark
    examples of collaborative environmental management. The proven methods
    and established teamwork provide a solid foundation for CCOS. The
    sponsors of CCOS, representing state, local government and industry,
    have contributed approximately $9.1 million for the field study. The
    Federal Government contributed $3,730,000 for some data analysis and
    modeling. In addition, CCOS sponsors are providing $2 million of in-
    kind support. The Policy Committee is seeking Federal co-funding of an
    additional $6.25 million to complete the remaining data analysis and
    modeling portions of the study and for a future deposition study.
    California is an ideal natural laboratory for studies that address
    Federal, agriculture-related issues, given the scale and diversity of
    the various ground surfaces in the region (crops, woodlands, forests,
    urban and suburban areas).
        For fiscal year 2004, our Coalition is seeking funding of $500,000
    through the U.S. Department of Agriculture (USDA) Cooperative State
    Research, Education, and Extension Service (CSREES). Domestic
    agriculture is facing increasing international competition. Costs of
    production and processing are becoming increasingly more critical. The
    identification of cost-effective options for addressing environmental
    options affecting agricultural costs will contribute significantly to
    the long-term health and economic stability of local agriculture. A
    CSREES grant is needed to address the issue of crop ozone adsorption,
    soil NOX emissions, smoke particulate dispersion and
    deposition, alternatives to open burning. Particulate dispersion is
    managed in order to minimize smoke impacts and avoid violations of
    ambient air quality standards. The air quality impacts of particulate
    dispersion and alternatives to burning need to be addressed. CCOS will
    improve the ability to assess the impacts of smoke particulate
    dispersion. A CSREES grant is also needed to better understand the
    potential air quality benefits of crop ozone adsorption in the air
    quality modeling inventory. Recent studies have shown that crop ozone
    adsorption can have significant beneficial impact impacts on ozone
    formation.
        There is a national need to address data gaps and California should
    not bear the entire cost of addressing these gaps. National data gaps
    include issues relating to the integration of particulate matter and
    ozone control strategies. The CCOS field study took place concurrently
    with the California Regional Particulate Matter Air Quality Study--
    previously jointly funded through Federal, State, local and private
    sector funds. Thus, CCOS was timed to enable leveraging the efforts of
    the particulate matter study. Some equipment and personnel served dual
    functions to reduce the net cost. From a technical standpoint, carrying
    out both studies concurrently was a unique opportunity to address the
    integration of particulate matter and ozone control efforts. CCOS was
    also cost-effective since it builds on other successful efforts
    including the 1990 San Joaquin Valley Ozone Study. Federal assistance
    is needed to effectively address these issues and CCOS provides a
    mechanism by which California pays half the cost of work that the
    Federal Government should pursue.
        We appreciate the Subcommittee's consideration of our request.
    Thank you very much.
                                     ______

     Prepared Statement of the Coalition on Funding Agricultural Research
                               Missions (CoFARM)

        The Coalition on Funding Agricultural Research Missions (CoFARM),
    representing 130,000 members from scientific and professional
    organizations, is united by a commitment to advance and sustain
    investment in our nation's fundamental and applied agricultural
    research.
        We understand that the Agriculture Appropriations bill has many
    valuable and necessary components, and we applaud the efforts of the
    Senate Agriculture Appropriations Subcommittee which resulted in the
    National Research Initiative Competitive Grants Program (NRI) being
    funded at $166 million fiscal year 2003, an increase of nearly 40
    percent over fiscal year 2002! Below we have highlighted funding
    recommendations for the fiscal year 2004 appropriations cycle.
        By priority area our recommendations include:
        Recommendation 1.--CoFARM urges you to support the President's
    fiscal year 2003 proposal of $240 million for the NRI. A study
    conducted by USDA's Economic Research Service highlights the annual
    rate of return to publicly fund agricultural research at 35 percent.
    Therefore, increased funding of agriculture research would be
    beneficial to our U.S. economy. Our research programs should be viewed
    as an investment in the future, not an expense. Moreover, funding the
    NRI at $240 million would support the finding in the recent National
    Academies report, Frontiers in Agricultural Research, that total
    competitive grants should be substantially increased to and sustained
    at 20-30 percent of the total USDA research portfolio.
        Recommendation 2.--CoFARM requests that any new monies appropriated
    for the NRI, as in fiscal year 2003, allow the Secretary the discretion
    to apply up to 20 percent towards carrying out integrated research,
    extension and education competitive grants program under the same
    conditions and terms as those provided for in the fiscal year 2003
    spending bill. Multidisciplinary research efforts continue to have a
    promising future within all research communities, and agriculture does
    not differ from this trend.
        The NRI is a highly respected competitive grants program that funds
    the basic research necessary to improve crop and livestock production,
    and the processes that deliver quality food products from farm to table
    while protecting and enhancing the nation's environment and natural
    resources. Recent security threats facing America require new and
    expanded agricultural research to protect our nation's forests, water
    supplies, food processing and distribution network, and rural
    communities and insure the future security, safety and sustainability
    of America's food and fiber system. In order to address these
    challenges and maintain our position in an increasingly competitive
    world, we must maintain and continue to support research programs such
    as the NRI.
        Without ongoing research, our nation will be unable to meet the
    many current and new challenges facing our food production system from
    farm to table. Past investment in the NRI has allowed scientists
    engaged in research on agricultural systems to successfully achieve
    many breakthroughs which include:
      --NRI researchers have improved feeding standards and management
            practices for livestock that reduce waste products and improve
            nutrient management to protect our soil and water resources.
      --The USDA was the lead U.S. agency in the International Rice Genome
            Sequencing Project, which led to the published initial
            sequences for two varieties of rice (Science 296:32-35 (2002)).
      --NRI researchers have observed that pre-pregnant overweight or obese
            women were associated with failure to initiate and sustain
            lactation. They concluded that a reduction in the prolactin
            response to suckling represents one biological mechanism that
            could help to explain the early lactation failure observed in
            overweight and obese women.
      --An NRI-funded studied conducted by agricultural economists at Texas
            A&M addressed the influence of nutrition knowledge, food
            beliefs, and dietary restraint on food choices.
      --The development of national disaster response plans by NRI
            researchers working with the Department of Homeland Security.
        The future viability of our nation's production systems will depend
    on the investment in science we make today. Congress must enhance
    funding for competitive agricultural research to assure Americans of a
    safe and affordable food supply and to provide for the next generation
    of research scientists.
        As you lead the Congress in deliberation on funding levels for
    agricultural research, we urge you to support the President's proposal
    of $240 million for the NRI. Please consider CoFARM as a supportive
    resource in efforts to improve agricultural research capacity. We hope
    you will call on our membership and scientific expertise.
                                     ______

       Prepared Statement of the Coalition to Promote U.S. Agricultural
                                    Exports

        As members of the Coalition to Promote U.S. Agricultural Exports,
    we commend the Chairman and members of the Subcommittee for their
    interest and support of U.S. agriculture and express our appreciation
    for this opportunity to share our views.
        The Coalition to Promote U.S. Agricultural Exports is an ad hoc
    coalition of over 80 organizations, representing farmers and ranchers,
    fishermen and forest product producers, cooperatives, small businesses,
    regional trade organizations, and the State Departments of Agriculture
    (see attached). We believe the U.S. must continue to have in place
    policies and programs that help maintain the ability of American
    agriculture to compete effectively in a global marketplace still
    characterized by subsidized foreign competition.
        Farm income and agriculture's economic well-being depend heavily on
    exports, which account for one-third or more of domestic production,
    provide jobs for millions of Americans, and make a positive
    contribution to our nation's overall trade balance. In 2003, U.S.
    agriculture exports are projected to reach $57 billion, which is still
    below the high of roughly $60 billion that was achieved in 1996. This
    lower level of exports is caused by a combination of factors, including
    continued subsidized foreign competition and related artificial trade
    barriers. U.S. agriculture's trade surplus is also expected to be about
    $14 billion, down approximately 50 percent from 1996, with imports
    continuing at record levels.
        According to recent USDA information, the European Union (EU)
    currently spends $2 to $5 billion annually on agricultural export
    subsidies compared to less than $100 million by the United States. In
    other words, the United States is being outspent by a factor of 20 to 1
    or more by the EU alone with regard to the use of export subsidies.
    During 1998-99, (the most recent year for which data is available), the
    EU, the Cairns group, and other foreign competitors also devoted more
    than $1 billion on various activities to promote their exports of
    agricultural, forestry, and fishery products.
        According to USDA, spending by these competitor countries on market
    promotion increased by 50 percent over the 1995-98 time period, while
    U.S. spending remained flat. We have no reason to believe that this
    trend in spending by our competitors has changed since then.
    Furthermore, almost all of this increase has been directed to the high-
    value and consumer-ready product trade.
        Information compiled by USDA also shows that such countries are
    spending over $100 million just to promote sales of their products in
    the United States. In other words, they are spending almost as much to
    promote their agricultural exports to the United States as the United
    States currently spends ($110 million) through the Market Access
    Program (MAP) to promote American-grown and produced products
    worldwide! In fiscal year 1999, the United States recorded its first
    agricultural trade deficit with the EU of $1 billion. In fiscal year
    2002, USDA reported that the trade deficit with the EU had grown to
    $2.2 billion, the largest agriculture deficit the United States runs
    with any market.
        Because market promotion is a permitted ``green box'' activity
    under World Trade Organization (WTO) rules, with no limit on public or
    producer funding, it is increasingly seen as a centerpiece of a winning
    strategy in the future trade battleground. Many competitor countries
    have announced ambitious trade goals and are shaping export programs to
    target promising growth markets and bring new companies into the export
    arena. European countries are expanding their promotional activities in
    Asia, Latin America, and Eastern Europe. Canada, Australia, New
    Zealand, and Brazil have also sharply bolstered their export promotion
    expenditures in recent years.
        As the EU and our other foreign competitors have made clear, they
    intend to continue to be aggressive in their export efforts. During
    consideration of the 2002 Farm Bill, Congress sought to bolster U.S.
    trade expansion efforts by approving an increase in funding for MAP and
    the Foreign Market Development (FMD) Cooperator Program, which will
    begin to reverse the decline in funding for these export programs that
    occurred over the last decade. For fiscal year 2004, the new Farm Bill
    authorizes funding for MAP at $125 million, and FMD is authorized at
    $34.5 million. The Coalition strongly supports both levels of funding
    for these important export programs.
        Both MAP and FMD are administered on a cost-share basis with
    farmers and other participants required to contribute up to 50 percent
    of their own resources. These programs are among the few tools
    specifically allowed under the Uruguay Round Agreement to help American
    agriculture and American workers remain competitive in a global
    marketplace still characterized by subsidized foreign competition. The
    over 70 U.S. agricultural groups that share in the costs of the MAP and
    FMD programs fully recognize the export benefits of market development
    activities. In fact, they have sharply increased their own
    contributions to both programs over the past decade while USDA funds
    have actually dropped. Since 1992, MAP participants have increased
    their contributions from 30 percent (30 cents for every dollar
    contributed from USDA) to almost 120 percent ($1.20 in industry funds
    for every USDA dollar). For FMD, the contribution rate has risen from
    76 percent to the current level of 120 percent. By any measure, such
    programs have been tremendously successful and extremely cost-effective
    in helping maintain and expand U.S. agricultural exports, protect
    American jobs, and strengthen farm income.
        For all these reasons, we want to emphasize again the need to help
    strengthen the ability of U.S. agriculture to compete effectively in
    the global marketplace. American agriculture is among the most
    competitive industries in the world, but it cannot and should not be
    expected to compete alone against the treasuries of foreign
    governments. As a nation, we can work to export our products, or we can
    export our jobs. USDA's export programs, such as MAP and FMD, are a key
    part of an overall trade strategy that is pro-growth, pro-trade and
    pro-job.
        Again, as members of the Coalition to Promote U.S. Agricultural
    Exports, we appreciate very much this opportunity to share our views
    and we ask that this statement be included in the official hearing
    record.
        Coalition to Promote U.S. Agricultural Exports (See Attached List)

    Alaska Seafood Marketing Institute
    American Forest and Paper Association
    American Hardwood Export Council
    American Meat Institute
    American Peanut Council
    American Quarter Horse Association
    American Seed Trade Association
    American Sheep Industry Association
    American Soybean Association
    Blue Diamond Growers
    Calcot, Ltd.
    California Agricultural Export Council
    California Asparagus Commission
    California Association of Winegrape Growers
    California Canning Peach Association
    California Cling Peach Board
    California Dried Plum Board
    California Fig Institute
    California Kiwifruit Commission
    California Plum Marketing Board
    California Strawberry Commission
    California Table Grape Commission
    California Tomato Commission
    California Walnut Commission
    Cherry Marketing Institute
    Chocolate Manufacturers Association
    CoBank
    Diamond of California
    Florida Citrus Commission
    Florida Citrus Mutual
    Florida Citrus Packers Association
    Florida Citrus Processors Association
    Florida Department of Citrus
    Food Export USA-Northeast
    Georgia Poultry Federation
    Ginseng Board of Wisconsin
    Gulf Citrus Growers Association
    Highlands County Citrus Growers Association, Inc.
    Hop Growers of America
    Indian River Citrus League
    Kentucky Distillers Association
    Land O'Lakes, Inc.
    Mid-America International Agri-Trade Council
    Mohair Council of America
    National Association of State Departments ofAgriculture
    National Association of Wheat Growers
    National Barley Growers Association
    National Cattlemen's Beef Association
    National Chicken Council
    National Confectioners Association
    National Corn Growers Association
    National Cotton Council
    National Council of Farmer Cooperatives
    National Dry Bean Council
    National Grain Sorghum Producers
    National Grange
    National Grape Cooperative Association, Inc.
    National Milk Producers Federation
    National Pork Producers Council
    National Potato Council
    National Renderers Association
    National Sunflower Association
    National Turkey Federation
    North American Millers' Association
    Northwest Horticultural Council
    Ocean Spray Cranberries, Inc.
    Peace River Valley Citrus Growers Association
    Pet Food Institute
    Softwood Export Council
    Southern Forest Products Association
    Southern U.S. Trade Association
    Sunkist Growers
    Sun Maid Growers of California
    Sunsweet Growers, Inc.
    The Catfish Institute
    The Popcorn Institute
    Tree Top, Inc.
    United Egg Association
    United Egg Producers
    United Fresh Fruit and Vegetable Association
    USA Dry Pea and Lentil Council
    USA Poultry & Egg Export Council
    USA Rice Federation
    U.S. Apple Association
    U.S. Dairy Export Council
    U.S. Hide, Skin & Leather Association
    U.S. Livestock Genetics Export, Inc.
    U.S. Meat Export Federation
    U.S. Rice Producers Association
    U.S. Wheat Associates
    Valley Fig Growers
    Vinifera Wine Growers Association
    Washington Apple Commission
    Welch's
    Western Growers Association
    Western Pistachio Association
    Western U.S. Agricultural Trade Association
    Wheat Export Trade Education Committee
    WineAmerica (The National Association of American Wineries)
    Winegrape Growers of America
    Wine Institute
                                     ______

     Prepared Statement of the Colorado River Basin Salinity Control Forum

        The Congress concluded that the Colorado River Basin Salinity
    Control Program should be implemented in the most cost-effective way,
    and realizing that agricultural on-farm strategies were some of the
    most cost-effective strategies authorized a program for the Department
    of Agriculture within the Colorado River Basin Salinity Control Act.
    With the enactment of the Federal Agriculture Improvement and Reform
    Act of 1996 (FAIRA), the Congress directed that the Salinity Control
    Program should be implemented as one of the components of the
    Environmental Quality Incentives Program (EQIP). Since the enactment of
    the Farm Security and Rural Investment Act (FSRIA) in 2002, there is,
    for the first time, an opportunity to adequately fund the Salinity
    Control Program within the EQIP.
        The Salinity Control Program, as set forth in the Colorado River
    Basin Salinity Control Act, is to benefit Lower Basin water users
    hundreds of miles downstream from salt sources in the Upper Basin.
    There are very significant economic damages caused by high salt levels
    in this water source. Agriculturalists in the Upper Basin where the
    salt must be controlled, however, don't first look to downstream water
    quality standards but realize local benefits. They submit cost-
    effective proposals to the State Conservationists in Utah, Wyoming and
    Colorado and offer to cost share. The Colorado River Basin Salinity
    Control Act provides that the seven Colorado River Basin States will
    also cost share in this effort, providing 30 percent of the funding.
    This has brought together a remarkable partnership.
        After longstanding urgings from the states and directives from the
    Congress, the Department has concluded that this program is different
    than small watershed enhancement efforts common to the EQIP program. In
    this case, the watershed to be considered stretches more than 1,200
    miles from the river's headwater in the Rocky Mountains to the river's
    terminus in the Gulf of California in Mexico. The Department has now
    determined that this effort should receive a special fund designation
    and has appointed a coordinator for this multi-state effort.
        The NRCS has earmarked funds to be used for the Colorado River
    Basin Salinity Control Program and has designated this an area of
    special interest. The Forum appreciates the efforts of the subcommittee
    in this regard. In fiscal year 2002, there was earmarked about $10
    million. The states added about $4.3 million in up-front cost-sharing
    in fiscal year 2002 and local producers cost-share, it is estimated,
    about another $4.6 million. The plan for water quality control of the
    Colorado River was prepared by the Forum, adopted by the states, and
    approved by the EPA. In the water quality plan it is required that the
    USDA (federal) portion of the effort be funded at a level of at least
    $17.5 million. Hence, in fiscal year 2002 there was a shortfall in the
    minimum needed federal designated funds of about $7.5 million. State
    and local cost-sharing is triggered by the federal appropriation.
        The USDA indicates that more adequate funding in fiscal year 2003
    for the EQIP program will result in more funds being allocated for the
    salinity control program. Over the past few years, the NRCS has
    designated that 2.5 percent of the EQIP funds be allocated to Colorado
    River Salinity Control. The Forum believes this is the appropriate
    future level of funding as long as it does not drop below $17.5
    million. The Basin states have cost sharing dollars available to
    participate in on-farm salinity control efforts. The agricultural
    producers in the Upper Basin are waiting for their applications to be
    considered so that they might also cost share in the program.
        The Congress authorized in FSRIA that the EQIP program in fiscal
    year 2004 could be at the $1 billion level. The President has requested
    $850 million for financial assistance with the $150 million balance
    being used to partially fund the Farm Bill Technical Assistance
    Account. The Forum urges the Subcommittee to adequately fund the EQIP
    program so as to provide that at least 2.5 percent of the cost sharing
    and technical assistance funds be designated for the Colorado River
    Basin salinity control effort.

                                    OVERVIEW

        The Colorado River Basin Salinity Control Program was authorized by
    Congress in 1974. The Title I portion of the Colorado River Basin
    Salinity Control Act responded to commitments that the United States
    made, through a Minute of the International Boundary and Water
    Commission, to Mexico with respect to the quality of water being
    delivered to Mexico below Imperial Dam. Title II of the Act established
    a program to respond to salinity control needs of Colorado River water
    users in the United States and to comply with the mandates of the then
    newly enacted Clean Water Act. This testimony is in support of funding
    for the Title II program.
        After a decade of investigative and implementation efforts, the
    Basin states concluded that the Salinity Control Act needed to be
    amended. Congress agreed and revised the Act in 1984. That revision,
    while keeping the Department of the Interior as lead coordinator for
    Colorado River Basin salinity control efforts, also gave new salinity
    control responsibilities to the Department of Agriculture. Congress has
    charged the Administration with implementing the most cost-effective
    program practicable (measured in dollars per ton of salt removed). It
    has been determined that the agricultural efforts are some of the most
    cost-effective opportunities.
        Since Congressional mandates of nearly three decades ago, much has
    been learned about the impact of salts in the Colorado River system.
    The Bureau of Reclamation has conducted studies on the economic impact
    of these salts. Reclamation recognizes that the damages to United
    States' water users alone are hundreds of millions of dollars per year.
        The Colorado River Basin Salinity Control Forum (Forum) is composed
    of gubernatorial appointees from Arizona, California, Colorado, Nevada,
    New Mexico, Utah and Wyoming. The Forum has become the seven-state
    coordinating body for interfacing with Congress to support the
    implementation of a program necessary to control the salinity of the
    river system. In close cooperation with the federal agencies and under
    requirements of the Clean Water Act, every three years the Forum
    prepares a formal report analyzing the salinity of the Colorado River,
    anticipated future salinity, and the program necessary to keep the
    salinities at or below the levels measured in the river system in 1972
    so as to control damages to downstream users.
        In setting water quality standards for the Colorado River system,
    the salinity concentrations measured at Imperial, and below Parker, and
    Hoover Dams in 1972 have been identified as the numeric criteria. The
    plan necessary for controlling salinity has been captioned the ``plan
    of implementation.'' The 2002 Review, Water Quality Standards for
    Salinity, Colorado River System, includes an updated plan of
    implementation. In order to eliminate the shortfall in salinity control
    resulting from inadequate federal funding for the last several years
    for USDA, the Forum has determined that implementation of the salinity
    control program needs to be accelerated. The level of appropriation
    requested in this testimony is in keeping with the agreed to plan. If
    adequate funds are not appropriated, state and federal agencies
    involved are in agreement that damage from the higher salt levels in
    the water will be more widespread and very significant in the United
    States and Mexico.

                  STATE COST-SHARING AND TECHNICAL ASSISTANCE

        The authorized cost sharing by the Basin states, as provided by
    FAIRA, was at first difficult to implement as attorneys for USDA
    concluded that the Basin states were authorized to cost share in the
    effort, but the Congress had not given USDA authority to receive the
    Basin states' funds. After almost a year of exploring every possible
    solution as to how the cost sharing was to occur, the states, in
    agreement with the Bureau of Reclamation, state officials in Utah,
    Colorado and Wyoming and with NRCS State Conservationists in Utah,
    Colorado and Wyoming, agreed upon a (parallel( salinity control program
    wherein the states' cost sharing funds are being contributed and used.
    We are now several years into that program and, at this moment in time,
    this solution to how cost sharing can be implemented appears to be
    satisfactory.
        With respect to the states' cost sharing funds, the Basin states
    felt that it was most essential that a portion of the program be
    associated with technical assistance and education activities in the
    field. Without this necessary support, there is no advanced planning,
    proposals are not well prepared, assertions in the proposals cannot be
    verified, implementation of contracts cannot be observed, and valuable
    partnering and education efforts cannot occur. Recognizing these
    values, the ``parallel'' state cost sharing program expends 40 percent
    of the funds available on these needed support activities. Initially,
    it was acknowledged that the federal portion of the salinity control
    program funded through EQIP was starved with respect to needed
    technical assistance and education support. The Forum is encouraged
    with a recent Administration acknowledgment that technical assistance
    must be better funded. The Forum urges this Subcommittee to appropriate
    $432 million as requested by the President for the Farm Bill Technical
    Assistance Account.
                                     ______

          Prepared Statement of the Colorado River Board of California

        Your support and leadership are needed in securing adequate funding
    for the U.S. Department of Agriculture with respect to it's on-farm
    Colorado River Basin Salinity Control Program for fiscal year 2004.
    This program has been carried out through the Colorado River Basin
    Salinity Control Act, since it was enacted by Congress in 1974. With
    the enactment of the Federal Agricultural Improvement and Reform Act
    (FAIRA) in 1996, specific funding for salinity control projects in the
    Colorado River Basin were eliminated from the federal budget, and
    aggregated into the newly created Department of Agriculture
    Environmental Quality Incentives Program (EQIP) as one of its program
    components. With that action, Congress concluded that the salinity
    control program could be more effectively implemented as one of the
    components of the EQIP. Prior to FAIRA, the Department of Agriculture
    had specific line item funding for salinity control projects as high as
    $14.7 million, but in recent years funding made available through EQIP
    has averaged less than $5.5 million per year which is woefully
    inadequate to ensure that water quality standards in the Colorado
    River, with regard to salinity can be met. California's Colorado River
    water users are presently suffering economic damages in the hundreds of
    million of dollars per year due to the river's salinity.
        The Colorado River Board of California (Colorado River Board) is
    the state agency charged with protecting California's interests and
    rights in the water and power resources of the Colorado River System.
    In this capacity, California along with the other six Colorado River
    Basin States through the Colorado River Basin Salinity Control Forum
    (Forum), the interstate organization responsible for coordinating the
    Basin States' salinity control efforts, established numeric criteria,
    in June 1975, for salinity concentrations in the River. These criteria
    were established to lessen the future damages in the Lower Basin States
    of Arizona, California, and Nevada, as well as assist the United States
    in delivering water of adequate quality to Mexico in accordance with
    Minute 242 of the International The Honorable Robert Bennett, Chairman
    April 4, 2003 Page 2 Boundary and Water Commission. The goal of the
    Colorado River Basin Salinity Control Program is to offset the effects
    of water resource development in the Colorado River basin after 1972
    rather than to reduce the salinity of the River below levels that were
    caused by natural variations in river flows or human activities prior
    to 1972. To maintain these levels, the salinity control program must
    remove 1,800,000 tons of salt loading from the River by the year 2020.
    In the Forum's last report entitled 2002 Review, Water Quality
    Standards for Salinity, Colorado River System (2002 Review) released in
    October 2002, the Forum found that additional salinity control measures
    in the order of 1,000,000 tons were necessary to meet the
    implementation plan. The plan for water quality control of the River
    has been adopted by the states, and approved by the Environmental
    Protection Agency. Since implementation of EQIP, federal allocations by
    the Department of Agriculture have not equaled the Forum's identified
    funding needs for the Department of Agriculture's portion of the
    program and thus its efforts have begun to lag behind. To date, the
    USDA has been successful in preventing 318,000 tons of salt from
    entering the River system, however, over 370,000 tons of potential salt
    reduction have been identified that can be controlled with Department
    of Agriculture EQIP funding. The Forum has presented testimony to
    Congress in which it has stated that the rate of implementation of the
    program beyond that which has been funded in the past is necessary.
        This testimony, in support of EQIP funding, has been prepared in
    advance of any Presidential or Congressional action on funding for the
    Farm Bill. The Colorado River Board is encouraged that with passage of
    the Farm Security and Rural Investment Act of 2002, the Commodity
    Credit Corporation (CCC) is authorized to borrow up to $1 billion for
    EQIP in fiscal year 2004. Of the amount to be appropriated for EQIP,
    the Colorado River Basin Salinity Control Forum, at its meeting in San
    Diego, California, in October 2002, recommended a funding level of
    $17.5 million for on-farm salinity control in the Colorado River Basin
    for fiscal year 2004 to maintain water quality consistent with the
    established standards. The Colorado River Board supports the
    recommendation of the Forum and urges this subcommittee to support the
    funding at the $1 billion level from the CCC in fiscal year 2004 for
    EQIP. The Colorado River Board also requests that this subcommittee
    advise the Administration that $17.5 million of these funds be
    designated for the Colorado River Basin Salinity Control Program. These
    federal dollars, if earmarked, would be augmented by state cost sharing
    of 30 percent with an additional 30 percent provided by the
    agricultural producer with whom the Department of Agriculture contracts
    for implementation of salinity control measures. The salinity control
    program has proven to be a very cost effective approach to help
    mitigate the impacts of higher salinity. Continued federal funding of
    the program is essential.
        In addition, the Colorado River Board recognizes that the federal
    government has made significant commitments to the Republic of Mexico
    and to the seven Colorado River Basin States with regard to the
    delivery of quality water to Mexico. In order for those commitments to
    be honored, it is essential that in fiscal year 2004 and in future
    fiscal years, the Congress provide funds to the Department of
    Agriculture to allow it to continue providing needed technical support
    to the producers for addressing salinity control in the Basin. The
    Honorable Robert Bennett, Chairman April 4, 2003 Page 3 The Colorado
    River is, and will continue to be, a major and vital water resource to
    the 17 million residents of southern California as well as throughout
    the Lower Colorado River Basin. As stated earlier, preservation of its
    quality through an effective salinity control program will avoid the
    additional economic damages to users of Colorado River water in
    California, Arizona, and Nevada.
        The Colorado River Board greatly appreciates your support of the
    federal/state Colorado River Basin Salinity Control Program and again
    asks for your assistance and leadership in securing adequate funding
    for this program.
                                     ______

       Prepared Statement of the Critical Mass Energy and Environmental
        Program Public Citizen and the Government Accountability Project

        Chairman Bennett, Ranking Member Kohl and Members of the
    Subcommittee: On behalf of our two organizations, we welcome this
    opportunity to present our views on the fiscal year 2004 Agriculture,
    Rural Development, Food and Drug Administration and Related Agencies
    Appropriations Bill. Public Citizen is a non-profit consumer
    organization founded by Ralph Nader in 1971. Public Citizen represents
    150,000 members. The Government Accountability Project's mission is to
    protect the public interest by promoting government and corporate
    accountability through advancing occupational free speech and ethical
    conduct, defending whistleblowers, and empowering citizen activists.
    Founded in 1977, GAP is a non-profit, public interest organization and
    law firm.
    USDA--Food Safety and Inspection Service (FSIS)
        We are adamantly opposed to the Administration's proposal to
    collect $122 million in user fees in order to recover the cost of
    providing inspection services beyond an approved eight-hour primary
    shift. We believe that such a proposal could compromise the
    effectiveness of FSIS inspectors. Furthermore, FSIS has already taken
    action to de-list foreign establishments that had been previously
    approved to export their meat and poultry products to the United States
    on the basis that inspection services were paid by the companies
    involved instead of by the foreign government. Implementation of the
    Administration's proposal would be hypocritical.
        Additionally, we are concerned that the current proposal to hire 80
    more FSIS inspectors will be inadequate to fill the current vacancies
    and to make up for previous years' cuts. We urge the subcommittee to
    request from the agency a full listing of all current position
    vacancies and the length of time the positions have been vacant. We
    recommend that at least 200 new line inspectors be hired this year.
        The alarming number and magnitude of the meat and poultry recalls
    that have occurred over the past year indicate that there are some
    serious problems with the implementation of the Hazard Analysis
    Critical Control Points (HAACP) program. We have been arguing for the
    past three years that HACCP has turned over too much of the authority
    to industry to police itself and has severely undercut the ability of
    FSIS inspection personnel to do their jobs. We have heard directly from
    inspection personnel who state that they are very confused over their
    roles in HAACP because of the conflicting instructions they receive
    from top level management within FSIS.
        More troubling is the fact that the economic well-being of
    companies is placed ahead of the public's welfare by the management of
    FSIS. In 2002, we were able to obtain instructions to FSIS inspectors
    assigned to a Kansas slaughter plant in which they were admonished that
    should they err on the side of public health and stop a slaughter line
    they would be held personally liable for their decision.
        We are also concerned about the lack of backing which FSIS
    inspectors receive from supervisors and USDA management when they
    discover food safety hazards in their assignments. In the ConAgra
    recall, information has surfaced that USDA knew of potential problems
    at the Greeley, Colorado plant as early as February 2002--some three
    months before the first recall notice went out. During that month,
    testing conducted by FSIS inspection personnel at the Montana Quality
    Foods and Processing plant located in Miles City, Montana and
    transmitted to the FSIS regional office in Minneapolis confirmed that
    the source of contaminated meat ground at Montana Quality Foods and
    Processing was the ConAgra plant in Greeley, Colorado. Working with
    John Munsell, the President of Montana Quality Foods and Processing,
    the inspection personnel tried to get FSIS upper level management to
    review food safety practices at the ConAgra plant. They were concerned
    that due to the large volume of product from this plant, inadequate
    practices could create a significant public health threat. Instead of
    applauding Mr. Munsell and the FSIS personnel for their investigative
    work, they have been maligned by top FSIS officials and have been told
    they had no authority to point the finger at ConAgra.
        The same can be said of the Wampler recall. A twenty-year veteran
    inspector, Vincent Erthal, had tried to warn his supervisors for
    several months of the unsanitary conditions at the Wampler plant
    located in Franconia, Pennsylvania. He even requested that FSIS take
    enforcement action against Wampler. His concerns went unheeded. This
    past fall, the largest recall in FSIS history was issued for possible
    Listeria monocytogenes contamination of product coming out of that
    plant. After much soul-searching, Mr. Erthal decided to come forward to
    reveal how his attempts to warn FSIS supervision of his concerns were
    thwarted. Again, instead of backing their own employee, USDA management
    has circled the wagons and launched a campaign to discredit Mr. Erthal.
        With all of the problems that FSIS has already experienced with
    their implementation of HAACP, the proposed fiscal year 2004 budget
    contains language that would expand the HACCP-Inspection Models Project
    (HIMP) in slaughter facilities. HIMP is still another attempt to weaken
    the authority of FSIS inspection personnel and turn that responsibility
    over to company personnel. In a December 17, 2001 report, the General
    Accounting Office documents glaring methodological deficiencies in the
    current pilot project that FSIS has been conducting. There has not been
    any evidence to show that those deficiencies have been addressed.
    Therefore, we would urge that this pilot project not go forward until
    reliable data is furnished upon which a proper evaluation can be made
    of the effectiveness of this program.
        While we applaud additional funds to support food safety education,
    we believe that the money will actually be used to promote irradiation.
    In her written remarks to the Subcommittee, Under Secretary for Food
    Safety Dr. Elsa Murano stated it was her intent to devote resources to
    educate the public about food irradiation. Her remarks also indicate
    that she will attempt to blur the definition of pasteurization to
    include irradiation in her education campaign.
        In focus groups conducted for FSIS in 2002, consumers in St. Louis,
    Missouri; Raleigh, North Carolina; and Philadelphia, Pennsylvania were
    asked whether they considered irradiation to be a form of
    pasteurization, and overwhelmingly consumers responded that making such
    an assertion would be misleading. Those findings corroborated findings
    from focus groups conducted for the Food and Drug Administration (FDA)
    in three different cities during the summer of 2001.
        Lastly, we are concerned about the recent revelations that FSIS
    still has not addressed problems identified by the USDA Inspector
    General regarding the agency's re-inspection program for imported meat
    and poultry products. In 2000, the USDA Inspector General in 2000 noted
    some 18 deficiencies in the FSIS re-inspection program. In her recent
    audit, the USDA Inspector General stated that FSIS had still not
    corrected 14 of those deficiencies--even though FSIS had agreed to do
    so three years ago. In light of the heightened concerns about the
    security of our food supply, this is unconscionable.
    USDA--Food and Nutrition Service/Agricultural Marketing Service
        The Farm Security and Rural Investment Act of 2002 (the Farm Bill)
    contained a provision (section 4201 (l)) that directed the Secretary of
    Agriculture not to prohibit the use of approved food safety
    technologies in any commodity purchased by the USDA for various
    government-sponsored nutrition programs, including the National School
    Lunch and National Breakfast Programs. The USDA has decided to
    interpret this language to mean the lifting of the ban currently in
    place against the use of irradiation as an intervention for ground beef
    products purchased for these programs. And, it seems this is the only
    approved food safety technology they are pursuing.
        Section 4201 (l) never received any scrutiny by any congressional
    committee--in either the House or the Senate. It never received any
    floor debate--in either the House or the Senate. It was placed in the
    Senate version of the Farm Bill at the last minute as part of a 400-
    page manager's amendment. The conferees on the Farm Bill never even
    discussed it in open session.
        On November 22, 2002, the USDA announced that it would solicit
    comments from the public on the implementation of Section 4201 (l) of
    the Farm Bill and specifically wanted comments on irradiation. The
    comments were collected by the Agricultural Marketing Service (AMS).
    The comment period ended on April 11, 2003. Of the comments posted on
    the AMS website on this subject by May 28, 2003, by a nearly 11 to 1
    margin, citizens have expressed their opposition to lifting the ban on
    irradiation--with hundreds of comments still left to be posted.
    Comments opposing such action have come from nearly all fifty states,
    while those supporting the technology have come primarily from those
    who have direct ties to the irradiation industry.
        In spite of this overwhelming opposition to permitting irradiation
    of food in the child nutrition programs, USDA announced on May 29, 2003
    its intent to lift the prohibition on irradiation as an intervention.
        In order to promote this technology, the Food and Nutrition Service
    (FNS) has funded an irradiation ``education'' program in three
    Minnesota school districts. The program is being administered by
    proponents of irradiation--with no access provided to opponents of the
    technology to present alternative views. In addition, the program is
    dominated by one irradiation company and its affiliates. In essence,
    FNS has funded a government-sponsored advertising campaign for one
    company.
        What makes this ``education'' program significant is the fact that
    the material used to promote irradiation in Minnesota will be used
    across the country in other school districts. We have learned that one
    of the Minnesota school districts recently dropped out of the program
    because the superintendent came to the conclusion that this issue
    properly belonged in the public health arena and should be not be
    debated at the school district level. Consequently, it seems that FNS
    has wasted $151,000 to fund an ``education'' program with incomplete
    results.
        We are opposed to irradiation because we are not certain of its
    safety. Recent research coming from Europe indicates that some
    chemicals formed when certain foods are irradiated may be harmful when
    consumed. The new studies call into question the long-held position of
    the FDA and the food industry that irradiated foods are generally safe
    for human consumption. The studies confirm research published in 1998
    and 2001 showing that concentrations of chemicals called 2-
    alkylcyclobutanones (or 2-ACBs)--which are found only in irradiated
    foods--caused DNA damage in human cells.
        Among the new findings, 2-ACBs were shown to promote tumor
    development in rat colons. Also, scientists discovered that they could
    not adequately account for most of a dose of 2-ACBs fed to rats. While
    very small amounts of 2-ACBs were detected in their fat, most of the
    chemicals could not be recovered, implying that they are either stored
    in other parts of the body or transformed into other compounds. The 2-
    ACBs are formed when foods that contain fat are irradiated, such as
    beef, chicken, eggs and certain fruits--all of which can legally be
    irradiated and sold to consumers.
        There is even less research into the long-term health effects
    experienced by children who are exposed to toxic chemicals in foods.
    Dr. William Au, a toxicologist at the Department of Preventive Medicine
    and Community Health, University of Texas Medical Branch in Galveston,
    has argued that the lack of understanding regarding the ill effects
    suffered by children who consume toxic chemicals in foods extends to
    ``the toxicological risk with respect to eating irradiated food.''
        Implementing Section 4201 (l) of the Farm Bill will create the
    largest mass-feeding of irradiated food to children over an extended
    period of time ever in the history in the world.
    Food and Drug Administration
        We are concerned about the lack of funding for the Food and Drug
    Administration (FDA) for import re-inspections. Even after the
    additional funding the agency received in fiscal year 2003 to hire more
    staff, the agency is only capable of re-inspecting a paltry 1.3 percent
    of imported food over which it has jurisdiction. This needs to be
    addressed with additional funding, with the goal of reaching at least
    the 20 percent re-inspection rate that USDA's FSIS is able to perform
    for imported meat and poultry products. Furthermore, FDA should be
    granted the same authority that FSIS currently possesses to inspect
    foreign establishments that can export their food to the United States.
        We are also concerned with the repeated attempts to weaken the
    labeling for irradiated foods. The FDA has visited this issue
    repeatedly since 1997--primarily at the direction of Congress. Each
    time, the FDA finds that consumers do not see eye-to-eye on this issue
    with the irradiation industry and their supporters in Congress. It
    seems that there are those who want to keep on trying until we get it
    wrong.
        In the conference committee report that accompanied the fiscal year
    2001 Agriculture, Rural Development, Food and Drug Administration and
    Related Agencies Appropriations Act, the conferees stated:

        The conferees expect FDA to make final the regulations regarding
    labeling of irradiated foods by March 1, 2002, and report to the House
    and Senate Committees on Appropriations on the status by November 15,
    2000. This agreement changes the dates proposed for final regulations
    by the House of September 30, 2001, and by the Senate of October 30,
    2001.

        In its report to the Appropriations Committees, the FDA explained
    that it had published an Advanced Notice for Proposed Rulemaking (ANPR)
    in 1999 on food irradiation labeling as the agency was directed to do
    under the FDA Modernization Act conference committee report in 1997. In
    evaluating the comments that the agency received from the ANPR, FDA
    stated:

        The majority of these comments were letters that urged the agency
    to retain special labeling for irradiated foods but did not address the
    specific issues on which FDA requested comment. A preliminary analysis
    of the comments suggest no consensus about what alternative language
    for disclosure of irradiation processing would be truthful and not
    misleading. Because the public comments provided no clear direction for
    agency rulemaking, FDA believes that 1999 ANPR fulfills the Agency's
    obligations under the FDAMA Conference Report.

        The FDA went on to say in its report to Congress that it intended
    to impanel consumer focus groups to attempt to obtain further guidance
    on the labeling issue.
        During the summer of 2001, the FDA contracted with ORC Macro, a
    public opinion research firm, to organize six consumer focus groups.
    Two of these focus groups were held in Calverton, Maryland (suburban
    Washington, DC); two were held in Minneapolis, Minnesota; and two were
    held in Sacramento, California.
        In all of the focus groups, the moderator attempted to make a
    strong association between pasteurization and irradiation. This was
    significant since there have been some food irradiation proponents who
    have argued that a more appropriate term to describe irradiation on
    product labeling is either ``cold pasteurization'' or ``electronic
    pasteurization.''
        In a 2002 report to Congress, the FDA summarized the results of
    those focus groups:

        Most of the participants viewed alternate terms such as ``cold
    pasteurization'' and ``electronic pasteurization'' as misleading,
    because they appeared to conceal rather than disclose information about
    irradiated food products. Participants did not see the current
    disclosure labeling as a warning . . . Everyone agreed that irradiated
    foods should be labeled honestly. They indicated that the current FDA
    required statement is a straightforward way for labeling irradiated
    foods.

        Furthermore, in his 2002 testimony before the House Subcommittee on
    Agriculture, Rural Development, Food and Drug Administration and
    Related Agencies Appropriations, Dr. Lester Crawford, Deputy
    Commissioner of the FDA stated: (W)hen we did focus groups at FDA on
    cold pasteurization, the general feeling of the average citizen was
    that this was kind of a ruse or a means to conceal the fact that the
    food had been irradiated. And so we are kind of back to square one. We
    don't have a good synonym for irradiation and we would like to have
    one. We don't want to mislead the public.
        The public has been very consistent on this issue--whether through
    the focus groups conducted for USDA or FDA or through comments
    solicited by FDA. There have already been too many resources devoted to
    this issue within FDA. The driving force ought to be what the consumers
    believe to be honest and straightforward labeling--not what some in
    industry think it ought to be. The FDA has a much more important
    mission to accomplish than devising ways to confuse and mislead
    consumers.
                                     ______

                       Prepared Statement of Easter Seals

        Easter Seals appreciates the opportunity to report on the notable
    accomplishments of the USDA Cooperative State Research, Education, and
    Extension Service (CSREES) AgrAbility Program and request that funding
    for the AgrAbility Program be increased to $4.6 million in fiscal year
    2004.
        The AgrAbility Program is an essential, unduplicated, hands-on
    resource for farmers, ranchers, and farmworkers with disabilities and
    their families. AgrAbility is the only USDA program dedicated
    exclusively to helping agricultural producers with disabilities. It
    demonstrates the value of public-private partnership by securing
    donations of funds, talent, and materials to magnify the impact of a
    modest federal investment. The fiscal year 2003 appropriation of $4.2
    million is funding 24 state projects.

                            DISABILITY & AGRICULTURE

        Agricultural production is one of the nation's most hazardous
    occupations. According to the National Institute on Occupational Safety
    and Health, each year, approximately 182,500 agricultural workers
    sustain disabling injuries, about 5 percent of which permanently impair
    their ability to perform essential farm tasks. Tens of thousands more
    become disabled as a result of non-farm injuries, illnesses, other
    health conditions, and the aging process. Nationwide, over 13 million
    Americans living in rural areas have a chronic or permanent disability.
    Hundreds of thousands of farmers, ranchers, and agricultural workers
    who have disabilities are a vital part of rural America and the
    agricultural workforce.
        The presence of a disability jeopardizes rural and agricultural
    futures for many of these individuals. Rural isolation, a tradition of
    self-reliance, and gaps in rural service delivery systems frequently
    prevent agricultural workers with disabilities from taking advantage of
    growing expertise in modifying farm operations, adapting equipment,
    promoting farmstead accessibility, and using assistive technologies to
    safely accommodate disability in agricultural and rural settings. Yet,
    with some assistance, the majority of disabled agricultural workers can
    continue to earn their livelihoods in agriculture and participate fully
    in rural community life.

                     AGRABILITY'S ROLE AND ACCOMPLISHMENTS

        The AgrAbility Program was established under the 1990 Farm Bill in
    response to the needs of farmers, ranchers, and farmworkers with
    disabilities. The Farm Bill authorizes the Secretary of Agriculture to
    make grants to Extension Services for conducting collaborative
    education and assistance programs for farmers with disabilities through
    state projects and related national training, technical assistance, and
    information dissemination. Easter Seals is proud to be a partner with
    the University of Wisconsin-Extension Cooperative Extension to provide
    the national training and technical assistance portion of the
    AgrAbility Program. Thousands of people in states with and without
    state AgrAbility projects are aided through this initiative.
        AgrAbility combines the expertise of the Extension Service and
    disability organization staffs to provide people with disabilities
    working in agriculture the specialized services that they need to
    safely accommodate their disabilities in everyday farm and ranch
    operations. AgrAbility received strong bipartisan support during the
    2002 reauthorization of the Farm Security and Investment Act of 2002,
    and was extended through fiscal year 2007. The $6 million authorization
    level for AgrAbility was continued.
        Under the statute, state and multi-state AgrAbility projects engage
    Extension Service agents, disability experts, rural professionals, and
    volunteers to offer an array of services, including: identifying and
    referring farmers with disabilities; providing on-the-farm technical
    assistance for agricultural workers on adapting and using farm
    equipment, buildings, and tools; restructuring farm operations;
    providing agriculture-based education to prevent further injury and
    disability; and, upgrading the skills of Extension Service agents and
    other rural professionals to better promote success in agricultural
    production for people with disabilities.
        In 2003, USDA received an allocation from Congress of $4.2 million.
    These funds are supporting 24 state projects, the national project, and
    USDA-CSREES administration of the Program. The state projects funded
    with fiscal 2003 money are California, Colorado, Delaware, Illinois,
    Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Mississippi,
    Missouri, Nebraska, New York, Oklahoma, Pennsylvania, South Dakota,
    Tennessee, Texas, Utah, Vermont (with New Hampshire), Virginia, West
    Virginia, and Wisconsin.
        AgrAbility provides customized assistance to farmers, ranchers, and
    farmworkers with disabilities and their families. The nature and degree
    of assistance depends on the individual's disability, needs, and
    agricultural operation.
        Between April 1991 and March 2002, AgrAbility Projects in 31 states
    along with the national project accomplished the following:
      --Provided assistance, including nearly 10,000 on-site visits, to
            over 11,000 farmers, ranchers, farmworkers or their family
            members affected by disability.
      --Educated over 200,000 agricultural, rehabilitation, and health
            professionals on safely accommodating disability in
            agriculture.
      --Recruited and trained more than 6,000 volunteers and peer
            supporters to assist agricultural producers with disabilities
            and their families.
      --Reached 9,500,000 people through more than 8,500 exhibits,
            displays, and demonstrations to increase awareness of the
            challenges affecting and resources available to people with
            disabilities working in agriculture.
      --In 2000, the National AgrAbility technical assistance and education
            grant was awarded to Easter Seals national headquarters and the
            University of Wisconsin-Extension Cooperative Extension. This
            new partnership is generating innovative and effective
            activities at the national level that will have a significant
            impact on the effectiveness of the state AgrAbility projects
            and the lives of agricultural workers with disabilities.
        However, these numbers can never reflect the real difference that
    AgrAbility is making in people's lives. Jon Hagen of Waterville Iowa is
    a great example of this. Jon is a crop and dairy farmer who became
    paraplegic in 1998 as a result of an on the farm accident. AgrAbility
    has helped Jon return to farming and he can now provide a brighter
    future for his children. AgrAbility worked with Jon to add a lift to
    help him get in and out of his truck, add a sling lift to assist in
    getting in and out of his tractor, select an appropriate electric
    wheelchair for an agricultural environment, and to connect him with
    peer support that assisted him in transitioning to farming with a
    disability.

                        IMPACT OF CURRENT FUNDING LEVELS

        A funding floor of $150,000 per state was set in the 1990 Farm Bill
    to assure that the state programs were appropriately resourced to meet
    diverse, statewide agricultural accommodation needs. In the 2002
    reauthorization of the Farm Bill, the Committee reaffirmed a commitment
    to that funding floor of $150,000 per state. Because funding had not
    approached the $6 million authorized level prior to fiscal year 2002,
    however, state projects had only received on average slightly under
    $100,000 per state. The funding increase for AgrAbility in fiscal year
    2002 provided USDA with the ability to fund projects at the $150,000
    base level. Easter Seals strongly supports full funding of state
    projects to assure that they continue to be effective for farmers with
    disabilities.
        AgrAbility projects are underfunded relative to need and objective.
    At the current funding level, only a few staff can be hired to provide
    statewide education and assistance to farmers with disabilities,
    educate rural professionals, recruit volunteers, and work with rural
    businesses on disability-related issues. Rising demand for services and
    the great distances that must be traveled to reach farmers and ranchers
    severely strains even the most dedicated of AgrAbility's outstanding
    staff. Easter Seals fears that failure to invest adequately in this
    worthwhile program will ultimately cause it to falter.
        An additional consequence of limited funding is that in every grant
    cycle some states with existing AgrAbility programs and a demonstrated
    need for services are not renewed and are forced to discontinue
    services to farmers with disabilities in that state. These states often
    have difficulty obtaining the access to the limited public and private
    funding sources that the federal seed money granted them. More than a
    dozen states have sought AgrAbility funding without success. Each of
    these states can demonstrate significant unmet needs among farm and
    ranch families affected by disability that AgrAbility could potentially
    address.
        The fiscal year 2004 request of $4.6 million would allow USDA to
    (a) continue to fund states up to the $150,000 base level and add new
    projects in states currently unserved by AgrAbility or (b) increase the
    budgets of currently funded projects to allow much-needed expansion of
    existing services.

                                FUNDING REQUEST

        The need for AgrAbility services has never been greater, and its
    accomplishments to date are remarkable by any standard. Easter Seals is
    proud to contribute to the ongoing success of the USDA-CSREES
    AgrAbility Program. Please support the allocation of at least $4.6
    million for AgrAbility in fiscal year 2004 to ensure that this valuable
    public-private partnership continues to serve rural Americans with
    disabilities and their families. Thank you for this opportunity to
    share the successes and needs of the USDA AgrAbility Program.

                                GRANT DISCLOSURE

        Easter Seals receives the following federal grants:
      --Project ACTION, $3.0 million from the U.S. Department of
            Transportation to help transit providers implement the
            Americans with Disabilities Act (ADA) and to promote
            transportation accessibility for people with disabilities;
      --AgrAbility, $290,554 from the U.S. Department of Agriculture to
            promote success in agriculture for people with disabilities and
            their families; and
        Eater Seals' state and local affiliated organizations, which are
    separately incorporated, receive funding from a variety of federal and
    state agencies to support their local programs. We do not, however,
    have specific information regarding their funding sources.
                                     ______

        Prepared Statement of the Federation of Animal Science Societies

        The Federation of Animal Science Societies (FASS) is the science-
    based voice for animal agriculture, animal products and food systems.
    FASS represents over 8,500 livestock and poultry scientists in the
    United States who conduct research, teaching and extension programs in
    academia and industry. Member organizations of FASS are the American
    Dairy Science Association, the American Society of Animal Science and
    the Poultry Science Association.
        We applaud the efforts of the Senate Agriculture Appropriations
    Subcommittee, which resulted in the National Research Initiative (NRI)
    Competitive Grants Program being funded at $166 million for fiscal year
    2003, an increase of nearly 40 percent over fiscal year 2002! For
    fiscal year 2004, we ask for your continued support in the following
    areas.
        First, FASS urges you to support the President's fiscal year 2003
    proposal of $240 million for the NRI. The annual rate of return to
    publicly funded agriculture research is 35 percent, as reported in a
    recent study by the USDA's Economic Research Service. Therefore,
    increased funding of agriculture research would benefit our U.S.
    economy. Furthermore, funding the NRI at $240 million would support the
    recent finding in the National Academy of Sciences report ``Frontiers
    in Agricultural Research'' that total competitive grants should be
    substantially increased to, and sustained at, 20-30 percent of the
    total USDA research portfolio.
        We must maintain and continue to support research programs such as
    the NRI. The NRI is a highly respected, competitive grants program that
    funds research necessary to improve livestock and crop production, and
    the processes that deliver quality food products from farm to table
    while protecting and enhancing the nation's environment and natural
    resources. Recent security threats facing America require new and
    expanded agricultural research to protect our nation's food processing
    and distribution network, waters, forests and rural communities.
    Federal funding of this type of research is essential to insure the
    future security, safety and sustainability of America's food and fiber
    system.
        Second, FASS requests that any new monies appropriated for the NRI,
    as in 2003, would allow the Secretary the discretion to apply up to 20
    percent towards carrying out an integrated research, extension and
    education competitive grants program under the same conditions and
    terms as those provided for in the fiscal year 2003 spending bill.
    Multidisciplinary research efforts continue to have a promising future
    in providing new knowledge and solutions to many issues facing our food
    system.
        Third, FASS requests your support for animal genomics sequencing
    through the Agricultural Research Service (ARS) of $5 million.
    Furthermore, we request your support for the President's fiscal year
    2004 increase within the NRI targeted for animal genomics research of
    $10 million.
        FASS supports increased funding for animal genomics research. We
    applaud the USDA's leadership role in multi-agency collaborative
    efforts in the field of animal genomics. Increasing our understanding
    of farm animal genomics will enhance the future of animal agriculture.
    Animal genomics will lead the way for more nutritious, healthy, safe
    and affordable livestock products for a growing world population.
    Animal genomics research generates the most fundamental knowledge
    regarding the basic biology of the various agricultural animal species.
    Genomics research on the important food animal species will enable
    powerful applications in the future, including more effective and rapid
    genetic improvement program, more effective and efficient vaccines for
    disease resistance, and more nutritious animal food products. In
    addition, there is future potential to design animals to produce
    specific pharmaceuticals for human use, and which are more
    environmentally friendly. Both the ARS and NRI funding levels are
    important to take full advantage of the opportunities for USDA to
    collaborate with many partners.
        The future viability of our nation's food system, and indeed the
    health of all Americans, will depend on the investment in science we
    make today. Congress must enhance funding for agricultural research to
    assure Americans of a safe and affordable food supply and to provide
    for the next generation of research scientists.
        Mr. Bennett, we urge you to support the President's fiscal year
    2003 proposal of $240 million for the NRI and funding for animal
    genomics research of $5 million for ARS and $10 million targeted within
    the NRI. The livestock and poultry scientists of FASS seek to assist
    you in your efforts to improve agricultural research capacity. Please
    do not hesitate to contact us: Dr. Barbara P. Glenn, Executive Vice
    President-Scientific Liaison at bglenn@faseb.org, 301-571-1875.
                                     ______

                 Prepared Statement of Florida State University

        Mr. Chairman, I would like to thank you and the Members of the
    Subcommittee for this opportunity to present testimony. I would like to
    take a moment to briefly acquaint you with The Florida State
    University.
        Located in Tallahassee, the Capitol of Florida, FSU is a Carnegie
    doctoral/research-extensive university with rapidly growing research
    activities and programs. The University serves as a center for advanced
    graduate and professional studies, exemplary research, and top-quality
    undergraduate programs. Faculty members at FSU maintain a strong
    commitment to quality in teaching, to performance of research and
    creative activities, while retaining a strong commitment to public
    service for the State and Nation. Among the faculty are numerous
    recipients of national and international honors, including Nobel
    laureates, Pulitzer Prize winners, and members of the National Academy
    of Science. Our scientists and engineers do excellent research, have
    strong interdisciplinary interests, and often work closely with
    industrial partners in the commercialization of the results of their
    research. Having been designated as a Carnegie Research I University
    several years ago, The Florida State University had $147.9 million in
    research support this past year.
        One of our recent highlights is the fact that FSU has initiated a
    new medical school, the first in the U.S. in over two decades. Our
    emphasis is on training doctors as primary care physicians, with a
    particular focus on geriatric medicine--consistent with the
    demographics of our state.
        With a student body of 37,000, we attract students from every
    county in Florida, every state in the nation, and more than 100 foreign
    countries. The University is committed to high admission standards that
    ensure quality and diversity in its student body, which currently
    includes some 278 National Merit and National Achievement Scholars, as
    well as students with superior creative talent. At The Florida State
    University, we are very proud of our successes as well as our emerging
    reputation as one of the nation's top public universities.
        Mr. Chairman, let me tell you about a project we are pursuing this
    year through the U.S. Department of Agriculture.
        In fiscal year 2001, Congress passed the Federal Crop Insurance
    Act, which included funding of partnerships for Risk Management
    Development and Implementation. This legislation authorized the USDA,
    working with NOAA, to enter into partnerships for the purpose of
    increasing the availability of tools for crop loss mitigation. The
    partnerships give priority for producers of agricultural commodities
    for specialty crops and under-served agricultural commodities. Congress
    authorized the program through fiscal year 2008.
        The Federal Government, which sets crop insurance rates, needs to
    utilize new cost-effective ways to reduce risk by using modern ideas
    such as El Nino-La Nina climate variability; this would allow more
    appropriate and fair pricing of premiums for crop insurance. The
    Florida Climate Research Consortium, which consists of Florida State
    University, the University of Florida, and the University of Miami, has
    been at the forefront of this climate prediction work. The Consortium
    has worked in Florida and throughout the Southeastern U.S., with
    support from NOAA, to develop new methods to predict the consequences
    of climate variability. More recently, in actual real-life tests, these
    methods and data have been applied to the problem farmers raising
    specialty crops face relative to rainfall; the efforts have also
    tremendous implication for officials in their fight against forest
    fires. In both instances and with the support of Florida's Commissioner
    of Agriculture, use of these methods and their application to these
    challenges has been seen as successful and well received.
        In this consortium, Florida State University will provide the
    climate forecasts and risk reduction methodology. The University of
    Florida will provide crop models for predicting the climate variability
    effects on selected crops. The University of Miami will provide the
    economic modeling of the agricultural system. Each university will
    provide appropriate expert advice on interactions with farmers. In
    particular, the expertise of the Florida Agricultural Extension Service
    will be utilized. Additional collaborators will be added in fiscal year
    2004.
        FSU, on behalf of the FL Climate Consortium, is seeking $3.5M in
    fiscal year 2004 for this activity through the U.S. Department of
    Agriculture. Utilization of these tools and their application to
    agricultural problems in this project has the strong support of Florida
    Commissioner of Agriculture, Charles Bronson.
        Mr. Chairman, this is just one of the many exciting activities
    going on at Florida State University that will make important
    contributions to solving some key concerns our nation faces today. Your
    support would be appreciated, and, again, thank you for an opportunity
    to present these views for your consideration.
                                     ______

      Prepared Statement of Friends of Agricultural Research--Beltsville,
                                      Inc.

        Mr. Chairman, and Members of the Subcommittee, thank you for this
    opportunity to present our statement supporting funding for the
    Department of Agriculture's Agricultural Research Service (ARS), and
    especially for the Agency's flagship research facility, the Henry A.
    Wallace Beltsville Agricultural Research Center (BARC), in Maryland.
    Our organization--Friends of Agricultural Research--Beltsville--is
    dedicated to supporting and promoting the Center's agricultural
    research, outreach, and educational mission.
        In keeping with the seriousness of the times, our testimony this
    year will address only two major themes. The first lays out a vision
    for a Center for Systematics--a vision for a partnership of excellence
    based in Beltsville in cooperation with the Smithsonian Institution's
    National Museum of Natural History and the University of Maryland.
        Our second theme addresses the urgent need to continue support for
    specific research areas mandated by the Congress in fiscal years 2001,
    2002, or 2003. These so-called add-ons attend to critical research
    needs that were recognized by this Subcommittee and others. We will
    list them with brief descriptions below.

    Center for Systematics (The Oxford English Dictionary defines
            Systematics as the branch of biology that deals with
            interrelationships of different species and their
            classification; systematic zoology, botany, etc.; taxonomy)
        Please consider for a moment these hypothetical scenarios from the
    draft report of a select committee assembled last November to evaluate
    the state and future of systematics at Beltsville.
        A pest is discovered in Iowa for the first time, devastating the
    corn and soybean crops. What is it? Where did it come from? How can it
    be eliminated?
        Bioterrorists are planning to introduce new pests that will destroy
    vegetable and fruit production in the United States. What organisms are
    most likely to be used? What strategies can be implemented to combat
    them? How can action agencies detect these organisms when they cross
    U.S. borders?
        An invasive species of weed new to science is found to be
    widespread in Florida; its impact is so severe that five endangered
    species have become extinct and 30 other once-widespread species are
    now on the endangered list and their future is bleak. What is the plant
    species? Who will give it a name and more importantly who will know
    about other related species? Where does it come from? Are there
    organisms that feed on this weed in its native land that could be used
    to reduce its impact in Florida?
        In each of these (hypothetical) cases, systematics provides the
    answers. But the field of systematics is in a serious crisis. Just at a
    time when these kinds of information and expertise are desperately
    needed, the community of systematists is diminishing at an alarming
    rate. Unless the trend can be reversed, the crisis in systematics will
    unfortunately mean a new crisis for the safety of U.S. agriculture,
    farmers, and the environment.
        The Executive Summary sums up the select committee's findings and
    recommendations in these words:
        ``The Beltsville Systematics Summit was convened in November of
    2002, with participation of national and international experts, to
    devise a plan to avert the looming crisis in U.S. agriculture. The plan
    is centered on the historically strong commitment of the Federal
    government to support systematics, and the concentration of 80 percent
    of that effort in the Beltsville Agricultural Research Center research
    programs. This report of the Systematics Summit states the case for
    urgent and immediate action to forestall the crisis. It provides a
    vision to assure that Beltsville Systematics programs are able to
    fulfill their Federal commitment to a strong systematics foundation for
    U.S. agriculture and agricultural research in the future. The long-term
    vision is that ``Beltsville systematics programs will be a powerful
    force affecting the security and productivity of U.S. agriculture. As
    national and global leaders, BARC systematists will create programs
    strategically and synergistically integrating Research, Collections,
    Communications Technology, and Training.''
        If a strong and immediate commitment to that vision is made, the
    outcomes will assure that
      --new knowledge on all agriculturally important organisms, both
            beneficial and detrimental, accumulates rapidly and is made
            quickly available for practical use;
      --collections are safely maintained, in perpetuity, in modern and
            upgraded facilities;
      --collections-based information flows unimpeded between university,
            Federal, and nongovernmental partners through constantly
            evolving communication systems; and
      --a strong cadre of systematists to support Beltsville and
            collaborators' programs exists as a result of long-term
            strategic partnerships with other institutions to anticipate
            and fulfill critical training needs.
        The culmination of the long-term vision is the development of a
    Center for Systematics of unparalleled excellence, nationally and
    internationally, that provides a cohesive and responsive base to United
    States and global agriculture needs.
        Lack of a strong commitment, or inability to provide adequate
    funding, will mean that the United States leaves its borders and its
    agricultural communities vulnerable to invasive species, emerging
    diseases and intentional destructive actions using agricultural
    biological agents. It will forego the opportunity to gain knowledge of
    organisms that can sustain U.S. agriculture before it is too late.
    Tomorrow's needs cannot continue to be met with current resources.
    Demands on BARC systematics programs can only be met through
    significant increases in funding to prepare for the future. A well-
    designed plan to assure that is needed.
        This report of the Beltsville Systematics Summit lays the
    groundwork and provides a framework for that plan to be developed in
    collaboration with a consortium of partners critical to its success.
    BARC systematics programs provide the front line of defense to both
    protect and expand U.S. agriculture. Only by adequate funding to
    support the vision can the United States be secure in providing a safe
    and adequate food supply for its citizens and a healthy and sustainable
    agricultural enterprise for its producers.''
    Congressionally Mandated Programs at BARC
        Animal Improvement Programs Laboratory.--This venerable Beltsville
    laboratory and its predecessors have contributed over a century of
    steady genetic progress to America's milk production industry. Its
    reach is worldwide, helping producers everywhere make better informed
    genetic decisions and promoting export of American germplasm and
    breeding stock.
        For many years America's dairy cows have steadily increased milk
    production at the rate of about 45 gallons per year. Approximately two-
    thirds of those increases can be traced to genetic progress. Much of
    the credit for that success stems from the cooperative national and
    international genetic evaluation programs of BARC's award winning
    Animal Improvement Programs Laboratory. The future of dairy industry
    will be greatly influenced by the research of the Animal Improvement
    Programs Laboratory. In recent years, the Laboratory staff has
    decreased as inflation and salary increases have eaten away at
    operating funds. We recommend continued funding support for the
    Laboratory.
        Barley Health Foods Research.--Barley contains carbohydrates called
    beta-glucans that help control blood sugar and cholesterol. We
    recommend continued support for research to determine if barley-
    containing foods may affect the risks of such chronic conditions as
    cardiovascular disease, diabetes, and obesity. This research is needed
    to assess the bioavailability and efficacy of food components found in
    barley and to identify foods, health practices, and attitudes
    associated with successful maintenance of weight loss.
        Biomineral Soil Amendments for Nematode Control.--Losses to soil
    nematodes cost farmers billions every year. The soybean cyst nematode
    alone can cut soybean yields by 10 percent, often more. Citrus and
    vegetable crops also are vulnerable to intensive nematode damage.
    Growers are squeezed by expanding nematode infestations, nematicide
    resistance, and de-registration of traditional nematicides because of
    environmental concerns. BARC in cooperation with industry and others is
    pursuing new, more effective approaches to nematode control. Promising
    research lines include using such re-cyclable soil amendment as animal
    wastes, composts, and mineral by-products. We recommend continuing the
    increased funding for these promising approaches.
        Foundry Sand By-Products Utilization.--Municipalities and
    industries generate vast quantities of by-products. By-products, such
    as foundry sand from the metal castings industry, have potential uses
    in agricultural and horticultural production processes. The Animal
    Manure and By-Products Laboratory will use the funding to identify
    beneficial new uses and assess risks to human health, safety, or the
    environment from using foundry sand in agriculture. A new soil
    scientist will be hired to support this work. We recommend continuation
    of this funding.
        Poultry Diseases.--The mission of the Parasite Biology,
    Epidemiology, and Systematics Laboratory is to reduce the economic
    costs of parasites in livestock and poultry. Coccidiosis causes the
    greatest economic loss to the meat chicken industry from disease. But
    traditional chemical controls are becoming ineffective; and new non-
    chemical control methods are needed. New funding will be used to
    conduct functional genomics and proteomics analysis of coccidia to
    identify potential proteins that can be used in diagnostic tests and as
    targets for potential vaccine development. We recommend continuation of
    this funding.
        Biomedical Plant Materials.--There is a growing need for
    functionally active, protective molecules for human and animal
    pathogens. We need them at lower cost and without risk to humans,
    animals, or the environment. Such molecules include recombinant
    antibodies, vaccines, and enzymes. Also, we need non-contaminated,
    lower-cost, more reliable diagnostic reagents.
        In recent years, scientists have produced biomedical reagents from
    plants in the laboratory. The potential benefits are huge. For one
    example, replacing poultry vaccine injections with edible plant-
    produced vaccines would substantially lower poultry production costs.
    Beltsville is uniquely equipped to develop necessary systems and to
    test their efficacy in cooperation with other ARS facilities working on
    livestock and poultry diseases. This is a cooperative project with the
    Biotechnology Foundation, Inc., in Philadelphia. We recommend
    continuation of this funding.
        National Germplasm Resources System.--This laboratory supports the
    national database that provides data storage and retrieval systems for
    collecting and disseminating germplasm information. It provides
    accurate taxonomy, transport, geographic, evaluation, inventory, and
    cooperator information for plant and animal germplasm holdings
    nationwide. This is an ARS mission-critical activity. We recommend
    continuation of funding.
        Bovine Genetics.--Somatic cell nuclear transfer (cloning)
    technology has tremendous biomedical and agricultural potential. Yet
    the frequency of successful births from cloning has been relatively
    low. Many pregnancies fail before completing gestation. New funding
    will support collaborative research by the Gene Evaluation and Mapping
    Laboratory and the University of Illinois aimed at improving cloning
    efficiency. A new Molecular Biologist is being hired to support this
    effort. We recommend continuation of this funding.
        IR-4: Registration of Minor Use Pesticides.--``Minor crops'' have
    great economic value, but are not among the top ten crops like corn and
    soybeans that provide huge markets for pesticide manufacturers.
    Manufacturers often do not see a large enough market to justify the
    expense of doing the research needed to register a pesticide for a
    ``minor crop.'' Without the IR-4 program, growers would have fewer
    options for pest control. The Beltsville Environmental Quality
    Laboratory operates a minor crop pesticide residue laboratory. This lab
    vigorously enforces EPA-prescribed protocols for all experimental
    procedures, and prepares comprehensive final reports. New funds enhance
    the overall mission of the Agency's IR-4 program. We recommend that
    this funding be continued.
        Invasive Species Initiative.--Globalization has lowered trade
    barriers over much of the world. It also has contributed to the ease
    with which exotic organisms--or invasive species--enter U.S. habitats
    and environments. Invading pest species not only create ecological and
    economical problems, they also threaten biodiversity and the financial
    stability of U.S. agriculture. Once invaders become successful
    competitors in natural or agricultural ecosystems, producers must spend
    millions every year to combat them. Collateral damage, such as loss of
    native diversity, may not be evident for years. Moreover, exotic
    species represent a biosecurity risk through deliberate introduction
    into the United States.
        Beltsville laboratories are at the vanguard of invasive species
    research, covering prevention, detection, identification, and control.
    Invasive species research at BARC includes: insects and other
    arthropods, plants, pathogenic organisms, and parasitic diseases.
    Certain labs provide stand-by, 24-hour identification services for
    possible alien intruders. Others provide basic taxonomic information
    targeting preventive and control measures for use before or after
    invasive species have become established. Beltsville can point to many
    past successes in the battle against invasive species. Overall,
    Beltsville has the strongest invasive species programs in the nation.
    We strongly support this recommendation.
        Mr. Chairman, that concludes our statement. We are grateful for
    your past support of the BARC mission. We urge support for the Center
    for Systematics as it may come before the Subcommittee. We further
    recommend continuation of the Congressionally mandated research we have
    listed.
        Mr. Chairman, for the past several years our organization has
    submitted similar supporting testimony to this Subcommittee. As we
    prepare this year's testimony in the face of anxious times, we are at
    once mindful of and profoundly grateful for the freedom to petition
    Congress on matters that strike us as fundamental to the security and
    future of America's agricultural bounty.
        Lastly, we again thank you for the opportunity to present our
    testimony.
                                     ______

           Prepared Statement of the Grocery Manufacturers of America

        On behalf of the member companies of the Grocery Manufacturers of
    America (GMA), I appreciate the opportunity to submit testimony to the
    Senate Appropriations Subcommittee on Agriculture, Rural Development
    and Related Agencies. We ask that you support the Administration's
    request for funding for critical food safety functions at the Food and
    Drug Administration (FDA) and the Food Safety and Inspection Service
    (FSIS), as well as the proposed funding for nutrition activities at the
    Food and Nutrition Service (FNS).
        GMA is the world's largest association of food, beverage and
    consumer product companies. With U.S. sales of more than $460 billion,
    GMA members employ more than 2.5 million workers in all 50 states. The
    organization applies legal, scientific and political expertise from its
    member companies to vital food, nutrition and public policy issues
    affecting the industry. Led by a board of 42 Chief Executive Officers,
    GMA speaks for food and consumer product manufacturers and sales
    agencies at the state, federal and international levels on legislative
    and regulatory issues. The association also leads efforts to increase
    productivity, efficiency and growth in the food, beverage and consumer
    products industry.
        GMA particularly supports increased funding for the Center for Food
    Safety and Applied Nutrition (CFSAN), whose role is invaluable in
    ensuring the public that the United States continues to have the safest
    and most wholesome food supply in the world. The Center has played an
    integral role in continuing to enhance the safety and security of the
    food supply, particularly since the tragic September 11th terrorist
    attacks. The additional $20.5 million in the FDA's budget proposal for
    counter terrorism and food safety will continue the government's
    commitment to providing additional resources to further improve the
    agency's capabilities to ensure the safety of the food supply.
        Specifically, the proposed increase includes funds to develop and
    implement a food registration system authorized in the Public Health
    Security and Bioterrorism Preparedness and Response Act of 2002. GMA
    worked closely with Congress and the Administration throughout the
    legislative process and submitted pre-proposal comments to FDA on the
    four regulations that are in development. We have reviewed the draft
    proposals on prior notice of imported foods and facility registration,
    and recently filed additional comments highlighting some substantive
    concerns we have regarding the practical implementation of the final
    rules. We are awaiting the draft proposals on records maintenance and
    administrative detention, and will continue to work with FDA to ensure
    that the bioterrorism regulations will maintain the highest possible
    level of food safety without disrupting the U.S. food supply.
        In communication with this Committee for the past several years, we
    urged you to provide FDA with funds necessary to cover FDA's government
    cost-of-living increase; we reiterate that request for this
    appropriations cycle. This funding will provide cost-of-living
    adjustments as well as support to the additional staff hired in fiscal
    year 2002 for counterterrorism activities. Maintaining and adding
    appropriately skilled and trained technical staff is consistent with
    the expanding mission of FDA in this new climate.
        At USDA, we support the USDA/ARS nutrition monitoring program and
    ask the committee to continue to appropriate the funds necessary for
    this effort. The information gathered in this survey is invaluable to
    both the public and private sectors, and we ask for the committee's
    continued support.
        GMA also supports efforts at USDA to increase funding for capacity
    building at the Foreign Agricultural Service--particularly to increase
    U.S. employment opportunities in international organizations like the
    Food and Agriculture Organization of the United Nations (FAO). Bodies
    like the FAO are playing an increasingly influential role in the
    international regulatory and trade arena, and it is essential that the
    United States be adequately represented in order to ensure that
    science-based policies are reflected at the international level.
        GMA also supports USDA's budget request for nutrition and feeding
    programs, including the Women, Infants and Children (WIC) and the
    national school lunch programs. Increased funding for nutrition and
    obesity prevention programs for children and families will help improve
    the overall health and well-being of our nation.
        GMA also supports the record level of funding for USDA's food
    safety programs in the President's budget for fiscal year 2004, which
    includes an increase of $42 million for FSIS--a 23 percent increase in
    food safety activities since fiscal year 2000. However, GMA strongly
    opposes USDA's proposal for $122 million in controversial new user fees
    for inspections of meat and poultry plants, on top of the $102 million
    in existing fees. USDA plant inspections help prevent the spread of
    bacteria that can cause potentially fatal reactions. As a national
    health service, these inspections should be funded by general
    appropriations rather than user fees.
        We recognize that the confidence of the public in our food supply
    depends both on our industry's continuing commitment to safety and
    quality and on the ability of USDA and FDA to work with us to achieve
    this. We support FDA's mission to protect the public health, and we
    urge you to provide the funds necessary to do this. As always, if we
    may be of any assistance as you proceed with your work, please do not
    hesitate to contact me.
        Thank you for your consideration of our views.
                                     ______

         Prepared Statement of The Humane Society of the United States

        As the largest animal protection organization in the country, we
    appreciate the opportunity to provide testimony to the Agriculture,
    Rural Development, Food and Drug Administration, and Related Agencies
    Subcommittee on fiscal year 2004 funding items of great importance to
    The Humane Society of the United States and its more than 7 million
    supporters nationwide.

                       ENFORCEMENT OF ANIMAL WELFARE LAWS

       We are grateful for the Committee's outstanding support in fiscal
    year 2003 for improved enforcement by the U.S. Department of
    Agriculture of key animal welfare laws, and we urge you to ``hold the
    line'' in fiscal year 2004 so that this effort can be sustained. Your
    leadership is making a great difference in helping to protect the
    welfare of millions of animals across the country, including those at
    commercial breeding facilities, laboratories, zoos, circuses, airlines,
    and slaughterhouses. As you know, better enforcement will also benefit
    people by helping to prevent: (1) injuries to slaughterhouse workers
    from animals struggling in pain; (2) orchestrated dogfights and
    cockfights that often involve illegal gambling, drug traffic, and human
    violence; (3) the sale of unhealthy pets by commercial breeders
    commonly referred to as ``puppy mills''; (4) laboratory conditions that
    may impair the scientific integrity of animal based research; (5) risks
    of disease transmission from, and dangerous encounters with, wild
    animals in or during public exhibition; and (6) injuries and deaths of
    pets on commercial airline flights due to mishandling and exposure to
    adverse environmental conditions.
        For fiscal year 2004, we want to ensure that the important work
    made possible by the fiscal year 2003 budget is continued, that newly
    hired and trained inspectors will be able to stay on the job, and that
    resources will be used in the most effective ways possible to carry out
    these key laws. Specific areas of concern are as follows:

    Office of Inspector General/$800,000 Increase for Animal Fighting
            Enforcement
        In last year's Farm Bill, Congress enacted provisions that were
    overwhelmingly supported in both chambers to close loopholes in the
    Animal Welfare Act (AWA) regarding cockfighting and dogfighting. Since
    1976, when Congress first prohibited most interstate and foreign
    commerce of animals for fighting, USDA has pursued no cockfighting
    cases and only three dogfighting cases, despite rampant activity across
    the country. USDA has apparently received innumerable tips from
    informants and requests to assist with State and local prosecutions,
    but has routinely ignored or declined such requests. It is time for
    USDA to take seriously its responsibility to enforce the portion of the
    AWA dealing with animal fighting ventures. Dogfighting and cockfighting
    are barbaric activities in which animals are drugged to heighten their
    aggression and forced to keep fighting even after they've suffered
    grievous injuries, such as pierced lungs and gouged eyes. Animal
    fighting is almost always associated with illegal gambling, and also
    often involves illegal drug traffic and violence toward people. Dogs
    bred and trained to fight endanger public safety. Cockfighting has been
    linked with the recent outbreak of Exotic Newcastle Disease that has
    already destroyed many poultry flocks and cost taxpayers more than $40
    million for containment and compensation, with costs estimated to rise
    as high as $250-$500 million.
        Given the dangerous nature of animal fighting enforcement work, we
    believe that the department's chief law enforcement arm--the Office of
    Inspector General (OIG)--is best suited to lead this effort. We
    therefore respectfully request an increase of $800,000 for the OIG to
    focus on animal fighting cases and inclusion of bill language directing
    the Secretary to coordinate intelligence gathering, investigation, and
    prosecution of animal fighting cases, pursuant to Section 26 of the
    AWA, through the OIG, working with local and State law enforcement
    personnel to complement their efforts, and drawing on other Federal
    entities including the Attorney General, the Animal and Plant Health
    Inspection Services, and the Office of the General Counsel as needed.

    Food Safety and Inspection Service/Humane Methods of Slaughter Act
            (HMSA) Enforcement
        We greatly appreciate the inclusion of $5 million in the fiscal
    year 2003 bill to hire at least 50 inspectors whose sole responsibility
    will be to ensure that livestock are treated humanely and rendered
    unconscious before they are hung upside down, skinned, dismembered,
    scalded, or killed. Having these new inspectors focus on unloading,
    handling, stunning, and killing of animals will bring much-needed
    attention to slaughter plant practices that have had little oversight
    in recent years. We also appreciate your inclusion of language
    specifying that the ongoing activities of 17 District Veterinary
    Medical Specialists hired as a result of $1 million provided in the
    fiscal year 2001 Supplemental should be limited to HMSA enforcement
    rather than the various unrelated duties with which they had been
    charged. And we commend you for directing the General Accounting Office
    to review and report by July 1, 2003 on the scope and frequency of HMSA
    violations, with ``recommendations on the extent to which additional
    resources for inspection personnel, training, and other agency
    functions are needed to properly regulate slaughter facilities in the
    area of HMSA enforcement.''
        There are nearly 900 Federally inspected slaughter plants in the
    United States, handling millions of animals each day. In addition to
    requesting continued funds in fiscal year 2004 to sustain at least 50
    new inspectors and the 17 positions mentioned above, we hope you will
    give full consideration to any recommendations the GAO may have for
    enhancing enforcement of this important--and very basic--law. We also
    urge that limited resources not be diverted by FSIS to rewrite the
    regulations for this law. The existing HMSA regulations are clear and
    strong. The problem has been a lack of enforcement, not flawed humane
    handling standards. We would be very concerned about any attempt to
    provide more discretion or control to industry in determining HMSA
    compliance.

    APHIS/Animal Welfare Enforcement
        Thanks to appropriations increases in the past four years, Congress
    has enabled USDA to begin to reverse a serious decline in the number of
    AWA compliance inspections. However, the President's fiscal year 2004
    budget proposal--which suggests $1.7 million less for the Animal Care
    division than in fiscal year 2003--would fail to cover the salaries of
    recently-hired inspectors and substantially undo the gains Congress has
    made possible. Moreover, there is still much room for improvement. Many
    facilities continue to escape oversight for long periods of time,
    giving rise to situations that threaten both human and animal health
    and safety. Nearly half of the sites that do get inspected are found to
    have apparent violations of the minimum standards under the Act and,
    therefore, follow-up visits are badly needed. We urge you to sustain
    Animal Welfare funding at the fiscal year 2003 appropriated level of
    $16.4 million, in order to keep the current number of inspectors
    (approximately 100 to oversee about 10,000 sites).

    APHIS/Horse Protection Enforcement
        Congress enacted the Horse Protection Act in 1970 to end the
    obvious cruelty of physically soring the feet and legs of show horses.
    In an effort to exaggerate the high-stepping gate of Tennessee Walking
    Horses, unscrupulous trainers use a variety of methods to inflict pain
    on sensitive areas of the feet and legs for the effect of the leg-jerk
    reaction that is popular among many in the show-horse industry. This
    cruel practice continues unabated by the well-intentioned but seriously
    understaffed APHIS inspection program. We appreciate the Committee's
    help providing modest increases to bring this program close to its
    authorized annual funding ceiling of $500,000, and hope you could
    approve an additional $7,000 in fiscal year 2004 to reach that mark. We
    also urge the Committee to oppose any effort to restrict USDA from
    enforcing this law to the maximum extent possible.
    Agricultural Research Service/Animal Welfare Information Center
        We appreciate the Committee's support for the Animal Welfare
    Information Center (AWIC), which helps ensure appropriate care for
    animals in research, and compliance with standards on minimizing pain
    and distress, preventing duplication of experiments, and reducing or
    replacing animals in research when possible. For fiscal year 2004, we
    hope you will sustain the gains made in recent years for AWIC's budget.

      NATIONAL SCHOOL LUNCH AND BREAKFAST PROGRAMS/FORCED MOLTING OF EGG-
                 LAYING HENS AND ACCESS TO NON-DAIRY BEVERAGES

        At the end of their production cycle, egg-laying hens in 75 percent
    of U.S. flocks are starved until they lose 35 percent of their body
    weight--typically for 5-14 days--in an effort to shock their systems
    into a new egg-laying cycle. Once placed back on feed, those hens who
    survive the starvation period will produce more and bigger eggs. Such
    ``forced molting'' is a threat to the health and safety of consumers,
    because eggs produced at facilities using this high-stress practice
    have a greatly increased incidence of Salmonella enteritidis (SE).
    Forced molting is a husbandry strategy that extends the productive life
    of those birds who survive, but it comes with severe consequences for
    the health of consumers and for animal welfare.
        Salmonella is the second most common food-borne illness in the
    United States (an estimated 500-1,000 people die from it annually). SE
    is the second most common Salmonella strain. Most SE infections are
    caused by the consumption of eggs. Starvation causes severe stress to
    hens and makes them highly susceptible to Salmonella infections.
    Research indicates that hens who have been force molted in this way
    shed significantly more SE bacteria than hens with access to food. Dr.
    Fred Angulo, the chief medical epidemiologist for food-borne diseases
    at the Centers for Disease Control and Prevention, has determined that
    outbreaks of SE in schools have been traced back to layer houses where
    hens were molted using starvation. In 1998, USDA's FSIS Director wrote
    that ``highly stressful forced molting practices . . . [f]or example,
    extended starvation and water deprivation practices, lead to increased
    shedding of Salmonella enteritidis (SE) by laying hens,'' and
    recommended that ``egg producers eliminate forced molting practices and
    adopt alternatives that reduce public health risks.''
        Intentionally starving a hen so that she loses 35 percent of her
    body weight is cruel. Almost every State anti-cruelty statute
    specifically bars the deliberate starvation of animals, but this
    standard is not typically enforced for routine animal husbandry.
    Alternative methods to forced molting, which are more humane, safer,
    and economically comparable, are available to the U.S. egg production
    industry. Major fast food companies, including McDonald's, Burger King,
    and Wendy's, have stopped buying eggs from farms that use forced
    molting. It is time for Congress to ensure that meals provided at
    public schools are at least as safe as fast food.
        Under the National School Lunch and Breakfast Programs, schools
    spent more than $14.2 million on fresh and raw eggs for food service
    during the 1996-97 school year, according to a USDA study (the number
    may well be higher now, since the breakfast program has greatly
    expanded since that time). With three-quarters of all flocks in the
    United States currently force molted, there is a very high risk that
    school children are being exposed to SE bacteria. In 2000, the USDA
    announced that it would no longer allow the use of downed animals in
    the school lunch program because it could not count on the safety of
    the meat. School districts incorporate Federal requirements (e.g., to
    comply with nutritional guidelines, ``Buy American'' laws, and health
    department inspections) in their detailed specifications for each food
    item contained in their contracts.
        We urge the Committee to include bill language barring the use of
    USDA funds under the National School Lunch and School Breakfast
    Programs for the purchase of eggs produced at facilities that force-
    molt hens through deprivation of food or water.
        One year ago, the Washington Post highlighted the injustices
    associated with prohibiting schools from offering federally-subsidized
    non-dairy beverages for students who cannot drink dairy milk for any
    number of health, ethical or religious reasons. Schools can offer
    alternatives to students who bring a doctor's note explaining why they
    need a non-dairy beverage. However, the majority of students who are
    lactose-intolerant are minority students--students who may not have
    access to the kind of health care that would provide them with a
    doctor's note for something as mundane as a lunch beverage.
    Additionally, according to a recent poll conducted by the Vegetarian
    Resource Group, 11 percent of children ages 8-17 in the United States
    are vegetarians. The nutrition publication, Nutrition News Focus,
    recently published an article stating ``Vegetarian children tend to be
    thinner than omnivorous kids and this is almost certainly good, since
    we are getting fatter as a nation and we are doing it earlier.'' It is
    unfair to force students who choose the healthful option of
    vegetarianism to go without a beverage simply because their ethics
    dictate they not drink dairy milk. The National School Lunch and
    Breakfast Programs should support a healthful diet for all students. We
    urge the Committee to include bill language to provide nutritious
    beverage options to dairy milk for students who either cannot or choose
    not to drink dairy milk.

        HOOP BARNS/LEOPOLD CENTER FOR SUSTAINABLE AGRICULTURE--$325,000

        The hoop barn is an emerging alternative for livestock production
    that offers many advantages to the factory farm system of animal
    housing. A typical hoop barn is shaped like a Quonset hut (a half
    cylinder lying on its flat side) and contains a deep bedding of straw
    or corn stalks. No individual cages confine the animals, and open ends,
    which can be closed if weather requires, allow access to pasture.
    Animals in hoop barns enjoy greater freedom of movement and have the
    opportunity to interact socially.
        Because they are not tightly confined in an overcrowded, high-
    stress environment, animals in hoop barns tend to be healthier than
    their counterparts in factory farms. That means farmers using hoop
    barns do not need to rely on antibiotics to prevent disease and promote
    growth, a common practice on factory farms that is contributing to the
    development of antibiotic-resistant strains of bacteria that threaten
    public health. Products from hoop producers are being sought out by
    meat suppliers and restaurants based on the enhanced flavor and texture
    characteristics of the meat. In addition, hoop barns are better for the
    environment, because they use solid manure composting rather than the
    liquid waste disposal systems used by factory farms, which jeopardize
    groundwater and produce noxious odors. Furthermore, they offer an
    affordable alternative for farmers. Hoop barns are approximately one-
    third the cost of conventional factory farm structures. They are easy
    to install and versatile (they can be used for different species or for
    storage of hay or equipment). This flexibility helps family farmers
    withstand fluctuations in market demand and avoid corporate buyouts.
        We appreciate the Committee's support in fiscal year 2003 for this
    promising technology. As a result of the Committee's action, Iowa's
    Leopold Center for Sustainable Agriculture--which is in the forefront
    of research and development on hoop barns--is expanding understanding
    and adoption of hooped structures as low-cost, humane, environmentally-
    friendly production housing systems for swine and other agricultural
    animals. The hoop research is promoting viable and timely production
    options for struggling small and medium sized farmers as well as
    helping to open new markets. We request your support for $325,000 in
    fiscal year 2004 for this ongoing project to make the benefits of hoop
    barns available on a wider scale.

                        HUMANE FARMING COMMISSION STUDY

        According to USDA, there are 9 billion animals slaughtered for food
    in the United States each year. Yet, other than the HMSA requiring that
    livestock be rendered unconscious before they are killed, there are no
    Federal laws regarding humane treatment of farm animals. The AWA does
    not cover livestock or poultry. At the State level, there is only one
    relevant law; Florida voters in 2002 banned the use of gestation crates
    for breeding sows. State anti-cruelty statutes either exempt farm
    animals or they are not traditionally applied to deal with routine or
    customary agricultural practices. Farm animal treatment is left almost
    entirely to industry norms and producer conscience.
        Most Americans would be surprised to learn that the government has
    nothing to say about practices such as intensive confinement that is so
    cramped the animals cannot turn around, deliberate starvation to force
    molting, and cutting off pigs' tails and chickens' beaks without any
    anesthesia in order to prevent them from attacking each other in these
    crowded and highly stressful conditions. In the absence of government
    regulation, such inhumane practices have become the norm for industrial
    agriculture in this country.
        Responding to public concern, some major companies that purchase
    large quantities of animal products--such as McDonald's, Burger King,
    and Wendy's--have begun requiring their suppliers to abandon certain
    inhumane practices. While welcome, these voluntary efforts by major
    restaurant chains are not sufficient. The need for humane treatment of
    farm animals warrants a consistent approach that will not put any
    individual company at a competitive disadvantage, nor will it force
    farmers to deal with piecemeal rules. It is time to explore Federal
    standards that can be accountable and enforceable.
        We recommend that a national commission be charged with examining
    the treatment of animals in commercial farming and making
    recommendations to Congress. Such a commission should include those
    with a range of perspectives, including scientists specializing in
    animal welfare, farmers (including sustainable agriculture
    practioners), religious leaders and ethicists, economists, and consumer
    representatives. We look forward to working with the Committee to
    develop this idea further.
        Again, we appreciate the opportunity to share our views and
    priorities for the Agriculture, Rural Development, Food and Drug
    Administration and Related Agencies Appropriation Act of fiscal year
    2004. We appreciate the Committee's past support, and hope you will be
    able to accommodate these modest requests to address some very pressing
    problems affecting millions of animals in the United States. Thank you
    for your consideration.
                                     ______

        Prepared Statement of the International Association of Fish and
                               Wildlife Agencies

                        USDA/APHIS--VETERINARY SERVICES

    Brucellosis
        The Association is concerned about the $1.4 Million reduction in
    the amount being requested for the Brucellosis Program in the fiscal
    year 2004 budget. While we understand some of this may be offset by the
    increase in the request for the Animal Health Monitoring and
    Surveillance Program budget--in essence the core infrastructure of
    APHIS-Veterinary Services--it will be problematic if the entire
    requested amount is not acted on favorably by Congress. The Association
    supports the $93.96 Million being requested for the Animal Health
    Monitoring and Surveillance Program.
        The Association also supports the request from the states of
    Montana, Idaho and Wyoming for $600,000 in the fiscal year 2004 USDA/
    APHIS/Veterinary Services, Program Diseases, Brucellosis Program
    budget, to enable those states to continue their participation in the
    Greater Yellowstone Interagency Brucellosis Committee (GYIBC). Like
    amounts ($600,000) have been included as Congressional add-ons in both
    fiscal year 2002 and fiscal year 2003. The GYIBC is working to
    coordinate federal, state and private actions involved in eliminating
    brucellosis from wildlife in the Greater Yellowstone Area and
    preventing transmission of brucellosis from wildlife to cattle. Given
    the priority for eradicating this disease, it would seem prudent that
    Veterinary Services include this amount in its base Brucellosis Program
    budget, rather than the States having to rely on Congressional add-ons
    to obtain relief. The Association recommends this amount ($600,000) be
    identified in the base budget for the Brucellosis Program beginning in
    fiscal year 2004 and beyond, until such time as eradication of the
    disease has been achieved.

    Chronic Wasting Disease
        The Association commends APHIS-Veterinary Services for taking
    actions to destroy and dispose of captive cervids exposed to chronic
    wasting disease (CWD) because these animals represent a tremendous risk
    to this country's wildlife resources. The Association supports the $15
    million request for funding to eliminate CWD from captive cervids and
    strongly encourages Veterinary Services to use a significant part of
    the funding to assist State wildlife management agencies with
    surveillance for CWD in free-ranging cervids, and to provide funding
    for research directed toward better diagnostic testing and increased
    knowledge of the epidemiology and epizootiology of CWD. However, this
    $15 Million is inadequate to effectively address management of this
    disease, and the Association urges an additional $10 Million be
    appropriated to CWD, with a total of $20 Million made available to the
    states for surveillance and management of free ranging deer and elk.
    The Association supports this role for Veterinary Services in the
    context that Veterinary Services and other USDA agencies remain mindful
    and respectful of state management authority over resident wildlife
    species. This will require constant coordination and cooperation with
    the State fish and wildlife agencies as this certification and control
    program is launched.

    Import/Export
        Exotic ticks may carry disease agents that could potentially
    devastate wildlife populations and therefore, prevention of their
    importation is essential. The Association supports the requested
    increase for a total of $12.4 Million in fiscal year 2004 funding in
    the Import/Export Program for inspection of imported reptiles and
    amphibians for exotic ticks, and further recommends that Veterinary
    Services work closely with the U.S. Fish and Wildlife Service in
    addressing this issue.

    Tuberculosis
        The Association supports the requested increase for a total of
    $15.1 Million in the fiscal year 2004 funding request in the
    Tuberculosis Program for the control of bovine tuberculosis, a
    continuation of an accelerated program begun in fiscal year 2001 to
    address inadequate national surveillance as it relates to international
    trade needs and enhanced tuberculosis testing, training and Mexican
    eradication efforts, with a goal of total eradication in domestic
    livestock by January, 2004. The Association recommends that APHIS-
    Veterinary Services work closely with, and provide financial support
    to, State fish and wildlife agencies involved in this activity. Funding
    should be provided to State fish and wildlife management agencies for
    TB surveillance, research, and control operations, and must be
    accompanied by close coordination and respect for State management
    authority over resident wildlife.

    Veterinary Diagnostics
        The Association recognizes that wildlife disease investigations
    often are dependent upon the USDA's animal disease resources for test
    reagents, consultations, and sample referrals, and commends APHIS for
    assistance with testing of free-ranging wildlife for diseases such as
    brucellosis, chronic wasting disease and bovine tuberculosis. The
    Association supports the requested budget of $21 Million in fiscal year
    2004 funding for increasing diagnostic capabilities at the Plum Island
    Animal Disease Diagnostics Laboratory in New York and at the National
    Veterinary Services Laboratories in Ames, Iowa.

                         USDA--APHIS WILDLIFE SERVICES

        Wildlife Services (WS), a unit of APHIS, is the Federal agency
    responsible for developing new methods for and managing wildlife damage
    to agriculture, aquaculture, forest, range, and other natural
    resources; for protecting public health and safety through cooperating
    with the State fish and wildlife agencies on the control of wildlife-
    borne diseases; and for managing wildlife hazards at airports. WS bases
    its activities on the principles of wildlife management and integrated
    damage management, and carries them out cooperatively with State fish
    and wildlife agencies. WS shares most of its operational costs with
    State and county governments, agricultural producers, and other
    cooperators.
        The cooperation and support of the agricultural community is
    essential to maintain wildlife populations because much of the nation's
    wildlife exists on private agricultural lands. A progressive wildlife
    damage management program that reduces the adverse impacts of wildlife
    is necessary to maintain the support of the agrarian community and to
    counter increasing pressures for indemnity due to wildlife damage.
        The International Association of Fish and Wildlife Agencies has
    worked closely with WS on numerous issues critical to the State fish
    and wildlife agencies, including those related to migratory birds,
    threatened, and endangered species. The Association commends the WS
    program for its professionalism and continuing effort to be attuned to
    the changing public values for the nation's wildlife, while remaining
    responsive to human/wildlife conflicts and emerging wildlife problems.
        A recent report by the General Accounting Office documented that
    wildlife damage throughout the United States is significant and
    increasing because of high wildlife populations. The Association is
    concerned that the Administration's proposal will decrease overall
    funding for WS activities. The President's fiscal year 2004 proposed
    budget for Methods Development is $13,647,000, a $1,228,000 decrease
    from the fiscal year 2003 level. For WS Operations, the proposed budget
    is $65,706,000, a $2,881,000 decrease from the fiscal year 2003 level.
    For Aquaculture, the proposed budget is $968,000, a decrease of
    $420,000 from the fiscal year 2003 level.
        With decreased funding for WS Methods Development, further
    advancements with nonlethal methods development will not occur at an
    acceptable level. Work to develop control methodology for cormorant and
    white pelican damage to catfish production in the mid-South will
    suffer. In addition, many of the current damage management tools such
    as traps, snares, and toxicants are becoming less acceptable to the
    public and many States are prohibiting their use because of public
    referendums. The only source of new methods is through research. We
    commend Congress for recognizing the need to increase funds to support
    maintenance and operations of the National Wildlife Research Center in
    Ft. Collins, Colorado, and seek further support to provide an
    additional $5,000,000 to the Methods Development line item to
    adequately fund nonlethal methods research, technology transfer in
    areas such as alternative predation management systems including
    immunocontraception, repellent and habitat management for birds, and
    information outreach for the public.
        With decreased funding for WS Operations, there will not be
    adequate funding to manage the threat that wildlife poses for
    transmitting various diseases to domestic livestock and people; the
    oral rabies vaccination program will not progress at an acceptable
    level; and efforts to develop a hazardous material accountability
    system as part of the WS Management Information System (MIS) and an
    emergency response system for-intentionally introduced wildlife
    diseases will curtail or cease altogether. WS continue to pass off
    shortfalls in funding to their cooperators--especially State and local
    cooperators which are not in a position to increase their cost-share in
    light of the financial shortfalls they currently face. The Association
    recommends that Congress provide an additional $4,250,000 to continue
    critical wildlife disease monitoring and surveillance activities, and
    also provide an additional $5,700,000 to continue the oral rabies
    vaccination program to stop the spread of rabies in coyotes, foxes,
    raccoons, and other wildlife.
        The Association is pleased that Congress provided $1,200,000 in
    fiscal year 2003 to address increasing wolf conflicts in Minnesota,
    Wisconsin, Michigan, Arizona, and New Mexico, and recommends continued
    support to provide adequate funding to manage increasing wolf
    populations across the county. The Association also supports the
    continuing request in the President's budget for Montana, Idaho and
    Wyoming.
        WS must continue implementation of their new Management Information
    Reporting System (MIS) to standardize reporting systems to provide
    specific information on resources protected, damage levels, trend
    information, and data on measurements and performance outcomes, and to
    comply with requirements of the National Environmental Policy Act. Most
    importantly, the MIS will allow WS to document wildlife disease
    monitoring and surveillance efforts and implement an integrated
    hazardous material accountability system. The Association recommends
    that Congress make $5,000,000 available in fiscal year 2004 ($4 million
    more than the President's request) to allow WS to continue
    implementation of the new MIS. The implementation will occur over a
    five-year period at a total cost of $8-10 million.
        The Association is pleased that Congress provided a $600,000
    increase in the fiscal year 2003 budget to expand the Berryman
    Institute for Wildlife Damage Management at Utah State University and
    Mississippi State University. The Association recommends that Congress
    continues to support the Berryman Institute by maintaining adequate
    funding levels in the future.

     COOPERATIVE STATE RESEARCH, EDUCATION, AND EXTENSION SERVICE (CSREES)
                         U.S. DEPARTMENT OF AGRICULTURE

        The Association recognizes that the research and educational
    programs of the CSREES and its Land Grant partners effect relevant,
    positive changes in attitudes and implementation of new technologies by
    private landowners, communities, decision-makers, and the public. This
    results in significant benefits to the Nation through development of a
    productive natural resource base in concert with agriculture. Since
    over two-thirds of our land is privately owned, it is appropriate that
    the CSREES-Land Grant System, with its grass roots credibility and
    delivery system, be adequately funded to transfer knowledge that helps
    all private landowners move towards sustainability. However, in the
    fiscal year 2003 budget proposal, we see little emphasis on natural
    resources research and education directed toward these clientele. In
    fact, the total number of farmers based on recent statistics is just
    slightly over one million--only one-tenth of all private landowners--
    and, the majority of CSREES' budget is directed toward production
    agriculture on these lands. Conversely, only $4.093 million is budgeted
    (out of a total of $1.015 billion) for the Renewable Resources
    Extension Act (RREA) which assists the over ten million private
    landowners who own and manage most of the nation's natural resources.
    The Association notes that this is the same amount appropriated for
    fiscal year 2003 with no increase in light of the vast workload. The
    Association is still seriously concerned that the amount ($4.093
    million) is so small as to be ineffective and we encourage
    Congressional consideration increasing the funding for RREA to better
    reflect the need to reach a higher percentage of all landowners.
        The Association strongly recommends that the Renewable Resources
    Extension Act be funded at $30 million in fiscal year 2004. The RREA
    funds, which are apportioned to State Extension Services, effectively
    leverage cooperative partnerships at an average of four to one, with a
    focus on development and dissemination of information needed by private
    landowners (in rural and urban settings). The increase to $30 million
    would enable the Extension System to accomplish the goals and
    objectives outlined in the 1991-1995 Report to Congress. The need for
    RREA educational programs is greater than ever today because of
    fragmentation of ownerships, urbanization, the diversity of landowners
    needing assistance, and increasing societal concerns about land use and
    its effect on soil, water, wildlife and other environmental factors. It
    is important to note that RREA has been reauthorized through 2002 and
    was originally authorized at $15 million annually; however, even though
    it has been proven to be effective in leveraging cooperative state and
    local funding, it has never been fully funded. The Association notes
    with appreciation that RREA was reauthorized in the 2002 Farm Bill and
    the authorized funding raised to $30 million. The increase to $30
    million in authorized funding is an empty-handed gesture unless
    followed by a corresponding increase in appropriations. An increase to
    $30 million would be a good-faith move in the right direction and
    enable the Extension Service to expand capability to assist more
    private landowners to improve management of additional land while
    increasing farm revenue.
        The Association strongly encourages that McIntire-Stennis Forestry
    Research funds be increased from the $21.884 million in the fiscal year
    2003 budget to a level of $25 million. These funds are essential to the
    future of resource management on non-industrial private forestlands.
    The rapid reduction in timber harvests from public lands bring expanded
    opportunities for small private forest owners to play an increasingly
    important role in the Nation's timber supply. In some places, these
    added opportunities are creating pressures and situations where timber
    harvest on private ownerships exceeds timber growth.
        The Association notes a level funding of $12.97 million in the
    budget for Water Quality Integrated Activities but believes that this
    amount is insufficient considering the growing public concern over
    water quality, particularly on agricultural landscapes and therefore
    the Association recommends the appropriation be increased to $20
    million. We are concerned that there is no line item budget for water
    quality specific to educational programs under Smith-Lever in Extension
    activities. The Association recommends a minimum of $3.5 million in
    Extension programs to focus on water quality education targeted at
    agricultural producers and other private landowners and managers. We
    believe that such program efforts are urgently needed to help these
    landowners learn how to address water quality degradation, which
    seriously affects drinking water, human health and fish and wildlife
    habitat. The Clean Water Act, TMDL's, Gulf of Mexico hypoxia and
    expanded animal feeding operation (AFOs) are just a few of the water
    quality issues that need to be addressed through Cooperative Extension
    efforts.
        The Association notes the $2.5 million included in Special Research
    Grants to fund Global Change/UV-B monitoring as well as that one of the
    three emphasis areas in Natural Resources and Environment is Global
    Change. This emphasis area and funding is appropriate in view of
    growing concern about the effect of the introduction of greenhouse
    gases into the atmosphere, addition of an Energy Title in the 2002 Farm
    Bill as well as recently initiated efforts to develop national policy
    regarding greenhouse gas emissions reporting. However, efforts to
    reduce or mitigate greenhouse gas emissions through carbon
    sequestration or other means shouldn't result in degradation of natural
    resources, including fish and wildlife, for which the public would have
    to pay separately and additionally to correct. The Association supports
    research funding to help define and/or address global climate change in
    ways that are compatible with conservation of all natural resources,
    including fish and wildlife.
        The Association notes with concern a reduction in National Research
    Initiative Competitive Grants funding from $240 million to $200
    million. It is important to note the great needs for creative and
    competitive grant programs to provide valuable new information to
    broaden approaches to land management, especially with integrated
    timber and wildlife management on private lands. There are few truly
    competitive programs in wildlife science and USDA NRI has a great
    opportunity to make a unique contribution with this type of program.
    This program will fund creative and new ideas in ways that ``formula''
    funding cannot. The Association supports funding at the fiscal year
    2003 level of $240 million.

                           FARM SERVICE AGENCY (FSA)

        An adequately funded budget for the FSA is essential to implement
    conservation related programs and provisions under FSA administration
    and/or in cooperation with the Natural Resources Conservation Service
    (NRCS) as a result of passage of the Farm Security and Rural Investment
    Act of 2002. The Association strongly advocates that the budget include
    sufficient personnel funding to service a very active program and
    strongly believes that the past erosion of staffing levels has been
    inconsistent with the demonstrated need of agricultural producers. The
    Association is deeply concerned that the reduced level of staffing
    (16,701 FTE) proposed by the Administration is far too low to
    adequately address the need.
        FSA programs have tremendous quantifiable impacts on natural
    resources, and yield substantial public as well as private benefits.
    Building on the provisions of present and past Farm Bills and as each
    program accomplishes the broadest possible range of natural resource
    objectives, the Association encourages close cooperation between FSA,
    NRCS and the State Technical Committees in implementing the 2002 Farm
    Bill.
        Conservation Reserve Program (CRP)--The continued administration of
    CRP is a very significant and valuable commitment of USDA and the FSA.
    The Association applauds FSA efforts to fund and extend CRP contracts
    for the multiple benefits that accrue to the public as well as the
    landowner. The Association provides special thanks to FSA for the
    continuous CRP sign-up of high value environmental practices and
    encourages additional program options (such as wildlife field borders)
    and/or incentives to ensure that enrolled acres deliver soil, water,
    wildlife and other natural resource benefits through the use of more
    wildlife friendly cover as the CRP general sign-up has delivered.
        The commitment of FSA to provide high wildlife benefits in CRP
    contracts has been obvious since the advent of the Environmental
    Benefits Index (EBI) in the 15th sign-up. The Association applauds FSA
    in those efforts with their special emphasis on native grasses,
    endangered species and enlightened pine planting and management and
    urge that strong emphasis on the establishment and management of
    wildlife friendly cover be continued and where possible strengthened.
    Recurring management is essential to ensure continuation of soil, water
    and wildlife benefits throughout the life of the CRP contract. The
    ``up-to-$5/acre'' maintenance payment presently included in CRP
    contracts tends to be viewed by many landowners as additional rental
    payment, whether any maintenance or management is applied or not.
    Therefore, it makes sense that needed recurring management (for
    wildlife purposes) or maintenance measures (to control noxious weeds,
    etc.) be secured when necessary and landowners compensated only when
    actual management/maintenance is applied. The Association encourages
    FSA to develop necessary programmatic mechanisms as well as
    reimbursement to CRP participants for the added cost, to ensure that
    recurring management be performed when needed to manage succession in
    order to continue wildlife benefits throughout the contract period.

                 NATURAL RESOURCES CONSERVATION SERVICE (NRCS)

        The Natural Resources Conservation Service has immense
    responsibilities for implementing the conservation provisions of the
    1985 Food Security Act (FSA), the 1990 Food, Agriculture, Conservation
    and Trade (FACT) Act, the Federal Agricultural Improvement and Reform
    (FAIR) Act of 1996 and the Farm Security and Rural Investment Act of
    2002.
        The 2002 Farm Bill signed into law by the President May 13, 2002
    represents the single largest investment in conservation ever
    authorized in a Farm Bill and includes reauthorized and new programs to
    help the Nation's agricultural producers achieve conservation of
    natural resources in concert with production of food and fiber.
    Specifically, programs were reauthorized as follows: The Conservation
    Reserve Program (CRP)--39.2 million enrollment cap; the Wetland Reserve
    Program (WRP)--enrollment cap of 2.275 million acres (up to 250,000
    acres new enrollment per year); the Wildlife Habitat Incentives Program
    (WHIP)--at $360 million through 2007 ($60 million in fiscal year 2004);
    the Environmental Quality Incentives Program (EQIP)--at $5.8 billion
    through 2007 ($1 billion in fiscal year 2004); and, the Farmland
    Protection Program (FPP)--at $597 million through 2007 ($125 million in
    fiscal year 2004). In addition, the following programs were created:
    The Grassland Reserve Program (GRP) with a 2 million acre cap; the
    Forest Land Enhancement Program (FLEP) with $100 million through 2007;
    and, the Conservation Security Program (CSP) at $2 billion based on the
    10 year score of the 2002 Farm Bill. The Association strongly
    encourages Congress to provide annual funding for these conservation
    programs at the full levels authorized in the 2002 Farm Bill.
        With approximately 50 percent of the land in the United States in
    agricultural production, conservation is inextricably linked with
    agriculture and, therefore, the importance of USDA conservation
    programs cannot be overemphasized. These programs are particularly
    important in that many species of wildlife reside on agricultural
    landscapes with nowhere else to go and must survive there if they are
    to survive at all.
        Collectively, the 2002 Farm Bill effectively expands conservation
    opportunities provided in the 1985, 1990 and 1996 Farm Bills. Servicing
    landowner requests for these programs will require technical assistance
    well beyond levels provided by NRCS in times past. Whether technical
    assistance is provided by NRCS staff or non-federal technical service
    providers, it will take adequate funding to get the job done. The
    Association supports the use of an equitable portion of authorized
    funding from those programs that have enrollment authorizations
    expressed in dollars.
        However, in the NRCS fiscal year 2004 Budget Request, it appears
    the funding request for some programs (CCC mandatory funding) have been
    reduced in widely varying and inequitable amounts in order to create
    the Farm Bill Technical Assistance account on the discretionary funding
    side. For example, the EQIP budget request for fiscal year 2004 is
    shown as $850 million when the authorized fiscal year 2004 level is $1
    billion. The difference is $150 million, or 15 percent of EQIP funding,
    which is proposed to transfer to help fund the Farm Bill Technical
    Assistance Account. Similarly, the fiscal year 2004 budget request for
    WHIP is shown as $42 million when the authorized fiscal year 2004
    funding level is $60 million. The difference is $18 million, or 30
    percent of WHIP funding, which is proposed for transfer to the Farm
    Bill Technical Assistance Account. The Association is strongly
    concerned about this inequity, particularly since WHIP funding is more
    limited than most other Farm Bill conservation programs and the
    historic percentage of WHIP funds used for technical assistance has
    been much less than 30 percent.
        Further, the fiscal year 2004 funding request for WRP is 200,000
    acres although Congress authorized a 250,000 acre per year enrollment.
    Presumably, although it isn't clear in the budget request, the 50,000
    acre difference (between authorized and requested enrollment authority)
    reflects the cost of WRP technical assistance. If so, this appears
    inequitable and illogical. First, the 20 percent reduction reflects
    transfer to the Farm Bill Technical Assistance Account compared with a
    15 percent transfer of EQIP funding. Second, and much more importantly,
    the WRP enrollment authority is expressed in acres (like CRP) rather
    than dollars as is the case with EQIP, WHIP and many of the other Farm
    Bill conservation programs. The Association believes that this is
    contrary to the intent of the Farm Bill, so recently passed by Congress
    and signed into law by the President. The NRCS budget should reflect
    the full authorized 250,000 acres for WRP and NRCS should request
    technical assistance funding request based on that enrollment level.
    This is particularly important in that WRP is one of the most popular
    of Farm Bill conservation programs and demand has consistently exceeded
    enrollment authority. In fact the NRCS fiscal year 2004 budget request
    confirms this with the statement that ``even with the authority to
    enroll 250,000 acres in the program, demand for the program exceeded
    the annual acreage allocation.''
        The Grassland Reserve Program (GRP) presents great opportunity to
    provide agricultural producers with an economic alternative to
    conversion of dwindling native prairie to other uses. GRP should enable
    producers to keep irreplaceable prairie in forage production, a use to
    which these lands have historically been so well suited. The
    Association supports the $85 million in the fiscal year 2004 budget
    request to fund GRP and encourages NRCS to put development of the Rule
    for this promising program on the fast track so that the program can be
    effectively implemented as early in fiscal year 2004 as possible.
        In these times of compelling conservation need, many State fish and
    wildlife agencies are contributing staff time to help NRCS field
    offices service fish and wildlife aspects of USDA assistance to
    landowners. Such partnerships help NRCS deliver specialized technical
    expertise to private landowners at less cost than adding NRCS staff
    with such expertise. The 2002 Farm Bill contains third party vendor
    aspects to allow USDA to contract with State fish and wildlife agencies
    to provide fish and wildlife expertise more inexpensively and
    effectively than could be provided by adding NRCS staff to fill the
    discipline need. And, importantly, State fish and wildlife agencies
    have state-level authority for fish and wildlife resources of the state
    and are, therefore, in an excellent position to help service related
    aspects of Farm Bill programs. The Association strongly encourages the
    Administration and Congress to emphasize partnering arrangements
    between NRCS and State fish and wildlife agencies and others that
    result in cost-efficiencies. The Association also encourages the
    Administration to develop a third party vendor certification system
    that fully recognizes the technical expertise and management authority
    under state law of State fish and wildlife agencies.
                                     ______

            Prepared Statement of the InterTribal Bison Cooperative

                          INTRODUCTION AND BACKGROUND

        My name is Ervin Carlson, a Tribal Council member of the Blackfeet
    Tribe of Montana and President of the InterTribal Bison Cooperative.
    Please accept my sincere appreciation for this opportunity to submit
    testimony to the honorable members of the Department of Agriculture
    Appropriations Sub-Committee. The InterTribal Bison Cooperative (ITBC)
    is a Native American non-profit organization, headquartered in Rapid
    City, South Dakota, comprised of 51 Federally recognized Indian Tribes
    located within 17 States across the United States.
        Buffalo thrived in abundance on the plains of the United States for
    many centuries before they were hunted to near extinction in the 1800s.
    During this period of history, buffalo were critical to survival of the
    American Indian. Buffalo provided food, shelter, clothing and essential
    tools for Indian people and insured continuance of their subsistence
    way of life. Naturally, Indian people developed a strong spiritual and
    cultural respect for buffalo that has not diminished with the passage
    of time.
        Numerous tribes that were committed to preserving the sacred
    relationship between Indian people and buffalo established the ITBC as
    an effort to restore buffalo to Indian lands. ITBC focused upon raising
    buffalo on Indian Reservation lands that did not sustain other economic
    or agricultural projects. Significant portions of Indian Reservations
    consist of poor quality lands for farming or raising livestock.
    However, these wholly unproductive Reservation lands were and still are
    suitable for buffalo. ITBC began actively restoring buffalo to Indian
    lands after receiving funding in 1992 as an initiative of the Bush
    Administration.
        Upon the successful restoration of buffalo to Indian lands,
    opportunities arose for Tribes to utilize buffalo for tribal economic
    development efforts. ITBC is now focused on efforts to assure that
    tribal buffalo projects are economically sustainable. Federal
    appropriations have allowed ITBC to successfully restore buffalo the
    tribal lands, thereby preserving the sacred relationship between Indian
    people and buffalo. The respect that Indian tribes have maintained for
    buffalo has fostered a serious commitment by ITBC member Tribes for
    successful buffalo herd development. The successful promotion of
    buffalo as a healthy food source will allow Tribes to utilize a
    culturally relevant resource as a means to achieve self-sufficiency.

    Amended Language Request to Food Stamp Act
        The InterTribal Bison Cooperative respectfully requests an
    amendment to the Department of Agriculture's Food Stamp Act to increase
    the earmark for purchase of buffalo from the current fiscal year 2003
    amount of $3,000,000 to $10,000,000. Specifically, ITBC requests the
    following amended language to the Food Stamp Act:
        For necessary expenses to carry out the Food Stamp Act (7 U.S.C.
    2011 et seq.), $26,289.692,000, of which $2,000,000,000 shall be placed
    in reserve for use only in such amounts and at such times as may become
    necessary to carry out program operations: Provided, That of the funds
    made available under this heading and not already appropriated to the
    Food Distribution Program on Indian Reservations (FDPIR) established
    under section 4(b) of the Food Stamp Act of 1977 (7 U.S.C. 2013 (b)),
    not to exceed $10,000,000 shall be used to purchase bison and/or bison
    meat for the FDPIR and other food programs on the reservations, with
    one-half purchased from Native American bison producers and one half
    purchased from producer owned cooperatives or bison ranchers. Provided
    further, That all bison purchased shall be labeled according to origin
    and the quality of cuts in each package. Provided further, That the
    Secretary of Agriculture shall make every effort to enter into a
    service contract, with an American Indian Tribe, Tribal company, or an
    Inter Tribal organization, for the processing of the buffalo meat to be
    acquired from Native American producers. Provided further, That funds
    provided herein shall be expended in accordance with section 16 of the
    Food Stamp Act; Provided further, That this appropriation shall be
    subject to any work registration or workfare requirements as may be
    required by law: Provided further, That funds made available for
    Employment and Training under this heading shall remain available until
    expended, as authorized by section 16(h)(1) of the Food Stamp Act.

    Preventative Health Care Initiative
        The Native American Indian population currently suffers from the
    highest rates of Type 2 diabetes. The Indian population further suffers
    from high rates of cardio vascular disease and various other diet
    related diseases. Studies indicate that Type 2 diabetes commonly
    emerges when a population undergoes radical diet changes. Native
    Americans have been forced to abandon traditional diets rich in wild
    game, buffalo and plants and now have diets similar in composition to
    average American diets. More studies are needed on the traditional
    diets of Native Americans versus their modern day diets in relation to
    diabetes rates. However, based upon the current data available, it is
    safe to assume that disease rates of Native Americans are directly
    impacted by a genetic inability to effectively metabolize modern foods.
    More specifically, it is well accepted that the changing diet of
    Indians is a major factor in the diabetes epidemic in Indian Country.
        Approximately 65-70 percent of Indians living on Indian
    Reservations receive foods provided by the USDA Food Distribution
    Program on Indian Reservations (FDPIR) or from the USDA Food Stamp
    Program. The FDPIR food package is composed of approximately 58 percent
    carbohydrates, 14 percent proteins and 28 percent fats. Indians
    utilizing Food Stamps generally select a grain based diet and poorer
    quality protein sources such as high fat meats based upon economic
    reasons and the unavailability of higher quality protein sources.
        Buffalo meat is low in fat and cholesterol and is compatible to the
    genetics of Indian people. ITBC intends to promote buffalo meat on
    Indian Reservations as a healthy source of protein. First, ITBC is
    developing a preventative health care initiative to educate Indian
    families of the health benefits of buffalo meat. ITBC believes that
    incorporating buffalo meat into the FDPIR program will provide a
    significant positive impact on the diets of Indian people living on
    Indian Reservations. Further, ITBC is exploring methods to make small
    quantities of buffalo meat available for purchase in Reservation
    grocery stores. A healthy diet for Indian people that results in a
    lower incidence of diabetes will reduce Indian Reservation health care
    costs and result in a savings for taxpayers.

    ITBC Goals and Initiatives
        In addition to developing a preventative health care initiative,
    ITBC intends to continue with its buffalo restoration efforts and its
    Tribal buffalo marketing initiative.
        In 1991, seven Indian Tribes had small buffalo herds, with a
    combined total of 1,500 animals. The herds were not utilized for
    economic development but were often maintained as wildlife only. During
    ITBC's relatively short 10-year tenure, it has been highly successful
    at developing existing buffalo herds and restoring buffalo to Indian
    lands that had no buffalo prior to 1991. Today, through the efforts of
    ITBC, over 35 Indian Tribes are engaged in raising over 15,000 buffalo.
    All buffalo operations are owned and managed by Tribes and many
    programs are close to achieving self-sufficiency and profit generation.
    ITBC's technical assistance is critical to ensure that the current
    Tribal buffalo projects gain self-sufficiency and become profit-
    generating. Further, ITBC's assistance is critical to those Tribes
    seeking to start a buffalo restoration effort.
        Through the efforts of ITBC, a new industry has developed on Indian
    reservations utilizing a culturally relevant resource. Hundreds of new
    jobs directly and indirectly revolving around the buffalo industry have
    been created. Tribal economies have benefited from the thousands of
    dollars generated and circulated on Indian Reservations.
        ITBC has also been strategizing to overcome marketing obstacles for
    Tribally raised buffalo. ITBC is presently assisting the Assiniboine
    and Gros Ventre Tribes of the Fort Belknap Reservation, who recently
    purchased an USDA approved meat-processing plant, with a coordination
    scheme to accommodate the processing of range-fed Tribally raised
    buffalo.

    Conclusion
        ITBC has proven highly successful since its establishment to
    restore buffalo to Indian Reservation lands to revive and protect the
    sacred relationship between buffalo and Indian Tribes. Further, ITBC
    has successfully promoted the utilization of a culturally significant
    resource for viable economic development.
        ITBC has assisted Tribes with the creation of new jobs, on-the-job
    training and job growth in the buffalo industry resulting in the
    generation of new money for Tribal economies. ITBC is also actively
    developing strategies for marketing Tribally owned buffalo. Finally,
    and most critically for Tribal populations, ITBC is developing a
    preventive health care initiative to utilize buffalo meat as a healthy
    addition to Tribal family diets.
        ITBC strongly urges you to support its request for the amended
    language as specifically provided above to the Food Stamp Act to allow
    $10,000,000 for the purchase of buffalo and buffalo meat and for half
    that amount to be specifically designated for the purchase of Native
    American produced buffalo and buffalo meat.
                                     ______

            Prepared Statement of the Lummi Indian Business Council

        My name is Darrell Hillaire, Chairman of the Lummi Nation. The
    Lummi Nation is located on the northern coastline of Washington State,
    and is the third largest tribe in Washington State serving a population
    of over 5,200. On behalf of the Lummi Nation I want to thank you and
    the members of the Committee for accepting this written testimony and
    allowing the Lummi Nation the opportunity to express our concerns and
    requests regarding the fiscal year 2004 Budget for Rural Development
    Programs within the Department of Agriculture.
    $1 Million from the Rural Business Development Program
        The fisheries disasters beginning in 1999, continuing in 2000 and
    re-occurring in 2001 has literally bankrupted all of the small business
    owners of the Lummi Nation. This economic disaster has impacted over
    700 fishers and 2,000 members of the Lummi Nation. This number
    represents nearly 50 percent of the total Lummi Nation population. The
    decline in the fisheries resource has subsequently been validated and
    declared by the Department of Commerce and Related Agencies as an,
    economic disaster' under the Magnuson-Stevens Act. In order to re-
    establish the private business sector of the Lummi Nation, the economy
    needs the assistance identified below on an emergency basis:

    Retail Facilities
        The Lummi Nation needs financial assistance to support the
    development of retail facilities on the Lummi Reservation. Retail
    facilities will support business development on the reservation and
    will employ both Tribal and non-Tribal residents. The Lummi Nation has
    provided some of its unemployed fishers with business development
    training. We were able to secure funding to provide adult and
    vocational training to our members at the Northwest Indian Community
    College and they have prepared 50 business plans in varying stages of
    readiness for financing.

    ----------------------------------------------------------------------------------------------------------------
                     Budget Period                       2004            2005                     2006
    ----------------------------------------------------------------------------------------------------------------
    Funding Amount................................        $500,000      $2,000,000  $140,000
    Project Activity..............................        Planning    Construction  Operations Implementation
    ----------------------------------------------------------------------------------------------------------------

    Commercial Processing Facilities
        The Lummi Nation needs financial assistance to support the
    development of commercial facilities on the Reservation to support
    finfish and shellfish processing from harvesters into retail products
    and to transport these products to markets within the contracted
    timeframes. The Lummi Nation will seek to contract with an established
    seafood processing companies to consult with during the design and
    construction phase, as well as operate the facility profitably under a
    lease agreement.

    ----------------------------------------------------------------------------------------------------------------
                     Budget Period                       2004            2005                     2006
    ----------------------------------------------------------------------------------------------------------------
    Funding Amount................................       $500,000.     $5,000,000.  $300,000.
    Project Activity..............................        Planning    Construction  Operations Support
    ----------------------------------------------------------------------------------------------------------------

    $500,000 from the USDA Indian Water Program
        The Lummi Nation is seeking funding to support the cost of
    construction for the expansion of the Tribal infrastructure, which
    includes water and wastewater treatment systems for community
    development purposes. The Tribe has already begun planning and design
    efforts for a ``Kwina Village'' concept, which includes a new Tribal
    College campus, a Drug Treatment Center and a new Tribal Government
    facility. Funding is needed to upgrade, replace and develop Tribal
    infrastructure systems to accommodate Kwina Village development.

    ----------------------------------------------------------------------------------------------------------------
                    Budget Period                      2004              2005                      2006
    ----------------------------------------------------------------------------------------------------------------
    Funding Amount..............................      $2,000,000           $220,000  $180,000
    Project Activity............................    Construction     Implementation  Operations
    ----------------------------------------------------------------------------------------------------------------

        Thank you for this opportunity and we hope that the Committee will
    find the request of the Lummi Nation a viable one.
                                     ______

        Prepared Statement of the National Association of Conservation
                                   Districts

        The National Association of Conservation Districts is the
    nonprofit, nongovernment organization that represents the nation's
    3,000 conservation districts and more than 16,000 men and women who
    serve on their governing boards. Established under state law,
    conservation districts are local units of state government charged with
    carrying out programs for the protection and management of natural
    resources at the local level. They work with nearly two-and-half
    million cooperating landowners and operators--many of them farmers and
    ranchers--to provide technical and other assistance to help them manage
    and protect private land in the United States. In carrying out their
    mission to coordinate and carry out all levels of conservation
    programs, districts work closely with USDA's Natural Resources
    Conservation Service (NRCS) through its Conservation Technical
    Assistance Program (CTAP) to provide the technical and other help
    farmers and ranchers need to plan and apply complex conservation
    practices, measures and systems.
        The partnership of conservation districts, state conservation
    agencies and NRCS provides farmers and ranchers with critical help in
    protecting and improving the quantity and quality of our soil and water
    resources while meeting both domestic and international food and fiber
    needs. America's agricultural producers provide many benefits to our
    citizens including clean water and air, fish and wildlife habitat and
    open space. Many of the conservation practices producers apply on their
    land also take carbon out of the atmosphere and store it in the soil,
    providing a hedge against global climate change. As stewards of the
    nation's working lands, farmers and ranchers manage the vast majority
    of America's private lands and provide tremendous environmental
    benefits to the country.
        On behalf of America's conservation districts, I am pleased to
    provide our recommendations on selected conservation programs carried
    out through the U.S. Department of Agriculture, especially those of the
    Natural Resources Conservation Service.

    Conservation Operations--Conservation Technical Assistance Program
        The heart of the agency's private lands conservation assistance
    delivery system is its Conservation Operations (CO) account. Through
    the CO Conservation Technical Assistance Program (CTAP), NRCS provides
    direct assistance to private landowners and operators and others to
    address myriad natural resource concerns such as soil erosion control,
    water and air quality protection and improvement, wetlands and wildlife
    habitat conservation, forestry management, grazing land improvement and
    other resource concerns. Requests for such assistance grow each year
    and far outstrip the ability of the agency to meet the demand. Data
    collected over the past several years continue to show a shortfall of
    several thousand staff years at the field level. Conservation districts
    recommendation for the NRCS Conservation Technical Assistance Program
    for fiscal year 2004 is for a total of $731.000 million, an increase of
    approximately $35 million, or 5 percent over the fiscal year 2003
    level. We believe it is critical that this basic and essential program
    be strengthened to help landowners and operators address the nation's
    natural resource non-Farm Bill needs on private working lands.
        The President's budget request for fiscal year 2004 includes a
    proposal to establish a separate Farm Bill Technical Assistance
    account, which would be funded by transferring $154 million from the
    NRCS CO account, as well as transfers of Commodity Credit Corporation
    (CCC) funds and other offsets. We have argued consistently since
    enactment of the 2002 Farm Bill that Congress intended for the seven
    programs authorized in Sec. 1241(a) of Title XII of the Food Security
    Act of 1985 to fully fund technical assistance from their CCC accounts.
    We have further argued that, since at best the new Farm Bill's working
    agricultural lands conservation programs will reach less than 25
    percent of the nation's agricultural lands, and an even smaller
    percentage of the nation's farms and ranches, the NRCS CO account
    should be intended to service basic technical assistance needs of
    producers who do not participate in the Farm Bill programs.
        Congress rejected a similar Farm Bill Technical Assistance account
    proposal in its fiscal year 2003 appropriations bill for USDA and we
    urge you to do so again. We strongly support having each of the seven
    section 1241(a) programs pay for its own technical assistance,
    including CRP and WRP, and that funds for that purpose are not subject
    to the CCC section 11 cap. We also urge you to again adopt language in
    the fiscal year 2004 appropriations bill stating that CO funds cannot
    be used to provide technical assistance with respect to programs listed
    in section 1241(a).

    Conservation Operations--Conservation of Private Grazing Lands
        In addition to the base Conservation Technical Assistance Program,
    conservation districts support full funding for the NRCS Conservation
    of Private Grazing Lands provision, authorized at $60 million annually.
    Resource problems such as brush, weeds and accelerated water or wind
    erosion threaten the capacity of nearly 300 million acres--more than 50
    percent--of these lands to satisfy production needs and meet natural
    resource values. Working with partners such as the National Grazing
    Lands Conservation Initiative, conservation districts and their
    partners have determined that at least $60 million is needed to fund
    the CPGL program. This amount represents a $36.5 million, or 5 percent,
    increase relative to fiscal year 2003 CTAP spending and will allow us
    to begin reversing the negative trends that affect both production and
    environmental concerns on these lands.
        In addition technical assistance needs, currently more than 45
    percent of the nation's rangelands lack an adequate soil survey.
    Approximately 80 percent of the same lands need inventory and
    classification of their vegetation. Such information is essential to
    planning and implementing coordinated resource management programs,
    monitoring rangeland status and dealing with resource issues such as
    noxious weeds, wildfire and endangered species.
        NRCS is currently partnering with the Forest Service and USDI's
    Bureau of Land Management to develop a common interagency ecological
    framework for rangelands. The framework will provide improved
    efficiencies in rangeland inventory, facilitate interagency
    coordination, provide an essential base for monitoring, and provide all
    parties interested in rangelands a basis for a common understanding of
    their needs. Conservation districts urge Congress to direct the
    Secretaries of Agriculture and Interior to establish an interagency
    committee to develop a National Cooperative Rangeland Survey to address
    rangeland assessment and monitoring issues, provide adequate funding
    for those purposes and encourage the secretaries to cooperatively take
    actions necessary to develop and implement a 10-year plan for
    completion of a survey/ecological classification and a National
    Periodic Rangeland Survey. We recommend that $3 million be provided to
    NRCS for its share of the activities described above.
        The Conservation Operations account includes other important
    components that include snow survey and water forecasting activities;
    establishment and operation of plant materials centers; and conducting
    the cooperative soil survey program. Specific recommendations for those
    activities are: snow survey--$10 million; plant materials center--$15
    million; and soil surveys: $91 million.

    Watershed Protection
        Through its Watershed Protection and Flood Prevention, Watershed
    Surveys and Planning, Watershed Rehabilitation Program and Emergency
    Watershed Program, NRCS partners with states, local units of
    government, tribes and other sponsor organizations to address many
    natural resource issues on a watershed basis. More than 2,000 plans,
    covering 160 million acres in watersheds across the country, have been
    completed or are under development. The purposes of watershed projects
    include watershed protection, flood prevention, water quality
    improvements, soil erosion reduction, water supply, irrigation water
    management, fish and wildlife habitat enhancement and wetland
    protection and restoration. Technical and financial assistance are
    provided in cooperation with local sponsoring organizations and state
    and other sponsoring public agencies to voluntarily plan and install
    watershed-based projects on private lands.
        In addition to planning new and meeting existing project needs,
    many of the more than 10,000 existing structures built over the past 50
    years through the cooperative watershed programs are nearing the ends
    of their life spans and no longer meet current dam safety or other
    standards. These structures now need to be upgraded, repaired or
    decommissioned to address watershed needs of today and the future.
        NRCS's Emergency Watershed Program provides cost-share and
    technical assistance to help landowners and operators and other
    cooperators restore damage from floods, storms and other natural
    disasters.
        The President's requests of $40 million for the Watershed
    Protection and Flood Prevention Program, $5 million for Watershed
    Surveys and Planning, and $10 million for Watershed Rehabilitation fall
    far short of the need. NACD and its partner, the National Watershed
    Coalition, document an immediate need and ability to effectively
    utilize $190 million, $35 million and $45 million, respectively, for
    these programs that address important watershed-based public health and
    safety issues across the nation and we urge you to make these funds
    available.
        Conservation districts also urge you to fund the NRCS Emergency
    Watershed Program at $110 million in fiscal year 2004 as an important
    step toward creating a separate, stand-alone account for helping
    landowners and operators respond to flooding and other emergencies.

    Resource Conservation and Development (RC&D) Program
        NRCS's Resource Conservation and Development (RC&D) Program helps
    improve the capability of state, tribal and local units of government
    and local nonprofit organizations in rural areas to plan, develop and
    carry out programs to advance quality of life through natural resources
    conservation and community development. The overall goal of the RC&D
    Program is to help communities achieve sustainable development through
    prudent use, management and conservation of natural resources. The Farm
    Security and Rural Investment Act of 2002 (Farm Bill) permanently
    authorized the RC&D Program and increased the number of authorized
    areas to 450.
        RC&D Councils play an important role in rural development and
    natural resource conservation. USDA has indicated that it takes
    $161,000 to fully support an RC&D council. There are 368 existing
    councils and 20 pending applications. Conservation districts recommend
    that Congress appropriate $69.2 million to fully support the existing
    councils and additional applicant areas up to the authorized limit.

    Rural Abandoned Mine Program (RAMP)
        Through its Rural Abandoned Mine Program (RAMP), NRCS addresses
    health, safety and environmental hazards created by abandoned mine
    lands in rural areas, which affect half of the 50 states. Although the
    Abandoned Mine Reclamation Fund (AMRF) is intended to fund these
    reclamation activities by providing a portion of the collected fees to
    be transferred from the Interior Department to RAMP, the program has
    received no funding for the past seven years.
        A portion of the funds from the Abandoned Mine Reclamation Fund is
    intended to be transferred to NRCS to help defray the costs associated
    with mineland reclamation activities. Although the portion of the fees
    collected by the AMRF targeted for RAMP stands at more than $250
    million, no funds have been transferred in the past six years.
    Conservation districts recommend transferring $25 million from the AMRF
    to the NRCS RAMP account in fiscal year 2004.
        Additional recommendations for USDA's discretionary-funded private
    lands conservation programs are contained in the attached chart.
    Mandatory Programs
        In 1985, Congress recognized the important role that farmers and
    ranchers play in environmental protection when it enacted the first
    Farm Bill conservation title that required producers to incorporate
    conservation into their operations if they wanted to continue receiving
    USDA farm program benefits. The title also included a land retirement
    program--the Conservation Reserve Program (CRP)--to give farmers
    financial incentives to take sensitive lands out of production. In
    subsequent Farm Bills and other statutes, lawmakers added more
    incentives programs--the Wetlands Reserve Program (WRP), Environmental
    Quality Incentives Program (EQIP), Farmland Protection Program (FPP),
    Wildlife Habitat Incentives Program (WHIP) and Agricultural Management
    Assistance (AMA) Program--to provide additional incentives to increase
    conservation.
        The Farm Security and Rural Investment Act of 2002 enacted sweeping
    legislation that extended the above Farm Bill conservation programs,
    added several new initiatives, including the Conservation Security
    Program (CSP), Grassland Reserve Program (GRP) and Forest Land
    Enhancement Program (FLEP). It also dramatically increased funding for
    conservation through the Commodity Credit Corporation (CCC) by 80
    percent over current levels. In addition to the new and expanded
    program initiatives, the six-year bill provided that all of the
    ``mandatory'' conservation programs would pay for their own technical
    assistance needs from within their own CCC program accounts.
        As noted earlier, the fiscal year agriculture component of the
    fiscal year 2003 omnibus appropriations bill clarified this by amending
    the Farm Bill to very specifically state this intent. However, the bill
    provided that technical assistance funding for the WRP and CRP would
    have to come from the CCC accounts of EQIP, FRPP, WHIP, the CSP and
    GRP. Conservation districts urge Congress to correct this oversight by
    amending the statute to allow WRP and CRP to pay their own technical
    assistance costs.
        With respect to the CSP, this new program presents an extraordinary
    opportunity to increase conservation on private working lands. In
    contrast to the other, more targeted programs, all producers and all
    working the CSP are eligible to participate. This innovative program
    provides varying levels of cost-share and incentive payments to
    producers who install and/or maintain conservation practices and
    systems with higher levels of conservation qualifying for higher levels
    of payments. Conservation districts worked hard to help craft this
    program and ensure its passage in the Farm Bill and support the CSP as
    an entitlement with no cap on its cost, as written in the 2002 law. The
    2003 appropriations law, however, capped the program at $3.7 billion
    over a 10-year period, which we believe seriously limits its ability to
    achieve much more significant conservation gains during that span. We
    strongly urge Congress to lift this restriction and allow the CSP to
    realize its true potential.
        Other conservation programs addressed in the Farm Bill include
    increasing CCC funding for the Agricultural Management Assistance (AMA)
    Program, which provides EQIP-type assistance in states traditionally
    underserved by Farm Bill programs, and providing additional CCC funding
    for the Small Watershed Rehabilitation Program.
        Conservation districts were strong supporters of the Farm Bill
    conservation programs and played a key role in their development and
    enactment. They also have significant roles in their implementation,
    among other roles, approving conservation plans, identifying local
    resource concerns, priorities and objectives, and coordinating
    community input into programs. In order to fully attain the public
    benefits the American want and expect from these key private lands
    conservation programs, we urge you to allow for their full funding in
    fiscal year 2004 as detailed in the attached chart.

    Conclusion
        As you continue your work on providing funding for critical NRCS
    programs, we again urge you to keep in mind that NRCS is the only
    Federal agency whose primary role is to provide conservation assistance
    on the nation's private lands. There are a few other agencies with
    narrowly targeted purposes, but no other agency even comes as close to
    touching all of America's private working lands as do NRCS and
    conservation districts. It is critical, therefore, that we strengthen
    the nation's commitment to providing adequate resources to help land
    managers conserve and protect natural resources on these lands.
        On behalf of the nation's 3,000 conservation districts, we
    appreciate the opportunity to provide our views on fiscal year 2004
    funding recommendations for select USDA conservation programs. We look
    forward to working with you over the next few months in finalizing your
    proposals.
                                     ______

    Prepared Statement of the National Association of Professional Forestry
                         Schools and Colleges (NAPFSC)

        The National Association of Professional Forestry Schools and
    Colleges (NAPFSC) is comprised of the 69 universities that conduct the
    Nation's research, teaching, and extension programs in forestry and
    related areas of environmental and natural resource management. NAPFSC
    strongly supports increased funding for Federal forestry research
    programs, including those operated by the USDA's Cooperative State
    Research Education and Extension Service (CSREES).
        The time is right to strengthen the research and technology
    transfer capacity for Federal land management agencies. The management
    of nonfederal forestlands has become a critical economic,
    environmental, and security issue. Owners and managers of nonfederal
    forestlands are simply not equipped to deal with the tremendous changes
    in forest land use and management that have occurred in the last decade
    nor the pressures of the 21st century.
        The programs outlined below are key to addressing the stewardship
    of these lands. These programs are: the McIntire-Stennis Cooperative
    Forestry Research Program (McIntire-Stennis), the Renewable Resources
    Extension Act (RREA), and the National Research Initiative (NRI)
    Competitive Grants Program. These programs have stimulated the
    development of vital partnerships involving universities, Federal
    agencies, non-governmental organizations and private industry, and need
    to have increased funding for fiscal year 2004.
        The Case for Enhanced Forestry Research Funding.--The past,
    present, and future success of forestry research and extension
    activities arising from the NAPFSC member institutions results from a
    unique partnership involving Federal, State, and private cooperators.
    Federal agencies have concentrated on large-scale national issues while
    state funding has emphasized applied problems and state-specific
    opportunities. University research in contrast, with the assistance of
    Federal, State and private support, has been able to address a broad
    array of applied problems related to technology development and
    fundamental biophysical and socioeconomic issues and problems that
    cross ownership, state, region, and national boundaries.
        The 1998 Farm Bill and various subsequent reports and conference
    proceedings have identified the need for greater attention on the
    emerging issues confronting non-Federal forest landowners. NAPFSC is
    pleased to be one of the cofounders of the National Coalition for
    Sustaining America's Nonfederal Forests. The founding of the Coalition
    and its subsequent report emerged from a Forestry Summit held in 1999
    that brought together key forestry leaders and landowners from across
    the nation. The Coalition has documented a plan of action to conserve,
    protect, and sustain our nation's nonfederal forest lands. Recent
    security threats to the nation's forest and water resources further
    heighten the importance of this plan. The plan stresses the importance
    of cooperation among the public universities, State forestry agencies,
    Federal agencies, and the many stakeholders in the natural resources
    arena. Key elements of this plan are research capacity and concerted
    action on stakeholder priorities.
        The forests and other renewable natural resources of this country
    are primary contributors to the economic health of the nation; are
    reservoirs of biodiversity important to the well-being of our citizens;
    are significant to the maintenance of environmental quality of our
    atmosphere, water, and soil resources and provide diverse recreational
    and spiritual renewal opportunities for a growing population.
    Tremendous strains are being placed upon the nation's private forest
    lands by the combination of increasing demands for forest products
    coupled with dramatic changes in timber policies concerning our
    National Forests. Because of the changes in Federal forest policy,
    private forest lands in the United States are now being harvested at
    rates not seen since the beginning of the 20th century.
        To meet this challenge, research priorities must be adjusted to
    better address the needs of private landowners, and to specifically
    enhance the productivity of such lands through economically efficient
    and environmentally sound means. These challenges can be substantially
    addressed by the university community through the building of
    integrated research and extension programs assisted by McIntire-
    Stennis, RREA, and NRI.
        There are currently approximately 10 million private forestland
    owners in the United States. These landowners control nearly 60 percent
    of all forestland in the country. And it has been to the universities,
    with strong support from CSREES, that landowners traditionally look for
    new information about managing their lands. The overwhelming majority
    of the 10 million private landowners are not currently equipped to
    practice the sustained forest management that is critical to the health
    of our environment and economy. The combination of research conducted
    by the forestry schools, combined with the dissemination of that
    research through the cooperative extension network, has never been more
    essential.
        The Cooperative Forestry Research (McIntire-Stennis) Program is the
    lead forestry effort administered by the USDA Cooperative State
    Research, Education, and Extension Service (CSREES). This program is
    the foundation of forest resources research and scientist training
    efforts at universities. The program provides cutting-edge research on
    productivity, technologies for monitoring and extending the resource
    base, and environmental quality--efforts that are critically important
    since universities provide a large share of the nation's research.
        The Investment.--The program is currently funded at $21,742,000 and
    matched more than three times by universities with state and nonfederal
    funds. The NAPFSC funding request for fiscal year 2004 is $30 million
    with the increase targeted at:
      --sustainable and productive forest management systems for private
            lands to address issues of global change, international
            competition and economic growth ($2.8 million);
      --forest health and risk to address fire, pest species, and other
            disturbances affecting domestic resource security, downstream
            impacts, and restoration of complex systems ($2.1 million);
      --assessing social values and tradeoffs to identify realistic policy
            options, economic impacts, and to inform decisions with
            effective science at all levels of government ($1.1 million);
      --forest monitoring and information systems with emphasis on
            geospatial technologies and landscape models for aiding the
            assessment of policy alternatives ($1.1 million); and
      --new biobased products, improved processing technologies, and
            utilization of small trees to extend the forest resource and
            enhance environmental quality ($1.0 million);
        The NAPFSC schools request this support with direction to focus on
    new or existing approved projects to achieve rapid progress on one or
    more of these research targets in each school's state, region, or
    nationally. We recognize that progress will be dependent on a critical
    mass of scientific effort, thus collaboration among schools is
    encouraged. Portions of this funding will also be used to provide
    training for critically needed new forest resources scientists.
    Addressing the base program needs will in turn build the capacity to
    compete effectively for competitive grants, such as through the
    National Research Initiative (NRI).
        The Renewable Resources Extension Program (RREA) program in CSREES
    is the nation's lead forest resources extension effort--it is the
    foundation of outreach and extension efforts at universities. The
    program is critically important today since universities provide a
    large share of the nations outreach and extension. Also, these same
    institutions educate nearly all of the nation's professionals in forest
    resources. Audiences for the products of outreach and extension are as
    diverse as are the stakeholders. The highest priority is the owners of
    nonfederal forestlands and those involved in implementing forest
    management.
        The Investment.--A wide range of management practices and
    techniques are needed to increase the production of multiple outputs
    from forests and to enhance domestic resource security. Building toward
    this accomplishment will take several years. However, we urge a
    significant step this year. The RREA program is currently funded at
    $4,516,000. The NAPFSC request for fiscal year 2004 is $15 million. The
    most compelling targets for this increase are:
      --Best management practices together with readily accessible
            information on programs, services, and benefits of natural
            resources management and planning to integrate water, wildlife,
            timber, fish, recreation and other products and services ($3.5
            million);
      --Communication systems for landowner education and the delivery of
            information tailored to address owner values and objectives
            ($3.3 million);
      --Risk management approaches for addressing fire, pests, and other
            disturbances at local to larger scales--issues of environmental
            and resource security ($2.1 million).
      --Opportunities for cooperation such as landowner cooperatives and
            other organizations linked to professional services and
            marketing, and conservation strategies to address local issues
            within the framework of landowner's objectives ($1.5 million).
        The NAPFSC schools request this support with direction to focus on
    new or existing approved projects to achieve rapid progress on one or
    more of these research targets in each school's state, region, or
    nationally. We recognized that progress will be dependent on a critical
    mass of extension educator effort, thus collaboration among schools is
    encouraged. Portions of this funding will also be used to provide the
    training needed in developing new extension educators.
        The National Research Initiative Competitive Grants Program (NRI)
    is a significant source of funding for basic and applied research on
    forest resources and their management and utilization. This program is
    currently funded at $166,045,000 of which approximately ten percent
    goes to successful forestry research proposals. NAPFSC supports the
    Administration's efforts to increase the funding for this program to
    $200 million for fiscal year 2004 but urges that at least 20 percent of
    the increase be directed to forest resources related research.
        2002 Farm Bill Funding.--NAPFSC strongly urges Congress to provide
    full funding for the various programs authorized in the 2002 Farm Bill,
    especially programs such as Environmental Quality Incentives Program
    (EQIP) and the Forest Land Enhancement Program (FLEP). These programs,
    along with programs such as Wetland Reserve Program and the Wildlife
    Habitat Improvement Program (WHIP) are instrumental in the development
    and implementation of any national investment strategy for forest
    resources. It is important that the Department of Agriculture has a
    strong infrastructure to deliver these important conservation
    provisions. NAPFSC urges the Committee to provide necessary funding to
    the Natural Resources Conservation Service. These funds will provide
    the resources to insure that the technical expertise will be available
    to work with the increasing number of landowners who are addressing a
    broad set of resource issues, including forest management as well as
    conservation.
    Conclusion
        The investments outlined here are substantial, but the potential
    savings and returns are far greater. Disciplined and rigorous
    implementation of research and education on forest resources issues
    will contribute greatly to attaining our vision for America's
    nonfederal forests for the future. NAPFSC urges cooperation at Federal,
    State, and University levels to make this investment and the vision and
    security it will support a reality.
                                     ______

    Prepared Statement of the National Association of University Fisheries
                             and Wildlife Programs

        The National Association of University Fisheries and Wildlife
    Programs (NAUFWP) appreciates the opportunity to submit testimony
    concerning the fiscal year 2004 budgets for the Natural Resources
    Conservation Service (NRCS) and the Cooperative State Research,
    Education and Extension Services (CSREES). NAUFWP represents
    approximately 55 university programs and their 440 faculty members,
    scientists, and extension specialists and over 9,200 undergraduates and
    graduate students working to enhance the science and management of
    fisheries and wildlife resources. NAUFWP is interested in strengthening
    fisheries and wildlife education, research, extension, and
    international programs to benefit wildlife and their habitats on
    agricultural and other private land.

                     NATURAL RESOURCES CONSERVATION SERVICE

        Farm Bill Technical Assistance.--We applaud Congress for passing
    the 2002 Farm Bill that authorizes USDA to work with third party
    Technical Service Providers, building a strong cadre of certified
    professionals to assist NRCS in delivering assistance to producers.
    However, NRCS recognizes that technical service and other training will
    be needed to effectively prepare Technical Service Providers to assist
    producers and landowners. NAUFWP recommends that the Administration
    provide NRCS with adequate funds to make use of universities, colleges,
    land grant institutions, and the Extension Service to train Technical
    Service Providers.
        Monitoring and Evaluation.--Monitoring Farm Bill conservation
    programs and evaluating their progress toward achieving Congressionally
    established objectives for soil, water, and wildlife will enable NRCS
    to ensure successful conservation program implementation. Changes to
    agricultural policy in the 2002 Farm Bill, such as higher funding
    authorizations and expanded acreage enrollment caps, necessitate an
    accountability system that continuously assesses the effectiveness of
    conservation programs and policies. NAUFWP recommends dedicating the
    $10 million approved in the Farm Bill Statement of Managers for
    monitoring to monitoring and evaluation of Farm Bill conservation
    programs. We propose using a competitive grants process to fund a
    consortium of non-USDA organizations (non-governmental organizations,
    universities, and state organizations) for the purpose of identifying
    cost-saving practices, program improvements, and future funding
    requirements, and determining the environmental and economic value of
    conservation expenditures.

          COOPERATIVE STATE RESEARCH, EDUCATION AND EXTENSION SERVICES

        Renewable Resources Extension Act.--NAUFWP was pleased that
    Congress appropriated $423,000 above the Administration's request for
    the Renewable Resources Extension Act (RREA) in 2003. RREA provides an
    expanded, comprehensive extension program for forest and rangeland
    renewable resources. The need for these programs is greater than ever
    now due to fragmentation of ownerships, urbanization, the number and
    diversity of landowners needing assistance, and the increasing social
    concern for land use and its effect on soil, water, air, and wildlife.
        It is important to note that RREA was reauthorized in the 2002 Farm
    Bill at $30 million annually through 2007. Though RREA is proven to be
    effective at leveraging cooperative state and local funding, it has
    never been fully funded in the annual appropriations process. In fact,
    the fiscal year 2004 request for RREA falls back to the 2002 funding
    level, $4.093 million, which is insufficient for assisting private
    landowners who own and manage most of the nation's natural resources.
    An increase to at least $15 million would enable CSREES to expand its
    capability to assist more private landowners in improving management of
    private land while increasing farm revenue. Therefore NAUFWP recommends
    that the Renewable Resources Extension Act be funded at a minimum of
    $15 million in fiscal year 2004.
        McIntire-Stennis.--The McIntire-Stennis Cooperative Forestry
    program funds state efforts in forestry research to increase the
    efficiency of forestry practices, and to extend the benefits that come
    from forest and related rangelands. McIntire-Stennis calls for close
    coordination between state colleges and universities and the Federal
    Government, and is essential for providing research background for
    other Acts, such as RREA. The Administration's fiscal year 2004 request
    for McIntire-Stennis is $21.884 million, in essence level with 2002 and
    2003. NAUFWP recommends that funding for McIntire-Stennis Cooperative
    Forestry be increased to $30 million.
        National Research Initiative.--National Research Initiative
    Competitive Grants (NRI) are open to academic institutions, Federal
    agencies, and private organizations to fund research on improving
    agricultural practices, particularly production systems that are
    sustainable both environmentally and economically, and to develop
    methods for protecting natural resources, including wildlife.
    Innovative grant programs such as NRI help broaden approaches to land
    management, such as integrating timber and wildlife management on
    private lands. NAUFWP supports the Administration's 2004 request of
    $200 million for National Research Initiative Competitive Grants, and
    requests Congressional approval.
        Thank you for considering the views of university fisheries and
    wildlife scientists. We look forward to working with you and your staff
    to ensure adequate funding for wildlife conservation.
                                     ______

     Prepared Statement of the National Commodity Supplemental Food Program

        Mr. Chairman and subcommittee members, I am Leona Martens,
    President of the National Commodity Supplemental Food Program (CSFP)
    Association. Our Association of state and local CSFP operators works
    diligently with the Department of Agriculture Food, Nutrition and
    Consumer Service to ensure a quality supplemental nutrition assistance
    commodity food package program for low income persons aged sixty and
    older, and low income mothers, infants, and children. The program,
    which was authorized in 1969, serves approximately 476,000 individuals
    every month in 32 states, 2 Tribal Organizations and the District of
    Columbia.
        This 34 year old CSFP stands as testimony to the power of
    partnerships between community and faith-based organizations, private
    industry and government agencies. The CSFP offers a unique combination
    of advantages unparalleled by any other food assistance program:
      --The CSFP specifically targets our nation's most vulnerable
            populations: the very young and the very old low-income
            persons.
      --The CSFP provides a monthly selection of food packages specifically
            tailored to the nutritional needs of the population we serve.
            Each eligible participant in the program is guaranteed [by law]
            a certain level of nutritional assistance every month.
      --The CSFP purchases foods at wholesale prices, which directly
            supports the farming community. The wholesale costs amount to
            \1/3\ the cost it would be to provide the same supplemental
            nutrients at retail voucher cost. The average food package for
            fiscal year 2003 is $13.72, and the retail cost would be
            approximately $45.00.
      --The CSFP involves the entire community in the problems of hunger
            and poverty. Thousands of volunteers as well as many private
            companies donate money, equipment, and most importantly time to
            deliver food to homebound seniors. These volunteers not only
            bring food but companionship and other assistance to seniors
            who might have no other source of support.
        Chairman Bennett, the committee has consistently been helpful with
    funding support for our very prudent way of providing nutritional
    supplemental food packages to low income eligible seniors, mothers and
    children. Please help us continue.

         NATIONAL CSFP NATIONAL CSFP ASSOCIATION 2004 ISSUES AND GOALS

    Fiscal year 2004 Caseload and Funding Request--$130 Million
        598,674 Caseload Slots--$129,994,469.00.
        Caseload Requirements Existing States--559,674 Slots.
        Total Cost Per Caseload Slot: $164.64.--($13.72 blended monthly
    food package cost  12 months) + $52.08 ($51.48 annual fiscal year 2003
    administrative annual funding level  1.16 percent state and local
    index of inflation) = $216.72 per slot = $121,292,549.00.
        Expansion For Current Participating States: 27,000 Slots.--Current
    participating states had requested 6,000 additional slots to serve CSFP
    eligible seniors, women and children that were not awarded for fiscal
    year 2003. Additional slots will be needed as the eligible population
    increases due to the current economic conditions. This would require an
    $164.64 ($13.72 blended monthly food package cost  12 months) + $52.08
    ($51.48 annual fiscal year 2003 administrative annual funding  1.16
    percent state and local index of inflation) = $216.72 per slot =
    $5,851,440.00
        New States: 12,000 Slots.--Arkansas, Maine, Oklahoma and Utah are
    submitting State Plans. 3,000 slots for each State would equal an
    additional $123.48 ($13.72 blended monthly food package cost
    9 months) + $39.06 ($52.08 prorated for 9 months) = $162.54 per slot =
    $1,950.480.00.
        Estimated USDA Costs for Procuring Commodities--$.9 million.
        Restore Senior Income Guidelines to 185 percent of Poverty.--
    Current income eligibility for senior clients is set at 130 percent of
    the poverty income guidelines, as opposed to 185 percent of poverty for
    CSFP women, infants, and children and clients of the WIC Program and
    the Seniors Farmers Market Nutrition Program. Many seniors are
    struggling with high housing, medical, and utility costs, and at the
    130 percent poverty guideline, even the slightest inflation-driven
    increase in Social Security income renders many seniors ineligible for
    CSFP. The Senior Nutrition Act has been introduced in both the House
    and Senate in 2003. Senate bill number is S 468 and House is HR 1021.
                                     ______

        Prepared Statement of the National Fish and Wildlife Foundation

        I appreciate the opportunity to submit testimony for the record
    regarding the fiscal year 2004 funding request for the National Fish
    and Wildlife Foundation (Foundation). The Foundation respectfully
    requests that this Subcommittee fund the Foundation at $4 million
    through the U.S. Natural Resources Conservation Service (NRCS)
    appropriation. This request would allow the Foundation to expand its
    highly successful grant program to better assist the NRCS in maximizing
    the benefits of the Conservation Title of the 2002 Farm Bill.
        Federal dollars appropriated by this Subcommittee allow us to
    leverage state, local and private dollars for on-the-ground
    conservation. Since our inception in 1984, the Foundation as a whole
    has supported over 5,756 grants and leveraged over 230 million Federal
    dollars for more than $700 million in on-the-ground conservation
    projects. This has resulted in more than 24.6 million acres of restored
    and managed wildlife habitat; 15,036 miles of restored streams and
    waterways; new hope for countless species under stress; new models of
    private land stewardship; and, stronger education programs in schools,
    local communities and on our Nation's farms. This Subcommittee's
    appropriation of NRCS dollars to the Foundation has helped us reach our
    goal.
        With funds appropriated to the Foundation in previous 2 fiscal
    years, we have been able to yield a return of more than three non-
    Federal dollars raised for every taxpayer dollar entrusted to our
    organization. None of our Federally appropriated funds are used for
    lobbying or litigation, or the Foundation's administrative expenses.
    All of our Federally appropriated funds go to one-the-ground projects.
    Furthermore, our general administrative expenses, including
    fundraising, public relations, and finance and administration averaged
    4 percent or less over the past 5 years.
        The Foundation's relationship with the NRCS began in 1996 when we
    signed a cooperative agreement to protect and restore previously
    converted agricultural wetlands through the Wetland Reserve Program
    (WRP). Through that partnership the Foundation received $5 million in
    NRCS funds, matched it with $5.4 million in non-Federal funds and
    awarded a total of 31 WRP grants. More than 10,000 acres were restored
    and enrolled in the WRP through this effort. In 1999, due in part to
    success of our WRP grant program, this Subcommittee appropriated $3
    million in fiscal year 2000 funds to the Foundation to implement a new
    general conservation grant program with the NRCS.
        This new general conservation grant program allowed us then and
    continues to allow the Foundation to be highly successful in assisting
    the NRCS in accomplishing its mission to help people conserve, maintain
    and improve our natural resources and environment. Whether it involves
    farm, range or grassland conservation, species management or
    conservation education, the Foundation strategically invests the
    Federal funds entrusted to us in sound projects. In fiscal year 2000,
    the Foundation was able to match the $3 million in appropriated funds
    with $7.5 million in non-Federal funds. In fiscal year 2001, the
    Foundation received an additional $3 million to continue our
    conservation partnership. This time the Foundation was able to exceed a
    3:1 non-Federal to Federal investment ratio by matching the $3 million
    appropriated by the Subcommittee with more than $10.5 million in non-
    Federal funds.
        Our success continued in fiscal year 2002 as we were able to once
    again achieve a 3:1 non-Federal to Federal matching ratio by turning
    the $3 million appropriated to the Foundation into more than $12
    million in on-the-ground conservation. In total, during the past 3
    years the Foundation has been able to support 185 grant projects in 43
    states by matching the $9 million in appropriated funds with more than
    $27 million in non-Federal funds for a total of $36 million in on-the-
    ground conservation. Although we have not received our fiscal year 2003
    funds yet, we fully anticipate receiving more good project proposals
    than we will be able to fund.
        You might ask how do we do it. The Foundation provides competitive
    grants that are matched by the grantee with non-Federal funds and in-
    kind services. Those grantees include Resource Conservation and
    Development Councils, conservation districts and non-profit
    organizations. The Foundation also works to provide private funds
    through the generosity of one of our growing number of corporate and
    foundation partners. For example, Federal funds awarded through our
    NRCS grant program have been supplemented with funding from the Shell
    Oil Company, the FMC Corporation, Anheuser-Bush Companies, Inc., the
    Summer T. McKnight Foundation, the Charles Stewart Mott Foundation and
    the David and Lucile Packard Foundation. In fiscal year 2002 alone,
    these organizations provided more than a quarter of a million dollars
    to enhance our NRCS partnership grants.

    Working Landscapes
        Through our partnership we work with NRCS to identify and fund
    projects that have strong support in affected agricultural and rural
    communities. We place our highest priority on projects integrating
    conservation practices on ongoing agricultural, ranching and forestry
    operations. We fund partners and provide expertise by engaging
    watershed experts, ranchers, foresters, farmers, local governments and
    non-profits to undertake on-the-ground private land activities with
    willing landowners.
        The Foundation has provided critical support to organizations that
    are assisting farmers and ranchers implement Farm Bill programs.
    Through these efforts the Foundation has helped to restore and protect
    thousands of acres of buffer, wetland and grassland habitats. From
    fiscal year 2000 through fiscal year 2002 the Foundation's partnership
    with the NRCS has lead to the direct restoration of 177,716 acres of
    farmland and rangeland and to 638 miles of restored streams and rivers.
    The Iowa Buffer and Wetland Enrollment project is an example of a great
    working landscape project. With $37,500 in Federal funds and $387,500
    in non Federal funds, the grantee, Pheasants Forever, worked with Soil
    and Water Conservation Districts (SWCD) to sign up 58,790 acres of
    buffers and small wetlands to the Continuous Conservation Reserve
    Program (CCRP). The program was implemented in approximately 70 SWCD's
    in Iowa.
        The Foundation has also invested heavily in efforts to improve the
    ecological health of working agricultural lands. Grantees supported by
    the Foundation have worked with farmers and ranchers to reduce
    agricultural runoff, remove invasive species and restore native
    ecosystems. An example of one of our stellar projects is the
    Conservation on Wisconsin Blufflands project. The grantee, The Prairie
    Enthusiasts, are utilizing $12,500 in Federal funds and $60,000 in non-
    Federal funds to work with local private landowners in managing prairie
    and oak savanna remnants in southern Wisconsin. Oak savanna is one of
    the most rare plant communities in North America and requires active
    management to properly maintain. This project seeks to work with 30
    private landowners on 2,000 acres of land to connect adjacent prairie
    remnants through landowner management practices.

    Conserving Fish, Wildlife and Plants
        With our NRCS dollars, the Foundation funds projects that directly
    benefit diverse fish and wildlife species including, salmon in the
    west, migratory birds in the midwest and grassland birds in the south.
    Habitat for native fish has been restored on private lands throughout
    the United States through vegetative planting, streambank
    stabilization, livestock fencing and nutrient reduction efforts. In
    addition to improving water quality, efforts have been undertaken by
    our grantees to reduce water loss associated with irrigation systems.
    By reducing the water taken from rivers for irrigation purposes, there
    is less chance that drought will negatively impact aquatic life.
        A project that highlights our restoration of native fish is the
    Thistle Creek (UT) Riparian Restoration project. With $25,000 in
    Federal funds and $51,600 in non-Federal funds the Utah Division of
    Wildlife Resources restored 3,500 feet of stream corridor and 30 acres
    of associated riparian habitat on a working ranch in Utah County, Utah.
    The project improved the spawning and rearing habitat for the
    leatherside chub, a state sensitive species, and served as a
    demonstration site to education local landowners on the value of
    properly functioning streams to the ecological health of the land.
        We also measure our success in part by preventing the listing of
    species under the Endangered Species Act and by stabilizing and
    hopefully moving others off the list. Some species that have received
    support through our NRCS grant program include salmonids, golden-
    cheeked warblers, black-tailed prairie dogs and Karner blue
    butterflies. We invest in common sense and innovative cooperative
    approaches to endangered species, building bridges between the
    government and the private sector.

    Expanding Conservation Education Opportunities
        Our grants also use our NRCS dollars to expand conservation
    education opportunities. Of our fiscal year 2002 NRCS partnership
    grants, approximately one fourth contained an environmental education
    component. Some of the conservation education projects supported
    through our NRCS grant program seek to educate farmers and ranchers on
    conservation practices while demonstrating how best management
    practices and wildlife incentives provide both environmental and
    economic benefits. Other projects have provided training to secondary
    school teachers on the ecological, economic and cultural benefits of
    rangeland and farmland conservation. The Limited Resource Farmer
    Outreach (MS) grant is a good example to highlight. In this project,
    the grantee, Northwest Mississippi Resource Conservation & Development
    Council, was awarded $57,500 in Federal funds that were matched with
    $138,000 in nonfederal funds to increase limited resource farmer
    knowledge of and participation in conservation practices. The project
    made conservation methods available to the farmers, assisted them in
    their implementation and demonstrated the environmental and economic
    benefits derived from these programs.

    Accountability and Grantsmanship
        All potential grants are subject to a peer review process involving
    local NRCS staff, state agency staff, academics, commodity and
    environmental interests, corporations, and others. The review process
    examines the project's conservation need, technical merit, the support
    of the local community, the variety of partners, and the amount of
    proposed non-Federal cost share. We also provide a 30 day notification
    to the Member of Congress for the congressional district in which a
    grant will be funded prior to making the grant. In addition, the
    Foundation requires strict financial reporting by grantees and is
    subject to an annual audit.

    Basic Facts About the Foundation
        The Foundation promotes conservation solutions by awarding
    challenge grants using its Federally appropriated funds to match
    private sector funds. We have a statutory requirement to match Federal
    funds with at least an equal amount of non-federal funds, which we
    consistently exceed. No federal Agriculture Subcommittee appropriations
    meet our administrative expenses--these costs are met through private
    fundraising activities distinct from our matching grant fundraising.
    The Foundation assesses administrative fees for programs when an agency
    asks us to carry out a special project, such as the ``Friends''
    Initiative to benefit the National Wildlife Refuge system. The fee is
    five percent or less and does not involve the funds appropriated to the
    Foundation.
        The Foundation is governed by a 25-member Board of Directors
    appointed by the Secretary of The Interior. At the direction of
    Congress, the Board operates on a nonpartisan basis. Directors do not
    receive any financial compensation for service on the Board; in fact,
    all of our directors make financial contributions to the Foundation. It
    is a diverse Board, representing the corporate, philanthropic, and
    conservation communities; all with a tenacious commitment to fish and
    wildlife conservation.
        The National Fish and Wildlife Foundation continues to be one of,
    if not the, most cost-effective conservation program funded in part by
    the Federal Government. By implementing real-world solutions with the
    private sector while avoiding regulatory or advocacy activity, our
    approach is more consistent with this Congress' philosophy than ever
    before. We serve as a model for bringing private sector leadership to
    Federal agencies and for developing cooperative solutions to
    environmental issues. We are confident that the money you appropriate
    to the Foundation will continue to make a difference.
                                     ______

      Prepared Statement of the National Organization for Rare Disorders
                                     (NORD)

        Mr. Chairman, and members of the Senate Appropriations Subcommittee
    on Agriculture, Rural Development and Related Agencies, the National
    Organization for Rare Disorders (NORD) wishes to express its views
    regarding appropriations for the Orphan Products Research Grants
    Program administered by the Office of Orphan Product Development (OOPD)
    at the Food and Drug Administration (FDA).
        On November 6, 2002, President George W. Bush signed the Rare
    Diseases Orphan Product Development Act, Public Law 107-281, sponsored
    by Representative Mark Foley. The purpose of the Act is to ``increase
    the national investment in the development of diagnostics and
    treatments for patients with rare diseases and disorders,'' as follows:

        Sec. 3. FOOD AND DRUG ADMINISTRATION; GRANTS AND CONTRACTS FOR THE
    DEVELOPMENT OF ORPHAN DRUGS.
        Subsection (c) of section 5 of the Orphan Drug Act (21 U.S.C.
    360ee(c)) is amended to read as follows:
        ``(c)'' For grants and contracts under subsection (a), there is
    authorized to be appropriated such sums as already have been
    appropriated for fiscal year 2002, and $25,000,000 for each of the
    fiscal years 2003 through 2006.''

        As NORD, and the 25 million Americans affected by rare diseases
    celebrate the 20th anniversary of the passage of the Orphan Drug Act,
    we respectfully request that this Committee reconfirm Congress'
    commitment to the rare disease community by increasing funding for
    research on needed diagnostics and therapeutics. Specifically, we
    request that this Committee support an increase in funding for the
    FDA's Orphan Product Research Grants program to the $25 million
    authorized in the Rare Diseases Orphan Product Development Act (Public
    Law 107-281), and for each of the fiscal years 2005 through 2008.

    Background
        In 1982, the U.S. Congress passed the Orphan Drug Act, (ODA),
    Public Law 97-414, and on January 4, 1983, President Ronald Reagan
    signed it into law. Both the Congress and the Administration recognized
    that ``a pharmaceutical company which develops an orphan drug may
    reasonably expect the drug to generate relatively small sales in
    comparison to the cost of developing the drug and consequently to incur
    a financial loss.'' It also found that, ``there is reason to believe
    that some promising orphan drugs will not be developed unless changes
    are made in the applicable Federal laws to reduce the costs of
    developing such drugs and to provide financial incentives to develop
    such drugs.'' \1\
    ---------------------------------------------------------------------------
        \1\ The Orphan Drug Act, Public Law 97-414.
    ---------------------------------------------------------------------------
        Financial incentives of the ODA include:
      --Seven years marketing exclusivity for the first company to develop
            an orphan drug for a rare disease;
      --User fee waiver;
      --User fee waiver;
      --Tax credits for the costs of clinical research;
      --Establishment the FDA Orphan Product Research Grants program to
            support small clinical trials on new orphan drugs, biologics,
            devices and medical foods;
      --The law defines a rare disease or condition as any disease or
            condition which ``(A) affects less than 200,000 persons in the
            United States, or (B) affects more than 200,000 in the United
            States for which there is no reasonable expectation that the
            cost of developing and making available in the United States a
            drug for such disease or condition will be recovered from sales
            in the United States of such drug.'' \2\
    ---------------------------------------------------------------------------
        \2\ The Orphan Drug Act, as amended October 1984, Public Law 98-
    551.
    ---------------------------------------------------------------------------
    Orphan Products Defined
        ``Orphan products'' are treatments for rare conditions that have
    small potential markets and thus are not attractive to the commercial
    sector. Such treatments were not being developed for ``orphan''
    diseases by the private sector until the Orphan Drug Act was enacted in
    1983. For example, only 10 products specifically for the treatment of
    rare diseases were developed by the pharmaceutical industry during the
    10 years prior to 1983.
        Since 1983, the FDA has approved 238 orphan drugs for marketing,
    and more than 900 additional orphan drugs are in the research pipeline
      --85 percent are used for serious and/or life-threatening diseases
      --31 percent are for rare cancers
      --11 percent are for metabolic disorders
      --50 percent are for pediatric uses
      --20 percent of orphan designations are for novel biotechnology
            products.
        According to the FDA Office of Orphan Product Development, these
    currently marketed orphan drugs are helping over 11 million Americans
    and millions more around the world.\3\
    ---------------------------------------------------------------------------
        \3\ Haffner, Marlene E., Whitley, Janet and Moses, Marie. Two
    decades of orphan product development, Nature Reviews, October 2002,
    pp. 821-825.
    ---------------------------------------------------------------------------
    Orphan Products Research Grants Program
        In 1982, Congress passed the Orphan Drug Act to provide funding for
    pivotal clinical trials on new orphan drugs, medical devices, and
    medical foods for rare diseases.
        Of the 238 orphan products currently approved for marketing, 29 (25
    drugs and 4 medical devices) have been developed with funding from the
    FDA's orphan product research grants. These small research grants are
    critically important to academic scientists trying to develop
    preliminary data they can use to attract commercial sponsors who will
    develop their treatment and bring it to the American market. They are
    also important to small companies developing sufficient data to attract
    investment capital. \4\
    ---------------------------------------------------------------------------
        \4\``The Orphan Drug Act has proven particularly helpful to the
    biotechnology industry that emerged in the years following passage.
    This young, volatile industry is heavily dependent on private capital
    to fund research and development.'' The Orphan Drug Act, Implementation
    and Impact. DHHS, Office of Inspector General, OEI-09-00-00380, May
    2001.
    ---------------------------------------------------------------------------
        Twenty-one of the 29 products developed through funding from the
    FDA's Orphan Products Research Grants Program were awarded to
    investigators at academic centers. The remainder went to start-up firms
    (see attached), thus ``bridging the gap between basic research,
    clinical development and marketing approval.'' \5\
    ---------------------------------------------------------------------------
        \5\ Haffner, et al.
    ---------------------------------------------------------------------------
        Approximately 80 applications for new orphan product research
    grants are received each year, but until now only 20 percent of those
    new applications have actually been funded annually.
        Most of FDA's Orphan Products Research Grants support small
    clinical trials at academic institutions throughout the nation to
    develop the preliminary evidence that is necessary to attract
    commercial sponsors, This unique research grant program is the
    quintessential model for a successful government/industry partnership,
    filling a major gap between academic research and the private sector,
    and creating lifesaving products needed throughout the world. For
    example,
      --Children with Severe Combined Immune Deficiency (``Bubble Boy
            Disease'') no longer have to live in a plastic bubble because
            now their immune systems can fight off germs, thanks to an
            orphan drug developed with these grant funds.
      --Children with urea cycle disorders no longer slip into a coma and
            die because an orphan drug enables their bodies to eliminate
            toxic levels of ammonia;
      --Babies born without ribs no longer suffocate in infancy because an
            artificial rib (orphan medical device) is being developed now
            with funds from the Orphan Products Research Grants Program
            that allows the children's lungs to expand and breathe;
      --Narcolepsy, Cystic fibrosis, Crohn's disease, and multiple
            sclerosis drugs are on the market today only because these
            grants supported some of their clinical research.

    Conclusion
        Many diseases and conditions are simply too rare to attract private
    investment because the commercial sector is not interested in
    developing treatments for small markets. The investment necessary for
    research and development of new drugs and devices is too large in
    comparison to the size of the potential market for a rare disease. The
    FDA's Orphan Products Research Grants program enables scientists to
    develop the preliminary data necessary to show that a drug, biologic,
    device or food is safe and probably effective, making commercial
    development less risky. Only then will a company be interested in
    adopting the product and bringing it through the FDA approval process.
        The National Institutes of Health (NIH) has catalogued 6,000 rare
    diseases, some of which are familiar ailments including Tourette
    Syndrome, Sickle Cell Anemia and Hemophilia. Yet there are thousands of
    other devastating rare diseases that are unfamiliar to the public and
    the medical community.
      --Fibrodysplasia ossificans progressive (FOP) is a genetic disorder
            ``in which the body transforms its muscles, tendons, and
            ligaments into bone.'' Patient population: 125.\6\
    ---------------------------------------------------------------------------
        \6\ Maeder, Thomas. Adopting Orphan Diseases. Red Herring, January
    16,2001, pp. 128-134.
    ---------------------------------------------------------------------------
      --Sturge-Weber Syndrome is a condition characterized by excessive
            blood vessel growth, accumulation of calcium in the brain and
            seizures. Patient population: less than ten thousand.
      --Angelman Disease is characterized by severe mental retardation,
            prolonged inappropriate laughter, facial abnormalities, and
            impaired movement control. Patient population: approximately
            700.\7\
    ---------------------------------------------------------------------------
        \7\ Maeder, p. 130.
    ---------------------------------------------------------------------------
        For the patients affected by these and thousands of other rare
    diseases, the prospects for a cure or the discovery of a therapy to
    alleviate symptoms have been dim. Diagnosis takes from one to six years
    in 35 percent of the cases, and more than seven years in 15 percent.\8\
    Even when the cause of the disease is discovered, (e.g., a genetic
    defect, infectious agent, etc.), most pharmaceutical companies would be
    very hesitant to invest in development of a new treatment unless there
    is evidence from small clinical trials indicating that an experimental
    treatment will work. These small research grants from the FDA provide
    support for academic researchers and small companies so they can
    develop the evidence necessary to attract commercial sponsors.
    ---------------------------------------------------------------------------
        \8\ Report of the National Commission on Orphan Diseases,
    Publication Number HRP-090-7248, United States Government Printing
    Office, February, 1989.
    ---------------------------------------------------------------------------
        The FDA's Orphan Products Research Grants Program is not new. It
    has a 21-year record of accomplishment, and it has already been
    responsible for the development of 29 life-saving orphan products that
    would not be on the market today if this program had not existed. When
    Congress passed the Rare Diseases Orphan Product Development Act last
    year, it sent a strong signal to rare disease patients in every state
    of the union that it recognizes the critical importance of these
    research grants, it salutes the progress that the ODA has pioneered in
    the last two decades, and Congress implicitly intends to appropriate
    $25 million to the FDA's Orphan Product Research Grants Program which
    represents only $1 for every rare disease patient in the United states.
        NORD, on behalf of the 25 million medically disenfranchised
    Americans and their families affected by rare ``orphan'' diseases,
    respectfully requests that the members of this Subcommittee appropriate
    no less than $25 million to the FDA Orphan Products Research Grants
    Program for fiscal year 2004 and for each of the fiscal years 2005
    through 2008.as provided for in the Rare Diseases Orphan Product
    Development Act. This funding will fill the void between government and
    the private sector, and propel new treatments forward from academic
    laboratories to patients' bedsides and ultimately to our local
    pharmacies. Your compassion and insight will put new orphan drugs and
    devices into the waiting hands of critically ill patients.
    About NORD
        NORD is a federation of approximately 130 voluntary health
    organizations and over 50,000 individual patients, healthcare providers
    and clinical researchers dedicated to helping the 25 million people in
    the United States affected by rare ``orphan'' diseases. NORD is
    committed to the identification, treatment, and cure of rare disorders
    through programs of education, advocacy, research and service. For
    additional information, please contact Diane E. Dorman, Vice President
    for Public Policy, in NORD's Washington Office at (202) 258-6457 or
    ddorman@rarediseases.org.

                        ATTACHMENT I--PUBLIC LAW 107-281

     AN ACT To amend the Federal Food, Drug, and Cosmetic Act with respect
               to the development of products for rare diseases.
        Be it enacted by the Senate and House of Representatives of the
    United States of America in Congress assembled,

    SECTION 1. SHORT TITLE.

        This Act may be cited as the ``Rare Diseases Orphan Product
    Development Act of 2002''.

    SEC. 2. FINDINGS AND PURPOSES.

        (a) Findings.--Congress makes the following findings:
                (1) Rare diseases and disorders are those which affect
            small patient populations, typically populations smaller than
            200,000 individuals in the United States. Such diseases and
            conditions include Huntington's disease, amyotrophic lateral
            sclerosis (Lou Gehrig's disease), Tourette syndrome, Crohn's
            disease, cystic fibrosis, cystinosis, and Duchenne muscular
            dystrophy.
                (2) For many years, the 25,000,000 Americans suffering from
            the over 6,000 rare diseases and disorders were denied access
            to effective medicines because prescription drug manufacturers
            could rarely make a profit from marketing drugs for such small
            groups of patients. The prescription drug industry did not
            adequately fund research into such treatments. Despite the
            urgent health need for these medicines, they came to be known
            as ``orphan drugs'' because no companies would commercialize
            them.
                (3) During the 1970s, an organization called the National
            Organization for Rare Disorders (NORD) was founded to provide
            services and to lobby on behalf of patients with rare diseases
            and disorders. NORD was instrumental in pressing Congress for
            legislation to encourage the development of orphan drugs.
                (4) The Orphan Drug Act created financial incentives for
            the research and production of such orphan drugs. New Federal
            programs at the National Institutes of Health and the Food and
            Drug Administration encouraged clinical research and commercial
            product development for products that target rare diseases. An
            Orphan Products Board was established to promote the
            development of drugs and devices for rare diseases or
            disorders.
                (5) Before 1983, some 38 orphan drugs had been developed.
            Since the enactment of the Orphan Drug Act, more than 220 new
            orphan drugs have been approved and marketed in the United
            States and more than 800 additional drugs are in the research
            pipeline.
                (6) Despite the tremendous success of the Orphan Drug Act,
            rare diseases and disorders deserve greater emphasis in the
            national biomedical research enterprise.
                (7) The Food and Drug Administration supports small
            clinical trials through Orphan Products Research Grants. Such
            grants embody successful partnerships of government and
            industry, and have led to the development of at least 23 drugs
            and four medical devices for rare diseases and disorders. Yet
            the appropriations in fiscal year 2001 for such grants were
            less than in fiscal year 1995.
        (b) Purposes.--The purpose of this Act is to increase the national
    investment in the development of diagnostics and treatments for
    patients with rare diseases and disorders.

    SEC. 3. FOOD AND DRUG ADMINISTRATION; GRANTS AND CONTRACTS FOR THE
                        DEVELOPMENT OF ORPHAN DRUGS.

        Subsection (c) of section 5 of the Orphan Drug Act (21 U.S.C.
    360ee(c)) is amended to read as follows:
        ``(c) For grants and contracts under subsection (a), there are
    authorized to be appropriated such sums as already have been
    appropriated for fiscal year 2002, and $25,000,000 for each of the
    fiscal years 2003 through 2006.''.

    SEC. 4. TECHNICAL AMENDMENT.

        Section 527(a) of the Federal Food, Drug, and Cosmetic Act (21
    U.S.C. 360cc(a)) is amended in the matter following paragraph (2)--
                (1) by striking ``, of such certification,''; and
                (2) by striking ``, the issuance of the certification,''.
        Passed the House of Representatives October 1, 2002.
        Approved November 6, 2002.
                                 attachment ii

                                 attachment iii
        u.s. food and drug administration grant supported products with
                               marketing approval
        Product: 4-methylpyrazole (trade name Antizole); Fomepizole
        Indication: Ethylene Glycol and Methanol Poisoning
        Approval Date: 12/04/1997
        Institution: Orphan Medical, Inc.
        Investigator: Dr. Dayton Reardan

        Product: Actimmune
        Indication: Osteopetrosis
        Approval Date: 02/11/2000
        Institution: Medical University of South Carolina
        Investigator: Dr. Lester Key

        Product: Auditory Brainstem Implant
        Indication: Bilateral deafness
        Approval Date: 10/24/00
        Institution: Cochlear Corp.
        Investigator: Dr. Steven J. Staller

        Product: Anti-TNF (cA2) (trade name Remicade)
        Indication: Severe Crohns Disease
        Approval Date: 08/24/1998
        Institution: Centocor, Inc.
        Investigator: Dr. Richard McCloskey

        Product: Baclofen Intrathecal (trade name Lioresal)
        Indication: Severe Spasticity
        Approval Date: 06/25/1992
        Institution: Rush-Presbyterian-St. Lukes' Medical Center
        Investigator: Dr. Richard Penn

        Product: Betaine (trade name Cystadane)
        Indication: Homocystinuria
        Approval Date: 10/20/1996
        Institution: University of Virginia
        Investigator: Dr. William Wilson

        Product: Busulfan IV
        Indication: Bone Marrow Ablation
        Approval Date: 02/04/1999
        Institution: UT MD Anderson Cancer Center
        Investigator: Dr. Borge Andersson

        Product: Cladribine (trade name Leustatin)
        Indication: Mycosis fungoides and hairy cell leukemia
        Approval Date: 03/01/1993
        Institution: Scripps Research Institute
        Investigator: Dr. Ernest Beutler

        Product: Clonidine (trade name Duraclon)
        Indication: Intractable pain in cancer patients
        Approval Date: 10/02/1996
        Institution: Wake Forest University
        Investigator: Dr. James Eisenach

        Product: CroFab
        Indication: Crotalid snake bites
        Approval Date: 10/02/00
        Institution: Therapeutic Antibodies, Inc.
        Investigator: Dr. Richard C. Dart

        Product: Cysteamine (trade name Cystagon)
        Indication: Nephropathic Cystinosis
        Approval Date: 08/15/1994
        Institution: University of California, San Diego
        Investigator: Dr. Jerry Schneider

        Product: Ganciclovir Intravitreal (trade name Vitrasert)
        Indication: CMV Retinitis
        Approval Date: 03/04/1996
        Institution: University of Kentucky Research Foundation
        Investigator: Dr. Thomas Smith

        Product: Glatiramer acetate (trade name Copaxone)
        Indication: Relapsing remitting multiple sclerosis
        Approval Date: 12/20/1996
        Institution: Lemmon Company
        Investigator: Dr. Yafith Stark

        Product: Histrelin Acetate (trade name Supprelin)
        Indication: Central precocious puberty
        Approval Date: 12/24/1991
        Institution: Massachusetts General Hospital
        Investigator: Dr. Paul Boepple

        Product: In-Exsufflator (trade name Cofflator)
        Indication: Assist Ventilator dependent patients
        Approval Date: 02/01/1993
        Institution: University of Medicine and Dentistry of N.J.
        Investigator: Dr. John Bach

        Product: Iobenguane sulfate I-131
        Indication: Localization of Pheochromocytoma
        Approval Date: 03/24/1994
        Institution: University of Michigan
        Investigator: Dr. Brahm Shapiro

        Product: Levocarnitine (trade name Carnitor)
        Indication: Primary and Secondary Carnitine Deficiency of Genetic
    Origin
        Approval Date: 12/16/1992
        Institution: Duke University
        Investigator: Dr. Charles Roe

        Product: Nafarelin Acetate Intranasal (trade name Synarel)
        Indication: Central Precocious Puberty
        Approval Date: 02/06/1992
        Institution: Baylor College of Medicine
        Investigator: Dr. John Kirkland

        Product: Neurostimulator implantable electrodes
        Indication: Quadra-paraplegia with loss of hand function
        Approval Date: 08/18/1997
        Institution: Case Western Reserve University
        Investigator: Dr. Paul Peckham

        Product: Nitisinone (trade name Orfadin)
        Indication: Treatment of tyrosinemia type 1.
        Approval Date: 01/18/2002
        Institution: Swedish Orphan AB
        Investigator: Dr. Ronald Leonardi

        Product: Pegademase (trade name Adagen)
        Indication: ADA replacement in Severe Combined Immunogenicity
    Disease
        Approval Date: 03/21/1990
        Institution: Enzon, Inc.
        Investigator: Dr. Abraham Abuchowski

        Product: Pulmonary angioscope
        Indication: Visualization of pulmonary emboli
        Approval Date: 01/31/1989
        Institution: Regents of the University of California
        Investigator: Dr. Deborah Shure

        Product: Sodium phenylbutyrate
        Indication: Urea cycle disorders
        Approval Date: 04/30/1996
        Institution: Johns Hopkins University
        Investigator: Dr. Saul Brusilow

        Product: Succimer (trade name Chemet)
        Indication: Lead Poisoning in Children
        Approval Date: 01/30/1991
        Institution: The Kennedy Institute
        Investigator: Dr. J. Julian Chisolm

        Product: Sucrase enzyme
        Indication: Sucrase-isomaltase deficiency
        Approval Date: 04/09/1998
        Institution: Hartford Hospital
        Investigator: Dr. Jeffrey Hyams

        Product: Tobramycin for inhalation (trade name Tobi)
        Indication: Management of CF patients with Pseudomonas Aeruginosa
        Approval Date: 12/22/1997
        Institution: Pathogenesis Corporation
        Investigator: Dr. Alan Montgomery

        Product: Tretinoin (trade name Vesanoid)
        Indication: Acute Promyelocytic Leukemia
        Approval Date: 11/22/1995
        Institution: Memorial Hospital for Cancer and Allied Diseases
        Investigator: Dr. Raymond Warrell, Jr.

        Product: Zinc Acetate (trade name Galzin)
        Indication: Wilson's Disease
        Approval Date: 01/28/1997
        Institution: University of Michigan
        Investigator: Dr. George Brewer

        Product: Gamma-hydroxybutyrate
        Indication: Narcolepsy
        Approval Date: 07/17/02
        Institution: University of Arkansas for Medical Sciences
        Investigator: Lawrence Scrima, Ph.D.
                                     ______

               Prepared Statement of the National Potato Council

        My name is Dwight Horsch. I am a potato farmer from Idaho and
    current Vice President, Legislative/Government Affairs for the National
    Potato Council (NPC). On behalf of the NPC, we thank you for your
    attention to the needs of our potato growers.
        The NPC is the only trade association representing commercial
    growers in 50 states. Our growers produce both seed potatoes and
    potatoes for consumption in a variety of forms. Annual production in
    2001 was 444,766,000 cwt. with a farm value of $2.9 billion. Total
    value is substantially increased through processing. The potato crop
    clearly has a positive impact on the U.S. economy.
        The potato is the most popular of all vegetables grown and consumed
    in the United States and one of the most popular in the world. Annual
    per capita consumption was 138.7 pounds in 2000, up from 104 pounds in
    1962 and is increasing due to the advent of new products and heightened
    public awareness of the potato's excellent nutritional value. Potatoes
    are considered a stable consumer commodity and an integral, delicious
    component of the American diet
        The NPC's fiscal year 2004 appropriations priorities are as
    follows:
    Cooperative State Research Education and Extension Service (CSREES)
        Potato Special Grant Program.--The NPC urges that the $1.75 million
    be appropriated for fiscal year 2004. The House recommended $1.6
    million for fiscal year 2003, however only $1.584 million was included
    in the final bill. This has been a highly successful program and the
    number of funding requests from various potato-producing regions is
    increasing.
        The NPC also urges that the Congress, once again, include Committee
    report language as follows:

        ``Potato research.--The Committee expects the Department to ensure
    that funds provided to CSREES for potato research are utilized for
    varietal development testing. Further, these funds are to be awarded
    competitively after review by the Potato Industry Working Group.''
    Agricultural Research Service (ARS)
        The NPC urges that the Congress once again add Committee report
    language urging the ARS to work with the NPC on how overall research
    funds can best be utilized for grower priorities.
        The NPC urges that the Congress maintain all increases for potato
    research provided in fiscal year 2001, 2002 and 2003 that have been
    proposed for deletion or redirection in the Administration's fiscal
    year 2004 budget request.
        Prosser, Washington.--Appropriate $250,000 for exotic diseases
    including late blight and PVYN on potatoes. The Congress appropriated
    $200,000 in fiscal year 2003 for this activity. The funds appropriated
    in fiscal year 2001 should remain and continue to be used for breeding
    for resistant potato varieties and not be diverted to new areas of
    research.
        Grand Forks and East Grand Forks.--Appropriate $350,000 for a new
    scientist to be located at the Potato Research worksite in East Grand
    Forks, Minnesota. The scientist would address the effects of
    postharvest storage and treatments on potato market quality and value-
    added traits. Since over 70 percent of the U.S. fall potato crop is
    placed into storage for year around sale, this research will benefit
    potato growers throughout the country.
        Fort Collins, Colorado.--Appropriate $200,000 for the Soil, Plant,
    and Nutrient Research Program at Fort Collins to conduct research to
    enhance water and soil quality with precision conservation farming. The
    Congress provided $100,000 in fiscal year 2003.
        Beltsville, Maryland.--Improving the nutritional value of potatoes
    is a high priority of the NPC. Research should also be initiated at the
    Beltsville Vegetable Laboratory that combines traditional breeding and
    plant biotechnology to increase the nutritional value of the potato and
    add value to the crop. The nutrition research currently underway in the
    Beltsville potato breeding program relates to the development of potato
    tubers with anti-cancer properties (high lutein/carotene) and a product
    to help alleviate osteoporosis (high available tuber calcium).
    Approximately $150,000 is currently devoted to this newly developing
    field. The NPC urges that $300,000 be appropriated in fiscal year 2004
    for this important research effort.
        Plant Protection and Quarantine Service (APHIS-USDA).--The NPC
    urges that the Congress appropriate $971,000 for the Golden Nematode
    Quarantine Program as requested in the Administration's budget request.
    The National Potato Council also supports the budget request of $27
    million for pest detection and at least $12 million for trade issues
    resolution and management. As new trade agreements are negotiated, the
    agency must have the necessary staff and technology to detect and to
    deal with the threat of pests and diseases. The NPC relies heavily on
    APHIS-PPQ resources to resolve phytosanitary trade barriers.
        National Agricultural Statistics Service (NASS).--Appropriate the
    $4.8 million in the Administration's budget request for core programs
    of NASS and ensure that the potato grade and quality survey program is
    continued.
                                     ______

          Prepared Statement of the National Rural Telecom Association

                         SUMMARY OF TESTIMONY REQUESTS

        Project involved.--Telecommunications lending programs administered
    by the Rural Utilities Service of the U.S. Department of Agriculture
        Actions proposed:
      --Supporting loan levels for fiscal year 2004 in the same amounts as
            those contained in the fiscal year 2003 Agriculture
            Appropriations Act for cost-of-money, Rural Telephone Bank and
            guaranteed loan programs and the associated subsidy to fund
            those programs at the existing level. Supporting loans in the
            hardship program at the level requested in the budget. Opposing
            the budget recommendation to not fund new Rural Telephone Bank
            loans in fiscal year 2004.
      --Supporting continued funding, as requested in the President's
            budget, in the amount of $25 million in loan and grant
            authority designated for distance learning and telemedicine
            purposes and $2 million in grants for broadband facilities and
            internet access in rural areas.
      --Opposing the budget request seeking to cancel the $20 million in
            mandatory funding provided in last year's farm act for direct
            loans for broadband deployment and replacing it with
            discretionary funding authority amounting to less than half
            that amount in fiscal year 2004. Seeking language to clarify
            that all rural communities under 20,000 population will qualify
            for loans in fiscal year 2004 under the new broadband loan
            program consistent with the existing eligibility criteria for
            the distance learning, telemedicine and pilot broadband
            programs.
      --Supporting continuation of the restriction on retirement of Rural
            Telephone Bank Class A stock at the level contained in the
            fiscal year 2003 Agriculture Appropriations Act and an
            extension of the prohibition against the transfer of Rural
            Telephone Bank funds to the general fund. Opposing the proposal
            contained in the budget to transfer funds from the unobligated
            balances of the liquidating account of the Rural Telephone Bank
            for the bank's administrative expenses.
         Mr. Chairman, Members of the Committee: My name is John F. O'Neal.
    I am General Counsel of the National Rural Telecom Association. NRTA is
    comprised of commercial telephone companies that borrow their capital
    needs from the Rural Utilities Service of the U.S. Department of
    Agriculture (RUS) to furnish and improve telephone service in rural
    areas. Approximately 1000, or 71 percent of the nation's local
    telephone systems borrow from RUS. About three-fourths of these are
    commercial telephone companies. RUS borrowers serve almost 6 million
    subscribers in 46 states and employ over 22,000 people. In accepting
    loan funds, borrowers assume an obligation under the act to serve the
    widest practical number of rural users within their service area.

                               PROGRAM BACKGROUND

        Rural telephone systems have an ongoing need for long-term, fixed
    rate capital at affordable interest rates. Since 1949, that capital has
    been provided through telecommunications lending programs administered
    by the Rural Utilities Service and its predecessor, the Rural
    Electrification Agency (REA).
        RUS loans are made exclusively for capital improvements and loan
    funds are segregated from borrower operating revenues. Loans are not
    made to fund operating revenues or profits of the borrower system.
    There is a proscription in the Act against loans duplicating existing
    facilities that provide adequate service and state authority to
    regulate telephone service is expressly preserved under the Rural
    Electrification Act.
        Rural telephone systems operate at a severe geographical handicap
    when compared with other telephone companies. While almost 6 million
    rural telephone subscribers receive telephone service from RUS borrower
    systems, they account for only four percent of total U.S. subscribers.
    On the other hand, borrower service territories total 37 percent of the
    land area--nearly 1.5 million square miles. RUS borrowers average about
    six subscribers per mile of telephone line and have an average of more
    than 1,000 route miles of lines in their systems.
        Because of low-density and the inherent high cost of serving these
    areas, Congress made long-term, fixed rate loans available at
    reasonable rates of interest to assure that rural telephone
    subscribers, the ultimate beneficiaries of these programs, have
    comparable telephone service with their urban counterparts at
    affordable subscriber rates. This principle is especially valid today
    as the United States endeavors to deploy broadband technology and as
    customers and regulators constantly demand improved and enhanced
    services. At the same time, the underlying statutory authority
    governing the current program has undergone significant change. In
    1993, telecommunications lending was refocused toward facilities
    modernization. Much of the subsidy cost has been eliminated from the
    program. In fact, most telecommunications lending programs now generate
    revenue for the government. The subsidy that remains has been targeted
    to the highest cost, lowest density systems in accordance with this
    administration's stated objectives.
        We are proud to state once again for the record that there has
    never been a default in the RUS/REA telephone program! All loans have
    been repaid in accordance with their terms, almost $11 billion in
    principal and interest at the end of the last fiscal year.

               NEED FOR RUS TELECOMMUNICATIONS LENDING CONTINUES

        The need for rural telecommunications lending is great today,
    possibly even greater than in the past. Technological advances make it
    imperative that rural telephone companies upgrade their systems to keep
    pace with improvements and provide the latest available technology to
    their subscribers. And last year, Congress established a national
    policy initiative mandating access to broadband for rural areas. But
    rapid technological changes and the inherently higher costs to serve
    rural areas have not abated, and targeted support remains essential.
        Competition among telephone systems and other technological
    platforms has increased pressures to shift more costs onto rural
    ratepayers. These shifts led to increases in both interstate subscriber
    line charges and universal service surcharges on end users to recover
    the costs of interstate providers' assessments to fund the Federal
    mechanisms. Pressures to recover more of the higher costs of rural
    service from rural customers to compete in urban markets will further
    burden rural consumers. There is a growing funding crisis for the
    statutory safeguards adopted in 1996 to ensure that rates, services and
    network development in rural America will be reasonably comparable to
    urban telecommunications opportunities.
        The FCC and the states have yet to honor the balance Congress
    achieved in the 1996 policy, as regulators (a) radically revise the
    mechanisms for preserving and advancing universal service, (b)
    interpret the Act's different urban and rural rules for how incumbent
    universal service providers and their competitors connect their
    networks and compensate each other (c) respond to pressures to
    deregulate. Regulators continue to give new entrants advantages at the
    expense of statutory universal service provisions. The FCC appears to
    remain committed to further extending its wholly inadequate way to
    measure the costs of modern, nationwide access to telecommunications
    and information. The FCC needs to reorder its priorities to ensure that
    rural Americans are not denied the ongoing network development and new
    services the Act requires.

          EXPANDED CONGRESSIONAL MANDATES FOR RURAL TELECOMMUNICATIONS

        Considerable loan demand is being generated because of additional
    mandates for enhanced rural telecommunications standards contained in
    the authorizing legislation. We are, therefore, recommending the
    following loan levels for fiscal year 2004 and the appropriation of the
    associated subsidy costs to support these levels: 5 percent Hardship
    Loans:

                                  [In dollars]
    ------------------------------------------------------------------------

    ------------------------------------------------------------------------
    5 percent Hardship Loans................................    $145,000,000
    Cost-of-Money Loans.....................................     300,000,000
    Guaranteed Loans........................................     120,000,000
    Rural Telephone Bank Loans..............................     175,000,000
                                                             ---------------
          Total.............................................     740,000,000
    ------------------------------------------------------------------------

        These are essentially the same levels established in the fiscal
    year 2003 appropriations act for the cost-of-money, Rural Telephone
    Bank and guaranteed loan programs and the same amount for hardship
    loans as requested in the President's budget for fiscal year 2004. The
    authorized levels of loans in all programs were fully obligated in
    fiscal year 2002 and we expect these levels to be met in fiscal year
    2003. We believe that the needs of this program balanced with the
    minimal cost to the taxpayer make the case for its continuation at the
    stated levels.

                           RURAL TELEPHONE BANK LOANS

        The administration again proposes to not fund new Rural Telephone
    Bank (RTB) loans in fiscal year 2004.
        The Rural Telephone Bank was established by Congress in 1971 to
    provide supplemental financing for rural telephone systems with the
    objective that the bank ultimately would be owned and operated by its
    private shareholders. Privatization of the RTB began in 1995 under the
    current law and the retirement of Class A government stock is
    proceeding annually at the rate of approximately $25 million per year.
    The Bank has now retired about 27 percent, of the government's $592
    million investment. As we pointed out in our testimony last year, not
    funding new loans in the next fiscal year could actually impede
    privatization of the Bank since the law requires that the Bank annually
    retire government stock at the rate of at least 5 percent of the amount
    of Class B stock sold in connection with new loans. If no new loans
    were made, there would be no minimum requirement for retirement of
    additional government stock.
        The current loan level of $175 million has remained the same for
    many years. As a matter of fact, after factoring in the eroding effect
    of inflation, loan levels over the years have actually been reduced
    systematically. Despite this fact, we believe that the $175 million
    level is adequate to meet current program needs and strikes a cost
    effective balance for the taxpayer. If no bank loans were made in
    fiscal year 2004, the budgetary outlay savings would be minimal because
    RTB loans are funded over a multi-year period. Moreover, if
    administration interest rate predictions are accurate, RTB loans will
    generate a profit for the government because of the minimum statutory
    interest rate of 5 percent.

          BROADBAND LOANS UNDER THE 2002 FARM ACT (PUBLIC LAW 101-171)

        The administration is recommending that the mandatory funding of
    loans for the deployment of broadband technology in rural areas
    provided in last year's farm act in the amount of $20 million (new
    section 601(j)(1)(A) of the Rural Electrification Act of 1936) be
    cancelled in fiscal year 2004 and is suggesting a general provision in
    the fiscal year 2004 appropriations bill (Sec. 722(a)) to accomplish
    this. In its place the budget requests less than half that amount, $9.1
    million in new discretionary authority for theses purposes. We are
    opposed to this dramatic reduction in the commitment made by Congress
    last year to rural areas for the deployment of broadband technology.
    The farm act program has been implemented by RUS and loans are being
    made in this fiscal year pursuant to the new authority. Disrupting the
    multi-year authority in the fashion recommended by the administration
    would create uncertainty to prospective borrowers under the new program
    and undermine Congress' efforts to accelerate deployment of this
    technology to our rural citizens.
        In addition, we are seeking clarifying language in the bill to
    assure that all communities in the United States under 20,000
    population will qualify for broadband loans in fiscal year 2004. The
    enabling act eligibility provision (new section 601 of Title VI of the
    Rural Electrification Act of 1936) is technically defective as enacted
    and is causing substantial unintended consequences by excluding
    otherwise eligible rural areas from the program. Subsection (B)
    excludes from program eligibility any area that ``is not located in an
    area designated as a standard metropolitan statistical area'' even
    though its population is less than 20,000 (the criteria under
    Subsection (A)). The Bureau of the Census has not recognized ``standard
    metropolitan statistical areas'' since before 1990. This restriction
    could exclude up to 40 percent of otherwise eligible rural communities
    from this new program if not corrected, effectively undermining
    Congress' efforts to accelerate deployment of broadband technology in
    rural areas.

                          SPECIFIC ADDITIONAL REQUESTS

    Continue the Restriction on Retirement of Class A Government Stock in
            the Rural Telephone Bank (RTB) and also Continue the
            Prohibition Against Transfer of RTB Funds to the General Fund
            and Require the Payment of Interest
        The Committee should continue the restriction on retirement of the
    amount of class A stock by the Rural Telephone Bank in fiscal year
    2004. The Bank is currently in the process of retiring the government's
    stock as required under current law. We believe that this process which
    began in fiscal year 1996 should continue to be an orderly one as
    contemplated by the retirement schedule enacted seven years ago and
    continued through last year's bill to retire no more than 5 percent of
    the total class A stock in one year. The Rural Telephone Bank board
    last year commissioned a private firm to perform a privatization study.
    This study has just been completed and its recommendations are
    currently being evaluated by the administration, RTB board, RTB
    shareholders and interested members of the public. After that review is
    complete, both Congress and the rural telephone industry will be in a
    better position to evaluate the appropriate level of retirement of the
    government's Class A stock in the future. In the meantime, we urge the
    Committee to continue the current restriction as well as the
    prohibition against the transfer of any unobligated balance in the
    bank's liquidating account which is in excess of current requirements
    to the general fund of the Treasury along with the requirement that the
    bank receive interest on those funds. The private Class B and C
    stockholders of the Rural Telephone Bank have a vested ownership
    interest in the assets of the bank including its funds and their rights
    should be protected. Previous appropriations acts (Fiscal Year 1997
    through 2003) have recognized the ownership rights of the private class
    B and C stockholders of the bank by prohibiting a similar transfer of
    the bank's excess unobligated balances which otherwise would have been
    required under the Federal credit reform act.

    Reject Budget Proposal to Transfer Funds from RTB Liquidating Account
            for Administrative Costs
        The President's budget proposes that the bank assume responsibility
    for its administrative costs by a transfer of funds from the
    unobligated balances of the bank's liquidating account rather than
    through an appropriation from the general fund of the Treasury. This
    recommendation is contrary to the specific language of Sec. 403(b) of
    the RTB enabling act and would require enactment of new authorizing
    legislation as a prerequisite to an appropriation. It would not result
    in budgetary savings and has been specifically rejected by this
    Committee in previous years. No new justification is contained in this
    year's budget and once again we request its rejection.
        Loans and Grants for Telemedicine, Distance Learning and Internet
    Access. We support the continuation in fiscal year 2004 of the $25
    million in loan and grant authority provided in the President's budget
    for telemedicine and distance learning purposes. Loans are made at the
    government's cost-of-money. The purpose is to accelerate deployment of
    telemedicine and distance learning technologies in rural areas through
    the use of telecommunications, computer networks, and related advanced
    technologies by students, teachers, medical professionals, and rural
    residents. We also support making available $2 million in additional
    funds available for grants for broadband facilities and internet access
    in rural areas, as recommended in this year's budget.

                                   CONCLUSION

        Thank you for the opportunity to present the association's views
    concerning this vital program. The telecommunications lending programs
    of RUS continue to work effectively and accomplish the objectives
    established by Congress at a minimal cost to the taxpayer.
                                     ______

       Prepared Statement of the National Telecommunications Cooperative
                                  Association

                                    SUMMARY

        NTCA makes the following fiscal year fiscal year 2004 funding
    recommendations with regard to the Rural Utilities Service
    Telecommunications Loan Program and related programs.
      --Support the provisions of the president's budget proposal calling
            for the required subsidy to fully fund the RUS
            Telecommunications Loan Program's Hardship Account at a $145
            million level, Cost of Money Account at a $250 million level,
            and the Guaranteed Account at a $100 million level.
      --Reject the provisions of the president's budget proposal calling
            for zero funding for the Rural Telephone Bank (RTB). Instead,
            provide the required subsidy to fully fund the bank at last
            fiscal year's $175 million level.
      --Reject the provisions of the president's budget proposal calling
            for funding the Rural Broadband Access Loan and Loan Guarantee
            Program to be funded through discretionary funding and instead
            funded at a level consistent with authorizing language.
      --Repeal existing language prohibiting the use of loans to serve
            communities located in metropolitan statistical areas (MSA's).
      --Support an extension of language that temporarily sets aside the 7
            percent interest rate cap on loans made through the RUS Cost of
            Money fund.
      --Support an extension of the language limiting the maximum amount of
            Rural Telephone Bank Class A stock that may be retired in
            fiscal year 2004.
      --Support an extension of the restriction against RTB Liquidating
            Account funds from being transferred into the general Treasury.
      --Support an extension of language prohibiting the expenditure of RTB
            Liquidating Account funds to provide for the subsidy or
            operational expenses of the bank.
      --Support full funding of the Distance Learning and Telemedicine
            Grant and Loan Program.
      --Support for funding of the Rural Business-Cooperative Service Grant
            and Loan Program.

    Background
        NTCA is a national association representing more than 560 small,
    rural, cooperative and commercial, community-based local exchange
    carriers (LECS) located throughout the nation. These locally owned and
    operated LECS provide local exchange service to more than 2.5 million
    rural Americans. While serving close to 40 percent of the geographic
    United States, NTCA members serve only 4 percent of the country's
    access lines. Since the creation of the RUS Telecommunications Loan
    Program, more than 80 percent of NTCA's member systems have been able
    to utilize the Federal program to one degree or another.
        NTCA's members, like most of the country's independent LECS,
    evolved to serve high-cost rural areas of the nation that were
    overlooked by the industry's giants as unprofitable. On average, NTCA
    members have approximately 6 subscribers per mile of infrastructure
    line, compared with 130 for the larger urban-oriented LECs. This
    results in an average plant investment per subscriber that is 38
    percent higher for NTCA members compared to most other systems.
        Congress recognized the unique financing dilemma confronting
    America's small rural LECS as early as 1949, when Congress amended the
    Rural Electrification Act (REA) to create the Rural Electrification
    Administration Telephone Loan Program. Today, this program is known as
    the RUS Telecommunications Loan Program. Through the years Congress has
    periodically amended the REA to ensure that original mission--to
    furnish and improve rural telephone service--was met. In 1971, the
    Rural Telephone Bank (RTB) was created to as a supplemental source of
    direct loan financing. In 1973, the RUS was provided with the ability
    to guarantee Federal Financing Bank (FFB) and private lender notes. In
    1993, Congress established a fourth lending program--the Treasury Cost
    of Money account. In 2002, Congress again met the changing demands of
    the telecommunications industry with the establishment of the Rural
    Broadband Access Loan and Loan Guarantee Program.

                     RUS HELPS MEET INFRASTRUCTURE DEMANDS

        While the RUS has helped the subscribers of NTCA's member systems
    receive service that is comparable or superior to that available
    anywhere in the nation, their work is far from complete. As the
    Telecommunications Act of 1996 and other Federal policies continue to
    evolve, and as policymakers and the public alike continue to clamor for
    the deployment of advanced telecommunications services, the high costs
    associated with providing modern telecommunications services in rural
    areas will not diminish.
        RUS telecommunications lending has stimulated billions of dollars
    in private capital investment in rural communications infrastructure.
    In recent years, on average, less than $13 million in Federal subsidy
    has effectively generated $670 million in Federal loans and guarantees.
    For every $1 Federal funds that was invested in rural communications
    infrastructure, $4.50 in private funds was invested. The RUS is also
    making a difference in rural schools, libraries, and hospitals. Since
    1993, the RUS Distance and Learning Telemedicine Grant program has
    funded hundreds of projects throughout the nation of interactive
    technology in rural schools, libraries, hospitals, and health clinics.
        In addition, two other RUS-related programs are making a difference
    in rural America. Formerly known as the Zero Interest Loan and Grant
    Program, the Rural Economic Development Grants Programs, and the Rural
    Economic Development Loans Programs are now managed by the Rural
    Business Cooperative Service. The two programs provide funds for the
    purpose of promoting rural economic development and job creation
    projects, including for feasibility studies, start-up costs, incubator
    projects and other expenses tied to rural development.

             NTCA'S FISCAL YEAR 2004 APPROPRIATIONS RECOMMENDATIONS

    Fully Fund The Entire RUS Telecommunications Loan Program
        It is imperative that the entire RUS Telecommunications Loan
    Program be funded at the following levels:

                                  [In dollars]
    ------------------------------------------------------------------------

    ------------------------------------------------------------------------
    Hardship Account........................................     145,000,000
    Cost of Money/Treasury Account..........................     250,000,000
    Guaranteed Account......................................     100,000,000
    Rural Telephone Bank Account............................     175,000,000
    ------------------------------------------------------------------------

        Included in the Farm Bill (Public Law 107--171) was authorization
    of the Rural Broadband Access Loan and Loan Guarantee program. Built
    upon a record of strong demand during its pilot status, congressional
    language was explicit in its intent to assist in broadband deployment
    in the smallest and most rural communities in the United States.
    Earlier this year, USDA and RUS officials unveiled the regulations and
    were able make available $1.4 billion in loans (fiscal year 2002 and
    2003 funds). Such level of funding must be maintained to meet the
    continually growing needs of advanced telecommunications services
    across the United States.
        Additionally, to support the operations of the RUS, it is critical
    that Congress provide at least $41.562 million in administrative
    appropriations the president's budget proposal envisions.

    Reject the President's Proposal To Provide Zero RTB Funding
        The president's budget contains a proposal recommending the Rural
    Telephone Bank should not be funded in fiscal year 2004. In presenting
    last year's budget, the administration stated that the RTB had outgrown
    its need and usefulness. NTCA adamantly disagrees as the demand for
    advanced telecommunications services continues to grow and our members
    continue to meet this demand. To this end, we believe the president's
    decision to zero out funding for the RTB is without merit.
        Privatization of the RTB is moving at pace mandated by Congress. As
    this occurs, NTCA wants to ensure the financial stability of the future
    Bank with minimal amount of risk for borrowers, shareholders and
    taxpayers. This transition to a private entity will require legislative
    changes to the Rural Electrification Act. NTCA believes this should
    occur with minimal disruptions to existing capital markets. In light of
    this fact, as well Congress' decision to reject the president's
    previous proposal to zero out RTB funding, we urge Congress to again
    reject this ill-conceived proposal and instead fully fund the bank at
    its regular $175 million annual level.

    Reject the President's Proposal to fund the Rural Broadband Access Loan
            and Loan Guarantee Program through discretionary funding
        Acting on the tremendous demand for advanced rural
    telecommunications, the Congress authorized the Rural Broadband program
    as part of the 2002 Farm Bill and provided for $100 million for the
    program until 2007. The mandate from Congress was to provide loans to
    the most underserved areas of rural America. With the proven demand of
    the program established during its pilot status, NTCA believes the
    President's budget request to cancel the $20 million in mandatory
    funding, and instead fund through discretionary spending, should be
    rejected and the Rural Broadband Access Loan and Loan Guarantee Program
    should be funded consistent with congressional authorization.

    Repeal language prohibiting communities included in Metropolitan
            Statistical Areas from eligibility under the Rural Broadband
            Access Loan and Loan Guarantee Program
        Under the existing language, communities under 20,000 that are
    located in a Metropolitan Statistical Areas are ineligible for loans
    under the Rural Broadband Access Loan and Loan Guarantee Program. The
    intent of the authorizing language was to ensure only rural communities
    would benefit by the Rural Broadband Access Loan and Loan Guarantee
    Program. Unfortunately, this language has excluded thousands of
    unserved communities that would otherwise be eligible. This provision
    should be repealed and program language be brought in tune with
    population limits of other Rural Development programs.

    Extend Removal Of the Interest Rate Cap On Treasury-Rate Loans
        NTCA is also requesting that Congress again include language
    removing the 7 percent interest rate cap on Treasury-rate loans. This
    provision has been included in recent appropriations measures to
    prevent the potential disruption of the program in the case where
    interest rates exceed 7 percent and insufficient subsidy cannot support
    authorized lending levels.

    Extend existing language limiting the retirement of Class A stock in
            the Rural Telephone Bank
        The Rural Utilities Service is currently undergoing extensive
    evaluation of the privatization issue. With the recent completion of
    the private contractor's privatization study, the recommendations and
    fiscal implications of the report are currently being examined by the
    RTB Board and interested stakeholders. As the future structure of the
    RTB is still currently under examination, NTCA believes existing
    language limiting the amount of stock to be retired at 5 percent should
    be continued.

    Prohibit The Transfer Of Unobligated RTB Liquidating Account Balances
        NTCA also recommends that Congress continue the prohibition against
    the transfer of any unobligated balances of the Rural Telephone Bank
    liquidating account to the general fund of the Treasury. This language
    has routinely been included in annual appropriations measures since the
    enactment of the Federal Credit Reform Act (FCRA, Public Law 101-508)
    that allows such transfers to potentially occur. Restatement of this
    language will ensure that the RTB's private class B & class C
    stockholders are not stripped of the value of their statutorily
    mandated investment in the Bank.

    Prohibit RTB From Self Funding Subsidy and Administrative Costs
        NTCA urges Congress to maintain its prohibition against unobligated
    RTB Liquidating Account Balances being used to cover the bank's
    administrative and operational expenses for the following reasons: (1)
    such action would require amending the REA, (2) the proposal appears to
    be in conflict with the intent of the FCRA, (3) the proposal will not
    result in Federal budgetary savings, (4) it is unnecessary to the
    determination of whether the bank could operate independently, and thus
    would amount to wasting the resources of the bank which could be put to
    better use upon its complete privatization.

    Continue Distance Learning and Telemedicine Loan and Grant Program
        The RUS Distance Learning and Telemedicine Loan and Grant program
    has proven to be an indispensable tool for rural development. In this
    regard NTCA urges Congress to provide adequate funding for this
    critical program. NTCA supports the recommendations for this program
    that are contained in the president's budget proposal.

    Preserve RBCS Rural Development Grant and Loan Programs
        Likewise, NTCA has witnessed the good these programs have done for
    rural communities. NTCA urges Congress to ensure adequate funding is at
    levels that are adequate to meet current demand for the programs.

                                   CONCLUSION

        The RUS Telecommunications Loan Program bears a proud record of
    commitment, service and achievement to rural America. Never in its
    entire history has the program lost a dollar to abuse or default--
    unparalleled feat for any government-sponsored lending program. Cleary
    such a successful program should remain in place to continue ensuring
    rural Americans have the opportunity to play a leading role in the
    information age in which we live. After all, an operational and
    advanced rural segment of the nation's telecommunications
    infrastructure is critical to truly ensuring that the national
    objective of universal telecommunications service is fulfilled. We look
    forward to working with you to accomplish this objective.
                                     ______

        Prepared Statement of the National Turfgrass Evaluation Program

        Mr. Chairman and Members of the Subcommittee: On behalf of the
    National Turfgrass Evaluation Program (NTEP), I appreciate this
    opportunity to provide the Subcommittee with the turfgrass industry's
    perspective in support of continuation of the $55,000 appropriation for
    the National Turfgrass Evaluation Program (NTEP) included in the
    President's fiscal year 2004 budget request for the Agricultural
    Research Service (ARS). Also, I appreciate the opportunity to present
    to you the turfgrass industry's need and justification for continuation
    of the $490,000 appropriated in the fiscal year 2003 budget for the
    full-time turfgrass scientist position within ARS. In addition, I
    appreciate the consideration of an additional appropriation of
    $5,400,000 for the first installment on the $32.4 million National
    Turfgrass Research Initiative developed by ARS and the turfgrass
    industry, with twelve new research scientist positions.
    Justification of $55,000 Appropriation Request for Program Support.
        Once again, NTEP and the turfgrass industry come to the
    appropriations process to request continuation of the $55,000 basic
    program support in the ARS budget for NTEP's activities at Beltsville.
    We appreciate the Subcommittee's continuation of this amount as in
    previous fiscal years, and hope that you will agree with us that this
    request is justified for the ensuing fiscal year.
        The National Turfgrass Evaluation Program (NTEP) is unique in that
    it provides a working partnership that links the Federal Government,
    turfgrass industry and land grant universities together in their common
    interest of turfgrass cultivar development, improvement and evaluation.
    The National Turfgrass Evaluation Program is the primary means by which
    cultivated varieties of turfgrass are evaluated in this country. It
    provides unbiased information on turfgrass cultivar adaptations,
    disease and insect resistance and environmental stress tolerance. The
    public and private sectors of the turfgrass industry use this
    information to develop cultivar recommendations for home owners, sod
    producers, sports turf and parks managers, golf course superintendents
    and highway vegetation managers.
        Our nation's awareness of safety is at an all-time high. Turfgrass
    provides multiple benefits to society including child safety on
    athletic fields, environmental protection of groundwater, reduction of
    silt and other contaminants in runoff, green space in home lawns,
    parks, golf courses, etc. With the advancements being made to
    turfgrasses that require less pesticides, water and other inputs as
    well as other efforts to improve integrated pest management programs,
    recycling, etc., the USDA has a unique opportunity to take positive
    action in support of the turfgrass industry. With a minuscule
    investment of Department funds, in relative terms within USDA's budget,
    a tremendous return can be gained for society and the turfgrass
    industry.
        While the vast majority of the USDA's funds have been and will
    continue to be directed toward traditional ``food and fiber'' segments
    of U.S. agriculture, it is important to note that turfgrasses (e.g.,
    sod production) are defined as agriculture in the Farm Bill and by many
    other departments and agencies. Further, it is estimated by the
    Economic Research Service that the turfgrass industry, in all its
    forms, is a $40 billion industry. It should also be noted that the
    turfgrass industry is the fastest growing segment of U.S. agriculture,
    while it receives essentially no Federal support. There are no subsidy
    programs for turfgrass, nor are any desired.
        For the past seventy years, the USDA's support for the turfgrass
    industry has been modest at best. The turfgrass industry's rapid
    growth, importance to our urban environments, and impact on our daily
    lives warrant more commitment and support from USDA. Failing to support
    the National Turfgrass Evaluation Program, would be a tremendous
    oversight of a major opportunity. USDA's support of NTEP at the $55,000
    level does not cover all costs. In fact, NTEP represents an ideal
    partnership of the public and private sectors in terms of program cost
    sharing. The NTEP relies most heavily on turfgrass industry (i.e.,
    public sectors, end-users) support. However, it is essential that the
    USDA maintain its modest financial support and work closely with NTEP.
    The turfgrass industry relies heavily on NTEP for unbiased information.
    Discounting this support will also eliminate a highly reliable and
    credible level of objectivity that is associated with the NTEP program.

    Justification of $490,000 Appropriation Request for the ARS Scientist
            Position as well as $5,400,000 Appropriation Request for the
            first installment on the National Turfgrass Research Initiative
        NTEP and the turfgrass industry are requesting the Subcommittee's
    support for $490,000 continuing funding for the full-time scientist
    staff position at ARS, focusing on turfgrass research, that was
    appropriated in the fiscal year 2003 budget. We also request that the
    Subcommittee appropriate an additional $5,400,000 for the first
    installment on the $32.4 million National Turfgrass Research
    Initiative. This Initiative has been developed by USDA, ARS in
    partnership with the turfgrass industry. We are asking for funding for
    the most pressing research needs, which address water use/efficiency
    and environmental issues.
        Our society is becoming increasingly more urbanized. Currently,
    turfgrasses impact more than 90 percent of all people in the United
    States through exposure to home lawns, business landscapes, roadsides,
    parks, or recreational turf on a daily basis. As more and more cropland
    is converted to houses, office parks, shopping centers, etc., the
    acreage of turfgrass is increasing exponentially. However, with the
    increasing urbanization comes a greater demand on resources, such as
    potable water. Also, with the general public experiencing heightened
    awareness of the environment and its protection, use of inputs such as
    fertilizer, pesticides and water on turfgrass areas is coming under
    greater scrutiny. In some jurisdictions, use of these inputs will
    either be banned or severely restricted for turfgrass use. In addition,
    the urbanization of America is leading to an overuse of current
    recreational facilities such as parks, athletic fields and golf
    courses. New facilities are being considered or constructed, many on
    abandoned sites such as landfills, industrial wastelands, gravel pits
    or mine spoils. Turfgrasses in these areas will play an important role
    in reclamation vegetation, recreational turf or both.
        The USDA needs to initiate and maintain ongoing research on
    turfgrass development and improvement for the following reasons:
        The value of the turfgrass industry in the United States is $40
    billion annually. There are an estimated 50,000,000 acres of turfgrass
    in the United States Turfgrass is the number one or two agricultural
    crop in value and acreage in many States (i.e. MD, PA, FL, NJ, NC).
        As our society becomes and more urbanized, the acreage of turfgrass
    will increase significantly. Consequently, State and local
    municipalities will require the utilization of other water sources
    (i.e. effluent, reclaimed, etc.), reduction of pesticide use and
    elimination of nutrient runoff from turfgrass. However, demand on
    recreational facilities will increase while these facilities, for
    safety reasons, will still be required to provide safe, attractive
    athletic fields, parks and grounds.
        Private and university research programs are working to develop
    improved turfgrasses, but they do not have the time nor resources to
    identify completely new sources of beneficial genes in commonly used
    species or the usefulness of potential new species. In addition, new
    plant materials collected by these institutions most often are not
    placed in the National Plant Germplasm System for use by all interested
    parties. Additionally, long-term research to identify and transfer
    desirable genes from other species (turfgrass or other crop species) is
    not being undertaken by public and private interests. ARS scientists
    working with turfgrass will enhance the ongoing research and
    development currently underway within the public and private sectors of
    the turfgrass industry.
        Water management is a key component of healthy turf and has direct
    impact on nutrient and pesticide losses into the environment. New and
    improved technologies are needed to monitor turf stresses and to
    schedule irrigation to achieve the desired turf quality. Increasing
    demands and competition for potable water make it necessary to use
    water more efficiently for turf irrigation. In addition, severe
    droughts in the West, Southeast and Mid-Atlantic States over the last
    several years have resulted in less water available and watering
    restrictions. These drought situations have severely impacted the turf
    industry as well as homeowners and young athletes. Technologies are
    needed to more efficiently and uniformly apply irrigations to achieve
    desired turf quality for the intended use as well as develop drought
    tolerant grasses. Also, there is greater competition for potable water.
    Therefore, to increase water availability for turf irrigation, waste
    water (treated and untreated) from both animal and municipal sources as
    well as from food processing plants must be utilized. Some of these
    waste waters contain contaminants such as pathogens, heavy metals, and
    organic compounds. consequently, movement and accumulation of these
    contaminants in the atmosphere, soil profile, and ground water must be
    determined.
        USDA conducted significant turfgrass research from 1920-1988.
    However, since 1988, no full-time scientist has been employed by USDA,
    Agricultural Research Service (ARS) to conduct turfgrass research
    specifically.
        A new turfgrass research scientist position within USDA, ARS was
    created by Congress in the fiscal year 2001 budget. Accordingly, in
    January 2001, the turfgrass industry met with USDA, ARS officials to
    discuss the position description, hiring process, facilities needed,
    etc. for the new position. ARS welcomed the new position but felt
    strongly that just one person working in turfgrass research would be
    ineffective in addressing the needs and concerns of the industry.
    Therefore, in January 2002, ARS held a customer workshop to gain
    valuable input from turfgrass researchers, golf course superintendents,
    sod producers, lawn care operators, athletic field managers and others
    on the research needs of the turfgrass industry. As a result of the
    workshop, ARS has developed, in conjunction with industry, a national
    strategy to address the specific needs and concerns within the
    turfgrass industry. The highlights of this strategy are below:
        The turfgrass industry is very excited about this new proposal and
    wholeheartedly supports the efforts of ARS. Since the customers at the
    workshop identified turfgrass genetics/germplasm and water quality/use
    as their top priority areas for ARS research, for fiscal year 2004, the
    turfgrass industry requests that the following positions be established
    within USDA, ARS:
      --Water Use Efficiency/Use of Other Water Sources--three (3) research
            scientist positions to develop improved irrigation technologies
            and investigate the impacts of using recycled water for turf.
      --Germplasm Collection, Enhancement and Preservation--three (3)
            research scientist positions to identify germplasm tolerant of
            drought and other stresses, move genes that confer drought and
            stress tolerance to desirable turfgrasses.
      --Environmental Aspects of Turf Management--three (3) research
            scientist positions to investigate turfgrasses' ability to
            impact pesticide and nutrient transport in soil and water.
      --Pest Management Practices--three (3) research scientists to
            investigate turfgrass pests and pest management practices to
            reduce pesticide use and maximize efficiency of applications.
        We propose that this research be conducted in conjunction with
    appropriate university cooperators. For this ARS-University
    partnership, we propose that funding be allocated such that ARS can
    adequately conduct in-house research as well as in cooperation with
    university partners. We are asking for $300,000 for each ARS scientist
    position with an additional $150,000 attached to each position to be
    distributed to university partners. We are also asking that the funding
    be given to ARS and then distributed by ARS to those university
    partners selected by ARS and industry representatives.

    ------------------------------------------------------------------------

    ------------------------------------------------------------------------
    Funding Breakdown:
        ARS Scientist Positions ($300,000 ea.  12).........      $3,600,000
        University Cooperative Research Agreements ($150,000       1,800,000
         ea.  12) (administered by ARS)....................
                                                             ---------------
          Total Request.....................................       5,400,000
    ------------------------------------------------------------------------

        In conclusion, on behalf of the National Turfgrass Evaluation
    Program and the turfgrass industry across America, I respectfully
    request that the Subcommittee continue the vital $55,000 appropriation
    for the National Turfgrass Evaluation Program (NTEP) as well as the
    $490,000 appropriated in fiscal year 2003 for the new turfgrass
    scientist position within the Agricultural Research Service. I also
    request that the Subcommittee appropriate an additional $5,400,000 for
    twelve new turfgrass scientist positions within ARS.
        Thank you very much for your assistance and support.
                                     ______

             Prepared Statement of the National Watershed Coalition

        Mr. Chairman and members of the Subcommittee, I am Larry Smith from
    Berkeley Springs, West Virginia, and I am pleased to represent the
    National Watershed Coalition (NWC) as its Chairman. The National
    Watershed Coalition is privileged to present this testimony in support
    of the most beneficial water resource conservation programs ever
    developed in the United States. The Coalition recognizes full well the
    need to use our tax dollars wisely. That makes the work of this
    Subcommittee very important. It also makes it imperative that the
    federal programs we continue are those that provide real benefit to
    society, and are not programs that would be nice to have if funds were
    unlimited. We believe the Watershed Program (Public Law 83-566) and the
    Flood Prevention Operations Program (Public Law 78-534) are examples of
    those rare programs that address our nation's vital natural resources
    which are critical to our very survival, do so in a way that provide
    benefits in excess of costs, and are programs that serve as models for
    the way all federal programs should work. The President's proposed
    fiscal year 2004 budget would severely cut watershed program funding
    from current levels, and is unacceptable to watershed project sponsors
    throughout the United States.

    General Watershed Program Observations
        The watershed as the logical unit for dealing with natural resource
    problems has long been recognized. Public Law 566 offers a complete
    watershed management approach, and should have a prominent place in our
    current federal policy emphasizing watersheds and total resource
    management based planning. Proper watershed management improves water
    quality. Why should the federal government be involved with these
    watershed programs?
      --They are programs whose objectives are the sustaining of our
            nation's precious natural resources for generations to come.
      --They are not federal, but federally assisted, locally sponsored and
            owned. They do not represent the continued growth of the
            federal government.
      --They are locally initiated and driven. Decisions are made by people
            affected, and respect private property rights.
      --They share costs between the federal government and local people.
            Local sponsors pay between 30-40 percent of the total costs of
            Public Law 566 projects.
      --They produce net benefits to society. The most recent program
            evaluation demonstrated the actual ratio of benefits to costs
            was approximately 2.2:1. The actual adjusted economic benefits
            exceeded the planned benefits by 34 percent. How many other
            federal programs do so well?
      --They consider and enhance environmental values. Projects are
            subject to the discipline of being planned following the
            National Environmental Policy Act (NEPA), and the federal
            ``Principles and Guidelines'' for land and water projects. That
            is public scrutiny!
      --They are flexible programs that can adapt to changing needs and
            priorities. Objectives that can be addressed are flood damage
            reduction, watershed protection (erosion and sediment control),
            water quality improvement, rural water supply, water
            conservation, fish and wildlife habitat improvement,
            recreation, irrigation and water management, etc. That is
            flexibility emphasizing multiple uses.
      --They are programs that encourage all citizens to participate.
      --They can address the needs of low income and minority communities.
      --They are targeted to address the most serious resource problems.
      --And best of all--they are programs the people like!
        The National Watershed Coalition is concerned with the
    Administration's minimal support for these watershed programs, and
    trusts your deliberations will cause the outcome of the fiscal year
    2004 appropriations process to enable this vital work to continue and
    expand as we seek to preserve, protect and better manage our nation's
    water and land resources. Every State in the United States has
    benefited from the Small Watershed Program.

    National Watershed Coalition USDA Water Resource Program Budget
            recommendations

                Watershed and Flood Prevention Operations
        In order to continue this high priority work in partnership with
    states and local governments, the Coalition recommends a fiscal year
    2004 funding level of $190 million for Watersheds and Flood Prevention
    Operations, Public Law 83-566 and Public Law 78-534. The current
    unfunded federal commitment for this program is currently over $1.6
    billion.
        We recommend that $30 million of this amount be for Public Law 78-
    534 projects. The administration proposes no funding for these
    projects. For some years now, the federal budget has eliminated the
    separate line items for the Public Law 534 and Public Law 566 watershed
    projects, and just lumped a total figure under Public Law 566 with a
    note that some amount ``may be available'' for Public Law 534 projects.
    This is an entirely unsatisfactory way of doing business. Public Law
    534 still exists in law; it has not been repealed. Many rural
    communities depend upon its assistance. It should be funded as a
    separate program. This tactic is unfair to both Public Law 566 and
    Public Law 534. We ask that the Public Law 534 projects be funded at
    $30,000,000.00, and that it be separate from Public Law 566. These are
    two distinct authorities that should not be confused. The current
    situation really penalizes both Public Law 534 and 566, as 534 has no
    funds at the outset, and in order to provide a little something to the
    Public Law 534 watershed projects, NRCS has to take money from the
    Public Law 566 accounts which are already very underfunded. Please
    restore funding for Public Law 534 watershed projects to $30 million in
    fiscal year 2004.
        The $190 million request represents the actual amount watershed
    project sponsors across the country have indicated they can use now for
    projects ready for installation. It is a real, community based,
    documented need. The administrations proposal of $40 million would
    actually cut funds for watershed operations by 65 percent from what was
    available in fiscal year 2003.

                Watershed Surveys and Planning
        We recommend that watershed surveys and planning be funded at $35
    million. Watershed sponsors and communities throughout the country have
    indicated a need for $38 million for surveys and planning. The National
    Watershed Coalition believes the $35 million amount is a reasonable
    request when all national water resource priorities are considered. The
    administrations proposal of $5 million would actually cut funds for
    watershed planning by 55 percent from what was available fiscal year
    2003.

                Watershed Rehabilitation
        We recommend $45 million be provided for structural rehabilitation
    and replacement in fiscal year 2004, in accordance with Public Law 106-
    472, the Small watershed Rehabilitation Amendments of 2000, passed by
    the Congress and signed into law on November 9th, 2000, and that
    another $5 million be available for a thorough assessment of
    rehabilitation needs. The condition of our nation's dams, and the need
    for watershed structure rehabilitation, is a national priority. We are
    very disappointed to see the Administration's proposed budget
    apparently doesn't believe it is a national priority to protect the
    lives of America's citizens. Congress has indicated it is a priority
    with passage of Public Law 106-472. The 2002 Farm Bill would actually
    have provided $90 million for this purpose in fiscal year 2004, if all
    its provisions had been funded.
        The issue of the current condition of those improvements
    constructed over the last 50 years with these watershed programs is a
    matter of great concern. Many of the 11,000 plus dams that NRCS
    assisted sponsors build throughout the United States, no longer meet
    current dam safety standards largely as a result of development, and
    need to be upgraded to current standards. A USDA study published in
    1991 estimated that in the next 10 years, $590 million would be needed
    to protect the installed works. Of that amount, $100 million would come
    from local sponsors as their operation and maintenance contributions.
    NRCS also conducted a more recent survey, and in just 22 states, about
    $540 million in rehabilitation needs were identified. We are
    recommending $45 million in fiscal year 2004, and commend Congress for
    their leadership in passing Public Law 106-472 and the 2002 Farm Bill.
    Watershed project sponsors throughout the United States appreciate your
    leadership on this vital issue. We now have the authorization, and need
    the appropriations. If we don't start to pay attention to our rural
    infrastructure needs, the ultimate cost to society will only increase,
    and project benefits will be lost. This is a serious national issue.
    Since most of these structures were constructed in the 1950's, 1960's,
    and 1970's, and were originally designed with a 50-year life, it is
    apparent we need to look at their current condition. If we do the
    rehabilitation work to bring these older structures up to current
    health and safety standards, they will continue to provide benefits far
    into the future. We are dismayed that the Administration's budget only
    provides $10 million for this work. That amount would actually cut
    fiscal year 2003 rehabilitation funding by 65 percent which is
    unacceptable to watershed sponsors, and is unsafe.

                Watershed Research and Development
        There is a research and development (R&D) need as we get the
    structural rehabilitation process underway. In USDA, that work is
    undertaken by the Agricultural Research Service (ARS). That need is
    estimated at $3.0 million, and we ask that it be included in the ARS
    budget. It would be used for evaluation of upstream and downstream
    changes to the stream channel systems in cases of decommissioning,
    evaluation of the water quality impact of stored sediment releases, and
    the evaluation of impacts of the loss of flood protection, among other
    things. In addition, we ask that ARS be provided $10 million in fiscal
    year 2004 for basic watershed research. This is the amount needed to
    allow ARS to get back on track collecting needed basic watershed
    information. That activity has been neglected in recent years because
    of the lack of funding.

                Summary
        All people should understand these federal funds are only a part of
    the total that is committed to this vital national, conservation
    purpose. The local project sponsors in these ``federally assisted''
    endeavors also have a tremendous investment. Congress increasingly
    talks of wanting to fund those investments in our nation's
    infrastructure that will sustain us in the future. Yet past budgets
    have regularly cut funding for the best of these programs. This makes
    absolutely no sense! We can't seem to invest and re-invest in our vital
    watershed infrastructure. That is simply unconscionable. Isn't water
    quality and watershed management a national priority? We believe it is.
        Once again we are disappointed with what appears to us to be a lack
    of Administration commitment for these very beneficial conservation
    programs. The Administration needs to recognize watershed natural
    resources conservation as a high national priority, as you do. It's
    only common sense.
        The Coalition appreciates the opportunity to offer these comments
    regarding fiscal year 2004 funding for the water resource programs
    administered by USDA's Natural Resources Conservation Service (NRCS).
    With the ``downsizing'' the NRCS has experienced, we would be remiss if
    we did not again express some concern as to their ability to provide
    adequate technical support in these watershed program areas. NRCS
    technical staff has been significantly reduced and budget constraints
    have not allowed that expertise to be replaced. Traditional fields of
    engineering and economics are but two examples. We see many states
    where NRCS capability to support their responsibilities is seriously
    diminished. This is a disturbing trend that needs to be halted, and we
    are not convinced that using ``Technical Service Providers'' from the
    private sector is the answer. This downsizing has a very serious effect
    on state and local conservation programs. Local Watershed and
    Conservation Districts and the NRCS combine to make a very effective
    delivery system for providing the technical assistance to local
    people--farmers, ranchers and rural communities--in applying needed
    conservation practices. But that delivery system is currently very
    strained! Many states and local units of government also have
    complementary programs that provide financial assistance to land owners
    and operators for installing measures that reduce erosion, improve
    water quality, and maintain environmental quality. The NRCS provides,
    through agreement with the USDA Secretary of Agriculture, ``on the
    land'' technical assistance for applying these measures. The delivery
    system currently is in place, and by downsizing NRCS, we are eroding
    the most effective and efficient coordinated means of working with
    local people to solve environmental problems that has ever been
    developed. Our system and its ability to produce food and fiber is the
    envy of the entire world. In our view, these programs are the most
    important in terms of national priorities.
        The Coalition pledges its full support to you as you continue your
    most important work. Our Executive Director, Mr. John W. Peterson, who
    has over 40 years experience in natural resource watershed
    conservation, is located in the Washington, DC area, and would be
    pleased to serve as a resource as needed. John's address is 9304 Lundy
    Court, Burke, VA 22015-3431, phone 703-455-6886 or 4387, Fax; 703-455-
    6888, email; jwpeterson@erols.com.
        Thank you for allowing the National Watershed Coalition (NWC) this
    opportunity.
                                     ______

           Prepared Statement of the National Rural Housing Coalition

        Mr. Chairman and members of the House Subcommittee on Agriculture,
    my name is Robert Rapoza and I wish to testify on behalf of the
    National Rural Housing Coalition.
        I wish thank you for the Subcommittee's support of the Rural
    Development programs of the United States Department of Agriculture and
    to urge you to support an increase in its budget for fiscal year 2004.
        As you may know, the National Rural Housing Coalition (the
    Coalition) has been a national voice for rural low-income housing and
    community development programs since 1969. Through direct advocacy and
    policy research, the Coalition has worked with Congress and the
    Department of Agriculture to design new programs and improve existing
    programs serving the rural poor. The Coalition also promotes a non-
    profit delivery system for these programs, encouraging support for
    rural community assistance programs, farm labor housing grants, self-
    help housing grants, and rural capacity building funding.
        The Coalition is comprised of approximately 300 members nationwide.
    We hope to work with you to assure that the voices of rural America are
    heard and its needs met. Our concerns are focused on rural housing and
    rural water and sewer systems.

                     THE NEED FOR AFFORDABLE RURAL HOUSING

        A disproportionate amount of the nation's substandard housing is in
    rural areas. Rural households are poorer than urban households, pay
    more of their income for housing that their urban counterparts, and are
    less likely to receive government-assisted mortgages. They also have
    limited access to mortgage credit and the secondary mortgage market,
    making them prime targets for predatory lending. Rural America needs
    programs that focus on the issues facing it. The Rural Housing Service
    of Rural Development provides many of these needed programs.
        According to the 2000 Census, there are 106 million housing units
    in the United States. Of that, 23 million, or 23 percent, are located
    in non-metro areas. Many non-metro households lack the income for
    affordable housing. The 2000 Census reveals that 7.8 million of the
    non-metro population is poor, 5.5 million, or one-quarter of the non-
    metro population, face cost overburden, and 1.6 million of non-metro
    housing units are either moderately or severely substandard. According
    to the USDA Economic Research Service, 4 million, or 17 percent of the
    households in non-metro areas are classified as being in housing
    poverty. Households are defined as being in housing poverty when their
    housing has at least one of four important indicators of housing
    disadvantage:
      --Economic need--housing costs over 50 percent of household income;
      --Inadequate quality--physical quality defined as moderately or
            severely inadequate using the HUD measure based on 26
            indicators of physical problems;
      --Crowding--more household members than rooms; and
      --Neighborhood quality--perception of poor quality in at least 2 out
            of 4 neighborhood conditions (crime, noise, inadequate public
            services, and litter/deteriorating housing).
        Renters in rural areas are the worst housed individuals and
    families in the country. Thirty-three percent of rural renters are
    cost-burdened, paying more than 30 percent of their income for housing
    costs. Almost one million rural renter households suffer from multiple
    housing problems, 60 percent of whom pay more than 70 percent of their
    income for housing. The Section 515 rural rental housing loan program
    at USDA serves low and very-low income families with safe affordable
    housing.
        Although issues around rental housing are of vital concern,
    homeownership is the principal form of housing in rural America.
    However, there are a number of obstacles to improving homeownership in
    rural areas including high rates of poverty and poor quality of
    housing. According to a 1999 Economic Research Service report, the
    poverty rate in rural America was 15.9 percent, compared to 13.2
    percent in urban areas.
        Rural residents also have limited access to mortgage credit. The
    consolidation of the banking industry that accelerated throughout the
    1990s has had a significant impact on rural communities. Mergers among
    lending institutions have replaced local community lenders with large
    centralized institutions located in urban areas. Aside from shifting
    the locus of loan making, this has resulted in the diminishment of a
    competitive environment that, in the past, encouraged rural lenders to
    offer terms and conditions that were attractive to borrowers.
        Because of the gap left by traditional lenders, rural households
    are often prime targets for predatory lenders. Predatory lending
    practices include excessive fees, prepayment penalties, and loan
    flipping into high cost subprime loans. Rural America depends upon the
    affordable loans through USDA's Section 502 single family direct loan
    program for homeownership.

                          USDA'S RURAL HOUSING SERVICE

        I would like to begin with the rental housing program.
    Section 515 rental housing program
        Although we often talk about the surge in homeownership and all of
    its benefits, not all us are or are prepared to be homeowners. USDA's
    Rural Housing Service Section 515 rural rental housing program is
    invaluable to low-income residents in rural areas. The portfolio
    contains 450,000 rented apartments in Section 515 developments. The
    delinquency rate is a low 1.6 percent. The average tenant income is
    $7,900, which is equal to only 30 percent of the nation's rural median
    household income. More than half of the tenants are elderly or disabled
    and one-quarter are minority.
        Federal policy faces two challenges regarding rural rental housing.
    The first is to increase the production of affordable rental housing
    units in rural communities. The second is to maintain the existing
    stock of Section 515 units.
        This year, the President's budget cut Section 515 to $71 million
    and limited it to repair, rehabilitation, and preservation. If the
    fiscal year 2004 budget request for Section 515 is approved, it will be
    the first time in more than 30 years that the Federal Government
    provides no new rental units for rural America
        Section 521 rental assistance is used in conjunction with Section
    515 to help families who cannot afford even their reduced rent. In
    recent years, mostly in response to an escalating number of expiring
    contracts, appropriations for rental assistance have gone up. Despite
    the fact that the current appropriations stand at $701 million (fiscal
    year 2002), the funds are insufficient. Although about 50 percent of
    the 450,000 Section 515 households receive rental assistance, almost
    90,000 Section 515 households who need assistance do not receive it.
    The need for rental assistance is projected to increase to $937 million
    by 2006.
        Prepayment of 515 properties is a real threat to two-thirds of the
    portfolio over the next 7 years. Prepayment often means the units are
    lost for low-income residents. In 1987, Congress enacted legislation
    restricting prepayment, and providing financial incentives to owners to
    stay in the program. However, Section 515 funding has fallen off
    dramatically, and stands at $114 million, its lowest level in 25 years.
    This allows little money to provide incentives and other resources for
    preservation.
        The demand for incentives is estimated at approximately $100
    million for equity loans alone. This includes $11 million in approved,
    but un-funded requests some of that date back 3 to 4 years. Spending
    for Section 515 rental subsidized housing has been cut by 73 percent
    since 1994. And rural rental housing unit production by the Federal
    Government has been reduced by 88 percent since 1990.
        For fiscal year 2004, we recommend a total of $250 million for
    section 515. With these funds, we proposed that $100 million be used
    for basic maintenance and preservation and $150 million for loans for
    new construction. In addition we recommend an increase of $50 million
    for rural rental assistance that will be used in conjunction with
    section 515 and farm labor housing, described later.
    Section 502 single family direct loan program
        To qualify for the direct loan program, borrowers must have very
    low or low incomes but be able to afford mortgage payments. Also,
    applicants must be unable to obtain credit elsewhere, yet have
    reasonable credit histories. The average income of households assisted
    under Section 502 is $18,500. About 9 percent of households have annual
    incomes of less than $10,000. Since its inception, Section 502 has
    provided loans to almost two million families.
        In recent years, the major trend in rural housing has been to
    guarantee home ownership loans. The fiscal year 2003 level for
    guarantees is approximately $4 billion. This program serves families
    with incomes at 125 percent of median, substantially higher than that
    of direct loans.
        Under Section 502 home ownership, the current loan level totals
    $1.044 billion. This will provide subsidized, direct loan financing for
    about 15,000 units. Under this program, families receive a subsidized
    loan for a period of 33 years. The average income of households
    assisted under Section 502 is $18,500. About 3 percent of households
    have annual incomes of less than $10,000. Since its inception, Section
    502 has provided loans to almost two million families.
        There is unprecedented demand for section 502 direct loans totaling
    several billion dollars and exceeding the budget request. The fiscal
    year 2004 budget request for Section 502 direct loans is $1.366
    billion; the largest request is several years.
        The additional funds are targeted to improve minority home
    ownership. Under the fiscal year 2004 budget, the cost per unit to
    finance housing is less than $10,000. It is important to note that the
    Administration proposes to actually reduce spending on Section 502, but
    a revised subsidy rate and lower interest rates allow resources to be
    stretched. While we would have preferred additional lending in section
    502 based on the fiscal year 2003 budget authority level, we applaud
    the focus on minority home ownership in the budget request.
    Non-Profit Organizations
        With dramatic program reductions and continued strength in the
    nation's real estate market, the private sector delivery system is no
    longer dominant as it was when funding levels were higher, and in many
    rural communities does not even exist. In some rural areas, non-profits
    have picked up the slack and pursued a multiple funding strategy.
    Skilled local organizations meld Federal, State, local and private
    resources together to provide affordable financing packages to low-
    income families. But there is not a dedicated source of Federal support
    to promote a non-profit delivery system for rural housing.
        As one way to improve its programs, USDA has expanded its
    cooperation with non-profit housing and community development
    organizations. Two successful programs are Mutual and Self-Help Housing
    and the Rural Community Development Initiative.
        Under Mutual and Self-Help Housing, with the assistance of local
    housing agencies, groups of families eligible for Section 502 loans
    perform approximately 65 percent of the construction labor on each
    other's homes under qualified supervision. This program, which has
    received growing support because of its proven model, has existed since
    1961. The average number of homes built each year over the past 3 years
    has been approximately 1,500. For fiscal year 2004, we recommend a
    total of $35 million for self-help housing. This is the same as fiscal
    year 2004.
        The Rural Community Development Initiative (RCDI) program enhances
    the capacity of rural organizations to develop and manage low-income
    housing, community facilities, and economic development projects. These
    funds are designated to provide technical support, enhance staffing
    capacity, and provide pre-development assistance--including site
    acquisition and development. RCDI provides rural community development
    organizations with some of the resources necessary to plan, develop,
    and manage community development projects. Using dollar-for-dollar
    matching funds and technical assistance from 19 intermediary
    organizations, some $12 million in capacity building funds were
    distributed to 240 communities. There is a tremendous demand for
    capacity building funding. In the fiscal year 2000 funding round,
    USDA's Rural Housing Service received some $80 million in applications
    for $6 million in appropriated funds. This valuable program is also at
    risk in the budget request this year--it has been eliminated. For
    fiscal year 2004, we recommend $6 million for the Rural Community
    Development Initiative to continue level funding for fiscal year 2002.
    Section 514 loan and Section 516 grant farm labor housing programs
        Two additional rental housing programs specifically address the
    needs of farm laborers. Migrant and seasonal farmworkers are some of
    the nation's most poorly housed populations. The last documented
    national study indicated a shortage of some 800,000 units of affordable
    housing for farmworkers.
        Farmworker households are also some of the least assisted
    households in the nation. Some 52 percent of farmworker households'
    incomes are below the poverty threshold, four times the national
    household poverty rate, and 75 percent of migrant farmworkers have
    incomes below the poverty line. Yet little more than 20 percent of
    farmworker households receive public assistance; most commonly food
    stamps, rarely public or subsidized housing.
        There are only two Federal housing programs that specifically
    target farmworkers and their housing needs: Sections 514 and 516 of the
    Housing Act of 1949 (as amended). Borrowers and grantees under Rural
    Housing Service Sections 514 and 516 receive financing to develop
    housing for farmworkers. Section 514 authorizes the Rural Housing
    Service to make loans with terms of up to 33 years and interest rates
    as low as 1 percent. Section 516 authorizes RHS to provide grant
    funding when the applicant will provide at least 10 percent of the
    total development cost from its own resources or through a 514 loan.
        Non-profit housing organizations and public bodies use the loan and
    grant funds, along with RHS rural rental assistance, to provide units
    affordable to eligible farmworkers. These funds are used to plan and
    develop housing and related facilities for migrant and seasonal
    farmworkers. Current funding for Sections 514/516 totals $37 million in
    program authority. This amount provides about 700 units of housing. The
    estimated need is two to three times the appropriated level.
        The budget request for section 514/516 is $35 million. We applaud
    the slow, but steady progress of the Committee in increasing funding
    for this very important program. We recommend that funding for
    farmworker housing grants and loans be increased to $100 million in
    budget authority for fiscal year 2004. We ask that these funds be
    equally divided between loans and grants authorized under sections 514
    and 516. This will result in approximately $150 million in financing
    for much needed farmworker housing.

                   THE NEED FOR RURAL WATER AND SEWER SYSTEMS

        Hundreds of rural communities nationwide do not have access to
    clean drinking water and safe waste disposal systems. A 1995 USDA needs
    assessment of rural areas showed that more than one million households
    had no indoor plumbing, and 2.4 million households had critical
    drinking water needs. In its 1997 Drinking Water Infrastructure Needs
    Survey, the Environmental Protection Agency estimated that over the
    next 20 years, water systems serving communities of less than 10,000
    people will require $37.2 billion in funding for water systems
    improvements and upgrades. And regarding wastewater, a 1996 EPA Survey
    demonstrated that small communities with up to 10,000 residents will
    need 21,000 wastewater treatment facilities by 2016 at a cost of
    approximately $14 billion. According to EPA's numbers, approximately
    $51.2 billion will be needed to address the basic water and wastewater
    needs of small communities.
        Many projects that the Rural Utilities Service funds are under
    consent order from the state EPA office for immediate action. The
    problems that the agency deals with range from communities and systems
    that are out of compliance with health and pollution standards, to
    communities without sewer systems where raw sewage runs in ditches
    after a heavy rainfall. Because so much time and money are spent on
    critical needs, the state offices spend less time on prevention. The
    programs and communities do not have enough resources to address issues
    before they become larger problems.
        The issue of affordability moves to the forefront with waste
    disposal systems, which are generally more expensive than water
    systems. Waste systems naturally succeed water systems--with central
    water comes indoor plumbing, washing machines, dishwashers, etc., all
    of which eventually require an efficient wastewater disposal system.
    Low-income communities often already pay as much as they can afford for
    water service alone and are unable to manage the combined user fees for
    water and waste. According to EPA data, ratepayers of small rural
    systems are charged up to four times as much per household as
    ratepayers of larger systems. In some extreme situations, some
    households are being forced out of homeownership because they cannot
    afford rising user costs.
        As I mentioned earlier, rural communities have limited access to
    much-needed debt and equity capital, and small water and wastewater
    systems lack the economies of scale needed to reduce costs on their
    own. In order for communities to cut back on project costs and have
    affordable rates, operation and maintenance are typically
    underestimated in the budgets for many new systems. This often results
    in limited or no capital improvement accounts for future upgrades and
    expansions needed for community development including stabilization of
    local small business, affordable housing development, and other needed
    industrial development.

                         USDA'S RURAL UTILITIES SERVICE

        USDA's Rural Utilities Service (RUS) is the primary Federal force
    in rural water and waste development, providing loans and grants to
    low-income communities in rural areas. The agency assists low-income
    rural communities that would not otherwise be able to afford such
    services. Approximately one-fifth of the communities served live below
    the national poverty line.
        In providing these important services, the program also protects
    public health and promotes community stabilization and development.
    Aging municipal sewage systems alone are responsible for 40,000
    overflows of raw sewage each year. The overflows cause health hazards
    including gastrointestinal problems and nausea, as well as long-term
    damage to the environment. Businesses and industries are unable or
    reluctant to locate in areas without functioning water and sewer
    systems. But with the assistance of RUS, communities are able to have
    the services they need so that their health and economies may benefit.
        Through Federal and State initiatives, RUS is working to confront
    the challenges faced by rural communities. With increasingly restricted
    time and money, state offices are using other resources such as
    leveraged funds and technical assistance from the Rural Community
    Assistance Program (RCAP). Funds are being leveraged through HUD's
    Community Development Block Grant program and the EPA's State Revolving
    Loan Funds, as well as some private lenders. Through the RCAP technical
    assistance program, more than 2,000 communities and over 1.6 million
    households in 49 states have received assistance to identify solutions
    to water problems, improve and protect water quality, and construct and
    operate facilities. The RCAP program has proven to be an effective and
    efficient way of ensuring that small rural communities receive the
    information, technical assistance, and training needed to provide for
    the water and waste disposal needs of their residents.
        Mr. Chairman and members of the Committee, we look to you for
    continued support of the efforts of Rural Development. These programs
    are vital to the survival of our small communities nationwide. They
    address the most basic needs of affordable housing and clean water that
    still exist all over the country.
        We appreciate your past support and your attention to this matter.
                                     ______

                    Prepared Statement of The Navajo Nation

                                  INTRODUCTION

        My name is Arvin S. Trujillo. I serve as Executive Director for the
    Division of Natural Resources of the Navajo Nation, America's largest
    Indian tribe. On behalf of President Joe Shirley, Jr., Vice-President
    Frank Dayish, Jr. and the Navajo people, I appreciate the opportunity
    to submit for the hearing record this Statement setting forth the
    Navajo Nation's recommendations and requests regarding fiscal year 2004
    appropriations for the U.S. Department of Agriculture (``USDA'').
        A participant in Congressional proceedings leading to enactment of
    the Farm Security and Rural Investment Act of 2002 (``Farm Bill''), the
    Navajo Nation strongly urges appropriations up to full authorized
    levels for many new, or expanded, Farm Bill programs that hold
    significant promise for at last addressing the staggering rural
    development deficit confronting the Navajo Nation. In fact, the
    Shirley-Dayish Administration, inaugurated this past January, has made
    implementation of Farm Bill programs on the Navajo Nation one of its
    top priorities over the next 4 years. Toward that end, the Navajo
    Nation looks forward to working with this Subcommittee and the full
    Committee, as well as the USDA, to improve dramatically participation
    by the historically-underserved Navajo people in USDA /Farm Bill
    programs that are extraordinarily well-suited to addressing substantial
    conservation, rural development, education and energy needs.

                                   BACKGROUND

        The Navajo Nation--with a land area covering almost 18 million
    acres--comprises one-third of all Indian lands in the lower 48 States,
    and is larger than the States of Connecticut, Delaware, Maryland,
    Massachusetts and Rhode Island combined. Unlike those States, however,
    the Navajo Nation suffers from enormous deficits in all areas critical
    to prosperous rural livelihoods.
        The unemployment rate on the Navajo Nation ranges seasonally from
    36 percent to 50 percent. Per capita income averages $6,123 (less than
    one-third of that in surrounding States), and 56 percent of Navajo
    people live below the poverty level. Massive infrastructure
    deficiencies continue to hamstring Navajo leaders' efforts to promote
    rural development and economic self-sufficiency. Though the Navajo
    Nation is slightly larger than West Virginia, our approximately 2,000
    miles of paved roads equate to barely 11 percent of West Virginia's
    18,000+ miles. Basic ``necessities'' of life, taken for granted
    elsewhere in the United States, are sorely lacking in the Navajo
    Nation. In fact, approximately 17,500 occupied structures on the Navajo
    Nation are presently without electric power--a circumstance that simply
    defies belief in 21st Century America!

          FISCAL YEAR 2004 APPROPRIATIONS RECOMMENDATIONS AND REQUESTS

        Against this background, the Navajo Nation urges the Subcommittee
    Members to provide the leadership and direction necessary to cause USDA
    increasingly to target scarce resources toward populations/areas that
    combine a compelling need for USDA's programs with a historical lack of
    access to, or participation in, those programs (in relation to other
    populations/areas). In other words, USDA resources and expertise should
    be redirected from locations (many of which have become suburban rather
    than rural) that have now realized the purposes of USDA programs to
    those locations--such as the Navajo Nation--that have benefited
    comparatively little from the resources and expertise that USDA has to
    offer.
        Among the Navajo Nation's overall appropriations recommendations,
    within which such targeting of resources should occur (including the
    specific requests identified), are the following:

                                  CONSERVATION

        Environmental Quality Incentives Program (``EQIP'').--The Natural
    Resources Conservation Service (``NRCS'') has worked diligently in
    outreach to the Navajo Nation to attempt to expand EQIP structural
    practices, but there remains enormous untapped potential for
    installation of measures to conserve scarce water resources and eroding
    cropland and rangeland. In that regard, the Navajo Nation recently
    filed comments, in the NRCS's proposed rulemaking regarding Farm Bill-
    related modifications to EQIP, urging revisions to enhance Navajo
    farmer/rancher participation. Funding of EQIP at the full authorized
    amount is recommended.
        Ground and Surface Water Conservation.--The Farm Bill established
    this new EQIP-related initiative, in part, to help producers ``improve
    irrigation systems . . . [and] enhance irrigation efficiencies,'' as
    well as to ``mitigate the effects of drought.'' This initiative offers
    opportunities to help reverse significant long-term problems that have
    plagued Navajo farmers--crumbling irrigation systems, installed in the
    1950's, that presently irrigate less than 30 percent of the farmland
    acreage originally serviced thereby, and a devastating drought that has
    adversely impacted the Navajo people for approximately 3 years. In
    written comment to the NRCS, the Navajo Nation has urged that any new
    rules/procedures take account of the special circumstances existing on
    tribal lands so that Navajo farmers can fully take advantage of these
    much-needed conservation incentives. Fully authorized funding of $60
    million should be provided, with emphasis on cost-share and incentive
    payments (rather than loan programs) for targeted areas with limited
    resources and substantial unmet needs.
        The Navajo Nation specifically requests that $350,000 of funding
    hereunder be allocated to the Ganado Irrigation Water Conservation
    Project, a model project that will bring water from Ganado Reservoir to
    640 acres of land, thereby allowing 63 Navajo land permit holders to
    return those lands to farming notwithstanding ongoing extreme drought
    conditions. The Project is integral to sustaining traditional Navajo
    crops and food products, generating revenue, and increasing employment
    in Apache County, Arizona. The first phase of construction was
    completed in the summer of 2002 in a joint effort by the Ganado Water
    Users Association of the Navajo Nation, NRCS, the Bureau of Reclamation
    and the Bureau of Indian Affairs. The requested funding would be for
    the final step to completion, including enhancing irrigation efficiency
    through the installation of plastic lining for irrigation piping.
        Watershed Planning and Operations, Emergency Watershed Protection,
    and Small Water-shed Rehabilitation.--The importance of fully
    appropriated, and fully implemented, USDA/NRCS watershed planning,
    operations and rehabilitation programs for the Navajo Nation cannot be
    overstated. Soil and water management difficulties, not to mention
    salt-laden runoff to the Colorado River System, are longstanding
    problems that demand a coordinated, comprehensive, watershed-based
    strategy and solutions utilizing the NRCS's substantial expertise.
    Regrettably, the Administration's Budget proposes a substantial decline
    in funding. Rather than eliminating these very worthwhile programs,
    funding should instead be increased so that areas, such as the Navajo
    Nation, which have not fully benefited in the past can now partake of
    the substantial potential of these programs. In particular, sufficient
    funding should be allocated to allow for reestablishment of an NRCS
    watershed planning team on the Navajo Nation.
        In addition, the Navajo Nation requests that $700,000 of technical
    assistance funding be allocated to the NRCS specifically to allow for
    development and preparation of the required follow-up documentation
    necessary to move ahead with two existing plans of importance to the
    Navajo Nation: (1) the Canyon del Muerto Natural Resource Plan, and (2)
    the Moenkopi--Tuba City Plan. Such targeted technical assistance
    funding would be utilized for preparation of small watershed plans and
    environmental assessments in furtherance of the much-needed watershed-
    related initiatives for both areas.
        Conservation Security Program.--The Navajo Nation supports the
    program goals to implement important conservation measures on working
    lands, including ``land under the jurisdiction of an Indian tribe.'' In
    fact, in recently-filed comments with the USDA regarding implementation
    of this new program, the Navajo Nation recommended policies to
    facilitate Navajo participation therein. The Budget appears to have
    significantly underfunded this new program, and the Navajo Nation urges
    increased funding thereof.
        Resource Conservation and Development Program.--The Navajo Nation
    supports the continuation and expansion of funding for this beneficial
    program.
        Conservation Program Incentives.--Section 2004 of the Farm Bill
    added Section 1244 to the Food Security Act of 1985 to provide that
    ``[i]n carrying out any conservation program . . . the Secretary may
    provide to . . . Indian tribes . . . incentives to participate in the
    conservation program to--(1) foster new farming and ranching
    opportunities; and (2) enhance environmental stewardship over the long
    term.'' The Navajo Nation, which exercises governmental authority over
    the vast lands (primarily tribal and trust lands) under its
    jurisdiction, urges the Subcommittee to direct the Secretary to
    implement this new provision expeditiously, and to provide funding
    therefor.

                               RURAL DEVELOPMENT

    Water and Waste Disposal Grant Programs
        A. There are enormous needs on the Navajo Nation for grants for the
    ``development, storage, treatment, purification or distribution of
    water . . . in rural areas'' (7 U.S.C. Sec. 1926(a)(2)); authorized
    applicants under this program for ``Water and Waste Facility Loans and
    Grants'' include Indian tribes. However, the Budget proposes a very
    significant cutback in grant funding, despite the fact that numerous
    rural areas, such as the Navajo Nation, have yet to realize equitably
    the benefits of this critical program. Given the Navajo Nation's huge
    infrastructure deficiencies, the Navajo Nation recommends a grant
    program level of $590 million, with directions from the Committee that
    such grant funding/assistance be targeted to areas with substantial
    need and limited past participation.
        B. Moreover, under the program for ``Water and Waste Facility Loans
    and Grants to Alleviate Health Risks'' (7 U.S.C. Sec. 1926c), the
    ``Secretary shall make . . . grants to . . . Indian tribes . . . to
    provide for the conservation, development, use, and control of water
    (including the extension or improvement of existing water supply
    systems) . . .'' (7 U.S.C. Sec. 1926c(a)(1)). In reauthorizing these
    provisions in Section 6010 of the Farm Bill, Congress provided for
    additional funding of $20 million for each fiscal year specifically
    ``for grants under this section to benefit Indian tribes.'' The
    Subcommittee should make good on this commitment to the health and
    welfare of Indian country, and should fully appropriate this new grant
    authorization.
        C. The Navajo Nation (and other areas of the desert southwest) have
    been severely impacted by long-term drought. Under the ``Emergency
    Community Water Assistance Grant Program,'' the USDA ``shall provide
    grants . . . to assist the residents of rural areas and small
    communities to secure adequate quantities of safe water . . . after a
    significant decline in the quantity or quality of water available . . .
    '' (7 U.S.C. Sec. 1926a(a)). Rather than eliminating funding (or
    appropriating only for pending applications), the Subcommittee (and the
    USDA) should recognize that such an emergency already exists in the
    Navajo Nation. Monies should be appropriated now and targeted to areas
    such as the Navajo Nation that have been devastated by drought and
    which require assistance to provide ample, safe water to rural
    residents.
        In particular, the Navajo Nation Drought Contingency Plan has
    identified more than 70 public water systems at high risk due to the
    ongoing drought. Deficiencies at the following public water systems in
    Arizona and New Mexico can be rectified in a timely fashion, and the
    corresponding health risks and water shortage emergencies alleviated,
    if the following targeted appropriations are provided from one or a
    combination of the above-identified three grant funding authorizations:

    ------------------------------------------------------------------------

    ------------------------------------------------------------------------
    Arizona:
        Cameron--Grey Mountain........  water source;               $900,000
                                         storage.
        Fort Defiance Chapter.........  replacement well;            250,000
                                         storage.
        Teec Nos Pos chapter..........  water source........         470,000
        Tuba City Chapter.............  water source;                380,000
                                         storage.
                                       -------------------------------------
          Total.......................  ....................       2,000,000
                                       =====================================
    New Mexico:
        Baca/Haystack Chapter.........  water source;                800,000
                                         storage.
        Spencer Valley--Manuelito       conveyance line.....          90,000
         Chapter.
        Torreon Chapter...............  water source........         450,000
                                       -------------------------------------
          Total.......................  ....................       1,340,000
    ------------------------------------------------------------------------

        Moreover, the Navajo Nation requests funding of $4 million for
    construction of the Navajo Mountain Public Water System to alleviate
    public health and safety issues at Navajo Mountain, Utah. The present
    water system, which is dependent on springs that are unreliable during
    dry periods, is inadequate to provide for the needs of the community
    and its schools. Consequently, last year the Navajo Nation had to
    resort to hauling water more than 40 miles to provide drinking water
    for the community. This crisis resulted in the closing of the schools
    during the summer months. Repeated efforts by the Indian Health Service
    to develop wells in the area have not been successful. In March 2000,
    the Bureau of Reclamation completed a feasibility study for the Navajo
    Mountain Public Water System, resulting in a design and cost estimate
    for a long-term solution to the Navajo Mountain water supply crisis.
    The proposed project would cost approximately $6 million; programmatic
    funding already committed through the U.S. EPA and BIA totals $2
    million. The Navajo Nation requests through USDA the remaining $4
    million--under any one or a combination of the above-identified three
    grant funding authorizations--necessary to construct this urgently-
    needed project.
        Rural Strategic Investment Program.--One of the most disinvested
    areas of the United States, the Navajo Nation has long been a proponent
    of integrated, multidisciplinary rural planning and development, but
    has lacked adequate funding and the commitment of USDA resources and
    expertise necessary to succeed in such effort. Accordingly, the Navajo
    Nation supports implementation of this new program (added to the
    Consolidated Farm and Rural Development Act by Farm Bill Section 6030)
    that can facilitate regional rural strategic investment plans through
    planning and innovation grants. The Subcommittee should reject the
    Budget's proposal to block mandatory funding authorized under the Farm
    Bill, and should instead fully appropriate authorized amounts for
    planning/innovation grants thereunder.
        Rural Development Grant Programs.--The Navajo Nation supports full
    funding of programs for Rural Business Enterprise Grants (Farm Bill
    Section 6014), Rural Business Opportunity Grants (Farm Bill Section
    6003), and Rural Cooperative Development Grants (Farm Bill Section
    6015). These programs offer substantial opportunities for Indian
    country, and the Navajo Nation hopes to work closely with USDA to
    increase Navajo participation therein. The Budget limitations on such
    programs should be rejected.
        Tribal College Essential Community Facilities.--Farm Bill Section
    6008 amended the Consolidated Farm and Rural Development Act by adding
    a new authorization of $10 million annually for ``grants to tribal
    colleges and universities . . . to provide the Federal share of the
    cost of developing specific tribal college or university essential
    community facilities in rural areas.'' Among America's land grant
    institutions, none have greater need for increased Federal financial
    assistance for the development of infrastructure/facilities than the
    tribal colleges (i.e., the so-called 1994 Institutions). This new
    authorization should be fully funded.
        Value-Added Agricultural Product Market Development Grants.--This
    program (Farm Bill Section 6401) offers exciting opportunities to
    several ventures and existing/planned cooperatives on the Navajo
    Nation. The budgeted funding is woefully inadequate, and the Navajo
    Nation recommends appropriations that can help jump-start this
    important program.
        Rural Firefighters and Emergency Personnel.--Given the much-needed
    focus on homeland security, not to mention its responsibility for 18
    million acres under its jurisdiction, the Navajo Nation urges full
    funding for this helpful authorization at Farm Bill Section 6405.

                          RESEARCH/EDUCATION/EXTENSION

        Tribal Colleges Classroom Instruction Grants.--Farm Bill Section
    7201(a) increased these annual grants to each 1994 Institution from
    $50,000 to $100,000, but the Budget proposes only $73,000 per tribal
    college. This position is entirely unacceptable--not only because of
    the well-documented need for a substantial input of resources to the
    tribal colleges, but also in relation to the continuing large funding
    allocations directed to the 1862 and 1890 Institutions. The Budget is
    inapposite to the intent underlying the Equity in Educational Land-
    Grant Status Act of 1994, and should not be accepted; the Farm Bill's
    Congressional directive to raise these annual grants to $100,000 should
    be heeded by the Subcommittee.
        Other 1994 Institutions Funding Authorizations.--Unfortunately,
    since 1994, the commitment to fund tribal colleges has not lived up to
    the ``land grant'' status bestowed. Appropriations must be targeted
    where they are most needed. Consequently, the Navajo Nation supports
    very dramatic increases for the Native American Endowment Fund, and for
    the authorizations for 1994 Institutions institutional capacity
    building grants and research grants (see 7 U.S.C. Sec. 301 note) and
    agricultural extension grants (see 7 U.S.C. Sec. 343(b)(3)). A
    concerted Federal/tribal effort is required to help bring tribal
    colleges to a level playing field--as they deserve to be--with other
    land grant and higher education institutions.
        Socially Disadvantaged Farmers and Ranchers.--While Farm Bill
    Section 10707 increased from $10 million to $25 million annual
    authorized funding for this outreach and assistance program that is
    ideally suited for the Navajo Nation, the Budget proposes just $4
    million. The Navajo Nation urges the Subcommittee, through its
    appropriations decisions, to direct the USDA finally to implement this
    program in a meaningful way reflecting Congressional intent.

                                     ENERGY

        Renewable Energy (Section 9006).--The Navajo Nation, which has
    recently announced its comprehensive energy policy, is firmly committed
    to the development of renewable energy. Indeed, the Navajo Nation
    submitted written comments to the USDA supporting expeditious
    implementation of Farm Bill Section 9006 to provide, in part, for
    grants to farmers, ranchers and rural small businesses to purchase
    renewable energy systems. The Budget recommends no funding; the
    Subcommittee should reject that position and provide adequate funding
    for meaningful implementation of this program.
        Renewable Energy (Section 9005).--Similarly, the Navajo Nation
    recommends increased funding for this program, established under Farm
    Bill Section 9005, that would authorize grants to ``an Indian tribe''
    to ``assist farmers, ranchers, and rural small businesses in becoming
    more energy efficient and in using renewable energy technology and
    resources.'' Such grants match up well with objectives of the Navajo
    Nation's comprehensive energy policy, and--if provided in meaningful
    amounts--could assist greatly in the implementation thereof.
        As the new Shirley--Dayish Administration continues to establish
    its priorities and objectives, we will keep the Subcommittee apprised
    of additional specific opportunities--within these and other USDA/Farm
    Bill programs--where the Subcommittee's leadership can help us to
    improve the lives and rural livelihoods of the Navajo people. We
    appreciate your consideration of our recommendations and requests.
                                     ______

       Prepared Statement of the New Mexico Interstate Stream Commission

    Summary
        This Statement is submitted in support of appropriations for the
    Department of Agriculture's Colorado River Basin salinity control
    program. The salinity control program has not been funded in recent
    years at the level necessary to control salinity with respect to water
    quality standards. Also, inadequate funding of the salinity control
    program negatively impacts the quality of water delivered to Mexico
    pursuant to Minute 242 of the International Boundary and Water
    Commission. Funding for the Environmental Quality Incentives Program
    (EQIP), from which the Department of Agriculture funds the salinity
    program, has been insufficient to implement needed salinity control
    measures. The Farm Security and Rural Investment Act (FSRIA) of 2002
    authorized a funding level of $1 billion for EQIP in fiscal year 2004.
    I urge the Subcommittee to support funding from Commodity Credit
    Corporation (CCC) of $1 billion to be appropriated for EQIP. I request
    that the Subcommittee designate 2.5 percent of the EQIP appropriation,
    but at least $17.5 million, for the Colorado River Basin salinity
    control program. I request that adequate funds be appropriated for
    technical assistance and education activities directed to salinity
    control program participants.

    Statement
        The seven Colorado River Basin states, in response to the salinity
    issues addressed by Clean Water Act of 1972, formed the Colorado River
    Basin Salinity Control Forum (Forum). Comprised of gubernatorial
    appointees from the seven Basin states, the Forum was created to
    provide for interstate cooperation in response to the Clean Water Act,
    and to provide the states with information to comply with Sections 303
    (a) and (b) of the Act. The Forum has become the primary means for the
    seven Basin states to coordinate with Federal agencies and Congress to
    support the implementation of the salinity control program.
        The Colorado River Basin salinity control program was authorized by
    Congress in the Colorado River Basin Salinity Control Act of 1974.
    Congress amended the Act in 1984 to give new responsibilities to the
    Department of Agriculture. While retaining the Department of the
    Interior as the lead coordinator for the salinity control program, the
    amended Act recognized the importance of the Department of Agriculture
    operating under its authorities to meet the objectives of the salinity
    control program. Many of the most cost-effective projects undertaken by
    the salinity control program to date have occurred since implementation
    of the Department of Agriculture's authorization for the program.
        Bureau of Reclamation studies show that damages from the Colorado
    River to United States water users are about $300,000,000 per year.
    Damages are estimated at $75,000,000 per year for every additional
    increase of 30 milligrams per liter in salinity of the Colorado River.
    It is essential to the cost-effectiveness of the salinity control
    program that Department of Agriculture salinity control projects be
    funded for timely implementation to protect the quality of Colorado
    River Basin water delivered to the Lower Basin States and Mexico.
        Congress concluded, with the enactment of the Federal Agriculture
    Improvement and Reform Act of 1996 (FAIRA), that the salinity control
    program could be most effectively implemented as a component of the
    Environmental Quality Incentives Program (EQIP). The salinity control
    program, since the enactment of FAIRA, has not been funded at an
    adequate level to protect the Basin State-adopted and Environmental
    Protection Agency approved water quality standards for salinity in the
    Colorado River. Appropriations for EQIP have been insufficient to
    adequately control salt loading impacts on water delivered to the
    downstream states, and to Mexico pursuant to Minute No. 242 of the
    International Boundary and Water Commission, United States and Mexico.
        EQIP subsumed the salinity control program without giving adequate
    recognition to the responsibilities of the Department of Agriculture to
    implement salinity control measures per Section 202 (c) of the Colorado
    River Basin Salinity Control Act. The EQIP evaluation and project
    ranking criteria target small watershed improvements that do not
    recognize that water users hundreds of miles downstream are significant
    beneficiaries of the salinity control program. Proposals for EQIP
    funding are ranked in the states of Utah, Wyoming and Colorado under
    the direction of the respective State Conservationists without
    consideration of those downstream, particularly out-of-state, benefits.
        Following recommendations of the Basin States, the Department of
    Agriculture's Natural Resources Conservation Service (NRCS) designated
    the Colorado River Basin an ``area of special interest'' including
    earmarked funds for the salinity control program. The NRCS concluded
    that the salinity control program is different from the small watershed
    approach of the EQIP program. The watershed for the salinity control
    program stretches almost 1,200 miles, from the headwaters of the river
    through the salt-laden soils of the Upper Basin to the river's
    termination at the Gulf of California in Mexico. NRCS is to be
    commended for its efforts to comply with the Department of
    Agriculture's responsibilities under the Colorado River Basin Salinity
    Control Act of 1974. Irrigated agriculture in the Upper Basin realizes
    significant local benefits of the salinity control program and
    agricultural producers have succeeded in submitting cost-effective
    proposals to NRCS.
        However, the Basin States, including New Mexico, have been very
    dismayed that funding for EQIP has been inadequate since the enactment
    of FAIRA in 1996. Several years of inadequate Federal funding for the
    Department of Agriculture have resulted in the Forum finding that the
    salinity control program needs to be accelerated to maintain the water
    quality criteria of the Colorado River water quality standards for
    salinity. Since the enactment of FSRIA in 2002, an opportunity to
    adequately fund the salinity control program exists for the first time
    since the enactment of FAIRA.
        The Basin States contribute about $4.3 million in up-front cost
    sharing and local farms contribute an estimated $3.9 million to match
    the NRCS earmarked funds of about $10 million in the fiscal year 2002.
    State and local cost sharing is triggered by and indexed to the Federal
    appropriation. The requested funding of at least $17.5 million for
    fiscal year 2004 will continue to be needed each year for at least the
    next few fiscal years.
        The Department of Agriculture projects have proven to be the most
    cost-effective component of the salinity control program. The
    Department of Agriculture has indicated that a more adequately funded
    EQIP program would result in more funds being allocated to the salinity
    program. The Basin States have cost sharing dollars available to
    participate in on-farm salinity control efforts. The agricultural
    producers in the Upper Basin are willing to cost-share their portion
    and waiting for adequate funding for their applications to be
    considered.
        I urge the Congress to appropriate at least $1 billion from the CCC
    in fiscal year 2004 for EQIP. Also, I request that Congress designate
    2.5 percent of the EQIP appropriation, but at least $17.5 million, for
    the Colorado River Basin salinity control program.
        Finally, I request that adequate funds be appropriated to NRCS
    technical assistance and education activities for the salinity control
    program participants, rather than requiring the NRCS to borrow funds
    from CCC for these direly needed and under funded support functions.
    Recent history has shown that inadequate funding for NRCS technical
    assistance and education activities has been a severe impediment to
    successful implementation of the salinity control program. The Basin
    States parallel funding program, implemented as a means of cost sharing
    with NRCS, expends 40 percent of the states' funds available to meet
    the needs of NRCS for technical assistance and education activities. I
    urge the appropriation of adequate funds for these essential
    activities.
                                     ______

        Prepared Statement of the Northwest Indian Fisheries Commission

        Mr. Chairman and Members of the Committee, I am Billy Frank, Jr.,
    Chairman of the Northwest Indian Fisheries Commission (NWIFC), and on
    behalf of the twenty-Western Washington member Tribes, I submit this
    request for appropriations to support the research, sanitation and
    marketing of Tribal shellfish products. We request the following:
      --$500,000 to support seafood marketing costs which will assist the
            tribes in fulfilling the commercial demands for their shellfish
            products both domestically and abroad;
      --$1,000,000 to support water and pollution sampling, sampling and
            research for paralytic shellfish poisoning and coordination of
            research projects with State agencies; and,
      --$1,000,000 to support data gathering at the reservation level for
            the conduct of shellfish population surveys and estimates.
    Treaty Shellfish Rights
        As with salmon, the tribes' guarantees to harvest shellfish lie
    within a series of treaties signed with representatives of the Federal
    Government in the mid-1850s. In exchange for the peaceful settlement of
    what is today most of Western Washington, the tribes reserved the right
    to continue to harvest finfish and shellfish at their usual and
    accustomed grounds and stations. The tribes were specifically excluded
    from harvesting shellfish from areas ``staked or cultivated'' by non-
    Indian citizens. Soon after they were signed, the treaties were
    forgotten or ignored.
        The declining salmon resource in the Pacific Northwest negates the
    legacy Indian people in Western Washington have lived by for thousands
    of years. We were taught to care for the land and take from it only
    what we needed and to use all that we took.
        We depended on the gifts of nature for food, trade, culture and
    survival. We knew when the tide was out, it was time to set the table
    because we live in the land of plenty; a paradise complete. Yet,
    because of the loss of salmon habitat, which is attributable to
    overwhelming growth in the human population, a major pacific coastal
    salmon recovery effort ensues. Our shellfish resource is our major
    remaining fishery.
        At least ninety types of shellfish have been traditionally
    harvested by the Tribes in Western Washington and across the continent
    Indian people have called us the fishing Tribes because of our rich
    history of harvesting and caring for finfish and shellfish. Our
    shellfish was abundant and constituted a principal resource of export,
    as well as provided food to the Indians and the settlers, which greatly
    reduced the living expenses.
        Shellfish remain important for subsistence, economic, and
    ceremonial purposes. With the rapid decline of many salmon stocks, due
    to habitat loss from western Washington's unrelenting populous growth,
    shellfish harvesting has become a major factor in tribal economies.
        The tribes have used shellfish in trade with the non-Indian
    population since the first white settlers came into the region a
    century and a half ago. Newspaper accounts from the earliest days of
    the Washington Territory tell of Indians selling or trading fresh
    shellfish with settlers. Shellfish harvested by members of western
    Washington's Indian tribes is highly sought after throughout the United
    States and the Far East. Tribal representatives have gone on trade
    missions to China and other Pacific Rim nations where Pacific Northwest
    shellfish--particularly geoduck--is in great demand. Trade with the Far
    East is growing in importance as the tribes struggle to achieve
    financial security through a natural resources-based economy.
        Treaty language pertaining to tribal shellfish harvesting included
    this section:

        ``The right of taking fish at usual and accustomed grounds and
    stations is further secured to said Indians, in common with all
    citizens of the United States; and of erecting temporary houses for the
    purposes of curing; together with the privilege of hunting and
    gathering roots and berries on open and unclaimed lands. Provided,
    however, that they not take shell-fish from any beds staked or
    cultivated by citizens.''
    (Treaty with the S'Klallam, January 26, 1855)
        In exchange for the peaceful settlement of what is today most of
    western Washington, the tribes reserved the right to continue to
    harvest finfish and shellfish at all of their usual and accustomed
    grounds and stations. The tribes were specifically excluded from
    harvesting shellfish from areas ``staked or cultivated'' by non-Indian
    citizens.
        Tribal efforts to have the Federal Government's treaty promises
    kept began in the first years of the 20th Century when the United
    States Supreme Court ruled in U.S. v. Winans, reaffirming that where a
    treaty reserves the right to fish at all usual and accustomed places, a
    state may not preclude tribal access to those places.
        Sixty years later, the tribes were again preparing for battle in
    court. After many years of harassment, beatings and arrests for
    exercising their treaty-reserved rights, western Washington tribes took
    the State of Washington to Federal court to have their rights legally
    re-affirmed. In 1974, U.S. District Court Judge George Boldt ruled that
    the tribes had reserved the right to half of the harvestable salmon and
    steelhead in western Washington.
        The ``Boldt Decision,'' which was upheld by the U.S. Supreme Court,
    also re-established the tribes as co-managers of the salmon and
    steelhead resources in western Washington.
        As a result of this ruling, the tribes became responsible for
    establishing fishing seasons, setting harvest limits, and enforcing
    tribal fishing regulations. Professional biological staffs, enforcement
    officers, and managerial staff were assembled to ensure orderly,
    biologically-sound fisheries.
        Beginning in the late 1970s, tribal and state staff worked together
    to develop comprehensive fisheries that ensured harvest opportunities
    for Indian and non-Indian alike, and also preserved the resource for
    generations to come.
        It was within this new atmosphere of cooperative management that
    the tribes sought to restore their treaty-reserved rights to manage and
    harvest shellfish from all usual and accustomed areas. Talks with their
    state counterparts began in the mid-1980s, but were unsuccessful. The
    tribes filed suit in Federal court in May 1989 to have their shellfish
    harvest rights restored.
        The filing of the lawsuit brought about years of additional
    negotiations between the tribes and the state. Despite many serious
    attempts at reaching a negotiated settlement, the issue went to trial
    in May 1994.
        In 1994, District Court Judge Edward Rafeedie upheld the right of
    the treaty tribes to harvest 50 percent of all shellfish species in
    their Usual and Accustomed fishing areas. Judge Rafeedie also ordered a
    shellfish Management Implementation Plan that governs tribal/state co-
    management activities.
        After a number of appeals, the U.S. 9th Circuit Court of Appeals
    let stand Rafeedie's ruling in 1998. Finally, in June 1999, the U.S.
    Supreme Court denied review of the District court ruling, effectively
    confirming the treaty shellfish harvest right.

    Assist the Tribes in Marketing Efforts to Fulfill the Demands for their
            Shellfish Products, $500,000
        Shellfish harvested by members of Western Washington Indian Tribes
    are of extreme quality and are highly sought after throughout the
    United States, Europe and the Far East. Unfortunately, because Tribes
    are not centrally organized and it is the individual tribal fisher who
    harvests the resource, such markets have never fully materialized.
        We request $500,000, which will assist the Tribes in promoting our
    shellfish products, both in domestic and international markets. Tribes
    anticipate the need to provide necessary health training to harvesters,
    possibly develop cooperative seafood ventures, develop marketing
    materials and engage in actual marketing operations. Specific earmarked
    funding from the Committee can jump start tribal efforts in these
    areas. We also anticipate participating in intertribal consortiums that
    generally promote tribal products, and urge the Committee to support
    necessary funding for those efforts. Funding from the Committee will
    allow the tribes to realize the fair value for their product, help
    employ more tribal members, and allow the tribes to fulfill their
    treaty rights.

    Water and Pollution Sampling, Sampling and Research for Paralytic
            Shellfish Poisoning and Coordination of Research Projects with
            State and Federal Agencies, $1,000,000
        Shellfish growing areas are routinely surveyed for current or
    potential pollution impacts and are classified based on the results of
    frequent survey information. No shellfish harvest is conducted on
    beaches that have not been certified by the tribes and the Washington
    Department of Health. Growing areas are regularly monitored for water
    quality status and naturally-occurring biotoxins to protect the public
    health.
        However, both Tribal and non-Indian fisheries have been threatened
    due to the lack of understanding about the nature of biotoxins,
    especially in subtidal geoduck clams. Research targeted to better
    understand the nature of biotoxins could prevent unnecessary illness
    and death that may result from consuming toxic shellfish, and could
    prevent unnecessary closure of tribal and non-Indian fisheries.

    Data Gathering at the Reservation Level for the Conduct of Shellfish
            Population Surveys and Estimates, $1,000,000
        Very little current data and technical information exists for many
    of the shellfish fisheries now being jointly managed by state and
    Tribal managers. This is particularly true for many free-swimming and
    deep-water species. This lack of information can not only impact
    fisheries and the resource as a whole, but makes it difficult to assess
    50/50 treaty sharing arrangements. Additionally, intertidal assessment
    methodologies differ between state and tribal programs, and can lead to
    conflicts in management planning.
        Existing data systems must be enhanced for catch reporting,
    population assessment and to assist enhancement efforts. Research on
    methodology for population assessment and techniques also is critical
    to effective management.
        Onsite beach surveys are required to identify harvestable
    populations of shellfish. Regular monitoring of beaches is also
    necessary to ensure that the beaches remain safe for harvest.
    Additional and more accurate population survey and health certification
    data is needed to maintain these fisheries and open new harvest areas.
    This information will help protect current and future resources and
    provide additional harvest opportunities.

    Conclusion
        We ask that you give serious consideration to our needs. We are
    available to discuss these requests with committee members or staff at
    your convenience. Thank you.
                                     ______

        Prepared Statement of the Oklahoma Farmers Union Farm and Rural
       Programs Coordinator, National Fire Ant Strategy Development, and
          Oklahoma Fire Ant Research and Management Advisory Committee

        For the last several years I have submitted testimony on behalf of
    finding solutions that are economically viable to manage fire ants. In
    that time the number of acres, counties and states have continued to
    grow. Also, in that time has come great hope for finding a solution to
    control the fire ant pest. As an agriculture producer stakeholder and
    as a parent I have a keen interest in moving forward with the research
    as quickly as possible.
        Fire ants are a frequent topic of conversation among the 100,000
    plus family memberships that make-up the Oklahoma Farmers Union. Our
    membership is comprised of agriculture producers, rural neighbors and
    urban cousins--if you will. We represent this membership in three areas
    of legislative activity, cooperative development and educational
    opportunity as well as provide property and casualty and life insurance
    services to our membership. We are also the driving force to ensure
    that fire ant research is included in our national organization policy.
    And, we have organized an educational session for Congressman, staff
    and other key people on Capitol Hill with ARS presenting a fire ant
    research update.
        Our membership is very interested in this issue and as soon as the
    warmth returns to the state in the next few weeks the calls will start
    and our membership will want to know what we are doing about
    controlling the fire ant. I am always pleased to let them know the
    progress that is being made with ARS in cooperation with the land grant
    universities. But, we must do more and the only way to do that is with
    additional resources.
        While fire ants have been around for decades as a result of
    importation into Alabama from South America, this non-native pest has
    spread further and caused far more destructive damage than ever
    envisioned. Just a few decades ago, it was never anticipated that these
    pests would expand so far north and encompass so many states and such a
    great population. Yet, today there are no signs of any slow-down and
    the impacted constituencies continue to grow. The red imported fire ant
    now infests and requires APHIS quarantine in over 321 million acres in
    13 states and Puerto Rico. And, the counties and states continue to be
    added. Since the first of the year additional counties in Tennessee
    have been added with some counties revised to indicate complete
    infestation. The total annual fire ant losses to households, business,
    schools, government and military are estimated at $6 billion. Total
    fire ant losses to agriculture alone are estimated at almost $900
    million annually. If we were to treat with conventional chemicals all
    infested land in the U.S., the cost would be between $6 billion to $12
    billion per year.
        My interest in fire ants first came in 1985 when the imported red
    fire ants first crossed the border in Southeastern Oklahoma. As a U.S.
    House of Representatives Associate Appropriations Staff member for the
    House Agriculture and Rural Development Subcommittee, I drafted
    questions asked of ARS as to the status of research regarding the
    control or eradication of fire ants as a few constituents began to call
    from the district.
        In recent years, it has become much more personal now that imported
    red fire ants has spread to the mid-south central area of the state and
    to my farm and home. Our agriculture operation is split with part being
    in a quarantined county and part in a non-quarantined county. By the
    most stringent interpretation of the law, I cannot feed cattle in a
    non-quarantined county with hay produced in a quarantined county even
    though the pasture may be just across the road. The fire ant
    infestations have resulted in an economic impact on us as well because
    it impacts where we can sell the hay.
        And, equally important is our quality of life. I have two young
    daughters--Courtney is 7 years old and Sarah is 2 years and they both
    love playing outside but it is different today than when I grew up.
    Today we must watch for the new danger of fire ants whether recreation
    or work is involved.
        With the increased activity in my area my interest gained in the
    issue and just a few years ago I made contact with the Gainesville fire
    ant research team presenting at the Southern Legislative Conference in
    Oklahoma City, a conference for state legislators across the south.
    From that initial meeting, we worked together with a variety of state
    cooperators including Oklahoma, Texas, South Carolina and Alabama to
    create a national strategy for dealing with fire ants. While many
    research components existed, a comprehensive national focus and
    strategy did not. That plan has applied the tools and the science that
    these extremely talented people had been working so diligently on in
    recent years
        Recently, I participated in the USDA-ARS National Fire Ant Program
    Review in New Orleans which are held every five years with
    stakeholders. I am excited about the direction taken by ARS with fire
    ant work. While not totally discounting chemicals, the scope is to use
    all tools at their disposal to combat the enemy. Non-native bio-
    controls such as phorid flies, existing bio-controls such as fire ant
    pathogens within fire ant populations, native ant species and chemical
    bait applications are all part of the integrated approach. We must find
    a means to reduce the expense to producers when treating for fire ants.
    Past history has shown that a chemical application approach alone isn't
    economically feasible nor responsible for the impact on the environment
    unless we do find the magic formula that will not impact the
    environment and be cost efficient. The research represents efforts to
    provide self-sustaining, limited or non-pesticidial, biologically based
    control tactics for a serious medical, veterinary, and agricultural
    pest, which would be safe and effective in urban, agricultural and
    natural ecosystems.
        With success in the laboratory and small sites around Florida, the
    research has expanded to cooperators across the south. As a result of
    the success, mass rearing facilities for the phorid flies are coming
    on-line much like the mass rearing done with the successful screwworm
    program. In Oklahoma, considered the northern reach of the experiment
    process, we are encouraged that we have seen multiple generations of
    parasitic phorid flies in the field and we are anxious to see if they
    survived the winter.
        The research being conducted in this area speaks to the confidence
    that colleagues of the scientists have in them and as a result this
    program is one of a handful of initiatives to receive additional funds
    based on the peer review recommendation process. The Area-Wide
    Suppression of Fire Ant Populations in Pastures is expected to run 4-5
    years. This area wide management project uses permanently established
    bio-control agents and reduced chemical pesticide applications to
    maintain the fire ant population below economic damage thresholds.
    Specific objectives are to: Release and spread natural enemies for fire
    ants--decapitating flies and Thelohania fire ant disease; Area wide
    reduction of fire ant populations by 80 percent using natural enemies;
    Save at least $5 billion a year in cost of fire ant control and damage
    for agricultural producers, businesses, homeowners, government and
    military; Reduce reliance on repeated applications of insecticide for
    fire ant control; and Restore ecological balance in the natural
    environment. This project aims to demonstrate and transfer to the
    public, management strategies for the imported fire ant. If successful,
    this will return money to my pocket book and impact my families'
    quality of life.
        An area not yet fully tapped in research of the control of fire
    ants is to identify viruses that can be used in the weapons of war
    against this enemy. Hopefully, funds can be found to bring on a
    molecular biologist to the team to further target this area.
        I commend the Congress for providing additional funds for fire ants
    to the Biological Control of Pests Research Unit in Stoneville,
    Mississippi. These funds will greatly assist in the mass rearing of
    phorid flies that are showing great hope as one means leading to
    helping in the control process. However, the location charged with the
    overall mission of fire ant research has not seen a congressional
    increase in 30 years for this effort. Our request is that you increase
    the research base of the Imported Fire Ant Unit at the Center for
    Medical, Agricultural & Veterinary Entomology in Gainesville, Florida
    by a total of $800,000.
        The available base for this research mission has actually been
    dropping steadily and we are in a position today where the critical
    mass of only a few experienced scientist' remain at Gainesville.
    Investing in the basic applied research at this location is key to the
    success at all other work at ARS and land grant locations related to
    the issue. Let's not stop at this point. Biological methods for
    treatment of fire ants are working! While it is exciting that we are
    finally making more progress on fire ants in the last few years than we
    have for the entire time that fire ants has plagued this country--
    continued success requires one key ingredient--adequate funding.
        We would strongly encourage you to provide the appropriate funding
    of $2 million annually to Gainesville by adding $800,000 to the ARS
    budget base for such a nationally biologically-based integrated
    management strategy that includes a partnership of both USDA-ARS, state
    land-grant universities, state legislatures and the private sector.
        In conclusion, I appreciate the opportunity to submit testimony on
    behalf of the grassroots agriculture producers across the south that
    struggle each day to make a viable living and home for their families.
    Thank you
                                     ______

         Prepared Statement of the Organization for the Promotion and
               Advancement of Small Telecommunications Companies

                               SUMMARY OF REQUEST

        The Organization for the Promotion and Advancement of Small
    Telecommunications Companies (OPASTCO) seeks the Subcommittee's support
    for fiscal year 2004 loan levels for the telecommunications loans
    program and Rural Telephone Bank (RTB) program administered by the
    Rural Utilities Service (RUS) in the following amounts:

                            [In millions of dollars]
    ------------------------------------------------------------------------

    ------------------------------------------------------------------------
    5 percent hardship loans................................             145
    Treasury rate loans.....................................             250
    Guaranteed loans........................................             100
    RTB loans...............................................             175
    ------------------------------------------------------------------------

        In addition, OPASTCO requests the following action by the
    Subcommittee: (1) a prohibition on the transfer of unobligated RTB
    funds to the general fund of the Treasury and a requirement that
    interest be paid on these funds; (2) funding of the distance learning,
    telemedicine, and broadband grant and loan programs at sufficient
    levels; and (3) removal of the prohibition on rural communities located
    in standard metropolitan statistical areas from participating in the
    broadband loan program.

                                    GENERAL

        OPASTCO is a national trade association of approximately 500 small
    telecommunications carriers serving primarily rural areas of the United
    States. Its members, which include both commercial companies and
    cooperatives, together serve over 2.6 million customers in 42 states.
    Approximately half of OPASTCO's members are RUS or RTB borrowers.
        Perhaps at no time since the inception of the RUS (formerly the
    REA) has the telecommunications loans and RTB programs been so vital to
    the future of rural America. The telecommunications industry is at a
    crossroads, both in terms of technology and public policy. Rapid
    advances in telecommunications technology in recent years have already
    begun to deliver on the promise of a new ``information age.'' The
    Federal Communications Commission's (FCC) ongoing implementation of the
    landmark Telecommunications Act of 1996, as well as modernization
    resulting from prior statutory changes to RUS's lending program, will
    expedite this transformation. In addition, both Federal and State
    policymakers have made deployment of advanced telecommunications
    services a top priority. However, without continued support of the
    telecommunications loans and RTB programs, rural telephone companies
    will be hard pressed to build the infrastructure necessary to bring
    their communities into this new age, creating a bifurcated society of
    information ``haves'' and ``have-nots.''
        Contrary to the belief of some critics, RUS's job is not finished.
    Actually, in a sense, it has just begun. We have entered a time when
    advanced services and technology--such as broadband fiber optics, high-
    speed packet and digital switching equipment, and digital subscriber
    line technology--are expected by customers in all areas of the country,
    both urban and rural. Unfortunately, the inherently higher costs of
    upgrading the rural wireline network, both for voice and data
    communications, has not abated.
        Rural telecommunications continues to be more capital intensive and
    involves fewer paying customers than its urban counterpart. Nationally,
    the average population density in areas served by rural carriers is
    only about 13 persons per square mile. This compares to a national
    average population density of 105 persons per square mile in areas
    served by non-rural carriers. The FCC's February 2002 report on the
    deployment of advanced telecommunications capability noted that a
    positive correlation persists between population density and the
    presence of subscribers to high-speed services. Indeed, the report
    stated that there are high-speed subscribers in 97 percent of the most
    densely populated zip codes but in only 49 percent of the zip codes
    with the lowest population densities. In order for rural telephone
    companies to modernize their networks and provide consumers with
    advanced services at reasonable rates, they must have access to
    reliable low-cost financing.
        The relative isolation of rural areas increases the value of
    telecommunications services for these citizens. Telecommunications
    enables applications such as high-speed Internet connectivity, distance
    learning, and telemedicine that can alleviate or eliminate some rural
    disadvantages. A modern telecommunications infrastructure can also make
    rural areas attractive for some businesses and result in revitalization
    of the rural economy. For example, businesses such as telemarketing and
    tourism can thrive in rural areas, and telecommuting can become a
    realistic employment option.
        While it has been said many times before, it bears repeating that
    RUS's telecommunications loans and RTB programs are not grant programs.
    The funds loaned by RUS are used to leverage substantial private
    capital, creating public/private partnerships. For a very small cost,
    the government is encouraging tremendous amounts of private investment
    in rural telecommunications infrastructure.
        Most importantly, the programs are tremendously successful.
    Borrowers actually build the infrastructure and the government is
    reimbursed with interest. There has never been a default in the history
    of the telecommunications lending programs.

    THE TELECOMMUNICATIONS ACT OF 1996 HAS HEIGHTENED THE NEED FOR THE RUS
                             AND RTB LOAN PROGRAMS

        The FCC's implementation of the Telecommunications Act of 1996 will
    only increase rural telecommunications carriers' need for RUS
    assistance in the future. The forward-looking Act defines universal
    service as an evolving level of telecommunications services that the
    FCC must establish periodically, taking into account advances in
    telecommunications and information technologies and services. The FCC
    is currently seeking comment on the recommended decision of the
    Federal-State Joint Board on Universal Service regarding the list of
    services supported by the high-cost universal service program. RUS has
    an essential role to play in the implementation of the law, as it will
    compliment support mechanisms established by the FCC, thus enabling
    rural America to move closer to achieving the Federally mandated goal
    of rural/urban service and rate comparability.

       A $175 MILLION LOAN LEVEL SHOULD BE MAINTAINED FOR THE RTB PROGRAM

        As previously discussed, the RTB's mission has not been completed
    as rural carriers continue to rely on this important source of
    supplemental financing in order to provide their communities with
    access to the next generation of telecommunications services. Pursuant
    to Section 305(d)(2)(B) of the Rural Electrification (RE) Act, Treasury
    rate loans are to be made concurrently with RTB loans. Thus, if lending
    is not authorized for the RTB, the overall telecommunications loans
    program will be significantly reduced, to the detriment of rural
    Americans. The ongoing need for the RTB program makes it essential to
    maintain a $175 million loan level for fiscal year 2004.

     THE PROHIBITION ON THE TRANSFER OF ANY UNOBLIGATED BALANCE OF THE RTB
       LIQUIDATING ACCOUNT TO THE TREASURY AND REQUIRING THE PAYMENT OF
                  INTEREST ON THESE FUNDS SHOULD BE CONTINUED

        OPASTCO urges the Subcommittee to reinstate language prohibiting
    the transfer of any unobligated balance of the RTB liquidating account
    to the Treasury or the Federal Financing Bank which is in excess of
    current requirements and requiring the payment of interest on these
    funds. As a condition of borrowing, the statutory language establishing
    the RT13 requires telephone companies to purchase Class B stock in the
    bank. Borrowers may convert Class B stock into Class C stock on an
    annual basis up to the principal amount repaid. Thus, all current and
    former borrowers maintain an ownership interest in the RTB. As with
    stockholders of any concern, these owners have rights which may not be
    abrogated. The Subcommittee's inclusion of the aforementioned language
    into the fiscal year 2004 appropriations bill will ensure that RT13
    borrowers are not stripped of the value of this required investment.

      THE DISTANCE LEARNING, TELEMEDICINE, AND BROADBAND PROGRAMS SHOULD
                    CONTINUE TO BE FUNDED AT ADEQUATE LEVELS

        In addition to RUS's telecommunications loans and RTB programs,
    OPASTCO supports adequate funding of the distance learning,
    telemedicine, and broadband grant and loan programs. Through distance
    learning, rural students gain access to advanced classes which will
    help them prepare for college and jobs of the future. Telemedicine
    provides rural residents with access to quality health care services
    without traveling great distances to urban hospitals. In addition, the
    broadband program will allow more rural communities to gain high-speed
    access to the Internet and receive other advanced services. In light of
    the Telecommunications Act's purpose of encouraging; deployment of
    advanced technologies and services to all Americans--including schools
    and health care providers--sufficient targeted funding for these
    purposes is essential in fiscal year 2004.

     THE PROHIBITION ON RURAL COMMUNITIES LOCATED IN STANDARD METROPOLITAN
      STATISTICAL AREAS FROM PARTICIPATING IN THE BROADBAND LOAN PROGRAM
                               SHOULD BE REMOVED

        Last year, Congress passed the Farm Security and Rural Investment
    Act of 2002. That Act added new Title VI to the RE Act, which
    established a broadband loan program. Under Section 601(b)(2) of Title
    VI, in order for a rural community to be eligible for the program, the
    community cannot: (a) have more than 20,000 inhabitants, and (b) be
    located in an area designated as a standard metropolitan statistical
    area (SMSA). Through these criteria, it is reasonable to assume that
    Congress was attempting to distinguish between urban and rural areas
    and to exclude those areas that are obviously urban. Unfortunately, the
    second criterion that excludes areas located within SMSAs would
    encompass many rural communities with less than 20,000 inhabitants--
    perhaps more than 40 percent of such areas. Certainly, Congress did not
    intend to automatically exclude so many small communities of America
    from a program designed to facilitate deployment of broadband
    technology in rural areas. In addition, the Bureau of the Census has
    not recognized the SMSA designation since before 1990, making it
    practically impossible to interpret this exclusionary provision.
    Therefore, OPASTCO urges the Subcommittee to remove this criterion so
    that more rural Americans can reap the benefits of broadband
    technology.

                                   CONCLUSION

        The development of the nationwide telecommunications network into
    an information superhighway, as envisioned by policymakers, will help
    rural America survive and prosper in any market--whether local,
    regional, national, or global. However, without the availability of
    low-cost RUS fiends, building the information superhighway in
    communities that are isolated and thinly populated will be untenable.
    By supporting the RUS telecommunications programs at the requested
    levels, the Subcommittee will be making a significant contribution to
    the future of rural America.
                                     ______

        Prepared Statement of the Partnership for Food Safety Education

        As your Subcommittee prepares for its fiscal year 2004
    appropriations process, we are writing to request your help in
    advancing a funding item in which all of us have a strong interest--
    helping ensure that Americans are educated about and protected from
    foodborne illnesses and diseases. In order to develop an appropriate
    food safety education program that will benefit consumers and prepare
    them for a potential bioterrorist attack, as well as protect themselves
    from the threats posed by common foodborne pathogens, the Partnership
    for Food Safety Education (``Partnership'') requests $1.3 million in
    new funding within the Food and Drug Administration account of the
    fiscal year 2004 Agriculture, Rural Development, Food and Drug
    Administration, and Related Agencies Appropriations Bill.
        As you well know, foodborne illness is a serious public health
    problem. The Partnership, a non-profit, public-private partnership
    composed of consumer groups and national food industries, in liaison
    with Federal agencies, will work to establish an educational program
    that will provide current information to educate individuals about food
    safety issues. Although provisions are in place to protect our food
    supply from acts of terror, there is not a communications program
    available to educate the American public on how to be prepared in the
    event of a bioterrorist attack. By coordinating the efforts of the
    public and private sectors, the Partnership can develop and manage a
    food safety education program to assist in this important task.
        The Partnership is an ideal model of how consumer groups, industry,
    and government agencies can work together for the good of the American
    people. Since its formation in 1997, the Partnership has demonstrated
    its ability to educate consumers about proper safe food handling. Based
    on this experience and using its existing structure, the Partnership
    can develop research-based consumer messages to inform and educate the
    American people, through their local governments, regarding potential
    threats to the food supply.
        Although most consumers are concerned about food safety, many
    Americans today have inadequate knowledge about basic sanitation and
    food handling steps that can greatly reduce the risk of foodborne
    illness. To address this knowledge gap, in October 1997, the
    Partnership launched a nationwide consumer education campaign called
    Fight BAC! (bacteria). This campaign has been an enormous success,
    with the Partnership coordinating thousands of community organizations
    and retail centers to educate consumers. These campaigns have allowed
    the Partnership to educate over one quarter of the U.S. population in
    an effort to reduce the incidents of foodborne illnesses in our
    country, the requested funding, the Partnership will be able to further
    protect the American people from foodborne illness and disease,
    regardless of its source.
        As always, we are grateful for your interest in promoting food
    safety. Please do not hesitate to contact us if you have any questions
    regarding this request for funding under the fiscal year 2004
    Agriculture, Rural Development, Food and Drug Administration, and
    Related Agencies Appropriations Bill.
                                     ______

       Prepared Statement of People for the Ethical Treatment of Animals
                                     (PETA)

        People for the Ethical Treatment of Animals (PETA) is the world's
    largest animal rights organization, with more than 750,000 members and
    supporters. We greatly appreciate this opportunity to submit testimony
    regarding the fiscal year 2004 appropriations for the Food and Drug
    Administration (FDA). Our testimony will focus on chemical tests
    allowed or required by the FDA to be conducted on animals.
        As you may know, the FDA requires substances such as drugs,
    medicated skin creams, and others to be tested for their rates of skin
    absorption, skin irritation, phototoxicity, and/or pyrogenicity
    (potential to cause fever). Traditionally, these tests involve smearing
    chemicals on animals' shaved backs (often causing painful lesions), or
    injecting a substance into an animal's bloodstream (often causing
    breathing problems, organ failure, or fatal shock).
        Fortunately, there are non-animal test methods that are just as
    effective, if not more so. Various tissue-based methods have been
    accepted in Europe as total replacements for skin absorption studies in
    living animals. Government regulators in Canada accept the use of a
    skin-patch test in human volunteers as a replacement for animal-based
    skin irritation studies (for non-corrosive substances free of other
    harmful properties). The Organization for Economic Cooperation and
    Development (OECD), of which the U.S. is a key member, has accepted a
    cell culture test for light-induced (``photo'') toxicity, and a test
    using donated human blood has been validated in Europe as a total
    replacement for animal-based fever, or pyrogenicity, studies.
        However, the FDA continues to require the use of animals for all
    four of these endpoints, despite the availability of non-animal tests.
        We respectfully request that the subcommittee include report
    language ensuring that no funds for the FDA (including salaries or
    expenses of personnel) may be used for the purpose of assessing data
    from an animal-based test method when a non-animal test for the desired
    endpoint has been validated and/or accepted by the OECD or its member
    countries.

    Animal tests cause immense suffering
        Traditionally, the rate at which a chemical is able to penetrate
    the skin has been measured by shaving the backs of rats and smearing
    the substance on them for an exposure period of up to 24 hours. They
    are eventually killed, and their skin, blood, and excrement are
    analyzed. A similar method is used to test for skin irritation, except
    it usually done to rabbits, who are locked in full-body restraints. A
    test chemical is applied to their shaved backs, and the wound site is
    then covered with a gauze patch for normally four hours. A chemical is
    considered to be an irritant if it causes reversible skin lesions or
    other clinical signs, which heal partially or totally by the end of a
    14-day period. Phototoxic chemicals cause inflammation of the skin when
    applied to skin that is subsequently exposed to sunlight or ultraviolet
    radiation. To test for phototoxicity, a similar body-restraint, shaved-
    back procedure is used, but this time it is mice and guinea pigs who
    are the subjects, and they are kept restrained for several days while
    enduring the pain, swelling, and sores that develop on their skin.
    Pyrogenicity is the potential of a substance to cause fever and
    inflammation. Once again, the traditional pyrogenicity test method
    involves locking rabbits in full-body restraints. After having a test
    substance injected into their bloodstream, the rabbits can suffer
    fever, breathing problems, circulatory and organ failure, and fatal
    shock. Animals used in the above tests are not given any painkillers.

    These tests have never been proven to be relevant to humans
        None of the animal tests currently used for skin absorption,
    irritation, phototoxicity, or pyrogenicity has ever been scientifically
    validated for its reliability or relevance to human health effects.
    Animal studies yield highly variable data and are often poor predictors
    of human reactions. For example, one study, which compared the results
    of rabbit skin irritation tests with real-world human exposure
    information for 65 chemicals, found that the animal test was wrong
    nearly half (45 percent) of the time in its prediction of a chemical's
    skin damaging potential (Food & Chemical Toxicology, Vol. 40, pp. 573-
    92, 2002). For phototoxicity, the animal-based tests have never even
    been codified into a standardized test guideline, meaning that the
    protocols can vary widely from laboratory to laboratory, rendering the
    results virtually uninterpretable. There are well-documented drawbacks
    to the rabbit pyrogen test, including marked differences in sensitivity
    between species and strains of rabbits.

    Validated methods exist which do not harm animals
        Fortunately, test methods have been found to accurately predict
    skin absorption, irritation, phototoxicity and pyrogenicity without
    harming animals.
        The absorption rate of a chemical through the skin can be measured
    using skin from a variety of sources (e.g. human cadavers). The
    reliability and relevance of these in vitro methods have been
    thoroughly established through a number of international expert
    reviews, and have been codified and accepted as an official test
    guideline of the OECD.
        Instead of animal-based skin irritation studies, government
    regulators in Canada accept the use of a skin-patch test using human
    volunteers. (The chemical is first determined to be non-corrosive and
    free of other harmful properties before being considered for human
    studies.)
        A cell culture test has been validated in Europe and accepted at
    the international level as a total replacement for animal-based
    phototoxicity studies. The 3T3 Neutral Red Uptake Phototoxicity Test
    involves exposing cells to a test chemical in the presence and absence
    of light, and cell viability is measured by the degree to which they
    are able to absorb the dye, neutral red. This method is the only test
    for phototoxicity that has been accepted as an official test guideline
    of the OECD, yet the FDA continues to use thousands of animals to test
    for phototoxicity.
        Using human blood donated by healthy volunteers, an in vitro
    pyrogen test has been validated in Europe as a total replacement for
    animal-based pyrogenicity studies.

    Non-animal test methods can save time, money, and yield more useful
            results
        Tissue culture methods to test for skin absorption allow
    researchers to study a broader range of doses, including those at the
    actual level of exposure that occurs in the occupational or ambient
    environment, which is not possible with the animal-based method.
        Many non-animal methods can yield results with greater sensitivity
    and at a lower cost than animal-based methods. Protocols are more
    easily standardized, and the variations among strains and species are
    no longer a factor.

    The FDA continues to require the use of animals
        Despite the ethical, financial, efficiency, and scientific
    advantages of the above non-animal methods, the FDA continues to
    require and accept the unnecessary use of animals in tests for skin
    absorption, irritation, phototoxicity, and pyrogenicity.

    Summary
        Non-animal methods are available now to replace animal-based
    methods to test substances for skin absorption, irritation,
    phototoxicity, and pyrogenicity. There simply is no excuse for
    continuing to cause animals to suffer when non-animal tests are
    available.
        We therefore hereby request, on behalf of all Americans who care
    about the suffering of animals in toxicity tests, that you please
    include language in the report accompanying the fiscal year 2004
    Agriculture, Rural Development, Food and Drug Administration and
    Related Agencies bill stating that no funds for the FDA (including
    salaries or expenses of personnel) may be used for the purpose of
    assessing data from an animal-based test method when a non-animal test
    for the desired endpoint has been validated and/or accepted by the OECD
    or its member countries.
        Thank you for your consideration of our request.
                                     ______

             Prepared Statement of the Red River Valley Association

        Mr. Chairman and members of the Committee, I am Wayne Dowd, and I
    am pleased to represent the Red River Valley Association as its
    President. Our organization was founded in 1925 with the express
    purpose of uniting the citizens of Arkansas, Louisiana, Oklahoma and
    Texas to develop the land and water resources of the Red River Basin.
        As an organization that knows the value of our precious water
    resources we support the most beneficial water and land conservation
    programs administered through the Natural Resources Conservation
    Service (NRCS). We understand that attention and resources must be
    given to our national security; however, we cannot sacrifice what has
    been accomplished on our nation's lands. NRCS programs are a model of
    how conservation programs should be administered and our testimony will
    address the needs of the nation as well as our region.
        The President's fiscal year 2004 budget for NRCS indicates a
    decrease of $142 million from fiscal year 2003. In reality NRCS is
    taking a major decrease in program funding and staff years. This
    reduction of direct funding is compounded by inadequate Technical
    Assistance (TA) funding for mandatory support to CCC Farm Bill
    programs. The fiscal year 2004 budget reflects a serious shortfall in
    services for landowner assistance that will not be available in fiscal
    year 2004. This is also reflected in the fact that NRCS manpower for
    fiscal year 2004 would have to decrease by 1,400 staff years. This is
    unacceptable.
        This means that NRCS assistance to landowners will not be
    adequately funded, to the detriment of the agency and our natural
    resources. We would like to address several of the programs
    administered by NRCS. Failure to adequately fund these initiatives
    would reduce assistance to those who want it and the resources that
    need protection.
        Conservation Operations.--This has been in steady decline, in real
    dollars, over the past several years. It has occurred partly as a
    result of funds being reduced from Conservation Operations to balance
    increases in technical assistance for mandatory conservation financial
    assistance programs.
        The President's budget included $774 million, which is a decrease
    of $51 million from fiscal year 2003.
        This reflects a decrease in ``discretionary'' Technical Assistance,
    which is compounded by inadequate funding of TA for mandatory Farm Bill
    programs. The TA shortfall, for mandatory programs, must come out of
    this account leaving little funds for discretionary use. This is far
    short of what is required to serve the needs of our nation's private
    lands. We request a total of $800 million be appropriated For
    Conservation Technical Assistance, increasing Conservation Operations
    to $975,000,000.
        Conservation Technical Assistance is the foundation of technical
    support and a sound, scientific delivery system for voluntary
    conservation to the private users and owners of lands in the United
    States. It is imperative that we provide assistance to all ``working
    lands'' not just those fortunate few who are able to get enrolled in
    programs. Working lands are not just crops and pasture (commodity
    staples) but includes forests, wildlife habitat and coastal marshes.
    The problem is that NRCS personnel funded from ``mandatory programs''
    can only provide technical assistance to those enrolled in these
    programs, leaving the majority of the agricultural community without
    technical assistance. We recommend that this funding for technical
    assistance be placed in ``Conservation Technical Assistance'', and
    allow NRCS to provide assistance to everyone.
        We do not support the use of third party vendors for technical
    assistance as a replacement of career NRCS public servants rather than
    ``in addition to''. We would then have to address the question of
    quality assurance and administration for these programs. Why establish
    a new process that will ultimately cost more than using the in-house
    expertise that now exists and has proven to be successful? We believe
    third party vendors can be made available only after NRCS staffing is
    brought up to levels commensurate with the increase in workload caused
    by the Farm Bill.
        Watershed and Flood Prevention Operations (Public Law 566 & 534).--
    We are greatly disappointed that the President's Budget provided only
    $45,000,000 for watershed operations. There is no doubt that this is a
    Federal responsibility, as well as for the local sponsor. We ask our
    legislators to support the local sponsors in this national issue. This
    funding level is too low to support a national program, as important as
    this one.
        We are very appreciative for the funding level of $110 million
    enacted in the fiscal year 2003 appropriations bill. It is reassuring
    to know that both Houses of Congress realize the importance of this
    program to the agricultural community.
        There are many new projects, which are awaiting funds for
    construction under this program. We strongly recommend that a funding
    level of $200 million be appropriated for Watershed Operations, Public
    Law 534 ($20 million) and Public Law 566 ($180 million) programs.
        Walnut Bayou Irrigation Project, AR.--This project received
    $300,000 in the fiscal year 2003 appropriations. Plans and
    specifications have been completed and it is ready to proceed into the
    construction phase. An irrigation district has been formed and they are
    prepared to generate the income for the O&M required to support this
    project. We request that $4,000,000 be appropriated for this specific
    project in fiscal year 2004.
        Red Bayou Irrigation Project, LA.--The plans and specifications
    will be completed in fiscal year 2003 making this project ready for
    construction in fiscal year 2004. An irrigation district has been
    formed and prepared to collect funds to support the O&M for this
    proposed system. We request that $2,500,000 be specifically
    appropriated for this project in fiscal year 2004.
        The Red River has proven, through studies and existing irrigation,
    to be a great water source for supplemental irrigation. The two
    projects mentioned above, will use existing, natural bayous to deliver
    water for landowners to draw from. The majority of expense will be for
    the pump system to take water from the Red River to the bayous. This
    project will provide the ability to move from ground water dependency
    to surface water, an effort encouraged throughout the nation. Both will
    enhance the environmental quality and economic vitality of the small
    communities adjacent to the projects.
        Watershed Rehabilitation.--More than 10,400 individual watershed
    structures have been installed nationally. They have contributed
    greatly to conservation, environmental protection and enhancement,
    economic development and the social well being of our communities. More
    than half of these structures are over 30 years old and several hundred
    are approaching their 50-year life expectancy. Today you hear a lot
    about the watershed approach to resource management. These programs
    offer a complete watershed management approach and should continue for
    the following reasons:
      --They protect more people and communities from flooding than when
            they were first constructed.
      --Their objectives and functions sustain our nation's natural
            resources for future operations.
      --They are required to have local partners and be cost shared.
      --The communities and NRCS share initiatives and decisions.
      --They follow NEPA guidelines and enhance the environment.
      --They often address the need of low income and minority communities.
      --The benefit to cost ratio for this program has been evaluated to be
            2.2:1.
        What other Federal program can claim such success?
        There is no questioning the value of this program. The cost of
    losing this infrastructure exceeds the cost to reinvest in our existing
    watersheds. Without repairing and upgrading the safety of existing
    structures, we miss the opportunity to keep our communities alive and
    prosperous. It would be irresponsible to dismantle a program that has
    demonstrated such great return and is supported by our citizens. We
    cannot wait for a catastrophe to occur where life is lost to decide to
    take on this important work.
        A 1999 survey, conducted in 22 states, showed that 2,200 structures
    are in need of immediate rehabilitation at an estimated cost of $543
    million. The President's budget neglects the safety and well being of
    our community needs by placing only $10 million for this program. This
    is drastically lower than the levels authorized in the 2002 Farm Bill.
    We request that $55 million be appropriated to provide financial and
    technical assistance to those watershed projects where sponsors are
    prepared to commence rehabilitation measures, as directed in the 2002
    Farm Bill.
        Watershed Survey and Planning.--In fiscal year 2003 $11.2 million
    was appropriated to support this extremely important community program.
    NRCS has become a facilitator for the different community interest
    groups, state and Federal agencies. In our states such studies are
    helping identify resource needs and solutions where populations are
    encroaching into rural areas. The Administration decided to fund this
    program with only $5 million. We strongly disagree with this low level
    and ask Congress to fund this important program at the appropriate
    level.
        As our municipalities expand, the water resource issue tends to be
    neglected until a serious problem occurs. Proper planning and
    cooperative efforts can prevent problems and insure that water resource
    issues are addressed. We request this program be funded at a level of
    $40 million.
      --Maniece Bayou Irrigation Project, AR.--This is a project in its
            initial stage of planning. An irrigation district is being
            farmed to be the local sponsor. This project transfers water
            from the Red River into Maniece Bayou where landowners would
            draw water for supplemental irrigation. We request that
            $200,000 be appropriated to initiate the plans and
            specifications.
      --Lower Cane River Irrigation Project, LA.--The transfer of water
            from the Red River to the Lower Cane River will provide
            opportunities for irrigation and economic development. Funds
            are needed to initiate a Cooperative River Basin Study. We
            request that $300,000 be appropriated for this study.
        Emergency Watershed Protection Program.--This program has
    traditionally been funded through Emergency Supplemental Appropriations
    and administered by NRCS through its Watershed and Flood Prevention
    Operations. It has traditionally been a zero budget line item, because
    it relies on a supplemental appropriation.
        As our populations expand and shift, land use changes and
    intensifies. Impacts of severe weather events are becoming more intense
    on our communities, rivers and related eco-systems. These major weather
    events will have an adverse impact requiring urgent NRCS assistance. It
    is important that NRCS is prepared for a rapid response, not waiting
    for legislative action to provide funds for emergency work. With some
    funds available, they would be able respond immediately to an emergency
    when it occurs and not have to wait for an emergency supplemental to be
    passed.
        We request that $20 million be appropriated as ``seed'' funding to
    allow NRCS to react to an emergency while the full need is determined
    and added through a supplemental appropriation.
        Resource Conservation and Development (RC&D).--This has always been
    a well-received program by the Administration. Their budget proposal of
    $51 million is adequate to accomplish the needs of the Nation and we
    support this level of funding.
        Mandatory Accounts (CCC) Technical Assistance (TA).--Request for
    assistance through the CCC programs has been overwhelming. Requests far
    exceed the available funds and place an additional workload on NRCS's
    delivery system. Adequate funding for TA must be provided to administer
    these programs. Historically 19 percent of total program cost has been
    required.
        The mandatory CCC programs for fiscal year 2004 have been
    appropriated at a level of $3.9 billion. Only $432 million (11 percent)
    has been allocated in TA for NRCS. NRCS will have to fund this TA
    requirement at a level of $741 million. The short fall will have to
    come from the Conservation Operation account, which is unacceptable.
    This leaves little funding for discretionary assistance to landowners.
    We request that CCC Program budget TA at $741 million (19 percent) and
    funds NOT be taken from the CO account to administer this program as
    Congress saw fit to do in the 2003 Omnibus Bill.
        Over 70 percent of our land is privately owned. This is important
    in order to understand the need for NRCS programs and technical
    assistance. Their presence is vital to ensuring sound technical
    standards are met in conservation. These programs not only address
    agricultural production, but sound natural resource management. Without
    these programs and NRCS properly staffed to implement them, many
    private landowners will not be served adequately to apply conservation
    measures needed to sustain our natural resources for future
    generations.
        There have been new clean water initiatives, but why do we ignore
    the agency that has a proven record for implementing watershed
    conservation programs? Congress must decide; will NRCS continue to
    provide the leadership within our communities to build upon the
    partnerships already established? It is up to Congress to insure NRCS
    is properly funded and staffed to provide the needed assistance to our
    taxpayers for conservation programs.
        All these programs apply to the citizens in the Red River Valley
    and their future is our concern. The RRVA is dedicated to work toward
    the programs that will benefit our citizens and provide for high
    quality of life standards. We therefore request that you appropriate
    the requested funding within these individual programs, to insure our
    nation's conservation needs are met.
        I thank you for the opportunity to present this testimony on behalf
    of the members of the Red River Valley Association and we pledge our
    support to assist you in the appropriation process
        Grant Disclosure.--The Red River Valley Association has not
    received any Federal grant, sub-grant or contract during the current
    fiscal year or either of the two previous fiscal years.

       RED RIVER VALLEY ASSOCIATION FISCAL YEAR 2004 APPROPRIATIONS--NATURAL RESOURCES CONSERVATION SERVICE (NRCS)
                                                [In thousands of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                       RRVA request     President's
                         Discretionary accounts                         Fiscal year     fiscal year    budget fiscal
                                                                           2003            2004          year 2004
    ----------------------------------------------------------------------------------------------------------------
    Conservation Operations.........................................         825,004         930,000     \1\ 774,000
    Watershed Protection & Flood Prevention Operations..............         110,000         200,000          45,000
        Walnut Bayou Irrigation Project, AR.........................             300           4,000  ..............
        Red Bayou Irrigation Project, LA............................               0           2,500  ..............
    Watershed Rehabilitation........................................          30,000          55,000          10,000
    Watershed Survey & Planning.....................................          11,197          40,000           5,000
        Maniece Bayou Irrigation Project, AR........................               0             200  ..............
        Lower Cane River Irrigation Project, LA.....................             New             300
    Resource Conservation & Development(RC&D).......................          51,000          51,000          51,000
    Emergency Watershed Protection..................................               0          20,000               0
    ----------------------------------------------------------------------------------------------------------------
    Note 1: This funding level would reduce NRCS manpower by 1,400 FTE. There does not appear to be any correlation
      between workload to manpower.

        Mandatory Accounts (CCC)--$3.9 Billion.--This fund is for Technical
    Assistance (TA) and Financial Assistance (FA) to support the following
    CCC, Farm Bill programs:
        Environmental Quality Incentives Program--EQIP
        Ground and Surface Water Conservation--GSW
        Farmland Protection Program--FPP
        Wildlife Habitat Incentives Program--WHIP
        Wetlands Reserve Program--WRP
        Grassland Reserve Program--GRP
        Conservation Securities Program--CSP
        Klamath Basin Water Conservation
        The President's Budget has provided $432,000,000, which is less
    than 11 percent of the $3.9 billion allocated for these programs in
    fiscal year 2004. The historical TA that has been required is 19
    percent, which is a TA requirement of $741,000,000. NRCS is mandated to
    support these programs, which means they will have to fund them from
    their Conservation Operations account. This leaves a great shortfall
    for any assistance to anyone NOT enrolled in a program.
        It is imperative that the TA for these mandatory programs be funded
    at the required TA levels.
                                     ______

              Prepared Statement of the Seminole Tribe of Florida

        The Seminole Tribe of Florida is pleased to submit this statement
    regarding the fiscal year 2004 budget for the Natural Resources
    Conservation Service (NRCS) in the Department of Agriculture.
        The Seminole Tribe of Florida asks that Congress direct the Natural
    Resources Conservation Service (NRCS) to begin final design and
    planning activities for the Big Cypress Water Conservation Plan
    implementation on the west side of the Big Cypress Reservation. Because
    we understand that this committee does not earmark funds in the account
    for Conservation Programs, Natural Resources Conservation Service's
    (NRCS) Watershed Surveys and Planning (06 account) that funds planning
    activities for the Small Watershed Program, as authorized by Public Law
    83-566, we request that the following language be included in the
    committee's report: ``The Committee expects the Department to provide
    financial and/or technical assistance for the Big Cypress Reservation
    Water Conservation project (FL) as it contributes to Everglades
    restoration.'' The Tribe has worked with the NRCS in Florida for 7
    years to develop this small watershed project as a part of the Tribe's
    overall Everglades Restoration Initiative. The results of this small
    watershed project will complement the joint effort of the Tribe and the
    Corps of Engineers to complete the Initiative.

    The Seminole Tribe of Florida
        The Seminole Tribe lives in the Florida Everglades. The Big Cypress
    Reservation is located in the western basins, directly north of the Big
    Cypress National Preserve. The Everglades provide many Seminole Tribal
    members with their livelihood. Traditional Seminole cultural,
    religious, and recreational activities, as well as commercial
    endeavors, are dependent on a healthy Everglades ecosystem. In fact,
    the Tribe's identity is so closely linked to the land that Tribal
    members believe that if the land dies, so will the Tribe.
        During the Seminole Wars of the 19th Century, the Tribe found
    protection in the hostile Everglades. But for this harsh environment
    filled with sawgrass and alligators, the Seminole Tribe of Florida
    would not exist today. Once in the Everglades, Seminoles learned how to
    use the natural system for support without harm to the environment that
    sustained them. For example, the native dwelling, the chickee, is made
    of cypress logs and palmetto fronds and protects its inhabitants from
    the sun and rain, while allowing maximum circulation for cooling. When
    a chickee has outlived its useful life, the cypress and palmetto return
    to the earth to nourish the soil.
        In response to social challenges within the Tribe, Tribal elders
    provided guidance. Tribal elders directed the Tribe's leadership to
    look to the land, for when the land was ill, the Tribe would soon be
    ill as well. When looking at the land, the leadership saw the
    Everglades in decline and recognized that the Tribe had to help
    mitigate the impacts of man on this natural system. At the same time,
    tribal members acknowledged that this land must sustain the Tribe and
    its culture. The clear message from the Tribal elders and the land
    called for a way of life to preserve the land and the Tribe. Tribal
    members must be able to work and sustain themselves. Tribal leadership
    needs to protect the land and the animals, while also protecting Tribal
    farmers and ranchers.
        Recognizing the needs of the land and the people, the Tribe, along
    with its consultants, designed a plan to mitigate the harm to the land
    and water systems within the Reservation while ensuring a sustainable
    future for the Seminole Tribe of Florida. The restoration plan will
    allow Tribal members to continue their farming and ranching activities
    while improving water quality and restoring natural hydroperiod to
    large portions of the native lands on the Reservation and ultimately,
    positively effecting the Big Cypress National Preserve and Everglades
    National Park.
        The Seminole Tribe's project addresses the environmental
    degradation wrought by decades of Federal flood control construction
    and polluted urban and other agricultural runoff. The interrupted sheet
    flow and hydroperiod have stressed native species and encouraged the
    spread of exotic species. Nutrient-laden runoff has supported the rapid
    spread of cattails, which choke out the periphyton algae mat and
    sawgrass necessary for the success of the wet/dry cycle that supports
    the wildlife of the Everglades.
        The Seminole Tribe designed an Everglades Restoration project that
    reflects the need to live off of the land while minimizing impacts on
    the Everglades. The Seminole Tribe is committed to improving the water
    quality and flows on the Big Cypress Reservation. The Tribe already has
    committed significant resources to the design and construction of this
    project and to its water quality data collection and monitoring system.
    The Tribe is willing to continue its efforts and to commit more
    resources, for its cultural survival is at stake.

    Small Watershed Project on Big Cypress
        As a part of the Tribe's Everglades Restoration Initiative, the
    Tribe completed a water conservation plan for the design and
    construction of surface water management systems to remove phosphorus,
    convey and store irrigation water, improve flood control, and rehydrate
    the Big Cypress National Preserve. This water conservation plan has
    been permitted for construction under the Clean Water Act Section 404
    program.
        Through the Corps of Engineers (COE) critical project program
    authorized by the Water Resources Development Act of 1996, the Tribe is
    building part of that water conservation plan. The first phase of the
    critical project constructs a conveyance canal system to supplement and
    improve the existing system; this construction is nearly complete. The
    balance of the critical project will construct water storage and
    treatment areas on the east side of the Reservation.
        Over the last 7 years, the Tribe has enjoyed the support of the
    Florida State Conservationist and the Florida staff of the NRCS in the
    development of a small watershed project to address some needs
    identified in the water conservation plan. While some preliminary
    planning has been completed, an existing funding commitment prevented
    commencement of the small watershed project. In fiscal year 2004, both
    the Tribe and the NRCS in Florida are prepared to begin planning of
    water storage and treatment areas on the west side of the Reservation.
    To do so, Congress must appropriate the initial funding.
        While all the project component options have not been fully vetted,
    the cost estimates range from downward from $34.6 million. This project
    is approved to operate with a 75 percent Federal and 25 percent Tribal
    cost share. The timing of the design and construction are dependent on
    the funding stream.

    Conclusion
        Everglades restoration is a well-recognized national priority. The
    Tribe's goal of sustainable agriculture is consistent with the goals of
    the NRCS and the restoration activities in South Florida. The NRCS's
    support of the Tribe's conservation measures in the past, along with
    the implementation of future programs, will make a significant impact
    on the Big Cypress Reservation and the South Florida Ecosystem.
        Through its assistance to the Tribe, NRCS has provided valuable
    technical assistance to date. Beginning in fiscal year 1999, NRCS has
    provided programmatic support through EQIP and WRP, which is
    anticipated to continue. Additional programmatic assistance through the
    small watershed program will provide the needed design and construction
    to complete the water conservation plan. None of the joint objectives
    of the Tribe and the NRCS can be accomplished, however, without
    sufficient funding.
        The Tribe has demonstrated its economic commitment to the
    Everglades Restoration effort; the Tribe is asking the Federal
    Government to also participate in that effort. This effort benefits not
    just the Seminole Tribe, but all Floridians who depend on a reliable
    supply of clean, fresh water flowing out of the Everglades, and all
    Americans whose lives are enriched by this unique national treasure.
        Thank you for the opportunity to present the request of the
    Seminole Tribe of Florida. The Tribe will provide additional
    information upon request.
                                     ______

      Prepared Statement of the Society for Animal Protective Legislation

        We appreciate the support this Subcommittee has provided to the
    Animal Care Program of APHIS and respectfully request that the current
    appropriations for enforcement of the Animal Welfare Act and Horse
    Protection Act be maintained for fiscal year 2004 to ensure that these
    laws passed by Congress are being carried out effectively.

    $15.2 Million for APHIS/Animal Care's Enforcement of the Animal Welfare
            Act
        The Animal Welfare Act is the chief Federal law for the protection
    of animals. The USDA seeks compliance with its minimum standards for
    the care and treatment of animals during transportation and at the more
    than 10,000 sites of dealers, research, testing and teaching
    facilities, zoos, circuses, carriers (airlines, motor freight lines and
    other shipping businesses) and handlers (ground freight handlers).
        Nearly half of the facilities that are visited are found to be
    noncompliant. Facilities with serious deficiencies require
    reinspections to ensure that corrective action is taken. Our review of
    inspection reports shows an inability of inspectors to make the needed
    reinspections; they are unable to reinspect because of a lack of
    sufficient funds.
        In 1966 the Laboratory Animal Welfare Act (later renamed the Animal
    Welfare Act) was adopted in an effort to prevent the sale of lost or
    stolen pets into research. Nevertheless, this has continued to be a
    serious problem. In an attempt to address this problem, in the mid-
    1990s Animal Care instituted a policy of conducting quarterly
    inspections of random source dealers. Since stepping up its enforcement
    in this area (which has come at the expense of inspections conducted
    elsewhere), USDA has revoked 11 dealer licenses and imposed over
    $500,000 in fines. The number of random source (USDA licensed Class B)
    dealers supplying dogs and cats to research has dropped from 104 to 23.
        This example illustrates the value of frequent, unannounced
    inspections of licensees and registrants. Increasing the number of
    inspections will ensure effective compliance with the law.
        The 1985 amendment to the AWA mandates at least one inspection per
    year of all registered research facilities. A vigorous inspection
    program is vital to maintaining public confidence in the quality of
    research and ensuring the humane treatment of research animals. With
    the need to evaluate performance, as well as engineering, standards,
    each inspection is extremely time-consuming and labor intensive.
        AC will be able to continue its searches for unlicensed/
    unregistered facilities, an important effort because failure to obtain
    licensure or registration is a widespread problem with many entities
    purposefully evading AC and the requirements of the AWA. The area most
    frequently ignored for lack of sufficient funds has been inspection of
    airlines. Continued funding will permit AC to conduct an adequate
    number of inspections of airlines in an effort to protect against the
    injury, loss or death of animals being transported by air and to help
    meet the requirements of the recently adopted Federal Aviation
    Administration amendment for safe transport of animals by air.
        Continued funding at the fiscal year 2003 level will permit AC to
    maintain its field force of 99 veterinary and lay inspectors. It is
    vital that the number of inspectors be maintained.

    $500 Thousand for APHIS/Animal Care's Enforcement of the Horse
            Protection Act
        More than 30 years have passed since the Horse Protection Act was
    adopted by Congress, yet soring of Tennessee Walking Horses continues
    to be a widespread problem. Soring is defined by APHIS as ``the
    application of any chemical or mechanical agent used on any limb of a
    horse or any practice inflicted upon the horse that can be expected to
    cause it physical pain or distress when moving.'' Horses are sored to
    produce an exaggerated gait.
        The most effective methods of reducing the showing of horses who
    have been sored is to have Animal Care (AC) inspectors present at the
    shows and to increase the penalties assessed to violators of the law.
    AC has been restricted to attending only about 10 percent of horse
    shows because of shortage of funds. Unfortunately, the total of
    penalties assessed for violation of the law have dropped to a
    negligible amount. Unless 1. funding is provided to enable AC to attend
    more events and 2. increased penalties are assessed, the industry will
    continue to defy the law with impunity.
        Lack of financial support has made it necessary for Animal Care to
    rely heavily on the industry to assume responsibility for enforcement
    of the law. This is the same industry that has turned a blind eye to
    compliance with the law since 1970! ``Designated Qualified Persons''
    (DQPs) are the ``inspectors'' from industry who are supposed to assist
    AC in identifying sore horses and pursuing action against the
    individuals who are responsible. The history of the DQPs reveals their
    failure to achieve the level of enforcement of the unbiased, well-
    trained, professional inspectors who work for AC. Following is data for
    horses shown with pads on their front feet to accentuate their gait: in
    calendar year 2000 (the most recent year for which such information is
    available), the rate at which DQPs turned down these horses for soring
    was 2.4 percent. The turndown rate was 39.1 percent, when government
    inspectors were present to oversee the activities of the DQPs.
        An appropriation of at least $500,000 is essential to permit AC to
    maintain a modest level of compliance with the Horse Protection Act.
    Further, it is essential that penalties be increased and more widely
    assessed for violators.

    Congress Needs to Provide Increased Oversight of Wildlife Services
            Operations and Research
        Wildlife Services (WS) needs to utilize a variety of tools for
    management of wildlife under its purview. However, it is essential that
    these tools are effective and publicly acceptable.
        WS needs to phase out of use of steel jaw leghold traps. Leghold
    traps slam shut with bone-crushing force on the limbs of their victims,
    tearing ligaments and tendons, severing toes and causing excruciating
    pain. These traps, opposed by the vast majority of Americans, have been
    condemned as ``inhumane'' by the American Veterinary Medical
    Association, the American Animal Hospital Association and the World
    Veterinary Association.
        The European Union (E.U.) banned use of the barbaric steel jaw
    leghold trap so that 88 countries now prohibit their use. Nobly, the EU
    went a step further; the EU law also prohibits import of furs from
    countries that use steel jaw traps. On December 11, 1997, in response
    to this European law, the U.S. Trade Representative reached an
    ``Understanding'' with the EU in which the United States agreed to end
    use of ``all jaw-type leghold restraining traps'' by 2002 on muskrat
    and nutria and to phase out use of ``conventional steel-jawed leghold
    restraining traps'' by 2004. WS has the responsibility of complying
    with this U.S. obligation by ending its use of these barbaric devices.
        WS should pursue no further testing of leghold traps as this would
    be an extremely wasteful and cruel use of taxpayer money. Previously,
    funds designated for trap research were merely passed on to a
    nongovernmental organization to utilize as it saw fit, without
    involvement from WS. If funds are allocated for trap testing, WS should
    conduct the research since the agency has the appropriate technical
    expertise.
        Further, WS should adopt a policy of checking all restraining traps
    within a 24-hour period. A wealth of scientific studies documents the
    fact that the longer an animal is in a restraining trap, the greater
    the injury. For this reason, the majority of states have a daily trap
    check requirement. Animals should not be subjected to long-drawn out
    pain because of a failure to assume the responsibility of carefully
    checking traps every day. This policy will help reduce the trauma
    experienced by non-target animals, too, ensuring that more of these
    animals will be able to be released alive.
                                     ______

                 Prepared Statement of the Sun Grant Initiative

                THE NATIONAL NEED FOR BIOENERGY AND BIOPRODUCTS

        Energy Security.--As readily accessible domestic sources of
    petroleum have waned, the United States has steadily increased its
    reliance on imported oil from other nations. The proportion of imported
    oil increased from about 30 percent of domestic consumption in 1970 to
    about 56 percent in 2000. Evidence that world oil supplies will become
    even more limited in the coming decades suggests that alternative
    sources of energy and industrial chemicals must be developed as soon as
    possible. Bioenergy resources can be further developed in ways that
    complement and augment petroleum energy resources, helping to reduce
    our dependence on imported oils while helping constrain the costs of
    energy for American industries and consumers.
        Farm Security.--Farmers have been experiencing economic hardships
    throughout the 1990's and continue today, primarily because of
    excessive production of core commodity crops. The hardships have flowed
    throughout rural America and a devastating exodus to urban centers has
    resulted. Viable alternatives and diversity are needed in agriculture
    to bolster the nation's independent farm families. Bioenergy and
    bioproducts produced on American farms represent an opportunity to both
    reduce dependence on imported oil while providing a significant source
    of income to American farmers.
        New Industries.--Imported oil is an important feedstock for
    numerous uses other than energy and transportation fuels. Contemporary
    plastics, synthetic fibers, lubricants, solvents, paints and numerous
    other common products depend on petroleum as a feedstock. In the
    future, agriculture will produce biobased feedstocks for production of
    these products as well as many other non-food uses. Agriculture will
    also be integral to manufacturing pharmaceuticals, cosmetics, building
    materials, biocatalysts, and numerous other biobased products. The
    development of biobased products will complement, augment, and be
    integrated with the petroleum industry.
        Rural Economic Development.--New biobased industries will benefit
    not only agricultural producers but will also stimulate economic
    development in the surrounding rural communities. In many cases,
    transportation logistics and infrastructure requirements will require
    that new biobased industries be physically located in rural
    communities--new capital investments and economic stimulation will stay
    in the rural community! A biobased economy will revitalize rural
    America.
        Environmental Protection.--The use of renewable bioenergy and the
    production of many biobased products will have numerous benefits for
    the environment. The increased use of renewable bioenergy will help
    reduce greenhouse gases and will help U.S. communities and industries
    improve air quality while remaining economically viable and
    competitive. Products that were once ``wastes'' can now become
    resources and ingredients in the development of new bioproducts. In
    turn, bioproducts can be designed to be biodegradable, further reducing
    the ``waste stream'' and reducing the demand for trash disposal land
    fills.
        New Science and Engineering Technologies.--The latest scientific
    and engineering breakthroughs will be brought to bear on the challenge
    of moving to a bio-based economy. For example, genomics,
    nanobiotechology, and new computer modeling technologies will be
    utilized to improve our technical understanding of plant biochemistry,
    to develop new enzymatic processes and new materials for bioenergy
    production and the development of new bioproducts.

                            THE SUN GRANT INITIATIVE

        Land Grant Universities.--Today, land grant universities serve
    agriculture by implementing research, extension, and educational
    programs to benefit agricultural producers and consumers, to assist
    rural families and communities, and to conserve the world's natural
    resources. Clearly, agriculture will play an important role in
    providing power, fuels, and biobased products for America. Because of
    the unique position land grant universities have in science, service
    and education, it is critical that they are proactively involved in
    creating the biobased economy. Over the past several years, land grant
    universities have been working to develop a new model for harnessing
    the capacities of the distributed agricultural research and education
    system into a national network that can work in ready partnership with
    the Federal agencies to help reach national bioenergy goals, which has
    led to the development of the Sun Grant Initiative.
        The Sun Grant Mission.--The mission of the Sun Grant Initiative is
    to (1) enhance national energy security through development,
    distribution and implementation of biobased energy technologies, (2)
    promote diversification and the economic viability of America's
    agriculture through land grant based research, extension, and education
    programs in renewable energy and biobased products, and (3) promote
    opportunities for biobased economic diversification and the development
    of new biobased industries in rural communities.
        Centers of Excellence and a National Network.--A network of five
    land grant universities are serving as regional Sun Grant Centers of
    Excellence (Figure 1). The universities include South Dakota State
    University, Oklahoma State University, the University of Tennessee--
    Knoxville, Cornell University, and Oregon State University. Federal
    funds will be shared equally among each of the regions. As Federal
    funds become available, up to 25 percent of the funds will be utilized
    at each center to enhance their abilities to develop model research,
    extension, and educational programs on agriculture-based renewable
    energy technologies and biobased industries located in rural
    communities. The balance of the funds in each region will be awarded
    competitively among all land grant universities in the region, drawing
    on the expertise of all land grant universities to address national
    priorities at the regional level.

      Figure 1.--The five founding Sun Grant Centers and their respective
                                    regions.

        These regional programs will embrace the multi-state, multi-
    function, multi-disciplinary integrated approach that is at the heart
    of the land grant method of addressing problems. The centers will
    interface their activities with DOE research laboratories at Oak Ridge,
    TN (ORNL, Oak Ridge National Laboratory) and Golden, CO (NREL, National
    Renewable Energy Laboratory).

    National Priorities
        The Sun Grant Initiative programs will revitalize rural
    communities, enhance the nation's energy security and improve our soil,
    water, and air. The primary challenges that must be faced include:
      --The emergence of agriculturally based bio-industries that can
            coexist with and complement petroleum based industries.
      --Developing biobased industries that improve the environment and
            protect air, water, soil, and other natural resources.
      --Developing biobased industries that diversify American agriculture
            and complement food production.
      --Developing industries that provide opportunities for the growth and
            prosperity of rural America.
        The transition to agriculturally-based bio-industries will create
    economic opportunities for other sectors of the U.S. economy through
    creation of high-tech companies and jobs. Through the Sun Grant
    Initiative, the United States will continue to be a world leader in
    technology and innovation for future high-tech commerce and trade. We
    will not only produce biomass feedstocks, we will also lead the world
    in the technologies and the intellectual property that makes this
    transition to a biobased economy possible.

    Regional Priorities
        During the development of the Sun Grant Initiative a series of
    regional workshops were held with agricultural, industry and community
    leaders. Priority needs were identified for bioenergy and bioproducts
    projects within each region. The unique structure of the Sun Grant
    Initiative will enable the land grant universities to address national
    issues of concern to the Federal agencies in the context of regional
    and local needs and circumstances.
    relation to the sun grant initiative to federal agency biomass programs
        The Biomass Research and Development Act of 2000 established an
    Interagency Board to coordinate the biomass-related programs within and
    among Federal departments and agencies. It is co-chaired by the
    Departments of Energy and Agriculture. Other member agencies include:
    the Department of Interior, Environmental Protection Agency, National
    Science Foundation, Office of Science and Technology Policy and the
    Office of the Federal Environmental Executive. The Act also established
    an Advisory Committee to advise the Secretaries of Energy and
    Agriculture and the Interagency Board on the future direction of
    biomass research and development investments. The Advisory Committee,
    now in its third year of activity, consists of 31 members from
    industry, academia, non-profit organizations, and the agricultural and
    forestry sectors, who are experts in their respective fields. In
    December of 2002, the Biomass Research and Development Technical
    Advisory Committee released a science ``roadmap'' outlining recommended
    priorities for the development of biomass technologies in the United
    States. In addition, Section 9008 of the Farm Security and Rural
    Development Act of 2002 provided for a reauthorization of the funding
    for the Biomass Research and Development Act of 2000 and provided
    funding to support biomass production. Building on these several
    legislative authorities, the Department of Energy and the Natural
    Resources Conservation Service of the Department of Agriculture are
    collaborating in the development and implementation of a Biomass
    Research and Development Initiative to address the priorities
    identified in the roadmap.
        One of the remaining challenges in developing bioenergy and
    bioproducts technologies is that they have to be developed as a
    complete system to be cost effective and economically viable. Many new
    biobased businesses have failed because they only addressed one part of
    a new biobased economy. In order for farmers to increase production of
    a needed biofuels feedstock materials they need to be assured of a
    steady demand. In order for bio-industries to develop a new product,
    they have to be assured of a steady supply of biobased feedstock
    materials. The rate limiting cost in developing biobased feedstock is
    often the cost of shipment; it may be most cost effective to process
    feedstock within a fifty mile radius of the site where it was grown,
    which in turn requires a distributed network of bioprocesses or
    generators. The generators may not break even unless they are also used
    to co generate heat or unless they feed energy back into local energy
    grids. The Sun Grant Initiative provides a means for the Department of
    Energy and the Department of Agriculture to access the research and
    education expertise of the land grant university system across the
    country to develop new technologies and education programs. The
    structure of the Sun Grant Initiative will enable the Departments to
    ``put all the pieces'' together to create comprehensive regional scale
    projects that can address multiple real world production needs
    simultaneously. The Sun Grant Initiative complements and completes the
    mix of legislative and funding tools that support biomass research and
    development.

                            LEGISLATIVE DEVELOPMENTS

        Legislation to authorize the Sun Grant Initiative was developed in
    2002. The proposed legislative language defines the regional Centers of
    Excellence and the network of collaborating universities, as well as
    the mechanism for apportioning and distributing funds described in this
    testimony. The proposed legislative language will authorize funding for
    the Sun Grant Initiative at the level of $100 million. There is bi-
    partisan support for introducing and passing this language in 2003. It
    is our understanding that there will be communications from leading
    Senate offices to the Committee indicating support for moving this
    initiative forward and initiating start-up funding in fiscal year 2004.

                                FUNDING REQUEST

        We request initial start-up funding of $20 million for the Sun
    Grant Initiative in fiscal year 2004. We are requesting that funding be
    provided by the Senate Appropriations Energy and Water Development
    Subcommittee through the Energy Efficiency and Renewable Energy
    programs of the Department of Energy, in order to augment and expand
    the Department of Energy's biomass and bioenergy research and
    development programs. In order to facilitate collaboration and
    enhancement of programs in the Department of Agriculture, we are also
    recommending that funding of $1 million be provided in fiscal year 2004
    through the USDA's Cooperative State Research, Extension and Education
    Service.
                                     ______

                Prepared Statement of the U.S. Apple Association

        The U.S. Apple Association (U.S. Apple) appreciates the opportunity
    to provide this testimony on behalf of our nation's apple industry.
        Our testimony will focus on the following three areas: the Market
    Access Program (MAP); Food Quality Protection Act (FQPA)
    implementation; and Agricultural Research Service (ARS) funding.
        U.S. Apple is the national trade association representing all
    segments of the apple industry. Members include 40 state and regional
    apple associations representing the 9,000 apple growers throughout the
    country as well as more than 500 individual firms involved in the apple
    business. Our mission is to provide the means for all segments of the
    U.S. apple industry to join in appropriate collective efforts to
    profitably produce and market apples and apple products.
        Market Access Program (MAP).--The U.S. Apple Association (U.S.
    Apple) encourages members of Congress to support $125 million in MAP
    funding for the coming fiscal year (fiscal year 2004), which is the
    level authorized in the farm bill.
        The apple industry receives roughly $3 million annually in export
    development funds from the U.S. Department of Agriculture's Market
    Access Program (MAP). These funds are matched by grower dollars to
    promote apples in more than 20 countries throughout the world. Since
    this program's inception in 1986, the U.S apple industry has expanded
    fresh apple exports by 194 percent, thanks in large part to the foreign
    promotions made possible by this program. One-quarter of U.S. fresh
    apple production is exported, with an annual value of roughly $370
    million.
        The U.S. apple industry faces keen competition around the globe
    from competitors who receive significant government funds for generic
    promotions. The governments of our foreign competitors spend
    approximately $500 million on export promotion and market development.
    It has become increasingly difficult for U.S. exporters to compete with
    European and Chinese producers who receive massive government
    assistance. Increased funding for this critical program will assist
    U.S. apple producers to better compete and revive export demand in
    countries recently hit by adverse economic conditions.
        Food Quality Protection Act (FQPA) Implementation.--U.S. Apple
    strongly supports full funding for the following programs intended to
    facilitate fair FQPA implementation and to offset its anticipated
    negative impact on apple growers and processors.
        Specifically, U.S. Apple supports the U.S. Department of
    Agriculture's following budget requests.
      --$15 million for the Pesticide Data Program, administered by the
            Agricultural Marketing Service (AMS);
      --$8.0 million for the National Agricultural Statistics Service
            (NASS) pesticide-usage surveys;
      --$2.6 million for the Office of Pest Management Policy administered
            by the Agricultural Research Service (ARS);
      --$3.7 million for minor-use registration of crop protection tools
            (IR-4) administered by ARS;
      --$7.2 million for area-wide Integrated Pest Management research
            administered by ARS;
      --$13.5 million for the Integrated Pest Management Research Grant
            Program administered by the Cooperative State Research,
            Extension and Education Service (CSREES);
      --$10.8 million for minor-use registration of crop protection tools
            (IR-4) administered by CSREES; and
      --$12.5 million for the Pest Management Alternatives Program,
            Regional Pest Management Centers, Crops at Risk and Risk
            Avoidance and Mitigation Program also administered by CSREES.
        National Tree Fruit Technology Roadmap.--U.S. Apple urges the
    Committee to encourage USDA to continue to work with the tree fruit
    industry by completing the national technology roadmap process and
    developing a national research strategy.
        Worldwide apple production increased by 112 percent between 1990
    and 2001, while U.S. apple production grew by 11 percent during this
    same period. This dramatic increase in global apple production
    continues to threaten the profitability of America's apple growers.
    Global oversupply, subsidized foreign competition and unfairly priced
    imports have caused apple prices to decline in recent years, while
    regulatory, production and distribution costs are steadily increasing.
    The U.S. apple industry's future survival may depend on its ability to
    develop and utilize new technology to decrease costs, while improving
    apple quality. Thus, the industry is seeking federal support of a
    national research initiative to develop new technology to automate
    orchard and fruit handling operations, optimize fruit quality,
    nutritional value, and safety, and integrate digital technologies and
    communication.
        Temperate Fruit Fly Research Position--Yakima, Wash.--U.S. Apple
    requests continued funding of $300,000 to conduct critical research at
    the USDA-ARS laboratory in Yakima, Wash. on temperate fruit flies, a
    major pest of apples.
        The Yakima, Wash., USDA Agricultural Research Service (ARS)
    facility is conducting research critical to the crop protection needs
    of the apple industry. FQPA implementation has reduced the number of
    pesticides currently available to growers for the control of pests,
    such as cherry fruit fly and apple maggot. Left unchecked, these
    temperate fruit flies can be devastating. Thus, research is needed to
    develop alternative crop protection methods as growers struggle to cope
    with the loss of existing tools. While Congress appropriated $300,000
    last fiscal year for this critical research, the administration's
    proposed budget for fiscal 2004 rescinds this funding.
        Post Harvest Quality Research Position--East Lansing, Mich.--U.S.
    Apple requests that the Committee provide continued funding of $309,600
    for postharvest-quality research at the ARS laboratory in East Lansing,
    Michigan.
        The East Lansing, Mich., USDA Agricultural Research Service (ARS)
    facility is conducting research critical to the future economic
    recovery of the apple industry. Using a series of new sensing
    technologies, researchers at this facility are developing techniques
    that would allow apple packers to measure the sugar content and
    firmness of each apple before it is offered to consumers. Research
    indicates consumer purchases will increase when products consistently
    meet their expectations, suggesting consumers will eat more apples once
    this technology is fully developed and employed by our industry. While
    Congress appropriated $309,600 last fiscal year for this critical
    research, the administration's proposed budget for fiscal 2004 rescinds
    this funding.
        Tree Assistance Program (Tap).--U.S. Apple urges Congress to
    provide $9.3 million to cover losses beginning in 2000 for the Tree
    Assistance Program (TAP).
        A recent series of severe weather-related natural disasters that
    have taken an enormous economic toll on many of the U.S. apple
    industry's most progressive and productive apple producers, who have
    lost their orchards to these storms and resulting disease outbreaks.
    The Farm Security and Rural Investment Act of 2002 re-authorizes the
    Tree Assistance Program (TAP), which provides reimbursement for 75
    percent of the cost of replanting trees lost to natural disasters up to
    $75,000 per producer per year.
        The U.S. Apple Association thanks the committee for this
    opportunity to present testimony in support of the U.S. apple
    industry's federal agricultural funding requests.
                                     ______

        Prepared Statement of the U.S. Marine Shrimp Farming Consortium

        Mr. Chairman, we greatly appreciate the opportunity to provide
    testimony to you and the Subcommittee, to thank you for your past
    support, and to discuss the achievements and opportunities of the U.S.
    Marine Shrimp Farming Program.
        We would like to bring to your attention the success of the U.S.
    Marine Shrimp Farming Consortium and its value to the nation. The
    Consortium consists of institutions from seven states: University of
    Southern Mississippi/Gulf Coast Research Laboratory, Mississippi; The
    Oceanic Institute, Hawaii; Tufts University, Massachusetts; Texas A&M
    University, Texas; Waddell Mariculture Center, South Carolina;
    University of Arizona, Arizona; and Nicholls State University,
    Louisiana. These institutions have made major advances in technology to
    support the U.S. shrimp farming industry, and the program's excellent
    performance through mufti-state collaboration has been recognized by
    the USDA in its recent program reviews. The Consortium is at a point of
    opportunity to make significant contributions to building the U.S.
    industry, reducing the trade deficit, and satisfying increasing
    consumer demand for shrimp. Seafood imports constitute the second
    largest trade deficit item for the United States at $7.1 billion, and
    shrimp represents approximately half of this deficit.

    Accomplishments
        The Consortium, in cooperation with private industry, industry
    associations and government agencies, has generated new technologies
    for producing premium quality marine shrimp at competitive prices. To
    date, the program has: (1) established the world's first and currently
    most advanced breeding and genetic selection program for marine shrimp;
    (2) completed pioneering research and development of advanced
    diagnostic tools for disease screening and control; (3) described the
    etiology of shrimp diseases associated with viral pathogens; (4)
    fostered shrimp production at near-shore, desert, and inland/rural farm
    sites; (5) played a lead role in the Joint Subcommittee on
    Aquaculture's efforts to assess the threat of globally transported
    shrimp pathogens; (6) supplied the U.S. industry with genetically
    improved and disease resistant shrimp stocks; (7) developed advanced
    technology biosecure shrimp production systems to protect both cultured
    and native wild stocks from disease; and (8) developed new feed
    formulations to minimize waste generation. These substantial
    accomplishments advance the continued growth of our industry, place an
    important emphasis on environmental sustainability, and increase market
    competitiveness. Judging from the state of our industry today, USMSFP
    programs continue to have measurable positive effects. The coastal
    industry continues to lead in the production of farm-raised shrimp in
    the United States. Recent improvements in farm management practices
    have resulted in bumper crops for the industry. The year 2002 resulted
    in the largest harvest ever for U.S. farmers at over 12 million pounds.
    This is the third consecutive year of record production, and represents
    an 107 percent increase in U.S. production over the last nine years.

    Industry Vulnerability
        While exceptional progress has been made, this emerging and
    important industry is continually confronted with new challenges. It
    depends on the U.S. Marine Shrimp Farming Program (USMSFP) for high-
    health and improved stocks, disease diagnosis and production
    technologies. As a result of the Consortium's support, the U.S.
    industry has maintained relative stability, while other countries have
    had major losses in their production, due to diseases and environmental
    problems. Disease losses, due to exotic viruses in Asia and Latin
    America during the past six years, have approached $7 billion U.S.
    There have been no outbreaks of notifiable disease in the United States
    during the last four years, and a commensurate increase in shrimp
    production during the same period. With reliable protection in place,
    we have also seen a commensurate geographic expansion of the industry
    within the United States. A broader industry base, while increasing
    production through the addition of new farms, also provides additional
    protection to the industry by geographically isolating different
    regional sectors of the industry in the event of disease outbreaks or
    natural disaster. Significant amounts of shrimp are now produced from
    wide parts of the South, with farms now operational in South Carolina,
    Florida, Alabama and Texas. Arizona and Hawaii have also greatly
    expanded production during the same period.
        While significant progress has been made in risk assessment and
    risk management with visible success to further improve the
    competitiveness of the U.S. industry, the industry and the USMSFP must
    remain constantly vigilant. In addition to providing significant input
    on the development of national and international regulatory standards
    for shrimp farmers, important service work for government agencies and
    NGOs keeps us continuously appraised of new developments pertaining to
    emerging regulations so USMSFP research plans can be kept proactively
    responsive to dynamic shifts in industry needs.

    Industry Independence
        As a result of the work of the Consortium, investor confidence is
    increasing. In addition to supporting today's industry, advanced
    biosecure shrimp production systems are allowing the expansion of
    shrimp farming into near-shore, inland/rural and desert sites, away
    from the environmentally sensitive coastal zone. Importantly, these new
    production technologies produce the highest quality shrimp at world
    competitive prices, consume U.S. grains as feed, and pose no threat to
    the environment. Shrimp farming is the newest agricultural industry for
    the United States, and USDA/CSREES has suggested that our program
    represents a model program for resolving important problems and
    capturing opportunities in both agriculture and aquaculture. Clearly,
    the U.S. shrimp farming industry has emerged from the early 1990s with
    a larger and more diverse industry for the new millennium.
        To begin completion of our remaining tasks, an increase in the
    current funding level from $4.186 million to $5 million is being
    requested. Allocation of $5 million per year for the next few years to
    work in cooperation with the private sector, to support existing
    efforts, and to build this new industry with its associated jobs and
    economic benefits is in the best interests of the nation.
        Mr. Chairman, the U.S. shrimp farming industry and our Consortium
    deeply appreciate the support of the Committee and respectfully ask for
    a favorable consideration of this request.
                                     ______

          Prepared Statement of the United States Telecom Association

                               SUMMARY OF REQUEST

        Project Involved.--Telecommunications Loan Programs Administered by
    the Rural Utilities Service of the U.S. Department of Agriculture.
        Actions Proposed.--Supporting RUS loan levels and the associated
    funding subsidy for the cost of money, Rural Telephone Bank and loan
    guarantee programs in fiscal year 2004 in the same amount as loan
    levels specified in the fiscal year 2003 Agriculture Appropriations
    Act, supporting loans in the hardship program at the level requested in
    the budget. Opposing the Administration's proposal to not fund Rural
    Telephone Bank loans in fiscal year 2004. Also supporting an extension
    of the language removing the 7 percent interest rate cap on cost of
    money loans. Also supporting an extension of the prohibition against
    the transfer of Rural Telephone Bank funds to the general fund.
    Opposing the proposal contained in the budget to transfer funds from
    the unobligated balances of the liquidating account of the Rural
    Telephone Bank for the Bank's administrative expenses. Supporting
    continued funding, as requested in the President's budget, in the
    amount of $25 million in distance learning and telemedicine loan and
    grant authority and $2 million to finance broadband transmission and
    local dial-up Internet service in rural areas. Requesting clarification
    that all rural communities under 20,000 population will qualify for
    loans in fiscal year 2004 under the new broadband loan program.
    Opposing the budget request seeking replacement of the $20 million in
    mandatory funding provided in last year's Farm Act for direct loans for
    broadband deployment with less than half that amount of discretionary
    funding authority in fiscal year 2004.
        I am Walter B. McCormick, Jr., President and CEO of The United
    States Telecom Association (USTA), the nation's oldest trade
    organization for the local exchange carrier industry. USTA's carrier
    members provide a full array of voice, data and video services over
    wire and wireless networks. I submit this testimony in the interests of
    the members of USTA and their subscribers.
        USTA members firmly believe that the targeted assistance offered by
    a strong RUS telecommunications loan program remains essential to a
    healthy and growing rural telecommunications industry that contributes
    to the provision of universal telephone service. We appreciate the
    strong support this Committee has provided for the telecommunications
    program since its inception in 1949 and look forward to a vigorous
    program for the future.

                              A CHANGING INDUSTRY

        As Congress recognized through passage of the Telecommunications
    Act of 1996, telecommunications in the United States is in the midst of
    the most significant changes any industry has ever undergone. Both the
    technological underpinnings and the regulatory atmosphere are
    dramatically different and changing at an extraordinarily rapid pace.
    Without system upgrades, rural customers will be left out of the
    emerging information revolution.
        The need for modernization of the telecommunications technology
    employed by RUS borrower rural telecommunications companies has never
    been greater. In addition to upgrading switching capability to allow
    new services to be extended to rural subscribers, it is crucially
    important that rural areas be included in the nationwide drive for
    greater bandwidth capacity. In order to provide higher speed data
    services, such as Digital Subscriber Line (DSL) connections to the
    Internet, outside plant must be modernized and new electronics must be
    placed in switching offices. With current technology, DSL services
    cannot be provided to customers located on lines more than three miles
    from the switching office. Rural areas have a significant percentage of
    relatively long loops and are therefore particularly difficult to serve
    with higher speed connections. Rural telecommunications companies are
    doing their best to restructure their networks to shorten loops so that
    DSL may be provided, but this is an expensive proposition and may not
    be totally justified by market conditions. However, these services are
    important for rural economic development, distance learning and
    telemedicine. RUS-provided financial incentives for additional
    investment encourage rural telecommunications companies to build
    facilities which allow advanced services to be provided. The
    externalities measured in terms of economic development and human
    development more than justify this investment in the future by the
    federal government.
        Greater bandwidth and switching capabilities are crucial
    infrastructure elements which will allow rural businesses, schools and
    health care facilities to take advantage of the other programs
    available to them as end users. The money spent on having the most
    modern and sophisticated equipment available at the premises of
    businesses, schools or clinics is wasted if the local
    telecommunications company cannot afford to build facilities that
    quickly transport and switch the large amounts of data that these
    entities generate. RUS funding enhances the synergies among the FCC and
    RUS programs targeted at improving rural education and health care
    through telecommunications.
        The RUS program helps to offset regulatory uncertainties related to
    universal service support, interstate access revenues and
    interconnection rules with a reliable source of fairly priced, fixed-
    rate long term capital. After all, RUS is a voluntary program designed
    to provide incentives for local telecommunications companies to build
    the facilities essential to economic growth.
        RUS endures because it is a brilliantly conceived public-private
    partnership in which the borrowers are the conduits for the federal
    government benefits that flow to rural telephone customers, the true
    beneficiaries of the RUS program. The government's contribution is
    leveraged by the equity, technical expertise and dedication of local
    telecommunications companies. The small amount of government capital
    involved is more than paid back through a historically perfect
    repayment record by telecommunications borrowers, as well as the
    additional tax revenues generated by the jobs and economic development
    resulting from the provision and upgrading of telecommunications
    infrastructure. RUS is the ideal government program--it generates more
    revenues than it costs, it provides incentives where the market does
    not for private companies to invest in infrastructure promoting needed
    rural economic development, it allows citizens to have access to
    services which can mean the difference between life and death, and it
    has never lost a nickel of taxpayer money.

                                RECOMMENDATIONS

        For fiscal year 2004, this Committee should continue the loan
    levels and necessary associated subsidy amounts for the RUS cost of
    money, Rural Telephone Bank and guaranteed telecommunications loan
    programs that it recommended for fiscal year 2003, and which were
    signed into law. These levels, as well as supporting loans in the
    hardship program at the level requested in the budget, would maintain
    our members' ability to serve the nation's telecommunications needs,
    maintain universal service and bring advanced telecommunications
    services to rural America.
        USTA strenuously objects to the recommendation in the
    Administration's budget to not fund Rural Telephone Bank loans in
    fiscal year 2004. The proposal is fundamentally flawed. The RTB's
    mission is far from complete. Loans made today are to provide state of
    the art telecommunications technology in rural areas. If no bank loans
    were made in fiscal year 2004, the budgetary outlay savings would be
    minimal, because RTB loans are funded over a multiyear period.
    Moreover, because of the minimum statutory interest rate of 5 percent,
    the RTB stands an excellent opportunity of actually generating a profit
    for the government!
        The Administration budget proposes that funds be transferred from
    the unobligated balances of the Bank's liquidating account to fund the
    Bank's administrative expenses, instead of those expenses being funded
    through an appropriation from the general fund of the Treasury. This
    proposal would not result in budgetary savings. As it has in previous
    years, this Committee should specifically reject this recommendation.
        For a number of years, through the appropriations process, Congress
    has eliminated the seven percent ``cap'' placed on the insured cost-of-
    money loan program. The elimination of the cap should continue. If long
    term Treasury interest rates exceeded the 7 percent ceiling contained
    in the authorizing act, the subsidy would not be adequate to support
    the program at the authorized level. This would be extremely disruptive
    and hinder the program from accomplishing its statutory goals.
    Accordingly, USTA supports continuation of the elimination of the seven
    percent cap on cost-of-money insured loans in fiscal year 2004. The
    Committee should also continue to protect the legitimate ownership
    interests of the Class B and C stockholders in the Bank's assets by
    continuing to prohibit a ``sweep'' of any unobligated balance in the
    bank's liquidating account that is in excess of current requirements
    funds into the general fund.
    Recommended Loan Levels
        USTA recommends that the telephone loan program loan levels for
    fiscal year 2004 be set as follows:

                            [In millions of dollars]
    ------------------------------------------------------------------------

    ------------------------------------------------------------------------
    RUS Insured Hardship Loans (5 percent)..................            $145
    RUS Insured Cost-of-Money Loans.........................             300
    Rural Telephone Bank (RTB) Loans........................             175
    Loan Guarantees.........................................             120
                                                             ---------------
          Total.............................................             740
    ------------------------------------------------------------------------

     LOANS AND GRANTS FOR TELEMEDICINE, DISTANCE LEARNING, INTERNET ACCESS
                                 AND BROADBAND

        USTA supports the continuation of $25 million for distance learning
    and telemedicine, as provided in the President's budget. USTA also
    supports making available $2 million in additional funds for loans and
    grants to finance broadband transmission and local dial up access to
    the Internet in rural areas. RUS was founded on the notion that rural
    Americans should have no lesser services and facilities for telephone
    service as those living in more densely populated, lower cost areas. As
    we move into the Information Age with the tremendous potential of the
    Internet to increase productivity, economic development, education and
    medicine, such funds can help continue the historic mission of RUS to
    support the extension of vital new services to rural America.

          BROADBAND LOANS UNDER THE 2002 FARM ACT (PUBLIC LAW 101-171)

        Last year the Congress recognized the tremendous potential of
    broadband technology to enhance human and economic development in rural
    areas by providing mandatory funding of loans for the deployment of
    such technology in rural areas. This funding was included in last
    year's Farm Act in the amount of $20 million. USTA opposes the
    Administration's request to cancel this in 2004 and replace it with
    less than half that amount, $9.1 billion, in discretionary authority.
    The capital intensive nature of the telecommunications industry,
    particularly with respect to implementation of broadband, requires a
    stable and predictable source of capital. Any disruption to the multi-
    year authority adopted last year by Congress would greatly discourage
    use of this program and deny rural consumers the benefits of services
    provided over broadband technology.
        The Committee's bill should include language to assure that all
    communities in the United States with a population of less than 20,000
    will qualify for loans under the RUS broadband loan program in fiscal
    year 2004. The importance of the availability of broadband in rural
    areas cannot be overstated. Broadband is the future of
    telecommunications and rural areas cannot be and should not be denied
    its benefits. Unfortunately, many rural areas will not be eligible for
    this program due to a technical defect in the enabling act eligibility
    provision (new section 601 of Title VI of the Rural Electrification Act
    of 1936). Although the criteria in subsection (A) demonstrates the
    commitment of Congress to assure that the program will allow all
    communities in the United States with a population of less than 20,000
    to qualify for broadband loans, subsection (B) seeks to exclude from
    program eligibility any area that ``is not located in an area
    designated as a standard metropolitan statistical area,'' even though
    its population is less than 20,000. ``Standard Metropolitan Statistical
    Area'' has not been a term recognized by the Bureau of the Census since
    1990. If not corrected, this technical defect could deny up to 40
    percent of otherwise eligible rural communities access to a program
    designed to accelerate deployment of broadband technology in rural
    areas.

                                   CONCLUSION

        Our members take pleasure and pride in reminding the Committee that
    the RUS telecommunications program continues its perfect record of no
    defaults in over a half century of existence. RUS telecommunications
    borrowers take seriously their obligations to their government, their
    nation and their subscribers. They will continue to invest in our rural
    communities, use government loan funds carefully and judiciously, and
    do their best to assure the continued affordability of
    telecommunications services in rural America. Our members have
    confidence that the Committee will continue to recognize the importance
    of assuring a strong and effective RUS Telecommunications Program
    through authorization of sufficient loan levels.
                                     ______

           Prepared Statement of the Utah Division of Water Resources

        This testimony is in support of funding for the Colorado River
    Basin Salinity Control Program. As the lead agency designated by
    Congress for salinity control in the Colorado River Basin, Utah hereby
    requests funding in the amount of $17,500,000 for fiscal year 2004 to
    implement the needed and authorized program for the Department of the
    Interior, Bureau of Reclamation (Reclamation). Failure to appropriate
    these funds will result in significant economic damage in the United
    States and Mexico.
        The program authorized by the Congress in 1995 has proven to be
    very successful and cost-effective. Proposals from the public and
    private sector to implement salinity control strategies have far
    exceeded the available funding and Reclamation has a backlog of
    proposals. Reclamation continues to select the best and most cost-
    effective proposals. Funds are available for the Colorado River Basin
    States' cost sharing for the level of federal funding requested. Water
    quality improvements accomplished under Title II of the Colorado River
    Basin Salinity Control Act also benefit the quality of water delivered
    to Mexico. Although the United States has always met the commitments of
    the International Boundary & Water Commission's (Commission) Minute 242
    to Mexico with respect to water quality, the United States Section of
    the Commission is currently addressing Mexico's request for better
    water quality at the International Boundary.
        Some of the most cost-effective salinity control opportunities
    occur when the USBR can improve irrigation delivery systems at the same
    time that the USDA's program is working with landowners (irrigators) to
    improve the on-farm irrigation systems. Through the newly authorized
    USDA EQIP program, more adequate on-farm funds are available and
    adequate USBR funds are needed to maximize the effectiveness of the
    effort. Reclamation has received cost-effective proposals to move the
    program ahead and the Basin States have funds available to cost-share
    up-front.
        A salinity control program has been developed by the Colorado River
    Basin States with input from the Bureau of Reclamation, the Natural
    Resources Conservation Service, the U.S. Fish and Wildlife Service, the
    Bureau of Land Management, and the Environmental Protection Agency. The
    plan necessary for controlling salinity and to reduce downstream
    damages has been captioned the ``plan of implementation.'' The 2002
    Review of Water Quality Standards includes an updated plan of
    implementation. The level of appropriation requested in this testimony
    is in keeping with the agreed upon plan. If adequate funds are not
    appropriated, state and federal agencies involved are in agreement that
    damage from the high salt levels in the water will be widespread in the
    United States as well as Mexico. The $17,500,000 requested by the Forum
    on behalf of the seven Colorado River Basin States is the level of
    funding necessary to proceed with Reclamation's portion of the plan of
    implementation. Utah urges the Subcommittee to support this level of
    funding as set forth in the plan of implementation.
        In addition to the funding identified above for the plan of
    implementation, Utah also requests the Congress to appropriate
    necessary funds needed to continue to maintain and operate salinity
    control facilities as they are completed and placed into long-term
    operation. Reclamation has completed the Paradox Valley unit which
    involves the collection of brines in the Paradox Valley of Colorado and
    the injection of those brines into a deep aquifer through an injection
    well. The continued operation of this project and other completed
    projects will be funded through operation and maintenance funds.
        In addition, Utah supports necessary funding to allow for continued
    general investigation of the salinity control program. It is important
    that Reclamation have planning staff in place, properly funded, so the
    progress of the program can be analyzed, coordination between various
    Federal and State agencies can be accomplished, and future projects and
    opportunities to control salinity can be properly planned to maintain
    the water quality standards for salinity so the Basin States can
    continue to develop their Compact-apportioned waters of the Colorado
    River.
                                     ______

         Prepared Statement of the Wildlife Management Institute (WMI)

        The Wildlife Management Institute (WMI) is submitting its comments
    on the proposed fiscal 2004 budget for natural resource programs within
    the U.S. Department of Agriculture. WMI is a scientific and educational
    non-profit organization that is staffed by professional wildlife
    biologists and is committed to the sustainable management of wildlife
    populations and habitats throughout North America. For several decades
    we have worked closely with the Natural Resources Conservation Service
    (NRCS), Farm Service Administration (FSA), Animal and Plant Health
    Inspection Service (APHIS) and Cooperative State Research, Education
    and Extension Services (CREES) to enhance the conservation of wildlife
    resources on private lands, to support disease control efforts that
    protect free-ranging wildlife, and to promote public stewardship of all
    wildlife resources. Our comments on the budgets of these agencies
    include the following spending increases of the Administration's
    request:

    Natural Resources Conservation Service
        Conservation Technical Assistance (CTA).--WMI finds that through
    congressional and administrative actions during the past several years,
    the number of positions at NRCS has fluctuated to the detriment of the
    CTA program. The current proposed level of FTE staff years for fiscal
    year 2004 is 12,878. This is a 276 FTE (2.2 percent) increase over the
    estimated fiscal year 2003 level. However, NRCS presently has a backlog
    of farmers and ranchers who have applied for the Farm Bill's
    conservation programs but have not yet received any technical
    assistance. This demand for CTA will only increase as NRCS starts
    implementing two new conservation programs, the Conservation Security
    Program and the Grassland Reserve Program, and expanding the
    Environmental Quality Incentives Program (scheduled for a $1 billion in
    fiscal year 2004). Further compounding this problem, is the
    Administration's proposed $121,400 cut for the CTA account. Even though
    the 2002 Farm Bill established the Technical Service Provider Program
    (TSP), NRCS cannot rely on the services of third party vendors to meet
    the farmers' and ranchers' demands for technical assistance. It will
    take at least three years to develop a seamless delivery system for
    TSP. For these reasons, WMI urges your subcommittee to increase the
    Administration's request for CTA by $100 million.
        Technical Service Providers (TSP).--This program will be of great
    assistance to NRCS as it delivers technical assistance to agricultural
    producers. However, fisheries and wildlife biologists will need
    training to participate as technical service providers, and The
    Wildlife Society estimates that it will take $10 million to provide
    such training for interested TSP candidates. To the degree that you are
    able, WMI asks your subcommittee to appropriate funds for training
    activities within The Wildlife Society and American Fisheries Society.
    Both organizations are the only societies that certify professionals
    within their field but need assistance when addressing the
    certification requirements for TSP.
        Monitoring and Evaluation.--Commodity groups, water utility
    companies, and natural resource professionals (e.g., The Wildlife
    Society, National Association of Conservation Districts and university
    extension specialists) remain in steadfast agreement with WMI that the
    Farm Bill's conservation title must include funding for monitoring and
    evaluation. Throughout the Administration and Congress, national
    leaders want to get the ``biggest bang for the buck'' when implementing
    an enhancement project for soil, water, air, and wildlife on private
    lands. Because the 2002 Farm Bill authorizes a $17.1 billion spending
    increase for the conservation title, it is imperative that NRCS
    establishes an accountability system that focuses on results (i.e.,
    outcomes) instead of activities (i.e., outputs). No such system
    currently exists. Therefore, WMI proposes the establishment of a
    competitive grants process to fund a consortium of non-governmental
    organizations, universities, and state agencies that could identify
    cost saving practices, program improvements, and future funding
    requirements for the Farm Bill's conservation title. Additionally, this
    consortium could determine what the environmental and economic values
    are for each conservation program. WMI recommends that your
    subcommittee dedicate $10 million as mandatory funding for monitoring
    and evaluation activities through the proposed consortium of non-USDA
    entities. Please note that this is the same funding level that was
    requested in the Farm Bill's Managers Report.
        Wetlands Reserve Program.--WMI supports the full authorization of
    250,000-acres for the Wetlands Reserve Program in fiscal year 2004.
        Wildlife Habitat Incentives Program.--WMI does not support the
    Administration's $42 million request for the Wildlife Habitat
    Incentives Program (WHIP). That dollar amount will not allow NRCS to
    reduce its current backlog for WHIP while accommodating additional
    enrollment in the program. Requests from the Northeast and Western
    regions are areas where interest in WHIP is the highest, primarily
    because of the areas' land base and specialized farming interests
    (e.g., horse ranching, fruit orchards, and dairy farms). Lest
    participation in the Farm Bill's conservation programs favor only
    agricultural producers in the Midwestern and Southern regions, WMI
    urges your subcommittee to appropriate $100 million for WHIP in fiscal
    year 2004. And with the matching ability of partners, this request will
    let more dollars flow into WHIP, a result that benefits both the
    Federal government and private landowner.
        Environmental Quality Incentives Program.--WMI supports mandatory
    funding of $850 million for the Environmental Quality Incentives
    Program in fiscal year 2004. However, during the rulemaking process for
    EQIP, WMI asked NRCS to make this program more wildlife friendly. We
    trust that this recommendation will be accepted so that additional
    benefits can be generated for agricultural landowners and the natural
    resource system.
        Conservation Security Program.--In order for the Conservation
    Security Program (CSP) to work, it must receive more than the
    Administration's request of $20 million. WMI believes it must be funded
    at its original intent of $2 billion over the next ten years, or $200
    million per year.
        WMI supports the $8.1 million allocation to the Klamath Basin.
    Studies being conducted in the Klamath Basin need to review the impacts
    of water shortages on wildlife populations that use the area for
    breeding and foraging purposes.

    Farm Service Administration
        Staff years.--The staffing level of 16,701 FTE's may be too low to
    address the administrative needs of the Farm Bill's conservation
    programs. WMI recommends that funding be increased to facilitate the
    current level of 19,337 FTE's. Despite efforts to ``streamline'' USDA's
    application process, the private landowners' demand for participation
    in FSA's conservation programs far exceeds the supply; thus the need to
    increase staffing levels.
        Grassland Reserve Program.--WMI supports the fiscal year 2004
    request of $85 million for the Grasslands Reserve Program. This program
    will help Congress realize its desired goals for soil, water, and
    wildlife conservation.
        Conservation Reserve Program.--WMI supports maintaining the
    Conservation Reserves Program's (CRP) enrollment at 39.2 million acres.
    The demand for CRP justifies its continuation at the recommend acreage.
    It has generated historical improvements for wildlife populations and
    associated habitat, all through voluntary efforts of willing
    landowners. Such benefits include population enhancement for declining
    species (e.g., sharp-tailed grouse).
        The Conservation Reserve Enhancement Program (CREP), a component of
    CRP, is another shining example of how the Conservation Reserve Program
    serves the needs of private landowners and all American citizens. CREP
    has hit its stride in recent years. Twenty-five states are presently
    enrolled in the program, which requires all participating states to
    match federal dollars when implementing a project. Pennsylvania in
    particular exemplifies how successful CREP can be. In that state,
    projects leaders enrolled 100,000-acres within a few years and are now
    asking FSA for another 100,000-acres. WMI believes the enrollment cap
    of 2 million acres for CREP is achievable in the foreseeable future,
    therefore, lending further justification for the Administration's the
    39.2 million acre request. However, Congress may need to reconsider the
    40 million acre cap when reauthorizing the Farm Bill in 2006.

                ANIMAL PLANT AND PLANT HEALTH INSPECTION SERVICE

        Wildlife Services.--WMI is concerned about the proposed $1.5
    million decrease for Methods Development in fiscal year 2004.
    Technological improvements for controlling nuisance wildlife are
    desperately needed. Public groups disfavor traditional control
    techniques, such as trapping and poisoning, and are demanding the
    development and use of non-lethal and non-injurious alternatives, such
    as immunocontraception. Consequently, APHIS must receive sufficient
    financial resources to research and develop alternative control
    techniques. Thus, WMI recommends the appropriation of $11.5 million for
    Wildlife Service's Methods Development account.
        Veterinary Sciences.--Chronic Wasting Disease (CWD) is a national
    news item affecting wild and/or captive populations of white-tailed
    deer, mule deer and elk in 12 states and 2 Canadian provinces.
    Management of this fatal disease is administratively and financial
    taxing for state and federal agencies. Moreover, the CWD's impact on
    state economies (via hunting seasons) is well documented and comes at a
    time when those economies are receding. WMI supports the objectives of
    the CWD Implementation Plan and urges your subcommittee to appropriate
    $41.8 million to fund the plan's research, surveillance, control, and
    communication activities. The $41.8 million takes into consideration
    the needs of the Department of the Interior ($7.7 million), Department
    of Agriculture ($13.6 million), and State and Tribal Grants via the
    U.S. Fish and Wildlife Service ($20.5 million).

    Cooperative State Research, Education and Extension Services
        McIntire-Stennis.--WMI recommends that your subcommittee fund the
    McIntire-Stennis Program at $30 million in fiscal year 2004. These
    research programs, conducted by land grant universities and other
    educational institutions, are crucial for promoting natural resource
    sustainability now and in the future.
        Smith-Lever.--WMI urges your subcommittee to support a $10 million
    increase over the Administration's request for the Smith-Lever 3 (d)
    Program. The Administration requested a $2.3 million increase over
    fiscal year 2003 for this natural resources extension program, but
    additional money is needed to expand its services. These programs
    facilitate public education on a variety of topics, such as wetlands
    conservation, endangered species conservation, forestry and wildlife
    management, and human-wildlife conflicts. Our suggested increase would
    better prepare agricultural producers for involvement in the Farm
    Bill's conservation programs, as well as other public groups that may
    serve as partners on select projects.
        Thank you for reviewing our comments, and we look forward to
    working with you throughout the appropriations process. If you or your
    staff would like to discuss our recommendations further, please contact
    me or Ron Helinski, Conservation Policy Specialist, at (202) 371-1808.
                                     ______

                   Prepared Statement of The Wildlife Society

        The Wildlife Society appreciates the opportunity to submit
    testimony concerning the fiscal year 2004 budgets for the Natural
    Resources Conservation Service (NRCS), Farm Service Agency (FSA),
    Animal Plant Health Inspection Service (APHIS), and Cooperative State
    Research, Education and Extension Services (CSREES). The Wildlife
    Society is the association of almost 9,000 professional wildlife
    biologists and managers dedicated to sound wildlife stewardship through
    science and education. The Wildlife Society is committed to
    strengthening all Federal programs that benefit wildlife and their
    habitats on agricultural and other private land.

                     NATURAL RESOURCES CONSERVATION SERVICE

        Farm Bill Technical Assistance.--We applaud Congress for passing
    the 2002 Farm Bill, which authorizes the U.S. Department of Agriculture
    to work with third party Technical Service Providers to build a solid
    network of certified professionals that can assist NRCS in delivering
    assistance to producers. However, NRCS recognizes that training will be
    needed to effectively prepare Technical Service Providers to assist
    producers and landowners. The Wildlife Society recommends that Congress
    provide NRCS with adequate funds to recruit land grant universities and
    colleges, the USDA Extension System, and professional societies to help
    train sufficient Technical Service Providers.
        Monitoring and Evaluation.--Monitoring Farm Bill conservation
    programs and evaluating their progress toward achieving Congressionally
    established objectives for soil, water, and wildlife will enable NRCS
    to ensure successful program implementation. Changes to agricultural
    policy in the 2002 Farm Bill, such as higher funding authorizations and
    expanded acreage enrollment caps, necessitate the establishment of an
    accountability system that continuously assesses the effectiveness of
    conservation programs and policies. The Wildlife Society recommends
    dedicating mandatory funding to the monitoring and evaluation of Farm
    Bill conservation programs at the $10 million level approved in the
    Farm Bill Statement of Managers. We propose using a competitive grants
    process to fund a consortium of non-USDA organizations (non-
    governmental organizations, universities, and state organizations) for
    the purpose of identifying cost-saving practices, program improvements,
    and future funding requirements and determining the environmental and
    economic value of conservation expenditures.
        Wetland Reserve Program (WRP), Wildlife Habitat Incentives Program
    (WHIP).--We would like to express our gratitude for your continued
    support of WRP and for authorizing WHIP in 2003. WRP is a valuable
    program designed to assist farmers and ranchers protect and restore
    wetland habitat. WHIP is a voluntary program that provides technical
    and financial support to farmers and ranchers to create high quality
    wildlife habitat. The Wildlife Society supports funding WRP at $250
    million in fiscal year 2004. We are concerned that the Administration's
    request for WHIP, $42 million for 2004, is well below the 2002 Farm
    Bill's authorized amount of $275 million. The Wildlife Society
    recommends funding WHIP at $275 million in 2004.

                              FARM SERVICE AGENCY

        Staff Years.--FSA requires an adequate budget to implement the Farm
    Bill conservation programs under its administration. The Wildlife
    Society is concerned that the staffing level of 16,701 FTE proposed by
    the Administration in 2004 is too low to address the demonstrated need
    of agricultural producers. The Wildlife Society recommends that the
    budget include sufficient personnel funding to maintain the 2003
    requested level of 19,337 FTE.
        Grassland Reserve Program (GRP).--We believe the GRP will be
    valuable in aiding landowners in their grassland restoration efforts.
    The Wildlife Society supports the Administration's 2004 request of $85
    million for GRP.
        Conservation Reserve Program (CRP).--CRP is popular with
    landowners, and has resulted in significant wildlife and habitat
    benefits on agricultural land. Current demand for the program is on the
    rise, as is demand for technical assistance associated with
    implementation of CRP. The Wildlife Society recommends maintaining CRP
    enrollment at 39.2 million acres as finalized in the 2002 Farm Bill.
        Forest Land Enhancement Program (FLEP).--The Forest Land
    Enhancement Program was created through the 2002 Farm Bill to provide
    financial, technical, educational, and related assistance to promote
    sustainable management of non-industrial private forestlands. The
    program is authorized at $100 million for 2002-2007, to be distributed
    through state forestry agencies. The Wildlife Society asks that
    Congress appropriate at least $20 million to FLEP in 2004 to ensure
    that private forestlands continue to provide sustainable forest
    products and protect the health of our water, air, and wildlife.

                   ANIMAL AND PLANT HEALTH INSPECTION SERVICE

        Wildlife Services.--Wildlife Services (WS), a unit of APHIS, is
    responsible for controlling wildlife damage to agriculture,
    aquaculture, forest, range and other natural resources, for controlling
    wildlife-borne diseases, and for controlling wildlife at airports. Its
    activities are based on the principles of wildlife management and
    integrated damage management, and are carried out cooperatively with
    State fish and wildlife agencies.
        The Wildlife Society is concerned about the proposed $1.5 million
    decrease in funding for Methods Development for 2004. Many current
    wildlife control tools such as traps, snares and wildlife toxicants are
    becoming less acceptable to the public and are being prohibited in many
    states as the result of public referenda. The only credible way to
    identify and perfect new methods is through research. However, WS
    funding is only adequate to cover maintenance and operating costs and
    no funding is being provided for the development of new innovative
    wildlife damage management methods. The Wildlife Society requests a $5
    million increase for Methods Development to adequately continue non-
    lethal methods research and address the increased operating and
    maintenance costs.
        Veterinary Services.--Chronic Wasting Disease (CWD) is a serious
    problem plaguing our Nation's deer and elk. The spread of CWD is
    draining already diminished Federal and State agency budgets and is
    hurting local economies that depends on revenues from recreational
    hunting. The Wildlife Society supports the Administration's request of
    $14.9 million for the research, monitoring, and control of CWD.
          cooperative state research, education and extension services
        Renewable Resources Extension Act.--The Wildlife Society was
    pleased that Congress appropriated $423,000 above the Administration's
    request for the Renewable Resources Extension Act (RREA) in 2003. RREA
    provides an expanded, comprehensive extension program for forest and
    rangeland renewable resources. The need for these programs is greater
    now than ever due to fragmentation of ownerships, urbanization, the
    number and diversity of landowners needing assistance, and the
    increasing social concern for land use and its effect on soil, water,
    air, and wildlife.
        It is important to note that RREA was reauthorized in the 2002 Farm
    Bill at $30 million annually through 2007. Though RREA is proven to be
    effective at leveraging cooperative state and local funding, it has
    never been fully funded in the annual appropriations process. In fact,
    the fiscal year 2004 request for RREA falls back to the 2002 funding
    level, $4.093 million, which is insufficient for assisting private
    landowners who own and manage most of the nation's natural resources.
    An increase to at least $15 million would enable CSREES to expand its
    capability to assist more private landowners in improving management of
    private land while increasing farm revenue. Therefore The Wildlife
    Society recommends that the Renewable Resources Extension Act be funded
    at a minimum of $15 million in fiscal year 2004.
        McIntire-Stennis.--The McIntire-Stennis Cooperative Forestry
    program funds state efforts in forestry research to increase the
    efficiency of forestry practices, and to extend the benefits that come
    from forest and related rangelands. McIntire-Stennis calls for close
    coordination between state colleges and universities and the Federal
    Government, and is essential for providing research background for
    other Acts, such as RREA. The Administration's fiscal year 2004 request
    for McIntire-Stennis is $21.884 million, in essence level with 2002 and
    2003. The Wildlife Society recommends that funding for McIntire-Stennis
    Cooperative Forestry be increased to $30 million.
        National Research Initiative.--National Research Initiative
    Competitive Grants (NRI) are open to academic institutions, Federal
    agencies, and private organizations to fund research on improving
    agricultural practices, particularly production systems that are
    sustainable both environmentally and economically, and to develop
    methods for protecting natural resources and wildlife. Innovative grant
    programs such as NRI help broaden approaches to land management, such
    as integrating timber and wildlife management on private lands. The
    Wildlife Society supports the Administration's 2004 request of $200
    million for National Research Initiative Competitive Grants, and
    requests Congressional approval.
        Thank you for considering the views of wildlife professionals. We
    look forward to working with you and your staff to ensure adequate
    funding for wildlife conservation.

           LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                                  ----------
                                                                       Page
    Acord, Bobby R., Administrator, Animal and Plant Health
      Inspection Service, Department of Agriculture, prepared
      statement......................................................   328
    Ad Hoc Coalition, prepared statement.............................   431
    Advanced Medical Technology Association, prepared statement......   434
    Alachua County Board of County Commissioners, prepared statement.   435
    American:
        Farm Bureau Federation, prepared statement...................   436
        Indian Higher Education Consortium, prepared statement.......   439
        Society:
            For Microbiology, prepared statements..................443, 446
            Of Plant Biologists (ASPB), prepared statement...........   448
    Association of State Dam Safety Officials, prepared statement....   449

    Bear Trust International, prepared statement.....................   454
    Bennett, Senator Robert F., U.S. Senator from Utah:
        Opening statement............................................   175
        Questions submitted by......................................65, 400
    Bob Lawrence & Associates Inc., prepared statement...............   455
    Bond, Senator Christopher S., U.S. Senator from Missouri,
      questions submitted by........................................69, 408
    Boone and Crockett Club, prepared statement......................   454
    Bosecker, R. Ronald, Administrator, National Agricultural
      Statistic Service, Department of Agriculture, prepared
      statement......................................................   262
    Bost, Eric M., Under Secretary for Food, Nutrition, and Consumer
      Services, Department of Agriculture............................   287
        Opening statement............................................   293
        Prepared statement...........................................   295
    Bowhunting Preservation Alliance, prepared statement.............   454
    Buckmasters American Deer Foundation, prepared statement.........   454
    Burns, Senator Conrad, U.S. Senator from Montana:
        Prepared statements..........................................3, 176
        Questions submitted by.......................................    72
    Byrd, Senator Robert C., U.S. Senator from West Virginia,
      questions submitted by.........................................   157

    California Industry and Government Central California Ozone Study
      Coalition, prepared statement..................................   457
    Campfire Club of America, prepared statement.....................   454
    Coalition:
        On Funding Agricultural Research Missions (CoFARM), prepared
          statement..................................................   458
        To Promote U.S. Agricultural Exports, prepared statement.....   459
    Cochran, Senator Thad, U.S. Senator from Mississippi, questions
      submitted by...................................................   406
    Collins, Keith, Chief Economist, Office of the Secretary,
      Department of Agriculture......................................     1
        Prepared statement...........................................   180
    Colorado River:
        Basin Salinity Control Forum, prepared statement.............   461
        Board of California, prepared statement......................   463
    Congressional Sportsmen's Foundation, prepared statement.........   454
    Conservation Force, prepared statement...........................   454
    Critical Mass Energy and Environmental Program Public Citizen and
      the Government Accountability Project, prepared statement......   464

    Davidson, Ross J., Jr., Administrator, Risk Management Agency,
      Department of Agriculture, prepared statement..................   212
    Dewhurst, Stephen, Director, Office of Budget and Program
      Analysis, Office of the Secretary, Department of Agriculture...     1
    Dorgan, Byron L., U.S. Senator from North Dakota:
        Prepared statement...........................................     3
        Questions submitted by.......................................   145
    Dorr, Thomas C., Under Secretary for Rural Development,
      Department of Agriculture......................................   175
        Prepared statement...........................................   226
    Durbin, Senator Richard J., U.S. Senator from Illinois:
        Prepared statements..........................................4, 177
        Questions submitted by.......................................   148

    Easter Seals, prepared statement.................................   468

    Federation of Animal Science Societies, prepared statement.......   470
    Feinstein, Senator Dianne, U.S. Senator from California,
      questions submitted by.........................................   147
    Florida State University, prepared statement.....................   471
    Foundation for North American Wild Sheep, prepared statement.....   454
    Friends of Agricultural Research--Beltsville, Inc., prepared
      statement......................................................   472

    Garcia, Arthur A., Administrator, Rural Housing Service,
      Department of Agriculture, prepared statement..................   235
    Grocery Manufacturers of America, prepared statement.............   475

    Harkin, Senator Tom, U.S. Senator from Iowa:
        Prepared statement...........................................   322
        Questions submitted by.....................................136, 424
    Hawks, William T., Under Secretary for Marketing and Regulatory
      Programs, Department of Agriculture............................   287
    Hefferan, Dr. Colien, Administrator, Cooperative State Research,
      Education, and Extension Service, Department of Agriculture,
      prepared statement.............................................   252
    Houston Safari Club, prepared statement..........................   454
    Humane Society of the United States, prepared statement..........   476

    International Association of Fish and Wildlife Agencies, prepared
      statements...................................................454, 480
    InterTribal Bison Cooperative, prepared statement................   486
    Izaak Walton League of America, prepared statement...............   454

    Jen, Joseph J., Under Secretary for Research, Education, and
      Economics, Department of Agriculture...........................   175
        Prepared statement...........................................   245
    Johnson, Senator Tim, U.S. Senator from South Dakota:
        Prepared statement...........................................    30
        Questions submitted by.....................................151, 425

    Knight, Bruce I., Chief, Natural Resources Conservation Service,
      Department of Agriculture, prepared statement..................   219
    Knipling, Dr. Edward B., Acting Administrator, Agricultural
      Research Service, Department of Agriculture, prepared statement   249
    Kohl, Senator Herb, U.S. Senator from Wisconsin:
        Prepared statement...........................................   176
        Questions submitted by......................................73, 409

    Legg, Hilda Gay, Administrator, Rural Utilities Service,
      Department of Agriculture, prepared statement..................   231
    Little, James R., Administrator, Farm Service Agency, Department
      of Agriculture, prepared statement.............................   199
    Lummi Indian Business Council, prepared statement................   488

    McClellan, Hon. Mark B., Commissioner, Food and Drug
      Administration, Department of Health and Human Services........   363
        Prepared Statement...........................................   367
    McKee, Garry L., Administrator, Food Safety and Inspection
      Service, Department of Agriculture, prepared statement.........   310
    Medical Device Manufacturers Association, prepared statement.....   428
    Moseley, James R., Deputy Secretary, Office of the Secretary,
      Department of Agriculture......................................     1
    Mule Deer Foundation, prepared statement.........................   454
    Murano, Elsa, Under Secretary for Food Safety, Department of
      Agriculture....................................................   287
        Prepared statement...........................................   302

    National:
        Association of:
            Conservation Districts, prepared statement...............   489
            Professional Forestry Schools and Colleges (NAPFSC),
              prepared statement.....................................   492
            University Fisheries and Wildlife Programs, prepared
              statement..............................................   494
        Commodity Supplemental Food Program, prepared statement......   496
        Fish and Wildlife Foundation, prepared statement.............   497
        Organization for Rare Disorders (NORD), prepared statement...   499
        Potato Council, prepared statement...........................   506
        Rifle Association, prepared statement........................   454
        Rural:
            Housing Coalition, prepared statement....................   519
            Telecom Association, prepared statement..................   507
        Shooting Sports Foundation, prepared statement...............   454
        Telecommunications Cooperative Association, prepared
          statement..................................................   511
        Trappers Association, prepared statement.....................   454
        Turfgrass Evaluation Program, prepared statement.............   514
        Watershed Coalition, prepared statement......................   516
    Navajo Nation, prepared statement................................   523
    New Mexico Interstate Stream Commission, prepared statement......   528
    Northwest Indian Fisheries Commission, prepared statement........   529

    Offutt, Susan E., Administrator, Economic Research Service,
      Department of Agriculture, prepared statement..................   255
    Oklahoma Farmers Union Farm and Rural Programs Coordinator,
      National Fire Ant Strategy Development, and Oklahoma Fire Ant
      Research and Management Advisory Committee, prepared statement.   532
    Organization for the Promotion and Advancement of Small
      Telecommunications Companies, prepared statement...............   534

    Partnership for Food Safety Education, prepared statement........   536
    Penn, J.B., Under Secretary for Farm and Foreign Agricultural
      Services, Department of Agriculture............................   175
        Prepared statement...........................................   192
    People for the Ethical Treatment of Animals (PETA), prepared
      statement......................................................   537
    Pope and Young Club, prepared statement..........................   454

    Quality Deer Management Association, prepared statement..........   454

    Red River Valley Association, prepared statement.................   539
    Reifschneider, Donna, Administrator, Grain Inspection, Packers
      and Stockyards Administration, Department of Agriculture,
      prepared statement.............................................   344
    Rey, Mark E., Under Secretary for Natural Resources and
      Environment, Department of Agriculture.........................   175
        Prepared statement...........................................   217
    Rocky Mountain Elk Foundation, prepared statement................   454
    Rosso, John, Administrator, Rural Business Cooperative Service,
      Department of Agriculture, prepared statement..................   240
    Ruffed Grouse Society, prepared statement........................   454

    Safari Club International, prepared statement....................   454
    Salazar, Roberto, Administrator, Food and Nutrition Service,
      Department of Agriculture, prepared statement..................   297
    Seminole Tribe of Florida, prepared statement....................   542
    Shikar Safari Club International, prepared statement.............   454
    Society for Animal Protective Legislation, prepared statement....   544
    Stevens, Senator Ted, U.S. Senator from Alaska, questions
      submitted by...................................................    68
    Sun Grant Initiative, prepared statement.........................   546

    Terpstra, A. Ellen, Administrator, Foreign Agricultural Service,
      Department of Agriculture, prepared statement..................   204

    U.S. Apple Association, prepared statement.......................   549
    U.S. Marine Shrimp Farming Consortium, prepared statement........   550
    United States Telecom Association, prepared statement............   552
    Utah Division of Water Resources, prepared statement.............   554

    Veneman, Ann M., Secretary of Agriculture, Office of the
      Secretary, Department of Agriculture...........................     1
        Prepared statement...........................................    10
        Statement of.................................................     6

    Weber, Jeffrey, Associate Commissioner for Management and
      Systems, Department of Health and Human Services...............   363
    Whitetails Unlimited, Inc., prepared statement...................   454
    Wildlife:
        Management Institute (WMI), prepared statements............454, 555
        Society, prepared statements...............................454, 558

    Yates, A.J., Administrator, Agricultural Marketing Service,
      Department of Agriculture, prepared statement..................   339

                                 SUBJECT INDEX

                                  ----------

                           DEPARTMENT OF AGRICULTURE

                                                                       Page
    Administrative:
        And Operating Expenses (A&O).................................   212
        Expenses.....................................................   230
        Support......................................................   203
    Agricultural:
        Marketing Service............................................   327
        Product Distribution.........................................   274
        Trade........................................................   275
    AMS 2004 Budget Request..........................................   328
    Animal:
        And Plant Health Inspection Service..........................   323
        Identification...............................................   360
    APHIS 2004 Budget Request........................................   324
    Better Addressing Pathogens......................................   312
    BSE..............................................................   354
        Testing......................................................   356
    Budget Request.................................................201, 209
        Summary......................................................   343
    Business and Industry Guaranteed Loan Program....................   241
    Canadian Livestock Prohibition...................................   358
    Child Nutrition:
        Act Reauthorization..........................................   297
        Programs...................................................296, 299
    Chronic Wasting Disease..........................................   353
    Combating Obesity..............................................295, 298
    Commodity:
        Credit Corporation...........................................   201
        Supplemental Food Program (CSFP).............................   296
    Community Programs...............................................   239
    Conservation Program Technical Assistance........................   281
    Cooperative Services.............................................   242
    Country of Origin Labeling................................284, 342, 359
    Customers, Partners, and Stakeholders............................   262
    Delinquency and Default Rates....................................   270
    Discretionary Funding............................................   221
    Electric Program.................................................   234
    Electronic Government............................................   343
    Emergency Food Assistance Program (TEFAP)......................297, 300
    Ensuring Program Access........................................295, 298
    Export Credit:
        Guarantees...................................................   267
        Program Default Rate.........................................   268
    Farm:
        And Foreign Agricultural services............................   189
        Bill Authorized Programs.....................................   223
        Loan Programs................................................   202
        Program Policy...............................................   268
        Service agency.............................................190, 193
    FCIC Fund........................................................   212
    Federal Grain Inspection Service.................................   347
    Fiscal Year 2004:
        Budget Request.............................................320, 337
        Plans........................................................   265
    Food:
        Guide Pyramid and Dietary Guidelines.........................   351
        Safety.......................................................   357
        Stamp Program..............................................296, 299
        Supplies in Iraq.............................................   279
    Foreign:
        Agricultural Service.......................................191, 197
        Food Safety Systems..........................................   355
    Fresh Fruit and Vegetable Pilot Projects.........................   361
    FSIS:
        Budget Request...............................................   357
        Partnerships.................................................   317
        Year in Review...............................................   310
    Funding Sources..................................................   323
    Genomics.........................................................   258
    GIPSA's 2004 Budget Request......................................   326
    Global Agricultural Marketing....................................   340
    Grain Inspection, Packers and Stockyards Administration..........   325
    Guaranteed Farm Loans............................................   267
    Homeland Security Efforts........................................   316
    Import Reinspection..............................................   355
    Improving Public Health..........................................   311
    Intermediary Relending Program...................................   241
    Lamb Meat Adjustment Assistance Program..........................   279
    Loan to Grant Ratio..............................................   283
    Maintaining Rural America........................................   277
    Mandatory Price Reporting System.................................   342
    Meeting Emerging Challenges......................................   220
    Microbiological Data.............................................   341
    Mission........................................................226, 339
    Multi-Family Housing Programs....................................   237
    National Organic Certification Program...........................   341
    Natural Resources and Environment................................   216
    Nutrition Programs Administration..............................297, 300
    Obesity in America...............................................   350
    Office of the Chief Economist....................................   178
    Organization.....................................................   344
    Other Appropriated Programs......................................   203
    Overweight Children..............................................   352
    Packers and Stockyards Programs..................................   344
    Patents on ARS Products..........................................   278
    Payments to Producers............................................   265
    Pesticide Data...................................................   341
    Priority Initiatives.............................................   228
    Productivity Increases...........................................   276
    Program:
        Highlights...................................................   213
        Issues/Concerns..............................................   215
        Strategies/Oversight.........................................   215
    Proposed:
        Increases for Buildings and Facilities.......................   251
        Operating Costs..............................................   251
        Program:
            Decreases................................................   251
            Increases................................................   249
    Public Health Management.........................................   313
    Renewable Energy Grants Program..................................   242
    Research:
        And Agricultural Production..................................   273
        Education, and Economics.....................................   244
        Planning and Management......................................   283
    Responsibilities.................................................   227
    Risk Management Agency.........................................191, 195
    Rural Business:
        Cooperative Development Grant Program........................   243
        Cooperative Services.........................................   229
        Enterprise Grant Program.....................................   241
        Opportunity Grant Program....................................   242
    Rural Development................................................   224
        Budget Request...............................................   228
        Credit Programs..............................................   269
        Economic Development Loan Program............................   242
        Field Office Consistency Review..............................   281
        Housing Service..............................................   230
        Job Growth...................................................   277
    Safeguarding the Health of America's Agricultural and Natural
      Resources......................................................   329
    Security:
        Analysis System..............................................   258
        Initiatives..................................................   343
    Single Family Housing Programs...................................   235
    Special Supplemental Nutrition Program for Women, Infants and
      Children (WIC).................................................   299
    Strengthening Integrity and Program Management.................296, 298
    Supply Control...................................................   271
    Telecommunications Program.......................................   231
    Transfer to the Department of Homeland Security..................   251
    2004 Budget Request..............................................   348
    U.S. Agricultural Economy........................................   178
    Vision...........................................................   226
    Water and:
        Environmental Programs.......................................   234
        Wastewater Programs..........................................   282
    Wholesale, Farmers and Alternative Markets.......................   343
    WIC..............................................................   296
    Workforce and Training Initiatives...............................   314

                            Office of the Secretary

    Additional Committee Questions...................................    65
    Agricultural:
        Biotechnology................................................   140
        Marketing Service............................................90, 91
    Ames, Iowa Animal Research Facility..............................    62
    AMS IT Consolidation.............................................    90
    An Outbreak Waiting to Happen....................................    46
    Animal:
        Care.........................................................    86
        Fighting.....................................................   142
        Welfare......................................................   157
    Asset Sales......................................................   110
    Beneficiaries Report.............................................   109
    Big Mac's Voice in Meat Plants...................................    45
    Bill Emerson Humanitarian Trust..................................   133
    Bio-Based Products...............................................    70
    Biotech Trade....................................................   136
    Biotechnology....................................................    65
        Trade-related Activities.....................................    21
    Bison Meat Purchases.............................................   121
    Breastfeeding Peer Counseling Request............................   116
    Child Nutrition Programs Integrity Request.......................   125
    Chronic Wasting Disease/Assistance to Wisconsin..................    85
    Commodity Supplemental Food Program Funding Request..............   122
    Community Facilities.............................................   111
    Competitive:
        Outsourcing..................................................    60
        Sourcing................................................69, 79, 158
    Comprehensive:
        Farmers' Market Program......................................    88
        Property Assessment..........................................   106
    Conservation.....................................................   101
        Reserve Program..............................................    27
        Security Program........................................36, 39, 101
        Technical Assistance.........................................   136
    Coordination of CSFP Funding.....................................   122
    Country of Origin Labeling.......................................32, 68
        Consumer Benefits............................................   151
        Cost.........................................................   155
        Packer Threats...............................................   152
        Recordkeeping Costs..........................................    91
        Recordkeeping/Implementation.................................   153
        Trade........................................................   154
    Credit...........................................................   140
    Crop:
        And Livestock Insurance......................................    98
        Disaster Payments............................................    28
        Insurance Fraud and Abuse....................................    68
    CRP/WRP Technical Assistance.....................................    22
    Dairy:
        Compacts.....................................................    56
        Price Support:
            Activities...............................................    25
            Program..................................................    99
    Departmental Management..........................................    20
    Distance Learning Grants.........................................    41
    Early Food Safety Assessments....................................    70
    EEOC Review......................................................    83
    Emergency:
        Food Assistance Program Administrative Funding...............   122
        Watershed Protection Program.................................    23
    Exotic Newcastle Disease.........................................    78
    Expanded Food Safety Authorities.................................    94
    Extension Disaster Education Network.............................    75
    Fair Housing.....................................................    83
    Farm:
        And Foreign Agricultural Services............................    12
        Assistance Programs..........................................    96
        Bill:
            Energy Provisions........................................    63
            Implementation...........................................    73
    FAS Trade with China.............................................    52
    Fiscal Year 2004 Budget Overview.................................     6
    FNS:
        And ERS Studies and Evaluations..............................   128
        Studies and Evaluations......................................   125
    Food:
        Aid Programs.................................................   139
        Program Participation in Wisconsin...........................   119
        Safety.......................................................15, 75
            Assessment Process for Biotechnology.....................    70
            Education................................................    67
            In the School Lunch Program..............................    57
            Training Initiative......................................    35
    Food Stamp:
        Payment Accuracy Activity....................................    66
        Privatization Waivers........................................   121
        Reinvestment.................................................   120
    Food, Nutrition, and Consumer Services...........................    16
    Foods Donated to Food Banks......................................    89
    Foot and Mouth Disease...........................................    76
    Free and Reduced Price Lunch Certification.......................   116
    Fruit and Vegetable Pilot........................................   118
    FSA:
        Personnel Cuts...............................................     5
        Staffing Level...............................................    34
    FSIS:
        Inspections..................................................   141
        Meat Recalls.................................................   138
        Reorganization...............................................    76
        Systems Review...............................................    93
        User Fees....................................................    93
    Funding:
        And CSFP Participants........................................   122
        For Seniors Farmers' Market..................................   123
    Grain Inspection, Packers and Stockyards Program Studies.........    91
    Hard White Wheat Incentive.......................................    72
    Healthy Forests and Forest Stewardship...........................    28
    Homeland Security................................................    11
        Office of Homeland Security..................................    74
        Unobligated Balances.........................................    74
    HUD OMHAR Strategic Plan.........................................   106
    Humane:
        Inspectors...................................................42, 60
        Methods of Slaughter Act.....................................    95
    Implementation of Agriculture Emergency Assistance Act of 2003...    66
    Imported Food....................................................    95
    Improving Certification Accuracy.................................   117
    Information Technology Investments...............................    98
    Interactive Healthy Eating Index.................................   130
    Interagency Trade Policy Review Group............................    53
    International Development Policy.................................   134
    Irradiated Meat in School Lunches................................   118
    Legume Crops Genomics Initiative.................................   145
    Listeria Standards...............................................   149
    Maintaining Assistance to Producers..............................   144
    Mandatory:
        Notice and Recall............................................   148
        Recall of Unsafe Food........................................    58
    Marketing and Regulatory Programs................................    14
    Mexican Fruit Fly:
        Assistance...................................................   147
        Outbreak.....................................................   147
    Milk Protein Concentrate.........................................   134
    Molting Research.................................................    87
    Multi-Family Housing:
        Portfolio Needs Assessment...................................   106
        Study........................................................   106
    National Organic Standards Board.................................   137
    Natural Resources and Environment................................    17
    Non-fat Dry Milk Donation Pilot..................................    90
    Nutrition:
        Assistance Study and Evaluation Plan Food and Nutrition
          Service Fiscal Year 2003...................................   125
        Services Incentive Program:
            Fund Allocation..........................................   124
            Transfer.................................................   124
            Transfer to DHHS.........................................   124
    Obesity Prevention and Nutrition Promotion.......................   130
    Office of Community Development..................................   105
    Organic Standards for Wild Seafood...............................    68
    Outreach to Socially Disadvantaged Farmers.......................    84
    Outsourcing in NRCS..............................................   142
    Packers and Stockyards...........................................   138
    Pathogen Testing and Enforcement.................................   148
    Proposed Elimination of Certain Farm Bill Programs...............    29
    Public Law 480:
        Program Funding..............................................   146
        Title II.....................................................   131
    Public Television................................................   113
        Question.....................................................   156
    RD:
        County Field Office Closures.................................   104
        Field Structure Consistency Plan.............................   103
    Reallocating Unused Sugar Export Quotas to Other Countries.......   147
    Reimbursement Rate for Crop Insurance Companies.................68, 138
    Renewable Energy and Energy Efficiency...........................   141
    Research, Education, and Economics...............................    19
    Review of Rural Development Offices..............................    66
    Risk Management..................................................    98
    Round 2 and 3 EZ/EC Communities..................................   105
    Rounding-up for WIC Formula......................................   115
    Rural Business:
        Investment Program...........................................   139
        Service......................................................   110
    Rural Development................................................    17
        Farm Bill Spending Cuts......................................   146
    Rural Economic Development Loan and Grant Program................   111
    Rural Housing Service:
        Farm Labor Housing...........................................   108
        Home Ownership Counseling....................................   108
        Multi-Family Housing.........................................   105
        Rental Assistance............................................   107
        Self-Help Housing............................................   108
    Rural Utilities..................................................   140
        Service/Water and Wastewater Program.........................   112
    Safe Foods in Schools............................................   150
    Safety of Foods Purchased by Schools.............................   149
    Sales of Loan Assets.............................................   146
    Salmon Prices....................................................    40
    School:
        Lunch Certification Accuracy.................................   117
        Meals and Childhood Obesity..................................   119
    Schools Access to Safety Data....................................   150
    Section:
        32...........................................................    91
        515 Housing Program..........................................   106
    Security Analysis System/United States Agriculture System........    78
    Seniors Farmers' Market Nutrition Program........................   123
    State Meat and Poultry Inspection Programs.......................    94
    Status of Conservation Projects..................................   101
    Strengthening Dairy Price Support................................    26
    Supplier Disclosure..............................................    59
    Technology and Training..........................................    94
    TEFAP Administrative Funding Use for Food........................   123
    Timing of Dietary Guidelines and Food Guide Pyramid..............   129
    Tracking Imports Only for Verification of Country of Orgin
      Labeling.......................................................   154
    Transfers to Plum Island.........................................    74
    2003 Livestock Feed Program......................................   156
    2003 WIC Farmers' Market Grants..................................   113
    Unauthorized User Fees...........................................    82
    Update on Livestock Feed Program.................................    72
    Updating the:
        Dietary Guidelines for Americans.............................   128
        Food Guide Pyramid...........................................   128
    USDA:
        Commodity Standards for Local Schools........................   150
        Drought Outlook..............................................    99
    Use of Savings from Certification Accuracy.......................   118
    Value-Added:
        Development Grant Program....................................    71
        Grants.......................................................   139
    Warehouse Licensing..............................................    92
    Watershed Rehabilitation Program.................................   102
    WIC:
        Contingency Fund Use in 2003.................................   113
        Food Package Revision Status.................................   116
        Management Information System Request........................   115
        Mandatory Funding............................................   115
        Obesity Prevention Efforts...................................   116
        Participation Estimation Process.............................    67
        Studies and Evaluations......................................   115
        Vendor Practices Evaluation..................................   114
    Wildlife Services................................................    87
    Wisconsin School Breakfast Program:
        Expansion....................................................   120
        Participation................................................   120
    Working Captial Fund.............................................    84
    World Trade Organization.........................................   145

                    DEPARTMENT OF HEALTH AND HUMAN SERVICES

                          Food and Drug Administration

    Additional Committee Questions...................................   400
    Administrative Savings...........................................   411
    Animal:
        Drug User Fees...............................................   400
        Feed:
            Inspections..............................................   389
            Rule Compliance..........................................   389
    Bioterrorism Preparedness and Response Act of 2002...............   414
    Blood Safety.....................................................   423
    Bovine Spongiform Encephalopathy.................................   409
    Chronic Wasting Disease..........................................   386
    Citizens' Petition--CFC Gas and Asthma Products..................   407
    Color Certification..............................................   421
    Dietary Supplements..............................................   406
    Drug:
        Counterfeiting.............................................388, 427
        Efficacy Study Implementation Monographs.....................   403
        Prices.......................................................   419
        Reimportation..............................................385, 391
    Generic Drugs..................................................400, 418
        Education....................................................   426
    Guaifenesin......................................................   404
    Homeland Security................................................   424
    Listeria Monocytogenes...........................................   425
    Medical:
        Device User Fees.......................382, 391, 402, 408, 412, 426
        Gasses.......................................................   421
    Methylmercury....................................................   424
    National Center for Natural Products Research....................   407
    Nutrition........................................................   397
    Product Recalls..................................................   419
    Regulation of Animal Feed........................................   410
    Relationship with the Department of Homeland Security............   386
    RX to Over-the-Counter Switches................................401, 408
    Severe Acute Respiratory Syndrome................................   413
    Shellfish........................................................   424
    Tissue Regulations...............................................   425