[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

                                 ______



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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 [email protected], 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 
[email protected].

                    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; [email protected].
    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

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