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



                                                        S. Hrg. 108-629
 
AGRICULTURE, RURAL DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS FOR 
                            FISCAL YEAR 2005

=======================================================================

                                HEARINGS

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                                   on

                           H.R. 4766/S. 2803

 AN ACT MAKING APPROPRIATIONS FOR AGRICULTURE, RURAL DEVELOPMENT, FOOD 
 AND DRUG ADMINISTRATION, AND RELATED AGENCIES PROGRAMS FOR THE FISCAL 
         YEAR ENDING SEPTEMBER 30, 2005, 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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92-131                 WASHINGTON : 2004
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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, March 25, 2004

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

                        Thursday, April 1, 2004

Department of Agriculture........................................   107
Department of Health and Human Services: Food and Drug 
  Administration.................................................   184

                        Wednesday, April 7, 2004

Department of Agriculture........................................   273
Nondepartmental witnesses........................................   409














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

                              ----------                              


                        THURSDAY, MARCH 25, 2004

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 1:36 p.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Robert F. Bennett (chairman) 
presiding.
    Present: Senators Bennett, Bond, Craig, Kohl, Harkin, 
Dorgan, and Durbin.

                       DEPARTMENT OF AGRICULTURE

                        Office of the Secretary

STATEMENT OF ANN M. VENEMAN, SECRETARY
ACCOMPANIED BY:
        KEITH COLLINS, CHIEF ECONOMIST
        STEPHEN DEWHURST, BUDGET OFFICER

    Senator Bennett. The Subcommittee will come to order, and 
we welcome you all here to the first hearing of the Agriculture 
Subcommittee of the Senate Appropriations Committee.
    Last year was a very challenging year, because our 
allocation was almost $1 billion less than the previous year in 
fiscal 2003, but with some heavy lifting and a lot of help by 
Senator Kohl, we managed to write a balanced bill that seemed 
to solve the problems, and we congratulated ourselves and 
thought that we had set the level that we might be asked to 
hold this year.
    However, the budget request for this year is over a half a 
billion dollars less than last year. So maybe there is no 
virtue, Senator Kohl, in having given at the office. They come 
back to us again. But we do not have our formal allocation, but 
at least from the budget request, it looks as if it is going to 
be even more challenging this year than it was last, and I very 
much appreciate the cooperation and continuing support that 
Senator Kohl has given.
    Before we begin, I would like to acknowledge the efforts of 
Secretary Veneman with respect to recently announced 110 metric 
tons of wheat destined for export to Iraq. This is a 
significant contribution toward moving Iraq in the direction 
which we want it to move, and we are grateful to the Secretary 
for her efforts in bringing that to pass.
    We have a host of issues that we are facing and expect to 
talk about many of them this afternoon, and so, with a lot of 
ground to cover, I would ask the witnesses if they would 
summarize their statements. And we will be using the 5 minute 
timer, both for opening statements and for questioning. We can 
do additional rounds if Senators wish to do that, but given the 
number of things we need to talk about, I would like to have 
the discipline of the 5 minute timer.
    And to try to set the example, I will now cease here and 
recognize Senator Kohl.
    Senator Kohl. I thank you, Mr. Chairman, Senator Bennett. I 
want to congratulate you for the superb job you and your staff 
have done in guiding this Subcommittee last year and for 
crafting the fiscal year 2004 bill under trying circumstances.
    Secretary Veneman, we want to welcome you and your 
colleagues to appear before us once again this year. We just 
passed through a most challenging year for USDA and all of us 
involved in U.S. agriculture. The year ahead shows no signs of 
relief. We will continue to focus on the needs of farmers and 
ranchers, invasive pests and disease, demands for food 
assistance, threats to public health and consumer confidence, 
notably the December discovery of mad cow disease, and many 
other challenges.
    However, the President has submitted a budget proposal for 
us for the second year in a row with major reductions, 
reductions which are among the very largest of any Federal 
department. Madam Secretary, we hope that you will be able to 
explain to us today why the budget for the Department of 
Agriculture continues on a severe downward slope. You are the 
primary spokesperson in this country for rural America, and 
your voice needs to be heard and heard loudly within the 
highest levels of the administration.
    As challenging as your tasks continue to be, Madam 
Secretary, our job this coming year will be no less difficult. 
Downward budget pressures on this Subcommittee will continue to 
make our choices difficult and leave our opportunities 
diminished.
    So, Mr. Chairman, I look forward to continuing our strong 
working relationship in order to meet the problems ahead of us.
    Thank you very much.
    Senator Bennett. Thank you, Senator. I appreciate that very 
much.
    Senator Craig.
    Senator Craig. Mr. Chairman, thank you. I will be brief.
    We are anxious to hear your testimony. As I have done 
privately, let me publicly again congratulate you, Madam 
Secretary, for your leadership in several areas, but most 
important to my state and I expect to the State of Utah and to 
Senator Kohl's state was I think the masterful way that USDA 
and you handled the issue of mad cow.
    I say so because it was a volatile issue. You stayed on top 
of it. You were quick to demonstrate to the American consumer 
the safety of the American meat supply while at the same time 
moving judiciously and responsibly to get it under control. So 
my congratulations to you on that.
    I am, as most of us are, extremely frustrated by some 
things going on in farm country today against production 
agriculture; that is, outside their control. While we look at 
the increase of $4 billion in mandatory spending in your budget 
and about a $720 million decrease in discretionary outlays, 
that is no small sum and a very real frustration as we try to 
solve a couple of issues or work with Agriculture to do so.
    Let me point out a couple of them. In the 2002 Farm Bill, 
we worked hard to improve the energy title. We were not able to 
do that. We will work again to be able to do that this year, to 
extend larger loans, guarantees and grants to farmers and 
ranchers and rural businesses purchasing renewable energy 
systems, because energy has become a huge factor in production 
agriculture at this moment, and it will be in the near future.
    Yesterday, Madam Secretary, I was visiting with a banker 
from Idaho who extends a lot of lines of credit to Idaho 
agricultural producers. He said he had just called all of his 
managers of the branches together on a conference call and 
asked them to examine all of the lines of credit of his farmers 
this year, and if those lines would handle at least a 20 
percent increase based on one sole input factor: energy and the 
cost of energy.
    Energy as an input part of production agriculture this year 
will go up between 25 and 30 percent at the farm gate. Nothing 
will offset that. There is not a commodity out there that is 
going to increase enough this year in any way to offset that. 
And that is a direct response to the inability of this Congress 
to produce a national energy policy and get us back into the 
business of production.
    Let me give you one other figure that has just come out. In 
the 46 months since 2000 until today, increased natural gas 
prices have taken $130 billion out of this economy: in 
industrial consumers, $66 billion; residential consumers, $39 
billion; commercial consumers, $25 billion. Shame on Congress. 
Shame on those who stand in the way of energy production in 
this country today.
    And what does that do to the farmer? You and I both know. 
The input cost of fertilizer this year, 100 percent up from a 
year ago; 100 percent. Now, that will do one of two things. 
First of all, the farmers I talk to are saying we are not 
buying forward; we are buying it as delivered. We will use much 
less fertilizer this year than we did last. Maybe in some 
areas, that is okay. But it runs the risk of the overall 
production in agriculture dropping this year as it relates to 
the ability to produce at certain levels, and those margins of 
production, in some instances, were the margin of 
profitability, and now, you drive that cost of production up, 
and so, you ultimately drive production down because of its 
cost factors.
    You have no control of the price of energy, nor does this 
administration. But the Congress has fumbled and fumbled and 
fumbled once again, and for 10 years, we have debated national 
energy policy. We have done nothing since 1992 in any positive 
way as it would relate to the increased production of energy.
    How do we, then, for the American farmer, offset those 
dramatic increases in production costs? That is a phenomenal 
challenge for you and for this Congress in difficult budget 
times. So shame on Congress for standing in the way of this 
country beginning to produce once again for its consumer and 
especially for American agriculture.
    Thank you, Mr. Chairman.


                          prepared statements


    Senator Bennett. Thank you very much, Senator Craig.
    The Subcommittee has received statements from Senators Byrd 
and Johnson which will be placed in the record.
    [The statements follow:]

              Prepared Statement of Senator Robert C. Byrd

    Secretary Veneman, thank you for coming before this committee 
today.
    Over the past 3 years, I have made funding for the proper 
enforcement of the Humane Methods of Slaughter Act one of my top 
priorities. In the fiscal year 2001 supplemental appropriations bill, I 
secured $1.25 million for the hiring of 17 District Veterinary Medical 
Specialists at the Food Safety Inspection Service. Report language 
accompanying that bill instructed these new inspectors to work solely 
on the enforcement of the Humane Methods of Slaughter Act. Prior to my 
securing this funding for DVMS personnel, there were no inspectors 
employed by the USDA exclusively for this purpose.
    During the consideration of the fiscal year 2003 omnibus 
appropriations bill, the Senate included, at my request, $5 million for 
the hiring of at least 50 full-time equivalent humane slaughter 
inspectors also for the sole purpose of humane slaughter enforcement. 
The fiscal year 2004 omnibus appropriations bill includes continued 
funding for the 50 full-time equivalent humane slaughter inspectors and 
the 17 District Veterinary Medical Specialists.
    Last year, Secretary Veneman, when you testified before this 
committee, I expressed my deep concern about the proper use of the $5 
million for at least 50 full-time equivalent humane slaughter 
inspectors by the U.S. Department of Agriculture. The purpose of this 
funding is to ensure that the industry works to minimize pain and 
suffering of defenseless animals. By adding 50 full-time equivalent 
inspectors devoted exclusively to enforcing humane slaughter methods, 
along with 17 District Veterinary Medical Specialists, the USDA will 
finally have the resources to enforce a law that was enacted nearly 25 
years ago.
    Earlier this year I was pleased to learn that the 50 FTE inspectors 
are now in place at the USDA. The Department is now heading down the 
right path with regard to humane slaughter enforcement. But there is 
still more that can and needs to be done to eliminate operations that 
raise and slaughter livestock in unspeakable conditions--conditions 
where the animals do not even have room to lie down and where animals 
are not properly stunned before beginning the process of dismemberment. 
Such facilities are operating illegally and it is the responsibility of 
the USDA to identify these violations and stop the production line when 
violations are observed. Today it is my hope that we will hear from 
you, Madame Secretary, about the progress that has been made by the 
USDA over the last year regarding humane slaughter enforcement with the 
funding this committee provided, and how the USDA plans to continue to 
improve its enforcement of the Humane Methods of Slaughter Act with 
future funding.
                                 ______
                                 

               Prepared Statement of Senator Tim Johnson

    Mr. Chairman and Members of the Agriculture Appropriations 
Subcommittee, I appreciate the opportunity to submit a statement at 
today's hearing, and address important issues for our Nation's farmers 
and ranchers. As the Senate considers the fiscal year 2005 Agriculture 
Appropriations bill, I find several issues at the forefront for the 
producers in my home state of South Dakota and across the Nation. I 
would like to take this opportunity to address these important issues, 
and question United States Department of Agriculture Secretary Ann 
Veneman on the Department's action, or in some unfortunate 
circumstances, inaction, on these concerns.
    Country of origin labeling (COOL) remains an overwhelmingly popular 
concept with American consumers and producers. Not only would this 
provision facilitate consumer choice and confidence, it would also be 
greatly beneficial for our Nation's producers and the agricultural 
economy in general. The General Accounting Office (GAO) study that I 
requested during the summer of 2002, along with my colleague Senator 
Tom Daschle, confirms that COOL would be feasible to implement not only 
from a budget perspective, but also by incorporating existing regional 
and state programs for record-keeping and tracking purposes. GAO found 
that ``USDA used higher estimates of the hourly cost of complying with 
the recordkeeping requirements of the COOL law than it used in 
developing similar estimates for other programs and it has no 
documented evidence to justify these differences.''
    The Administration's handling of the country of origin labeling 
delay, in addition to their position on the country of origin labeling 
debate, has consistently been problematic and difficult. While 
opponents of COOL were successful in securing a 2-year delay on 
implementation of labeling for meat and produce, many unanswered 
questions still exist regarding what type of delay was enacted. While 
the mandatory date of implementation was postponed for 2 years, I 
believe the rulemaking process has remained unhindered by the delay 
language included in the 2004 Omnibus Appropriations measure. I wrote 
USDA on December 11, 2003, requesting clarification of the department's 
interpretation of the language delaying the implementation of COOL. I 
was greatly disappointed by the vague and ambiguous response in the 
letter I received dated February 10, 2004.
    To deny country of origin labeling to America's consumers and 
producers is unacceptable; for USDA to remain evasive and unresponsive 
in attending to this issue is inexcusable. I intend to seek 
clarification of the rule pertaining to the delay. My first meat 
labeling bill was introduced in the House of Representatives 12 years 
ago, in 1992, and I will persist in working to speed up implementation 
of this invaluable and effective law with my colleagues. A majority of 
producer groups support implementation of COOL and consumers are 
expecting swift implementation. Country of origin labeling should be 
implemented for all products in a timely fashion, not only for the fish 
producers whose special interests were represented during closed-door 
consideration of the fiscal year 2004 Omnibus Appropriations bill.
    Furthermore, I am very concerned that an adequate amount of funds 
be available for small and medium-sized producers. Our family farmers 
and ranchers in South Dakota and across the Nation deserve adequate 
representation in the fiscal year 2005 Agriculture Appropriations bill. 
I was pleased to see that Senator Charles Grassley's (R-Iowa) 
amendment, which would alter payment limitations and cap excessive 
compensation to large farms, was adopted on this year's budget 
resolution. I support this amendment. This funding would instead be 
channeled toward worthwhile and essential conservation and development 
programs, which are beneficial to producers in South Dakota and across 
the Nation.
    With respect to the President Bush's budget recommendation, the 
President has cut spending to seven of the fifteen Cabinet level 
agencies, including an unacceptable 8.1 percent cut to agriculture and 
an astounding 10 percent cut to rural development programs. 
Conservation programs have experienced a 12 percent cut, and research 
has been cut by 3 percent. Our rural communities are irreplaceable, and 
regardless of budgetary constraints, we must place a high priority on 
rural America. It is an essential component for a stable and productive 
Nation.
    Furthermore, we must ensure that a marketplace exists for the 
quality products our Nation's farmers produce, and we must ensure that 
consumer confidence in our food supply remains high. I sent a letter to 
President Bush requesting that he make funding for meat and livestock 
testing a priority in his fiscal year 2005 budget request. USDA's 
budget includes $60 million in new spending for Bovine Spongiform 
Encephalopathy (BSE) related programs, while allotting $17 million for 
an additional 40,000 BSE tests a year. While I am pleased to see an 
increase in funding for animal disease measures, there are several 
problematic aspects of testing which must be resolved. Animals can only 
be tested after slaughter, and it can take up to two weeks to receive 
test results. USDA should be committed to the development of a rapid, 
live test, which is an endeavor that we cannot afford to compromise. 
Producers in my home state of South Dakota continue to suffer from 
closed export markets, and USDA must do everything they can to ensure 
the viability of our agriculture economy.
    Additionally, the President's budget includes $33 million for the 
development of a national animal identification program. I am concerned 
that we have no information as to how this money will be spent, nor do 
we have any knowledge of how this system will work. It is my 
understanding that at the March 4, 2004, Senate Marketing, Inspection, 
and Product Promotion Subcommittee oversight hearing on a national 
animal identification plan, USDA's testimony left a lot to be desired. 
The broad statement that was given provided little substantive 
information on issues of cost and transparency. Cost estimates are all 
over the board, and are often twice the amount allotted by the 
President's budget. This lack of consistency is disturbing.
    Implementing a national animal identification program is a 
substantial endeavor with direct impacts on our Nation's farmers and 
ranchers, and we must ensure that the process by which this system is 
established is open and transparent. It is imperative that an animal 
identification system is effective and feasible for all parties 
involved. Questions regarding confidentiality and cost to the producer 
are still answered. It is my hope that USDA will work jointly with the 
affected parties to arrive at a sound system.
    In conclusion, I am hopeful that USDA will respond appropriately to 
the looming concerns for our Nations' farmers and ranchers. I will do 
everything possible to ensure they get a fair deal and are well-
represented as Congress considers such important issues, which will 
affect their bottom line and productivity.
    Senator Bennett. Secretary Veneman, when I talked about 
opening statements to 5 minutes, I did not mean you.
    Secretary Veneman. Oh, good. I was panicking.
    Senator Bennett. You were panicking; all right.
    We will give you 6\1/2\ minutes.
    No, we appreciate your being here, and we recognize that 
while you will, I am sure, submit your written statement for 
the record, we want to give you ample time for your verbal 
statement, and we now turn to you and very much appreciate your 
appearing here.

                      STATEMENT OF ANN M. VENEMAN

    Secretary Veneman. Thank you very much, Mr. Chairman and 
members of the Committee. It is a pleasure to be with you 
today. I appreciate the opportunity to appear before you today.
    Senator Bennett. I do not think your microphone is on. 
There is a button to press.
    Secretary Veneman. Okay.
    Senator Bennett. That helps, yes.
    Secretary Veneman. I want to thank the Subcommittee and 
each of you for the support of the Department and for the 
support of American agriculture, and we look forward to 
continuing to work with all of you as we craft the 2005 budget.
    As you indicated, we have a longer statement for the 
record, and we would ask that it be included in the record. But 
I wanted to provide a quick overview of what our budget does 
provide. First, it is consistent with the policy book that we 
put out at the beginning of this Administration, Food and 
Agriculture Policy: Taking Stock for the 21st Century, and it 
supports USDA's strategic plan, both of which are designed to 
enhance economic opportunities for agricultural producers, 
support increased economic opportunities and improve the 
quality of life in rural America, protect America's food supply 
and our agriculture system, improve nutrition and health; and 
conserve and enhance our natural resources and environment.
    As you know, we are in a time of fiscal constraint. The 
President has proposed a responsible budget across the Federal 
Government, which holds non-defense and non-homeland security 
discretionary spending increases to no less than 1 percent. At 
the same time, his budget funds key priorities such as 
continuing the war on terror, protecting homeland security, 
strengthening the economy and jobs and health care 
affordability.
    His budget puts our Nation on track to reduce the deficit 
by one-half within 5 years. The budget for USDA faces those 
same fiscal realities. Our proposals focus and maintain 
resources to meet our strategic goals. The numbers and data we 
present today build upon the Omnibus Appropriations Bill for 
2004, and of course this means we do not have the confusion we 
had last year when we were working on the 2004 budget without a 
2003 budget, which made comparison very difficult.
    The 2005 budget focuses on our key priorities, as I 
indicated, including strengthening food safety and pest and 
disease prevention and eradication, continuing the 
administration of the 2002 Farm Bill, and that includes many 
increases in conservation funding, providing an unprecedented 
funding for a food and nutrition safety net, expanding 
agricultural trade, investing in our rural sector, supporting 
basic and applied sciences, and improving USDA's program 
delivery and customer service.
    The 2005 USDA budget calls for $82 billion in spending. 
This is an increase of $4 billion or about 5 percent above the 
2004 level. The Department's request for discretionary 
appropriations for ongoing programs within the jurisdiction of 
the Subcommittee is $16.2 billion. Due to some user fee 
proposals and other adjustments reflected in the budget, the 
net amount requested is $14.9 billion.
    And now, I would like to review some of the details: first, 
looking at the safeguarding of America's homeland and 
protecting the food supply, the President's 2005 budget funds 
an interagency initiative to improve the Federal Government's 
capability to rapidly identify and characterize a bioterrorist 
attack. This initiative will improve national surveillance 
capabilities in human health, food, agriculture and 
environmental monitoring.
    In keeping with the President's commitment to homeland 
security, the USDA budget for 2005 includes $381 million, to 
support the Food and Agriculture Defense Initiative. These 
funds would enhance monitoring and surveillance of pests and 
diseases in plants and animals, support research on emerging 
animal diseases, increase the availability of vaccines, 
establish a system to track select disease agents of plants; 
expand the Regional Diagnostic Network to all 50 States; and 
the bulk of the funding goes to completing the National Centers 
for Animal Health in Ames, Iowa, which is the single largest 
item under this initiative at $178 million.
    The research and diagnostic activities at the Ames complex 
are a critical part of our Bovine Spongiform Encephalopathy 
(BSE) response as well as our work on other animal diseases. In 
light of the discovery of a BSE-positive cow, first in Canada 
last May 20 and another on December 23 in Washington State, I 
announced on December 30 a series of actions to strengthen 
protection of the food supply, public health and animal health.
    USDA's actions are based on our BSE response plan, which 
has been in place since 1990, and it has continuously evolved, 
based on current knowledge of the disease. We are committed to 
ensuring that there is a strong BSE surveillance program in 
place in this country, and in that regard, on March 15, I 
announced the details of an expanded surveillance program which 
reflects the recommendations of the international scientific 
panel.
    Our goal is to greatly expand the testing of high-risk 
cattle as well as testing a sampling of the normal, older 
cattle population. The budget also requests increases in 
funding for other BSE-related activities in the amount of $60 
million, which includes increases for advanced animal testing, 
acceleration of the National Animal Identification System and 
some funds for the Grain Inspection, Packers and Stockyards 
Administration to enable rapid response teams to deal with BSE-
related complaints regarding contracts or lack of prompt 
payment.
    It would also include some funds for our Food Safety and 
Inspection Service to conduct monitoring and surveillance of 
compliance with regulations for specified risk materials and 
advanced meat recovery.
    As we have responded to the BSE situation, we have been 
constantly guided by what has been in the best interests of 
public health. We received a report from an international panel 
of experts about how the BSE incident in Washington was handled 
which indicated that the Department had done a comprehensive 
and thorough epidemiological investigation, and the 
investigation was concluded on February 9.
    Protecting the food supply and public health is one of the 
primary missions of USDA, and this focus is reflected in the 
budgets of this Administration. The budget for 2005 seeks a 
record level of support for USDA's Food Safety and Inspection 
Service, or what we call FSIS, meat and poultry food safety 
programs as well as increases to strengthen food and 
agriculture protection systems. These areas of our budget have 
been top priorities for the Administration since we came into 
office.
    This additional funding continues to build upon a solid 
record of achievement to further strengthen our agricultural 
protection systems to ensure the integrity of our food supply. 
The FSIS funding request would increase to a program level of 
$952 million, which would be an increase of $61 million over 
the 2004 level. This represents an increase of $170 million or 
22 percent in food safety programs since the Administration 
took office in 2001.
    The $952 million for FSIS comprises $828 million in 
appropriated funds and the continuation of existing user fees 
as well as $124 million in new user fees for inspection 
services that are provided beyond one approved inspection 
shift. The FSIS funding would support 7,690 meat and poultry 
inspectors, and it would provide specialized training for the 
inspection work force, increase microbiological testing and 
sampling, strengthen foreign surveillance programs and increase 
public education efforts.
    USDA is working on the Nation's fastest growing public 
health problem--obesity. As part of the President's Healthier 
US Initiative, USDA is working with the Department of Health 
and Human Services to promote good nutrition and physical 
activity. The Department's 2005 budget includes just over $700 
million for nutrition research, education and promotion 
programs, including an increase of $33 million, most of which 
is focused on obesity-related initiatives.
    I also would like to point out that for the first time, the 
subject of a healthier food supply and the topic of obesity 
were major issues at this year's Agricultural Outlook Forum. As 
I said in my Outlook speech, we need to make people more aware 
of the dangers of being overweight and figure out ways to 
reverse what is becoming an increasingly dangerous trend in 
America's eating habits.
    Next, the President's budget supports the continued 
implementation of the 2002 Farm Bill. Our employees at USDA 
have worked very, very hard to implement this Farm Bill, and 
they have done so quickly and efficiently. We appreciate their 
outstanding efforts, both from our staff here in Washington, 
DC, as well as the staff all over the country in our county and 
state offices.
    Funds are provided in the budget to support continued 
implementation of the Farm Bill, and we are in the process of 
implementing the largest and most far-reaching Farm Bill 
conservation title ever. It represents an unprecedented 
investment in conservation that will have significant and long-
lasting environmental benefits. Total program-level funding for 
Farm Bill conservation programs increases from about $2.2 
billion in 2001 when this Administration took office to $3.9 
billion in the 2005 budget proposal. This is an increase of 
$385 million or almost 11 percent over the amount of 2004.
    The expanded programs include $2 billion for the 
Conservation Reserve Program, an increase of $76 million over 
2004; $1 billion for the Environmental Quality Incentives 
(EQIP) Program, which is an increase of $25 million over 2004; 
$295 million for the Wetlands Reserve Program, to enroll an 
additional 200,000 acres, which is an increase of $15 million; 
$209 million for the new Conservation Security Program, which 
is an increase of $168 million; and $125 million for the Farm 
and Ranch Lands Protection Program, an increase of $13 million.
    The 2005 budget also reflects the Bush Administration's 
continued commitment to nutrition and fighting hunger by 
including a record $50.1 billion for domestic food assistance 
programs, which is a $2.9 billion increase over 2004. Our 
continued support for these programs follows the course of 
compassion that has been set by President Bush. The Food and 
Nutrition Service's budget supports an estimated 24.9 million 
Food Stamp participants, and that compares to 23.7 million in 
2004; a record level of 7.86 million low-income nutritionally 
at-risk Women, Infants and Children Program (WIC) participants, 
which compares to 7.8 million in fiscal year 2004; and an 
average of 29.2 million school lunch children each day in the 
school lunch program, and that compares to 28.7 million in 
fiscal year 2004.
    Particularly with the WIC and School Lunch Programs, we are 
reaching more Americans and helping to educate them about 
healthy eating and the importance of balanced diets. These 
efforts help support the President's Healthier US Initiative, 
and many of these services are delivered in cooperation with 
our partners under the President's Faith-Based and Community 
Initiatives. The budget includes a $3 billion contingency 
reserve for the Food Stamp Program and $125 million contingency 
reserve for the WIC program to be available to cover 
unanticipated increases in participation in these programs.
    One of the most important ways to expand opportunities for 
American agriculture is through trade, by maintaining and 
opening markets for our products. We have seen this close tie 
between agriculture and markets with the BSE situation. The 
2005 budget continues a strong commitment to export promotion 
and foreign market development efforts by proposing $6.6 
billion for our international programs and activities.
    Since this Administration took office, these programs have 
experienced significant growth by increasing by more than $1.4 
billion or 27 percent since 2001. Funding for USDA's market 
development programs, including the Market Access Program and 
Cooperator Program are maintained at the current year level of 
$173 million. Funding is provided for a new initiative to 
modernize FAS's IT systems and applications and improve 
telecommunications systems in order to provide more effective 
and efficient services to cooperators and the public and to 
help bolster our trade policy and trade expansion efforts.
    A program level of $4.5 billion is provided for the 
Commodity Credit Corporation export credit guarantees 
activities. Concerning global food aid, the efficiency and 
productivity of American farmers has allowed the United States 
to lead the world in this important area. More than $1.5 
billion is requested for U.S. foreign food assistance 
activities, including $75 million for the McGovern-Dole 
International Food for Education and Child Nutrition Program, a 
50 percent increase over 2004. So clearly, this budget 
continues to provide strong support for development of markets 
and assistance to those most in need around the world.
    We have also worked hard in this budget to provide funding 
for infrastructure and to enhance economic opportunities and 
the quality of life in rural America. The Administration 
proposes $11.6 billion for rural development programs, down 
from the 2004 level, due in large part from lower projections 
of the demand for loans, particularly electric and distance 
learning loans.
    Of the total amount, $3.8 billion is for direct and 
guaranteed Section 502 single-family housing loans. These 
programs are a crucial part of USDA's effort to support the 
President's Minority Homeownership Initiative, which has the 
goal of homeownership for an additional 5.5 million minority 
families by the end of the decade. In addition, $1.4 billion is 
requested for the Water and Waste Disposal Loan Program, which 
will provide about 650,000 rural families with new or improved 
water and waste disposal facilities.
    The budget proposes $331 million for broadband loans and 
loan guarantees in 2005, building upon the $2.2 billion in 
funding that has been provided over the last several years. 
Finally, the budget supports the Department's strategic plan 
and our continued efforts to implement the President's 
management agenda, which focuses on improving performance and 
results in government. USDA is one of only eight out of a total 
of 26 Federal agencies to be scored at green, or the highest 
level, for our progress toward all five of the major areas in 
the President's management agenda, and for the second year in a 
row and only the second time ever, USDA again received a clean 
audit of our financial statements.
    As part of our implementation of the President's management 
agenda, USDA is working on several initiatives to better 
integrate computer systems and technology support functions. In 
so doing, we are providing employees with the tools necessary 
to quickly and efficiently deliver services and to benefit our 
customers. The 2005 budget will allow us to build on our 
program delivery progress and our management priorities by 
providing resources needed to improve customer service through 
continued modernization of technology.
    This includes $137 million in 2005, an increase of $18 
million, to upgrade technology in the county office service 
centers in order to continue to improve administration of farm 
programs and customer service. Electronic government is a major 
focus for USDA in 2004. By increasing our customers' ability to 
interact with us over the Internet, we can save them and USDA 
time and money. As part of these efforts, we are nearing 
completion of a new basic computing infrastructure for all of 
our field agencies so that employees and customers will be able 
to share data electronically.
    The budget also proposes to strengthen the security of the 
Department's facilities and information technology. The budget 
increases funds to focus on strengthening civil rights and 
equal treatment under our programs. We need to ensure there are 
adequate resources to implement our civil rights initiatives. 
The budget proposes $22 million for USDA's Office of Civil 
Rights, an increase of $4 million over 2004. This includes an 
increase of $2 million to process complaints in a more timely 
manner and an increase of $1 million to improve our tracking 
and analyses of civil rights complaints.
    That completes my overview of some of the key points in 
this budget. Again to summarize: the 2005 budget is a 
responsible budget, and it funds key priorities and programs at 
USDA by focusing on the Food and Agriculture Defense 
Initiative, BSE-related activities, record level support for 
farm conservation programs, food safety and nutrition programs.

                           PREPARED STATEMENT

    With that, Mr. Chairman and members of the Committee, I 
want to again thank you for the opportunity to be here today. 
We look forward to working with the Committee, and we would be 
pleased, along with our team, to answer the questions posed by 
the Committee.
    Thank you very much.
    [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 today to discuss the 2005 budget for the Department 
of Agriculture (USDA). I have with me today Chief Economist, Keith 
Collins; and our Budget Officer, Steve Dewhurst.
    I want to thank the Committee again this year for its support of 
USDA 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, as well as the other Members 
to make progress on these issues during the 2005 budget process and 
ensure strong programs for our Nation's farm sector--but as well--the 
many other USDA mission areas.
    The 2005 budget calls for $82 billion in spending, an increase of 
$4 billion, or about 5 percent, above the level for 2004. Discretionary 
outlays are estimated at $20.8 billion, a decrease of $720 million, 
over 3 percent below the 2004 level. The Department's request for 
discretionary appropriations for 2005 before this Committee is $16.2 
billion. Due to some user fee proposals and other adjustments reflected 
in the budget the net amount requested is $14.9 billion.
    The Department's budget for 2005 is consistent with this 
Administration's policy book ``Food and Agricultural Policy for the 
21st Century'' and it supports the USDA's Strategic Plan. Both are 
designed to enhance economic opportunities for agricultural producers; 
support increased economic opportunities and improved quality of life 
in rural America; protect America's food supply and agriculture system; 
improve nutrition and health; and conserve and enhance our natural 
resources and environment.
    As you know, we are in a time of fiscal constraint. The President 
has proposed a responsible budget across the Federal Government which 
holds non-defense and non-homeland security discretionary spending 
increases to less than 1 percent. At the same time, the budget funds 
key priorities, such as the continuing War on Terror, protecting 
Homeland Security, strengthening the economy and jobs as well as health 
care affordability. It puts the Nation on track to reduce the deficit 
by one-half within 5 years.
    The budget for USDA faces those same fiscal realities. Because the 
budget is constrained, the Department's request is focused on key 
priorities which include:
  --Ensuring a safe and wholesome food supply and safeguarding 
        America's homeland.
  --Continuing administration of the 2002 Farm Bill--the major 
        provisions of which we have implemented in the past year--and 
        includes providing historic increases for conservation funding.
  --Providing record funding for a food and nutrition safety net.
  --Expanding agricultural trade.
  --Providing housing for rural citizens and investing in America's 
        rural sector.
  --Providing continued support for basic and applied sciences in 
        agriculture.
  --Improving USDA's program delivery and customer service.
    With this as an overview, I would now like to focus on the specific 
budget proposals for 2005.
                      food and agriculture defense
    The infrastructure developed in response to September 11, 2001, has 
enabled the Department to become a strong partner in the 
Administration's biodefense initiative. The Department has worked 
closely with other Government agencies participating in the Homeland 
Security Council to prepare for any potential bioterrorist acts. The 
2005 budget funds an interagency initiative to improve the Federal 
Government's capability to rapidly identify and deal with such threats. 
This initiative will improve national surveillance capabilities in 
human health, food, agriculture, and environmental monitoring. It will 
promote data sharing and joint analysis among these sectors at the 
Federal, State, and local levels and also will establish a 
comprehensive Federal-level multi-agency integration capability led by 
the Department of Homeland Security (DHS) to rapidly compile these 
streams of data and preliminary analyses and integrate and analyze 
them.
    The highlights of the $381 million USDA request to support the Food 
and Agriculture Defense Initiative include:
    Strengthening food defense by requesting increases totaling $38 
million to:
  --Establish a Food Emergency Response Network (FERN) with 
        participating laboratories, including implementation of the 
        Electronic Laboratory Exchange Network (eLEXNET) and an 
        electronic methods repository;
  --Develop diagnostic methods to quickly identify pathogens and 
        contaminated foods;
  --Improve surveillance and monitoring of pathogens and other hazards 
        in meat, poultry and eggs and establishing connectivity with 
        the integration and analysis function at DHS; and
  --Upgrades laboratories, improve physical security; and enhance 
        biosecurity training and education.
    Strengthening agriculture defense by requesting increases of:
  --$178 million to complete the consolidated state-of-the-art 
        biosafety level-3 (BSL-3) animal research and diagnostic 
        laboratory at Ames, Iowa;
  --$50 million for the Animal and Plant Health Inspection Service 
        (APHIS) to substantially enhance the monitoring and 
        surveillance of pests and diseases of plants and animals, 
        increase the availability of vaccines through the national 
        veterinary vaccine bank, increase State Cooperative Agreements 
        to better identify plant and animal health threats, provide 
        biosurveillance connectivity with the integration and analysis 
        function at DHS, and establish a system to track select disease 
        agents of plants.
  --$27 million for the Cooperative State Research, Education, and 
        Extension Service (CSREES) to expand the Regional Diagnostic 
        Network, and to establish a Higher Education Agrosecurity 
        Program that will provide capacity building grants to 
        universities for interdisciplinary degree programs to prepare 
        food defense professionals.
  --$9 million for the Agricultural Research Service (ARS) to establish 
        a National Plant Disease Recovery System that will quickly 
        coordinate with the seed industry to provide producers with 
        resistant stock before the next planting season, and to conduct 
        research on identifying, preventing and controlling exotic 
        plant diseases.
                         bse related activities
    The Department has taken aggressive actions to deal with the recent 
detection of a cow that tested positive for bovine spongiform 
encephalopathy (BSE) in the State of Washington. The actions taken were 
based on a BSE response plan which has been in place since 1990 and has 
been continuously updated to reflect the latest available knowledge 
about this disease. As late as August 2003, Harvard University 
reaffirmed the findings of an initial 2001 study that the risk of BSE 
spreading extensively within the United States is low because of the 
firewalls already in place. In general, we have effectively responded 
to this incident.
  --Our tracing efforts were remarkably successful. After an 
        international panel of experts indicated that the Department 
        had done a comprehensive and thorough epidemiological 
        investigation, our investigation was concluded on February 9. 
        The panel also indicated that actions the Department announced 
        on December 30 and subsequent the Food and Drug Administration 
        announcements have further enhanced the protections for human 
        and animal health.
  --We also traced the products from the slaughter of these animals and 
        determined that high-risk products such as brain and spinal 
        cord did not enter the food system. Nevertheless, all of the 
        beef that came out of that plant on the day in question was 
        recalled.
  --Throughout the investigation, we regularly held briefings to inform 
        the public about the incident. In one week's time we announced 
        a series of actions to further enhance the Department's already 
        strong safeguards. These included, among other actions, an 
        immediate ban on nonambulatory or so-called downer animals from 
        the food system and further restrictions on specified risk 
        materials such as brain and spinal cord from entering the food 
        supply. Retailers and food service outlets are reporting 
        virtually no adverse effects on consumer demand as a result of 
        the BSE finding.
  --The Department's Chief Information Officer is overseeing the design 
        of a National Animal Identification Program. Every effort is 
        being taken in the design of this system to ensure it is 
        technology neutral, cost effective, and does not place an undue 
        cost burden on the producer.
  --We are also in the process of approving the use of BSE rapid test 
        kits to enhance our national surveillance efforts.
  --We have continued to work with trading partners. Regaining export 
        markets is a top priority for the Administration, and the 
        international response must reflect what science tells us. 
        Unfortunately, most export markets for U.S. beef, including key 
        buyers--Japan, Mexico, Korea and others--immediately closed 
        their markets to U.S. beef, accounting for 10 percent of U.S. 
        beef production that now must be absorbed in the domestic 
        market. The loss of exports had an immediate impact on the 
        cattle market, resulting in an initial drop of 15 to 20 percent 
        in cattle prices on cash and futures markets while remaining 
        above year-ago levels. Despite this decline, USDA's current fed 
        cattle price forecast of $74 to $79 per hundredweight remains 
        above the previous 5-year average and would be the second 
        highest average price in the past 11 years.
  --We are committed to ensuring that a robust BSE surveillance program 
        continues in this country. On March 15, we announced the 
        details of our expanded surveillance program which is based on 
        recommendations of an international scientific review panel. 
        The enhanced program has a goal to test as many cattle as 
        possible in the high-risk population, as well as to test a 
        sampling of the normal, aged cattle population. USDA has begun 
        to prepare for the increased testing, with the anticipation 
        that the program will be ready to be fully implemented on June 
        1, 2004. In the meantime, BSE testing will continue at the 
        current rate, which is based on a plan to test 40,000 animals 
        in 2004. Testing will be conducted through USDA's National 
        Veterinary Services Laboratory in Ames, Iowa, and a network of 
        laboratories around the country.
    As part of the President's Budget for 2005, we are requesting $60 
million, an increase of $47 million which will permit us to:
  --Further accelerate the implementation of a verifiable National 
        Animal ID System;
  --Increase the current BSE surveillance program;
  --Conduct advanced research and development of BSE testing 
        technologies;
  --Strengthen the monitoring and surveillance of compliance with the 
        regulations for specified risk materials and advanced meat 
        recovery; and
  --Dispatch rapid response teams to markets experiencing BSE related 
        complaints regarding contracts or lack of prompt payment.
                   better nutrition for a healthy us
    USDA is also working on the Nation's fastest growing public health 
problem--obesity. The Department has a special responsibility to ensure 
that participation in nutrition assistance programs such as the School 
Lunch and Breakfast programs, the Special Supplemental Nutrition 
Program for Women, Infants and Children (WIC) and Food Stamps, 
contributes as much as it can to healthier diets and improved health 
outcomes. USDA research is essential in understanding the role of the 
diet in obesity and healthy weight management. USDA along with its 
Federal partners at the Department of Health and Human Services (DHHS) 
is responsible for developing the revised Dietary Guidelines for 
Americans to be issued jointly by USDA and DHHS in January 2005. On a 
parallel track, the Department is undertaking a complete reassessment 
and update of the Food Guide Pyramid. These documents are the 
cornerstone of Federal nutrition promotion efforts directed at all 
Americans. With these efforts, USDA plays a key role in the President's 
Healthier US initiative. And as part of this, USDA is working closely 
with DHHS to promote good nutrition and adequate physical activity.
    The Department's 2005 budget includes about $700 million for 
nutrition research, education, and promotion programs, including an 
increase of $33 million which is focused mainly on obesity-related 
initiatives. Spending for nutrition education and promotion programs 
accounts for the largest share of this spending, over $540 million or 
almost 80 percent in 2005. These Federal funds are augmented by 
significant spending by State and local partners who conduct a wide 
range of nutrition education and promotion activities designed by local 
officials to meet local needs.
    Spending for basic research on nutritional requirements, monitoring 
food consumption patterns, analyzing social and behavioral factors 
affecting diets, and conducting demonstration projects accounts for the 
rest of our spending. We are a partner with the National Center for 
Health Statistics for the food consumption data that supports research 
on diets conducted by the growing number of Federal and non-Federal 
scientists looking at the causes and possible ways to curb the obesity 
epidemic.
                 farm and foreign agricultural services
    Currently, major sectors of the diverse farm economy are 
experiencing favorable market conditions. Net cash farm income was at a 
record level in 2003. The President's budget for 2005 supports 
continued administration of the Farm Bill which has now been largely 
implemented, although work is proceeding on the substantial expansion 
of the conservation programs provided by the bill. In addition, the 
budget supports a strong crop insurance program and an aggressive 
international trade program that will be critical to the continued 
improvement on farm economy in the next few years.
Farm Program Delivery
    The Farm Service Agency (FSA) salaries and expenses are funded at 
$1.3 billion in 2005, an increase of $50.9 million over 2004. This 
would support staffing levels of about 6,000 Federal staff years and 
nearly 10,300 county non-Federal staff years, including about 1,000 
temporary staff years. Temporary staff will be reduced from the high 
levels required in 2003 and 2004 because the heavy workload associated 
with the initial implementation of the new farm programs has been 
completed. However, we expect the ongoing workload for FSA to remain at 
significant levels in 2005. Therefore, permanent county non-Federal 
staff levels are maintained at current levels. In addition, the budget 
provides for an additional 100 Federal staff years to improve service 
provided to farm credit borrowers. The budget also requests continued 
funding for FSA's information technology (IT) efforts related to the 
Service Center Modernization Initiative.
International Trade
    Trade is vitally important for American agriculture. The United 
States is the world's largest agricultural exporter. The value of our 
agricultural exports equals nearly one-fourth of farm cash receipts, 
making the agricultural sector twice as dependent on trade as the 
overall U.S. economy. With gains in productive capacity continuing to 
outpace growth in demand here at home, the economic growth and future 
prosperity of America's farmers and ranchers depend heavily upon our 
continued success in reducing trade barriers and expanding overseas 
markets. Accordingly, the expansion of international market 
opportunities is one of the key objectives set forth in the 
Department's strategic plan.
    The 2005 budget proposals fully support the Administration's 
commitment to export expansion and overseas market development by 
providing a program level of over $6.6 billion for the Department's 
international programs and activities. These programs have increased 
significantly since this Administration took office and have increased 
by more than $1.4 billion, or 27 percent, since 2001.
    The Foreign Agricultural Service (FAS) is the lead agency for the 
Department's international activities. Through its network of 80 
overseas offices and its headquarters staff here in Washington, FAS 
carries out a wide variety of activities that contribute to expanding 
and preserving overseas markets. Our budget requests $148 million for 
FAS activities in 2005. This is an increase above the 2004 level of 
nearly $12 million and is designed to ensure the agency's continued 
ability to conduct its activities effectively and provide important 
services to U.S. agriculture. This funding would enable FAS to meet 
higher overseas operating costs, improve telecommunications systems, 
and implement a high priority initiative to modernize the agency's IT 
systems and applications.
    The Department's export promotion and market development programs, 
which FAS administers, play a key role in our efforts to expand 
international market opportunities. Commodity Credit Corporation (CCC) 
export credit guarantees are the largest of these programs. As overseas 
markets for U.S. agricultural products continue to improve, that 
improvement will be reflected in export sales facilitated under the 
guarantee programs. For 2005, the budget projects a program level of 
$4.5 billion for the guarantee programs, an increase of just over $250 
million above the current estimate for 2004.
    The budget continues funding for the Department's market 
development programs, including the Market Access Program and 
Cooperator Program, at the current level of $173 million. It also 
includes $53 million for the Dairy Export Incentive Program and $28 
million for the Export Enhancement Program.
    The efficiency and productivity of our producers allows the United 
States to be a leader in global food aid efforts. For 2005, the budget 
supports a program level of over $1.5 billion for U.S. foreign food 
assistance activities. This includes $1.3 billion for the Public Law 
480 Title I credit and Title II donation programs. For the McGovern-
Dole International Food for Education and Child Nutrition Program, 
funding is increased to $75 million, a 50 percent increase over 2004. 
The budget also includes an estimated program level of $149 million for 
the CCC-funded Food for Progress program, which is expected to support 
400,000 metric tons of assistance as required by the authorizing 
statute.
Farm Credit
    The budget supports a program level of about $3.8 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 about $300 million higher than last year. 
Due to lower subsidy costs for the direct loan programs, the amount of 
subsidy requested is less than for 2004. In addition, funding has been 
realigned to better accommodate the actual demand in these programs. 
The budget also includes a request of $25 million for the emergency 
loan program. Also, any unused funding from prior year appropriations 
will carry over for use in 2005.
Crop Insurance
    The budget provides full funding for the crop insurance program. 
The budget includes ``such sums as may be necessary'' for the mandatory 
costs associated with program delivery and the payment of indemnities. 
The current estimate of the mandatory costs is about $3.7 billion.
    The budget includes a request of $92 million for the discretionary 
costs of the Rural Management Agency (RMA), an increase of $21 million 
above the level provided in 2004. The increased funding is urgently 
needed for the modernization of the RMA IT infrastructure as well as to 
provide for 30 additional staff years. The additional staffing will be 
used, in part, to monitor companies and producers participating in the 
crop insurance program, to detect and prevent fraud, waste, and abuse.
                   marketing and regulatory programs
    Marketing and Regulatory Program agencies provide 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 is a 
primary responsibility of APHIS. The 2005 budget requests an 
appropriation of $828 million for salaries and expenses, an increase of 
about $112 million (16 percent) above the 2004 estimate. The majority 
of this increase is for the Food and Agriculture Defense Initiative and 
for BSE related activities.
    Increases are also requested for efforts to deal with low-
pathogenic avian influenza, emerging plant pests (especially citrus 
canker and Emerald Ash Borer), Mediterranean fruit fly, tuberculosis, 
scrapie and a $6.6 million increase is requested to enhance the 
Department's ability to strengthen its regulatory system for the 
testing of biotechnology based crops.
Marketing
    For 2005, the Agricultural Marketing Service (AMS) budget proposes 
a program level of $732 million, of which $87 million or 12 percent, is 
funded by appropriations and the remainder through user fees and 
Section 32. AMS, in cooperation with the Food and Nutrition Service and 
FSA, purchases commodities to meet the needs of domestic feeding 
programs and to help stabilize market conditions. The 2005 budget 
includes an increase of $10 million in appropriated funds to begin the 
critically needed replacement of our outdated IT systems used by three 
USDA agencies to manage and coordinate commodity orders, purchases, and 
delivery.
    Another important proposal in the marketing and regulatory programs 
area involves the Grain Inspection, Packers and Stockyards 
Administration (GIPSA). For 2005, the budget proposes a program level 
for salaries and expenses of about $44 million. Of this amount, $20 
million is devoted to grain inspection activities for standardization, 
compliance, and methods development and $24 million is for Packers and 
Stockyards Programs. The 2005 budget includes $7.7 million in increases 
to:
  --Conduct market surveillance and ensure that marketing and 
        procurement contracts are honored in the aftermath of the BSE 
        finding.
  --Significantly upgrade the agency's IT functions, including the 
        ability to securely accept, analyze, and disseminate 
        information relevant to the livestock and grain trades.
  --Monitor the various technologies that livestock and meatpacking 
        industries use to evaluate carcasses to ensure fair and 
        consistent use of those technologies. Producer compensation is 
        increasingly dependent not simply on the weight of the animals 
        they bring to slaughter, but the characteristics of the 
        carcasses as well (e.g., fat content).
  --Enable GIPSA to better address and resolve international grain 
        trade issues, thus precluding disruption of U.S. exports.
    The GIPSA budget includes two user fee proposals which have been 
submitted to the authorizing committees. New user fees would be charged 
to recover the costs of developing, reviewing, and maintaining official 
U.S. grain standards used by the grain industry. Those who receive, 
ship, store, or process grain would be charged fees estimated to total 
about $6 million to cover these costs. Also, the Packers and Stockyards 
Programs would be funded by new license fees of about $23 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.
                              food safety
    USDA plays a critical role in safeguarding the food supply and 
plays a pivotal role in protecting the Nation's food supply from 
bioterrorist attack. This Administration believes that continued 
investment in the food safety infrastructure is necessary to achieve 
USDA's goal of enhancing the protection and safety of the Nation's 
agriculture and food supply.
    For 2005, the budget for the Food Safety and Inspection Service 
(FSIS) provides a program level of $952 million, an increase of $61 
million over 2004. The budget includes an increase for pay to support 
7,690 meat and poultry inspectors, which are necessary to provide 
uninterrupted inspection services to the industry.
    The budget for FSIS requests $5.0 million to continue the work 
funded in 2003 and 2004 to fully enforce the Humane Methods of 
Slaughter Act. With this funding, the agency has allocated 63 staff-
years to ensuring the humane treatment of livestock in 900 federally 
inspected establishments. With the increased emphasis on humane 
handling verification, the agency was able to increase humane handling 
inspection procedures from 86,810 performed in 2002 to 111,117 
performed in 2003, a 28 percent increase. Although difficult to 
estimate, FSIS reports that a resultant increase in the number of 
enforcement actions and violations was the result of training and 
correlation efforts of FSIS District personnel, Front Line Supervisors 
and veterinarians to better understand the application of the Agency's 
rules and enforcement process to inhumane handling situations. As 
recommended by the General Accounting Office, FSIS will continue to 
make improvements in the inspection process to ensure proper 
enforcement of the law and accurate tracking of both verification 
activities and enforcement actions.
    The budget includes an increase of approximately $33.6 million to 
support programmatic improvements aimed at achieving FSIS' strategic 
objective to reduce the prevalence of foodborne hazards from farm to 
table. The majority of this increase is for the Food and Agriculture 
Defense Initiative and BSE related activities.
    The budget provides an increase of $7.1 million for a broad-based 
training initiative for meat and poultry inspection personnel. This is 
more than a 50 percent increase in the FSIS training budget from 2004. 
Under this initiative, all entry level inspectors will receive formal 
classroom training for performing basic inspection duties within one 
year of employment. Currently, only 20 percent of new employees receive 
this type of training. In addition, current inspectors will receive 
supplemental training to improve the enforcement of the Pathogen 
Reduction/Hazard Analysis and Critical Control Point Systems regulation 
and food safety sampling. The increased level of training will improve 
the consistency and effectiveness of inspectors in the performance of 
their duties and ensure a safer food supply.
    The 2004 budget also reproposes legislation submitted to Congress 
in August 2003 to collect an additional $124 million in user fees 
annually by recovering 100 percent of the cost of providing inspection 
services beyond an approved primary shift. Assessing user fees in this 
manner promotes equity among producers that have enough production for 
a full second shift paid for by the Government and other establishments 
that may only have enough production for a partial shift which they 
must currently pay for themselves. 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 $50.1 billion for USDA's domestic nutrition 
assistance programs, an increase of $2.9 billion, and the highest level 
ever requested. The budget will ensure access to nutrition assistance 
for low-income families and individuals as they work toward economic 
self-sufficiency. USDA is working hard to provide information to help 
improve nutritional intakes, increase breastfeeding rates, and reduce 
obesity and overweight among Americans. In addition to its work with 
the President's Healthier US Initiative, USDA will work with nutrition 
assistance program stakeholders to identify strategies to improve 
health outcomes for eligibles.
    The WIC program is expected to be reauthorized this year and is 
budgeted at $4.8 billion. This is a record high funding request, which 
will help record numbers of low-income, at-risk participants. The 
request continues special increments to fast track State information 
systems development, increase breastfeeding rates through the use of 
peer counselors, and increase support of childhood obesity prevention 
projects. Ensuring a WIC Program that yields healthy birth outcomes and 
nutritional habits with the best possible outcomes is a top 
Administration priority.
    The Food Stamp Program, the cornerstone of America's effort to 
ensure access to an adequate diet for low-income people, is funded at 
$33.6 billion. The budget anticipates modest food cost inflation and 
participation growth of about 1.2 million participants or a 5 percent 
increase above 2004 estimates. The budget includes a $3 billion 
contingency reserve, $1.4 billion for Nutrition Assistance for Puerto 
Rico, $2.4 billion for the Federal share of State administrative 
expenses, and about $300 million to support employment and training. 
Significant progress has been made in reducing payment errors in the 
program. In 2002, 91.74 percent of payments were made accurately, with 
overpayment error at 6.16 percent of benefits. Changes in financial 
incentives to States for good management as authorized by the 2002 Farm 
Bill are on track for implementation in 2005. This is the time line 
anticipated by the Farm Bill, and this will help improve program access 
as well as program integrity.
    Child Nutrition Programs are funded at $11.4 billion with increases 
provided for food cost inflation, growth in the number of meals served 
and program integrity. Also, the budget includes funding for several 
key provisions that are expiring such as the exclusion of military 
housing allowances for eligibility determination. The Administration 
will continue work with Congress on a reauthorization bill this Spring 
to ensure that all aspects of the program continue without 
interruption, including those key provisions expiring at the end of 
March.
    The Administration is committed to ensuring that funds for school 
meals are well targeted to those in need and that any savings achieved 
in reauthorization will be reinvested in the program.
                   natural resources and environment
    The 2002 Farm Bill represents an unprecedented commitment to 
conservation and its continued implementation is an ongoing challenge 
as well as a high priority for the Department. To do this successfully, 
the budget proposes not only to increase funding for Farm Bill programs 
but also to continue support for the underlying conservation programs 
that form the basis for the Department's ability to address the full 
range of conservation issues at the national, State, local and farm 
levels.
    The 2005 budget request for the Natural Resources Conservation 
Service (NRCS) includes $1.9 billion in mandatory CCC financial 
assistance funding for Farm Bill conservation programs in addition to 
$2.0 billion for the Conservation Reserve Program administered by FSA. 
This represents an increase of more than $200 million over the 2004 
level and includes $1 billion for the Environmental Quality Incentives 
Program that will allow nearly 40,000 producers to participate in this 
vital program. It also includes $295 million for the Wetlands Reserve 
Program to enable the Department to enroll an additional 200,000 acres. 
Another $209 million will support expansion of the new Conservation 
Security Program that supports ongoing conservation stewardship and 
rewards those producers who maintain and enhance the condition of their 
natural resources. The remaining $351 million in CCC funding will 
support the other Farm Bill programs including the Grassland Reserve 
Program, the Wildlife Habitat Incentives Program and the Farm and Ranch 
Lands Protection Program.
    On the appropriated side, the 2005 budget proposes a total funding 
level of $908 million which includes $604 million for conservation 
technical assistance (CTA) that forms the base program that supports 
the Department's conservation partnership with State and local 
entities. The budget also proposes a separate account totaling $92 
million to fund technical assistance activities in support of the 
Wetlands Reserve and Conservation Reserve Programs. This would limit 
the amount of funding that would have to be redirected from other Farm 
Bill programs and maximize the financial assistance made available to 
producers. Overall CTA funding will also enable the Department to 
continue to address natural resource issues such as maintaining 
agricultural productivity and improving water quality and grazing 
lands.
    In the watershed programs area, the budget proposes reductions in 
funding for watershed implementation, planning and rehabilitation. This 
will enable NRCS to redirect some resources to address the more 
pressing Farm Bill implementation issues while still funding the most 
critical watershed work. With emergency spending being so difficult to 
predict, the budget proposes to not seek appropriated funding for 
emergency work and instead to address disaster funding as emergencies 
arise.
    Finally, the Department's 2005 budget will maintain its support for 
all 375 Resource Conservation and Development areas that are now 
authorized. This important activity will continue to improve State and 
local leadership capabilities in planning, developing and carrying out 
resource conservation programs.
                           rural development
    Rural America is home to over 60 million people, most of whom are 
not farmers. It is a place of employment for workers in numerous 
industries that contribute to the Nation's wealth. It is also very 
diverse, including areas that are facing declining population and 
employment opportunities as well as areas that are growing at a rapid 
pace and becoming urbanized. Thus, the challenges differ from area to 
area, and require planning and coordination, to ensure that State and 
local priorities are served along with national goals. USDA embraces 
this reality and is committed to supporting increased economic 
opportunities and improved quality of life in rural America.
    The Department's rural development programs are both traditional 
and forward looking. Many of these programs were created to bring 
electricity, telephone service and other amenities to the Nation's 
farms and rural towns. These programs have made enormous contributions 
to economic productivity and quality of life of rural America. In 
addition, USDA has played a significant role in providing homeownership 
opportunities and rental housing for rural residents, and support for 
rural business and industry.
    Modern technology has brought new challenges. Perhaps the most 
striking example is in the area of telecommunications. Basic telephone 
service is no longer adequate. High speed broadband communications, 
including data as well as voice transmission, are needed to stay 
abreast of the ever changing world of information for both business and 
personal use. In addition, new approaches are needed to diversify rural 
economies, for example, through value-added processing of agricultural 
products.
    The 2005 budget supports $11.6 billion in loans, grants and 
technical assistance for rural development. This is a realistic level 
of support in light of the need to balance budgetary constraint against 
the demands for program assistance. While it is significantly below the 
level available for 2004, more than half of the reduction is due to 
lower projections of the demand for selected loans.
    In particular, the 2005 budget reflects a reduction in electric 
loans from almost $5 billion in 2004 to $2.6 billion in 2005. In recent 
years, Congress appropriated much higher levels for such loans than the 
Administration requested. The additional funding, including the amount 
available for 2004, has helped meet the needs of rural electric 
cooperatives for upgrading their systems. Although more remains to be 
done, it is anticipated that the high levels of lending in recent years 
will provide a cushion that will result in fewer applications for 2005.
    Also in the electric area, the 2005 budget does not include a $1 
billion add-on by Congress to the 2004 Appropriations Act for 
guaranteeing electric and telephone notes of certain private lenders. 
This program was authorized in the 2002 Farm Bill. USDA published a 
proposed rule for implementing the program on December 30, 2003, with a 
60-day comment period. Until the public comments are reviewed and a 
final rule published, it is difficult to know the extent of demand for 
the program and for that reason the program was not included in the 
2005 budget.
    The 2005 budget also does not include funding for distance learning 
and telemedicine loans, which accounts for a $300 million reduction 
from 2004, because there has been little demand in the past few years 
for these loans. Further, there is a reduction in discretionary funding 
for broadband loans from $598 million in 2004 to about $331 million in 
2005 because there remains a substantial amount of unused mandatory 
carry-over funding that was provided by the 2002 Farm Bill. Currently, 
there is about $1.6 billion available for such loans and about $1.0 
billion in applications, many of which will require additional work 
before they are complete and can be considered for funding.
    For single family housing loans, the 2005 budget includes $1.1 
billion for direct loans and $2.5 billion in guaranteed loans for 
purchases and $225 million in guaranteed loans for refinancing. While 
there is a proposed reduction in direct loans, guaranteed loans are 
maintained at the 2004 levels. Further, legislation is being proposed 
to allow guaranteed loans to exceed 100 percent of appraised value by 
the amount of the fee on such loans. This proposal will make the 
program more accessible to families with limited resources for paying 
closing costs and will contribute to the President's Initiative to 
Increase Minority Homeownership. The combined level of almost $3.8 
billion in direct and guaranteed loans is expected to provide up to 
40,000 homeownership opportunities for rural residents. Continuation of 
recent increases in housing costs will reduce the number of 
homeownership opportunities that can be provided in 2005 compared to 
prior years.
    The total water and waste disposal loan and grant program for 2005 
is $1.42 billion compared to $1.67 billion for 2004. Within this total, 
loans are maintained at about $1.1 billion. It should be noted that the 
subsidy rate for these loans has increased such that we are asking you 
to increase the budget authority for loans from $34 million in 2004 to 
$90 million in 2005 just to reach the $1.1 billion level. This increase 
is due to a rise in the Government's cost of financing the loans. 
Grants would be reduced from $563 million in 2004 to $346 million in 
2005. With interest rates remaining low, more projects are viable at a 
higher loan to grant ratio.
    In addition, the 2005 budget for rural rental housing continues the 
Administration's policy to focus on servicing the existing portfolio 
which includes about 17,000 projects that provide housing for about 
450,000 rural households. Many of these projects require repair and 
rehabilitation, for which the 2005 budget includes $60 million in 
direct loans. It also includes $100 million in guaranteed loans for new 
rental projects. In addition, the 2005 budget includes $592 million for 
rental assistance payments, up from $581 million available in 2004. 
Most of this funding is for the renewal of expiring contracts, 
consistent with the policy established by Congress in the 2004 
Appropriations Act to renew contracts on a 4-year cycle. About a 
quarter of a million rural households receive this assistance. We are 
nearing completion of a comprehensive study of the existing portfolio 
to help identify opportunities for revitalizing the management of these 
projects.
    The budget includes $300 million in direct loans and $210 million 
in guaranteed loans for essential community facilities that meet a wide 
range of public safety, health and other purposes. This reflects a 
reduction in direct loans, from $500 million in 2004, but exceeds the 
2003 level of $261 million. This pattern mirrors a change in subsidy 
costs which went from 6 percent in 2003 to zero in 2004 and up to 4 
percent for 2005, due largely to very small differences in interest 
rates. For business and industry programs, the 2005 budget supports 
$600 million in guaranteed loans, up from $552 million in 2004 and $34 
million for the intermediary re-lending program, compared to $40 
million for 2004. Together, these programs are expected to account for 
most of an estimated 66,000 jobs that will be created or saved by a 
combination of rural development programs that assist business and 
industry. This estimate reflects direct employment. Many rural 
development programs also impact on employment indirectly by creating a 
demand for products and services.
                   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.
    The 2005 budget for the four Research, Education and Economics 
(REE) agencies is approximately $2.4 billion. The budget proposes 
reductions in unrequested earmarks of about $335 million, and program 
increases in high priority areas, such as food and agriculture 
security, genomics, human nutrition and climate change, where national 
needs and returns are the greatest.
    One increase directly related to the Food and Agriculture Defense 
Initiative is to fund the remaining $178 million required to complete 
the modernization of the National Centers for Animal Health in Ames, 
Iowa. These funds will allow the completion of the $460 million project 
that will provide a world-class research and testing facility 
commensurate with the magnitude and economic importance of the $100 
billion U.S. livestock industry. Upon completion in October 2007, there 
will be nearly one million gross square feet of new and renovated 
laboratory and support space. Extensive site and infrastructure 
upgrades and miscellaneous office, animal care, and support facilities 
will also be integrated into the design.
    The 2005 budget for 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 research on invasive species 
and animal diseases, such as bovine spongiform encephalopathy and foot 
and mouth disease; as well as research which will lead to improved 
vaccines and therapeutics, rapid diagnostic tests, and genome data on 
biosecurity threat agents. The budget includes an increase of $5 
million for research in support of the President's Healthier US 
Initiative. And, as part of this, USDA will work closely with the 
Department of Health and Human Services to promote good nutrition. In 
support of the Administration's Food and Agriculture Defense 
Initiative, food safety research will see an increase of $14 million to 
support the development of rapid diagnostic tests that will accurately 
detect and identify pathogenic bacteria, viruses and chemicals of food 
safety concern. Finally, the ARS budget will provide $5 million to 
support the President's Climate Change Research Initiative. These funds 
will be used to conduct interagency research that will build the 
scientific foundation for forecasting responses of ecosystems to 
environmental changes and for developing resources that can be used to 
support decision making.
    The 2005 budget for CSREES includes funds to continue the formula 
programs at current levels. There are 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 the recruitment of minority graduate students. Additional increases 
are proposed for the Expanded Food and Nutrition Education Program 
which assists low income youth and low-income families with children in 
acquiring the skills, attitudes, and changed behavior necessary to 
formulate nutritionally sound diets.
    The proposal for the National Research Initiative (NRI) in the 2005 
budget is consistent with the greater overall constraints of the 2005 
budget. The proposal includes $180 million as compared to $164 million 
in 2004, for the NRI to finance work that will have a far reaching 
impact on such issues as genomics, nutrition, and obesity.
    The budget for the Economic Research Service (ERS) includes an 
increase of $8.7 million to develop a consumer data information system, 
to provide information to support decision making in the food, health, 
and consumer arenas. There are three components: a food market 
surveillance system that will provide information to identify and 
explain consumer food consumption patterns; a rapid consumer response 
module that will provide real-time information on consumer reactions to 
unforeseen events such as the recent discovery of BSE; and a flexible 
consumer behavior survey module that will assess the relationship 
between individuals' knowledge and attitudes about dietary guidance and 
food safety and their food choices, complementing the Centers for 
Disease Control and Prevention and ARS data on health outcomes and food 
consumption.
    The budget for the National Agricultural Statistics Service (NASS) 
includes an increase for two initiatives to improve its statistical 
programs, and a decrease of $2.6 million for the Census of Agriculture, 
reflecting the decrease in staffing and activity levels to be realized 
in 2005 due to the cyclical nature of the 5-year census program.
    To improve NASS' statistical accuracy, an increase of $7.4 million 
is requested to continue the restoration and modernization of its 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 payment rates provided under the 2002 Farm 
Bill.
    The second initiative requires an increase of $2.5 million for 
NASS' Locality-Based Agricultural County estimates program to continue 
the improvements begun in 2003. These local estimates are one of the 
most requested data sets, and are especially important to RMA for their 
risk rating process, (affecting premium levels paid by producers), and 
to FSA for calculating national loan deficiency payments.
                              civil rights
    This budget will allow the Assistant Secretary for Civil Rights to 
continue making progress in addressing Equal Employment Opportunity 
(EEO) and Program-related civil rights issues. The Assistant Secretary 
for Civil Rights also has responsibility for outreach and conflict 
prevention and resolution. The challenging task of implementing changes 
within USDA's civil rights organization is now underway. A 
comprehensive action plan has been developed to address structural, 
operational, procedural accountability and systems challenges.
    This budget is critical in ensuring adequate resources to implement 
Civil Rights initiatives. Specifically, the budget will support a 
reduction in the time it takes to process both EEO and Program-related 
complaints. The Department continues to make progress toward meeting 
regulatory timeframes for complaint processing. Tracking and analysis 
of complaints will be improved and analytical information will be used 
to identify further improvements and allocate resources. Additional 
funds will be devoted to technical assistance, training, and outreach 
activities.
    This budget clearly reflects the high priority that the Department 
places on providing equal opportunity, equal access and fair treatment 
for all USDA customers and employees. .
                        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.
    Due to the efforts of these offices, the Department has made 
significant progress in improving management. For example, the 
Department received its first-ever unqualified or ``clean'' opinion on 
the 2002 financial statements and received a clean opinion again in 
2003. To meet the mandate of the Government Paperwork Elimination Act, 
USDA agencies are deploying new departmentwide electronic signature 
technologies that allow customers to conduct business transactions over 
the Internet, saving both customers and the Department time and money.
    The 2005 budget builds upon that progress by continuing funding 
levels for these offices and providing key funding increases in order 
to:
  --Continue efforts to modernize the Service Center agencies (FSA, 
        NRCS, and the Rural Development) IT activities to improve 
        efficiency and customer service. As part of this initiative, 
        efforts to expand the use of the Geographic Information Systems 
        continue and will lead to improved soil and land-use analyses. 
        A scheduled integration of the IT support functions of the 
        Service Center agencies into a single organization under the 
        Chief Information Officer will further improve these 
        activities.
  --Strengthen the security of the Department's facilities and IT 
        systems through certifying and accrediting USDA systems, 
        improving a Departmentwide Information Survivability program, 
        implementing an automated risk management system, and 
        establishing a Cyber-Security Operations Center.
  --Support the creation of remote backup capabilities to protect the 
        National Finance Center accounting, payroll and related 
        services data for USDA and other agencies from malicious 
        intrusions and natural catastrophes.
  --Implement an electronic commodity market information system that 
        will consolidate all of the Department's commodity data, 
        analyses and forecasts into a single public website.
  --Support the Administration's goal to increase procurement of 
        biobased products, with the purpose of creating new economic 
        opportunities in rural areas while reducing our dependence on 
        fossil energy-based products derived from foreign oil and 
        natural gas. The Office of the Chief Economist (OCE) will 
        implement and administer a government-wide biobased product 
        procurement program, mandated by the 2002 Farm Bill. OCE will 
        work with Departmental Administration to develop a model 
        biobased product procurement plan that can be adopted by 
        Federal agencies, and will support interagency biobased product 
        procurement efforts.
  --Continue renovations of the South Building to ensure that employees 
        and customers have a safe and modern working environment.
    That concludes my statement. I look forward to working with the 
Committee on the 2005 budget so that we can better serve those who rely 
on USDA programs and services.

                 NATIONAL ANIMAL IDENTIFICATION PROGRAM

    Senator Bennett. Thank you very much, Madam Secretary. We 
appreciate your statement, and we appreciate your being here.
    I understand you are working to design a National Animal 
Identification Program. Can you tell us how you envision such a 
program being implemented? Any timing that you might have on 
this? And do you expect it to be mandatory or voluntary? And do 
you have statutory authority to implement this, or when you 
have got the work done, are you going to come back to the 
Congress and ask for additional authority? Could you explore 
that whole area with us?
    Secretary Veneman. I will, Mr. Chairman, and thank you for 
that question.
    As you know, on December 30, I announced aggressive actions 
that we were taking in response to the BSE find on December 23. 
One of the things I said we would do is accelerate a national 
verifiable system of animal identification. A tremendous amount 
of work had been done over the past 18 months involving an 
effort by a number of agriculture producing groups, and 
government employees to look at the kinds of standards that 
should be applied in an animal identification system.
    So we were fortunate that the work had already been done. I 
then asked our Chief Information Officer to begin to look at 
how do we put together the architecture for such a system. As 
we continued into this process, we expanded our CIO's group to 
include Keith Collins, our Chief Economist; and Nancy Bryson, 
our General Counsel, because of the legal issues involved, and 
they are now in the process of putting together an overall plan 
with recommendations. I will have Keith comment on that.
    With regard to the authorities, we have also been looking 
at that issue, and as I have testified at other hearings, the 
one issue that is of concern to many of the producers is making 
sure that they can maintain confidentiality of the information 
that will be put into this system. We have been working with a 
number of the Committees to determine the kind of statutory 
language we may need to ensure that information provided into 
this system can be maintained as confidential information.
    I would like Keith Collins to comment briefly on what the 
USDA committee has been doing on this system.
    Mr. Collins. I would be happy to do that, Madam Secretary.
    A lot of work has been done, as the Secretary said, 
particularly by a group called the USAIP, United States Animal 
Identification Plan team, which represents some 100 people and 
70 organizations. They have developed a tremendous amount of 
infrastructure recommendations such as data standards for 
identifying premises, for identifying animals, and for tracking 
movements.
    What we have envisioned is to be able to implement a 
national plan, first on a voluntary basis because we have such 
a complicated animal agricultural sector in the United States 
with very little experience with individual animal 
identification. A survey taken in 1997 indicated that about 
half of all operations had no experience whatsoever with 
individual animal identification.
    When you consider that we have over 1 million cattle 
operations alone, and we have some 3,000 meat packing and feed 
lot operations in excess of that, we felt it was important to 
start this program on a voluntary basis. We believe that for it 
to work over time, all animals will have to be in the system, 
so at some point, this could very well become a mandatory 
program.
    The first thing we want to do is to look at the USDA-funded 
programs that have operated over the last couple of years and 
select one of those systems to serve as the national animal 
allocator for premise numbers and a national animal allocator 
for individual animal numbers. Once we scale up one of the 
existing systems to be able to operate in that capacity, then, 
we plan to work with states, with tribes, and eventually with 
third parties to, through cooperative agreements, and some 
funding by USDA, enable them to interface with the national 
premise allocator and with the animal number allocator.
    Our first priority would be to issue premise numbers, 
identify places where animals are located, develop a uniform 
definition of a premise, sign up states, tribes and third 
parties and issue premise numbers. As you know, in this budget, 
there is a request for $33 million for 2005 to continue the 
development of that process that I just described. That 
initiative would grow in 2005.
    Senator Bennett. Fine, thank you very much.
    Senator Kohl.

                    HUNGER TASK FORCE PILOT PROGRAM

    Senator Kohl. Madam Secretary, in March 2003, I was able to 
assist a nonprofit in Milwaukee, the Hunger Task Force, in 
receiving approval from the USDA to carry out an innovative 
pilot program. They received nonfat dry milk from USDA and 
worked with a local Wisconsin dairy to turn this into about 
20,000 pounds of mozzarella cheese.
    The cheese was distributed to needy families at food 
pantries throughout the region, and it was very popular. 
Ninety-three percent of the recipients surveyed said that they 
would much rather receive cheese than nonfat dry milk. Because 
it was such a popular program, the Hunger Task Force has asked 
USDA to let them continue their program. They would propose to 
use 516,000 pounds of nonfat dry milk every year, less than 
one-half of 1 percent of the 960 million pounds USDA has in 
storage.
    As you know, we have been working on this together for a 
year now, and we have talked about it, you and I and your 
Department a great deal. It would be nice if we could reach a 
conclusion. Is it possible that you have anything to say to us 
on this issue?
    Secretary Veneman. Well, Senator, as you and I discussed, I 
indicated to you that after a review of this pilot program, 
there are significant concerns that have been raised regarding 
the operation of the program from the perspective of how it 
interrelates with the dairy price support program, particularly 
if the pilot goes beyond the limited application it now has.
    Given the conversations that you and I had yesterday, we 
will be agreeing to extend the pilot program for a year, under 
the limited basis, to further evaluate the pilot. But again, 
there are some significant concerns over the long term that are 
being looked at both in terms of the price support program and 
the overall impact on the dairy program.
    Senator Kohl. Well, I consider that to be a very positive 
development, and I want to thank you for your willingness to be 
so cooperative and supportive. I know that the Hunger Task 
Force, and more importantly, the people they serve, will be 
very gratified by your response and will feel indebted to you 
for this. Thank you so much.

                         WIC CONTINGENCY FUNDS

    Madam Secretary, it is my understanding that states are 
already starting to take action to conserve WIC dollars because 
they are afraid they do not have enough money to finish out 
this year. As you know, we have a $125 million contingency fund 
to prevent things like this from happening, and states need to 
be given as much advance notice as possible if additional money 
will be made available. Do you anticipate using any of the 
contingency fund this year, and if so, will an announcement be 
made with regard to this?
    Secretary Veneman. We are reviewing the possibility, for 
the very reasons that you state, of tapping into that 
contingency fund primarily because of increased prices for 
formula. That has been the primary driver in the increased cost 
of the WIC program. So we are looking very carefully at the 
possibility of tapping into that contingency reserve. Of 
course, that would have implications for the budget you are now 
considering, because it is anticipated in the 2005 budget 
proposal that the reserve would not have been tapped into and 
would roll forward.
    So all of that has to be considered, but given the 
difficulty that many of the states are having, I think we will 
be looking very carefully at tapping into some of that reserve 
for 2004.

                     ANIMAL WELFARE ACT VIOLATIONS

    Senator Kohl. All right. As you know, included in the 
fiscal year 2004 bill is $800,000 to help address violations of 
the Animal Welfare Act, including illegal animal fighting. 
Along with other problems, bird fighting played a key role in 
spreading Exotic Newcastle Disease in 2002 and 2003, which 
ultimately cost taxpayers about $200 million to contain. I know 
your department has tried to develop some cases against people 
who have participated in this activity but has had a tough time 
because the Federal law provides only misdemeanor penalties, 
and the U.S. attorneys are reluctant to prosecute misdemeanor 
cases.
    Does the administration support legislation, S. 736, to 
upgrade the penalties for Federal animal fighting violations 
from a misdemeanor to a felony, and if not, do you have 
suggestions on how to deal with this problem?
    Secretary Veneman. Senator Kohl, I absolutely agree with 
you that this is a serious issue. We encountered the outbreak 
of Exotic Newcastle Disease, that was focused in the area of 
Southern California. Not only did we begin to better understand 
the problem of birds that were being transported for bird 
fighting purposes but also I think all of our regulatory 
agencies and the state agencies, including the state regulatory 
agencies, were surprised to find out just how many--what we 
call backyard birds--were in homes around Southern California, 
in the L.A. area, which made the task of controlling Exotic 
Newcastle Disease and looking for the problems much more 
difficult.
    We worked with our Inspector General and with our Animal 
and Plant Health Inspection Service and with local law 
enforcement to see how we could better control some of the 
movement of these animals and birds. Of course, another problem 
with the birds is the live bird markets. There has been a lot 
of concern expressed about that, particularly with the 
outbreaks of avian influenza here on the East Coast.
    I am not familiar with the penalties legislation that you 
have indicated. We would be happy to review it to determine 
whether or not, with our authorities, it would provide the 
kinds of assistance that would help us better control some of 
this movement of birds that can cause these animal diseases. As 
you know, these outbreaks have a tremendous impact on our 
international trade when we get these diseases of poultry and 
other animals. We have had several disruptions over the past 2 
or 3 years, and we have been doing everything we can to address 
these issues as completely and effectively as we can.

                     CENTRAL FILING SYSTEM PROGRAMS

    Senator Kohl. All right. Mr. Chairman, I had just one other 
question regarding current central filing system programs and 
the need to eliminate any potential for identity theft, which 
was brought to my attention by the Wisconsin Department of 
Financial Institutions.
    However, in the interest of preserving time, I will submit 
that for the record and look for a response. Thank you, Mr. 
Chairman.
    Senator Bennett. Thank you. We can get to it in the next 
round if you are so inclined.
    Senator Craig.
    Senator Craig. Thank you, Mr. Chairman.

                 NATIONAL ANIMAL IDENTIFICATION SYSTEM

    Madam Secretary, the Chairman asked the first question that 
I had planned to, and I appreciate your response to a national 
ID system. Senator Hagel, myself, and a good number of others 
are looking at different approaches. But we do appreciate your 
sensitivity to it, the Department's. A lot of work--you are 
right--has already been done. The vet sciences and all of that 
type of thing; I am glad you are approaching it with caution in 
the sense of timing and testing things.
    We here in the Congress sometimes think we are pretty 
smart, but we are not as smart as the cattlemen when it comes 
to knowing how something will work on the ground that can 
effectively develop a chain of identification, and I 
appreciate, and I have had the concern of confidentiality 
expressed to me by a variety of our cattlemen. At the same 
time, they know, and they are ready to respond to a national ID 
system as long as it is the right system and it works, and it 
is something that is manageable and cost-effective.
    We dare not, in a marginal industry at times, drive up the 
costs simply because we are going to command and control a 
system. It has to function.

                 NATIONAL RURAL DEVELOPMENT PARTNERSHIP

    Through the decade of the nineties, Idaho was not unlike 
other States. Many of our urban areas prospered, and many of 
our rural areas floundered. And as a result of that executive 
order by President Bush in 2002 to look at rural economic 
development was the right thing to do. And we here on the Hill 
responded; I responded with legislation to develop a National 
Rural Development Partnership. It happened. And we have it 
implemented, now, across America and beginning to work.
    Unfortunately, although I have tried hard to secure stable 
funding for this what I believe is a common sense vision of 
bringing together varieties of resources and focusing them 
effectively in a teaming approach as the kind that the 
executive order and our President proposed, we are still 
struggling to be able to effectively do that with natural 
resources or with resources. I have discussed the issue with 
former Rural Development Secretary Tom Dorr, and frankly, we 
have not seen much change.
    With resources as scarce as they are, what are your 
thoughts in regard to the NRDP with its role in helping rural 
communities and states better coordinate and understand the 
resources that are available to them?
    Secretary Veneman. As you indicate, our Rural Development 
programs are an important part of the USDA portfolio, one that 
many people often forget, and I think that one of the things 
that former Under Secretary Dorr was able to do was to help 
people to understand that we need to look at these programs as 
the venture capital for rural America. And I think that concept 
is very appropriate as we look at these kinds of programs.
    One of the things that our Rural Development team has done 
is they have begun to put together a new partnership of all of 
the Rural Development agencies and programs, so that they are 
working in much more of a coordinated effort with rural 
communities. I think this partnership will be very positive as 
we implement it and go forward with it because rural 
communities are often going to one of our housing programs, for 
one thing, and somewhere else for an economic development 
grant.
    If we can begin to integrate our efforts more with specific 
communities, I think it will help to bring together a number of 
the kinds of issues that you are talking about with the Rural 
Development Partnerships where we are also trying to work with 
the States and the local communities.
    We have tried to be very forward looking in terms of our 
Rural Development programs. Our housing initiatives, 
especially, have been ones where we have really tried to target 
towards homeownership. We have our business development loans 
and our business loans and grants for rural businesses that can 
help stimulate economic activity. We also have a range of 
utility loans and water and sewer loans, which are very 
popular, and all of these programs help rural America have the 
kind of infrastructure they need to attract capital and attract 
jobs that they need to thrive for the future.
    So we certainly will continue to work with you on the 
issues of rural development as we move forward.
    Senator Craig. Well, thank you, Mr. Chairman.
    Teaming in this issue is phenomenally important. The 
coordination of bringing them all together, instead of 
communities rushing one place and another to try to find 
resources is clearly the right approach, and I do believe the 
partnership is moving in that direction to do a comprehensive, 
coordinated effort, and so, I encourage you to pursue that. We 
will try to find the bucks to help you pursue it a little more 
aggressively than your budget reflects, because many of our 
rural communities are really struggling to come alive in a new 
context that agriculture will just not provide them anymore.
    Thank you.
    Senator Bennett. Thank you.
    Senator Durbin.
    Senator Durbin. Thanks, Mr. Chairman.
    Secretary Veneman, welcome, and I welcome all those who are 
with you, especially your chief economist, Dr. Keith Collins, 
and your budget officer, Stephen Dewhurst. They are gifted, 
patient, long-suffering stalwarts of the U.S. Department of 
Agriculture who have in their careers seen more of Congressmen 
and Senators than any living American----
    With the possible exception of the attending physician in 
the Capitol.
    And I am glad that they are with you today.

                       SINGLE FOOD SAFETY AGENCY

    We spend a lot of time talking about food safety, and we 
certainly have since we found that one sick cow. And I have 
been pushing for a single food safety agency to combine the 12 
different agencies of the Federal Government that have some 
mandate when it comes to food safety and the 35 different laws 
and the scores of committees. I have really been able to 
convince every aspiring Secretary of Agriculture and every 
retiring Secretary of Agriculture. I just had my problem with 
current Secretaries of Agriculture who do not want to support 
it.
    So this is your chance to step out and to say it is time 
for us to get together on a single, science-driven food safety 
agency; that it is mindless to have the Food and Drug 
Administration responsible for the feed given to cattle and the 
USDA responsible for the cattle once fed, and it is time to put 
it all under one roof. I give you that chance at this moment.
    Secretary Veneman. Well, Senator, you and I have talked 
about this issue on other occasions, and as you know, I think 
it is very important for us to coordinate very carefully on 
food safety issues. We have made a concerted effort in this 
Administration to do just that, and in fact, we have been 
working very, very closely with the Food and Drug 
Administration throughout the issue of the BSE find.
    The FDA has been involved in our briefings with the press 
and they have been involved in our meetings in determining 
where we go from here. Again, we have worked very, very closely 
with them. There has been a lot of discussion about forming a 
separate agency, taking, for example, the Food Safety and 
Inspection Service out of USDA, and along with FDA, putting it 
into a brand new agency.
    There are pros and cons to that strategy, but I would say 
to you that I think that the BSE situation has illustrated one 
reason why it has been so important to have the Food Safety and 
Inspection Service in the U.S. Department of Agriculture, and 
that is the intersection with BSE between animal health and 
human health and the safety of the food supply given an animal 
health issue. As you know, these two agencies were under the 
same Undersecretary or Assistant Secretary for a number of 
years in USDA. They were split apart about 10 years ago but are 
still under the same department in USDA.
    We have found that these agencies have had to work 
seamlessly throughout this BSE incident. I think that as hard 
as we are working with FDA, it would not have been as easy to 
begin the traceback, which we were doing through the Animal and 
Plant Health Inspection Service, when we found the BSE cow and 
then the trace forward to the product, which we were doing 
through the Food Safety and Inspection Service.
    All of these things have been very, very well coordinated 
as a result of the fact that we have had the agencies together 
in USDA.
    Senator Durbin. Well, I will not dwell on the question, 
because as I said, no current Secretary of Agriculture every 
supports it.
    Once you have retired, you will be in my corner.
    But that will be many years from now.

                              BSE TESTING

    Let me say, though, that the logic behind the creation of 
the Department of Homeland Security is the same logic behind 
bringing together food safety. I want to ask you specifically 
about the announcement of the USDA about testing for BSE: 
200,000 cattle from high risk, 20,000 from normally old cattle. 
I have written to you three different letters, three different 
subjects, I should say, on BSE, soybean rust and childhood 
obesity, and I am hoping that your Department can get me a 
response soon to all of those letters.
    In the meantime, though, as I understand it, we do not know 
the ambulatory status of the Washington State holstein cow that 
tested positive. I understand an investigation by the OIG has 
been opened. If it turns out that the only animal that has been 
tested for BSE in the United States was clinically normal and 
was found only through chance, then we must question the USDA's 
BSE surveillance program that focuses only on suspect, 
nonambulatory and dead cattle.
    So I would like to ask you, how do you happen to believe 
that it makes sense for us, since we have millions of cattle, 
mostly aged dairy cows in the United States, that are older 
than the FDA ruminant feed restrictions of August 1997 not to 
be universally testing those older animals; instead, taking a 
very small sample which may not even tell the story of what 
happened in Washington State?
    Secretary Veneman. Senator, as you know, we recently 
announced our expanded surveillance plan on March 15. One of 
the reasons that we wanted to wait to make an announcement and 
to decide on our surveillance plan is that we wanted to wait 
for the international review committee to return with their 
analysis of how we conducted the BSE investigation and what 
steps we should undertake in addition to what we have already 
done to move forward.
    We had already said we were going to increase our 
surveillance, but we asked them for specific recommendations on 
surveillance. What they recommended was an expanded 
surveillance plan for a period of about a year to get a 
baseline of what the extent of the BSE problem is in the United 
States. As a result of that, we worked with our Animal and 
Plant Health Inspection Service as well as our Chief 
Economist's Office to get a statistically valid sampling 
process established. Now, that is still targeting, as the 
international organizations recommend, the highest-risk 
animals: those with central nervous system disorder signs, 
those that are dead, dying, or downers.
    We know from the countries that have had a much greater 
incidence of BSE than we obviously have had in North America, 
that these are the cows that are most likely to have BSE. But 
as you indicate, we included in our surveillance plan a random 
sampling of older, healthy animals, and the importance of that 
is to target the animals you are talking about, that is, those 
animals that are older than the feed ban primarily. Not just to 
say that if animals are over 30 months, we are going to 
randomly sample them but to really target those animals that 
are over the age of the feed ban. We think it is important to 
get a random sampling of that group of animals.
    I think you have probably seen a lot of the debate about 
this particular instance in Moses Lake in Washington State. 
There has been a great amount of debate about whether or not 
this cow was indeed a downer. I have to say that as our OIG is 
investigating it, the Government Reform Committee has been very 
involved in looking into this.
    Our veterinarian from FSIS clearly deemed this cow to be 
nonambulatory, a downer, thereby putting it in the higher risk 
category. But apparently, according to this process, this 
company was bringing in animals that they called, ``back door 
animals'' and many of those animals were tested under the BSE 
testing protocol, but the company was not calling them downers 
because they were saying that we do not kill any downers in our 
plant, because they had customers who did not want downer cows.
    Senator Durbin. It has been 4 months, and we still cannot 
answer that basic question: what was the ambulatory status of 
this diseased cow?
    Secretary Veneman. Our veterinarian deemed it to be a 
downer.
    Senator Durbin. Nonambulatory.
    Secretary Veneman. Right.
    Senator Durbin. Mr. Chairman, I know my time has expired. I 
have a series of questions on BSE, soybean rust, which was not 
mentioned in the Secretary's remarks, but I have spoken to her 
personally, and on the whole question of school lunch programs 
dealing with childhood obesity, which I would like to submit to 
her for response.
    Thank you, Mr. Chairman.
    Senator Bennett. Be happy to do that, and we do intend to 
have another round if you----
    Senator Durbin. Thank you.
    Senator Bennett. If you have got an opportunity.
    Senator Dorgan.
    Senator Dorgan. Mr. Chairman, thank you very much.
    Madam Secretary, thank you for being here and thanks to 
your staff.

                       BSE AND CATTLE FROM CANADA

    I want to just make a couple of comments and then follow 
with a question, and the comments will not surprise you. One is 
the issue of BSE or mad cow disease. You know I have written to 
you, and I hope very much that we will not move quickly to open 
the border to live cattle with Canada. We know there is 
discussion going on, there is a process, but I feel very 
strongly about that issue. I regret very much that a case of 
mad cow disease was found in Canada; a case of BSE was found in 
the United States, apparently with a cow that was imported from 
Canada.
    But first and foremost, our objective must be to protect 
our beef industry, and I really hope you will move cautiously. 
I do not think this is the time to open the market to the 
import of live cattle from Canada. Second, I want to again say, 
many of us, as you know, feel very strongly about country of 
origin labeling. And we have had a long, tortured debate about 
this legislation, and, you know, this has kicked around a long 
while. We need to move on that and get that done.

                      AGRICULTURAL TRADE AND CAFTA

    And third, I want to discuss something that you are not 
directly involved in in terms of responsibility, but I know you 
have an acquaintance of, and that is the agricultural trade 
issue. I would just say for the interest of the administration, 
the negotiation of CAFTA, the negotiation of US-Australia falls 
far short, from my standpoint. I regrettably would oppose CAFTA 
if it is brought to the floor, and with respect to Australia, 
the promise by the trade ambassador to deal with the 
elimination of state trading enterprises was not done with 
Australia, and I regret that.

                     STANDARD REINSURANCE AGREEMENT

    So those are just a couple of things, and I know that it is 
not your primary responsibility to deal with ag trade. That is 
a message, really, for the Trade Ambassador.
    I would like to mention to you, the Risk Management Agency 
of USDA is engaged in negotiations with the crop insurance 
providers for a new product called SRA or Standard Reinsurance 
Agreement, and I have been visited by farm organizations and 
others about it. One major farm organization that came in to 
talk to me about the first draft of the SRA, were very 
concerned about it.
    They said that draft was so onerous that a number of 
private companies and reinsurers could abandon their 
participation in the program, leaving farmers and ranchers with 
less competitiveness than they have today. I do not admit to 
being an expert in this area, but I will just ask you to take a 
look at what is happening there, because having crop insurance 
that works, that is good for producers, is very important to 
us, and we do not want to leave farmers and ranchers without 
the choices that they need and deserve.

                 IMPORTATION OF LIVE CATTLE FROM CANADA

    We, I believe, are going to be meeting on another subject 
dealing with the issue of broadband loans, which is a program, 
I know, that you are beginning to initiate, and I am anxious to 
get that done. We will talk about that at a later time. But I 
did want to just mention those issues, and if you would give me 
just an answer on the issue of the importation of live cattle 
from Canada, given the BSE situation. Would you respond to 
that?
    Secretary Veneman. I would be happy to, Senator.
    As you know, when Canada announced that it had a single 
find of BSE on May 20, our standard protocol was to close the 
border, which we did. We then looked from a risk-based 
perspective, a scientific perspective, at reopening the border 
for the lowest-risk product, which was deemed to be boneless 
boxed beef from animals under 30 months, and we did that. The 
effective time of that was about the end of August, the 
beginning of September.
    We then also published a proposed rule that would allow 
live cattle to reenter the U.S. market that were under 30 
months of age and that were going directly to slaughter. I know 
that you said in your remarks that we need to protect our beef 
industry. This would have not put these cattle into the general 
population, but they would have had to be destined directly for 
slaughter.
    The comment period on that rule was to close on January 5. 
This, as you know, was just after we discovered BSE in this 
country. So on January 2, I announced that we would allow the 
comment period to close, but that we would not take action on 
the proposed rule until we had time to finish our 
investigation, which we did in February. In March, we 
reproposed the same, or a very similar rule, I should say, and 
opened the comment period again for 30 days. The comment period 
will close, I think, on April 7, and we will then evaluate the 
comments that we have received.
    But again, this border opening would be limited, and as I 
have been around the country lately, I realize there is a lot 
of confusion about what this importation rule would do. This 
rule, as it is proposed, would limit importation to those 
animals under 30 months destined for slaughter. My Canadian 
counterpart indicates that we should move quickly to allow all 
cattle to come into the United States, but the way we set this 
up is in a two-stage process based upon the risk.
    So I think that it is very important that we take actions 
with regard to trade on sound science. We have also been 
working with other countries. Obviously, we have lost most of 
our beef trade because of the BSE find here. We have had some 
success in partially reopening the Mexican market. We are 
working hard with our markets in Asia and other places. But it 
is very important that we set a good example in terms of basing 
our decisions that pertain to border opening and other issues 
on sound science, and that is what we have attempted to do 
throughout this BSE situation.
    Senator Dorgan. If I might just make a final comment, Mr. 
Chairman, I understand that. I also believe that in Japan, they 
have discovered animals with BSE, mad cow disease, under 30 
months of age. I wish no ill for the Canadian producers. Our 
heart breaks for them as well. But our first and foremost job 
is to protect our country's industry. And with the release a 
week or so ago of information about two Canadian feed plants, 
you know, the question is what were British cows, cows that 
were banned for importation into the United States since 1988, 
doing in Canadian cattle feed in 1997, 9 years later?
    All of those things just raise a lot of questions, and I 
would just ask that we not rush to open that border to the 
import of live cattle from Canada. I think it is very 
important.
    Madam Secretary, thanks for all of the work that you do. We 
from time to time agree on things and disagree on things, but 
your office is always responsive, and I appreciate that.
    Secretary Veneman. Thank you.
    Senator Bennett. Senator Bond.
    Senator Bond. Thank you very much, Mr. Chairman.

                 EXPORTS TRANSPORTATION INFRASTRUCTURE

    Madam Secretary, I do not know if you remember or if you 
saw the December 1 last year Wall Street Journal. The headline 
on the front page said railroad log jams threaten boom in the 
farm belt, delays in grain shipments reduce potential profits, 
may affect overall economy. Log jams worst since 1997. Corn and 
soybean on the ground; rail prices doubled over the past 6 
months, close quotes.
    In general, in your view, how critical is it that we have 
efficient shipment transportation options for our exporters, 
and is an efficient waterways system essential if we are going 
to export in an increasingly competitive international 
marketplace?
    Secretary Veneman. Well, Senator, I believe it is. As you 
know, we are very dependent in our agriculture sector on the 
export market. We produce much more than we consume, and so, 
the global market is very important. We are projecting that our 
agricultural exports for this year, 2004, will be at $59 
billion. This is even with the difficulties we have had because 
of our beef exports and our poultry exports with BSE and avian 
influenza. That exports projection is nearing our record high 
level of exports of $60 billion in 1996.
    But one of the reasons we are able to be such an abundant 
producer and be such an important exporter in the world market 
is because we do have an infrastructure that allows us to move 
that product. Whether it is on the railroads, and I would like 
to point out that I did send a letter to all of the railroad 
executives asking them to make sure that they were addressing 
the issue of agricultural commodities when the transportation 
infrastructure issue was going on, but we also depend, to a 
great extent, on the waterways as well for the movement of 
agricultural commodities.
    Senator Bond. Thank you. And I think the best way to 
assure--we need all forms of transportation, and the more 
competition we have the more efficient and more economical 
every one of them is going to be. You are probably aware the 
Mississippi River has locks and dams built 70 years ago that 
were designed to last 50 years. I have seen them leak and the 
water flow through. They are a source of congestion. It is a 
straitjacket on our shipping growth in a region where two-
thirds of our corn and almost half our beans for export must 
travel.
    I am working with Senators Harkin, Durbin, Grassley and 
others, because it takes 870 trucks to carry the same amount of 
corn as one single medium-size tow on the Mississippi. The 
Corps of Engineers is now in the 12th year of their 6 year, $70 
million study and in great need of some adult supervision and 
guidance from USDA. AMS and Deputy Hawks have been working on 
this to ensure that farmers are not left to the mercy of a 
dilapidated water transport system and a railroad monopoly. I 
appreciate your keeping an eye on this to ensure that we 
maintain an efficient means of getting our farm products to 
market.

                       TRANSPORTATION EFFICIENCY

    Let me turn to Dr. Collins. How do you see the relationship 
between transportation efficiency and the ability of farmers to 
win markets at higher prices?
    Mr. Collins. I think they are fundamentally related, 
Senator Bond. A great example of that is simply what has 
happened in the world soybean market over the last 10 years or 
so. Everyone knows that Brazil has a very low cost of 
production of soybeans. However, we have an advantage in 
transportation infrastructure. And that has enabled us, despite 
the large growth in soybean production in Latin America, to 
continue to increase our exports and be competitive around the 
world. So I think they are closely related.

                             CORN SHIPMENTS

    Senator Bond. I just hope we maintain that edge.
    Over the next 10 years, Dr. Collins, what would you 
estimate the increase in corn shipped through the Gulf to be?
    Mr. Collins. Senator, we have recently completed a 10-year 
analysis that forecasts through the 2013 crop year. We do not 
project specific exports through the Gulf. I know you have 
asked me this question. Our exports of corn in total over the 
next 10 years are projected to rise about 45 percent, and about 
70 percent of all corn export increases would be expected to go 
out through the Gulf. So we would say something in the range of 
about 435 to 550 million bushels of corn, over and above where 
we are now, would be going out through Gulf ports by the year 
2013.
    Senator Bond. I was interested that you do your baseline 
projections for 10 years. The Corps has tried to figure out 
what is going to happen 50 years from now. Why do you do it for 
10, not 20, 30 or 50?
    Mr. Collins. Doing it for 10 is heroic enough.
    Senator Bond. You are joined in that by the National 
Academy of Sciences, which said nobody can predict anything 50 
years from now, and I very much appreciate your projections and 
your interest.
    Mr. Collins. I think that is right. There are just too many 
risk factors for us to go much beyond a decade.
    Senator Bond. Thank you.
    Senator Bennett. Senator Harkin.

                     CONSERVATION SECURITY PROGRAM

    Senator Harkin. Thank you very much, Mr. Chairman.
    I apologize for being late, but I thank you for this 
opportunity.
    I welcome you again, Madam Secretary, and I want to cover a 
couple of programs with you, the Conservation Security Program 
and the bio-based proram which includes, the Federal 
requirement to purchase bio-based products, both of which were 
in the Farm Bill.
    Secretary Veneman, as you know, the Conservation Security 
Program is an important new program included in the 2002 Farm 
Bill. It embodies all the important features included in your 
own Food and Agricultural Policy report. The payments fall 
under the WTO green box for trade purposes. It encourages not 
only maintenance of conservation practices, but additional new 
conservation, and it is a voluntary national program to 
diminish the need for environmental regulations for farmers and 
ranchers.
    Despite the promise of CSP, despite the clear wording in 
the law that we passed and the President signed, USDA has drug 
its feet and has issued a proposed rule that provides such 
limited payments and very difficult eligibility requirements 
with multiple obstacles that almost no producers can get in, 
and the few that can may find it financially impossible to 
participate.
    The program in your proposed rule bears little resemblance 
to what was passed in the Farm Bill. Quite frankly, Madam 
Secretary, you have made up the rules out of thin air. Now, not 
only have members of Congress told you that; I have here a 
recent letter that 56 members of the Senate signed. Last 
summer, we sent you another bipartisan letter. This later one 
was bipartisan, too with 56 members. I could have gotten more, 
but I ran out of time.
    But every Senator I have talked to has heard from their 
farm groups, the major groups, the Farm Bureau, the Farmers 
Union and also the other crops: the corn growers, soybean 
producers, cotton, rice, everybody. And as I understand it, you 
have gotten over 12,000 comments, sent to you expressing 
similar sentiments and disappointment.
    Now, after you published the proposed CSP rule, Congress 
passed and the President signed into law the fiscal 2004 
Consolidated Appropriation Act that restored the CSP funding to 
what it was in the Farm Bill. Now, in your proposed rule, you 
have said here, that Congress is currently considering 
legislation that amends funding for the CSP. Pending the 
enactment of the legislation, NRCS intends to publish a 
supplement to this proposed rule. Well, we changed the law, but 
there is no supplement to the proposed rule.
    So now, USDA's rulemaking, simply, it seems to me, is going 
on in some kind of a black box. We do not know what is going 
on. For example, I was shocked to find out that despite the 
fact that the comment period closed on March 2, the public and 
the press still does not have access to the comments. My staff 
that I deputized to do this have repeatedly requested and asked 
for access to the comments, and we have been denied. The press 
has been denied.
    Madam Secretary, with all due respect, I have never in all 
my 20 some years here encountered an agency denying access to 
public comments in this way, never. And so, you know my 
frustration. I am saying it this way because the farmers I have 
talked to are extremely frustrated by this, so I am asking you 
for the record whether you will commit to America's farmers and 
ranchers, to our Nation's citizens, to your own words in your 
farm policy report that you will revise the CSP rules and carry 
out the program as written in the Farm Bill and which the 
President signed.
    Will you commit yourself to that?
    Secretary Veneman. Senator, let me just say that this CSP 
is part of the larger Farm Bill, as we have talked about. We 
have had a tremendous amount of work to do with regard to this 
Farm Bill, and as we have discussed on many occasions, the CSP 
was not described in detail in the Farm Bill, and there were 
many decisions left to be made. We have gone out and had a 
number of public hearings, a number of processes to get public 
input, and as you say, our proposed rule was then published.
    The comment period has now closed, and as you have 
rightfully indicated, there were over 12,000 comments. We are 
now in the process of evaluating those comments to determine 
what the final rule should look like. I certainly can commit to 
you that we are going to review all of the comments that we 
received. I frankly had been unaware of the fact that you had 
not had access to the comments, and I commit to you that I will 
look at that issue to determine whether or not we can get you 
the comments that you are requesting. I was not aware that the 
comments were not available.
    Senator Harkin. I would also hope that you would let the 
press have access--these are public comments.
    Secretary Veneman. I understand.
    Senator Harkin. There should be no secrecy. There are no 
state secrets.
    Secretary Veneman. I understand, Senator. I just was 
unaware that there was a problem.
    Senator Harkin. Well, it is a big problem.
    Secretary Veneman. I will go back and try to determine what 
is the issue there.
    Senator Harkin. All right; I appreciate it.
    Secretary Veneman. But I think as you indicate, this has 
been a long process primarily because it is a new program, and 
we want to do it right. I have not seen the comments. I do not 
know what the various issues are, but I can tell you that 
because the funding has been limited, we have had to make some 
decisions about how we structure this CSP program. Are they the 
right ones? I do not know. But this is what you have: a notice 
of proposed rulemaking and we have comments for the proposal 
and so, as we go forward, I cannot tell you what the final rule 
is going to look like, but certainly, we will review the 
comments and take into account as much as we possibly can in 
developing a final rule.
    Now, Dr. Collins has been part of our overall group that 
has been responsible for implementing the Farm Bill, and he may 
want to make a couple of other comments about how we have tried 
to work to get to where we are on the CSP rule.
    Senator Bennett. Let me warn you, Dr. Collins, the vote is 
on, so that we need to be as brief as we can. We will not have 
another round, after I have been promising it all afternoon, 
because we have to go vote.
    Mr. Collins. I did not know that.
    Senator Bennett. But go ahead.
    Mr. Collins. Mr. Chairman, I would only say very quickly 
that there has been a different balance that the agency has had 
to cast here. We have a statute with a legislative history of 
it being capped. It is capped for fiscal year 2004. It also has 
a limitation on technical assistance funds.
    Senator Harkin. Is it capped beyond fiscal year 2004?
    Mr. Collins. It is not capped beyond 2004.
    Senator Harkin. Thank you. I want that for the record to be 
clear. Fiscal year 2005 and beyond is not capped.
    Mr. Collins. It is not. But we have had a legislative 
history of caps in the out years, and the Administration has 
proposed a cap in the out years, although statutorily, it is 
not capped in the out years.
    Senator Harkin. Thank you, the law we are following in the 
law in effect now.
    Mr. Collins. Correct. There is also a 15 percent limitation 
on technical assistance, which also does serve as a constraint 
in the Natural Resources Conservation Service's ability to deal 
with the potential 1.8 million farms that would be eligible for 
a wide-open environmental stewardship program. So I think there 
were those kinds of constraints that the agency felt they 
needed to deal with in developing this regulation.
    Senator Harkin. Well, I know we have to go, Mr. Chairman, 
but when were the rules supposed to come out under law? What 
date? February of 2003. We are now more than a year past that. 
I think we, all of us here and on the authorizing committee, 
have been more than understanding of saying, okay, fine, things 
take time.
    But we are getting to the point now where farmers are just 
saying you are scoffing at the law. The Department of 
Agriculture is just scoffing at the law that we wrote and not 
doing anything to implement this. The proposed rules bear no 
resemblance to what is in the law. That is why you have got 
over 12,000 comments. I have not read them. I take you at your 
word you are going to try to let us have access to those. As I 
have said, I have never had an agency ever say that we could 
not look at public comments.
    But all I know is that the agricultural producers and 
groups have contacted me who have sent in comments. To a 
person, I am sure that close to 100 percent were opposed to the 
rules that you proposed, so I just am hoping that you do have a 
revision of these rules. I would forego the supplement at this 
point to the proposed rule. You do not need a supplement. That 
will just delay the final rule some more. But if you get these 
rules out and carefully follow the comments, then, perhaps we 
can start signing people up soon.
    And I am glad, Mr. Collins, you have pointed out that it 
was capped this year; the law got changed. We got it put back 
the way it was in the Farm Bill, and it will not, I can assure 
you, change again until this Farm Bill is up again. And so you 
should prepare for a program that reflects the law beyond this 
year.
    Thank you, Mr. Chairman.
    Senator Bennett. Thank you.
    Senator Harkin. I did not get to the bio-based products 
program.
    Senator Bennett. Well, you can submit those for the record.
    Senator Harkin. I appreciate it. Thank you.
    Senator Bennett. And she will be happy to respond in 
writing.

                     SECTION 521 RENTAL ASSISTANCE

    Madam Secretary, I have two quick items; also, you can 
respond in writing for the record. GAO recently reviewed the 
Rural Housing Service's Section 521 Rental Assistance Program, 
and the information that I am seeking is very specific, so I 
will provide a written request and would ask that you respond 
in writing both to myself and to Senator Kohl by the 6th of 
April if you possibly can.

                             CYBER SECURITY

    And then, the second quick item, this is a hobby horse of 
mine, but I cannot resist it: cyber security, IT weakness. GAO 
did a study on the cyber security of the department and found, 
quote, significant and pervasive, close quote, information 
security weaknesses. And we will give you again some 
information in writing, and the only comment I want to make 
about this based on my experience with Y2K, when we had that 
challenge governmentwide, the mantra I repeated over and over 
again, to which the Clinton administration responded, was this 
is not a CIO problem; this is a CEO problem.
    When the Secretary or the administrator or whoever the CEO 
of the agency was made it clear that this was her priority or 
his priority, then it got done. If it got turned over to the 
CIO and say, well, this is a technical thing, you fix it, then, 
it did not get done, because nobody recognized how important it 
was, and the GAO report indicates the many problems they found 
are fixable, and I am sure that it can be fixable.
    I simply wanted to call it to your attention as the CEO, to 
ask you to give it the kind of leadership of which you are more 
than capable and which I think the problem demands.
    Secretary Veneman. Mr. Chairman, if I might make one 
comment on that. I do take cyber security very seriously, as 
does our CIO. We had money in the 2004 budget for cyber 
security, and it was denied by the Congress. We have money 
again in the 2005 budget request for cyber security, and we 
hope that, given your strong interest in this, that we will be 
able to maintain that money in the budget so that we can do the 
things that we know we need to do.
    Senator Bennett. Properly noted, and I will be a bulldog on 
it this year.
    Senator Harkin. Just 60 seconds, please.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Bennett. All right. I will time you.
    Senator Harkin. Secretary Veneman, the learing I did not 
want to leave on that note. I told you I was going to be hard 
on you on the CSP, and I am going to continue to be hard on 
you. But I wanted to end it on a positive note. I want to thank 
you, Madam Secretary, for what you have done for the Ames Lab 
and for coming out for the dedication of it. You have been 
great. You have put money into this critical project.
    It is needed, Mr. Chairman, to make sure that we have the 
best laboratory facilities in the world in answering animal 
disease problems and especially with the issues about BSE. We 
are moving ahead at Ames, and I just wanted to thank you, Mr. 
Chairman, Senator Kohl and your staff, along with Secretary 
Veneman, very much for all of your support and help with the 
Ames lab.
    Secretary Veneman. Thank you for being there with us.
    [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

                            rd state offices
    Question. We understand that RD state offices have been told that 
there will not be sufficient money to fund all rental assistance needs 
this year--in particular, that some rehabilitation and repair loans may 
be funded without rental assistance. We also understand that the state 
offices have been told to reexamine their unused rental assistance and 
to consider using unused rental assistance funds for rehabilitation and 
repair loans. Your calculations for rental assistance needs seem 
inconsistent.
    Please explain your fiscal year 2004 calculations and provide us 
with documented information that explains the discrepancy between your 
original and current calculations. Also, please document what new 
information, if any, has resulted in the change regarding your ability 
to fund rehabilitation and repair loans.
    Answer. The fiscal year 2004 calculation of $740,000,000 was 
reduced by Congress to $730,000,000. Then 20 percent was taken off to 
account for 4-year contracts instead of 5 years. There was a rescission 
to bring the number to $580,550,000. Of the total, $10,000,000 was 
allocated to new construction, farm labor and preservation, which left 
$570,550,000 for renewals. At $14,000 per unit for 4 years, we 
estimated 40,754 contracts could be renewed. This resulted in no rental 
assistance for rehabilitation. We expect to use $55.8 million of the 
$116 million available for the Sec. 515 loan program for repair 
rehabilitation process.
                  rhs/gao report on rental assistance
    Question. The Rural Housing Service (RHS) has reported that in 
implementing its new automated budget estimation process, 3 to 4 staff 
will work together on generating the budget estimates and allocating 
the resulting funds to rental assistance contracts.
    In light of the concerns reported in the GAO report, 
``Standardization for Budget Estimation Processes Needed for Rental 
Assistance Program'' (GAO-04-424), over the lack of segregation of 
duties at RHS, how will you document that these key duties have been 
divided among 3 to 4 different people to reduce the risk of error or 
fraud? Furthermore, will these 3 or 4 staff come from different offices 
within Rural Development, e.g., budget, finance, and program offices, 
or will they all be from the program office? If from the same office, 
please comment on how you plan to maintain the segregation of duties.
    Answer. The agency has not made a decision on how to address this 
issue. Several options are being considered. One of the options would 
include a national office staff person responsible for the day-to-day 
administration of rental assistance and a supervisory-level person to 
handle the policy issues. The allocation process would be developed in 
the national office and then presented to a ``Rental Assistance 
Advisory Committee'' made up of the national office staff who 
administer the rental assistance program and a person from RD Budget 
Staff, a person from the Finance Office, and the Deputy Administrator 
for Multi-Family Housing. This committee would concur with the proposed 
allocation method presented by the national office staff. The concurred 
allocation method would be presented to the Administrator for approval.
    Question. To what extent is the RHS national office monitoring the 
activity of rental assistance transfers at the state and local levels? 
For example, how many units and how much rental assistance funding was 
transferred in fiscal year 2003? How does RHS ensure that units are 
transferred according to the regulations, and that transferred units 
are used in a timely manner?
    Answer. The national office provides procedures and advice to the 
field staff for the proper administration of rental assistance. We also 
perform Management Control Reviews (MCR) of the program, which consist 
of visits to four representative states to see if the program is being 
correctly administered. The MCR results and recommendations are 
provided to all states for educational and consistency purposes.
    In fiscal year 2003 5,166 rental assistance units and $48,436,455 
were transferred.
    To address the issue of unused rental assistance, we are reviewing 
and providing monthly reports to the field staff and the management 
team to ensure this valuable resource is properly and promptly used.
    Question. Last year this subcommittee was told that USDA had 
acquired a team of professionals from inside and outside of government 
to create a new rental assistance forecasting tool. Who were the 
outside professionals that helped create the tool and what did they do?
    Answer. The Agency 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 
developed a model based on relevant informational elements using 
several software applications. The Rental Assistance Forecasting Tool 
was completed in November 2003, was reviewed by GAO in December 2003, 
and has undergone several months of testing to ensure accuracy and 
debugging. The Department expects to use the Forecasting Tool to 
develop the fiscal year 2006 Rental Assistance Renewal budget estimate.
                             rural programs
    Question. There are currently different definitions of rural among 
various rural development programs throughout USDA and the Federal 
Government. A town needs to have a population under 2,500 to be 
eligible for some USDA rural development programs and rural towns with 
populations of 20,000 or 50,000 are eligible for other USDA rural 
programs. Rural health programs in HHS use non-metropolitan criteria. 
Also, some programs use county data, others use census tract 
information, and still others use commuting area designations.
    Should there be a more consistent definition with common criteria 
for rural programs throughout USDA and the Federal Government?
    Answer. Due to the diversity of rural communities across the 
country and the wide variety of programs funded by the Federal 
Government for rural residents, businesses, and communities, it is 
difficult to develop one definition for ``rural'' that is appropriate 
for all purposes. Past efforts have been found to be harmful to some 
segment of the population or overly generous to another segment. 
Nevertheless, we support simplification of the myriad of definitions 
and criteria used to define and allocate resources to rural areas.
    Question. I understand that RHS has started a capital needs 
assessment and, as outlined in the GAO report (GAO-02-397), is 
developing a protocol for evaluating the physical, financial, and 
market needs of the section 515 multifamily portfolio. I also 
understand that a private contractor is evaluating a 3 percent sample 
of the portfolio to develop the protocol. Who selected the 3 percent 
sample, and what methodology was used for the selection? In particular, 
(1) did all properties have an equal chance of being selected, or (2) 
were other factors, such as the age of or the percentage of rental 
assistance in each property considered in the sampling process?
    Answer. The Agency consulted with Department economists who, after 
reviewing the data, provided us with the sample size that would result 
in a 90 percent confidence level. The 333 Section 515 properties 
selected were a mix of family and elderly complexes in operation for 
more than 5 years, and categorized by property size (less than 12 
units, 12-24 units, 25-50, 51-100 and 101 units or more). All of these 
factors were used to sort the total database to develop a 
representative sample. The percentage of rental assistance was not a 
factor in selecting the sample.
                       rd information technology
    Question. In July 1993 testimony, GAO stated ``USDA has 
substantially increased its use of information technology. But most of 
the information system expenditures to date have been for automating 
the systems associated with providing program benefits. However, these 
systems are not providing managers with the data they need to manage 
and make decisions, nor is the information produced in a form that can 
easily be shared with other agencies.''
    How much have we progressed in the past 11 years? For example, how 
many different information systems are used to manage the various 
housing and community development programs in USDA's Rural Development 
Mission Area?
    Answer. Over the past 11 years, Rural Development has progressed 
significantly beyond the automation capabilities supporting the mission 
area at that time. Several new, modern state-of-the-art systems have 
been constructed and deployed in support of Agency business needs. Some 
key major accomplishments in this area include:
  --The Agency purchased and deployed a new commercial-off-the-shelf 
        mortgage servicing system in support of the Single Family 
        Housing Direct Loan Program and in support of the Centralized 
        Servicing Center in St. Louis. Deployed in support of this 
        commercial system were several new technologies including 
        document management technologies including scanning and 
        imaging, workflow management, and content management; automated 
        mail handling; and automated call center technologies including 
        voice response and predictive dialing. These capabilities have 
        not only been extended to other business processes within Rural 
        Development but to other USDA agencies and the Department.
  --A new guaranteed loan system supporting all Rural Development loan 
        programs (and Farm Services Agency guaranteed loans) has been 
        fully deployed and major new enhancements have already been 
        completed. This system now includes a funds reservation 
        application, an electronic data interchange capability with 
        participating lenders, and a web-enabled user interface. 
        Application and project tracking capabilities for Business & 
        Industry and Community Facility loans and grants have been 
        added to this system.
  --A new system is in the process of being designed, developed, and 
        deployed to replace obsolete legacy systems dating back to the 
        Rural Electrification Agency. The initial capabilities of this 
        new system have been deployed and key financial and program 
        management capabilities are in development.
  --In a joint effort with the Farm Services Agency, Rural Development 
        has purchased and deployed a new program funds control system 
        that is compliant with the Joint Financial Manager's Integrity 
        Act.
  --A new Multi-Family Housing project management system has been 
        deployed and new enhancements are being added to meet emerging 
        needs identified to improve the overall management and 
        oversight of this program. This new web-enabled system 
        permitted the retirement of three, stove-pipe legacy systems.
    While much progress has been made in RD's information technology 
(IT) capabilities, the 2005 Budget requests an additional $14.1 million 
to upgrade IT systems. Upgrades are needed to improve RD program 
accountability and customer service, and to correct a material 
deficiency in RD direct loan systems.
    Question. How compatible are the systems?
    Answer. Each system is designed to meet the unique needs of the 
loan and grant programs they support. However, all new systems and 
applications are built using ``re-useable components'' and technologies 
that are relatively easy to extend to other systems and applications. 
Integration of data is achieved through the construction of a data 
warehouse that will eventually become the single source of all Rural 
Development management data. Although much Agency data has been 
extracted and moved into the data warehouse and made available to 
Agency managers and staff, there is much more to accomplish. Also 
included in the data warehouse is census data which allows program 
managers to better monitor the effectiveness of their programs. Tabular 
data has been geo-coded to permit the graphical display of data by 
creating maps; maps showing eligibility areas for specific programs 
have already been developed. Rural Development systems are being built 
through a vision of a fully-open technology architecture and data 
integration is being achieved by moving all data required to support 
Agency loan and grant programs into a single data warehouse.
                  coordination of usda rural programs
    Question. What efforts have you implemented to facilitate the 
coordination of programs across USDA for the benefit of rural 
communities?
    Answer. Within USDA, we have developed guidelines regarding the 
delivery of all Rural Development programs and required the state 
offices to reorganize themselves to meet those guidelines in order to 
bring consistency to how programs are delivered nationwide.
    Question. What is the Department's rural policy?
    Answer. The Department's rural policy recognizes the diversity of 
rural America and that there is no single recipe for prosperity that 
will be applicable nationwide. It further recognizes that agriculture 
is no longer the anchor for most rural communities and the availability 
of non-farm jobs and income are the drivers of rural economic activity. 
The creation of an economic environment to save or create jobs in rural 
areas is the challenge and doing so will require attracting private 
investment; creating a rural population with the education and skills 
needed by businesses; and the development of the technology, 
infrastructure and community facilities needed to make rural 
communities attractive to new businesses is critical if the communities 
are to prosper. Finally, there is the recognition that we need to 
enhance the market base for agricultural producers to find new markets 
for their products, including the development of alternative fuels. A 
more thorough discussion of the Department's rural policy is outlined 
in the USDA publication ``Food and Agricultural Policy--Taking Stock 
for the New Century'' which was published in September 2001.
    Question. USDA Rural Development is mandated under the Farm Bill to 
create the National Rural Development Coordinating Committee. What is 
the status of that effort?
    Answer. Rural Development is developing a course of action 
regarding creating the National Rural Development Coordinating 
Committee. The Farm Bill mandates certain representation on the 
Coordinating Committee, but implementation of that mandate could be 
pursued in a variety of ways. Rural Development may publish a notice in 
the Federal Register requesting public comment and input on how to 
accomplish that mandate.
    Question. The Farm Bill also mandates that USDA present a report to 
Congress on the National Rural Development Partnership. What is the 
status of that report?
    Answer. Section 6021(b)(3)(B) of the Farm Security and Rural 
Investment Act states that the Governing Panel in conjunction with the 
National Rural Development Coordinating Committee and state rural 
development councils shall prepare and submit to Congress an annual 
report on the activities of the Partnership. This annual report cannot 
be submitted this year because neither the Governing Panel nor the 
National Rural Development Coordinating Committee yet exists.
                             pilot program
    Question. In September 2000, GAO noted that in some rural areas, 
new agribusiness jobs are available in off-farm processing plants, such 
as aquaculture and poultry processing operations. In response to the 
GAO report, USDA noted that it had undertaken a pilot program in 
California and was considering a potential demonstration program in the 
future. What resulted from the pilot program and has USDA undertaken 
any similar pilots?
    Answer. In the fiscal year 2001 Agriculture Appropriations Bill, 
Congress authorized the Rural Housing Service (RHS) to provide almost 
$5 million in housing assistance (grants) for agriculture, aquaculture, 
and seafood processing workers in the states of Mississippi and Alaska. 
On February 12, 2001, RHS published a Request for Proposals in the 
Federal Register and on September 14, 2001, six proposals were selected 
for funding. The six selected proposals are in different stages of 
development. Some have completed construction and are now providing 
housing to processing workers. Other proposals have not completed 
construction.
    In the fiscal year 2004 Agriculture Appropriations Bill, Congress 
authorized RHS to provide almost $5 million in housing assistance 
(grants) for processing and/or fishery workers in the states of Alaska, 
Mississippi, Utah and Wisconsin. On April 6, 2004, RHS published a 
Request for Proposals in the Federal Register. The deadline to submit a 
proposal is July 6, 2004.
                    national board on rural america
    Question. What is the status of the National Board on Rural America 
created under the Farm Security and Rural Investment Act of 2002? Is 
such a board needed to promote business and community development in 
rural America?
    Answer. The Board was to implement the Rural Strategic Investment 
Program. Funding for the program was rescinded by Congress. Without 
funding to cover their administrative expenses, the Board cannot 
function and has, therefore, not been named.
    The promotion of business and community development in rural areas 
occurs in a variety of ways through outreach from government, non-
profit and profit organizations. The establishment of the National 
Board on Rural America is not critical to this function.
                          multi family housing
    Question. How effective has the agency been in encouraging more 
lenders to get involved with the Section 538 guaranteed multifamily 
housing program? Is anything being contemplated through regulation, or 
through a statutory change to allow the program to provide more 
multifamily affordable housing for moderate-income families?
    Answer. Lender participation in the program has been increasing 
because the industry has created a secondary market for the program. 
The Section 538 lender pool currently consists of 15 Approved Lenders, 
which are lenders with closed Section 538 loans, and 16 Eligible 
Lenders, which are lenders that are processing a Section 538 loan. The 
eligible lenders will become approved once they close the 538 loan. In 
addition, the publication of the program's final rule this summer will 
allow Ginnie Mae lenders to participate in the program.
    The purpose of the Section 538 Proposed Rule, which was published 
for comment on June 10, 2003, was to make the program more industry 
friendly to the secondary market. We expect the final rule to be 
published this summer.
    In addition to moderate-income families, the program also serves 
very-low-income (with section 8 vouchers) and low-income families. 
Eighty-five percent of the Section 538 housing portfolio has been 
financed with Low-Income Housing Tax Credits (LIHTC) equities and, 
therefore, must follow the LIHTC low-income occupancy restrictions.
                 rural business and cooperative service
    Question. The Inspector General has reported that the Rural 
Business Cooperative Service's business and industry loan program 
continues to have problems in applying its own policies and procedures 
for underwriting and managing the loans and performing adequate lender 
oversight. What can be done to ensure that the loan approval process 
and monitoring of the loans will reduce the number of defaults and 
better protect the government's financial interests?
     Answer. The Agency revamped its internal control review of the 
State Offices. The review is called a Business Program Assessment 
Review. We contracted with another Agency (experienced in completing 
Safety and Soundness reviews) to improve upon the National Office 
review. National Office reviewers have been trained and we are working 
with the contractor agency in conducting these reviews.
    As a result of these reviews, we are evaluating:
  --the need for reducing/removing loan approval authorities delegated 
        to individual State Offices,
  --the need for implementing changes to protect the portfolio,
  --the need for training/closer monitoring of loan approval(s),
  --changes to the regulations to improve portfolio development, and
  --the need for lender training.
                     business and industry program
    Question. Considering the problems with the business and industry 
program and the complex nature of the deals, does your field staff have 
the training and capacity to effectively negotiate with lenders and the 
borrowers?
    Answer. The level of expertise varies between states. Several 
initiatives are underway to provide staff with tools and training that 
will ensure more timely and consistent analysis in the processing of 
applications/servicing actions.
    The Agency has purchased and distributed Moody's financial analysis 
software to field staff to improve and provide consistent credit 
analysis of loans that are considered for funding.
    We have had national meetings with the National Office and selected 
State Office Program Directors/Loan Specialists and we have contracted 
with other institutions, i.e. Farm Credit Association, to provide 
specific training. With budget constraint, we have explored ways to 
provide telephonic training, regional teleconferences, web cast, 
Intranet and etc., to provide guidance to our field personnel.
    The Agency has identified the need for a core curriculum of 
training that will provide staff the training necessary for them to 
perform their assigned duties. An accreditation plan that will identify 
this core curriculum is under development. Current field staffs are 
being surveyed to determine the basic core training needs.
    Each delegation of authority to State Offices for loan processing 
and servicing actions is based on experience as well as the performance 
record of the personnel in the state. We will continue to make every 
effort to ensure authorities are issued to employees with the necessary 
skill set to protect the taxpayer's investment.
                   farm credit administration review
    Question. How effective has the Farm Credit Administration been in 
identifying problems with nontraditional lenders using the B&I program? 
What is the annual cost of this contract? Has the cost of the contract 
been justified based on Farm Credit Administration reviews?
    Answer. The Farm Credit Administration (FCA) has been quite 
effective in its review of nontraditional lenders. The particular arm 
of FCA with which the agency has contracted conducts safety and 
soundness examinations not only of the banks within FCA but has also 
contracted with the Small Business Administration (SBA) to perform the 
same function for specific SBA lenders. FCA is a recognized expert in 
lender examinations, internal controls, and program oversight. These 
examinations provide the agency and the nontraditional lenders with 
recommendations. We monitor the lenders to assure that recommendations 
are implemented.
    The cost for lender examinations by FCA in fiscal year 2004 is 
$104,501.
    We believe the involvement of FCA in the examination of lenders 
participating in the B&I Guaranteed Loan Program has been cost 
effective. Improvements in lender loan underwriting, risk 
identification, and servicing as well as a better understanding of the 
Agency's regulations are examples of the benefit of FCA's lender 
reviews. FCA reviews have supported the Agency's actions to debar an 
individual from participation in Government programs. The results of 
FCA reviews have been instrumental in identifying weaknesses in lender 
practices and have assisted the Agency in determining lender fraud, 
misrepresentation or negligent servicing. This assistance helps save 
millions of dollars for taxpayers.
                      centralized servicing center
    Question. The Centralized Servicing Center in St. Louis reported a 
32.5 percent reduction in the number of loans serviced from the year 
the center opened in 1997 to 2003. Have any staff reductions occurred 
as a result? Has the Centralized Servicing Center in St. Louis 
attracted any additional work from other Federal agencies? If not, what 
efforts are underway to attract any new business? Without new business, 
at what point will the loan volume become too small to keep the 
operation viable?
    Answer. Thank you for recognizing the success of our Single Family 
Housing program and Centralized Servicing Center. As you are aware, 
customers are required to ``graduate'' to other credit when they no 
longer require Federal assistance. We are pleased that over 30 percent 
of our direct homeownership customers were able to graduate to the 
private sector. In response to your specific questions, we offer the 
following explanation:
    In 1997, the Centralized Servicing Center (CSC) supplemented its 
permanent workforce with 100 private-sector temporary staff and the 
equivalent of 50 staff with overtime. The CSC no longer uses private-
sector temporaries and has reduced overtime usage by 50 percent. This 
is equivalent to a reduction of 125 staff years or 20 percent, without 
negatively impacting service to our customers.
    The CSC has acquired additional work. It recently began the 
centralization process for approving loss mitigation plans and 
processing loss claims for National Lenders participating in our 
guaranteed homeownership program. The guaranteed homeownership program 
has the second largest dollar portfolio within Rural Development. By 
providing a single point of contact at CSC, loan servicers are provided 
greater consistency and efficiency in obtaining approval for loss 
mitigation plans and processing of claims. The Agency also benefits 
through better internal controls and improved monitoring of losses. 
More than 40 percent of all loss mitigation activity for guaranteed 
lenders will be handled at CSC by the end of May and more than 60 
percent by year-end. This is an ongoing and growing initiative.
    In addition, the graduation process for direct loan customers has 
been centralized at CSC. This is the process used to identify, notify 
and support customers who are eligible for private financing. An 
average of 10 percent of our customers graduate annually. Naturally 
this supports self-sufficiency, while reducing ongoing costs for the 
government.
    CSC is also working with Rural Development's Business and Industry 
(B&I) program to service a portion of its receivables. CSC's Real 
Estate Owned (REO) website has also been expanded to include B&I, as 
well as Multi-Family Housing and guaranteed program properties. CSC is 
also working with the Veterans Administration and the Department of 
Housing and Urban Development to establish a common government website 
for all government-owned housing.
    CSC is currently using its imaging technology to archive historical 
executive correspondence files on behalf of the USDA Office of the 
Executive Secretariat. CSC is also participating in the project to 
establish a web-based correspondence tracking system for Department-
wide use.
    CSC is devoting approximately 75 staff years to these and other new 
initiatives.
    Since CSC's inception, the rate of delinquent loans has declined to 
a new record of 12.93 percent as of March 30, 2004. This is a 37.5 
percent reduction in delinquency since 1998. The delinquency rate net 
of foreclosures is 9.24 percent which compares favorably to the latest 
reported Federal Housing Administration (FHA) delinquency rate net of 
foreclosures of 12.23 percent.
    In summary, CSC staff years have declined by 20 percent, important 
new work has been and continues to be assumed, while dramatic 
improvements in program results are being attained. The combination of 
reduction in FTE and new work acquired is equivalent to savings of 200 
staff years or 32 percent.
    With the existing portfolio, new loans being added every day, and 
new business, CSC will continue to be an efficient and effective 
operation and asset to USDA. CSC continues to look for other services 
that can be provided to other USDA Agencies and throughout the 
government.
 merging of urban and rural housing and community development programs
    Question. When the Congress decided to separate rural development 
from urban development programs in the 1930s, the world was different. 
Today we have superhighways, information highways, and the boundaries 
of rural and urban areas are often unclear. Access to credit, a major 
factor behind the creation of rural specific programs, is no longer a 
major issue in rural areas. Today, affordability is the key problem in 
rural as in urban areas.
    Given the changes in rural demographics, the current budget 
constraints, and your need to focus on food security and safety issues, 
is it time to merge both urban and rural housing and community 
development programs into one housing and community development agency?
    Answer. Rural areas, like urban areas, are constantly changing, but 
for many parts of the country, the rural areas continue to be far 
different places than urban communities. We do not believe one housing 
and community development agency for both rural and urban areas would 
be helpful to rural families and communities. Most rural communities, 
especially the smallest and the poorest, do not have the staff to 
develop the loan and grant requests needed to effectively compete for 
limited funding against larger, more urban communities. These requests 
are often developed by the elected officials of small communities who 
are totally inexperienced in such an effort. Providing this type of 
assistance is a key function of USDA Rural Development field staff. 
Access to credit, especially private credit, continues to be very 
limited in the poorest communities. We have found there are pockets 
throughout the country where private lenders are not interested in 
making single family housing loans in rural areas. In some areas, 
private lenders are not even available. Rural Development has several 
pilots underway in rural areas that have no local banking facilities to 
involve the state housing authorities. Rural Development staff works 
with the family to prepare their application and then submits it to the 
state housing authority for consideration as a guaranteed loan.
                     rental assistance preservation
    Question. We understand you are committed to preserving rural 
rental housing. We also understand that you cut half of the $5.9 
million that this subcommittee set aside for rental assistance 
preservation funding. How do you plan to address the waiting list for 
rental assistance preservation?
    Answer. We have successfully reduced this waiting list over the 
last 12 months to the point where few borrowers are currently on the 
list.
    Question. We understand that as a result of legal action, 2 
properties in Oregon have prepaid their Section 515 loans resulting in 
44 households at risk of being displaced. I understand that RHS has the 
authority to issue vouchers under section 542 of the Housing Act of 
1949 to tenants in such a situation. Why has no funding ever been 
requested for this voucher authority that could be used in this type of 
emergency situation?
    Answer. Until recently, the need for RHS rental assistance vouchers 
was not recognized for the preservation program. Currently, the Agency 
is conducting a comprehensive property assessment of its multi-family 
housing portfolio. Upon completion of that study, the Agency expects to 
consider many policy options, which may include the use of vouchers for 
the situation you have described above.
                usda key information security weaknesses
    Question. GAO reported that a key reason for USDA's weaknesses in 
information security system controls was that it had not yet fully 
developed and implemented a comprehensive security management program.
    What steps are you taking to ensure that an effective information 
security management program is implemented?
    Answer. Beginning in 2000, using initial funds provided by the 
Congress as well as existing resources, USDA embarked on a new approach 
to securing its critical information assets. Since its formation, the 
Department's Cyber Security Program has engaged in a number of 
activities and projects designed to address USDA's most serious cyber 
security deficiencies. I will provide some additional details for the 
record.
    [The information follows:]
    Examples of progress made during the past year include:
  --Initiation of a USDA Certification and Accreditation Program that 
        will position USDA mission critical systems to comply with 
        Federal system certification requirements. In fiscal year 2004, 
        USDA compiled a Departmental inventory of over 500 systems that 
        we are now using to track the certification and accreditation 
        (C&A) of these systems. OCIO has challenged USDA agencies to 
        schedule accreditation of each of these systems by the end of 
        the fiscal year 2004. To assist agencies with the certification 
        and accreditation process, OCIO has established a contract 
        vehicle through which agencies can acquire contract support.
  --Development and establishment of a Risk Management Program that 
        incorporates the widespread use of security self-assessment 
        tools that address both overall security management and 
        specific technical platforms. OCIO has developed a 
        comprehensive USDA Risk Assessment Methodology that addresses 
        the full spectrum of risk management, including sensitivity, 
        assessment, remediation, and business case.
  --With a contract vehicle established for conducting independent risk 
        assessments according to OCIO methodology, dozens of risk 
        assessments have been conducted on the Department's more 
        important systems. This activity has positioned agencies to 
        move forward with full certification and accreditation, a major 
        priority for fiscal year 2004.
  --Release of guidance and tools to USDA agencies that provide the 
        ability to analyze existing information security controls and 
        technical environments.
  --Establishment and management of an enterprise-wide Intrusion 
        Detection System and procedures for detecting and reporting 
        intrusion incidents. OCIO is requesting funds in fiscal year 
        2005 to further strengthen this system by establishing a 
        Departmental security operation center to continuously evaluate 
        and manage gathered security information.
  --Development and issuance of new or revised policies and interim 
        guidance on specific security areas and provide precise 
        requirements. These include policies addressing: (1) mainframe 
        security, (2) incident reporting, (3) security plan guidance, 
        (4) security requirements for the use of private Internet 
        access providers, (5) user ID and password requirements, (6) 
        server and firewall security, use of network protocol 
        analyzers, and (7) physical security standards and use of 
        configuration management.
      Guidance issued during fiscal year 2003 and 2004 includes 
        policies addressing: (1) Privacy Impact Assessments, (2) 
        Encryption of Sensitive But Unclassified (SBU) Information, (3) 
        Revised Capital Planning and Investment Control Requirements, 
        (4) Security Awareness and Training, (5) Contingency Planning, 
        ( 6) Telework and Remote Access Security, (7) Trusted 
        Facilities Manual Requirements, (8) Security Features Users 
        Guide Requirements, (9) Portable Electronic Devices (PED) and 
        Wireless Technology Security, and (10) Life Cycle Approach to 
        Security Controls.
  --For the broader USDA security community, and to meet the Federal 
        requirement for on-going training for security specialists, 
        OCIO is providing instruction in the areas of security 
        controls, forensics, intrusion detection, risk management, 
        vulnerability assessments, contingency planning and other 
        security-related issues.
      More recent security training has been provided in the areas of 
        systems security scanning, patch management, Certification and 
        Accreditation, and Federal Information Security Management Act 
        (FISMA) requirements.
  --Development of an enhanced security awareness program that includes 
        partnership with the Government-wide eLearning initiative. This 
        program provides Department-wide web-based training on security 
        issues to all USDA staff. As of September 30, 2003, over 39,000 
        employees (of 60,000 total), including the Secretary, have 
        logged on and completed this course. Other objectives of the 
        Department's Security Awareness and Training Program include: 
        defining a security and awareness scope, identifying executive 
        briefing package materials, surveying and assessing security 
        and awareness products, and identifying security and awareness 
        assessment methodologies.
      In 2003, the Secretary declared September as USDA Cyber Security 
        Awareness Month. The Secretary recorded a video focusing on the 
        need for every employee to be aware of and comply with 
        Departmental security requirements.
  --Oversight has been increased for both Capital Investment Planning 
        and technology deployment to ensure that security is considered 
        throughout the entire life-cycle of system development. Annual 
        reporting instructions are issued and requests for approval to 
        invest in technology are carefully scrutinized to ensure 
        security is adequately addressed.
  --A rigorous reporting and monitoring process has been established to 
        oversee USDA's activities related to the Federal Information 
        Security Management Act (FISMA). In particular, OCIO manages 
        the Department's annual self-assessment process and oversight 
        of the action plans and schedules designed to address weakness 
        discovered.
  --OCIO has negotiated and executed USDA-wide contracts for security 
        services and products. These contracts, managed by OCIO, 
        provide USDA agencies with access to quality security controls 
        and expertise in the areas of scanning devices, virus detection 
        and protection, software security patch management, 
        vulnerability assessments, and security planning.
  --The Department has initiated an Information Survivability Program 
        through which Disaster Recovery and Business Resumption Plans 
        will be developed and tested. Software that supports the 
        development of these plans has been purchased for use by all 
        USDA agencies and offices. Contract support has been engaged to 
        support agency personnel in this endeavor.
      While much remains to be done to improve USDA's information 
        security program, these steps and strategies provide evidence 
        that the Department is committed to eliminating its long-
        standing security deficiencies.
     holding senior management accountable for information security
    Question. How does USDA hold senior management of the department 
and its component agencies accountable for ensuring adequate 
information security? For example, does it affect their performance 
evaluations?
    Answer. We have taken a number of steps, both directly and through 
delegated authority to the CIO, to ensure program and IT executives and 
managers understand and perform their information security 
responsibilities. These include:
  --Establishing an information security performance measure within the 
        performance plan of each under and assistant secretary, agency 
        head, and staff office director. Performance in this measure is 
        rated and considered in each executive's annual performance 
        review.
  --Focusing senior management attention on certifying and accrediting 
        all USDA IT systems. The USDA CIO briefed the Subcabinet on 
        this critical effort, and agency management have been advised 
        that funding will not be approved for any new systems 
        development efforts until agencies identify the resources and 
        milestones to certify and accredit their systems.
  --Evaluating and approving each investment in the USDA IT Portfolio 
        to ensure cyber security is addressed, staffed, budgeted, and 
        assessed for compliance with USDA Cyber Security Policies. 
        After approval by the Department's Executive Information 
        Technology Investment Review Board, the Deputy Secretary 
        recommends approval of the Major IT Investment Portfolio to the 
        Secretary.
  --Ensuring decisions on all USDA IT acquisitions, above a $25,000 
        threshold, are approved by the Department CIO. OCIO reviews 
        each acquisition to ensure cyber security is addressed, 
        staffed, budgeted, and assessed for compliance with USDA Cyber 
        Security Policies.
  --Establishing security responsibilities and authorities for Program 
        Officials, CIO's, security officers, IT technical specialists 
        and IT users through departmental guidance and policy.
             ensuring effectiveness of security management
    Question. How will the Department ensure that security management 
positions have the authority and cooperation of agency management to 
effective implement and manage security programs?
    Answer. The Department has established controls and performance 
measures to ensure the cooperation of agency management.
    In addition, USDA's Office of the Chief Information Officer makes 
great effort to ensure security managers are engaged in IT investment 
decisions throughout the system life cycle. The Department's Capital 
Planning and Investment Control process is designed to ensure security 
issues are considered at every phase of investment. OCIO reviews each 
acquisition to ensure cyber security is addressed, staffed, budgeted, 
and assessed for compliance with USDA Cyber Security Policies.
    OCIO reaches beyond USDA's security community to the Department's 
most senior mangers to keep them abreast of topical and important 
security issues. Our current effort to certify and accredit (C&A) all 
USDA IT systems is a good example of this process. Discussions 
regarding C&A are held regularly with the Department's most senior 
management. Executive training and materials for the C&A process have 
been developed and presented to agency heads and program 
administrators.
    Weekly status reports that score progress toward attaining 
accreditation are prepared and shared with senior management to ensure 
objectives are attained. In addition, OCIO's senior management counsels 
individual agency managers on specific C&A strategy, procedures and 
progress.
                     filling acio for cybersecurity
    Question. What actions are planned to fill the role of Associate 
CIO for Cyber Security, given that the person that held this position 
is recently retired?
    Answer. The advertisement to recruit a new USDA Associate CIO for 
Cyber Security will close in early May 2004. The Department will 
carefully review all applications in its search to fill this critical 
position.
           budget impact of information security requirements
    Question. Is there a budget impact to ensure that information 
security requirement are met?
    Answer. The Department's Capital Planning and Investment Control 
process is designed to ensure security issues are considered at every 
phase of investment. OCIO reviews each acquisition to ensure cyber 
security is addressed, staffed, budgeted, and assessed for compliance 
with USDA Cyber Security Policies.
    USDA is currently operating under a moratorium that requires a 
waiver for all IT acquisitions above $25,000. OCIO reviews each 
acquisition waiver request to ensure cyber security is addressed, 
staffed, budgeted, and assessed for compliance with USDA Cyber Security 
Policies. Failure to adequately address security throughout the system 
life cycle will result in delay or denial of funding approval.
    Additionally, OCIO has advised agency management that funding for 
any new system development efforts will not be approved until agency 
management identifies the resources and milestones to certify and 
accredit their systems.
                      completing risk assessments
    Question. Addressing risk is necessary to implementing appropriate 
security controls. According to the USDA OIG, 8 of 10 agencies that it 
reviewed during fiscal year 2003 had not completed risk assessments for 
mission essential information technology resources. What actions is the 
Department taking to ensure that risk assessments are completed?
    Answer. USDA is addressing the issue of risk management on a number 
of separate fronts. First, with agency and contractor assistance, USDA 
has developed a comprehensive Risk Assessment Methodology to assist 
USDA agencies in determining information sensitivity, identifying 
threats and vulnerabilities, designing mitigation strategies, and 
developing business cases for necessary security costs. Additionally, 
risk assessment training and counseling has been provided to agency 
security managers by both Cyber Security Program Staff and contracted 
risk management specialists.
    Second, to meet the requirements of the Federal Information 
Security Management Act, agencies are charged with performing self-
assessments of their respective IT systems and security programs. To 
address these requirements, USDA uses the National Institute of 
Standards and Technology (NIST) Self-Assessment Guide. Weaknesses 
discovered during these assessments form the basis for mitigation plans 
that guide agency security activities throughout the year.
    Third, an initiative that addresses risk management is OCIO's 
aggressive strategy to certify and accredit all of its IT systems in 
fiscal year 2004. A fundamental component of system certification is a 
thorough risk assessment. Agencies will be using USDA and Federal risk 
assessment guidance to ensure security controls are adequate prior to 
submitting systems for accreditation.
    Fourth, OCIO has established vehicles through which USDA agencies 
and offices can obtain contract expertise to perform risk assessments. 
Over the past 2 years, dozens of USDA IT systems have been 
independently assessed for risks and vulnerabilities by highly 
qualified and experienced security contractors, a reflection of the 
high priority USDA management places on thorough security analysis.
           plans to finalize security policies and procedures
    Question. Although the department's Office of Cyber Security has 
developed numerous policies and procedures that address information 
security over the last couple of years, many remain in draft, or 
interim guidance, some for over a year. What plans does the department 
have for finalizing these policies and procedures?
    Answer. Individual information security policies, particularly 
those that prescribe technical controls must be vetted thoroughly to 
resolve issues of incompatibility and unnecessary expense. Often this 
vetting process requires additional analysis and compromise to achieve 
maximum effectiveness and economy. Nevertheless, OCIO has been 
successful in issuing a wide array of security guidance. New guidance 
issued during fiscal year 2003 and 2004 include policies addressing: 
(1) Privacy Impact Assessments, (2) Encryption of Sensitive But 
Unclassified (SBU) Information, (3) Capital Planning and Investment 
Control Requirements, (4) Security Awareness and Training, (5) 
Contingency Planning, (6) Telework and Remote Access Security, (7) 
Trusted Facilities Manual Requirements, (8) Security Features Users 
Guide Requirements, (9) Portable Electronic Devices (PED) and Wireless 
Technology Security, and (10) Life Cycle Approach to Security Controls.
    It should be noted that even guidance issued as ``Interim'' 
provides the standard by which USDA agencies must operate. Interim 
guidance is used as criteria for IT investment reviews, risk 
assessments, FISMA self-assessments, and other compliance exercises.
                  employee security awareness training
    Question. How does the Department plan to ensure that all employees 
receive security awareness training?
    Answer. During the past year, OCIO has developed a more rigorous 
security awareness program that includes partnership with the 
Government-wide eLearning initiative. During fiscal year 2004, OCIO 
purchased on on-line security awareness course through which all 
Department end-users could meet their awareness training requirements. 
By using this course, USDA was able to report over 60,000 USDA 
employees had been trained. While this was only 53 percent of all 
employees, we anticipate the percentage will increase for this year. 
Performance related to this issue will be a consideration in each 
executive's annual performance review.
    Other objectives of the Department's Security Awareness and 
Training Program include: defining a security and awareness scope, 
identifying executive briefing package materials, surveying and 
assessing security and awareness products, and identifying security and 
awareness assessment methodologies--all designed to assist agencies in 
their attempt to meet Federal security awareness requirements. For the 
technical security community, on-going training is provided in the 
areas of security controls, forensics, intrusion detection, risk 
management, vulnerability assessments, contingency planning and other 
security-related issues.
                     systems testing and evaluation
    Question. The department has reported that just over a third of its 
systems have undergone test and evaluation within the past year, and 
only 16 percent of its systems had been certified and accredited. What 
action has the department taken to ensure that testing and evaluating 
controls becomes an ongoing element of agencies' overall information 
security management programs?
    Answer. The testing and evaluation of the security controls is a 
critical component of the Department's current certification and 
accreditation (C&A) initiative. The C&A process requires testing and 
evaluation of all system controls to ensure they function as planned. 
To ensure the independence of system testing, agencies must enlist the 
services of a third party to undertake the testing who was not involved 
in the design or development of the security controls.
    In addition, in order to reduce or eliminate these risks, OCIO has 
established guidance for conducting Security Vulnerability Scans (SVS) 
of all USDA networks, systems and servers. These SVS scans are a vital 
component of the overall security protection plan being deployed within 
the department. OCIO guidance requires USDA organizations to accomplish 
these SVSs on a monthly basis. In addition, to the vulnerability scans, 
each agency/staff office is required to conduct and maintain 
information technology (IT) inventories of networks, systems, servers, 
software and Internet Protocol Addresses for all areas within their 
responsibility.
    To assist agencies with their scanning responsibilities, OCIO 
provides scanning tools, training, and on-going support. OCIO also 
conducts oversight reviews of agencies and staff offices to review 
vulnerability reports and corrective actions taken to ensure that 
networks, systems, and servers are protected in accordance with this 
policy.
             ensuring systems are certified and accredited
    Question. What action has the department taken to ensure that 
systems are certified and accredited?
    Answer. OCIO has initiated an aggressive program to certify and 
accredit (C&A) all of USDA's IT systems and position the Department to 
comply with Federal system certification requirements. To prepare 
agencies for C&A, OCIO developed a USDA Certification and Accreditation 
Guide, document templates, and procedures for managing the broad set of 
activities involved. Training sessions have been conducted to educate 
all levels of managers and technicians involved in the C&A process.
    In fiscal year 2004, USDA compiled a Departmental inventory of over 
500 systems that we are now using to track the certification and 
accreditation of these systems. In fiscal year 2004, USDA will spend in 
excess of $25 million on systems certification and accreditation.
    A fundamental step in accreditation is a thorough risk assessment, 
conducted through self-assessments for low impact systems and through 
independent assessments for all others. To achieve this independent 
review, OCIO has developed contract vehicles by which agencies can 
engage external expertise to assist them. USDA management and agency 
technical staffs have become fully involved in the Certification and 
Accreditation Program, scheduling activities and executing contracts 
that will lead to accreditation of the systems for which they are 
responsible.
    OCIO's fiscal year 2005 budget request of $687,000 relative to 
certification and accreditation does not reflect the cost of individual 
agency C&A activities. Funding for these activities is expected to be 
borne by agencies from funds provided for IT investments, and from 
unobligated balances allocated for this purpose. OCIO's funding request 
is directed toward corporate-level activities such as common toolsets, 
oversight and counsel, and Independent Verifications and Validation 
exercises.
    OCIO recognizes this aggressive schedule places an enormous burden 
on the Department's technical staffs, both from a personnel and budget 
perspective. Nevertheless, OCIO is committed to moving the Department 
to a more secure baseline from which new technologies and methodologies 
can be employed safely and effectively, while at the same time meeting 
Federal security mandates.
              how usda budget corrects security weaknesses
    Question. Given the pervasive extent of the Department's 
information security weaknesses, how will the Department's request for 
budgetary resources address the issues involved in correcting the 
problems?
    Answer. OCIO is working with the agencies to ensure funding for 
security requirements are included in all budget requests for system 
development and operation. In addition, OCIO's budget request for 
fiscal year 2005 includes increases for the following security 
initiatives:
  --An increase of $687,000 is needed to manage the USDA Information 
        System Certification and Accreditation Program.--OCIO's highest 
        priority is to certify and accredit all USDA systems to ensure 
        they are properly secured from theft and destruction, in 
        compliance with Federal security laws and guidelines. Funding 
        provided to-date from the Department's fiscal year 2003 
        unobligated balances, as well as from the OCIO base is being 
        used to pay for the certification and accreditation (C&A) of 
        specific high-priority systems that are owned and operated by 
        USDA agencies and staff offices. These additional requested 
        funds will enable OCIO to manage this program in fiscal year 
        2005 at the needed level of detail and help ensure that USDA IT 
        systems are properly secured and in compliance with Federal 
        security guidelines.
      The result of the OCIO C&A Program will be a large collection of 
        security documentation and artifacts (security plans, risk 
        assessments, contingency plans, etc), most of which will be 
        essential to future C&A activities. In addition to compliance 
        activities, training, evaluation, and Independent Verification 
        and Validation, OCIO will investigate the value of acquiring 
        enterprise C&A management tools that will allow USDA to re-use 
        C&A artifacts, thereby reducing future C&A costs. Because 
        Federal guidance requires certification of systems at least 
        every 3 years, savings obtained through re-use could be 
        substantial.
  --An increase of $2,373,000 is needed to maintain an Information 
        Survivability program to minimize disruptions caused by 
        attempted intrusions and catastrophic interruptions.--OCIO's 
        Information Survivability Program addresses both prevention of 
        attack on USDA IT systems and recovery in the event of 
        disruption.
      OCIO currently manages USDA's corporate Intrusion Detection 
        System (IDS). This system monitors traffic over the 
        Department's backbone network to detect incidents of possible 
        unauthorized access and policy/legal violations. The system is 
        instrumental in detecting viruses, worms, and other mechanisms 
        intended to disrupt IT systems. OCIO's IDS operates 24 hours 
        per day, 365 days per year.
      OCIO's request for increased funding for Information 
        Survivability includes $1,000,000 for the expansion of the IDS 
        to lower level networks operating within the Department that 
        support mission-critical applications and communications. In 
        addition, the increased funding will allow USDA to improve and 
        expand its detection tools to expand the range of monitoring 
        and reduce detection time.
      Recognizing that no prevention measures are perfect, OCIO's 
        Information Survivability Program also addressed the 
        disciplines of disaster recovery and business resumption. 
        Procedures and policies have been established to ensure that 
        USDA's business processes will continue to function and serve 
        its customers, regardless of the degree of damage sustained 
        from an attack. Features of the Information Survivability 
        program include: tools, policies and procedures designed to 
        understand the extent and source of an intrusion; protection, 
        and if needed, restoration, of sensitive data contained on 
        systems; protection of the systems, the networks, and their 
        ability to continue operating as intended; recover systems; 
        information collection to better understand what happened; and, 
        if necessary, legal investigations support.
      OCIO has entered into a Department-wide contract that provides 
        software tools and training for agencies as they begin 
        developing contingency plans. However, the funding for this 
        effort was provided through the Department's Homeland Security 
        budget, which provides for no long-term support. As agencies 
        begin development of their recovery plans, counseling, support, 
        testing and training will become an on-going effort. In 
        addition, contractor support to perform Independent 
        Verification and Validation of contingency plans will be 
        needed.
      OCIO currently devotes one FTE to manage its contingency planning 
        effort. Over the past year, two contract FTE's have also 
        provided support with funding provided through the Department's 
        Homeland Security budget. However, since Homeland Security 
        funds are no longer available for this contract support, OCIO 
        is requesting $1.373 Million to continue this critically 
        important effort.
  --An increase of $937,000 is needed to obtain, implement, and manage 
        an automated Risk Management toolset.--Risk determination and 
        risk management are the foundation for all successful security 
        programs. The Department currently relies heavily on manual 
        tools and forms to conduct risk assessments that identify 
        security deficiencies in our system controls. This increase is 
        requested to fund the acquisition of automated software tools, 
        training, oversight, maintenance and support that provide 
        continuous updates to existing threats and provide users with 
        methods to determine information value, vulnerability 
        predictions, and mitigation strategies. USDA agency employees 
        will be the predominant users of the tools.
  --An increase of $1,561,000 is needed to establish a Security 
        Operational Center.--While USDA's Intrusion Detection System 
        captures and handles an ever-growing stream of information on 
        cyber security related events, no single USDA organization is 
        trained and equipped to fully utilize the information captured 
        to determine the true nature and extent of risk to critical 
        USDA information systems. By providing the requested funding in 
        fiscal year 2005, Congress will enable OCIO to reduce the time 
        delay in detecting and responding to security events, improving 
        the efficiency and effectiveness of USDA's security controls.
            ensuring adequate funding for fisma remediation
    Question. In preparing remediation plans as required by the Federal 
Information Security Management Act--FISMA, what is your process to 
ensure that adequate funds are identified to correct the Department's 
information security weaknesses?
    Answer. By ensuring responsible agency officials identify the funds 
to certify and accredit USDA's systems, we are focusing agency 
management on addressing a majority of the remediation actions 
identified in their FISMA plan of actions and milestones or POA&Ms. In 
a review of USDA Agency POA&Ms, approximately seventy percent of the 
identified security vulnerabilities are being addressed by agency 
system certification and accreditation efforts, which is being funded 
through a combination of agency IT funding, the Department's fiscal 
year 2003 unobligated balances, and from the OCIO base.
    Additionally, OCIO is working with USDA agencies on all non C&A 
related activities, such as providing security awareness training to 
all employees and improving intrusion detection and response, on a 
project-by-project basis. In the case of security awareness training, 
OCIO has acquired an online training course, which will be available to 
all agencies to use in security awareness training requirements.
                 bovine spongiform encephalopathy (bse)
    Question. On March 15, 2004, the Department of Agriculture 
announced details for an expanded surveillance effort for BSE. The 
release also stated that $70 million is being transferred from the 
Commodity Credit Corporation (CCC) to test cattle in the high risk 
population.
    Can you take a moment to provide Committee Members with a detailed 
explanation of how the Department intends to conduct this increased 
surveillance program?
    Answer. For more than a decade, USDA has taken aggressive measures 
to prevent the introduction and potential spread of BSE. On March 15, 
USDA announced a plan to significantly augment those efforts by 
strengthening BSE surveillance in the high-risk cattle population and 
establishing a small proportion of random surveillance in the aged 
cattle population. We are taking these proactive steps to further 
assure consumers, trading partners, and industry that the risk of BSE 
in the United States is low. By expanding surveillance, we will have 
even greater confidence in the health of the U.S. cattle population.
    USDA's primary focus and the goal for this new program is to obtain 
samples from as many of the targeted high-risk adult cattle population 
as possible, plus obtain a small random sample of apparently normal, 
aged animals. Under this surveillance plan, USDA will test as many of 
the targeted high-risk cattle as possible for a 12- to 18-month period. 
This effort will help better define whether BSE is present in the 
United States and, if so, at what level. After that time period, USDA 
will evaluate the results of the program and determine what future 
actions may be appropriate.
    We have already begun ramping up our surveillance system and expect 
to be at full capacity by June 1. Whereas all BSE testing in the United 
States has historically been performed at USDA's National Veterinary 
Services Laboratories (NVSL), the new program incorporates a network of 
State and university laboratories into the testing program. Their 
geographic distribution will help ensure adequate turn-around time for 
sample testing and reporting of results.
    USDA will continue to build on previous cooperative efforts with 
renderers and others to obtain samples from the targeted high-risk 
populations. Samples will be collected by authorized State or Federal 
animal or public health personnel, accredited veterinarians, or trained 
State or USDA contractors. The random sampling of apparently normal, 
aged animals will come from the 40 U.S. slaughter plants that currently 
handle more than 86 percent of the aged cattle processed for human 
consumption each year in the United States. The carcasses of these 
animals will be held and not allowed to enter the human food chain 
until negative results are received.
    USDA anticipates using rapid test technology during the enhanced 
surveillance program. However, any rapid test that identifies a non-
negative result will be subject to additional confirmatory testing by 
NVSL. A BSE implementation team has been established and is working to 
ensure the program meets its goals. The team is currently drafting more 
specific guidelines that will be used during the course of the enhanced 
surveillance program. These guidelines will address questions regarding 
cost recovery and participation in the program.
    USDA anticipates pursuing a variety of approaches with regard to 
cost recovery, including contracts, cooperative agreements, direct 
payments, and fee-basis agreements.
    A more detailed version of the plan is available through the APHIS 
Web site at http://www.aphis.usda.gov/lpa/issues/bse/BSE_Surveil-
Plan03-15-04.pdf.
                   testing of animals prior to export
    Question. The livestock industry and Department of Agriculture are 
working toward reopening export markets in Japan, Mexico, and other 
exporting countries. Establishing animal testing guidelines for export 
markets continues to be a point of controversy that is preventing any 
agreement to open markets. The controversy arises over testing each 
animal and whether or not animals under the age of 30 months should be 
tested.
    Do you believe each animal, including those under 30 months of age 
should be tested prior to export? Also, if an agreement requires 
testing each animal, what is the expected cost of such a program?
    Answer. We do not believe each animal, including those under 30 
months of age, should be tested prior to export. Science does not 
support the testing of every animal, regardless of age, for BSE. 
Further testing apparently healthy animals is the most inefficient 
method of finding disease if it were present.
    The cost for each rapid test kit is about $25 per test. If we were 
to test every animal that goes to slaughter each year (in excess of 35 
million), the approximate cost for the test kits alone would be $875 
million. However, there are other costs involved in testing the 
animals. These costs include sample collection, shipping, handling, 
processing, lab support, equipment, disposal, etc. Because of these 
other costs, we have estimated that the total cost of testing would be 
$175-$200 for each animal. Thus our total cost of testing every animal 
would be between $6 billion and $7 billion.
                     low pathogenic avian influenza
    Question. The Administration's fiscal year 2005 Budget request 
includes an increase in funding of nearly $12 million to address Low 
Pathogenic Avian Influenza (LPAI).
    Can you update the Committee in regard to ongoing action related to 
avian influenza and explain how the Department would utilize the 
additional funding?
    Answer. APHIS has been working to establish a national LPAI program 
by incorporating this program into the National Poultry Improvement 
Plan (NPIP); scheduled to be discussed and adopted at the NPIP meeting 
in July 2004. The Uniform Methods and Rules (UM&R) for the live bird 
marketing portion of the program has been drafted and is currently 
being reviewed by a subcommittee of the U.S. Animal Health Association 
in order to obtain their recommendations for program improvement.
    APHIS would utilize the additional funding for cooperative 
agreements with states that will support the LPAI prevention and 
control program; indemnities; for additional field personnel, 
equipment, and other resources necessary to assist states with long-
term prevention and control; educational materials and training for 
recognition of avian influenza and for biosecurity practices to protect 
against the disease; development and administration of vaccine to 
support industry when infected with LPAI; and provide reagents and 
other laboratory support to incorporate the commercial program through 
the National Poultry Improvement Program (NPIP). This program is 
currently testing poultry breeder flocks and will continue to expand 
its activities until all segments of the commercial industry are 
monitored and certified as avian influenza clean.
                            avian influenza
    Question. With the discovery of avian influenza (AI), a number of 
countries have banned poultry imports from the United States.
    Can you provide the Committee with an update on poultry export 
markets and exactly what actions USDA is taking to reopen these 
markets?
    Answer. USDA responded quickly and effectively to control the 
spread of AI in the AI-affected states. Throughout this process, USDA 
officials were in constant contact with their foreign counterparts to 
provide timely information about the outbreaks and quarantine control 
measures. As a result of these efforts, USDA was able to free pipeline 
shipments in Japan and Hong Kong valued at over $40 million, and head 
off the actions of many trading partners to impose nationwide bans on 
U.S. poultry meat. The good news is that countries representing 47 
percent, or $941 million of our export markets, have banned products 
only from affected areas and another 18 percent, or $337 million, did 
not impose any ban. Therefore, taken together 65 percent of U.S. 
poultry exports to the world have been unaffected by the AI situation.
    On April 2, the USDA Chief Veterinary Officer (CVO) announced the 
completion of the required surveillance and testing protocols per the 
World Animal Health Organization (OIE) guidelines. An official request 
from the CVO has been sent to major U.S. poultry export markets 
requesting the removal of all import bans on U.S. poultry and poultry 
product imports. The Department at all levels is diligently pursuing 
with its trading partners the lifting of all AI trade restrictions on 
products from the United States. By the summer of 2004 or earlier, the 
remaining countries imposing nationwide bans on U.S. poultry meat are 
expected to at least regionalize their import bans to those states 
affected by Low Pathogenic Avian Influenza (LPAI) now that the United 
States is free of High Pathogenic Avian Influenza (HPAI).
                          beef export markets
    Question. Livestock producers continue to be concerned with the 
loss of export markets following the outbreak of BSE.
    Will you take a moment to update the Committee in regard to the 
efforts being made by the Department of Agriculture to open export 
markets?
    Answer. USDA continues to work closely with its foreign trading 
partners to re-establish U.S. ruminant and ruminant product exports as 
quickly as possible. We work with foreign officials at all levels to 
reassure them of the safety of U.S. beef and beef products. USDA 
officials encourage foreign governments to follow World Animal Health 
Organization guidelines regarding BSE. The Animal and Plant Health 
Inspection Service (APHIS) has been in constant contact with its 
counterparts providing them with updates on the BSE investigation, as 
well as new USDA regulatory policies imposed on BSE testing and 
specified risk material (SRM) removal.
    As a result of USDA's efforts, a number of countries have opened 
their markets to selected U.S. beef, beef products, and ruminant by-
products exports. Mexico and Canada have agreed to accept U.S. boneless 
beef from cattle less than 30 months of age. Although export 
certification issues continue to impede U.S. beef exports to Canada, 
USDA and Canadian officials are expected to resolve the problem very 
soon. We expect Mexico to lift its ban on selected U.S. beef variety 
meats and veal. Mexico had already lifted its ban on U.S. boneless beef 
imports earlier and exempted low-risk ruminant product imports based on 
OIE guidelines. Mexico and Canada are the second and fourth largest 
U.S. beef export markets, respectively, valued at over $1.2 billion in 
2003.
    Japan and South Korea, the first and third largest U.S. beef export 
markets, continue to ban U.S. beef imports. Senior USDA officials 
communicate with their respective government officials and have 
traveled there to discuss their concerns with USDA BSE controls and 
testing procedures. USDA has extended an invitation to Korean officials 
to visit Washington for further discussions. USDA is also planning 
another high-level visit to Japan in late April to continue discussions 
and resolve issues regarding BSE testing and SRM removal.
    In addition, USDA continues to work with governments in secondary 
markets to lift their bans to U.S. bovine products as a result of the 
finding of a BSE case in Washington State. USDA has sent a letter to 
selected secondary countries requesting they open their markets to no 
risk and low-risk products. These export markets, while smaller in 
total export value, provide significant opportunities to resume U.S. 
exports in rendered products, animal genetics, dairy products and other 
ruminant by-products.
    Question. According to the livestock industry, economic losses to 
export markets following the discovery of BSE are estimated to be over 
$10 billion.
    Has the Department conducted a thorough investigation of the 
economic impact of the lost export markets?
    Answer. The Office of the Chief Economist and the Foreign 
Agricultural Service independently evaluated the situation and 
concluded that there will be minimal effects on U.S. meat production 
and domestic consumption. U.S. consumers continue strong demand for 
beef and beef products, and coupled with tight U.S. beef supplies, beef 
and cattle prices remain relatively high. The trade impact will be 
significant. In 2003, the United States exported approximately $7.5 
billion worth of ruminant and ruminant by-products. U.S. export value 
of these products for January-February 2004 alone was down 53 percent, 
or over $582 million compared to the 3-year average January-February 
period for 2001-2003. The severity of the overall trade impact will 
depend upon the number of countries that continue to impose import 
bans, their importance to U.S. trade, and the length of time the bans 
remain in place.
                 bovine spongiform encephalopathy (bse)
    Question. The Administration's Budget request for the Department of 
Agriculture includes a total of $60 million for BSE related activities.
    Can you provide the Committee with the most up to date information 
in regard to ongoing activities related to BSE and then take a moment 
to explain the increase that has been requested for fiscal year 2005?
    Answer. On December 25, 2003, USDA received verification from the 
Veterinary Laboratories Agency in Weybridge, England, of the finding of 
BSE in an adult Holstein cow slaughtered in the State of Washington. 
The epidemiological investigation and DNA test results confirm that the 
infected cow was not indigenous to the United States, but rather born 
and became infected in Alberta, Canada. Above and beyond OIE standards, 
animals with known or potential risk for having been infected with the 
BSE agent in Canada have been depopulated, as have all progeny from the 
index cow in the United States. All carcasses were properly disposed of 
in accordance with Federal, State, and local regulations. Between 
January 1, 2004 and March 31, 2004, USDA tested approximately 5,500 
cattle for BSE, and all results were negative.
    The United States concluded active investigation and culling 
activities on February 9, 2004, and has redirected resources toward 
planning, implementing, and enforcing national policy measures to 
promote BSE surveillance and protect human and animal health.
    An international panel of scientific experts appointed by the 
Secretary was complimentary of the scope, thoroughness, and 
appropriateness of the epidemiological investigation and concluded that 
the investigation conformed to international standards. The review team 
members concurred that the investigation should be terminated and made 
several key policy recommendations. USDA and the Department of Health 
and Human Services have already taken significant actions to address 
these recommendations, many of which build on mitigation measures that 
were previously in place.
    The response actions have focused on (1) preventing inclusion of 
specified risk materials in human food and ruminant feed, (2) enhancing 
targeted and passive BSE surveillance systems, (3) improving 
traceability through a comprehensive national animal identification 
system, and (4) reinforcing educational and outreach efforts.
    On March 26, 2004, USDA's Animal and Plant Health Inspection 
Service provided the results of its BSE investigation to foreign chief 
veterinary officers. The information included in the letter 
demonstrates that any remaining trade restrictions against U.S. beef 
and beef products can be lifted without compromising safety.
    On March 15, 2004, USDA announced an enhanced surveillance plan 
with a goal of testing as many cattle in the targeted, high-risk 
population as possible during a 12- to 18-month period. We plan to 
evaluate future actions based on the result of this effort. USDA will 
continue to focus on the cattle populations considered to be at highest 
risk for the disease--adult cattle that exhibit some type of clinical 
sign that could be considered consistent with BSE. This includes non-
ambulatory cattle, those exhibiting signs of central nervous system 
disorders, and those that die on farms. We also plan on testing at 
least 20,000 BSE slaughter samples from apparently healthy aged 
animals.
    More intensive surveillance will allow USDA to refine estimates of 
the level of disease present in the U.S. cattle population and provide 
consumers, trading partners, and industry better assurances about our 
BSE status.
    As an example, if a total of at least 268,444 samples is collected 
from the targeted population, we believe this level of sampling would 
allow USDA to detect BSE at a rate of 1 positive in 10 million adult 
cattle (or 5 positives in the entire country) with a 99 percent 
confidence level.
    Historically, all BSE testing in the United States has been 
performed exclusively at USDA's National Veterinary Services 
Laboratories (NVSL) in Ames, Iowa. The new program incorporates a 
network of State and Federal veterinary diagnostic laboratories into 
the testing program. Their geographic distribution will help ensure 
adequate turn-around time for sample testing and reporting of results.
    Appropriate rapid screening tests will be used to test time-
critical samples. USDA recognizes the possibility of false positives; 
any non-negative results on the rapid screening tests will be forwarded 
to NVSL for additional confirmatory testing.
    A BSE implementation team has been established and is working to 
ensure the program meets its goals. The team is currently drafting more 
specific guidelines that will be used during the course of the enhanced 
surveillance program. These guidelines will address questions regarding 
cost recovery and participation in the program.
    The President's fiscal year 2005 Budget request includes $60 
million for BSE related activities, an increase of $47 million over 
fiscal year 2004. The increase will allow USDA to further its research 
efforts, improve animal traceability, enhance surveillance, ensure 
compliance with food safety regulations, and answer BSE-related 
complaints at markets regarding contracts or prompt payment. The total 
requested includes:
  --$33 million to further accelerate the development of a national 
        animal identification system;
  --$17 million for the Animal and Plant Health Inspection Service 
        (APHIS) to enhance BSE surveillance at rendering plants and on 
        farms;
  --$5 million for the Agricultural Research Service (ARS) to conduct 
        advanced research and development of BSE testing technologies;
  --$4 million for the Food Safety and Inspection Service (FSIS) to 
        conduct monitoring and surveillance of compliance with the 
        regulations for specified risk materials and advance meat 
        recovery; and
  --$1 million for the Grain Inspection, Packers and Stockyards 
        Administration (GIPSA) to dispatch rapid response teams to 
        markets experiencing BSE related complaints regarding contracts 
        or lack of prompt payment.
    Question. What actions have you taken to better coordinate the 
Department of Agriculture's response to BSE?
    Also, if this $60 million is provided, will one person coordinate 
the various components?
    Answer. USDA's response to the BSE detection has been overarching 
and has included contributions from all affected agencies, particularly 
the Animal and Plant Health Inspection Service (APHIS), the Food Safety 
and Inspection Service (FSIS), and the Foreign Agricultural Service 
(FAS). APHIS, FAS, and FSIS communicate regularly, and an FSIS liaison 
has been assigned to APHIS. USDA also communicates and coordinates with 
the Food and Drug Administration (FDA), and we requested FDA's input 
when developing the enhanced BSE surveillance plan.
    APHIS' Transmissible Spongiform Encephalopathy (TSE) Working Group 
monitors and assesses all ongoing events and research findings 
regarding TSEs, including BSE. Members are in regular contact with the 
Agricultural Research Service, the research arm of USDA, to ensure 
regulatory actions are in line with the most current science.
    To ensure a consistent trade message between the United States and 
our North American trading partners, USDA has been working with Mexico 
and Canada to enhance ongoing efforts to increase harmonization and 
equivalence of BSE regulations. In January 2004, each government agreed 
to establish a sub-cabinet group to coordinate ongoing interagency 
efforts toward resumption of exports based on a harmonized framework. 
Currently, Dr. J.B. Penn, Under Secretary for Farm and Foreign 
Agricultural Services, is leading USDA's efforts in this area. He is in 
regular contact with other members of USDA's leadership council, 
including the Under Secretary for Food Safety, the Under Secretary for 
Marketing and Regulatory Programs, and the Under Secretary for 
Research, Education, and Economics.
    The sub-cabinet group is serving as a coordinating body for the 
three countries, giving guidance to existing work groups, many of which 
are already working on harmonization and other activities. A meeting 
among the sub-cabinet members was held in mid-February, and a meeting 
among the chief veterinary officers from all three countries took place 
in mid-March 2004. The three parties are committed to working towards 
the normalization of trade and the harmonization of regulations on a 
North American basis. We plan to use the harmonized regulations to 
present a unified front to the international community.
                     standard reinsurance agreement
    Question. The Risk Management Agency (RMA) is currently working to 
renegotiate the Standard Reinsurance Agreement (SRA). This agreement 
establishes the terms and conditions under which the Federal government 
will provide subsidies and reinsurance on eligible crop insurance 
contracts.
    Can you provide the Committee with an update on the negotiation 
process and have you set a deadline for completion?
    Answer. The Department announced on December 31, 2003 that the 
current standard reinsurance agreement would be renegotiated effective 
for the 2005 crop year. The first proposed reinsurance agreement was 
made publicly available at that time. Based on the advice of the 
Department of Justice, RMA established a process by which we meet with 
each company individually and renegotiate the agreement in detailed 
negotiating sessions. Interested parties had until February 11, 2004 to 
provide written comments about the proposed agreement. RMA reviewed 
comments from insurance companies and interested parties to revise the 
first draft. On Tuesday, March 30, RMA announced the release of the 
second SRA proposal. RMA believes that the second draft demonstrates 
responsiveness to concerns raised by companies and interested parties. 
The proposed SRA will enhance the Federal crop insurance program by: 
encouraging greater availability and access to crop insurance for our 
nation's farmers; providing a safe and reliable delivery system; and 
reducing fraud, waste, and abuse, while achieving a better balance of 
risk sharing and cost efficiencies for taxpayers.
    As part of the process, RMA will meet with the insurance providers 
in individual negotiating sessions the last 2 weeks of April and will 
receive public comments until April 29. At that point RMA will evaluate 
the comments and negotiating session materials and develop another 
draft for discussion with the companies. There are several remaining 
issues of substance to resolve before a final draft may be completed. 
While it is the agency's desire to resolve them and complete the 
process before July 2004, given that this is a negotiation, RMA is not 
able to determine how long it will take to resolve issues to all 
parties' satisfaction. Prior SRA negotiations have taken well past July 
to conclude, but have not affected the continuing delivery of the 
program.
                            fraud and abuse
    Question. The Administration's Budget request for the Risk 
Management Agency includes an increase of over $20 million to improve 
information technology. Within the increase, the Budget requests 
funding to monitor companies and improve current procedures to detect 
fraud and abuse.
    Can you explain how the department will monitor companies and 
improve detection of fraud and abuse?
    Answer. The current systems are based on technology that is more 
than 20 years old. The information that is collected from the Insurance 
Companies is distributed to a collection of 100+ databases. Any 
subsequent updates or changes to this information received from the 
Insurance Companies overlays the original information. This 
architecture does not allow RMA to track changes in the submissions 
from the external entities.
    As the data requirements of the current data structures change from 
year to year, new databases are created for each crop year. The prior 
years' databases are problematic due to the intense effort needed to 
convert the historical information to formats that are consistent with 
the more recent years. This creates problems in data analyses when 
trying to use data from multiple crop years.
    The requested increase in funds is directed at the establishment of 
a consistent enterprise architecture and enterprise data model. This 
would replace the 100+ databases with a single enterprise data model 
that would be consistent across the organization. This enterprise data 
model would allow data mining operations to be conducted without first 
converting the data to a consistent useable format.
    By moving the data to a modern relational database system, RMA will 
be able to track detailed changes that are made to the data that is 
received from the Insurance Companies. This will allow RMA to monitor 
the timing of the changes as they occur and identify those changes that 
could potentially be related to fraud and abuse.
                       assistance on public lands
    Question. Currently, the Natural Resources Conservation Service is 
prohibited from performing conservation work on public lands. This 
limits participation to farms and ranches with private lands and puts 
Utah, other public land states, and ranchers who graze on the public 
lands at a disadvantage.
    As a matter of policy, does the Department believe that the Natural 
Resources Conservation Service should be able to provide technical and 
financial assistance to ranchers to make improvements to their BLM and 
Forest Service grazing allotments?
    Answer. The Department believes that legislative intent limits the 
conservation programs that the Natural Resources Conservation Service 
(NRCS) administers to primarily providing financial and technical 
assistance on private lands. However, NRCS does work with other 
agencies, individuals, and groups using the Coordinated Resource 
Management (CRM) approach to provide technical assistance on Bureau of 
Land Management (BLM) and Forest Service lands. CRM is a voluntary, 
locally-led planning process to address the natural resource issues 
which involves all the stakeholders. The Federal and State agencies 
work through a Memorandum of Understanding to support the use of the 
CRM approach.
    Financial assistance, for applicable NRCS programs, is available 
for use on BLM and Forest Service grazing allotments when the land is 
under private control for the contract period, included in the 
participant's operating unit, and when the conservation practices will 
benefit nearby or adjacent agricultural land owned by the participant.
    Question. Public lands dominate many of Utah's counties and many 
states in the West. In addition to their impact on agriculture, public 
lands severely reduce the tax base in many communities, restrict and in 
some cases discourage development, and affect the way-of-life in rural 
public land counties.
    Do you think farm programs, rural development programs, and 
conservation programs offered by USDA, take into account regional 
differences generally, and the impact of public lands specifically?
    Answer. The Natural Resources Conservation Service (NRCS) 
administers conservation programs. The agency allocates conservation 
program funds to states based on National program priorities and the 
scope of natural resource needs in the individual states. The process 
used to allocate conservation program funds to states includes factors 
that account for the fact that natural resource conditions are often 
similar within the same physiographic region, but may have natural 
resource differences with other regions. The Department believes that 
legislative intent limits the conservation programs that NRCS 
administers to primarily providing financial and technical assistance 
on private lands. Resource concerns on Federal acreage would not 
typically contribute to the scope of resource factors used to allocate 
funds to states for a particular conservation program.
    FSA Conservation Programs are adapted to local and regional 
conditions. Seeding and planting requirements are tailored to the local 
climatic and ecosystem for that region. FSA utilizes State Technical 
Committees and County Committees in the development and implementation 
of conservation policies.
    Conservation programs, such as the Conservation Reserve Program 
(CRP), help address the most critical resources on private land. Sound 
resource planning on private land assists producers to better manage 
their other resources including range resources on public land. In 
addition, programs such CRP can have a significant positive impact on 
hydrology and water resources in the West. Water yields off of CRP can 
be of greater quantity and longer duration than water yields on 
cropland.
    USDA Rural Development allocation formulas generally take into 
account: (1) rural population in comparison to national rural 
population; and (2) rural population in poverty in comparison to 
national rural population in poverty. While that does not make an 
adjustment for a regional area that is impacted by a large amount of 
public lands, it also does not punish an area. The lack of population 
concentration could give a state like Utah and other western states an 
advantage because of the rural nature of the areas. Grant programs like 
the Distance Learning and Telemedicine, Community Connect and the Water 
and Waste Disposal loan and grant program give those areas additional 
points in the scoring process.
            national finance center/tsp competitive bidding
    Question. Madam Secretary, the National Finance Center did an 
admirable job in late 1986 to get ready to assume responsibility for 
the record keeping functions associated with the new Thrift Savings 
Plan which started receiving participants investment selections in 
April 1987. Many people didn't think it could be done but the NFC did 
it.
    It has recently been brought to my attention that the Federal 
Retirement Thrift Investment Board has begun to explore the competitive 
outsourcing of the services related to the TSP. Earlier this year, the 
Board decided to solicit a Request for Proposals for both software 
maintenance and mainframe installation and housing. I am told that 
these actions were taken because the NFC was ``slow to assume control 
for software maintenance and to install the TSP's new mainframe 
computer.'' The Board has also stated that while they intend to leave 
the remaining TSP record keeping functions at the NFC, they will 
periodically conduct a cost/benefit analysis to make sure that TSP 
participants get the best value for their money.
    What percentage of the NFC operations has been associated with 
management and operations of the Thrift Savings Plan?
    Answer. Approximately 425 employees, 35 percent of the National 
Finance Center's (NFC) total staff, supported the Thrift Savings Plan 
(TSP) in fiscal year 2003.
    Question. What is the impact of the decisions to outsource software 
maintenance and the location of the mainframe?
    Answer. Outsourcing software maintenance resulted in a reduction of 
31 programmers and analysts. Moving the mainframe will reduce the data 
center mainframe support staff by 7.
    Other cutbacks in service recently directed by the Federal 
Retirement Thrift Investment Board (FRTIB) will eliminate 20 additional 
positions in NFC's Thrift Savings Plan Division in fiscal year 2004 and 
120 additional call center employees by 2006. The administrative and 
other general support staff for these employees will also be reduced. 
NFC anticipates 65 administrative and general support staff positions 
to also be reduced by 2006. Another 15 contract positions will also be 
lost. In total, between 2004 and 2006, decisions by FRTIB to outsource 
work historically performed at NFC will result in a loss of 243 Federal 
and 15 contract positions in New Orleans.
    Question. Will the NFC compete to retain these functions?
    Answer. NFC was not given an opportunity to compete for the 
software maintenance and mainframe operations work.
    Question. What steps is the NFC taking now to make sure that they 
are the best facility to continue the remaining vital record keeping 
functions for this program?
    Answer. NFC is attempting to redefine the FRTIB/NFC relationship 
and develop principles of operation for TSP that help clarify roles, 
responsibilities, and service level expectations for the future.
    NFC has multiple initiatives underway to ensure that its facilities 
are secure and that they meet or exceed customer expectations. The 
United States Department of Agriculture (USDA) performed an extensive 
security assessment in 2002 on the current facility. As a result of 
that assessment, NFC has undertaken 31 multi-year facility improvement 
initiatives, most of which are now completed. The facility improvements 
include such things as increasing the number of guards; adding x-ray 
machines, fencing, and bollards; and building guard stations.
    NFC also received an appropriation to develop data mirroring 
capability at NFC, which will address known network vulnerabilities, 
high availability and immediate recovery time objectives, and the 
enterprise-wide vulnerabilities to weather and other threats that 
jeopardize NFC's service to its customers.
                 usda's center for veterinary biologics
    Question. Madam Secretary, on February 10 of this year, UPI 
published a story which stated that many Federal meat inspectors had 
lost confidence in the testing conducted by the National Veterinary 
Services Laboratories in Ames, Iowa. There were allegations of secrecy 
and collusion with the beef industry, as well as inaccurate test 
results. We are aware that the USDA Inspector General has been looking 
into these allegations as part of their larger investigation into 
issues surrounding the December discovery of a BSE-contaminated cow in 
Washington State.
    The fiscal year 2005 budget requests $178 million to expand this 
facility. Obviously, with resources as tight as they are, it would be 
imprudent for us to provide this level of funding to upgrade and expand 
a facility if it provides unreliable testing.
    What is the USDA reaction to this article?
    Answer. USDA's Center for Veterinary Biologics, National Animal 
Disease Center, and National Veterinary Services Laboratories (NVSL) 
are all located in Ames, Iowa. The laboratories included in the Ames 
complex, now identified as the National Centers for Animal Health, are 
recognized nationally and internationally for their scientific 
expertise and professional ability. They continue to receive 
recognition from various science-based organizations, including the 
United States Animal Health Association (USAHA) and the American 
Association of Veterinary Laboratory Diagnosticians (AAVLD).
    The President's fiscal year 2005 Budget request includes $178 
million to modernize the Ames complex, a request that has received the 
full support of organizations such as USAHA and AAVLD, as well as the 
Animal Agriculture Coalition and the American Farm Bureau Federation.
    With regard to the February 10, 2004, UPI article, USDA believes 
the allegations made are inaccurate and that the article itself does 
not represent a balanced profile of the work carried out by scientists 
at NVSL. USDA is confident in the quality and competence of all 
laboratory staffs in Ames, and we regret that the reporter did not 
include the viewpoints of any staff members currently employed at NVSL, 
which has been responsible for BSE testing at the national level.
    NVSL has quality assurance standards in place, as well as standard 
operating procedures to track samples that are sent in for testing. The 
facility is recognized as the United States' national and international 
reference diagnostic laboratory for animal diseases, as designated by 
the World Organization for Animal Health (OIE) and the Food and 
Agriculture Organization of the United Nations. NVSL staff members have 
participated with full transparency in a review by the USDA Office of 
the Inspector General, just as they operate with full transparency in 
carrying out program operations.
    USDA continues to stand behind the work of its laboratory staffs in 
Ames, and we plan to move forward with an enhanced BSE surveillance 
program that incorporates a network of approved State and Federal 
veterinary diagnostic laboratories throughout the United States. NVSL 
will provide leadership, confirmation testing, proficiency testing, 
quality assurance inspections, and training throughout this program.
    Question. When do you expect the IG to complete the investigation?
    Answer. The Office of Inspector General's (OIG) investigators and 
auditors are working collaboratively to determine the facts involving 
BSE-related allegations that have been circulating in the public 
domain, including those in the article you mention. OIG's investigative 
work involves the condition of the BSE-infected cow before slaughter. 
OIG auditors are separately conducting a broader review involving USDA 
BSE Surveillance Programs. The audit is looking at the surveillance 
program in use when the BSE-infected cow in the State of Washington was 
identified. It is also looking into changes made to the surveillance 
plan (New Surveillance Plan) after the BSE-infected cow was discovered. 
This also includes looking at the role and responsibilities of the 
National Veterinary Services Laboratory in Ames, Iowa. Within the next 
few weeks, OIG will be in a better position to estimate a completion 
date for reporting its findings from those reviews.
                                 ______
                                 

           Questions Submitted by Senator Christopher S. Bond

                              risk factors
    Question. Dr. Collins, in our questions regarding forecasting, you 
mentioned that, ``There are just too many risk factors going on for us 
to go much beyond a decade.''
    Can you please identify some of the risk factors or uncertainties?
    Answer. Long-term forecasting models are generally based on long-
term relationships among explanatory variables, such as income and 
population, and variables to be projected or forecast, such as corn 
demand and trade. These relationships are also based on a number of 
other factors, ranging from infrastructure to government policy, which 
are not usually explicit in models. Therefore, long-run projections can 
go wrong when projections of explanatory variables are wrong or there 
are changes in the underlying structures that invalidate the 
relationships between explanatory variables and variables to be 
projected. As examples, the longer the projection period, the larger 
the error is likely to be in projecting income, population, exchange 
rates, yield per acre and other such explanatory variables. These are 
all risk factors. Similarly, changes in governments, government 
policies, infrastructure such as available transportation routes and 
modes, weather and climate, war and peace, availability and prices of 
substitute or competing products, and availability and prices of 
production inputs are all risk factors as well. The longer the forecast 
period, the more likely these underlying factors will change and reduce 
the accuracy of the projections. Statistical projection models estimate 
the range (confidence interval) within which the projection is expected 
to be. The further the projection is into the future, the larger is the 
confidence interval.
    Question. Dr. Collins, given all the risk factors that you identify 
and changes that have transpired in the world in recent years, is it 
necessarily so that to embrace a forecasting model looking ahead, that 
same model would need to accurately predict recent experience when 
applied to the same time period looking backward?
    Answer. A long-term projection model is normally validated against 
historical data. If the model cannot explain past trends, then there is 
little reason to embrace it. However, a model may be useful for 
projecting trends, or central tendencies, and still miss some year-to-
year variation due to transitory factors. If the model errors are for 
the most recent years, the challenge is to know whether these misses 
are due to transitory factors that will correct over time or whether 
the underlying assumptions on which the model is based have changed.
                                 ______
                                 

               Questions Submitted by Senator Ted Stevens

                              budget cuts
    Question. Thank you Secretary Veneman for appearing before this 
committee today. I understand that your department is operating under 
challenging funding constraints, and you had to make some difficult 
decisions in preparing your budget. However, I am extremely concerned 
with the level of funding you chose to allocate to certain programs, 
and how those choices will affect constituents in my state.
    The Rural Utilities Program was established to provide rural 
communities with assistance to support basic needs of its residents. 
This includes many of the things that we take for granted such as 
running water, electricity, and waste disposal. These basic amenities 
are vital to the health of these rural communities and yet the USDA has 
slashed the funding of this program.
    In Alaska alone, funding was reduced for water and waste disposal 
systems from $28 million in fiscal year 2004 to $11.8 million in fiscal 
year 2005, a reduction of $16.2 million.
    Funding was also eliminated to develop a regional system for 
centralized billing, operation and management of water and sewer 
utilities, which will streamline operations, reduce overhead, and 
ensure efficient management.
    And funding was eliminated for high cost energy grants--a reduction 
of $28 million. Alaska's rural communities experience some of the 
highest energy costs in the nation--paying up to 9 times higher than 
the national average. Rural areas rely on expensive diesel fuel which 
must either be barged or flown in.
    These cuts will have devastating consequences on rural communities, 
particularly in my state. Why are these cuts proposed?
    Answer. The Department is aware that high energy costs in Alaska 
and other states can be a barrier to the economies and quality of life 
in rural communities. It also recognizes that there are a host of other 
barriers that can have similar consequences. In a tight budget 
situation, it is very difficult to make the necessary choices that will 
provide effective results for the most people. Grants for rural 
development purposes are particularly difficult to budget because they 
have a dollar for dollar impact on the limited amount of budget 
authority that we have available. Loans, on the other hand, require 
budget authority for only the amount of subsidy costs. In most cases, 
these costs are relatively low. A small amount of budget authority used 
for loans can leverage a substantial amount of financing for the types 
of projects that will be the most help for rural communities. This was 
a significant factor in the decisions that were made in developing the 
2005 budget.
             distance learning, telemedicine and broadband
    Question. Additionally, USDA reduced funding for the Distance 
Learning, Telemedicine and Broadband program by $14 million.
    With respect to the telemedicine program, most of Alaska's rural 
communities are not on a road system and so do not have access to 
healthcare facilities. These communities rely on the telemedicine 
program, which provides them access to doctors and healthcare 
professionals.
    The distance learning program is also important to Alaska's rural 
communities because it provides residents with tools necessary for 
education. These residents don't have access to the more populated 
urban centers and rely on distance learning programs to meet their 
educational needs.
    Similarly, the broadband program connects schools, libraries, 
homes, and health clinics to the information highway. Without funding 
for this program, the residents have limited access to the outside 
world. Why was funding cut for these programs?
    Answer. The $14 million reduction was not a cut. Congress, in 
fiscal year 2004 appropriations, added $14 million in funding under the 
DLT program specifically for the purpose of providing grants to Public 
Broadcast Stations serving rural areas with funding to meet the Federal 
Communications Commission mandate to convert their analog broadcast 
signals to digital. None of that funding was for DLT or broadband 
grants. The $25 million request for DLT grant funding is within 
historical funding level requests. With regard to broadband grants, the 
deployment of broadband facilities in rural areas is very capital 
intensive. Typically, limited grant authority provides a very small 
number of communities nation-wide with the ability to deploy broadband 
service on a limited scale within the community. There isn't enough 
grant funding available to make a significant dent in achieving 
universal broadband service deployment in rural areas. The best model 
is one built on a company that has a strong business plan and that 
seeks to take advantage of economies of scale in its business model. 
The Broadband Loan program is designed to specifically meet this 
challenge. With reasonably low subsidy rates and low loan interest 
rates, the loan program will be the vehicle by which broadband 
infrastructure is deployed on a wide scale basis in all of rural 
America.
           transshipment of beef from the lower 48 to alaska
    Question. I am pleased that USDA has increased funding for APHIS 
for animal diseases. I understand that you are currently negotiating 
with the Canadian government regarding the reopening of our borders. 
This is particularly important to my state, which relies on the Alaska-
Canada highway, or ALCAN to transport live cattle and beef products to 
Alaska.
    In the February BSE hearing which Senator Specter held, I raised 
the issue of transshipment. The inability of transporting cattle and 
beef products from the Lower 48 to Alaska is having a devastating 
impact on ranchers, dairy farmers and truckers in Alaska.
    At that time, I requested that the USDA take steps to address this 
issue and to negotiate an agreement to permit the safe passage of 
cattle and beef products through Canada.
    Has the USDA taken any steps to address this situation? If so, what 
is the status of your negotiations and how soon can we expect a 
resolution on this issue?
    Answer. We appreciate the position of Alaskan ranchers, dairy 
farmers, and others who wish to transport U.S. cattle, beef, and beef 
products through Canada to Alaska. USDA continues to work with Canadian 
colleagues to reach an agreement on a regulatory protocol that would 
allow the safe transiting of U.S. cattle and beef products through 
Canada to and from Alaska. United States and Canadian officials have 
had a series of discussions regarding this issue--the latest in early 
March 2004--and we hope to resolve the matter in a timely fashion.
    In a broader context, USDA continues to push for a more reasoned 
international dialogue on the need for countries to devise more 
flexible, commercially viable solutions to allow safe trade in low risk 
products. We are working with the World Animal Health Organization to 
both clarify the international guidelines for trade and ensure a 
consistent application of these guidelines. In addition, USDA continues 
to work with both of our tripartite partners, Canada and Mexico, to 
harmonize North America's approach to handling trade in certain 
commodities that present minimal BSE risk.
                                 ______
                                 

                Questions Submitted by Senator Herb Kohl

                     health care cooperative pilot
    Question. Recent studies by the University of Wisconsin-Madison and 
others demonstrate that farmers pay an average of three times as much 
for their health care coverage as salaried employees and pay twice as 
much as other self-employed individuals. These plans carry high 
premiums and high deductibles and do not contain preventive health 
care. Furthermore, 41 percent of our farm families cannot afford to 
insure every member of their family and nearly half of those families 
have no insurance at all.
    One or more family members must often work off of the farm to 
obtain less expensive group health insurance. This acts as a 
significant labor barrier when the farm operation is determining 
whether or not to modernize. The net result is a loss of farm 
operations. We know this because farmers say that the lack of 
affordable quality health care is a primary reason why they will no 
longer farm.
    Because of the lack of affordable health insurance, farm supply 
cooperatives and other small businesses in rural areas are working to 
help their farmer-members stay on the farm by creating a cooperative 
healthcare purchasing alliance. This purchasing alliance is designed to 
provide a group coverage alternative to individual coverage. The 
healthcare co-op could serve as a model for other rural and urban 
cooperatives to provide access to group coverage for individuals that 
otherwise would not be able to access affordable health care.
    Secretary Veneman, are you supportive of the creation of a pilot 
health care cooperative purchasing alliance for farmers and small 
businesses in rural communities?
    Answer. We would certainly support every appropriate and realistic 
effort to fill the serious gaps in health insurance coverage available 
to farmers and other rural residents. Purchasing alliances, 
cooperatives, and mutuals have a demonstrated track record of lowering 
costs and responding to the special needs of their members. A properly 
structured pilot healthcare cooperative purchasing alliance could be a 
very useful tool for shaping effective and efficient solutions.
    Question. A ``stop-loss'' fund will be needed to attract potential 
insurers and healthcare providers and ``buy down'' the risk for farmers 
and other individuals who are currently considered to be ``high risk'' 
because they have not been insured during the last 12 months or longer 
or have only carried a catastrophe healthcare plan. Cooperative 
councils in Wisconsin and Minnesota are working to create these 
healthcare cooperatives. They report to me that insurers and 
reinsurance carriers do not want to offer healthcare insurance to the 
cooperative if they include ``high risk'' members without the assurance 
of a stop-loss fund.
    Overall, this demonstration project would potentially help 
thousands of agricultural producers. This demonstration project would 
provide affordable, quality group healthcare coverage as an alternative 
to individual coverage for farmer members of rural, agriculturally-
based cooperatives. By doing so, this removes a primary barrier for 
growing agriculture across the nation.
    Will you support appropriations to help create a stop-loss fund to 
move these healthcare cooperatives forward?
    Answer. Our support would depend upon certain conditions. First, 
our support would be limited to funding that is used in the start-up 
process. We do not believe this should become a perpetual support 
program that takes on the nature of an entitlement. Second, extensive 
input and oversight in the use of the funds would be appropriate. This 
is a new and untested effort whose success or failure may well be 
determined by the quality of the decisions made by its management. If 
we provide funding, we have an obligation to do what we can to make 
sure the overall effort is well conceived, well organized, and well 
managed. Third, we need the authority and resources to properly analyze 
the effectiveness of the program. We need to make sure, for example, 
that Government funding does not distort the real economic costs of the 
system or give false impressions about the likely success of future, 
self supporting systems. Any such appropriation should include funding 
for adequate USDA staffing to assist and monitor this initiative.
               cooperative services technical assistance
    Question. The Committee is concerned that over the last several 
years State Directors have not been held accountable to meet the 
Department's Cooperative Services technical assistance goals as 
outlined in the Rural Development Strategic Plan. This plan states that 
in order to achieve rural development's goals, the Department 
emphasizes the use of cooperatives to develop the institutional 
framework to leverage rural America's assets.
    Madam Secretary, will you hold your State Directors accountable to 
meet the Department's goals as stated in the strategic plan to provide 
technical assistance for cooperatives?
    Answer. We will make ourselves accountable for the directions we 
are laying out for ourselves in our strategic planning process. 
Building accountability into the Rural Development system, at all 
levels, is critical if our planning process is to be of any value. We 
have developed and distributed an administrative notice directing our 
State Rural Development Directors to provide regular and prescribed 
reports on the cooperative development assistance activities being 
undertaken by their staffs. This regular reporting system will provide 
the basis for holding our State Directors accountable for cooperative 
development work.
    Question. Will you commit to requiring State Directors to dedicate 
at least one full time employee per State for cooperative services 
technical assistance?
    Answer. We are taking steps to determine the appropriate resources 
and staffing mix in providing Cooperative Services technical assistance 
within each State. We are engaged in a set of reviews and analyses of 
our Cooperative Services program that will enable us to develop sound 
guidance and directions on how we can best deploy cooperative technical 
assistance assets, particularly in light of our strategic goals and 
objectives. A high level external program review team is initiating a 
formal review of the Cooperative Services technical assistance 
programs, resource mix and requirements, priority area of focus, and 
fit within the Rural Development program portfolio. We have also 
established a cooperative advisory committee composed of Rural 
Development field and National Office staff to provide an internal 
review and suggestions for strengthening the effectiveness of Rural 
Development's field level delivery systems for Cooperative Services 
programs and activities. We will use the products of these review 
activities in conjunction with the Rural Development strategic plan to 
better position ourselves to make specific commitments to alternative 
resource deployment for providing Cooperative Services technical 
assistance.
    Question. Beyond ensuring a minimum of one FTE per state, staffing 
resources should be reflective of the number of cooperatives in the 
state and the number of small farm producers.
    Are you supportive of working to ensure that state offices are held 
accountable to have staffing that reflects the level of need for 
cooperative services technical assistance in each State, based on the 
number of coops in each state?
    Answer. There are several factors we believe are necessary to 
consider in deciding how to deploy resources to cooperative services 
technical assistance programs. While the existing number of 
cooperatives in a given State or region is certainly one criterion, we 
would also want to take a broader needs and opportunities based 
approach to designing program delivery. We want to make sure small and 
underserved farmers have appropriate access to technical assistance; 
and we want to make sure that new markets and industries growing out of 
value added and energy products receive due attention.
                                 ______
                                 

               Questions Submitted by Senator Tom Harkin

                         conservation programs
    Question. Madame Secretary, I noticed that you state in your 
testimony that the Administration is increasing funding for 
conservation for fiscal 2005. However, if you compare the President's 
budget proposal to what Congressional Budget Office estimates should be 
spent on 2002 farm bill conservation programs, the President's budget 
represents a cut of over $400 million for fiscal 2005. This includes 
the $92 million for technical assistance for the Conservation Reserve 
Program and the Wetlands Reserve Program because the President's budget 
does not propose new funding to fix the technical assistance problem 
created by this Administration.
    Would the President support providing new funding for conservation 
technical assistance without an offset so the other conservation 
programs, like the Environmental Quality Incentives Program, will no 
longer need to lose funding to support other programs?
    Answer. The President's fiscal year 2005 Budget proposes a brand 
new Farm Bill Technical Assistance account to provide separate and 
distinct technical assistance funding to support the Conservation 
Reserve Program and the Wetlands Reserve Program. The President's 
fiscal year 2005 Budget reflects the change in law that was initiated 
by the Subcommittee to ensure programs that historically could fund 
their own technical assistance, could continue to do so. We feel that 
the Administration's approach is the best way to ensure that adequate 
funding resources are available to implement all conservation programs.
    Question. What are the underlying assumptions for the $249 million 
estimate for the Conservation Security Program (CSP)? Does this $249 
million estimate reflect the law as it is in effect following the 
enactment of the 2004 Consolidated Appropriations Act?
    Answer. We have been able to design the Conservation Security 
Program (CSP) in a way that provides funding obligations similar to the 
way that the Conservation Reserve Program obligations are structured. 
We estimate that there is a potential applicant pool of 700,000 
producers nationwide to sign-up for CSP. Given the $41 million 
available for this fiscal year and undetermined amounts for fiscal year 
2005 and beyond, USDA has had to design a program that is flexible 
enough to be able to function at any funding level. To accomplish this 
we have proposed making the program available in selected watersheds 
and emphasizing enrollment categories.
    The NRCS approach also deals with the constraint placed in statute 
on technical assistance at 15 percent of expended CSP funding. If USDA 
was to conduct a nationwide sign-up for CSP, technical assistance costs 
would far exceed the $41 million made available in fiscal year 2004 for 
the program just for the signup. The Administration's budget assumes 
that all watersheds would be offered a CSP sign-up within an 8 year 
rotation; about one-eighth of the total watersheds would be offered 
sign-ups annually.
    The 10 year spending cap is no longer in effect.
                 bovine spongiform encephalopathy (bse)
    Question. You suggested that the revised BSE surveillance plan will 
require $70 million (that will be obtained from CCC) to test at least 
201,000 cattle. The President's fiscal year 2005 budget proposed to 
test 40,000 cattle at a cost of $17 million. APHIS now plans to 
increase the number of animals tested by more than five-fold and that 
the new surveillance plan will include incentives paid to farmers and 
veterinarians to collect and submit samples to APHIS.
    Is a four-fold increase in funding adequate to cover the costs of 
this increased surveillance, testing and incentives?
    Answer. In fiscal year 2003, APHIS tested approximately 20,000 
samples for BSE, the majority of which were collected from animals at 
slaughter facilities. When the fiscal year 2005 budget request was 
submitted, the Secretary had announced that certain new regulations 
were going into effect--such as the banning of non-ambulatory cattle 
from slaughter facilities--but USDA had not yet received the 
international review panel's recommendations with regard to an enhanced 
surveillance program.
    The fiscal year 2005 President's Budget request, therefore, 
included enough funding for APHIS to double the number of samples 
collected from 20,000 to 40,000 samples and to provide for certain 
cost-recovery options. However, since the fiscal year 2005 budget was 
submitted, USDA has revised its BSE surveillance program for fiscal 
year 2004 and fiscal year 2005 to allow for more than 200,000 samples 
to be collected and tested over a 12 to 18 month period. We will now be 
utilizing a network of approved laboratories and will achieve certain 
economies of scale with regard to other costs, such as shipping and 
test kit costs. We anticipate that funding will be adequate to cover 
the costs of the enhanced surveillance and testing program.
    Question. The downed cattle population represents a large portion 
of USDA's BSE proposed test population.
    Since downed cattle have been removed from the human food supply, 
and it will be more difficult to obtain access to these cattle for 
testing, will the $70 million be adequate to pay for the additional 
expected costs of incentives for downed animals that do not come to 
slaughter plants?
    Answer. A BSE implementation team has been established and is 
working to ensure the enhanced surveillance program meets its goals. 
The team is currently drafting more specific guidelines that will be 
used during the course of the program. These guidelines will address 
questions regarding cost recovery and participation in the program.
    USDA anticipates pursuing a variety of approaches with regard to 
cost recovery, including contracts, cooperative agreements, direct 
payments, and fee-basis agreements. For example, costs for transporting 
an animal or carcass to the collection site from a farm or slaughter 
establishment may be reimbursed, or disposal expenses for ``suspect'' 
cattle that test non-negative or that cannot be rendered may also be 
covered. Other expenses may also be addressed in the program.
    We anticipate that the $70 million provided to APHIS through an 
emergency transfer will be adequate to cover the cost of the enhanced 
surveillance program during the course of the 12-18 month effort.
                        meat and poultry safety
    Question. As you know, USDA still does not have a nationally 
representative, statistically robust, baseline surveillance program for 
pathogens on meat and poultry products. We still do not know the 
prevalence of common foodborne pathogens, such as E. coli O157:H7 and 
others that kill thousands of people in the United States each year. 
While it is critical to implement a national surveillance program for 
BSE, it is equally critical to know the prevalence of pathogens on meat 
and poultry products.
    Can you provide me with your plans for developing a national 
baseline surveillance program for pathogens on meat and poultry 
products?
    Answer. FSIS is committed to developing baseline studies that will 
help the agency and the industry to better understand what 
interventions are working or how they could be improved. Currently, 
FSIS is developing protocols to enable us to conduct continuous 
baseline studies to determine the nationwide prevalence and levels of 
various pathogenic microorganisms in raw meat and poultry.
    To achieve the agency's goal of applying science to all policy 
decisions, the fiscal year 2004 appropriations bill provided $1.65 
million for an initiative to establish a continuous baseline program. 
After the fiscal year 2004 appropriations bill was enacted, the agency 
quickly developed a Request for Proposals. On February 12, 2004, the 
agency posted the pre-solicitation notice, and then on February 29, and 
March 2, 2004, the solicitation and accompanying materials were posted 
on the web site, FedBizOpps.gov, which is the point-of-entry for 
Federal government procurement over $25,000. The official solicitation 
issue date was March 1, 2004, and all offers were due on April 1, 2004. 
FSIS is currently evaluating offers and expects to award a contract in 
June 2004.
    Baseline studies will provide information on national trends and 
are a tool to assess performance of initiatives designed to reduce the 
prevalence of pathogens in meat and poultry products. These baseline 
studies will also yield important information for conducting risk 
assessments that can outline steps we can take to reduce foodborne 
illness. These surveys will also be important in establishing the link 
between foodborne disease and ecological niches, as well as levels and 
incidence of pathogens in meat and poultry. The net result will be more 
targeted interventions and the effective elimination of sources of 
foodborne microorganisms.
    Question. What would be the estimate of the cost of such a program?
    Answer. FSIS estimates that each year, it can complete one baseline 
and begin a second one using the $1.65 million appropriated in fiscal 
year 2004. Since there are at least 15 different products for which 
baselines could be considered (e.g. beef trimmings, beef carcasses, 
ground beef, chicken carcasses, and ground chicken), FSIS could 
complete a full cycle of baselines in about 10 years at a cost of 
approximately $16.5 million. If baselines were repeated every 3 to 5 
years, the yearly costs would be higher.
                 national animal identification system
    Question. The USDA budget proposes $33 million for the development 
of a National Animal Identification system, even though most estimates 
for implementation of the system are well above $100 million. I have 
repeatedly stressed the need for this system to ensure animal health, 
consumer confidence, export markets and public health. The proposed 
budget amount falls far short of the full implementation costs and will 
impede USDA's ability to implement a system that will meet these goals.
    Given the limited funding, which parts of the system do you plan to 
fund, and which parts of the system will you leave to states and the 
private sector?
    Answer. The President's Budget for fiscal year 2005 requests $33 
million for animal identification. This funding would support the 
national repositories for identification of premises, animals and non-
producer participants; cooperative agreements with states, tribes, and 
third parties; communication and outreach efforts, and some staff to 
support the effort. The cooperative agreements would be one-time 
allocations for initial implementation and integration with the 
national repositories. USDA would look to state or state consortiums 
for additional contributions, depending on the integration needs. It is 
also expected that producers and other market participants would share 
in the system's cost.
    There is an important role for private industry in the National 
Animal Identification System. One of the key elements of the National 
Animal ID program is to be technology neutral in the requirements of a 
national system. This objective was to provide flexibility to producers 
and to prevent the stagnation of innovation in technology. Private 
industry will be critical in providing technology and service to 
producers and markets. Grass-roots interface with producers, states and 
other parties will be needed to support the successful implementation 
of a national animal identification system.
    Question. How did you arrive at this decision?
    Answer. The recommendations reflect the complex structure of the 
livestock industry and previous efforts to design and implement a NAIS. 
The decision process was chaired by the Chief Information Officer with 
assistance from USDA's BSE response coordinator, the Deputy Under 
Secretary for Farm and Foreign Agricultural Services; USDA General 
Counsel; and USDA Chief Economist. The group relied heavily on the 
excellent information developed as part of the U.S. Animal 
Identification Plan (USAIP) and on the expertise of the USAIP Steering 
Committee; the Under Secretary for Marketing and Regulatory Programs; 
and the Administrator and the staff of the Animal and Plant Health 
Inspection Service. The group also met with a broad spectrum of 
organizations and companies representing the meat supply system, from 
production through retailing.
         mcgovern-dole international food for education program
    Question. I want to ask you about the McGovern-Dole International 
Food for Education Program that we permanently established in the 2002 
Farm Bill. We provided $100 million for fiscal 2003 for the program in 
mandatory funds, but we were only able to provide $49.7 million for 
fiscal 2004.
    Please describe to me how the program has to be scaled back to fit 
within the lower funding level for fiscal 2004, and how many fewer 
children will be served compared to fiscal 2003?
    Answer. The fiscal year 2003 program, which totaled $100 million, 
supported a total of 130,000 tons of commodity donations for 21 
programs with the total beneficiaries estimated at 2.2 million. It is 
estimated that the fiscal year 2004 funding level of $49.7 million will 
provide approximately 60,000 tons of commodities for 10-15 programs 
with approximately 1.1 million beneficiaries.
    Question. Also, please describe to what extent USDA has been able 
to recruit participation in the program by other donor countries.
    Answer. Under the pilot Global Food for Education Initiative and 
the McGovern-Dole International Food for Education and Child Nutrition 
program over $1 billion has been donated to school feeding programs 
from other donors. These contributions have been primarily via the 
World Food Program but also in coordination with private voluntary 
organizations. In addition, the in-kind contributions in recipient 
countries have been significant.
    Question. In the last few months, we have seen significant 
increases in key commodity prices in the United States. On a season-
average basis, 2003/04 prices for corn, wheat, rice, and soybeans have 
increased between 2 and 10 percent just since December 2003, with cash 
soybean prices now spiking near $10/bushel. While that is certainly a 
beneficial development for American farmers who still have crops from 
last fall in their storage bins, it will also increase the cost of 
acquiring commodities for USDA and USAID food aid programs.
    Given that the President's budget does not include an increase to 
compensate for these higher prices, will it be necessary to curtail the 
scope of these food aid programs? And, if so, to what extent?
    Answer. Yes, it will be necessary to curtail the scope of these 
food aid programs. USDA calculated the potential impact of price 
increases of both commodities and freight on USDA food aid programs for 
fiscal year 2004. I will provide a table which shows the expected 
decrease in tonnages and people fed under the programs, based on four 
different price scenarios.
    [The information follows:]


                                   POTENTIAL IMPACT OF PRICE INCREASES ON USDA FOOD AID PROGRAMS FOR FISCAL YEAR 2004
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     Tonnage Assuming   Tonnage Assuming
                                                                                 Tonnage with                          a 10 percent       a 20 percent
                                         Commodity Value     Freight Cap ($      prices from     Tonnage with Dec/    price increase     price increase
                Program                    ($ Million)          Million)         President's       Feb prices \1\    from 12/2003/02/   from 12/2003/02/
                                                                               Budget Estimates       (000 MT)       2004 prices (000   2004 prices (000
                                                                                   (000 MT)                                MT)                MT)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Title I \2\...........................            $117.70  .................              740.0              616.4              560.6              512.8
Food for Education \3\................              21.47  .................               66.1               60.6               55.1               50.5
Food for Progress \4\.................  .................             $40.00              257.6              225.1              204.6              187.5
                                       -----------------------------------------------------------------------------------------------------------------
      Total...........................             139.17              40.00            1,063.7              902.1              820.3              750.8
                                       =================================================================================================================
Millions of People Fed................  .................  .................                5.9                5.0                4.6                4.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Title I uses price estimates based on Feb. 2004 crop report. Food for Education uses average of actual purchase prices for Dec. 2003--Feb. 2004.
\2\ Includes Title I funded Food for Progress. Tonnages and values do not include the $21.9 million reserve.
\3\ McGovern Dole Food for Education and Child Nutrition Program.
\4\ CCC funded Food for Progress.

                      designate biobased products
    Question. What are your plans to designate biobased products for 
Federal agencies to purchase?
    Answer. Under the Federal Biobased Products Preferred Procurement 
Program, we currently are gathering test data on individual biobased 
products in a number of separate items (generic groupings of products). 
This data will be used to support the designation of one or more items 
for preferred procurement in a draft rule we expect to begin preparing 
soon. We will first publish a draft rule with a thirty day public 
comment period, to be followed by a final rule. Once a final rule is 
published designating this first group of items, we will begin a draft 
designation rule for a second grouping of items. The process of 
designating items by rule for preferred procurement will then continue 
as quickly as manufacturers can be identified and test data developed. 
We expect that the bulk of the items thus far identified by the CTC 
study will be designated by rule over the next 3 or 4 years. We also 
recognize that new items or generic groupings of biobased products will 
emerge in the market place from time to time, as the industry grows. As 
that occurs, we will gather the necessary information to designate 
those new items as well.
    Question. Can you provide me with a schedule of what products you 
are planning to designate and when?
    Answer. We expect to include one or more items-generic groupings of 
products-in the first regulation to designate items. Among the items on 
which we are currently gathering product and test data for individual 
products are:
  --hydraulic fluids for stationery equipment
  --hydraulic fluids for mobile equipment
  --formulated industrial cleaners
  --all other formulated cleaners
  --formulated solvents
    We expect to be able to include one or more of these items in our 
first draft rule to designate items for preferred procurement. We 
expect to publish a draft rule, with a 30 day public comment period 
this summer. We hope to have a final rule in place this fall.
    Question. Also, can you update me briefly on the labeling program? 
My understanding is that you have created a draft label. What else are 
you doing to move this component of Section 9002 of the farm bill 
forward?
    Answer. We do have a draft label in review in USDA's Office of the 
General Counsel. We currently are working through Federal contracting 
procedures to obtain a contractor to provide support in writing draft 
and final rules for the labeling program. We hope to have that draft 
rule cleared for publishing in the Federal Register by the end of the 
current calendar year. We expect to have a 30 or 60 day public comment 
period on the draft rule, and will follow as quickly as possible with a 
final rule before the middle of 2005.
                        renewable energy systems
    Question. What does the Department plan to do to vigorously promote 
and implement Section 9006 of the farm bill this spring and summer? The 
Department used a Notice of Funds Availability to implement section 
9006 of the farm bill in fiscal year 2003 and fiscal year 2004. I 
understand that the Department intends to issue a rule for the fiscal 
year 2005 program. Can the Department commit to issuing the final rule 
by January 2005, in order to give potential applicants sufficient time 
to review and apply for the program?
    Answer. The Under Secretary for Rural Development designated Rural 
Energy Coordinators from each USDA Rural Development State Office to 
coordinate outreach, implementation and delivery of the program. An 
Interagency Agreement between DOE's Office of Energy Efficiency and 
National Renewable Energy Laboratory (NREL) and USDA Rural Development 
has been executed. This agreement provides a vehicle for funding NREL 
activities to assist USDA in writing the technical requirements of the 
program, to develop tools to assist applicants and Rural Development 
State offices in addressing the technical requirements, and to assist 
in public outreach activities. Through this interagency agreement, a 
strong partnership has been established with the National Renewable 
Energy Laboratory (NREL) to establish a technical team of 
internationally recognized experts in the fields of solar, wind, 
biomass, geothermal, hydrogen, and energy efficiency technologies to 
provide training, technical review of applications and comments on the 
program. These experts are from the following Department of Energy 
(DOE) Laboratories: National Renewable Energy Laboratory, Sandia 
National Laboratory, and Oak Ridge National Laboratories. We have also 
developed a close partnership with EPA's AgStar Program.
    With the help of NREL, the State and Local Initiative Staff, we 
have developed the following resources: Outreach materials for Rural 
Development State Offices and technology interest groups to conduct 
outreach workshops, informational meetings and agricultural conferences 
were developed and a comprehensive one-stop web-site addressing the 
opportunities for renewable energy development provided by Section 
9006. The website consists of a series of web pages designed to 
increase program awareness and aid prospective applicants in 
determining basic eligibility requirements. This website will be 
continually updated as new information and opportunities and case 
studies come available. The website also provides useful guidance to 
farmers and ranchers on how to go about developing these projects by 
technology and scale.
    Most recently, a national training web-cast for our USDA Rural 
Development Rural Energy Coordinators for the fiscal year 2004 Program 
delivery was held. The training conference was broadcasts from the NREL 
headquarters in Golden, Colorado, on April 7, 2004. Training included 
presentations from DOE, EPA, NREL, the Sandia National Laboratories, 
Rural Utilities Service, and Rural Business-Cooperative Service.
    USDA Rural Development has drafted a proposed rule that is in 
clearance within the Department. We anticipate publishing the proposed 
rule in the Federal Register within the next few months. A 60-day 
public comment period is included in the proposed rule.
    We hope to publish this final rule early in calendar year 2005.
                            renewable energy
    Question. Will the Department lower the minimum grant or loan size 
to allow more farmers and rural small businesses to participate in the 
section 9006 program, especially for energy efficiency projects? This 
is something that I, and others, would support. What else is the 
Department considering to encourage more applications for energy 
efficiency projects?
    Answer. In the fiscal year 2004 notice of funding availability, we 
have lowered the minimum grant request threshold from $10,000 to 
$2,500. We will consider similar changes to the minimum threshold in 
the rule.
     We are considering ways to streamline and reduce application 
requirements for energy efficiency improvements for smaller project 
requests. We are developing guidance to assist smaller project 
applicants in preparation of applications.
    Question. Will the Department streamline the application 
requirements, especially for small farmers? Section 9006 funds should 
go only to deserving applicants, but I strongly encourage you to open 
up the program to a broader audience. One way of doing this would be to 
ensure that the detail necessary for the feasibility study commensurate 
with the size of the project. In other words, a smaller project ought 
not to have to provide the same level of information and analysis as a 
larger one.
    Answer. The Department is proposing ways to streamline application 
requirements in the proposed rule.
    Question. Will the Department allow in-kind contributions to count 
towards the funds leveraging requirement? If not, why not? This seems 
like a potential change that could help spur additional participation 
in the program and put it within the reach of many smaller producers, 
who are clearly among the intended beneficiaries of the program.
    Answer. The Department will address this issue in the proposed 
rule.
    Question. What is the Department planning to do to coordinate the 
section 9006 program with state energy offices and the U.S. Department 
of Energy?
    Answer. USDA has entered into an Interagency Agreement with DOE and 
the National Renewable Energy Laboratory (NREL). This agreement 
provides a vehicle for funding NREL activities to assist USDA in 
writing the technical requirements of the program, to develop tools to 
assist applicants and Rural Development State offices in addressing the 
technical requirements, and to assist in public outreach activities. 
Through this interagency agreement, a strong partnership has been 
established with the National Renewable Energy Laboratory (NREL) to 
establish a technical team of internationally recognized experts in the 
fields of solar, wind, biomass, geothermal, hydrogen, and energy 
efficiency technologies to provide training, technical review of 
applications and comments on the program. These experts are from the 
following Department of Energy (DOE) Laboratories: National Renewable 
Energy Laboratory, Sandia National Laboratory, and Oak Ridge National 
Laboratories. We have also developed a close partnership with EPA's 
AgStar Program.
    With the help of NREL, the State and Local Initiative Staff, we 
have developed the following resources: Outreach materials for Rural 
Development State Offices and technology interest groups to conduct 
outreach workshops, informational meetings and agricultural conferences 
were developed and a comprehensive one-stop web-site addressing the 
opportunities for renewable energy development provided by Section 
9006. The website consists of a series of web pages designed to 
increase program awareness and aid prospective applicants in 
determining basic eligibility requirements. This website will be 
continually updated as new information and opportunities and case 
studies come available. The website also provides useful guidance to 
farmers and ranchers on how to go about developing these projects by 
technology and scale.
    Most recently, a national training web-cast was held for our USDA 
Rural Development Rural Energy Coordinators for the fiscal year 2004 
Program delivery. The training conference was broadcast from the NREL 
headquarters in Golden, Colorado, on April 7, 2004. Training included 
presentations from DOE, EPA, NREL, the Sandia National Laboratories, 
Rural Utilities Service, and Rural Business-Cooperative Service.
    Our Rural Development State Offices are working with the State 
Energy Offices and others in conducting outreach activities, workshops, 
using materials we have discussed previously. The DOE, through NREL, 
has assisted in developing the regulation and conducting technical 
reviews of applications and in preparing outreach materials. Also, 
these materials have been used by DOE to conduct workshops such as 
those conducted by the wind working groups.
                   national center for animal health
    Question. I am concerned about possible shrinkage in the 
capabilities of the National Center for Animal Health that might be 
necessary to avoid exceeding OMB's present budget limit of $459 million 
on which the $178 million in the Administration request is premised. 
What reductions in the capabilities of the facility have either been 
decided on or are likely, and what are the costs of restoring those 
capabilities over the past year and the past 2 years?
    Answer. There is no shrinkage in the capabilities of the Centers 
for Animal Health. The primary difference between the initial plan and 
the current plan is how animal and laboratory support space will be 
acquired--either by renovating existing space or constructing new 
space. By consolidating ARS and APHIS functions into a single complex 
the USDA will achieve efficiencies in both staffing and space needs 
over the existing campus. New animal and laboratory space is configured 
to accommodate both agencies and be shared by a number of programs to 
improve usage efficiencies. The $461 million program provides for the 
needs of the 280 NADC program staff and the 286 APHIS program staff 
located in Ames.
    The Department will meet the animal health program needs within the 
$461 million estimated for this project. Because construction costs for 
the Ag large animal facility and the initial laboratory segment were 
higher than originally estimated in 1999 during the preliminary program 
efforts, the size of the new low containment large animal facility has 
been reduced; however, these programs will be accommodated within 
existing low containment facilities. A number of the existing field 
barns and miscellaneous support structures (feed storage, hay storage, 
vehicle maintenance) will also remain in operation.
       sound scientific information for regulatory decisionmaking
    Question. There has recently been much discussion about ``sound 
science.'' I am concerned that proposed changes to the review process 
of scientific information used by agencies, including the USDA, would 
create the perception that the acceptance of scientific findings are 
subject to review by political and special interests. I am also 
concerned that the proposed review process would also unnecessarily 
slow down the implementation of regulations to protect human health.
    Of particular concern are changes that would (1) move the 
coordination of scientific review out of the agencies and into the 
Office of Management and Budget, where the administration would have 
greater political influence, and (2) specifically restrict the 
participation of scientists receiving funding from agencies such as the 
USDA in the review of scientific findings, but not similarly restrict 
participation of scientists receiving funding from regulated 
industries.
    Can you please explain what steps you have taken to make certain 
politics and special interests will not affect the quality of 
scientific information used to make important regulatory decisions?
    Answer. Following recommendations from a Report by the National 
Research Council entitled ``Improving Research Through Peer Review,'' 
and language in The Agricultural Research Extension, and Education 
Reform Act of 1998, USDA/ARS overhauled its prospective peer review 
process. The Office of Scientific Quality Review (OSQR), which was 
established in 1999, coordinates independent external peer panel 
reviews of each of the research projects that make up the Agency's 22 
National Programs at the beginning of their 5-year cycle. This 
prospective review of the proposed project plans has contributed to a 
strengthening of the ARS research program.
    We are currently developing new procedures for a retrospective 
evaluation of each of ARS' 22 National Programs at the end their 5-year 
program cycle. While we are piloting several different approaches to 
achieve this objective, all of our pilots involve an independent 
external peer panel made up of scientists, customers, stakeholders, and 
partners who will determine if the research is relevant, of high 
quality, and that it produced research products that benefited American 
agriculture. Additionally, results of ARS' research are peer reviewed 
when they are submitted to scientific journals for publication.
    The information provided to regulatory agencies to serve as the 
basis for regulation is also submitted to scientific journals in the 
form of scientific manuscripts. The editorial boards of the journals 
subject these manuscripts to peer review, which usually occurs 
anonymously. Researchers do not get their papers published unless the 
papers pass the scientific scrutiny of the peer review process.
    The Cooperative State Research, Education, and Extension Service 
(CSREES) funds research relevant to the mission of USDA at 
universities, Federal laboratories, private research institutions, and 
other organizations. All research projects, including those funded by 
base programs, undergo scientific peer review prior to initiation, as 
required by law. Proposals are reviewed by peer panels that are 
composed of expert scientists from universities, industry, government 
and stakeholders as appropriate. Conflict of interest criteria are 
applied to ensure that proposals from an institution are not reviewed 
by a panel member from that institution and that there are no real or 
perceived financial conflicts. The review criteria include scientific 
merit and relevance to U.S. agriculture. Research results are peer 
reviewed again when published in the scientific literature, as 
described above. This peer review process ensures that the highest 
quality scientific information is continually supplied to those who 
would make regulatory decisions. However, CSREES does not control or 
limit in any way publications or other communication of research 
results from projects it funds. Finally, the relevance, quality, and 
performance of research portfolios will be subjected to rigorous 
assessment by experts on a 5-year basis.
    Every regulation published by USDA must comply with applicable 
Executive Orders, the Administrative Procedures Act, and other 
applicable statutes. The procedures in place establish an open and 
transparent process that requires regulatory agencies to clearly and 
concisely outline the basis for regulatory decisions, including the 
scientific information used to make those decisions. USDA follows 
procedures common to all Federal regulatory agencies to ensure all 
interested parties as well as the general public have an opportunity to 
participate in the rulemaking process and comment on regulatory 
decisions made by the agency.
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

                           empowerment zones
    Question. For the third year in a row, the Administration proposes 
no funding to follow through on the commitment that USDA made to rural 
empowerment zones even though this Subcommittee has thankfully rejected 
this recommendation for 2 years in a row. I have one of those zones in 
my state, the Griggs-Steele Empowerment Zone, focused on out 
migration--a very serious problem in North Dakota.
    Why has the Administration continued to oppose this funding even 
after Congress restored it in the fiscal year 2003 and fiscal year 2004 
bills?
     Answer. The Administration has provided substantial earmarks and 
technical assistance in support of the EZ/EC communities in the past. A 
larger amount of resources can be made available by utilizing the 
Budget Authority for loans rather than funding specialized grants.
    Question. Can you please give me a substantive reason why this 
funding has been eliminated again this year?
     Answer. The President's fiscal year 2005 budget proposes $103.8 
million of earmarked loan and grant funds for the EZ/EC communities. 
Considering the tight nature of the fiscal year 2005 overall budget, 
this amount of funding, plus technical assistance, is a substantial 
investment on the part of the Federal Government in rural communities.
             obesity prevention initiative grand forks ars
    Question. I see that this year, you have announced Food-Based 
Obesity Prevention as a top departmental priority. It is my 
understanding that you also included an additional $5 million in ARS to 
implement this priority.
    Can you tell me where that ARS research will be conducted?
    Answer. The new funds will be used to support research on obesity 
prevention at the following proposed locations: Baton Rouge, LA; 
Beltsville, MD; Boston, MA; Davis, CA; and Houston, TX.
    Question. I would have expected that some of that research would 
happen at the Grand Forks Human Nutrition Center, which is one of our 
nation's most outstanding human nutrition research facilities. But when 
I look at the budget for the Grand Forks ARS, I only see a reduction of 
$515,317 which is the funding I've been able to add for the last 
several years through this Subcommittee for the Center's Healthy Food 
Initiative.
    Why isn't ARS better utilizing this facility, particularly given 
your emphasis on human nutrition and obesity?
    Answer. The Grand Forks Human Nutrition Research Center has 
developed a much deserved reputation as an outstanding Center for the 
study of trace elements, which is the mission of the Center. That work 
will continue to be supported. ARS is developing its strategic plan to 
attack the problem of obesity using a focus on foods. The Grand Forks 
Human Nutrition Research Center has been part of that process, and ARS 
will develop a role for its research capacity to address obesity 
issues.
    Question. I am concerned about reports that the Grand Forks ARS has 
lost 40 percent of its staff since 1985 and flat budgets will probably 
force 8-10 layoffs a year.
    Why hasn't ARS been supporting this top notch facility?
    Answer. Funding at the Grand Forks Human Nutrition Research Center 
has increased since 1985. The impact on the center is similar to the 
impacts on all of the other human nutrition research centers, as well 
as on all ARS units. The funding for the center, or any unit in ARS, 
can be used as best determined by the Center Director, who can use 
discretion in deciding to expand a program, purchase new equipment, 
develop new facilities, or change the number of personnel. At each of 
the human nutrition research centers, there has been significant 
leveraging of resources with funding from industry and other Federal 
agencies, and this has resulted in much stronger research programs.
    In recent years there have been a number of outstanding scientists 
hired at the center and, with the existing budget, ARS has been able to 
maintain the high visibility and impact of the research that is 
conducted at the center. There has not been a reduction in force in ARS 
since 1985, and any reductions in the number of personnel that have 
occurred throughout the agency are based on decisions to not fill 
positions in favor of using the money for new programs, new equipment, 
etc.
                        bse surveillance program
    Question. Madam Secretary, I noted in your testimony that USDA is 
requesting $60 million, an increase of $47 million, which will permit 
it to further accelerate the implementation of a verifiable National 
Animal ID system, increase BSE surveillance, conduct technology of BSE 
testing technologies and strengthen the monitoring and surveillance of 
advanced meat recovery. I wanted to bring to your attention some 
technology that has been developed at North Dakota State University 
that I understand APHIS may be interested in pursuing.
    NDSU and its private sector partners have the unique capability to 
participate in this, and I'm curious what to know about the technology 
that USDA plans on using?
    Answer. USDA is interested in technologies that may meet the needs 
of the BSE surveillance program and the implementation of a national 
animal identification system.
    On January 9, 2004, USDA announced that the Center for Veterinary 
Biologics would begin accepting license applications for BSE tests. The 
decision to formally accept license applications for BSE test kits and 
rapid tests has better positioned USDA to quickly implement 
modifications to our current BSE surveillance program.
    Several test kits have been issued licenses or permits by APHIS, 
and more may be approved in the future. Distribution and use of BSE 
test kits in the United States shall be under the supervision or 
control of the USDA's Animal and Plant Health Inspection Service. 
Distribution in each state shall be limited to authorized recipients 
designated by proper state officials, under such additional conditions 
as the APHIS administrator may require. Regarding the national animal 
identification system, USDA's goal is to create an effective, uniform, 
consistent, and efficient system by:
  --Allowing producers, to the extent possible, the flexibility to use 
        current systems or adopt new ones, but not burden them with 
        multiple identification numbers, systems, or requirements;
  --Building on the data standards developed in the United States 
        Animal Identification Plan; and
  --Remaining technology neutral in order to utilize all existing forms 
        of effective technologies and new forms of technology that may 
        be developed.
    The specific technologies used to link a unique animal number to an 
animal, record the movement in commerce, and report the movement to a 
national database will be determined by industry. We welcome North 
Dakota State University's participation in this developing program.
                           broadband funding
    Question. It has been almost 2 years since the new broadband title 
to the Rural Electrification Act (REA) was enacted. More than $2 
billion in loan authority has been provided under this new program and 
the Senate reinforced its bipartisan support for this initiative in a 
series of amendments to the Agriculture Appropriations bill. 
Unfortunately, less than $200 million in loans have been allocated so 
far while more than a $1 billion in demand has been made known to the 
agency.
    Specifically, I would like to know: how many broadband loan 
applications are pending; how many loans have been approved; how many 
loan applications have been rejected; what states have projects 
pending, rejected or approved; how long loan processing takes; how many 
staff are allocated to the broadband program and how many staff are 
allocated to the Telecommunications and Distance Learning and 
Telemedicine programs; and how many rural broadband connections you 
expect to make under the new program?
    Answer. There are 40 loan applications pending totaling $438.8 
million; 14 loans have been approved totaling $201.8 million; 20 loan 
applications totaling $300.3 million have been returned as ineligible 
and 17 loan applications totaling $195.3 million have been returned as 
incomplete. It takes RUS approximately 60 days to process a loan 
application provided the application is reasonably complete when it is 
submitted. Initially, a team of 14 headquarters individuals have been 
assigned to the broadband program. Under a recently approved 
reorganization plan, approximately 25 individuals will be assigned to 
it, pending filling vacancies which currently exist. The number of 
headquarters employees assigned to the Telecommunications and DLT 
program is approximately 40. Over 1 million potential connections to 
broadband service have been made possible with the approval of the 
first 14 loans. Future connections will vary depending on loan size, 
service territory, and project costs. Our goal is the full utilization 
of the funding available to hook up as many rural customers as 
possible.
                        rural telecommunications
    Question. I am also profoundly concerned about reports that suggest 
that the agency avoid rather than manage risk. The risk I hope you 
avoid is the risk of leaving rural Americans behind in the digital 
economy. In creating and funding a new broadband title to the REA, 
Congress sought to re-ignite the ``can-do'' spirit of the early days of 
rural electrification and the rural telephone program. Historically, 
the agency worked with applicants in a cooperative, not adversarial way 
to find solutions.
    Can I get assurances from you that you see our mission as using the 
tools of this new loan program to spur rapid and meaningful deployment 
of broadband services?
     Answer. Yes. In concert with the President's recently announced 
goal of universal broadband by 2007, USDA's Rural Development is ready 
to meet this goal in rural America. The ``meaningful deployment of 
broadband services'' can only be met by making quality loans. As stated 
before, universal broadband deployment has been recognized as a 
national policy goal. In light of this, we still face challenging 
domestic spending decisions. In order to balance fiduciary 
responsibility with mission delivery, USDA is focusing on ``quality 
loans'' that produce exponential benefits through reduced subsidy rates 
and greater lending levels and that strengthen not only rural 
economies, but our national economy and its role in the global economic 
system. A failed business plan translates not only into loss of 
taxpayer investment, but deprives millions of citizens living in rural 
communities of the technology needed to attract new businesses, create 
jobs, and deliver quality education and health care services. I can 
assure you that every effort is being made to expedite the deployment 
of broadband service to rural America in a ``meaningful'' way.
                northern great plains regional authority
    Question. Can you tell me how the Department is proceeding with the 
establishment of the Northern Great Plains Regional Authority and which 
agency within USDA will be charged with administering the Authority? 
Also, when can we expect the fiscal year 2004 funding to be released? 
The legislation also calls for the appointment of a Federal and a 
tribal co-chair. Can you tell me what the process will be to make these 
appointments and what the status of this process is?
    Answer. Rural Development has been tasked with providing the report 
requested in the fiscal year 2004 Appropriations Act and working with 
the Governors of the five states to establish the Northern Great Plains 
Regional Authority. A taskforce of State Directors has been established 
to develop the report and coordinate the numerous activities required 
to establish the Authority.
    Funds will be available once the Authority is fully established. 
The Authority cannot be established until the Federal and Tribal co-
chairs have been named and confirmed.
    The statute requires those appointments to be made by the President 
and confirmed by the Senate. It is our understanding that the White 
House will follow the normal procedure for filling such positions.
                     standard reinsurance agreement
    Question. When can we expect a new SRA?
    Answer. RMA anticipates establishing an agreement for the 2005 
reinsurance year by the July 1, 2004 deadline.
    Question. Why did RMA eliminate the developmental fund within the 
crop insurance program?
    Answer. The first draft of the SRA was designed to raise many ideas 
and concepts to address long-standing program delivery issues. RMA has 
listened carefully to all the responses from insurance providers, 
interested parties via submitted written comments, and discussions with 
trade associations. RMA believes the second draft addresses most of the 
concerns raised in the first round of negotiations. There were strong 
concerns about the suggested elimination of the developmental fund. 
Therefore, in the second draft RMA restored the developmental fund and 
reverted back to seven reinsurance funds.
                         underwriting gains tax
    Question. Why did RMA propose a 25 percent tax of underwriting 
gains for the reinsurance companies involved in crop insurance?
    Answer. The proposed SRA encourages companies to provide broader 
service to farmers by RMA assuming a larger share of the non-profitable 
business in high-risk areas. It also allows greater flexibility for 
companies to share risk with FCIC in the pilot phase of new products, 
encouraging companies to make new products available to producers.
    The 25 percent global quota share arrangement permitted RMA to take 
a greater share of the losses as well as gains to stabilize the program 
and secure a better balance of risk sharing between the government and 
the companies. This provision was intended to add capital support and 
stability to the program to supplement private sector reinsurance that 
often is less available for drought stricken, and therefore less 
profitable areas of the country. The second draft retains this 
provision but at a much reduced, 5 percent level.
                       multi-peril crop insurance
    Question. RMA is proposing to penalize companies who deliver Multi-
Peril Crop Insurance above the cost of Federal reimbursement of 
Administration and Operations. This proposal would have a 
disproportionate affect on smaller companies and may force them out of 
the program. Why would RMA want fewer companies in the crop insurance 
program? What evidence do you have that the current rate of A&O 
reimbursement is adequate?
    Answer. RMA does not want to have fewer companies in the program, 
but is also concerned about companies over spending and harming the 
livelihood of the customers, agents and loss adjusters. In the second 
draft, we have removed the penalty for companies that exceed their A&O 
reimbursement allowance, but will continue to exert careful and active 
oversight over company financial condition and operational 
effectiveness. RMA will take appropriate regulatory action to safeguard 
farmers and the delivery system against another company failure due to 
financial excesses. The failure of American Growers cost taxpayers 
approximately $40 million to date above and beyond indemnities paid for 
farmer losses. The proposed SRA establishes additional reporting to RMA 
of critical business information needed to anticipate company financial 
weaknesses such as those that caused the failure of American Growers.
    Expense reimbursement payments have grown over time in total and on 
a per policy basis. For example, the number of policies serviced by 
companies in 1998 and 2003 remained at 1.2 million, but RMA paid the 
companies a total of $444 million in expense reimbursement in 1998 and 
$734 million in 2003. On a per policy basis, expense reimbursements 
increased from $358 per policy in 1998 to $592 per policy in 2003. This 
is a 65 percent increase over 5 years--an average compound increase of 
over 10 percent per year. For 2004, it is estimated that premium income 
will be substantially higher reflecting generally higher commodity 
prices and that the related total and per policy expense reimbursement 
will rise dramatically without a significant increase in the cost of 
selling or servicing the policies.
                     standard reinsurance agreement
    Question. Does RMA intend on providing the industry with a complete 
proposal, including all necessary supporting manuals to review when the 
second draft is released?
    Answer. On Tuesday, March 30, RMA announced the release of the 
second SRA proposal along with subsequent appendices (Appendix I: 
Program Integrity Statement, Appendix II: Plan of Operations, and 
Appendix IV: Quality Standards and Control). This additional 
information will allow the companies to evaluate the agreement in a 
more comprehensive way. A document detailing the required data 
processing formats and instruction, Appendix 3 (formerly Manual 13), 
will be published at the end of the process to reflect the new 
agreement.
    Question. Will the SRA contain terms to make it financially viable 
for companies to operate in every state?
    Answer. RMA has proposed changes allowing for future growth of the 
delivery system, such as permitting greater flexibility for companies 
to shift more risks to RMA on policies that are in high-risk areas as 
well as the risk of new products in their pilot phase. Traditionally, 
the Federal Government takes on the bulk of non-profitable business in 
all areas and allows insurance companies to retain more of the 
profitable business. In addition, the SRA proposes raising state 
session limits in many states allowing for the viability of more 
service in those areas.
    Question. What happens if RMA doesn't have the SRA wrapped up by 
May 1?
    Answer. RMA fully anticipates having a signed agreement by the July 
1, 2004 deadline. As with prior negotiations, if the new agreement is 
not signed by that time, RMA will continue to provide the necessary 
reinsurance support until the new agreement is signed. Once the new 
agreement is signed, all policies issued for the 2005 reinsurance year 
will be covered by the new agreement.
    Question. Do you believe RMA will pursue the establishment of a 
guarantee fund in the second draft of the SRA?
    Answer. Yes, in the second draft, the purpose of the guarantee fund 
was clarified and the fund was also renamed the Contingency Fund. 
During the company discussions and with others, it became clear that 
many misunderstood the purpose of the fund and even questioned the 
authority to have such a fund.
    The purpose of the fund is simply to use existing penalty and fee 
provisions, due to company performance issues, to help pay for any 
future company failures, such as the American Grower situation. The 
estimated funds that would be put in this fund on an annual basis is 
between $1-2 million. The Office of General Counsel firmly believes RMA 
has the authority to make what is essentially a bookkeeping change for 
this purpose. It should also be noted that this fund cannot be used by 
the RMA as a resource to fund agency expenses.
    Question. It is my understanding there were numerous provisions in 
the first SRA proposal in which RMA was exerting more regulatory 
authority. I believe RMA currently has very extensive regulatory 
authority and I would urge the agency to use such authority in a 
responsible manner. Additionally, I am concerned the crop insurance 
program is currently a very complex highly regulated program. Has the 
agency done any analysis regarding the costs these regulations place on 
the delivery system and the savings, which could be generated by 
removing some of these burdensome procedures?
    Answer. Although RMA has not performed a formal analysis regarding 
regulatory costs, RMA is striving to put into place regulatory 
provisions that do not put an undue burden on the agency or the 
companies. In addition, RMA has revised its Appendix IV (Quality 
Control and Standards) to incorporate more efficient processes for 
oversight activities, and to better utilize the existing resources of 
the companies in such efforts. However, it is imperative that RMA apply 
its learning gained from the demise of American Growers. RMA will 
continue to work closely with the companies to responsibly fulfill its 
vital role as a steward of the program.
    In the proposed SRA, RMA is fairly and equitably exercising its 
given authority and responsibility to oversee the financial and 
operational safety, soundness and effectiveness of the Federal crop 
insurance program to ensure program integrity and a reliable, effective 
delivery system. This is good for farmers, companies, agents and all 
others concerned and will not impose ``massive'' new burdens or costs.
    The proposed SRA establishes additional reporting to RMA of 
critical business information needed to anticipate company financial 
weaknesses such as those that caused the failure of American Growers. 
The companies are already preparing much of the requested information 
for other purposes. This information includes financial statements, 
statement of earnings and cash flow, commission and other expense 
details, reinsurance agreements and management evaluations of major 
financial and operating risks facing a company. Any well-run, fiscally 
responsible company will already be developing and using this kind of 
information and should be willing to provide it to its regulator.
    In farmer listening sessions throughout the country, RMA has 
received an overwhelming number of requests to ensure that agents and 
loss adjusters are knowledgeable and well trained. The proposed SRA 
requires insurance companies to verify that agents and loss adjusters 
are trained in accordance with RMA standards and are delivering the 
best and most complete and accurate information possible to farmers. 
The proposed SRA also strengthens the companies' focus on training 
agents and loss adjusters to better serve limited resource, minority 
and women farmers.
    Any concern over the cost associated with agent and loss adjuster 
oversight and training fails to recognize the benefits and efficiencies 
of well-trained agents and loss adjusters. Farmers benefit from making 
informed sound risk management decisions, while agents, loss adjusters 
and insurance companies benefit from increased customer satisfaction 
and customer retention, and reduced exposure to fraud, waste and abuse, 
and litigation risks and costs.
    The proposed SRA provides for disclosure of information to allow 
RMA to assess the financial strength and performance of insurers and 
their service providers. RMA is asking that companies disclose more 
leading indicators of their insurer and service provider operational 
and financial soundness and risks. Many of these disclosures were 
requested informally last year in the wake of the failure of American 
Growers. Current insurance companies serving farmers should have this 
information and be willing to share it with their regulators. Companies 
conducting good business practices and assessing their risks should 
incur no additional cost. Companies that are not already using this 
information should begin to develop it to ensure their soundness and 
safety.
                           agricultural trade
    Question. The United States Trade Representative (USTR) has 
recently completed free trade agreements with Central America (CAFTA) 
and Australia, with the benefits to American agriculture being 
miniscule.
    Can you identify any specific benefits to American agriculture that 
these and future free trade agreements provide?
    Answer. On March 22, 39 leading agriculture-related associations, 
federations, councils, and institutes representing a broad spectrum of 
American agriculture, sent a letter to President Bush expressing their 
support for the CAFTA and Dominican Republic agreements. The signators 
of the letter expressed the view that the agreements would lead to 
``significant'' increases in exports of a wide range of agricultural 
products.
    American agriculture will benefit from the Australia FTA because 
Australia will immediately eliminate all agricultural tariffs. In 
particular this will benefit U.S. exports of: processed foods; oilseeds 
and oilseed products; fresh and processed fruits and fruit juices; 
vegetables and nuts; and distilled spirits. Also the FTA establishes an 
SPS Committee that will enhance our efforts to resolve SPS barriers to 
agricultural trade, in particular for pork, citrus, apples and stone 
fruit.
    Under the Caribbean Basin Initiative and the Andean Trade 
Preferences Act, agricultural imports from nearly all of our FTA 
partners already receive duty free treatment from the United States. By 
negotiating Free Trade Agreements with these countries we will level 
the playing field, affording our exporters similar duty free access to 
those markets for their products.
    Question. The USTR has recently announced intentions to negotiate 
free trade agreements with Colombia and Thailand.
    Will sugar be included in the negotiations and do you support the 
inclusion of sugar in regional and bilateral free trade agreements?
    Answer. To maximize the benefits for U.S. agriculture from these 
negotiations, we seek increased market access for all of our export 
commodities, including those that our negotiating partners want to 
protect. We can only pursue this strategy effectively if we are willing 
to negotiate increased foreign access to our own sensitive markets. We 
will continue to take steps to ensure that the interests of U.S. sugar 
producers are taken into account. For example, in the CAFTA, we 
insisted that the out-of-quota duty for sugar not be eliminated or even 
reduced. This provision for sugar was unique, but it was deemed 
necessary to defend our domestic sugar program.
                           asian soybean rust
    Question. I am very concerned about the risk of importing Asian 
soybean rust into the United States. The movement into the United 
States could devastate our soybean crop and impose a heavy economic 
burden on American farmers and consumers. We cannot afford to take 
unreasonable risks given the adverse impact soybean rust would have on 
soybean production and growers in the United States. If a temporary ban 
on the importation of beans from infected nations is the only answer 
that government can come up with in the short term, I believe that it 
is better than jeopardizing our entire soybean industry.
    Will you halt soy imports until the Department can find a sway to 
ensure that this devastating fungus doesn't infiltrate our domestic 
soybean crops as a result of lax import standards?
    Answer. We do not plan to halt soy imports. APHIS officials are 
looking closely at our country's importation of soybean seed, meal, and 
grain. Our analysis to date has shown that clean soybean seed and 
soybean meal--which is a heat-treated, processed product--pose a 
minimal, if any, risk of introducing this disease. Historically, there 
has never been a documented instance of soybean rust spread through 
trade. Rather, it is spread naturally through airborne spore dispersal. 
We are currently conducting a risk assessment to study the viability of 
the pathogen and verify that it does not survive in commercial grade 
soybean products. The preliminary results of the assessment indicate a 
very low risk, if any, of introducing this disease through imports.
                       interest assistance loans
    Question. Money for interest assistance loans to farmers has been 
used up for 2004. Many producers depend on interest assistance to 
obtain the financing necessary to plant their crops. It is my 
understanding that interest assistance was cut by 35 percent from 2003 
to 2004.
    What steps are being taken by USDA to meet the demands of the 
program? Will USDA provide alternative funding for the program in 2004?
    Answer. The fiscal year 2004 allocation of guaranteed operating 
with interest assistance loan funds was $271.2 million. As of March 31, 
2004 guaranteed operating with interest assistance loan obligations 
totaled $244 million. In accordance with statutory requirements, 
remaining funds are targeted for exclusive use by socially 
disadvantaged farmers.
    The direct operating loan program is one alternative that could 
provide aid to family farmers unable to obtain guaranteed OL with 
interest assistance loan funds. This program, with its availability of 
a lower interest rate for terms of up to 7 years, provides family 
farmers a means of financing their business operations at rates and 
terms comparable to the guaranteed OL with interest assistance loan 
program. As one would expect, demand for this program is also high. 
However, with historically low interest rates available through 
commercial lenders, many family farmers are able to utilize the 
guaranteed operating unsubsidized loan program. Use of funds in this 
program has increased by eleven percent compared to a year ago at this 
time, but there are still sufficient funds available to meet additional 
demand.
    Because the subsidy rate for the interest assistance program is 
significantly higher than for other farm loan programs, it is not cost 
beneficial to transfer funds for interest assistance loans.
                       country of origin labeling
    Question. Madam Secretary, when the Omnibus Appropriation bill 
became law, it delayed the implementation date of Country of Origin 
Labeling from September of this year until September of 2006, except 
for certain fish. The Omnibus bill did not, however, change the date at 
which the actual regulations governing COOL need to be concluded, which 
is also September of 2004. The Department has nearly 2 years to work on 
the COOL regulation, so I am hopeful that USDA will, in fact, have 
those regulations completed. As you know there are many of us in 
Congress, in fact a bipartisan majority in the Senate, who want the 
COOL regulations completed and the date changed back. In fact, the date 
may be changed back to September of 2004, and I want to ensure that the 
Department is ready in that event, as the law currently requires. I 
read with interest some comments that the President made in Ohio 
recently. The President said, and I quote: ``I want the world to `buy 
America.' The best products on any shelf anywhere in the world say, 
`Made in the USA.' '' His comments were followed by applause. I think 
the President is right.
    If he says that, why does the Bush Administration oppose the COOL 
law that would ensure that consumers have the opportunity to buy 
American?
    Answer. In general, the Administration believes that providing more 
information for consumers on which to base their purchasing decisions 
is better than less information. However, if the costs of providing the 
additional information exceed the benefits, then there is no economic 
rationale for providing it. We are reviewing the comments received on 
the proposed regulations and will finalize the regulations to implement 
COOL as mandated by the 2002 Farm Bill and the Omnibus Bill.
                 bovine spongiform encephalopathy (bse)
    Question. Do you still intend to open the U.S. border to live 
Canadian cattle, especially in light of the discovery that two Canadian 
feed mills were the cause of the outbreak of mad cow disease?
    Answer. Today, the Animal and Plant Health Inspection Service 
(APHIS) closed the comment period on a proposed rule that would amend 
the regulations regarding the importation of animals and animal 
products to recognize, and add Canada to, a category of regions that 
present a minimal risk of introducing BSE into the United States via 
live ruminants and ruminant by-products. USDA will take into account 
the comments received on the proposed rule as we review this matter.
                resignation of administrator bobby acord
    Question. On March 23, Bobby Acord, head of USDA's Animal and Plan 
Health Inspection Service (APHIS), resigned effectively immediately.
    Was his resignation the result of a disagreement over policy?
    Answer. Bobby Acord resigned after almost 38 years of Federal 
service due to a number of factors, including illness in his family and 
his desire to spend more time in the places and with the people that he 
cares about most. In a letter to all APHIS employees dated March 24, 
2004, Mr. Acord stated, ``Those of you who know me well know that if 
nothing else, I am a decisive person. And this weekend, I decided it is 
simply time for me to pass the torch.''
    During Mr. Acord's tenure as APHIS Administrator, he led the Agency 
through the aftermath of the September 11, 2001, terrorist attacks, an 
outbreak of exotic Newcastle disease and its eradication, and the 
country's first detection of bovine spongiform encephalopathy. While 
Mr. Acord was administrator, the employees of APHIS were also named 
``2003 People of the Year'' by Progressive Farmer magazine.
    Mr. Acord is succeeded by Dr. Ron DeHaven, who joined APHIS in 1979 
and most recently served as the deputy administrator of APHIS for 
Veterinary Services.
                               bse policy
    Question. We understand that there are a wide range of policy 
proposals to address various BSE issues.
    What are you doing to ensure that our decisions are science based 
and don't rest upon short-term political or public relations benefits?
    Answer. In addition to employing scientific and technical experts 
with working knowledge of transmissible spongiform encephalopathies, 
USDA has consulted with international experts through the Secretary's 
Foreign Animal and Poultry Disease Advisory Committee and with 
scientists at the Harvard Center for Risk Analysis to review the BSE 
surveillance plan and response. USDA bases its policy decisions on 
sound science and the advice we receive from such experts.
    Question. Japanese officials say that despite USDA officials' 
statements to the contrary, ``Ag Department officials from the United 
States have not been in recent contact with their Japanese 
counterparts. We're confused as to why some USDA officials have been 
saying otherwise.''
    Is the Japanese claim true and what is the status of the 
negotiations regarding the reopening of the Japanese market to U.S. 
beef imports?
    Answer. The Department has been and remains in close contact with 
Japanese government officials. Immediately following USDA's 
announcement of the BSE case, senior USDA officials and Japanese 
officials held talks in Tokyo, Japan, on December 29 and January 23. A 
Japanese technical team visited USDA in Washington, D.C., and the BSE-
incident command center in Yakima, Washington, during January 9-15. On 
March 23, the Agricultural Affairs Office, American Embassy in Tokyo, 
reported meetings with the Japanese Ministry of Health and Welfare 
(MHLW), Ministry of Agriculture, Fish and Food (MAFF), and the Food 
Safety Commission (FSC).
    There is still a significant difference in our official positions 
regarding BSE testing and specified risk material removal. On March 29, 
I sent a letter to Japanese Agriculture Minister Kamei proposing to 
have a technical panel made up of experts from the World Animal Health 
organization meet before April 26 to discuss a definition of BSE and 
related testing methodologies as well as a common definition of 
specified risk materials. On April 2, Japan rejected the proposal 
reasoning that the United States first needed to reach a bilateral 
scientific understanding on BSE. USDA is planning another high-level 
visit to Japan to continue talks in late April. The United States 
exported over $1.3 billion in beef to Japan in 2003, representing over 
50 percent of Japan's total beef imports. The import ban has severely 
impacted Japan's market supplies and beef prices. Given Japan's need 
for beef imports and the importance of beef exports to Japan for the 
U.S. beef and cattle industry, we are hopeful that a solution can be 
found.
                     durum and spring wheat yields
    Question. Recently, the Risk Management Agency mandated that durum 
yields be split out from spring wheat yields. The method which RMA is 
proposing to do this is causing durum growers to have disproportionate 
yield reductions in their actual production histories. It is also 
causing farmers to take an inordinate amount of time to retrace these 
yields. One solution to this problem is to allow producers to replicate 
yields.
    What are USDA's plans to resolve this problem and will USDA allow 
farmers to replicate yields?
    Answer. The U.S. Durum Wheat Growers Association (USDGA) requested 
Risk Management Agency (RMA) recognize spring and durum wheat as 
separate crop types due to quality and price differences, thus allowing 
each to be insured as a separate unit beginning with the 2004 crop 
year. This was done via publication in the Federal Register at 7CFR  
457.101 June 9, 2003.
    Insured areas most affected are all North Dakota counties, 18 
counties in Northern South Dakota, and 18 counties in Northeastern 
Montana. Some insured's will have increased spring wheat yields and 
some insured's will have increased durum wheat yields. The impact will 
vary depending upon individual yield history.
    On average 25-30 percent of all wheat in North Dakota is durum 
wheat. RMA's experience for 1999-2003 shows durum loss ratios in North 
Dakota under the APH yield based coverage are higher than that of 
spring wheat, 2.69 verses 1.09 for spring wheat.
    RMA explored viable options to alleviate some producers concerns 
while still maintaining program integrity.
    While producers have requested to be allowed to use replicated 
yields in their history database, this will generally overstate 
guarantees for durum wheat and will most likely generate significant 
complaints from insured's negatively impacted by replication, and from 
agents and insurance providers who have undergone considerable work to 
implement the procedures for splitting out the yields by type, and 
increase the risk of loss to companies and re-insurers providing 
protection in these areas.
    RMA is implementing a 10 percent yield limitation to provide relief 
to those that may experience declining yields. Implementing yield 
limitations is consistent with existing procedures for other situations 
that protect insured's from declining yields, and provides immediate 
protection while avoiding replicated yields that are too high that will 
adversely affect actuarial soundness for several years to come.
                        wool for berets in iraq
    Question. Madam Secretary, it has come to my attention that the 
Coalition Provisional Authority (CPA) in Iraq has let a contract for 
berets for Iraqi security forces. While the CPA has indicated that the 
contract is open to all bidders, the contract's parameters have put 
American wool producers at a distinct disadvantage by specifying that 
the berets be made of 100 percent Australian wool! Such preferential 
treatment is not only unfair but is a serious concern that deserves 
immediate attention. There are 64,170 U.S. wool producers, including 
over a thousand in North Dakota, that produce some of the finest wool 
in the world. Given a fair field on which to compete, I am certain they 
will win such a contract.
    Given the time-sensitive nature of this issue, I want to know if 
you will work with others in the Administration to ensure that the CPA 
is directed to re-let that contract to ensure that no country receives 
preferential treatment?
    Answer. Thank you for this question which has brought this issue to 
our attention. We have been in contact with USDA personnel in Iraq and 
were able to learn a great deal about this contract and procurement. 
Unfortunately, the contract has been awarded and the tender 
specifications did, in fact, specify Australian wool. This tendering 
was not done by the CPA directly and did not involve U.S. government 
funds.
    As part of our reconstruction efforts in Iraq, we are trying to 
bring greater transparency and predictability to the public tendering 
process. This is of vital importance if we are to regain market share 
for American agricultural products in this potentially significant 
export market. Bringing about a market based, open and transparent 
public tendering process is an uphill battle and this is a perfect 
example. We will be working closely with CPA and Iraqi authorities to 
ensure that oversights like this do not happen again.
                                 ______
                                 

            Questions Submitted by Senator Dianne Feinstein

                            specialty crops
    Question. The crop insurance program has expanded significantly 
over the past 10 years providing farmers and ranchers with increased 
financial security. Even in California it is now commonplace for 
bankers to require crop insurance prior to approval of operating loans. 
However, there are still many specialty crops that have no crop 
insurance program available. Many of these crops are grown on 
relatively few acres nationwide compared to the more traditional 
commodity crops.
    How does the USDA plan to expand the insurance programs to the 
remaining specialty crops not currently covered?
    Answer. Through the use of feasibility studies and pilot programs, 
RMA plans to expand the insurance programs to cover additional 
specialty crops. Risk Management Agency has made significant progress 
in providing new crop insurance programs available to specialty crop 
growers. For example, during 1998-2002: The number of insurable 
specialty crops increased 29 percent The number of active policies 
increased 28 percent The amount of coverage (liability) increased 98 
percent
    Since 2001, RMA has entered into over 90 contracts and partnerships 
with the majority focusing on providing crop insurance or other non-
insurance risk management tools for producers of specialty crops. 
Feasibility studies to determine whether crop insurance programs can be 
developed have been completed for direct marketing of perishable crops, 
fresh vegetables, Hawaii tropical fruits and trees, lawn seed, and 
quarantine insurance. The fresh vegetables project is in the 
development stage with crop year 2007 as the target year for 
implementing a pilot program. Insurance programs for Hawaii tropical 
fruits and trees and quarantine insurance are in the development stage 
with crop year 2006 as the target year for implementing pilot programs. 
The feasibility study for lawn seed is projected for completion in the 
fourth quarter of fiscal year 2004. The feasibility study for direct 
marketing of perishable crops is projected for completion in the first 
quarter of fiscal year 2005.
    Most specialty crops of significant size or value have either a 
program already developed or are a future project on RMA's Prioritized 
Research and Development Plan. The ten highest valued specialty crops 
not insured are listed below with the current plan for addressing each:

                           [In dollar amount]
------------------------------------------------------------------------
                                       Crop Insurance
               Crop                        Status              Value
------------------------------------------------------------------------
Bedding/Garden Plants.............  Target 2007 crop          $2,392,495
                                     year.
Lettuce...........................  Target 2007 crop           2,261,185
                                     year.
Mushrooms.........................  Industry not                 911,509
                                     interested.
Sod...............................  Industry not                 800,694
                                     interested.
Cut Flowers & Cut Greens..........  No action based on           717,612
                                     Feasibility Study.
Carrots...........................  No action based on           551,433
                                     Feasibility Study.
Broccoli..........................  Target 2007 crop             536,226
                                     year.
Cut Christmas Trees...............  Target 2005 crop             441,604
                                     year.
Cantaloupes.......................  Target 2007 crop             404,685
                                     year.
Melons............................  Target 2007 crop             328,550
                                     year.
------------------------------------------------------------------------
Note: Pilot program is scheduled for implementation in the target year.

    In addition, RMA recently issued a statement of objectives request 
for proposals for innovative and cost effective approaches to providing 
crop insurance for crops with small value. The purpose is to develop a 
program that responds to small value crop producers, provides a minimal 
requirement transaction between a producer and insurance provider, and 
identifies the vulnerabilities for waste, fraud and abuse. A contract 
was awarded in March 2004 to begin research for possible development of 
a new approach that provides crop insurance coverage for crops with 
small value. One possible approach that may be proposed is some form of 
whole farm program, perhaps similar to the existing Adjusted Gross 
Revenue program, which is being piloted in a limited number of counties 
in California.
                         revenue based programs
    Question. The crop insurance program has been piloting a number of 
new programs which address not only production losses, but revenue 
losses as well. However, most of these programs have been made 
available to only the major commodities: corn, wheat, cotton, rice etc. 
I understand that in certain states in the mid-west a corn grower has 
up to 6 different options in insuring their crop.
    When will these new revenue based programs be made available to 
specialty crop growers?
    Answer. RMA conducted a feasibility study for developing a revenue 
model of insurance for certain specialty crops, which is currently in 
the process of development for revenue based programs tailored to those 
specialty crops. The new revenue based programs should be made 
available to specialty crop producers for the following crops in the 
proposed pilot program states for the crop year 2007, pending approval 
by the FCIC Board of Directors. The list of crops and states include: 
Apples, NY, PA, OR, VT, and WA; avocados, grapefruit, and oranges, FL; 
dry beans (Baby Lima, Blackeye Peas, and Large Lima), CA: dry peas and 
lentils, ID; maple syrup, ME, NH, NY, and VT; and revenue product 
modification (corn), IA, IL, and IN.
                     adjusted gross revenue program
    Question. There is currently a pilot crop insurance program 
available in a very limited number of counties Nation wide called the 
``Adjusted Gross Revenue'' (AGR) program. The program is available in 8 
counties in California. However, I understand the Agency has put a hold 
on further expansion of the program pending an evaluation.
    When is the evaluation expected to take place and when is the 
earliest that expansion of this program can be expected?
    Answer. The Adjusted Gross Revenue (AGR) pilot program began in 
1999 in five States (36 counties). In 2000, six more States and 52 new 
counties were added. In 2001, RMA made a number of significant changes 
to the program in order to increase the number of eligible producers, 
coverage available, and producer acceptance. At the same time, AGR was 
expanded into six additional States and 126 new counties to provide a 
broader base upon which to test the pilot program.
    The Agricultural Risk Protection Act (ARPA) required the expansion 
of AGR into at least eight counties in California and into at least 
eight additional counties in Pennsylvania. RMA worked with the 
respective State Departments of Agriculture to select the expansion 
counties, gathered the data necessary for expansion and the FCIC Board 
of Directors approved expansion into eight counties in both states for 
2003. Effective for 2003, AGR was available in 17 states and 214 
counties.
    RMA is currently in the process of contracting for an evaluation to 
be conducted of the AGR pilot program. The evaluation will commence 
during 2004 using 2001-2003 AGR experience data reflecting the program 
changes and broad expansion made in 2001. Once the evaluation is 
completed, the results will be made available to the Board of 
Directors, who will determine any future direction and expansion of 
this pilot program.
            technical assistance for specialty crops program
    Question. The Technical Assistance for Specialty Crops (TASC) 
program, authorized in the 2002 Farm Bill, was developed exclusively to 
provide the specialty crop industry with financial assistance to help 
overcome trade barriers such as sanitary, phytosanitary, and technical 
barriers that prohibit or threaten exports. Funds are applied for by 
industry and distributed upon approval by USDA. The need for the 
program is great as noted by the overwhelming requests by industry for 
assistance. During the past 2 years, since the program's inception, 
USDA has received 111 proposals totaling $20 million in funding 
requests--compared to actual funding of only $4 million. The $2 million 
annually, while beneficial, is clearly insufficient.
    What is USDA doing to expand this program and encourage growth of 
specialty crop exports?
    Answer. The Technical Assistance for Specialty Crops (TASC) program 
was established in the Farm Security and Rural Investment Act of 2002. 
As program managers, the Foreign Agricultural Service (FAS) is 
responsible for ensuring all funds are used in the most effective way 
to maximize benefits to U.S. specialty crops. To accomplish that 
objective, FAS has taken several steps to maximize the use and 
effectiveness of this program that include:
  --outreach to the U.S. specialty product industries to maximize 
        awareness of the program;
  --established regulations to ensure fair and equitable allocation of 
        the funds to worthy projects;
  --program flexibility to address unexpected trade barriers, enabling 
        the availability of funds throughout the year; and
  --selected projects that had the highest expected return in value to 
        expanding exports.
    In addition, FAS continues to support the specialty crops through 
ongoing activities such as market intelligence, trade policy, and 
export market development. The Market Access Program (MAP) includes 
over 30 nonprofit associations that represent specialty crops and 
received $40 million of MAP funds in fiscal year 2003.
                   fruit and vegetable pilot program
    Question. The 2002 Farm Bill authorized a $6 million Fruit and 
Vegetable Pilot program in fiscal year 2003 to provide free fruit and 
vegetable snacks to students in 25 schools each in Michigan, Ohio, 
Indiana, Iowa, and seven schools in the Zuni Nation in New Mexico. 
Results of the program have been positive. According to a report by the 
USDA Economic Research Service, the pilot has shown consumption 
increases in school children by at least one serving a day.
    Various nutrition groups, the United Fresh Fruit and Vegetable 
Association, and other anti-obesity advocates have been pushing for 
expansion of this successful fresh fruit and vegetable pilot program 
under the Child Nutrition Reauthorization Bill.
    However, due to funding technicalities, the expansion of the pilot 
has been removed from the House bill. The Child Nutrition 
Reauthorization Bill is being written so it contains very little 
opportunity for participants to access fresh fruit and vegetables, at a 
time when childhood obesity is becoming an enormous issue.
    What is the USDA doing to increase the consumption of fresh fruits 
and vegetables in the school lunch, school breakfast, WIC and related 
programs?
    Answer. The Department shares your interest in the fruit and 
vegetable initiative, and would support its expansion provided Congress 
is able to fund it through savings or offsets that do not compromise 
access to school meal benefits. USDA, as part of the Department's 
Strategic Goal 4: ``Improve the Nation's Nutrition and Health,'' 
established a specific performance measure to improve the diets of 
children and low-income people by at least five points as measured by 
their Healthy Eating Index (HEI) scores; and to increase the score for 
the broader U.S. population by at least two points. USDA is working 
harder than ever with stakeholders to devise program initiatives to 
achieve these changes. Since fruit consumption and vegetable 
consumption are two of the ten elements of the HEI on which the most 
progress can and should be made, I am particularly keen to see 
innovations addressing these areas.
    The Department believes that the Federal nutrition assistance 
programs are an effective way to support and promote the consumption of 
fruits and vegetables. For example, I know that children who 
participate in the National School Lunch Program eat nearly twice as 
many servings of vegetables at lunch as non-participants and School 
Breakfast Program participants eat twice as many servings of fruit at 
breakfast as non-participants. USDA nutrition assistance programs 
provide over $8 billion in support for fruit and vegetable consumption 
annually by supporting consumer purchases in the marketplace through 
the Food Stamp Program; purchasing and distributing these foods 
directly to schools, food banks, and other institutions; and through 
nutrition education and promotion. I will provide some additional 
information for the record.
    [The information follows:]
    To maximize the results of this investment in increasing 
consumption for children and others, the Department is taking action to 
motivate all consumers to eat more of these healthful foods. We are 
expanding the Department of Defense fresh produce program to distribute 
fresh fruits and vegetables to schools, enhancing the variety and 
availability of fruits and vegetables in the school meals, as well as 
expanding the Food Distribution Program on Indian Reservations fresh 
produce initiative.
    The Department has recently published Fruit and Vegetables Galore, 
a guide developed as part of Team Nutrition that helps schools offer 
and encourage consumption of a variety of fruits and vegetables. In 
addition, the Department is expanding dissemination of the EAT SMART. 
PLAY HARD.TM (ESPH) materials that promote vegetable and 
fruit consumption. One theme of ESPH--Grab Quick and Easy Snacks--
promotes fruits and vegetables as snacks.
    More broadly, we continue to pursue our partnership with the 
National Cancer Institute (NCI) and the Centers for Disease Control and 
Prevention (CDC) in the expanded national 5-A-Day for Better Health 
program. The 5-A-Day campaign's goal is to increase consumption of 
fruits and vegetables to 5 to 9 servings every day, and inform 
consumers of the health benefits gained from eating fruits and 
vegetables.
    Regarding the WIC Program, the WIC food package currently plays a 
key role in contributing to fruit and vegetable consumption by 
providing 100 percent fruit and vegetable juices to program 
participants. In addition, WIC nutrition education emphasizes the 
relationship between nutrition and health, and fruits and vegetables 
are promoted as part of a complete diet. Both the Dietary Guidelines 
and the Food Guide Pyramid are foundation nutrition education materials 
used by WIC to emphasize the importance of fruit and vegetable 
consumption. Also, many WIC State agencies have adopted the National 
Cancer Institute Campaign, Five A Day, to promote the intake of fruits 
and vegetables. WIC's nutrition education approach is designed to teach 
participants and caregivers about the important role nutrition plays in 
health promotion and disease prevention as well as overcoming specific 
risk conditions.
    Finally, a contract was awarded in September 2003, to the Institute 
of Medicine (IOM), through the Food and Nutrition Board to review the 
WIC food packages in a 22-month study. This study will use current 
scientific information to review the nutritional requirements and 
assess the supplemental nutrition needs of the population served by 
WIC. IOM is currently scheduled to provide the Department with a final 
report in February 2005. Assuming the report is received on schedule, 
USDA expects to publish a Notice of Proposed Rulemaking for public 
comment in December 2005, and a final rule in December 2006.
    The WIC Farmers' Market Nutrition Program (FMNP) provides WIC 
participants with coupons that can be exchanged at authorized farmers' 
markets for fresh fruits and vegetables. The FMNP is currently in 
operation at 44 sites--36 States, the District of Columbia, Guam, 
Puerto Rico and 5 Indian Tribal Organizations. During fiscal year 2002, 
just over 2.1 million participants were served. The FMNP educates WIC 
participants on selecting, storing, and preparing fresh fruits and 
vegetables and how to make fruits and vegetables part of healthy meals.
                       training of dhs employees
    Question. As the Department of Homeland Security (DHS) was being 
organized, a significant part of USDA's funding for import inspections 
was placed within DHS. There remains significant concern that DHS will 
not place a high enough priority on invasive pest and disease detection 
at the border and that inspectors that are cross trained in other types 
of import inspections will not be sufficiently vigilant to prevent 
importation of pest on imported produce.
    The agriculture industry, and in particular fresh fruit and 
vegetable growers, have been very vocal that it is not acceptable for 
Customs agents to be cross-trained to detect pests and diseases in 
imported products. That capability is a specialized skill. Given the 
enormous increases in fresh fruit and vegetable imports over the last 5 
years, it is very unwise to reduce the Federal Government's capability 
to detect invasive species.
    Costs of eradication and elimination are higher than taking 
preventive measures, if pests enter the United States the Federal 
Government will need to pay for increased pest and disease eradication, 
due to failures to interdict these threats at the border.
    What is the U.S.D.A. doing to ensure that inspectors will have 
sufficient training and experience to detect and prevent entry of new 
pests on imported produce?
    Answer. To facilitate the transfer of the agricultural inspection 
force, USDA and the Department of Homeland Security (DHS) signed a 
Memorandum of Agreement that specifies the functions and funding 
transferred to DHS and establishes mechanisms between the two agencies 
regarding the training of employees, use of employees, and other areas 
described in the Homeland Security Act of 2002. The Agreement is meant 
to emphasize the importance of continuing and enhancing the 
agricultural import and entry inspection functions.
    As specified in the Agreement, USDA continues to train DHS 
inspectors who conduct agricultural inspections. DHS is maintaining an 
inspection force of agricultural specialists, who must meet certain 
educational requirements and go through a 2-month training course in 
our import requirements and pest and disease identification, among 
other things, at APHIS' Professional Development Center in Frederick, 
Maryland. APHIS and DHS' Bureau of Customs and Border Protection (CBP) 
are also implementing a joint quality assurance program to ensure that 
the inspection process continues to function effectively. As part of 
this effort, APHIS will provide on-the-job training for both 
agricultural specialists and primary inspectors. APHIS also provides 
basic training in the agricultural inspection process for general CBP 
inspectors at CBP's training center in Atlanta.
                            sudden oak death
    Question. Sudden Oak Death (SOD) is a serious, often fatal disease 
of California native oaks, and has been found in two nurseries 
(Monrovia, Azusa and Specialty Plants, San Marcos) in Southern 
California. The discovery of this disease in the nursery trade, in 
warm, dry Southern California and many miles from the epicenter of the 
disease in the Bay Area has caused five states to quarantine California 
nursery products. Monrovia nursery is one of the largest nursery 
producers in the United States and ships plants throughout the United 
States and Canada as well as other foreign destinations. Current 
economic losses to Monrovia at this juncture are estimated at $4.3 
million. A general embargo on California nursery stock will cause the 
state incalculable economic damage.
    What is the USDA doing to assess the extent of the disease both 
within California and within the United States and take action to 
contain the spread and prevent new areas from being affected by the 
disease?
    Answer. To assess the extent of SOD, we are conducting 
``tracebacks'' to determine the nursery or nurseries from which 
infected plant material originated, and ``trace forwards'' to determine 
where a particular nursery has sent infected plant material. Also, we 
are conducting a national survey of nurseries and forests. These 
activities will help us determine the extent of SOD migration within 
California and to other States. In addition, we plan to impose a 
Federal quarantine on the interstate movement of known and 
``associated'' SOD hosts from all California nurseries. This quarantine 
will be based on sound science and a measured risk response. Associated 
hosts are plants which are not technically hosts, but are nevertheless 
susceptible to SOD. This action would preclude States from imposing 
their own quarantines, and would provide for the resumption of safe 
trade in California nursery plants--albeit under strict conditions. As 
a result, we would be able to prevent further SOD spread via shipments 
from California nurseries, while still allowing the interstate movement 
of healthy plants.
                       glassy-winged sharpshooter
    Question. Other pests like the Vine Mealy bug and Glassy winged 
sharpshooter are impacting crops in California and elsewhere. What is 
U.S.D.A. doing to contain the spread of and eliminate these pests?
    Answer. Since fiscal year 2000, we have led an extremely successful 
cooperative Glassy winged sharpshooter (GWSS) research and control 
program in California. This program includes nursery stock inspections, 
a Statewide survey, and site-specific urban treatments. These 
activities help us quickly detect, control, and mitigate the GWSS. 
Also, we develop strategies to reduce the pest problem in agricultural 
production areas. This approach supports Statewide activities to 
promote trade, and remove the pest from State commerce routes. In areas 
where 100 or more GWSS had been found in traps each week, the program 
now finds approximately five. This success demonstrates the benefits 
not only of rapid response to a pest introduction, but also of 
cooperating with stakeholders, universities, extension services, 
agricultural researchers, and growers.
    In addition, we are continuing a successful pilot program 
throughout Kern County and conducting a similar program in infested 
areas of Riverside, Tulare, and Ventura Counties. In addition, we have 
expanded area-wide control activities into crucial production areas in 
Tulare County, Ventura County, and Coachella Valley in Riverside 
County. Our prompt implementation of these area-wide strategies has 
significantly reduced the incidence of GWSS in the new areas. This 
year, we continue to (1) develop management strategies and conduct 
area-wide treatments; (2) monitor the impact of GWSS control strategies 
on the environment; (3) mitigate Pierce's Disease spread in vineyards; 
(4) transfer control strategies to County Agriculture Departments; and 
(5) conduct regulatory activities through increased nursery stock 
inspections.
    At this time, APHIS does not have a program to control the Vine 
Mealybug. Since this non-native pest has no natural predators, 
eradication is not likely. Currently, producers are working to contain 
its spread using sanitation and chemical control.
    However, APHIS and the CDFA are continuing the highly successful 
California Mediterranean Fruit Fly (Medfly) Preventative Release 
Program. Since fiscal year 1996, only four Medflies have been detected 
in California. The most recent of these was a single adult found in 
late fiscal year 2002. This detection demonstrated the program's 
continued reduction of captured wild Medflies, while mitigating 
pesticide concerns. In fiscal year 2003, the program detected Mexican 
Fruit Flies (MFF) in San Diego County. This detection necessitated an 
emergency funds transfer, but we eradicated this infestation last 
September--less than a year after the pest was first detected in the 
area.
      environmental impact of on-farm burial of downer/dead cattle
    Question. The new regulations issued by USDA to address BSE will 
help improve the safety of human food and animal feed and will help to 
keep export markets open. Two of the recently announced changes in 
regulations though may result in environmental issues for states with 
large dairy and cow-calf industries.
    Cattle carcasses buried on farm land can have adverse impact on 
watersheds and pose other issues to the environment and ecosystems 
should wildlife or other animals access the buried cattle.
    Because of the potential for creation of an environmental hazard, 
in Europe many countries have instituted regulations prohibiting the 
on-farm burial of dead and downer cattle. The collection and disposal 
of these animals is often subsidized by the government.
    This issue has potential to have substantial environmental impact 
for states with large dairy and cow-calf industries. There is potential 
for substantial economic impact on farmers and others needing to 
dispose of these animals.
    Has there been an evaluation of these impacts? If so what are the 
solutions and at what level of government do these solutions need to be 
addressed? Is there a research need to identify effective disposal 
options?
    Answer. USDA has had an aggressive BSE surveillance plan in place 
since the 1990's, and scientific experts--including those at Harvard 
who conducted the risk assessment for BSE--agree that, even given the 
find in Washington State, the disease would be circulating at extremely 
low levels in the U.S. cattle population if at all. With such a low 
prevalence rate, we do not anticipate large numbers of affected animal 
carcasses needing disposal during the next 12 to 18 months. Our 
recently announced enhanced surveillance plan should instead allow us 
to further assure consumers, trading partners, and industry that the 
risk of BSE in the United States is very low.
    With regard to concerns about cattle carcass disposal options, 
burying animals on the farm is not the only option for producers whose 
animals are non-ambulatory disabled. Other alternatives for disposal 
continue to be available to producers. These include rendering 
facilities, salvage slaughter facilities (i.e., not slaughtered for 
human consumption), and other animal disposal industries.
    USDA welcomes additional research into carcass disposal options and 
will continue to make decisions based on the most current science 
available.
    Question. Finally, is there a need to subsidize the collection and 
proper disposal of dead and downer animals, first to ensure inclusion 
in surveillance programs for disease, second to offset increases in 
costs associated with disposal of these animals and finally to ensure 
they do not create a hazard for other transmissible diseases? What is 
U.S.D.A. doing to assess and control this situation from becoming a 
potential hazard?
    Answer. Scientific experts from Harvard conducted risk assessment 
for BSE and concluded that, even given the find in Washington State, 
the disease would be circulating at extremely low levels in the U.S. 
cattle population if at all. With such a low prevalence rate, we do not 
anticipate large numbers of affected animal carcasses needing disposal 
during the next 12 to 18 months. Our recently announced enhanced 
surveillance plan allows us to further assure consumers, trading 
partners, and industry that the risk of BSE in the United States is 
very low.
    There are a number of options available to producers to dispose of 
animals that are non-ambulatory disabled. Options for disposal include 
burying animals on the farm, use of rendering facilities, salvage 
slaughter facilities (i.e., not slaughtered for human consumption), and 
other animal disposal industries.
    USDA has included cost recovery options in the budget for its 
enhanced BSE surveillance program. Payment for certain services will 
help cover additional expenses incurred by producers and the industries 
participating in the surveillance program and encourage participation. 
For example, costs for transporting an animal or carcass to the 
collection site from a farm or slaughter establishment may be 
reimbursed, or disposal expenses for ``suspect'' cattle that test non-
negative or that cannot be rendered may also be covered. Other expenses 
may also be addressed in the program.
    Question. The collection of these animals is important for tracking 
and surveillance for Mad Cow. Collection and inclusion of these animals 
in tracking and surveillance sampling is important.
    Has consideration been given as to how to achieve inclusion of dead 
on the farm and downer cattle in the monitoring program?
    Answer. Throughout the history of our surveillance program, USDA 
has worked to obtain samples from the targeted animal population, 
wherever these samples may be located. In order to obtain the samples, 
USDA-APHIS has worked with facilities other than federally inspected 
slaughter establishments as part of BSE surveillance efforts. These 
facilities included renderers, salvage slaughter facilities (i.e., not 
slaughtered for human consumption), and other animal disposal 
industries.
    Under our new surveillance program, we will build on these efforts 
to ensure that we maintain access to our targeted surveillance 
population. We will also be reinforcing our educational and outreach 
efforts to producers, so they will know who to contact about testing 
dead or downer animals on the farm.
    USDA-APHIS-Veterinary Services' officials across the country will 
work closely with their State counterparts to build on existing 
relationships at these locations so that we can obtain the necessary 
samples.
    Payment for services will help cover additional costs incurred by 
producers and the industries participating in our surveillance program. 
For example, costs for transporting an animal or carcass to the 
collection site from a farm or slaughter establishment may be 
reimbursed, or disposal expenses for ``suspect'' cattle that test non-
negative or that cannot be rendered may also be covered.
                national animal identification database
    Question. The USDA announced the immediate implementation of a 
National Animal Identification program. The pilot for this system has 
been underway with USDA for more than a year and a half to ensure 
uniformity, consistency and efficiency across this national system.
    Will this be a mandatory or voluntary system? If it is not 
mandatory could it satisfy requirements for international trade in beef 
and cattle?
    Answer. At the present time, participation with a national animal 
identification program would be on a voluntary basis while the USDA 
moves forward with the beginning stages of implementation. As the USDA 
learns more during the implementation of the system, USDA would likely 
move into rule-making.
    Implementing a national identification system that records animal 
movements will enable APHIS officials to complete the tracing of 
animals potentially exposed to a disease as timely as possible. 
Demonstrating our ability to contain and control the disease will 
provide the scientific data to document appropriate trade status 
issues. The animal tracking system will play a critical role in 
maintaining and/or restoring our export markets for U.S. livestock and 
animal products during and after an animal disease outbreak.
    Question. What considerations for maintaining the privacy of this 
information in a national animal identification database are being 
made?
    Answer. The USDA recognizes that producers are concerned about the 
confidentiality of the national system. USDA is not seeking marketing 
or production information, but only information that would help us 
track animals for disease purposes. We are examining all applicable 
laws and regulations, as well as the potential need for additional 
legislative authority, in our efforts to address this issue.
    Question. In 2002 many states, including California, suffered 
outbreaks of low-pathogenic avian influenza. USDA indemnified poultry 
producers in each of the affected states, except for California. In 
Virginia, West Virginia and North Carolina, USDA provided over $50 
million for indemnification. Despite inclusion of Report language 
directing USDA to indemnify California, Nicolas Turkey Breeders in 
Sonoma, California remains the only poultry operator omitted from this 
program.
    I would like to know what steps are you taking to rectify this 
situation?
    Answer. In 2002, when positive cases of Low Pathogen Avian 
Influenza had been found in New York; New Jersey, Texas, Maine, 
Michigan, and California; State authorities had taken the 
responsibility of controlling and eliminating the disease with no 
assistance provided from Federal authorities. In the case of Virginia, 
West Virginia, and North Carolina, LPAI was spreading at a rate that 
State officials could not control. At the request of the State of 
Virginia the USDA stepped in to provide assistance with depopulation, 
indemnities, cleaning and disinfection of premises; disposal of 
carcasses; epidemiology support; data management; and information 
dissemination. The California outbreak was relatively isolated and the 
State officials were able to control further spread. As a result, USDA 
does not intend to indemnify Nicolas Turkey Breeders for their turkey 
breeder flock.
                                 ______
                                 

            Questions Submitted by Senator Richard J. Durbin

                       single food safety agency
    Question. Currently, Federal oversight for food safety is 
fragmented with at least 12 different Federal agencies and 35 different 
laws governing food safety. There are also dozens of House and Senate 
subcommittees with food safety oversight. With overlapping 
jurisdictions and scattered responsibilities, Federal agencies often 
lack accountability on food safety-related issues and resources are not 
properly allocated to ensure the public health is protected. Our 
Federal food safety statutes also need to be modernized to more 
effectively ensure that food safety hazards are minimized.
    President Bush and Secretary Ridge have both publicly discussed the 
concept of combining Federal food safety responsibilities into a single 
agency. In the past, USDA has stated its opposition for such a move.
    Assuming USDA's position has not changed, what do you see as the 
disadvantages of combining the Federal food safety agencies into a 
single agency? Are there any advantages?
    Answer. Over the years, there has been much discussion about 
consolidating all food safety, inspection, and labeling functions into 
one agency in an effort to increase the effectiveness of the food 
safety system. In 2002, the White House established a Policy 
Coordinating Committee (PCC), led by the Domestic Policy Council and 
the National Economic Council, to look into the single food agency 
issue. The PCC concluded that the goals of the Administration are 
better advanced through enhanced interagency coordination rather than 
through an effort to create a single food agency.
    USDA routinely communicates and coordinates with other government 
entities to ensure a safe and secure food supply. With authority over 
meat, poultry, and egg products, USDA's FSIS plays an integral role in 
ensuring the safety of America's food supply. As a partner in the U.S. 
food safety effort, FSIS strives to maintain a strong working 
relationship with its sister public health agencies. Cooperation, 
communication, and coordination are absolutely essential to effectively 
address public health issues.
    The present statutory framework recognizes distinctions associated 
with the relative risks and hazards of foods and the food safety and 
food security issues that bear on public health. USDA's mission is to 
provide leadership on food, agriculture, and natural resources based on 
sound public policy, the best available science, and efficient 
management. Within USDA, the nearly 10,000 employees of the FSIS 
dedicate their careers and lives to protecting public health. USDA 
inspectors are in plants every day enforcing our nation's food safety 
laws. The statutes that are administered are clear and demand 
unwavering attention to ensuring that consumers continue to enjoy the 
safest and most abundant food supply in the world. It is this focused 
attention to food safety, food security, and public health that is best 
supported by the current organizational placement of the USDA food 
safety mission.
    FSIS bases its policy decision on science, so the single food 
agency discussion boils down to one
    Question. will there be a measurable benefit to public health? In 
other words, would such an effort save lives and reduce foodborne 
illness rates? As with any new food safety and security effort, we must 
make sure that we maintain and continue improving on any progress that 
has been made to improve public health. It is important to make sure 
that any disruption to the current food safety system effectively 
improves food safety and public health. USDA looks forward to working 
with Congress to examine these issues and to continue to keep the 
nation's food supply safe and secure and strengthen public health.
    Question. We have recently witnessed the consolidation and creation 
of the Department of Homeland Security. Do you believe the creation of 
DHS could serve as a model for the creation of a single food safety 
agency?
    Answer. The outcome of the policy discussion concerning a single 
food safety agency may be addressed in answering one key
    Question. Will there be a measurable benefit to public health? We 
must assure that any disruption to the current food safety system 
effectively improves food safety and public health. Additionally, the 
costs associated with any major overhaul to the U.S. food safety system 
must be considered. It is important to determine what the financial and 
human costs associated with a single food safety agency might be and to 
determine if this cost will best leverage funding for food safety.
    Question. Secretary Veneman, I believe you have been noted as 
saying that the statutes governing meat inspection ``pre-date the Model 
T'' and have implied that these statutes need to be modernized. I agree 
with you. Please identify what efforts you have made in the past year 
to accomplish this goal.
    Answer. During the past year, we have taken a hard look at our 
statutory authorities, and have held meetings with consumer and 
industry groups to ensure that we received the input of a variety of 
sources. Our efforts culminated in the development of ``Enhancing 
Public Health: Strategies for the Future,'' the Food Safety and 
Inspection Service's (FSIS') 2003 Vision Paper, which was published in 
July 2003. In outlining the Department's food safety vision, steps have 
been identified that must be taken before consideration of changes to 
our statutory authorities.
                              soybean rust
    Question. I am very concerned about the risk of importing Asian 
soybean rust into the continental United States. This could be a 
potentially devastating situation to our soybean crop and impose heavy 
economic burden on American farmers and consumers. I noticed this 
particular disease was not mentioned in your statement regarding APHIS' 
plan to deal with intentional and unintentional disease.
    I understand various pathways of entry for rust spores have been 
suggested which range from natural wind current to human or maritime 
transport. I am particularly concerned about the movement of soybeans 
and soybean meal through import channels. Soybean and soybean material 
produced in soybean rust-infected areas have the potential to carry 
viable spores when they are transported. I understand the potential 
viability of soybean rust spores can be eliminated if the soybean 
material is processed, heat-treated and handled properly.
    I, along with a number of my colleagues, wrote your office (a month 
ago) stating our concern on allowing imports from diseased areas until 
APHIS completes its risk assessment and has a plan in place to ensure 
we do no inadvertently import this devastating fungus. I would 
appreciate a response to these concerns. In addition, I would like to 
hear what the agency is doing to prevent the importation of soybean 
rust.
    Answer. Our response to your concerns about this disease was sent 
on March 25, 2004. As we indicated in the letter, APHIS officials are 
looking closely at our country's importation of soybean seed, meal, and 
grain. Our analysis to date has shown that clean soybean seed and 
soybean meal--which is a heat-treated, processed product--pose only 
minimal, if any, risk of introducing this disease.
    APHIS officials conducted site visits to soybean grain elevators in 
New Orleans on January 7, 2004, and to grain elevators and processing 
facilities in Brazil from February 10-12, 2004, to examine how the 
storage, loading, and shipping of export-quality soybeans are handled 
in the two countries. APHIS officials have determined that soybean leaf 
debris associated with the ``foreign material'' found in soybean grain 
shipments could present a potential pathway for the introduction of 
soybean rust. However, foreign material in soybean grain shipments 
typically amounts to less than 2 percent of the shipment. Moreover, as 
it is normal commercial practice to harvest soybeans after the plants 
have been defoliated, leaf debris should compose only a very minute 
part, if any, of the foreign material. Therefore, the foreign material 
found in soybean grain is an unlikely pathway for the introduction of 
soybean rust.
    APHIS has developed a strategic plan to minimize the impact of the 
introduction and establishment of soybean rust in the United States. 
The strategic plan describes our four-pronged approach to the disease, 
focusing on protection, detection, response, and recovery. We developed 
the plan in cooperation with our State cooperators, other USDA 
agencies, and industry representatives.
    Our protection efforts focus on preventing the human-assisted entry 
of soybean rust through the collection of off-shore pest information, a 
pathway pest risk assessment currently underway, and commodity entry 
standards. In this regard, Customs and Border Protection officials are 
inspecting imported shipments of soybeans to make sure that they meet 
our entry standards and notifying APHIS of these incoming shipments.
    We are currently conducting the risk assessment to evaluate the 
levels of risk involved with soybean imports and to develop mitigation 
measures to reduce any such risks. We have completed the first step in 
this process, a review of available scientific evidence on the risk of 
soybean rust's entry, and posted the document on APHIS' Web site. The 
collection of off-shore information from trading partners and APHIS 
personnel overseas is helping us to understand possible reservoirs and 
routes for infection and will enhance our detection, response, and 
recovery efforts.
    Our goal for the detection, response, and recovery aspects of the 
strategic plan is to ensure that a wide variety of stakeholders, 
including growers, crop consultants, State officials, extension agents, 
and many others can recognize the disease and know how to report 
possible introductions. We are monitoring sentinel soybean fields in 
eastern seaboard and southeastern States, the areas where we believe 
the disease would most likely enter the country, for the presence of 
soybean rust and have also begun training stakeholders in detection, 
identification, and disease management. We are also supporting the 
development of forecasting methods that would help predict where the 
disease would spread once it arrived in the United States.
    APHIS has established a Soybean Rust Detection Assessment Team, a 
rapid response team composed of scientific experts and State and 
regulatory officials. Team members met in January 2004 to plan specific 
emergency actions that would be immediately activated in response to a 
detection of soybean rust. Most recently, USDA officials participated 
in a soybean rust conference that was cooperatively organized by USDA, 
five pesticide companies, and the American Soybean Association. The 
primary goal of the conference was to disseminate to soybean farmers 
the knowledge, information, and techniques they will need to manage 
this pathogen when it reaches in the continental United States.
                           childhood obesity
    Question. To address this issue, many schools have explored 
creative approaches to promote healthy eating, and some of those 
approaches have been successful.
    These include efforts to: integrate nutrition education into the 
school curriculum; experiment with food packaging; and expose students 
to different fruits and vegetables.
    Efforts in some states are promising, and a number of schools have 
reported increased vegetable consumption and student acceptance of 
other healthier food choices.
    Unfortunately, such efforts remain limited and are often 
compromised by budget pressures. Recognizing this, on February 5, 2004, 
I sent a letter to your office, expressing my desire to work with you 
and your department to establish demonstration projects in several 
Illinois school districts to identify effective strategies to increase 
student acceptance of healthy foods.
    My staff has been in contact with your office in efforts to obtain 
a response to this letter. I would like to know if it is going to be 
possible to establish these demonstration projects. What new programs 
does the USDA plan to initiate to combat this growing threat of 
childhood obesity?
    Answer. I asked Undersecretary Bost to respond to your letter, 
which I understand he did on March 15. USDA's Team Nutrition 
administers a competitive grant program that assist States on 
initiatives that promote the nutritional health of the Nation's 
children. Team Nutrition has worked with the State of Illinois in the 
administration of the seven grants awarded to the State over the past 9 
years totaling $1.2 million. The Department is preparing to review new 
proposals for the fiscal year 2004 Team Nutrition grant program. These 
proposals could include mini-grants for funding school districts 
interested in developing innovative programs to promote healthy eating 
choices.
    In addition, the Food and Nutrition Service has joined the working 
group you have launched to deal with childhood obesity; I understand 
they will begin to meet in the very near future to discuss the group's 
goals and potential opportunities to address this important issue.
    USDA did receive funds in fiscal year 2004 to pursue a number of 
initiatives, and has proposed additional ones for fiscal year 2005 to 
address obesity and promote healthy weight. With this additional 
funding, the Department is developing new interventions in WIC to 
promote healthy eating for infants and children--efforts that will help 
our youngest participants develop healthy habits for the long term. 
USDA received $14.9 million in its fiscal year 2004 appropriation to 
enhance WIC breastfeeding promotion through peer counseling. The use of 
peer counselors has proven effective in increasing initiation and 
duration of breastfeeding--the feeding practice best suited to giving 
most babies a healthy start. USDA also received $4 million in fiscal 
year 2004 to initiate WIC Childhood Obesity Prevention Projects, which 
build on the success of the Fit WIC to work in partnership with States 
on innovative strategies to use WIC to prevent and reduce childhood 
obesity. Ongoing funding for these initiatives is critical to ensuring 
continuous improvement; and a $5 million increase has been requested 
for each initiative in fiscal year 2005. In fiscal year 2004, $2 
million in WIC Special Project grant funding is being used to promote 
consumption of fruits and vegetables.
    In addition, $2.5 million was requested in fiscal year 2005 to 
expand the Eat Smart. Play Hard.? campaign and establish a cross-
program nutrition framework to help ensure a comprehensive, integrated 
approach to nutrition education in all nutrition assistance programs.
    The Department has efforts underway in other programs as well. 
USDA, as part of the Department's Strategic Goal 4: ``Improve the 
Nation's Nutrition and Health,'' established a specific performance 
measure to reduce overweight and obesity among Americans. As a partner 
with the U.S. Department of Health and Human Services and other public 
and private sector stakeholders, USDA will take actions to encourage a 
reduction in overweight and obesity such that adult obesity will be not 
greater than 20 percent by 2010 (it is currently 30 percent), and child 
and adolescent overweight will be no greater than 8 percent (when last 
measured 15 percent of the Nation's children ages 6 to 19 years of age 
were overweight). The efforts underway in all the Federal nutrition 
assistance programs promote proper nutrition and healthy weight. 
However, to help ensure progress on this performance measure, the 
Department is reshaping nutrition education in the Food Stamp Program 
to target activities that promote healthy weight; exploring new ways to 
support healthy weight through the WIC Program; and promoting increased 
fruit and vegetable intake through partnership with other Federal 
agencies and the National 5-A-Day Program.
                 bovine spongiform encephalopathy (bse)
    Question. We still don't have a firm grasp of the prevalence of BSE 
in the nation's cattle herd. The USDA announcement on March 15th 
proposed an expansion of BSE testing to include over 200,000 cattle 
from the ``high risk'' group and 20,000 from clinically normal older 
cattle.
    Sampling approximately half of the high-risk group of cattle 
provides meaningful statistics on the prevalence of BSE in the sub-
population of cattle. However, 20,000 samples from an estimated 
population of 1 million older, clinically normal cows is not enough to 
validate disease prevalence for a population of that size.
    There are millions of cattle, mostly aged dairy cows, that are 
older than the FDA ruminant feed restrictions of August 1997. Many of 
these cows received potentially contaminated meat and bone meal, much 
of it imported from the EU, well into 1998. It is this sub-population 
of cattle that must be tested for BSE as they are processed into the 
human food supply.
    However, questions remain as to how the USDA can gain access to 
enough samples to meet the proposed number of cattle tested for BSE.
    I have sent you two letters which have yet to be addressed. I would 
appreciate a response to these letters and specifically these 
questions:
    You stated you did not know the ambulatory status of the Washington 
state Holstein cow that tested positive for BSE. I understand an 
investigation by the OIG has been opened. If it turns out the only 
animal that has tested positive for BSE in the United States was 
clinically normal and was found only through chance, then we must 
question the USDA's BSE surveillance program that focuses only on 
suspects, non-ambulatory and dead cattle.
    Answer. Prior to the passage of FDA ruminant feed restrictions in 
1997; USDA prohibited the import of ruminant-origin meat and bone meal 
from countries known to be affected by BSE beginning in 1989, and in 
1997 we prohibited the importation of ruminant-origin meat and bone 
meal from all of Europe. This was done to minimize the likelihood of 
aged dairy cattle in the United States being exposed to potentially 
contaminated meat and bone meal. Even more importantly, the United 
States has traditionally been a net exporter of rendered protein 
products. Our records simply do not show that there were significant 
imports of meat and bone meal from Europe for incorporation into 
livestock feed even when our regulations permitted such products to be 
imported.
    In addition, USDA has maintained an aggressive surveillance program 
since 1990. This surveillance has been targeted at the population where 
we are most likely to find the disease if it is present--adult animals 
that have some type of clinical signs that could be consistent with 
BSE. The index cow in Washington State fit in our targeted population, 
as she was not clinically normal. According to Agency records, when the 
index cow arrived at the plant, a Food Safety Inspection Service 
veterinarian conducted a clinical assessment and classified her as non-
ambulatory disabled. The Department stands behind that assessment.
    USDA continues to target its BSE surveillance efforts on cattle 
populations at the highest risk of having BSE. Specifically, 
surveillance has been targeted at cattle exhibiting signs of neurologic 
disease; condemned at slaughter for neurologic reasons; testing 
negative for rabies and submitted to public health laboratories and 
teaching hospitals; and appearing non-ambulatory (including those 
exhibiting general weakness severe enough to make it difficult but not 
impossible to stand), also known as ``downer cattle.'' We also target 
cattle that die on the farm for unexplained reasons.
    USDA's testing regime for BSE will follow our prescribed plan 
regardless of whether the afflicted animal in Washington State was a 
downer cow. There is a very important distinction to be made between 
``ambulatory'' cattle and ``apparently healthy'' cattle. An animal may 
be ambulatory but have other signs of disease that make it an 
appropriate animal to test. In addition, non-ambulatory cattle may be 
completely and entirely unable to walk, or intermittently so. It is not 
uncommon for a downer cow to be ``down'' then ``up'' several times over 
the course of the journey from farm to slaughter. Weak animals--either 
with a specific weakness, such as in their hind legs, or a general 
weakness--may be considered non-ambulatory for surveillance purposes 
because they cannot stand or walk completely normally. All evidence to 
date indicates that the animal in Washington State was selected 
appropriately for our targeted surveillance.
    As we recently announced, we plan to test as many cattle in the 
targeted high-risk population as possible in a 12-month to 18-month 
period and then evaluate future actions based on the results of this 
effort. The plan also incorporates a small random sampling of 
apparently normal aged animals at slaughter.
    The international standard setting organization--the World 
Organization for Animal Health--recognizes that focusing all BSE 
surveillance efforts on testing apparently healthy animals is the most 
inefficient and ineffective method of actually finding disease.
    In addition, no matter what the prevalence of the disease in the 
United States, there is a series of firewalls in place that 
dramatically reduce any possible risk to consumers. These safeguards 
include the ban on all parts of animals from high-risk populations from 
the food supply, along with potentially infective tissues--specified 
risk materials--from all cattle over 30 months of age.
    Question. If states are not allowed to do their own testing, then 
how does the USDA plan a ``robust'' expansion of its BSE testing from 
20,000 in 2003 to over 200,000 during the next 12-18 months?
    Answer. Throughout the history of our surveillance program, USDA 
has worked to obtain samples from the targeted animal population, 
wherever these samples may be located. In order to obtain the samples, 
USDA-APHIS has worked with facilities other than federally inspected 
slaughter establishments as part of BSE surveillance efforts. These 
facilities included renderers, salvage slaughter facilities (i.e., not 
slaughtered for human consumption), and other animal disposal 
industries.
    Under our new surveillance program, we will build on these efforts 
to ensure that we maintain access to our targeted surveillance 
population. We will also be reinforcing our educational and outreach 
efforts to producers, so they will know who to contact about testing 
dead or downer animals on the farm.
    USDA-APHIS-Veterinary Services' officials across the country will 
work closely with their State counterparts to build on existing 
relationships at these locations so that we can obtain the necessary 
samples. Payment for services will help cover additional costs incurred 
by producers and the industries participating in our surveillance 
program. Historically, all BSE testing in the United States has been 
performed exclusively at the National Veterinary Services Laboratories 
(NVSL) in Ames, Iowa. Under the new surveillance program, USDA plans to 
use a network of State and Federal veterinary diagnostic laboratories 
to conduct BSE surveillance tests. Confirmatory BSE testing will still 
be conducted at NVSL.
    Question. If state veterinary diagnostic laboratories or private 
companies meet or exceed the USDA standards for BSE test quality 
control and sample chain of custody, then why should states and private 
companies not be allowed to test animals for BSE within their states?
    Answer. USDA's targeted surveillance program is designed to 
identify the presence of BSE in the U.S. cattle population if it 
exists. Under our current surveillance plan, using APHIS' National 
Veterinary Services Laboratories and participating Animal Health 
Network laboratories, we can assure trading partners of the program's 
scientific legitimacy. We may not be able to make the same case to the 
international community if industry dictates the parameters of the 
testing program. Further, the use of a rapid test would imply a 
consumer safety aspect that is not scientifically warranted. Also, 
because USDA will be restricting BSE testing to public laboratories, we 
can ensure that our testing remains transparent but does not cause 
undue public concern if a rapid test produces a false positive 
reaction.
    Question. Given the limited access to suspect and non-ambulatory 
cattle, how many cows have been tested for BSE since January 1st of 
2004?
    Answer. Between January 1, 2004 and March 31, 2004, approximately 
5,500 cattle were tested for BSE. USDA anticipates the number of cattle 
tested per month to increase substantially once the enhanced 
surveillance plan is fully implemented on June 1, 2004.
    Question. Since there are no incentives for producers to submit 
non-ambulatory or sick animals for BSE testing, how can the USDA expect 
to test over 200,000 of these ``high risk'' animals during the next 12 
to 18 months?
    Answer. Throughout the history of our surveillance program, USDA 
has worked to obtain samples from the targeted animal population, 
wherever these samples may be located. In order to obtain the samples, 
USDA-APHIS has worked with facilities other than federally inspected 
slaughter establishments as part of BSE surveillance efforts. These 
facilities included renderers, salvage slaughter facilities (i.e., not 
slaughtered for human consumption), and other animal disposal 
industries.
    Under our new surveillance program, we will build on these efforts 
to ensure that we maintain access to our targeted surveillance 
population. We will also be reinforcing our educational and outreach 
efforts to producers, so they will know who to contact about testing 
dead or downer animals on the farm.
    USDA-APHIS-Veterinary Services' officials across the country will 
work closely with their State counterparts to build on existing 
relationships at these locations so that we can obtain the necessary 
samples.
    Payment for services will help cover additional costs incurred by 
producers and the industries participating in our surveillance program. 
For example, costs for transporting an animal or carcass to the 
collection site from a farm or slaughter establishment may be 
reimbursed, or disposal expenses for ``suspect'' cattle that test non-
negative or that cannot be rendered may also be covered. Other expenses 
may also be addressed in the program.
    Question. How will the $70 million earmarked for expanded BSE 
surveillance be distributed among costs for tests, laboratory 
expansion, certification and manpower needs, sample collection and 
shipping, education, communications and incentives for collection of 
samples?
    Answer. We estimate that the full cost of the enhanced surveillance 
program will be approximately $76.4 million. However, USDA was able to 
offset some of these costs by directing funds from previous Commodity 
Credit Corporation transfers towards this 12- to 18-month effort.
    Of the total need identified, USDA anticipates spending the funds 
as follows:

                        [In thousands of dollars]
------------------------------------------------------------------------
                    Program Component                          Cost
------------------------------------------------------------------------
Personnel and Benefits (Includes investigators,                    9,078
 laboratory inspectors and manager, pathologists,
 program analysts, sample collectors in the field, staff
 veterinarians, etc.)...................................
Travel (includes trips for meetings, training sessions,            1,445
 outreach)..............................................
Transportation (Includes shipment of samples for testing          19,013
 and the transportation of animals, animal parts,
 carcasses, etc. for sampling and/or disposal)..........
Rent, Communication, Utilities (Includes offsite                     400
 collection/storage facilities).........................
Other Services (Includes agreements with contract labs,           36,994
 laboratory training set-up, costs associated with
 carcass/offal storage until test results confirmed,
 disposal of non-negative and certain other carcasses,
 database costs, printing, and indirect costs, etc.)....
Supplies and Materials (Includes shipping supplies--               4,400
 cooler box, centrifuge tubes, etc.; test kits).........
Equipment (Includes robotics and other equipment for               5,059
 cooperating labs, additional equipment for NVSL and
 Center for Vet Biologics)..............................
                                                         ---------------
      Total.............................................          76,389
------------------------------------------------------------------------

                                 ______
                                 

               Questions Submitted by Senator Tim Johnson

                       country of origin labeling
    Question. I have the February 10th response from Bill Hawks, Under 
Secretary for Marketing and Regulatory Programs, to my December 2003 
letter. I ask you, Secretary Veneman, for a more substantial response 
to my initial question. How are you interpreting the 2-year delay on 
COOL, and will the delay apply to the rulemaking process?
    Answer. The Omnibus Bill delayed the implementation of mandatory 
COOL for all covered commodities except wild and farm-raised fish and 
shellfish until September 30, 2006. Accordingly, USDA is precluded by 
law from immediately implementing a mandatory COOL program for all 
commodities. Currently, we are reviewing the comments received on the 
proposed regulations and will continue to implement COOL as mandated by 
the 2002 Farm Bill and the Omnibus Bill.
    Question. Secretary Veneman, with respect to the feasibility of 
country of origin labeling, have you and your department reviewed the 
GAO report that Senator Daschle and I requested?
    Answer. Yes, my staff and I have reviewed the report.
    Question. Has the United States Department of Agriculture reviewed 
the multiple assertions on the part of GAO that deem country of origin 
labeling to be entirely feasible and much more cost effective than your 
department originally contended?
    Answer. Yes, we have reviewed the GAO assertions. The GAO report 
recognizes that the existing Federal, State, and foreign country 
programs that were suggested for use as models in implementing 
mandatory COOL will not be particularly useful for meat, fish, and 
shellfish due to the law's unique definitions of a U.S. product. The 
preliminary recordkeeping burden estimate that AMS published in 
conjunction with the voluntary country of origin program, which served 
as the basis for GAO's report, was $1.9 billion. While the report 
questions the assumptions used by AMS in formulating this estimate, it 
also recognizes that this estimate did not include the costs of 
segregating and storing foods and for labeling products.
              developing the animal identification program
    Question. How do you intend to develop the animal identification 
program, and what parties will you include in the process? Will 
producers and scientists be adequately represented and consulted?
    Answer. Implementation of a national animal identification system 
will begin through cooperative agreements to assist state and other 
entities to develop the capacity to interface with the national 
repositories. Federal funds would not be earmarked for hardware such as 
identification tags or electronic readers. Cooperators would decide to 
develop the interface and solicit producer and non-producer 
participation into the system. USDA expects that the funding level 
would start at the highest levels in Phases I and II as cooperators and 
species are added but then decline into a steady state maintenance 
level over time. USDA does not envision the Federal funding being used 
for hardware purchases in the long term, except for maintenance and 
additional development of the national allocators and repositories. 
USDA also expects that competition among vendors for adoption of their 
technologies by producers would result in private technology vendors 
also making investments in the system infrastructure to position their 
technologies.
    A major factor contributing to the success of this program will be 
state participation and communication with and educating producers and 
other stakeholders as to the operation of the program and their 
responsibilities. Some states have started activities that mirror, to 
various degrees, the identification of premises and animals. Many of 
these activities are supported by USDA funds. Cooperative agreements 
would support the interface of these systems with the National Animal 
Identification System. Some agreements with early cooperators would be 
established early in Phase I. USDA recommends that additional 
agreements with a broad range of cooperators be established later in 
Phase I and into Phase II.
    The decision process for these recommendations included a group 
effort of USDA's BSE response coordinator, the Deputy Under Secretary 
for Farm and Foreign Agricultural Services; USDA General Counsel; and 
USDA Chief Economist assisting the Chief Information Officer in 
developing a plan and strategy to implement a National Animal 
Identification System. The group relied heavily on the excellent 
information developed as part of the U.S. Animal Identification Plan 
(USAIP), and on the expertise of the USAIP Steering Committee; the 
Under Secretary for Marketing and Regulatory Programs; and the 
Administrator and staff of the Animal and Plant Health Inspection 
Service. The group also met with a broad spectrum of organizations and 
companies representing the meat supply system, from production through 
retailing. The recommendations of the group reflect the complex 
structure of the livestock industry and previous efforts to design and 
implement NAIS.
                              bse testing
    Question. Secretary Veneman, a rapid, live test will be 
instrumental in reestablishing our trading opportunities in key 
markets. How much money would the department need to develop this test, 
and have you in fact initiated the process?
    Answer. The Agricultural Research Service is conducting research to 
develop live animal tests for transmissible spongiform 
encephalopathies. ARS has successfully developed such a test for 
scrapie in sheep and has contributed to such a test for CWD in farmed 
deer using non-brain tissues accessible in live animals. Unlike the 
sheep third eyelid and the deer tonsil tests, cow material does not 
contain prions at concentrations that can be detected with current 
technologies. Using current funding, ARS is enhancing the sensitivity 
of current tests to look for prions in blood where they may be present 
at very low levels. ARS is also developing novel proteomic approaches 
to prion detection. This research will be enhanced by an additional $1 
million included in the President's fiscal year 2005 budget which will 
support the studies to determine the genetic susceptibility of cattle 
to BSE. Such information will be helpful in identifying what peripheral 
tissues might be used to detect prions and/or what alternative genetic 
markers might be indicative of a cow being infected with BSE-causing 
prions.
                       energy balance of ethanol
    Question. Dr. Collins, the United States Department of Agriculture 
has conducted extensive analysis on estimating the net energy balance 
of corn ethanol. Technological advances in ethanol conversion and 
increased efficiency in farm production have produced demonstrated 
improvements and a positive net energy balance.
    At a time of increasing prices for some inputs and the continued 
expansion of ethanol plants and capacity throughout the country, could 
you please summarize the USDA's latest conclusions as to the positive 
net energy balance of ethanol?
    Answer. Although it takes energy to produce ethanol, repeated USDA 
research shows a positive net energy balance of corn ethanol. the 
energy in ethanol exceeds the amount of energy used to produce it, and 
this energy balance has improved over time.
    Technological innovations in corn production and ethanol conversion 
are important factors in this improvement. Corn yields have improved, 
and ethanol plants are rapidly adopting innovations which substantially 
reduce the energy required to convert corn into ethanol. Our most 
recent estimate of the energy ratio is 1.67, up from 1.22 in 1995. This 
indicates that the energy content of ethanol is 67 percent greater than 
the energy used to grow, harvest, and transport corn, and to produce 
and distribute the ethanol. USDA will be presenting our most recent 
study at the Corn Utilization Conference, June 7-9, 2004 in 
Indianapolis, Indiana.
    Question. Dr. Collins, the Reformulated Gasoline Program (RFG) is a 
key contributor toward mitigating ozone problems in some of America's 
largest metropolitan areas. The principal oxygenate used in the RFG 
Program, MTBE, is linked to underground water contamination and several 
states have taken action to phase-out and then ban the use of MTBE as 
an oxygenate.
    Dr. Collins, as the Congress works to pass a renewable fuel 
standard, can you please summarize for the Committee the latest 
benefits of using ethanol as an oxygenate under the existing RFG 
Program?
    Answer. Ethanol contains 35 percent oxygen, and adding oxygen to 
fuel results in more complete fuel combustion, thus reducing harmful 
tailpipe emissions. Ethanol also displaces the use of toxic gasoline 
components such as benzene, a carcinogen. Ethanol is non-toxic, water 
soluble, and quickly biodegradable.
    According to the National Research Council, blending ethanol in 
gasoline reduces carbon monoxide tailpipe emissions. Additionally, RFG, 
including ethanol-blended fuels, reduce tailpipe emissions of volatile 
organic compounds, which readily form ozone in the atmosphere. Thus, 
the use of ethanol can play an important role in smog reduction.
    Importantly, where smog is of most concern, gasoline blended with 
ethanol must meet the same evaporative emission standard as gasoline 
without ethanol. This ensures that these ethanol blends provide further 
emissions reductions that limit ozone formation.
    Ethanol is produced from grains and other biomass in much the same 
way as beverage alcohol. MTBE, on the other hand, is a toxic additive 
produced from natural gas and methanol. Exposure to ethanol vapors 
coming from ethanol-blended gasoline is very unlikely to have any 
adverse health consequences. Because ethanol is naturally present in 
blood and the body rapidly eliminates ethanol, exposure to ethanol 
vapors is unlikely to be a health hazard.
                     standard reinsurance agreement
    Question. With respect to the Standard Reinsurance Agreement, my 
office has heard substantial complaints regarding the Risk Management 
Agency's proposed draft.
    Where are you in the process of reviewing these complaints, and how 
do you propose to change the SRA to ensure it is friendlier to 
producers and agents alike?
    Answer. RMA reviewed comments from insurance companies and 
interested parties to revise the first draft. On Tuesday, March 30, RMA 
announced the release of the second SRA proposal. RMA believes that the 
second draft demonstrates responsiveness to concerns raised by 
companies and interested parties in the first round of negotiations.
                                 ______
                                 

            Questions Submitted by Senator Mary L. Landrieu

             national finance center--e-payroll initiative
    Question. What, if any, action do you plan to take with respect to 
this proposal?
    Answer. USDA has worked with the Office of Personnel Management 
(OPM) to review and respond to the State of Louisiana's ``e-Government/
e-Payroll Project Initiative.'' OPM's e-Government Initiatives Office 
took the lead in working with the Payroll Advisory Council, the Office 
of Management and Budget (OMB), the various Federal councils, and 
others involved in the e-Payroll initiative to respond to the proposal. 
On April 19, 2004, OPM wrote the Honorable Don J. Hutchinson, Secretary 
of Louisiana's Department of Economic Development, to share with him 
the results of this review. A copy of this memorandum is attached.
    [The information follows:]

                            Office of Personnel Management,
                                    Washington, DC, April 19, 2004.
Hon. Don I. Hutchinson,
Secretary, Department of Economic Development, Baton Rouge, LA.
    Dear Secretary Hutchinson: Thank you again for the opportunity to 
review your ``e-Government/e-Payroll Project Initiative'' proposal. As 
a part of the evaluation process, you permitted our Payroll Advisory 
Council (PAC) the opportunity to review the proposal and provide 
comments. In February 2004, members of the PAC (that includes 
representatives from the Office Personnel Management, the Office of 
Management and Budget, 6-Payroll Providers, and Federal Councils) 
reviewed the proposal, and I would like to share the results with you.
    In general, the PAC determined that the proposal was very well 
thought out and contains valuable ideas. However, it does not appear to 
meet the needs of the Federal Government at this time and is not in 
alignment with the strategic goals of the e-Payroll initiative. For 
example, while it discusses including the Department of Agriculture's 
National Finance Center (NFC) in some loosely defined development 
activities, it merely mentions NFC's partnership with the Department of 
Interior, National Business Center (NBC). Additionally, the proposal is 
unclear in regard to considerations for the employees at the NBC and 
NFC who will be affected by the proposal. The proposal also indicates 
that the State of Louisiana and private concerns will provide $200 
million for the advancement of the facility. Not stated in the proposal 
is what, if any, obligations the Federal Government would have to 
reimburse that amount. It is also not evident how the proposed 
corporation will interact with OPM, other authority agencies; or 
customers. An established process for collaboration with Federal 
authority agencies and customers is extremely critical since competing 
needs could place significant demands on the provider. The PAC was also 
extremely concerned with how the proposed corporation would address key 
national security concerns, especially those of the Intelligence 
community. Additionally, the PAC was also unclear as to how the 
proposal complied with the principles of fair and open competition, 
considering that thee-Payroll Providers operate out of several 
different States.
    The proposal indicates that software development is one of the 
first priorities of the corporation. The PAC construed this to mean 
that the State does not have a viable product readily available to the 
Federal Government. Today, the e-Payroll Providers have independent 
systems; replacement of these four systems is targeted for fiscal year 
2007. To achieve replacement in fiscal year 2007, e-Payroll and the 
Providers are exploring options today by conducting a feasibility study 
to assess commercial off-the-shelf (COTS) and Government off-the-shelf 
(GOTs) products. Upon completion of this study, it is planned to test 
these applications under a structured demonstration lab. Should the 
State of Louisiana have a product available in the next several months, 
it could be considered for inclusion in the demonstration lab.
    Again, thank you for the opportunity to review the proposal. I 
would welcome any information that you might provide regarding the 
availability of software the State of Louisiana might have for 
inclusion in the upcoming demonstration lab.
            Sincerely,
                                              Norman Enger,
                         Director, e-Government Initiatives Office.

    Question. Since the activities of the NFC are outside the normal 
scope of business of the U.S. Department of Agriculture, in the event 
the Department cannot support this cost-effective approach to meeting 
the PMA, are you considering the possibility of the transition of the 
NFC to a structure or ``ownership'' that will facilitate this proposal?
    Answer. As part of the e-Payroll initiative, USDA/NFC in 
conjunction with the Department of the Interior's National Business 
Center (NBC), its e-Payroll business partner, submitted to OPM in 
August 2004, a proposal to combine the Government-wide, cross-servicing 
business lines of NFC and NBC into an organization characterized as:
  --Commercial-like, Federal corporate entity
  --Providing a wide range of services targeted at supporting the 
        President's e-Government Agenda
  --Operational flexibilities defined; i.e., human resource and finance
    This proposal is under review by OPM and OMB.
    Question. What specific actions can you take from here to make sure 
the Louisiana proposal receives the full attention of the Department of 
Agriculture?
    Answer. OPM's e-Government Initiatives Office has taken the lead in 
working with the Payroll Advisory Council, the Office of Management and 
Budget (OMB), the various Federal councils, and others involved in the 
e-Payroll initiative to respond to the proposal.
    Question. If Congress were to direct you, or suggest that you, your 
Department and the Department of Interior have authority to move out on 
a proposal like Louisiana's, would you support such legislative 
authority?
    Answer. We would work with OPM and OMB in support of any direction 
provided and work with them to implement this direction in line with 
the goals and objectives of the President's Management Agenda to 
further delivery of cost-effective services to Federal employees and 
agencies.
    Question. Is specific legislation necessary before you, your 
Department and the Department of the Interior proceed with some type of 
public/private partnership initiative like that proposed by the State 
of Louisiana?
    Answer. We believe that specific legislation would be necessary to 
charter and authorize the new entity as well as provide the necessary 
structure, human resource, and financial flexibilities necessary for 
the organization to be successful. OPM has identified the need for 
legislation as a primary critical path item if the merged proposal 
proceeds.
              national finance center--thrift savings plan
    Question. Ms. Secretary, as you are aware, the Federal Retirement 
Thrift Investment Board (FRTIB) Chairman, Andrew Saul, in his February 
20, 2004 letter to you, said the Board is ``giving notice of 
termination of software maintenance services and mainframe operations 
by NFC'' for the Thrift Savings Plan. It is estimated that this action 
could result in the loss of as many as 35 to 40, if not more, of the 
highest paying jobs at NFC, and may lead to a subsequent decision by 
the ``Thrift'' Board to terminate the NFC's ``case management' of the 
TSP which involves another 400 jobs at the NFC. It is my understanding 
that according to some preliminary information received thus far from 
the ``Thrift'' Board and the NFC, the actions by the ``Thrift'' Board 
may not be warranted or justified at this point.
    Has your office considered what, if anything, can be done to 
reverse this action by the Federal Retirement Thrift Investment Board?
    Answer. The decision to purchase service from NFC is under FRTIB's 
control. USDA believes strongly that continued use of NFC is still a 
cost-effective, sound business decision. We have taken steps to improve 
communication between USDA/NFC and FRTIB in an effort to rebuild the 
strategic partnership and retain the business. However, we do not know 
all of the factors influencing the Board's decision, and therefore do 
not know if our actions will influence the outcome.
    Question. What have your offices, specifically in DC, done in reply 
to the February 20th letter?
    Answer. Tom Dorr, Senior Advisor to the Secretary, was appointed to 
represent USDA and to meet personally with senior FRTIB officials and 
to help clarify and resolve the issues. Mr. Dorr, as well as other 
executives of OCFO, has been in continuing contact with FRTIB and NFC 
since his assignment.
    Question. I am concerned that changing the operations of critical 
elements of the Thrift Savings Plan operations and functions from the 
National Finance Center to ``possible entities'' in Washington, D.C. 
may cause even more customer problems and be less cost effective.
    Please provide for the record any and all cost comparison studies 
or analyses the Department of Agriculture, the Thrift Board, or any 
other entities have done regarding ``outsourcing,'' moving,'' or 
``changing'' any and all TSP activities versus maintaining them at the 
National Finance Center.
    Answer. FRTIB has had several studies conducted over the years.
    Hewitt Associates prepared an analysis, Defined Contribution 
Outsourcing Feasibility Study, for FRTIB in November 1992. Continued 
service from NFC was the top ranked alternative under consideration. 
The Hewitt Associates experts concluded that keeping the TSP 
recordkeeping function at NFC with the existing software and management 
structure best met FRTIB's and TSP participant needs at that time.
    Logicon 4GT prepared a system review and recommendation report for 
FRTIB in 1995. NFC's services were again rated favorably. According to 
the consultants in 1995, the benefits that TSP participants received 
relative to the costs paid at NFC were excellent. TSP participants were 
paying less than one-half of the private sector cost. The industry 
standard for comparing mutual/retirement fund administrative expense 
ratios between competitors is percent of assets--typically referred to 
as basis points. (One percent equals 100 basis points.) At the time of 
the Logicon review, NFC's basis points were 7.7 of the 12 total TSP 
basis points.
    NFC's TSP costs are still low when compared to comparable efforts 
in industry. In his opening statement at the March 1, 2004, Senate 
Committee on Governmental Affairs, Senator Fitzgerald referenced the 
recent expense ratio of TSP and comparable private sector funds. In 
2003, the expense ratio of the average TSP fund was 11 basis points. 
Per Lipper Services, comparable index funds in the private sector have 
an average expense ratio of 63 basis points. Between 1994 and 2003 when 
TSP's basis points dropped from 12 to 11, NFC's share of the basis 
points decreased from 7.7 to only 4.4, a decrease of 43 percent. 
Without the increased cost efficiencies of NFC, total TSP 
administrative costs would have been significantly higher than 11 
points in 2003.
    On March 4, 2004, FRTIB issued a multi-year contract to a private 
vendor for a parallel call center. This will result in the eventual 
movement of 50 percent of the call center workload from NFC in New 
Orleans to the vendor located in the Washington, D.C., metropolitan 
area. NFC paired with its e-Payroll partner, Department of the 
Interior's National Business Center in Denver, to compete but lost the 
bid.
    Question. Also, please provide for the record, or to the 
Subcommittee staff and our offices all relevant correspondences, 
notices, and memos between the Federal Retirement Thrift Investment 
Board and any offices in USDA (in Washington or at the National Finance 
Center) from January 1999 to today, relating to TSP management and 
operations with respect to this issue.
    Answer. The information has been provided to the Subcommittee 
staff.
                national finance center--data mirroring
    Question. The fiscal year 2005 USDA budget request provides 
$12,850,000 in additional funding for the ``acquisition of disaster 
recovery and continuity of operations technology of the National 
Finance Center's data.'' This additional funding may be necessary to 
complete the effort begun in fiscal year 2003 to fund a back-up, or 
data mirroring, center for the NFC. In fiscal year 2003, $12 million 
was appropriated for this center, subject to reporting requirements by 
Congress.
    As it appears that the Budget justification for fiscal year 2005 
submitted to the Subcommittee by the Department only provides a four-
sentence explanation with no budget table breakout, please provide for 
the record details and a specific breakout of what the $12.85 million 
request in fiscal year 2005 includes.
    Please provide for the record what has been obligated and or spent 
to date from the funds appropriated in fiscal year 2003 and for what 
purposes. In addition, please provide any relevant details.
    Answer. NFC delivers critical service to the entire Federal 
community. Its highest impact business lines are Thrift Savings Plan 
recordkeeping for 3.1 million participants and payroll/personnel 
support to 122 Federal agencies. Disruption in either of these services 
due to a disaster would have wide, significant repercussions across the 
nation. NFC has undertaken a multi-year initiative with appropriated 
funds to address short-term vulnerabilities and as well as to begin 
longer-term actions required to implement a more secure remote 
alternate data center at another location.
    The initial $12 million was to be used on immediate improvements to 
NFC's security and recovery infrastructure and to begin the actions 
required to establish the remote computing facilities. The immediate 
improvements were estimated at $3.6 million--$0.8 million for 
implementation of enhancements to network security and technical 
solutions to known network vulnerabilities and $2.8 million for interim 
implementation of high availability mirroring through expansion of the 
current commercial recovery center contract. The remaining $8.4 million 
was to begin implementation of the alternate computing facility. 
Details on the projects follow.
  --Implementation of enhancements to network security and technical 
        solutions to known network vulnerabilities: Estimated $800,000
    --Access control--no expenditure of appropriation required; will be 
            achieved through the upgrade of the operating system on May 
            29, 2004
    --Logging and monitoring--$26,977 expended for Blue Lance logging 
            and monitoring software; installed and fully operational; 
            $52,000 anticipated for intrusion detection enhancements 
            and installation/configuration of Tripwire (in the 
            procurement process)
    --Vulnerability management--$284,000 anticipated for vulnerability 
            scanning and management software (in the procurement 
            process)
    --Remote access--$157,689 expended, $157,787 obligated for Citrix 
            hardware and software
    --Encryption--$26,468 expended for Cisco encryption equipment; 
            installation in progress
    --Authentication--$95,000 anticipated; smart cards, technical 
            support, and server to support two-factor authentication 
            (estimated $75,000; in the procurement process); Sygate 
            Security Portal for remote connection policy enforcement 
            (estimated $20,000; in the procurement process)
  --Implementation of mirroring to provide high availability and 
        recovery of payroll/personnel data in NFC's reporting center 
        within 24 hours of a declared disaster: Estimated $2.8 million
    --Mirroring solution for payroll/personnel data in NFC's reporting 
            center--NFC has received the proposals from vendors and is 
            now in the process of evaluating them.
    --Network equipment upgrade at the recovery backup site to support 
            mirroring solution--$60,000 anticipated; in the procurement 
            process
    NFC initially estimated a one-time investment of approximately 
$34.1 million to establish a Federally controlled alternate site within 
350 miles of New Orleans that included collocation of business 
resumption capability. Final plans depended upon on the availability of 
facilities for lease or sublease in the targeted area that have already 
been outfitted for data center operations and the availability of 
funding. If NFC were able to secure space on an existing Federal 
facility that already meets Department of Homeland Security physical 
security standards, it could reduce costs below those shown in the 
original estimates. NFC is currently pursuing site location and 
business continuity options that would enable establishment of an 
alternate computing facilities environment that manages the risks 
associated with discontinued service. Final cost estimates are pending 
receipt of the responses from the Federal community. However, the 
remaining $8.4 million of the fiscal year 2003 appropriation and the 
$12.85 million proposed for fiscal year 2005 are expected to fund much 
of this critical investment.
    This one-time capital investment will address the following 
critical objectives:
  --Undertake actions to reduce enterprise risk and support data 
        mirroring capability. NFC is currently awaiting responses from 
        prospective Federal sources to its statement of requirements 
        seeking excess computing facility space.
  --Buy and install hardware and software needed to support the effort, 
        set up a new tape library system, and design and implement 
        point-in-time remote backup capability.
  --Evaluate emerging backup and recovery options and their associated 
        costs.
    The details of the initial $34.1 million capital investment 
estimates are below. These were included in our September 2003 report 
to Congress. We will update this budget once we receive feedback from 
the prospective Federal site sources.

        ONE-TIME CAPITAL INVESTMENT REQUIREMENT/SERVICEBASE COST
------------------------------------------------------------------------
                   Requirement/Service                       Base Cost
------------------------------------------------------------------------
Alternate Data Center:
    Mainframe hardware/software.........................      $2,650,000
    Distributed servers hardware/software...............       2,775,000
    Storage.............................................      10,550,000
    Tape................................................       3,450,000
    Firewalls/Virtual Private Network...................         675,000
    Telecommunications/LAN equipment....................       2,000,000
    Build-out cost/furniture for 16,000 sq. ft. data           6,444,000
     center space (including 11 employee workstations)..
    Design/engineering/project management contractual          2,854,000
     services...........................................
                                                         ---------------
      Subtotal..........................................      31,398,000
                                                         ===============
Collocation of Business Resumption Capability:
    Build-out cost for 52,000 sq. ft. office space......       1,352,000
    Furniture/workstations for 300 employees............       1,200,000
    Design/engineering/project management contractual            135,000
     services...........................................
                                                         ---------------
      Subtotal..........................................       2,687,000
                                                         ===============
      Total.............................................      34,085,000
------------------------------------------------------------------------

    Question. As of today, what specific sites are under consideration 
for this data mirroring center?
    Answer. We are preparing for solicitation from Federal sources. No 
specific sites are under consideration at this time.
    Question. The fiscal year 2003 Continuing Appropriations Conference 
Report section of the Agriculture Appropriations Bill, 108-10, Pages 
551-552, included report language directing the Secretary of 
Agriculture ``to submit a feasibility study to the Committee on 
Appropriations on the need for remote mirroring backup technology of 
the National Finance Center's data. This study should include a 
breakdown of the costs and time frame associated with acquiring such 
technology, and should designate an appropriate physical location for 
the site. . . .''
    This ``feasibility study'' did not make any specific 
recommendations but it did provide a timeline for specific site 
determination that included a ``competitive site selection for a 
secondary backup data center'' starting in fiscal year 2004. Has this 
process begun?
    Answer. Site specifications are complete. The next step is 
solicitation from Federal agencies, which will occur shortly.
    Question. What is the current timeline and plan for this site 
selection process?
    Answer. We anticipate sending the solicitation package to three 
Federal agencies and getting responses by the end of June 2004.
    Question. The ``feasibility'' report essentially claims as the key 
reason for site selection and criteria for that selection the 
elimination of the ``NFC's extreme vulnerability to the hurricanes 
common to the Gulf Coast.'' In fact, the report continually sites this 
reason as a critical factor.
    Please provide for the record the number of times the NFC has been 
completely shut down because of hurricane events over the last 20 
years. Also, provide for the record the number of times, over the same 
time period that the Department of the Interior's National Business 
Center, General Service Administrations comparable data center and the 
Department of Defense pay and personnel functions have been shut down 
for weather related reasons as well as any other factors. This should 
also include the Office of Personnel Management operations in 
Washington, D.C.
    Answer. Over the past 20 years, NFC was shut down on two occasions 
due to weather for a total down time of approximately 15 hours. On a 
third occasion, operations were limited due to weather conditions 
associated with a hurricane. Each of these occurrences took place since 
1998. Regarding other agencies and Departments of interest to the 
Committee, we learned that the Department of the Interior's National 
Business Center reports no complete building shutdowns. We have been 
unable to obtain up-to-date information from the other agencies 
identified.
                                 ______
                                 

             Questions Submitted by Senator Robert C. Byrd

                      humane slaughter operations
    Question. In fiscal year 2003, $5 million was provided to the Food 
Safety and Inspection Service to increase, by 50 full time equivalents, 
resources dedicated to enforcement of the Humane Methods of Slaughter 
Act (HMSA). The President's request for fiscal year 2005 includes $5 
million to continue this purpose.
    Please describe how the $5 million appropriated in fiscal year 2003 
was allocated, and how the $5 million proposed for fiscal year 2005 
will be allocated.
    Answer. The fiscal year 2003 Appropriations conference agreement 
provided $5 million over 2 years for at least 50 FTE's to enforce the 
HMSA. In 2003, FSIS directed the District Veterinary Medical 
Specialists (DVMSs) to evaluate the time spent conducting humane 
handling verifications. The DVMSs determined that FSIS inspectors and 
veterinarians would spend an estimated 130,000 hours conducting ante-
mortem and humane handling inspections, which translates to more than 
50 FTEs. Based on the survey data, USDA believes that the requirements 
are being met as evidenced by the increased hours of humane slaughter 
activities. At the time the funding was provided, FSIS was developing 
Humane Activities Tracking (HAT) system to allow the agency to more 
accurately capture the time spent on humane handling and slaughter 
enforcement activities by FSIS inspection personnel.
    In fiscal year 2005, the Administration has requested $5 million 
for FSIS to continue the work funded only for fiscal years 2003 and 
2004. This includes staffing and benefit costs directly associated with 
humane handling and slaughter enforcement activities.
    Question. Please explain why you believe the manner you have taken 
to meet the additional 50 full time equivalent requirement will provide 
more effective HMSA enforcement than by using the appropriation to hire 
50 individual inspectors dedicated solely to HMSA enforcement.
    Answer. USDA considers humane handling and slaughter a top 
priority, and FSIS veterinarians and inspectors are required to enforce 
humane handling and slaughter regulations at all of the more than 900 
federally inspected establishments. FSIS continues to improve training 
and education efforts to ensure that all field personnel understand 
their authority, obligation and accountability to rigorously enforce 
the Humane Methods of Slaughter Act (HMSA). The fiscal year 2003 
Appropriations conference agreement provided $5 million over 2 years 
for at least 50 full time equivalents (FTEs) to enforce the HMSA. FSIS 
secured at least 50 FTEs dedicated to HMSA enforcement during Calendar 
Year 2003. Based on the DVMS survey data, USDA believes that the HMSA 
requirements are being met as evidenced by the increased hours of 
humane slaughter activities across all federally inspected 
establishments. Because of the importance of this top priority to the 
entire field workforce, in fiscal year 2005, the Administration has 
requested $5 million for FSIS to continue the work funded in fiscal 
year 2003 and 2004.
    Question. Critics of current HMSA enforcement suggest that unless 
FSIS personnel are always present at animal handling and slaughter 
sites, there is no way to know if HMSA violations occur. Further, it 
has been suggested that plant employees use communication methods to 
warn handling and slaughter employees when FSIS personnel are 
approaching their work stations and, only then, is stricter compliance 
with HSMA requirements pursued by plant employees.
    Would you please respond to these criticisms?
    Answer. Humane handling activities and food safety systems are both 
under on-going regulatory activities as part of FSIS inspection 
personnel's everyday responsibilities. FSIS employees use a variety of 
methods to determine compliance with the HMSA and do not rely upon a 
single mode of evaluation. Some of these methods include standing in 
establishments where they cannot be observed, listening to unusual 
livestock vocalizations, viewing any changes in carcasses (e.g., 
bruising), communicating with plant employees to ask how they handle 
certain situations, and conducting off hours inspections (e.g., 
observing humane handling during off-loading at a plant that receives 
animals during the evening hours. The Veterinary Medical Officer (VMO) 
is authorized administrative overtime to come back for unscheduled 
observation during the evening).
    The DVMSs routinely work with the VMOs on the importance of 
utilizing different approaches to verifying humane handling 
requirements. DVMSs work with FSIS inspection personnel to emphasize 
the importance of, and methods of, observing humane handling in 
locations where inspection personnel are not readily identified. If 
there is not a location to verify animal handling without being 
observed, the VMO is instructed to stand in a location to listen for 
vocalization by the livestock, or excessive yelling by plant employees. 
Both are indicators that plant employees may be using excessive force 
to move the animals.
    Question. How many plants under the jurisdiction of HMSA have the 
capability to allow FSIS personnel to observe undetected plant animal 
handling slaughter operations?
    Answer. Most of the approximately 300 largest livestock operations 
have safe areas with minimal visibility where FSIS personnel can and do 
observe plant animal handling and slaughter operations without being 
observed by plant employees. In addition, DVMSs and VMOs are authorized 
to conduct off hours inspections to observe humane handling during off-
loading at a plant that receives animals during the evening hours. 
However, continuous visibility is the most effective method to observe 
HMSA compliance in small and very small operations. VMOs are trained to 
listen for changes in an animal's behavior and to look for indicators 
while observing carcasses. The need to be able to make this type of an 
assessment is part of the information provided by the DVMSs and is 
included in the new employee training for newly hired veterinarians.
    Question. What is USDA doing to increase this capability?
    Answer. FSIS inspection personnel have a continuous, on-going, 
daily presence in all livestock slaughter operations. The fact that 
FSIS personnel are constantly present and observing animal handling and 
slaughter procedures for compliance with the HMSA keeps the industry 
aware of the regulatory presence. DVMSs work with FSIS inspection 
personnel to emphasize the importance of, and methods of, observing 
humane handling in locations where inspection personnel are not readily 
identified. It is also addressed in the new training developed for 
newly hired veterinarians, and is addressed by the mentors provided to 
assist newly hired FSIS veterinarians. In addition, DVMSs and VMOs are 
authorized to conduct off hours inspections to observe humane handling 
during off-loading at a plant that receives animals during the evening 
hours.
    Question. Would USDA support a requirement to require such a 
capability?
    Answer. USDA has a continuous regulatory presence through its FSIS 
inspection personnel in all livestock slaughter operations under 
official inspection. FSIS conducts humane handling and slaughter 
verification using a complete array of inspection procedures and 
professional judgment to verify compliance with the HMSA. Requiring 
FSIS personnel to observe undetected plant animal handling slaughter 
operations would likely be a burden on small and very small plants.
    Question. Would USDA support a requirement for, as an option, the 
installation of a closed-circuit television monitor to allow FSIS 
personnel to make these observations from a remote location? If not, 
why?
    Answer. As the law requires, FSIS inspection personnel, including 
veterinarians, are in all federally inspected slaughter plants every 
day and every minute that they are in operation. An establishment may 
not slaughter without the presence of inspection personnel. Inspection 
personnel conduct humane slaughter verification procedures at these 
establishments on a daily basis. These procedures include observation 
of the establishment's stunning methods.
    Cost must also be considered as the installation of a closed-
circuit television monitor could place a burden on small and very small 
plants. If USDA were to bear the cost for such a system, substantial 
funding would be needed. In addition, maintenance costs would likely be 
problematic due to the potential difficulty in maintaining such a 
system in a high humidity environment.
    USDA does not believe that the addition of cameras would improve 
the observation capability of trained inspectors. FSIS veterinarians 
are technically trained to observe subtle signs indicative of humane 
handling and slaughter methods, which may not be identifiable under 
video surveillance. For example, ensuring animals are either dead or at 
the level of surgical anesthesia is critical when evaluating stunning 
effectiveness. This requires hands-on evaluation of the animal. If 
these very subtle signs are missed, animals can return to consciousness 
within a few seconds. The presence of FSIS inspectors in a plant is 
much more integral to enforcing the HMSA. All in-plant FSIS personnel 
are expected to enforce this Act and are held accountable for taking 
corrective and/or enforcement actions if it is violated.
    Question. Please provide information regarding the fiscal year 2005 
cost of integrating the Humane Animal Tracking System within the FAIM 
architecture.
    Answer. FSIS upgraded its electronic Animal Disposition Reporting 
System (eADRS) with the incorporation of HAT in February 2004. HAT will 
allow the agency to more accurately capture the time spent on humane 
handling and slaughter enforcement activities by FSIS inspection 
personnel. Fiscal year 2005 costs will be covered within base funding.
    Question. Please provide information regarding the number of FSIS 
personnel, in fiscal year 2003, who may have received agency 
reprimands, or similar actions, for taking any HMSA regulatory action 
against a plant operation which was later found to be inappropriate or 
unnecessary.
    Answer. All in-plant FSIS personnel are expected to enforce the 
HMSA and are held accountable for taking corrective and/or enforcement 
actions if it is violated. In fiscal year 2003, FSIS employees did not 
take any HMSA regulatory actions that were later found to be 
inappropriate or unnecessary. In fact, certificates of recognition have 
been provided to FSIS personnel for acting responsibly in certain HMSA 
enforcement situations.
    Question. Conversely, please provide information regarding 
recommendations by FSIS personnel to take an HMSA regulatory action 
against a plant operation which was subsequently rejected by an FSIS 
supervisor.
    Answer. USDA is not aware of any recommendations by FSIS personnel 
to take an HMSA regulatory action against a plant operation which was 
subsequently rejected by an FSIS supervisor. Because FSIS trains all 
in-plant Veterinary Medical Officers (VMOs) and slaughter line 
inspectors about humane handling responsibilities, the agency is 
confident in their ability to properly enforce the HMSA.
    Question. On pages 29 and 30 of GAO report 04-247, dated January 
30, 2004, on the subject of the Humane Methods of Slaughter Act, six 
specific recommendations are listed for you to further strengthen HMSA 
regulatory actions.
    Please describe steps you have taken to carry out each of these 
recommendations.
    Answer. USDA places a very high priority on ensuring that animals 
produced for food are treated in a humane manner and has taken swift 
action in instances where establishments have been found in violation 
of the Humane Methods of Slaughter Act (HMSA). FSIS has already 
incorporated many of the recommendations made by GAO that will improve 
the quality and consistency of our enforcement efforts. Below is FSIS' 
action plan in regards to the recommendations.
GAO Recommendation
    To provide more quantifiable and informative data on violations of 
the HMSA, GAO recommends that the Secretary of Agriculture direct FSIS 
to supplement the narrative found in noncompliance reports with more 
specific codes that classify the types and causes of humane handling 
and slaughter violations.
            USDA Response
    Noncompliance reports are stored electronically in the Performance 
Based Inspection System (PBIS). FSIS will determine whether it is 
feasible and appropriate to modify the PBIS to incorporate additional 
humane handling violation codes. The current database format contains 
detailed narratives from FSIS Noncompliance Records (NRs). These 
narratives contain a wealth of information beyond what is provided in a 
simple classification code and provide the basis for a thorough 
analysis.
    In addition, DVMSs are now using procedures and tracking tools to 
continually monitor regional trends and anomalies in establishment 
compliance. These procedures and tracking tools are currently separate 
from PBIS. All noncompliance reports are now being sent to the District 
Office where they are reviewed and analyzed by the DVMS.
GAO Recommendation
    To ensure that district officials use uniform and consistent 
criteria when taking enforcement actions, GAO recommends that the 
Secretary of Agriculture direct FSIS to establish additional clear, 
specific, and consistent criteria for District Offices to use when 
considering whether to take enforcement actions because of repetitive 
violations.
            USDA Response
    FSIS is developing guidance for inspection personnel which will (1) 
provide clear, specific, and consistent criteria for the District 
Offices when taking enforcement actions because of repetitive 
violations, (2) require the clear documentation of the basis for the 
decision regarding enforcement actions of repetitive HMSA violations 
and (3) provide criteria for determining when inspection personnel 
would issue an NR and when immediate suspension is warranted. FSIS 
expects to issue a Notice to inspection personnel this summer.
    In addition, FSIS Directive 5000.1, ``Enforcement of Regulatory 
Requirements in Establishments Subject to HACCP Systems Regulations'' 
issued on May 21, 2003, and the Food Safety Regulatory Essentials 
courses provide guidance and direction to inspection personnel to 
ensure consistent use of enforcement actions. These materials emphasize 
a thought process rather than fixed criteria for initiating enforcement 
action. They pose a series of questions for inspection personnel to 
consider when determining whether a second violation is an isolated 
incident or a trend of noncompliance is developing.
GAO Recommendation
    To ensure that district officials use uniform and consistent 
criteria when taking enforcement actions, GAO recommends that the 
Secretary of Agriculture direct FSIS to require that District Offices 
and inspectors clearly document the basis for their decisions regarding 
enforcement actions that are based on repetitive violations.
            USDA Response
    FSIS is developing guidance for inspection personnel which will (1) 
provide clear, specific, and consistent criteria for the District 
Offices when taking enforcement actions because of repetitive HMSA 
violations, (2) require the clear documentation of the basis for the 
decision regarding enforcement actions of repetitive violations and (3) 
criteria for determining when inspection personnel would issue an NR 
and when immediate suspension is warranted. FSIS expects to issue a 
Notice to inspection personnel this summer.
    FSIS is using the Administrative Enforcement Report (AER) process 
to ensure that the proper case support files and documents are in place 
when an enforcement action is taken. A key component of this case file 
is documentation generated by the FSIS in-plant employees. Properly 
documented NRs and memos of pertinent plant meetings, conversations, 
and other documentation are vital, and are important parts of the AER 
reporting process.
GAO Recommendation
    To ensure that FSIS can make well-informed estimates about the 
resources it needs to enforce the HMSA, GAO recommends that the 
Secretary of Agriculture direct FSIS to develop a mechanism for 
identifying the level of effort that inspectors currently devote to 
monitoring humane handling and slaughter activities.
            USDA Response
    FSIS has developed a new computer database, Humane Activities 
Tracking, to provide detailed and current data related to time spent on 
specific humane handling and slaughter verification activities by 
inspectors. HAT is one component of the Agency's updated electronic 
Animal Disposition Reporting System (eADRS) and e-gov initiative. eADRS 
will replace the current use of FSIS paper forms to report information 
about animals presented for slaughter. FSIS will utilize information 
and data from the new tool to determine the adequacy of its resources 
for enforcing humane handling and slaughter requirements at the 
individual plants.
GAO Recommendation
    To ensure that FSIS can make well-informed estimates about the 
resources it needs to enforce the HMSA, GAO recommends that the 
Secretary of Agriculture direct FSIS to develop criteria for 
determining the level of inspection resources that are appropriate on 
the basis of plant size, configuration, or history of compliance.
            USDA Response
    FSIS will use HAT and eADRS to document the number of animals 
slaughtered each day and the amount of time spent monitoring various 
aspects of humane handling and slaughter requirements. Information 
maintained in the eADRS will be regularly examined by FSIS managers to 
assist in inspection resource planning.
GAO Recommendation
    To ensure that FSIS can make well-informed estimates about the 
resources it needs to enforce the HMSA, GAO recommends that the 
Secretary of Agriculture direct FSIS to periodically assess whether 
that level is sufficient to effectively enforce the Act.
            USDA Response
    FSIS will use eADRS and HAT to document the number of animals 
slaughtered each day and the amount of time spent monitoring various 
aspects of humane handling and slaughter requirements. Information 
maintained in the eADRS and HAT will be regularly examined by FSIS 
managers to assist in inspection resource planning, and to determine if 
staffing levels are adequate. Additionally, FSIS will periodically 
assess whether the staffing level is sufficient to effectively enforce 
the Act.
    Question. With funds provided by this Committee in fiscal year 
2001, USDA established 17 District Veterinary Medical Specialist (DVMS) 
positions dedicated solely to HMSA activities.
    Please describe the activities of these DVMS personnel in fiscal 
year 2003, how they intend to carry out their responsibilities in 
fiscal year 2004, and how they will carry out their responsibilities in 
fiscal year 2005, and in particular, describe, if any, activities that 
are not related to HMSA enforcement including the percentage of time 
spent on non-HMSA enforcement. Specifically, what percentage of their 
time is spent in plants subject to HMSA jurisdiction?
    Answer. USDA considers humane handling and slaughter a high 
priority and is committed to ensuring compliance with the HMSA. In 
fiscal year 2003, each DVMS attended training and then conducted 
assessments of each livestock facility within their district. The DVMSs 
provided leadership for humane handling and slaughter activities by 
conducting on-site training for field personnel during their visits. 
They disseminated new information to field personnel and coordinated 
humane handling and slaughter non-compliance actions for their 
District.
    The DVMSs also participated in monthly conference calls and in 
working groups to assist the agency in humane handling strategies. The 
DVMSs have developed the Humane Interactive Knowledge Exchange (HIKE) 
tool, which provides humane handling and slaughter scenarios to help 
improve the uniform understanding of humane enforcement throughout the 
field. The DVMSs participated in the development of the Humane 
Activities Tracking system and have developed tools to analyze humane 
handling data within their District to ensure that Frontline 
Supervisors are informed of any data trends. The DVMSs developed and 
utilized established protocols for following up on humane handling 
violations. The efforts and recommendations made by the DVMSs have 
improved the consistency of humane handling enforcement among all 
Districts.
    In fiscal year 2004, DVMSs continue strengthening the humane 
handling and slaughter enforcement and education of FSIS inspection 
personnel. Thus far, in fiscal year 2004, each DVMS continues to 
conduct on-site training with field personnel and coordinate humane 
handling and slaughter non-compliance actions for their District. The 
DVMSs are utilizing HAT to document and capture the time spent by 
veterinarians and other FSIS inspection personnel conducting humane 
handling and slaughter activities. The DVMSs have provided expert 
advice for the development of new Directives and Notices used to inform 
inspection personnel of the requirements, verification activities, and 
enforcement actions for ensuring that the handling and slaughter of 
livestock is humane. The DVMSs have also surveyed field employees on 
their knowledge of and training needs for humane handling and slaughter 
verification, so that the agency can determine what additional needs it 
may have in these areas. The DVMSs continue developing the HIKE 
scenarios to help improve the uniform understanding of humane 
enforcement throughout the field. The DVMSs also distributed up-to-date 
information to industry and FSIS personnel about new FSIS policies and 
provided FSIS field employees with information on industry's Humane 
Good Management Practices and auditing systems so that they may 
encourage industry to not only follow FSIS regulations, but to also 
adopt a systems approach to continually improve livestock handling 
practices. In fiscal year 2004, the DVMSs also began a strategic 
planning process to continually improve their service to the field.
    The DVMSs will continue to build on the activities carried out in 
2004, expand their ability to analyze trends, improve the tracking of 
the time spent by FSIS personnel on humane handling and slaughter 
activities, and continually improve the effectiveness of FSIS' humane 
handling and slaughter verification activities. All DVMSs focus on 
humane handling and slaughter verification and will continue to do so.
    During 2004, DVMSs spent approximately 75 percent of their time 
conducting in-plant assessments at plants subject to HMSA jurisdiction.
    Question. To what extent do DVMS personnel visit locations in 
Districts other than their own?
    Answer. DVMS personnel visit other Districts on an as needed basis. 
Each FSIS District Manager evaluates the needs of the District in order 
to effectively utilize DVMSs and ensure that needs are fully met. DVMSs 
have also crossed District lines when the Agency must follow-up on 
specific concerns that have been brought to the Agency's attention.
    Question. Will USDA support assigning additional FSIS personnel to 
assist DVMS's in order to increase the frequency of plant visits?
    Answer. Currently, the DVMSs enable the Agency to fully ensure 
enforcement of the HMSA. However, as the need arises, FSIS will adjust 
accordingly. For example, to ensure adequate humane handling 
verification in Puerto Rico, FSIS trained a veterinarian in the DVMS 
methodology to assist in this remote location.
                      pasture-raised beef project
    Question. The February 2004, edition of Agriculture Research 
Solving--Problems for the Growing World, published by the Agricultural 
Research Service, contained a story entitled Grass Fed Cattle Follow 
the Appalachian Trail. It is a story about a project that I have been 
proud to secure funds for over the course of the past few years. It is 
doing important research regarding pasture-raised beef.
    Now that Mad Cow Disease has reared its ugly head here in the 
United States, the markets for pasture-raised beef, naturally grown 
without hormones or antibiotics, will continue to grow. That is causing 
hope for Appalachia's family farmers who are participating in this 
program. The goal of the project is to reduce foreign imports of beef 
by increasing the supply of healthy, grass-raised beef from Appalachia. 
This sounds like a wise use of the taxpayers dollars that will directly 
benefit the family farmers of West Virginia.
    With the Department highlighting the benefits of this project, can 
you then explain to me why this Administration, and the President, sent 
up a budget in February, the very month of the publication of this 
magazine, that would cut this program by 81 percent, from $1,625,024 to 
$301,312?
    Answer. We fully recognize the accomplishments of this project and 
its potential benefits to the family farmers of West Virginia. This 
project is part of the $169.4 million in unrequested projects 
appropriated to ARS between fiscal years 2001 through 2004. These 
unrequested projects were proposed for termination in the fiscal year 
2005 President's budget to redirect these resources towards the need to 
implement higher National priority initiatives, such as obesity 
research, food safety, emerging animal and plant diseases, controlling 
invasive species in plants and animals, and other research initiatives 
critical to advancing this Nation's food and agriculture economy. 
Setting priorities requires that these kinds of choices be made.
     funding for food safety/animal health inspections and research
    Question. In the fiscal year 2002 Supplemental Appropriations Bill, 
the Congress provided the President with resources to increase 
surveillance, inspections, and research to reduce the likelihood that 
diseases, such as Mad Cow Disease, would threaten American consumers. 
That bill included $5 million for animal health research, $13 million 
for food safety inspections (notably for imported products), and $39 
million for enhanced animal health inspection and surveillance 
programs. In several instances, these funds were specifically directed 
for Mad Cow Disease-related activities.
    However, when given the opportunity to make those funds available, 
the President refused to designate those needs as an emergency. As a 
result, you were deprived of significant resources to fight problems 
like Mad Cow Disease. I don't mean to imply that the use of those funds 
in fiscal year 2002 would have prevented the recent incident in 
Washington State, but it would have contributed toward greater 
surveillance and a better understanding of how to identify and control 
problems like Mad Cow disease.
    On January 6, 2004, I wrote President Bush a letter of admonishment 
pointing out that he let slip through his fingers resources which could 
have assisted him, and you, and the American people, be better prepared 
to meet the challenges that the introduction of a disease, such as Mad 
Cow Disease, would pose to this country.
    However, I note that the President's fiscal year 2005 budget 
request includes increases for what he is calling a Food and 
Agriculture Defense Initiative to carry out some of these same 
activities that he rejected 3 years earlier. It appears that the 
President is more properly trying to play catch up in areas that 
Congress tried to initiate before the public's attention was more 
brought to focus on these problems and the President began to feel the 
political heat. Even if the full Food and Agriculture Defense 
Initiative is funded in the fiscal year 2005 appropriations bill, those 
resources still will not be available until next fiscal year. Instead 
of immediate action, the President is proposing additional delay.
    Secretary Veneman, when the President was faced with the choice of 
using or rejecting those supplemental funds in 2002, did you make the 
case to President Bush that those resources should be utilized? If you 
didn't think those funds were needed in 2002, why do you think they are 
needed in 2005?
    Answer. Each year, the Department submits a budget request based on 
program area needs at the time, and the Administration developed a 
funding request that it thought was appropriate in view of fiscal 
realities. The additional funds Congress added above the request were 
deemed not necessary given the timeframe related to the supplemental.
    FSIS, in conjunction with other Federal agencies, has conducted 
vulnerability assessments along the farm-to-table continuum for 
domestic and imported products in order to protect against intentional 
or unintentional contamination of the food supply. Based, in part, on 
the vulnerability assessments, USDA, the Department of Health and Human 
Services and the Department of Homeland Security are working together 
to create a comprehensive food and agricultural policy, known as the 
food and agriculture defense initiative. The Department's fiscal year 
2005 budget request includes funding to support FSIS' components of the 
food and agriculture defense initiative--biosurveillance, the Food 
Emergency Response Network, data systems to support the Food Emergency 
Response Network, enhancing FSIS laboratory capabilities, and follow-up 
biosecurity training for front-line staff.
                                 ______
                                 

            Questions Submitted by Senator Daniel K. Inouye

                            brown tree snake
    Question. We understand that USDA-APHIS participated in a cross-cut 
budget process for invasive species funding with other departments and 
agencies and that brown tree snake was selected to be one of the ten 
issues to be focused on for enhanced effort.
    What level of new funding has been provided in the fiscal year 2005 
budget request to address the urgent needs of Wildlife Services 
Operations and Wildlife Services Methods Development efforts dealing 
with the brown tree snake on Guam and in the U.S.-affiliated Pacific?
    Answer. In the fiscal year 2005 budget request, APHIS had to 
address areas that posed the highest levels of risk and potential 
losses to American agriculture, such as enhancing efforts to prevent 
the introduction of foreign animal diseases and foreign plant pests 
from entering the United States; we could not address all identified 
needs and as such the fiscal year 2005 budget request does not include 
additional funding to address brown tree snakes on Guam.
                   preclearance inspections in hawaii
    Question. While fiscal year 2005 budget request seems to include 
funding for direct and interline preclearance inspections in Hawaii, 
the specifics are not clear.
    Please provide details on the funds requested for fiscal year 2005 
for direct and interline preclearance inspections in Hawaii, and 
provide a comparison for funds appropriated for fiscal year 2004.
    Answer. APHIS conducts pre-departure, agricultural inspections of 
passengers and cargo traveling from Hawaii and Puerto Rico to the 
mainland United States. To assist Hawaii, we also conduct inspections 
of passengers traveling from outlying Hawaiian Islands to the mainland. 
Prior to fiscal year 2003, Hawaii funded this service through a 
reimbursable agreement for $3 million. In fiscal year 2003, Congress 
provided $2 million for the interline inspection program, and Hawaii 
paid the remaining $1 million. Congress provided additional funding for 
the interline program in fiscal year 2004, bringing the total available 
for the program to $2.771 million. APHIS is not requesting funds for 
Hawaii interline inspections in fiscal year 2005 and will rely on a 
reimbursable agreement with Hawaii to conduct the program.
                               coqui frog
    Question. The coqui frog is an alien invasive pest with no natural 
enemies in Hawaii and is now established in many areas throughout the 
State of Hawaii. Their presence and population levels are disruptive to 
the export of potted flowers and foliage and to the peace and quite of 
many communities in the State.
    Has APHIS made any estimates of the funds needed to control the 
coqui frog in Hawaii? Has APHIS included any funds in its fiscal year 
2005 budget request to control coqui frog populations in Hawaii?
    Answer. APHIS Wildlife Services (WS) estimates it would take $1.85 
million annually to enhance management and methods development efforts 
for the control of Caribbean tree frogs in Hawaii. In the fiscal year 
2005 budget request, APHIS had to address areas that posed the highest 
levels of risk and potential losses to American agriculture, such as 
enhancing efforts to prevent the introduction of foreign animal 
diseases and foreign plant pests from entering the United States; we 
could not address all identified needs and as such the fiscal year 2005 
budget request does not include additional funding to control coqui 
frogs in Hawaii.

                          SUBCOMMITTEE RECESS

    Senator Bennett. On that happy note, the subcommittee is 
recessed.
    [Whereupon, at 3:01 p.m., Thursday, March 25, the 
subcommittee was recessed, to reconvene to subject to the call 
of the Chair.]












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

                              ----------                              


                        THURSDAY, APRIL 1, 2004

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

                       DEPARTMENT OF AGRICULTURE

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

             OPENING STATEMENT OF SENATOR ROBERT F. BENNETT

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

                           PREPARED STATEMENT

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

            Prepared Statement of Senator Richard J. Durbin

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

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

                       STATEMENT OF ERIC M. BOST

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

                           FOOD STAMP PROGRAM

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

                        CHILD NUTRITION PROGRAM

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

                              WIC PROGRAM

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

                   NUTRITION PROGRAMS ADMINISTRATION

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

                          prepared statements

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

                   Prepared Statement of Eric M. Bost

    Thank you Mr. Chairman and members of the subcommittee for this 
opportunity to present the Administration's budget request for fiscal 
year 2005 for the Food, Nutrition and Consumer Services (FNCS).
    During the past 3 years as Under Secretary for the Food, Nutrition 
and Consumer Services, I have focused my attention and my energy on 
three central challenges facing the Federal nutrition assistance 
programs: expanding access to the programs so that all eligible persons 
can make informed decisions about whether to participate; addressing 
the epidemic of obesity that threatens the health of individual 
Americans, and our economy and health care system collectively; and 
improving the integrity with which our programs are administered, at 
all levels, so that we are the best possible stewards of the public 
resources with which we are entrusted.
    Let me first review briefly some key accomplishments achieved over 
the last 3 years:
  --We are reaching substantially more participants in each of our 
        major programs: 5.8 million more people in food stamps, 1.6 
        million more children receiving a free or reduced price school 
        lunch, over 1.4 million more in school breakfast, and over 
        400,000 more women, infants and children each month in WIC 
        since January 2001.
  --We successfully implemented the provisions of the 2002 Farm Bill 
        that met the Administration's goals of simplifying policies, 
        improving access, and ensuring program integrity, including the 
        important steps of restoring benefits to legal immigrants and 
        increasing flexibility for the States.
  --We expanded electronic benefits transfer (EBT) to all 50 States, 
        the District of Columbia, Puerto Rico, and the Virgin Islands; 
        EBT now delivers over 95 percent of all food stamp benefits.
  --We have seen food stamp payment errors fall for the 4th year in a 
        row, reaching the lowest level ever--8.26 percent--in 2002.
  --We have reduced food stamp trafficking to less than 2.5 cents of 
        each benefit dollar issued, down by one-third since 1996-1998.
  --We have made healthy lifestyles a top priority through the 
        President's HealthierUS initiative. We are working with public 
        and private partners, such as the National 5 to 9 a Day 
        Partnership, to increase fruit and vegetable consumption and 
        have developed a soon to be released kit for schools entitled 
        ``Fruits and Vegetables Galore: Helping Kids Eat More.'' We are 
        also expanding school-based efforts to promote healthy eating, 
        and to foster a healthy school nutrition environment through 
        technical assistance, training and nutrition education 
        materials that help schools assess and improve the school 
        nutrition environment, including improvements in school meals 
        and overall food policies.
  --We have focused on promoting healthy weight for children and adults 
        across programs through the Eat Smart. Play Hard.TM 
        campaign, and within programs through Team Nutrition, the Fit 
        WIC obesity prevention projects, and efforts to improve Food 
        Stamp Program nutrition education.
  --We are working in concert with the Department of Health and Human 
        Services to update the Dietary Guidelines for Americans, and we 
        are revising the Food Guide Pyramid to ensure that each 
        reflects the most comprehensive, up-to-date science available 
        in order to provide clear and useful nutrition information to 
        American consumers.
  --We achieved a clean financial statement for FNS for the 5th 
        consecutive year, in support of the President's management 
        agenda initiative to improve financial management across 
        government.
    I am proud of these accomplishments, and the hard work that they 
represent from USDA staff, from the Congress, and from our State and 
local program partners. But much important work remains to be done. I'd 
like now to review the budget request and the improvements in 
performance and results that it is designed to support.
    The President's budget for fiscal year 2005 requests $50.1 billion 
in budget authority to continue this critical work. This record request 
reflects the Administration's long-standing commitment to protect our 
children and low-income households from hunger and the health risks 
associated with poor nutrition and physical inactivity through the 
Nation's nutrition safety net. The purposes to which we will put this 
substantial public commitment are clear: first, we seek to improve the 
public's awareness of our programs and ease of access for all eligible 
persons, and second, through both the Federal nutrition assistance 
programs and the Center for Nutrition Policy and Promotion (CNPP), we 
will continue to do our part to address the growing public health 
threat that overweight and obesity poses to all Americans. Finally, we 
will strive to enhance the efficiency and accuracy with which these 
programs are delivered.
                        ensuring program access
    This Administration has demonstrated a long-term commitment to the 
Federal nutrition assistance programs and to the Americans whom they 
assist. The most fundamental expression of this commitment is making 
certain that sufficient resources are provided for these programs so 
that all who are eligible and in need have ready access to these 
critical benefits. We have delivered to you a budget that funds 
anticipated levels of program participation, while acknowledging the 
inherent difficulties in making such projections.
    For the Food Stamp Program, the budget continues the $3 billion 
contingency reserve appropriated in fiscal year 2004 but also offers, 
as an alternative, a proposal for indefinite budget authority for 
program benefits. This authority would be an efficient way to ensure 
that benefits are funded even as economic circumstances change, a goal 
we all share. In WIC, the $125 million contingency reserve appropriated 
in fiscal year 2003 continues to be available to the program should 
participation or food costs exceed the levels anticipated in the 
budget. Should this not be sufficient, we are committed to working with 
you to ensure that WIC is properly funded.
    Adequate program funding, however, is not enough to ensure access 
to program services for those who need them. Program structure and 
delivery methods must be designed so as not to create the types of 
barriers to program participation that can result in their 
underutilization. As we move forward with the reauthorization of the 
Child Nutrition and WIC Programs, improving program delivery and 
ensuring the access of eligible people who wish to participate will 
remain fundamental principles.
                   addressing overweight and obesity
    Poor dietary choices and sedentary lifestyles are having a serious 
impact on the health and well being of all Americans. Obesity and 
overweight are widely recognized as a public health crisis. The costs 
of these conditions are enormous--reduced productivity and increased 
health care costs estimated at over $123 billion, and, most sadly, 
unnecessarily premature deaths for over 300,000 Americans annually. The 
Federal nutrition assistance programs can play a critical role in 
combating this epidemic by promoting better diets through nutrition 
education and promotion. These program services, along with the work of 
the Center for Nutrition Policy and Promotion, are an integral part of 
the President's HealthierUS initiative, and the budget reflects our 
continuing commitment to this effort. It includes $5 million for 
ongoing demonstration projects to explore new ways for the WIC program 
to reduce and prevent unhealthy weight among our children. We are also 
seeking $2.5 million to expand our very successful Eat Smart. Play 
Hard.TM campaign, and to develop an integrated, family-
oriented approach to nutrition education that cuts across all of the 
Federal nutrition programs and complements efforts in schools and other 
program settings to encourage healthy eating and physical activity.
    Our request also supports FNCS' CNPP, which works with the 
Department of Health and Human Services and other agencies to promote 
good nutrition across all segments of the population. The budget 
includes resources that are critical to the development and promotion 
for the updated 2005 Dietary Guidelines for Americans and the 
concurrently revised food guide system, providing essential tools to 
communicate the Guidelines in ways that motivate Americans to improve 
their eating and physical activity behaviors. The requested funding for 
CNPP will enable us to capitalize on the investments we have already 
made with a new opportunity to build upon public awareness of basic 
nutrition messages with an enhanced food guide system that will target 
individual needs.
                enhancing program integrity and delivery
    With this budget request, we are asking the Nation to entrust us 
with over $50 billion of public resources. We are keenly aware of the 
immense responsibility this represents. To maintain the public trust, 
we must demonstrate our ongoing commitment to be good stewards of the 
resources we manage, as an essential part of our mission to help the 
vulnerable people these programs are intended to serve.
    This is not a new commitment. As I noted earlier, in fiscal year 
2002, the most recent year for which data is available, the Food Stamp 
Program achieved a record high payment accuracy rate of 91.74 percent. 
We have also been working to develop strategies to improve the accuracy 
of eligibility determinations in our school meals programs--an issue of 
mutual concern to all those that care about these programs. The budget 
features dollar and staff year resources which will allow us to 
continue to work closely with our State and local partners on both of 
these essential integrity initiatives--continuing both our successes in 
the Food Stamp Program and our intensified efforts in school meals.
    In the WIC program, we are requesting $20 million to continue our 
initiative to assist States with the modernization of their information 
technology infrastructure. These systems are essential underpinnings 
for the improvements in program management, program integrity, and, 
most importantly, program delivery that need to be achieved. The 
Administration has worked closely with the Office of Management and 
Budget (OMB) and the WIC community to fashion a procurement strategy 
that will ultimately produce a series of core model WIC systems. States 
updating their WIC systems will be able to select from among these 
model core systems as starting points for their own implementation, 
thus reducing their costs.
    In the remainder of my remarks, I'd like to touch on several key 
issues:
                           food stamp program
    The President's budget anticipates serving a monthly average of 
24.9 million persons in fiscal year 2005, an increase of 1.2 million 
over our projections of the current fiscal year. Our $33.6 billion 
request supports this level of service. In addition, the budget 
continues the $3 billion contingency reserve appropriated in fiscal 
year 2004. While the President's budget anticipates continuing 
improvement in the Nation's economy, Food Stamp Program participation 
traditionally continues to rise for some time after the aggregate 
employment begins to improve. Moreover, we have made a concerted effort 
over the last 3 years to raise awareness of the benefits of program 
participation and encourage those who are eligible, especially working 
families, senior citizens, and legal immigrants, to apply. The rate of 
participation among those eligible to participate increased 2 years in 
a row, after 5 years of declines, reaching 62 percent in September 
2001. However, many eligibles remain who could be participating but are 
not. We have been aggressive in promoting the message that the Food 
Stamp Program Makes America Stronger in the sense that the program puts 
healthy food on the tables of low-income families and has a positive 
impact on local economies. We have just recently embarked on a media 
campaign to carry this message and to reach those who are eligible but 
not participating. We have also paid particular attention to those 
legal immigrants who have had their eligibility restored by the Farm 
Bill by carrying messages on Hispanic radio stations across the 
country.
    These factors make this a particularly challenging period to 
forecast program participation and costs. To ensure the adequacy of 
resources available to the program, and as an alternative to the 
traditional contingency reserve, we have proposed indefinite authority 
for program benefits and payments to States and other non-Federal 
entities.
                        child nutrition programs
    The President's budget requests $11.4 billion to support the 
service of appealing, nutritious meals to children in public and 
private schools and child care facilities through the Child Nutrition 
Programs in fiscal year 2005. In the National School Lunch Program, we 
anticipate serving over 29 million children per day in fiscal year 
2005. Similarly, the School Breakfast Program will serve approximately 
9 million children each school day. The request for budget authority is 
a slight decrease from levels appropriated in fiscal year 2004. This is 
because the rate of program growth in fiscal year 2004, to date, has 
been slightly less than anticipated. As a result, the anticipated 
carry-over resources, in conjunction with the budget request, will 
fully fund the projected level of program activity.
    Several components of the Child Nutrition Programs expire at the 
end of March. We urge the Congress to move quickly to extend these 
provisions before they expire to ensure that all aspects of the Child 
Nutrition Programs continue to operate without interruption. We also 
want to work with the Congress to reauthorize and improve the entire 
range of Child Nutrition Programs, consistent with the principles 
outlined last year. These principles include ensuring that all eligible 
children have access to program benefits as well as streamlining the 
administration of programs to minimize burdens, supporting healthy 
school environments and strengthening program integrity.
    Reauthorization provides an opportunity to address our continuing 
concern that the certifications of children to receive free and reduced 
price meals are not performed as accurately as they reasonably could 
be. Correct certifications are a priority to ensure that school meal 
funds go to those most in need, and the many other Federal, State, and 
local resources that use this same data are properly targeted as well.
    In sum, we are committed to working with Congress to reauthorize 
the Child Nutrition Programs and to reinvesting any savings achieved in 
the process back into these important programs for program 
improvements.
                                  wic
    In fiscal year 2005, the President's budget request of $4.79 
billion anticipates providing essential support to a monthly average of 
7.86 million women, infants and children through the Special 
Supplemental Nutrition Program for Women, Infants and Children (WIC). 
This is an increase of 60,000 participants per month from anticipated 
fiscal year 2004 participation levels. Additionally, the $125 million 
contingency reserve, appropriated in fiscal year 2003, remains 
available to the program should participation or food costs exceed our 
projections. The Administration remains steadfast in its support of WIC 
and is committed to working with Congress to ensure its proper funding. 
Finally, the request includes $20 million to continue our peer 
counseling initiative that is designed to enhance both rates of 
initiation and duration of breastfeeding among WIC participants.
             the emergency food assistance program (tefap)
    Through TEFAP, USDA plays a critical supporting role for the 
Nation's food banks. This support takes the form of both commodities 
for distribution and administrative funding for States' commodity 
storage and distribution costs. Much of this funding flows from the 
States to the faith-based organizations that are a cornerstone of the 
food bank community. The President's budget requests the fully 
authorized level of $140 million to support the purchase of commodities 
for TEFAP. Additional food resources become available through the 
donation of surplus commodities from USDA's market support activities. 
In recent years, these donations have increased the total Federal 
commodity support provided to the Nation's food banks by almost 300 
percent. State administrative costs, a critical form of support to the 
food bank community, are funded at $50 million in the President's 
request.
                   nutrition programs administration
    We are requesting $152 million in our Nutrition Programs 
Administration account, which reflects an increase of $14.7 million in 
our administrative funding. This increase supports the Child Nutrition 
and Food Stamp Programs integrity activities mentioned earlier, as well 
as a number of nutrition guidance initiatives under the Center for 
Nutrition Policy and Promotion. These resources are absolutely critical 
to our ability to successfully execute the mission of the Food, 
Nutrition and Consumers Services. Our total request for Federal 
administrative resources, including those activities funded directly 
from the program accounts, represents only about 0.39 percent of the 
program resources for which we have stewardship. I believe that we need 
this modest increase in funding in order to maintain accountability for 
our $50 billion portfolio and to assist our State and local partners in 
effectively managing the programs.
    Mr. Chairman, I appreciate the opportunity to share my thoughts 
with you, and would be happy to answer any questions you may have.
                                 ______
                                 

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

    Thank you, Mr. Chairman, and members of the Subcommittee for 
allowing me this opportunity to present testimony in support of the 
fiscal year 2005 budget request for the Food and Nutrition Service.
    The Food and Nutrition Service is the agency charged with managing 
the Nation's nutrition safety net and providing Federal leadership in 
America's ongoing struggle against hunger and poor nutrition. Our 
stated mission is to increase food security and reduce hunger in 
partnership with cooperating organizations by providing children and 
low-income people access to nutritious food and nutrition education in 
a manner that inspires public confidence and supports American 
agriculture.
    In fiscal year 2005, the President's budget requests a total of 
$50.1 billion in new budget authority to fulfill this mission through 
the Federal nutrition assistance programs. With this record request we 
will touch the lives of more than 1 in 5 Americans over the course of a 
year. This includes providing nutritious school lunches to an average 
of 29 million children each school day (NSLP), assisting with the 
nutrition and health care needs of 7.86 million at risk pregnant and 
postpartum women (WIC) and children each month, and ensuring access to 
a nutritious diet each month for 24.9 million people through the Food 
Stamp Program (FSP). These are just 3 of our 15 Federal nutrition 
assistance programs, which also include such important programs as the 
School Breakfast Program (SBP), The Emergency Food Assistance Program 
(TEFAP), the Summer Food Service Program (SFSP), the Child and Adult 
Care Food Program (CACFP), the Food Distribution Program on Indian 
Reservations (FDPIR), and the Commodity Supplemental Food Program 
(CSFP). Through the range of design and delivery methods these programs 
represent, FNS seeks to serve the children and low-income households of 
this Nation and address the diverse ways and circumstances in which 
hunger and nutrition-related problems present themselves.
    The resources we are here to discuss must be viewed as an 
investment--an investment in the health, self-sufficiency, and 
productivity of Americans who, from time to time, find themselves at 
the margins of our prosperous society. Under Secretary Bost, in his 
testimony, has outlined the three critical challenges which the Food, 
Nutrition and Consumer Services team has focused on under his 
leadership: expanding access to the Federal nutrition assistance 
programs, promoting healthy weight to address the problems of 
overweight and obesity; and, improving the integrity with which our 
programs are administered. In addition to these fundamental priorities 
specific to our mission, President Bush has laid out an aggressive 
agenda for management improvement across the Federal Government as a 
whole--the President's Management Agenda. This agenda seeks to protect 
the taxpayers' investment in all Federal activities by enhancing the 
accuracy and efficiency of program delivery and reducing improper 
payments, by improving decision-making through the integration of 
performance information into the budget process, by building 
partnerships with faith and community based organizations, and by 
planning carefully and systematically for the human capital challenges 
looming near for all of the Federal service.
                   the challenge of improper payments
    Benefits of the Federal nutrition assistance programs must be 
carefully targeted and delivered to those who are eligible, in need, 
and wish to participate. Benefit payments made in error increase the 
cost of these programs to the taxpayers and can divert needed 
assistance from eligible participants seeking services. Today I am 
pleased to report to you, for the second year in a row, record high 
payment accuracy rates for the Food Stamp Program. In fiscal year 2002, 
the most recent year for which data is available, the Food Stamp 
Program achieved an accuracy rate of 91.74 percent, 0.4 percent higher 
than fiscal year 2001's record achievement. Despite this success, much 
remains to be done to improve the accuracy and efficiency of benefit 
delivery in all the Federal nutrition assistance programs, not just the 
Food Stamp Program. The President's budget requests additional funding 
to strengthen integrity and program management both at the Federal and 
State levels. Our request includes an increase of $7 million in our 
administrative budget which will be targeted at maintaining our 
continuing success in the Food Stamp Program, improving the accuracy of 
certifications for free and reduced price school meals, and improving 
delivery of program benefits and reinvigorating our oversight, training 
and technical assistance activities for our State and local partners.
                   budget and performance integration
    The President's Management Agenda recognizes that good decision-
making depends on both the availability of relevant, high quality data 
and using that information in an analytical, business-like approach to 
problem solving. The Food and Nutrition Service has long been a leader 
in the Federal arena. Our entitlement programs are performance funded. 
This requires us to balance, through analysis and insight, an uncertain 
dynamic program demand with the constraints of a fixed appropriation. 
In this year's budget explanatory notes, you will find expanded 
performance information and analysis with clear connections linking 
USDA's strategic plan, our budget request, and program performance.
    Vital to the success of the President's vision of improved Federal 
decision-making and seamless budget and performance integration is an 
adequately funded, properly positioned agenda of performance 
measurement and program assessment. Funding proposed in the request 
would support a range of important program assessment activities: 
focused studies of program operations, development of comprehensive 
measures of program performance to inform and foster outcome-based 
planning and management; and technical assistance to States and 
communities for practical demonstrations of potential policy and 
program improvements. These activities provide a crucial foundation for 
strategic planning and program innovation. This request will allow the 
programs to respond to emerging performance management issues 
identified by the Performance Assessment Rating Tool of the National 
School Lunch Program and Food Stamp Program as well as support 
effective stewardship of the taxpayer investment in nutrition 
assistance.
 reaching out to those in need through faith-based and other community 
                             organizations
    To meet our commitment to improve access for all who are eligible, 
we must work closely with our program partners--individuals and 
organizations in communities across America who deliver the Federal 
nutrition assistance programs, and work to make them accessible and 
effective. Faith-based organizations have long played an important role 
in raising community awareness about program services, assisting 
individuals who apply for benefits, and delivering benefits. President 
Bush has made working with the faith-based community an Administration 
priority, and we intend to continue our outreach efforts in fiscal year 
2005. The partnership of faith-based organizations and FNS programs, 
including TEFAP, WIC, NSLP, and the CSFP, is long-established. Indeed, 
the majority of organizations such as food pantries and soup kitchens 
that actually deliver TEFAP benefits are faith-based. Across the 
country, faith-based organizations have found over the years that they 
can participate in these programs without compromising their mission or 
values. They are valued partners in an effort to combat hunger in 
America.
                        human capital management
    The General Accounting Office (GAO), have demonstrated that 
recruiting, developing and retaining a highly-skilled workforce is 
critical to sustaining our public service. This is especially true for 
the Food and Nutrition Service. We currently estimate that up to 80 
percent of our senior leaders are eligible to retire within five years, 
as is nearly 30 percent of our total workforce. FNS must address this 
serious challenge by improving the management of the agency's human 
capital, strengthening services provided to employees, and implementing 
programs designed to improve the efficiency, diversity, and competency 
of the work force. With just nominal increases for basic program 
administration in most years, the Food and Nutrition Service has 
reduced its Federal staffing levels significantly over time. We have 
compensated for these changes by working smarter--re-examining our 
processes, building strong partnerships with the State and local 
entities which administer our programs, and taking advantage of 
technological innovations. We are extremely proud of what we have 
accomplished, but seek additional funding in a few targeted areas to 
address specific vulnerabilities. Full funding of the nutrition 
programs administration requested in the President's budget, 
approximately 0.39 percent of our program portfolio, is vital to our 
continued success.
    Now, I would like to review some of the components of our request 
that relate to these outcomes under each program area.
                           food stamp program
    The President's budget requests $33.6 billion for the Food Stamp 
account including the Food Stamp Program and its associated nutrition 
assistance programs. These resources will serve an estimated 24.9 
million people each month participating in the Food Stamp Program 
alone. Included in this amount, we propose to continue the $3 billion 
contingency reserve provided for the program in fiscal year 2004. The 
importance of this reserve is especially critical in fiscal year 2005. 
While we anticipate that the improvement we are now seeing in the 
general economy will at some point begin to impact the program, 
predicting the turning point of participation is challenging. Our 
request also presents, as an alternative to the traditional contingency 
reserve, a proposal of indefinite authority for program benefits and 
payments to States and other non-Federal entities.
                        child nutrition programs
    The budget requests $11.4 billion for the Child Nutrition Programs, 
which provide millions of nutritious meals to children in schools and 
in childcare settings every day. This level of funding will support an 
increase in daily School Lunch Program participation from the current 
28.7 million children to over 29.2 million children. This funding 
request also supports an increase in daily School Breakfast Program 
participation from the current 8.8 million to 9.0 million children. 
Requested increases in these programs also reflect rising school 
enrollment, increases in payment rates to cover inflation, and 
proportionately higher levels of meal service among children in the 
free and reduced price categories. We are proposing to extend 
provisions that would expire on March 31, 2004.
                                  wic
    The President's budget includes $4.8 billion for the Special 
Supplemental Nutrition Program for Women, Infants and Children, the WIC 
program. The request will allow local communities to provide food, 
nutrition education, and a link to health care to a monthly average of 
7.86 million needy women, infants and children during fiscal year 2005. 
We also propose to continue our vital initiatives, begun in fiscal year 
2004, to enhance breastfeeding initiation and duration, improve State 
information technology infrastructure, and to maximize WIC's potential 
to combat childhood obesity. The $125 million contingency fund provided 
for in the fiscal year 2003 appropriation continues to be available to 
the program. These resources are available if costs exceed current 
estimates.
               commodity supplemental food program (csfp)
    The Commodity Supplemental Food Program (CSFP) serves elderly 
persons and at risk low-income pregnant and post-partum and 
breastfeeding women, infants and children up to age six. The budget 
requests $98.3 million for this program, the same level appropriated in 
fiscal year 2004. This request may not support the same level of 
program services as in fiscal year 2004 due to the availability of one-
time carry-over funds from 2003. However, we will take all available 
administrative actions to minimize any program impact. We face a 
difficult challenge with regard to discretionary budget resources. CSFP 
operates in selected areas in 32 States, the District of Columbia, and 
two Indian Tribal Organizations. The populations served by CSFP are 
eligible to receive similar benefits through other Federal nutrition 
assistance programs. We believe our limited resources are best focused 
on those program available in all communities nationwide.
             the emergency food assistance program (tefap)
    As provided for in the Farm Bill, the budget requests $140 million 
for commodities in this important program. Our request for States' 
storage and distribution costs, critical support for the Nation's food 
banks, is $50 million. The Food and Nutrition Service is committed to 
ensuring the continuing flow of resources to the food bank community 
including directly purchased commodities, administrative funding, and 
surplus commodities from the USDA market support activities. Surplus 
commodity donations significantly increase the amount of commodities 
that are available to the food bank community from Federal sources.
                nutrition programs administration (npa)
    We are requesting $152.2 million in this account, which includes an 
increase of $7 million for the program integrity initiative described 
earlier. Included are also a number of initiatives, under the Food and 
Nutrition Service and the Center for Nutrition Policy and Promotion, 
designed to combat obesity and improve the dietary quality of all 
Americans. Our total request for Federal administrative resources 
represents only about 0.39 percent of the program resources for which 
we have responsibility and sustains the program management and support 
activities of our roughly 1,545 employees nationwide. I believe we need 
these modest increases in funding in order to maintain accountability 
for our $50 billion portfolio and to assist States to effectively 
manage the programs and provide access to all eligible people.
    Thank you for the opportunity to present this written testimony.

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

                     STATEMENT OF WILLIAM T. HAWKS

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

                          prepared statements

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

                 Prepared Statement of William T. Hawks

    Mr. Chairman and members of the Committee, I am pleased to appear 
before you to discuss the activities of the Marketing and Regulatory 
Programs of the U.S. Department of Agriculture and to present our 
fiscal year 2005 budget proposals for the Animal and Plant Health 
Inspection Service (APHIS), the Grain Inspection, Packers and 
Stockyards Administration (GIPSA), and the Agricultural Marketing 
Service (AMS).
    With me today are Dr. Charles Lambert, Deputy Under Secretary for 
MRP; Mr. Peter Fernandez, Associate Administrator of APHIS; Mrs. Donna 
Reifschneider, Administrator of GIPSA, and Mr. A.J. Yates, 
Administrator of AMS. They have statements for the record and will 
answer questions regarding specific budget proposals.
    Under my leadership, the Marketing and Regulatory Programs have 
addressed several broad goals and objectives to increase marketing 
opportunities and to protect American agriculture from damages caused 
by pests and diseases.
    Building Broader Bridges.--We strengthened cooperation and 
strategic partnerships with farmers and ranchers, States, foreign 
governments, congressional offices, agricultural commodity and industry 
associations, agricultural scientific groups, and other interested 
parties. We want to ensure that our policies and programs provide the 
most benefits they can to the affected people which demonstrates that 
working together works.
    Moving More Product.--We expanded domestic and international market 
opportunities for U.S. agriculture products including value enhanced 
products and products of biotechnology. We have worked closely with the 
Foreign Agricultural Service and the U.S. Trade Representative to 
aggressively and creatively resolve sanitary, phytosanitary, 
biotechnology, grain inspection, commodity grading and other trading 
issues that limit our potential for growth in international trade.
    Investing in Infrastructure.--We invested in stronger border 
security, pest and disease surveillance and monitoring, laboratory 
capacity such as the National Veterinary Science Lab in Ames, Iowa. We 
increased market news on export markets, made improvements in e-
Government, enhanced investigations of anti-competitive market 
practices and provided greater support for biotechnology. Agriculture 
that is healthy, both biologically and economically, is a marketable 
agriculture.
    Growing Our People.--We made a concerted effort to recruit, 
recognize and reward accomplishment and inspire current and future 
leaders within MRP. We are making MRP a place where the best and 
brightest want to be, including promising men and women in diverse 
fields such as journalism, accounting, and economics.
    Selling Agriculture as a Profession.--We are creatively marketing 
the vital role that agriculture plays in every American's life to 
assist our efforts to recruit and retain the highest caliber workforce 
for MRP and USDA.
                            funding sources
    The Marketing and Regulatory Program activities are funded by both 
the taxpayers and beneficiaries of program services. The budget 
proposes that the MRP agencies carry out programs costing $1.8 billion; 
with $418 million funded by fees charged to the direct beneficiaries of 
MRP services and $449 million from Customs receipts.
    On the appropriation side, under current law, the Animal and Plant 
Health Inspection Service is requesting $828 million for salaries and 
expenses and $5 million for repair and maintenance of buildings and 
facilities; the Grain Inspection, Packers and Stockyards Administration 
is requesting $44 million, and the Agricultural Marketing Service is 
requesting $87 million.
    The budget again proposes user fees that, if enacted, would recover 
about $40 million. Legislation was submitted in 2003 which would 
authorize new license fees to recover the cost of administering the 
Packers and Stockyards (P&S) Act and authorize additional grain 
inspection fees for developing grain standards. Legislation will be 
submitted soon to enable additional license fees for facilities 
regulated under the Animal Welfare Act. I will use the remainder of my 
time to highlight the major activities and our budget requests for the 
Marketing and Regulatory Programs.
               animal and plant health inspection service
    The fundamental mission of APHIS is to anticipate and respond to 
issues involving animal and plant health, conflicts with wildlife, 
environmental stewardship, and animal well-being. Together with their 
customers and stakeholders, APHIS promotes the health of animal and 
plant resources to facilitate their movement in the global marketplace 
and to ensure abundant agricultural products and services for U.S. 
customers. We believe that safeguarding the health of animals, plants, 
and ecosystems makes possible safe agricultural trade and reduces 
losses to agricultural and natural resources.
    APHIS builds bridges by working in concert with its stakeholders--
States, Tribes, industry, and the public--to maintain and expand export 
market opportunities and to prevent the introduction and/or to respond 
to new threats of plant and animal pests and diseases. APHIS invests in 
the agricultural marketing infrastructure that helps protect the 
agricultural sector from pests and diseases while at the same time 
moving more U.S. product.
    I would like to highlight some key aspects of the APHIS programs:
    Safeguarding the Agricultural Sector and Resource Base.--While 
APHIS continues to work closely with the Department of Homeland 
Security (DHS) to exclude agricultural health threats, it retains 
responsibility for promulgating regulations related to entry of 
passengers and commodities into the United States. APHIS' efforts have 
helped keep agricultural health threats away from U.S. borders through 
increased offshore threat-assessment and risk-reduction activities. 
APHIS has also increased an already vigilant animal and plant health 
monitoring and surveillance system to promptly detect outbreaks of 
foreign and endemic plant and animal pests and diseases.
    Management Programs.--Because efforts to exclude foreign pests and 
diseases are not 100 percent successful, APHIS also assists 
stakeholders in managing new and endemic agricultural health threats, 
ranging from threats to aquaculture to cotton and other crops, tree 
resources, livestock and poultry. In addition, APHIS assists 
stakeholders on issues related to conflicts with wildlife and animal 
welfare.
    Moving More Product.--The Trade Issues Resolution and Management 
efforts are key to ensuring fair trade of all agricultural products. 
APHIS' staff negotiates sanitary and phytosanitary (SPS) standards, 
resolves SPS issues, and provides clarity on regulating imports and 
certifying exports which improves the infrastructure for a smoothly 
functioning market in international trade. Ensuring that the rules of 
trade are based on science helps open markets that have been closed by 
unsubstantiated SPS concerns. APHIS' efforts contributed to the opening 
or retention of $2.5 billion in export markets in fiscal year 2003 by 
helping resolve individual trade issues abroad.
    Biotechnology.--Recent developments in biotechnology underscore the 
need for effective regulation to ensure protection of the environment 
and food supply, reduce market uncertainties, and encourage development 
of a technology that holds great promise. APHIS' Biotechnology 
Regulatory Services unit coordinates our services and activities in 
this area and focuses on both plant-based biotechnology and transgenic 
arthropods. We also are examining issues related to transgenic animals.
                       aphis' 2005 budget request
    In a year of many pressing high-priority items for taxpayer 
dollars, the budget request proposes about $828 million for salaries 
and expenses. There are substantial increases to support the 
Administration's Food and Agriculture Defense Initiative and to protect 
the agriculture sector from bovine spongiform encephalopathy (BSE). A 
brief description of key initiatives follows.
    A total of about $173 million for Foreign Pest and Disease 
Exclusion.--Efforts will be focused on enhancing our ability to exclude 
Mediterranean fruit fly and foreign animal diseases. We also request 
funds to regulate the possession and transfer of Select Agents, toxins 
and pathogens necessary for research and other beneficial purposes 
which could be deadly in the hands of terrorists.
    A total of about $224 million for Plant and Animal Health 
Monitoring.--APHIS plays a critical role in protecting the Nation from 
deliberate or unintentional introduction of an agricultural health 
threat, and the budget requests $94 million, a $49 million increase, as 
part of the Food and Agriculture Defense Initiative. This includes 
initiatives that enhance plant and animal health threat monitoring and 
surveillance; bolster a National Animal Identification Program; ensure 
greater cooperative surveillance efforts with States; improve 
connectivity with the integration and analysis functions at DHS for 
plant and animal health threats; and boost animal vaccine availability; 
and other efforts. In addition, $50 million is requested for bovine 
spongiform encephalopathy (BSE) activities to accelerate the 
development of a National animal ID effort and to increase testing to 
detect the presence of BSE in the U.S. livestock herd.
    A total of $320 million for pest and disease management programs.--
Once pests and disease are detected, prompt eradication reduces 
longterm damages. In cases where eradication is not feasible (e.g., 
European gypsy moth), attempts are made to slow the advance, and 
damages, of the pest or disease. APHIS provides technical and financial 
support to help control or eradicate a variety of agricultural threats.
    The budget proposes $57 million of increased funding for efforts 
against low-pathogenic avian influenza, emerging plant pests (such as 
Citrus Canker and Emerald Ash Borer), tuberculosis, scrapie, and 
chronic wasting disease.
    Other programs offer offsets to those increases. Successes in boll 
weevil eradication efforts allow a reduction in that program. Decreased 
funding is requested for Asian Long-horned Beetle based on the ongoing 
levels of State contributions. Funding is reduced for Johne's Disease 
since it is rather endemic and funds need to be rationed for other 
program needs. The budget also assumes that State cooperators will fund 
a greater share of wildlife management programs.
    A total of $17 million for the Animal Care programs.--APHIS will 
maintain its animal welfare and horse protection programs. The budget 
includes a proposal, similar to fiscal year 2004, to collect $10.9 
million in additional fees charged to facilities and establishments 
required to be registered under the Animal Welfare Act but not 
currently subject to a fee. This includes research facilities, 
carriers, and in-transit handlers of animals. Since these facilities 
are the direct beneficiaries of taxpayer assistance, it is appropriate 
that a portion of the costs be funded by these beneficiaries.
    A total of about $82 million for Scientific and Technical 
Services.--Within USDA, APHIS has chief regulatory oversight of 
genetically modified organisms. To help meet the needs of this rapidly 
evolving sector, the budget includes a request to, in part, enhance the 
regulatory oversight of field trials of crops derived with 
biotechnology. Also, APHIS develops methods and provides diagnostic 
support to prevent, detect, control, and eradicate agricultural health 
threats, and to reduce wildlife damages (e.g., coyote predation). It 
also works to prevent worthless or harmful animal biologics from being 
marketed.
    A total of $12 million for management initiatives.--This includes 
building upon efforts started with Homeland Security Supplemental funds 
for improving physical and operational security, It also includes 
providing the State Department funds to help cover higher security 
costs for APHIS personnel abroad. A portion of the increase would also 
be used for enhanced computer security and eGov initiatives.
        grain inspection, packers and stockyards administration
    GIPSA's mission is to facilitate the marketing of livestock, meat, 
poultry, cereals, oilseeds, and related agricultural products and to 
promote fair and competitive trade for the benefit of consumers and 
American agriculture. It helps move more U.S. product both domestically 
and abroad by investing in domestic infrastructure that supports 
marketing within the grain and livestock industry. GIPSA fulfills this 
through both service and regulatory functions in two programs: the 
Packers and Stockyards Programs (P&SP) and the Federal Grain Inspection 
Service (FGIS).
    Packers and Stockyards Programs.--The strategic goal for P&SP is to 
promote a fair, open and competitive marketing environment for the 
livestock, meat, and poultry industries. Currently, with 166 employees, 
P&SP monitors the livestock, meatpacking, and poultry industries, 
estimated by the Department of Commerce to have an annual wholesale 
value of over $118 billion. Legal specialists and economic, financial, 
marketing, and weighing experts work together to monitor emerging 
technology, evolving industry and market structural changes, and other 
issues affecting the livestock, meatpacking, and poultry industries 
that the Agency regulates.
    We conducted over 1,700 investigations in fiscal year 2003 to 
enforce the Packers and Stockyards Act for livestock producers and 
poultry growers, of which about 95 percent were closed in a year. 
Financial recoveries were $27.2 million.
    The Swine Contract Library began operation on December 3, 2003. 
Producers can see contract terms, including, but not limited to, the 
base price determination formula and the schedules of premiums or 
discounts, and packers' expected annual contract purchases by region. 
Since December 3, GIPSA has experienced approximately 27 ``hits'' each 
day to view the Contract Summary reports and approximately 6 ``hits'' 
per day to view the Monthly reports.
    Federal Grain Inspection Service.--FGIS facilitates the marketing 
of U.S. grain and related commodities under the authority of the U.S. 
Grain Standards Act and the Agricultural Marketing Act of 1946. As an 
impartial, third-party in the market, we advance the orderly and 
efficient marketing and effective distribution of U.S. grain and other 
assigned commodities from the Nation's farms to domestic and 
international buyers. We are part of the infrastructure that undergirds 
the agricultural sector.
    GIPSA works with government and scientific organizations to 
establish internationally recognized methods and performance criteria 
and standards to reduce the uncertainty associated with testing for the 
presence of biotechnology grains and oil seeds. It also provides 
technical assistance to exporters, importers and end users of U.S. 
grains and oilseeds, as well as other USDA agencies, USDA Cooperator 
organizations, and other governments. These efforts help facilitate the 
sale of U.S. products in international markets.
    Our efforts to improve and streamline our programs and services are 
paying off for our customers, both in terms of their bottom lines and 
in greater customer satisfaction. FGIS' service delivery costs average 
$0.30 per metric ton, or approximately 0.23 percent of the $14 billion 
value of U.S. grain exports. In fiscal year 2003 alone, more than 1.8 
million inspections were performed on more than 222 million tons of 
grains and oilseeds.
    One indicator of the success of our outreach and educational 
initiatives is the number of foreign complaints lodged with FGIS 
regarding the quality or quantity of U.S. grain exports. In fiscal year 
2003, FGIS received only 13 quality complaints and no quantity 
complaints from importers on grains inspected under the U.S. Grain 
Standards Act. These involved 229,587 metric tons, or about 0.2 percent 
by weight, of the total amount of grain exported during the year.
                      gipsa's 2005 budget request
    For 2005, the budget proposes a program level for salaries and 
expenses of $44 million. Of this amount, $20 million is devoted to 
grain inspection activities for standardization, compliance, and 
methods development and $24 million is for Packers and Stockyards 
Programs.
    The 2005 budget includes the following program increases:
  --$1 million for rapid response teams to closely examine livestock 
        marketing to ensure that producers are not unfairly 
        disadvantaged by the BSE situation. USDA will use the funds to 
        conduct market surveillance and ensure that marketing and 
        procurement contracts are honored in the aftermath of the BSE 
        finding.
  --About $5 million to significantly upgrade the agency's IT 
        functions, including the ability to securely accept, analyze, 
        and disseminate information relevant to the livestock and grain 
        trades. About $4 million is a one-time increase for investment. 
        Currently, GIPSA receives more than 2.5 million submissions 
        from stakeholders, all of which are done on paper. The request 
        also includes $150,000 to maintain the Swine Contract Library.
  --$1.2 million to monitor the various technologies that livestock and 
        meatpacking industries use to evaluate carcasses to ensure fair 
        and consistent use of those technologies. Producer compensation 
        is increasingly dependent not simply on the weight of the 
        animals they bring to slaughter, but the characteristics of the 
        carcasses as well (e.g., fat content).
  --$0.5 million to enable GIPSA to better address and resolve 
        international grain trade issues, thus precluding disruption of 
        U.S. exports. GIPSA has experienced a growing demand for 
        cooperative participation with other agencies with 
        international trade responsibilities to help expand markets for 
        U.S. agricultural products and removing barriers to trade.
    New User fees.--New user fees, similar to those proposed for fiscal 
year 2004, would be charged to recover the costs of developing, 
reviewing, and maintaining official U.S. grain standards used by the 
grain industry. Those who receive, ship, store, or process grain would 
be charged fees estimated to total about $6 million to cover these 
costs. Also, the Packers and Stockyards program would be funded by new 
license fees of about $23 million that would be required of packers, 
live poultry dealers, stockyard owners, market agencies and dealers, as 
defined under the Packers and Stockyards Act.
                     agricultural marketing service
    The mission of the AMS is focused on facilitating the marketing of 
agricultural products in the domestic and international marketplace, 
ensuring fair trading practices, and promoting a competitive and 
efficient marketplace to the benefit of producers, traders, and 
consumers of U.S. food and fiber products. The Agency accomplishes this 
mission through a wide variety of publicly and user funded activities 
that help their customers improve the marketing of their food and fiber 
products and ensure that food and fiber products remain available and 
affordable to consumers. The following are just some of the ways that 
AMS is doing its job better in serving its customers.
    Customer Service and Technology.--AMS continues to improve its 
service delivery by taking advantage of new technology to improve 
public electronic access to information and services and to increase 
operational efficiency. For example, the Livestock Mandatory price 
reporting system processes huge amounts of raw data received from 
slaughter facilities that report their transactions involving purchases 
of livestock and sales of boxed beef and lamb, lamb carcasses, and 
imported boxed lamb cuts. These data, including prices, contracts for 
purchase, and other related information, are publicly disseminated in 
over 100 daily, weekly, and monthly reports on fed cattle, swine, lamb, 
beef and lamb meat. AMS continues to make enhancements to existing 
reports and to introduce new reports in consultation with industry 
stakeholders.
    In 2003, AMS began offering automatic e-mail delivery of 
comprehensive Market News information to subscribers. This free email 
subscription service, provided in partnership with the Mann Library at 
Cornell University, provides access to nearly 1,500 daily, weekly and 
monthly market reports covering the six major AMS commodity groups. AMS 
also is developing a Market News web portal that will allow users to 
establish their own unique web pages through which they can immediately 
access preferred market news reports, have the capability to build 
specialized reports, and add customized features including nationwide 
weather reports and metric data conversions. Users will be able to 
access 5 years of data and download it in usable formats, including 
charts, spreadsheets, and graphs. The portal will be available to 
public users later this year for fruit and vegetable reports, and they 
hope to expand it to market reports for other commodities soon 
thereafter.
    Partnerships.--AMS depends on strong partnerships with cooperating 
State agencies and other Federal agencies to carry out many of our 
programs. State agency partners collect data, provide inspection, 
monitoring, and laboratory services for AMS, and otherwise maximize the 
value of both State and Federal resources through sharing and 
coordination. For instance, AMS' Market News program maintains 
cooperative agreements with 40 States to coordinate local market 
coverage with the regional and national coverage needed for AMS market 
reporting. State employees who inspect shipments of seed within a State 
provide information on potential violations in interstate shipments to 
AMS' Federal Seed program. Thirty-three States and territories 
participate with AMS in Pesticide Recordkeeping education and record 
inspection activities and are reimbursed for their services. 
Furthermore, the Pesticide Data program depends on its 10-12 State and 
three Federal partners to collect and test the product samples on which 
the program results are based. In fact, the Pesticide Data program 
directs 80 percent of its funding to its State partners in 
reimbursement for services provided. Another source of support for 
State agriculture programs is AMS' Federal-State Marketing Improvement 
Program (FSMIP), otherwise known as the Payments to States Program. In 
2003, AMS allocated FSMIP grant funds to 20 States for 28 projects of 
local and regional importance, such as marketing studies or developing 
innovative approaches to the marketing of agricultural products.
    Under the National Organic program, AMS program personnel accredit 
State, private, and foreign certifying agents who certify that organic 
production and handling operations are in compliance with the national 
organic standards. As of February 2004, AMS received 137 applications 
for accreditation. Of these, the program has thus far accredited a 
total of 90 certifying agents, including 15 States, and 37 foreign 
certifying agents. AMS also administers two cost share programs through 
agreements with the States that help to offset certification costs for 
organic producers. Additional resources provided in fiscal year 2004 
will allow us to strengthen our support of the National Organic 
Standards Board activities, including technical advisory panel 
evaluations of materials and program evaluations--or peer reviews--and 
to strengthen program enforcement.
    Market Analysis.--In 2003, AMS supported wholesale or farmers 
market facility projects in Mississippi, Georgia, Florida, Oregon, 
Arizona, New York, Texas, American Samoa, Hawaii, and Kentucky. AMS 
also supports marketing and market technology research projects which 
were presented at numerous marketing conferences and workshops. AMS 
supports farmers markets by conducting research on emerging trends in 
market operations and practices and providing research reports, 
reference material and fact sheets to farm vendors, farm market 
managers, and the general public through the AMS website and a 
telephone hotline.
    AMS' Transportation Services Program works with Federal, State, and 
local policy-makers to maintain an efficient national transportation 
system that supports the needs of farmers, agricultural shippers, and 
rural America. AMS conducts and sponsors economic studies of domestic 
and international transportation issues and provides technical 
assistance and information to producers, shippers, carriers, government 
agencies, and universities. Program experts have generated studies and 
reports on U.S. waterways, rail lines and rail car availability; rail 
and shipping rate analyses; geographically disadvantaged farmers and 
ranchers, and many others.
    AMS transportation specialists are often called upon to provide 
information and advice when agricultural transportation is disrupted. 
After September 11, 2001, AMS has increasingly been asked to provide 
more analyses on transportation security for agricultural products. In 
2003, AMS developed a Transportation Security Briefing Book using the 
information currently available. The book provides an overview of the 
agricultural transportation system, existing safety measures, and 
discusses the adverse effects of past disruptions in the system. While 
this is a good start, we have found that much more study is needed in 
this area for all modes of transport, but particularly for trucking, 
which moves 90 percent of agricultural freight for at least one segment 
of its transportation to destination.
    Commodity Purchases.--AMS works in close cooperation with both the 
Food and Nutrition Service (FNS) and the Farm Services Agency (FSA) to 
administer USDA commodity purchases that stabilize markets and support 
nutrition programs, such as the National School Lunch Program, the 
Emergency Food Assistance Program, the Commodity Supplemental Food 
Program, and the Food Distribution Program on Indian Reservations. To 
maximize the efficiency of food purchase and distribution operations, 
AMS, FNS, and FSA each provide a component of program administration 
according to their organizational structure and expertise, but the 
system is complex and requires close coordination. To better coordinate 
the operations between the three agencies and control the vast array of 
details inherent to the procurement process, the Processed Commodities 
Inventory Management System (PCIMS) was developed more than 10 years 
ago to track bids, orders, purchases, payments, inventories, and 
deliveries of approximately $2.5 billion of commodities used in all 
food assistance programs every year and another $1 billion in price 
support commodity products maintained in inventory. PCIMS is still 
being used by the three agencies with modifications having been made 
over the years, when feasible, to add capabilities such as financial 
tracking or to meet changes in program delivery.
                        ams' 2005 budget request
    For AMS, the budget proposes a program level of $732 million, of 
which over 88 percent will be funded by user fees and Section 32 funds. 
The budget requests an appropriation of $87 million for Marketing 
Services and Payments to States. The 2005 budget includes an increase 
of $10 million in appropriated funds to improve the information 
technology systems used to manage and control commodity orders, 
purchases, and delivery. Under this proposal, PCIMS would be replaced 
by the Web-based Supply Chain Management System (WBSCM). Implementation 
of WBSCM will improve the efficiency of Federal procurement of 
commodities by reducing ordering and delivery times from 24 days to 5 
days. The 2005 budget also includes an increase of $0.3 million to 
conduct studies aimed at improving the security of the U.S. 
transportation system for agricultural commodities and supplies. The 
budget includes a decrease of $2 million for FSMIP to reflect a 
reduction for a one-time increase in 2004 for creation of specialty 
markets in Wisconsin.
                               conclusion
    This concludes my statement. I am looking forward to working with 
the Committee on the 2005 budget for the Marketing and Regulatory 
Programs. We believe the proposed funding amounts and sources of 
funding are vital to protecting American agriculture from pests and 
diseases, both unintentional and those caused by terrorist action, and 
for moving more product to foreign markets. It will provide the level 
of service expected by our customers--the farmers and ranchers, the 
agricultural marketing industry, and consumers. We are happy to answer 
any questions.
                                 ______
                                 

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

    Mr. Chairman and Members of the Committee, I am pleased to have 
this opportunity to represent the Agricultural Marketing Service in 
presenting our fiscal year 2005 budget proposal. To provide some 
context for our budget proposal, I would like to begin by reviewing our 
agency's mission and describing some of the customer service 
improvements we have made in delivery of our programs.
                                mission
    The mission of the Agricultural Marketing Service--AMS--is focused 
on marketing: to facilitate the marketing of agricultural products in 
the domestic and international marketplace, ensure fair trading 
practices, and promote a competitive and efficient marketplace to the 
benefit of producers, traders, and consumers of U.S. food and fiber 
products.
    We accomplish this mission through a wide variety of publicly 
funded activities that help our customers better market their food and 
fiber products and ensure that food and fiber products remain available 
and affordable to consumers. More specifically, AMS helps to make the 
nation's agricultural markets work efficiently by providing wide and 
equal access to market information for all producers and traders; by 
developing agricultural product descriptions that provide a common 
language for commercial trade; by providing data on pesticide residues 
and microbiological pathogens that support science-based risk 
assessment; by providing ``how to'' technical expertise to growers, 
transporters, and others in the marketing chain; and by helping to 
develop alternative or improved market outlets.
    AMS also offers voluntary fee-based services such as product 
quality grading, contract certification, export verification, and 
quality control services such as plant inspections, equipment reviews, 
and production quality or process control certification. Because these 
voluntary services are available to verify the quality of agricultural 
products and the efficacy of production processes, they support private 
contractual arrangements and marketing claims that can improve 
profitability for U.S. producers in both domestic and international 
markets. In delivering these voluntary services, we remain vigilant 
about their costs, while working in partnership with our customers to 
ensure that marketplace needs are met.
                    customer service and technology
    We continue to improve our service delivery by taking advantage of 
new technology--to improve public electronic access to information and 
services and to increase our operational efficiency. For example, the 
Livestock Mandatory price reporting system processes huge amounts of 
raw data--some 2 to 3 million data items each week--received from 112 
slaughter facilities, that report their transactions involving 
purchases of livestock and sales of boxed beef and lamb, lamb 
carcasses, and imported boxed lamb cuts. These data, including prices, 
contracts for purchase, and other related information, are publicly 
disseminated in over 100 daily, weekly, and monthly reports on fed 
cattle, swine, lamb, beef and lamb meat. AMS continues to make 
enhancements to existing reports and to introduce new reports in 
consultation with industry stakeholders.
    In 2003, AMS began offering automatic email delivery of 
comprehensive Market News information to subscribers. Market News 
reports cover prices, volume, quality, condition, and other market data 
on farm products in production areas and at specific domestic and 
international markets. This free email subscription service, provided 
in partnership with the Mann Library at Cornell University, provides 
access to nearly 1,500 daily, weekly and monthly market reports 
covering the six major AMS commodity groups--cotton, dairy, fruit and 
vegetable, livestock and seed, poultry, and tobacco. Users can search 
by keyword or browse by commodity, then subscribe to and receive 
selected reports via email whenever an update is published. This 
initiative is part of the Federal e-government effort to streamline 
government-to-citizen communications.
    AMS also is developing a Market News web portal that will allow 
users to establish their own unique web pages through which they can 
immediately access preferred market news reports, have the capability 
to build specialized reports, and add customized features including 
nationwide weather reports and metric data conversions. Users will be 
able to access 5 years of data and download it in usable formats, 
including charts, spreadsheets, and graphs. The portal will be 
available to public users later this year for fruit and vegetable 
reports, and we hope to expand it to market reports for other 
commodities soon thereafter.
                              partnerships
    AMS depends on strong partnerships with cooperating State agencies 
and other Federal agencies to carry out many of our programs. State 
agency partners collect data, provide inspection, monitoring, and 
laboratory services for AMS, and otherwise maximize the value of both 
State and Federal resources through sharing and coordination. For 
instance, AMS' Market News program maintains cooperative agreements 
with 40 States to coordinate local market coverage with the regional 
and national coverage needed for AMS market reporting. State employees 
who inspect shipments of seed within a State provide information on 
potential violations in interstate shipments to AMS' Federal Seed 
program. Thirty-three States and territories participate with AMS in 
Pesticide Recordkeeping education and record inspection activities and 
are reimbursed for their services. Furthermore, our Pesticide Data 
program depends on its State and Federal partners to collect and test 
the product samples on which the program results are based. In fact in 
fiscal year 2004, the Pesticide Data program will direct about 80 
percent of its funding to its eleven State partners in reimbursement 
for services provided. The resulting information generated by AMS can 
be utilized by other Federal agencies such as EPA and FDA for policy 
and regulatory actions, as well as other USDA agencies, academia, 
agricultural industry, international organizations, and global traders.
    We work with local and city agencies to improve wholesale, farmers, 
and other direct marketing opportunities. In 2003, our Wholesale, 
Farmers, and Alternative Markets program supported wholesale or farmers 
market facility projects in Mississippi, Georgia, Florida, Oregon, 
Arizona, New York, Texas, American Samoa, Hawaii, and Kentucky. The 
program also supports marketing and market technology research projects 
as well as numerous marketing conferences and workshops. In an effort 
to help link farm direct sales with school nutrition programs, for 
example, AMS organized a workshop focused on farm to school marketing 
in fiscal year 2003 at the first national ``Farm to Cafeteria 
Conference'' in Seattle, Washington.
    Farmers markets directly benefit local producers and continue to be 
an important farm product outlet for agricultural producers nationwide. 
Farmers markets have risen in popularity due to growing consumer 
interest in obtaining fresh products directly from the farm. The number 
of farmers markets has grown by 79 percent between 1994 and 2002 to 
more than 3,100 facilities nationwide. AMS supports farmers markets by 
conducting research on emerging trends in market operations and 
practices and providing research reports, reference material and fact 
sheets to farm vendors, farm market managers, and the general public 
through the AMS website and a telephone hotline. We also participate in 
industry, producer, and academic conferences and training sessions 
across the country.
    Another source of support for local agriculture programs is AMS' 
Federal-State Marketing Improvement Program, or FSMIP. These matching 
grant funds, made available to State departments of agriculture and 
other State agencies, fund 25 to 35 projects each year. In 2003, we 
allocated FSMIP grant funds to 20 States for 28 projects of local and 
regional importance, such as marketing studies or developing innovative 
approaches to the marketing of agricultural products.
    Our National Organic program, in partnership with its advisory 
committee, provides nationwide standards and a certification system for 
the U.S. organic food industry, which has over $8 billion in sales and 
has seen annual growth in excess of 22 percent. Between 1995 and 2000, 
the U.S. organic market expanded by 175 percent and is expected to more 
than double its 2000 value of $7.8 billion to approximately $16 billion 
by 2005. AMS works with the National Organic Standards Board to develop 
standards for substances used in organic production, maintain a 
National List of approved and prohibited substances for organic 
production, and convene technical advisory panels to provide scientific 
evaluation of materials considered for the National List. AMS program 
personnel accredit State, private, and foreign certifying agents who 
certify that organic production and handling operations are in 
compliance with the national organic standards. As of February 2004, 
AMS received 137 applications for accreditation. Of these, the program 
has thus far accredited a total of 90 certifying agents--53 domestic 
certifying agents, including 15 States, and 37 foreign certifying 
agents. AMS also administers two cost share programs through agreements 
with the States that help to offset certification costs for organic 
producers. Additional resources provided in fiscal year 2004 will allow 
us to strengthen our support of Board activities, including technical 
advisory panel evaluations of materials and program evaluations--or 
peer reviews--and to strengthen program enforcement.
    Our Transportation Services Program works with Federal, State, and 
local policy-makers to maintain an efficient national transportation 
system that supports the needs of farmers, agricultural shippers, and 
rural America. The program helps to support farm income, expand 
exports, and maintain the flow of food to consumers. AMS conducts and 
sponsors economic studies of domestic and international transportation 
issues and provides technical assistance and information on 
agricultural transportation, rural infrastructure and access, and food 
distribution to producers, shippers, carriers, government agencies, and 
universities. Program experts have generated studies and reports on 
U.S. waterways, rail lines and rail car availability; rail and shipping 
rate analyses; and geographically disadvantaged farmers and ranchers, 
and many others. The program also produces periodic publications that 
provide information for agricultural producers and shippers on various 
modes of transportation, such as the weekly Grain Transportation 
Report, the Refrigerated Transport Quarterly, quarterly issues of the 
Ocean Rate Bulletin and Agricultural Container Indicators, and the 
semiannual Agricultural Ocean Transportation Trends.
    Our transportation specialists are called upon to provide 
information and advice when agricultural transportation is disrupted, 
such as late in 2002, when a labor stoppage closed the West Coast ports 
and threatened millions of dollars of losses for agriculture from 
commodities spoiled in transit. After 9/11, we are increasingly asked 
to provide more analyses on transportation security for agricultural 
products. In 2003, AMS developed a Transportation Security Briefing 
Book using the information currently available. The book provides an 
overview of the agricultural transportation system, existing safety 
measures, and discusses the adverse effects of past disruptions in the 
system. While this is a good start, we have found that much more study 
is needed in this area for all modes of transport, but particularly for 
trucking, which moves 90 percent of agricultural freight for at least 
one segment of its transportation to destination.
    Finally, AMS works in close cooperation with both the Food and 
Nutrition Service (FNS) and the Farm Services Administration (FSA) to 
administer USDA's nutrition assistance and surplus commodity programs. 
AMS purchases agricultural commodities under authority of Section 32 of 
the Act of August 24, 1935, which permanently authorized an 
appropriation equal to 30 percent of customs receipts to encourage the 
exportation and domestic consumption of agricultural commodities. These 
funds, plus unused balances up to $500 million from the previous fiscal 
year, may be authorized by the Secretary to support markets by 
purchasing commodities in temporary surplus, for domestic nutrition 
assistance programs, for diversion payments and direct payments to 
producers, for export support, and disaster relief.
    AMS retains only about 13 percent of the funds appropriated under 
Section 32. In 2005, AMS expects to retain $800 million, half of 
which--$400 million--will be spent on purchases for the Child Nutrition 
Programs. Most of the rest is available to AMS' commodity purchases 
program for emergency surplus removal. Eighty-six percent of the $6.2 
billion total appropriation will be transferred to FNS to administer 
the Child Nutrition Programs and 1 percent to the Department of 
Commerce to develop fishery products.
    The commodities purchased by AMS are donated to various nutrition 
assistance programs such as the National School Lunch Program, the 
Emergency Food Assistance Program, and the Food Distribution Program on 
Indian Reservations, according to their needs and preferences. In 
fiscal year 2003, AMS purchased 1.46 billion pounds of commodities that 
were distributed by FNS through its nutrition assistance programs.
    AMS purchases the non-price supported commodities--meat, fish, 
poultry, egg, fruit and vegetable products--and FSA supplies the price-
supported commodities--flours, grains, peanut products, cheese and 
other dairy products, oils and shortenings--that supply the National 
School Lunch Program and other nutrition assistance programs 
administered by FNS.
    To maximize the efficiency of food purchase and distribution 
operations, AMS, FNS, and FSA each provide a component of program 
administration according to their organizational structure and 
expertise, but the system is complex and requires close coordination. 
AMS and FSA purchase for FNS the entitlement commodities provided to 
schools. Schools and other nutrition assistance programs can also 
receive bonus commodities that are purchased to support agricultural 
markets through AMS' surplus commodity program. AMS and FSA are 
responsible for issuing and accepting bids, and awarding and 
administering contracts. FNS is responsible for taking commodity orders 
from the States, monitoring purchases and entitlements throughout the 
year, and the overall administration of the commodity nutrition 
assistance programs. Before a purchase is announced, AMS and FSA 
specialists work with potential vendors, FNS, and food safety officials 
to develop a specification for each product purchased that details 
product formulation, manufacturing, packaging, sampling, testing, and 
quality assurance. After market conditions, availability, and 
anticipated prices are assessed, and recipient preferences determined, 
AMS and FSA invite bids for particular U.S. produced and domestic 
origin food products under a formally advertised competitive bid 
program. Bids received from responsible vendors are analyzed and 
contracts are awarded by AMS and FSA. FSA administers the payments to 
vendors, ensures the proper storage of commodities when needed, and 
assists in their distribution.
    To better coordinate the operations between the three agencies and 
control the vast array of details inherent to the procurement process, 
the Processed Commodities Inventory Management System, or PCIMS, was 
developed more than 10 years ago to track bids, orders, purchases, 
payments, inventories, and deliveries of approximately $2.5 billion of 
commodities used in all domestic and foreign food assistance programs 
every year and another $1 billion in price support commodity products 
maintained in inventory. PCIMS is still being used by the three 
agencies with modifications having been made over the years, when 
feasible, to add capabilities such as financial tracking or to meet 
changes in program delivery.
                    fiscal year 2005 budget request
    This leads us to the first of our two budget requests for fiscal 
year 2005, which involves both a multi-agency partnership and an 
electronic (e-) government initiative that will significantly improve 
customer service.
                web-based supply chain management system
    AMS, FNS and FSA are working together to replace PCIMS with a Web-
Based Supply Chain Management System, or WBSCM. For fiscal year 2005, 
AMS is requesting funding of $10 million in our Marketing Services 
appropriated account to begin developing the entire new system rather 
than each of the three agencies separately requesting portions of the 
funding needed.
    WBSCM has undergone extensive reviews within USDA and was approved 
as one of the Department's selected e-government ``smart choice'' 
initiatives. WBSCM is designed to greatly reduce the time required for 
processing purchases; shorten delivery times; improve USDA's ability to 
collaborate with other Departments; improve reporting capability; 
reduce transportation, inventory, and warehousing costs; and enable 
future system updates as needed. Furthermore, the system will create a 
singe point of access for customers, allow us to share information more 
quickly and conveniently, automate internal processes, and assist in 
breaking down bureaucratic divisions. Eventually, WBSCM will be able to 
support agencies that manage similar commodity distribution programs 
for export. The Foreign Agricultural Service, the Agency for 
International Development, and the Maritime Administration, have been 
included in the development phases to ensure the new system can address 
the needs of export programs.
    Over the last few years AMS, FNS, and FSA have undertaken extensive 
business practice reengineering efforts. Since PCIMS was developed and 
``hard coded'' to automate the business practices of the time, it often 
cannot be modified to accept significant changes in process without 
undue costs. As a result, agency employees frequently have to develop 
electronic entries external to PCIMS and then update the system with 
the results. In contrast, WBSCM is designed to use commercial off the 
shelf software which will speed up implementation, incorporate industry 
and commercial best business practices, and give the agencies the 
flexibility to reconfigure the system after implementation when 
processes change. We expect that increased efficiency, better 
coordination, and improved services will begin as soon as the basic 
system is in place in mid-fiscal year 2007, when WBSCM will provide 
those services being performed by PCIMS. Until then, we must continue 
to maintain the PCIMS system.
                  agricultural transportation security
    Our second proposal this year is to strengthen our agricultural 
transportation security expertise within the Transportation Services 
program. We are requesting $300,000 to produce more in-depth analyses 
of agricultural transportation security. Transportation is a critical 
link in the food supply chain. Closer analysis of the sector will 
provide the information needed for critical assessments of the 
strengths and vulnerabilities of the various transportation modes used 
to move farm inputs, food, and other agricultural products from farm to 
market. These funds will strengthen USDA's Homeland Security efforts by 
helping to safeguard the U.S. food supply and supporting the Department 
of Homeland Security. We will be better able to provide the information 
requested by policy officials in planning strategies to prevent 
potential disruptions, and to provide comprehensive information more 
quickly when any emergencies occur. Our current expertise and 
established contacts with transportation providers give us a distinct 
advantage in addressing agricultural transportation security issues. 
The transportation industry also has a serious interest in protecting 
shipments. For example, the Agricultural and Food Transporters 
Conference (AFTC) recently requested help from AMS in developing 
voluntary security guidelines. AMS is supporting a cooperative effort 
between USDA and the AFTC to prepare a guidebook. With expanded 
information and analysis, we will also be better able to advise 
agricultural producers and shippers on improving their own security.
                         budget request summary
    Our total budget request includes $86 million for Marketing 
Services, which includes an increase for pay costs partially offset by 
a decrease for savings associated with information technology. We also 
include a decrease of $2 million in Federal-State Marketing Improvement 
Program grants funding under Payments to States and Possessions. These 
funds were provided in fiscal year 2004 to support Wisconsin specialty 
products. We request $11 million in Section 32 Administrative funds for 
commodity purchasing and $16 million for Marketing Agreements and 
Orders. These requests also include an increase for pay costs. Thank 
you for this opportunity to present our budget proposal.
                                 ______
                                 

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

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



    APHIS' protection system is based on a strategic premise that 
safeguarding the health of animals, plants, and ecosystems makes 
possible safe agricultural trade and reduces losses to agricultural and 
natural resources. All nine objectives in the protection system are key 
components of this strategic premise. Failing to succeed in any one 
objective will eventually lead to overall failure, and American farmers 
will not reach their potential export markets. Additionally, the 
protection system is a key component of USDA's Homeland Security role. 
The United States has a vital stake in the health of American 
agriculture, both economically and in terms of feeding our people and 
many throughout the world. Terrorists could well recognize that vital 
stake and seek to attack it.
Five Objectives for Safeguarding Health of Animals, Plants, and 
        Ecosystems
    Objective 1.1--Conduct offshore threat assessment and risk 
reduction activities.--In this era of increasing globalization and 
advancing technologies, APHIS must constantly assess the exotic health 
threats approaching our borders, and engage in offshore pest or disease 
eradication activities when the threat is imminent and the potential 
impact severe.
    To prevent the introduction of costly foreign animal diseases into 
the United States, our Foreign Animal Diseases (FAD) and Foot-and-Mouth 
Disease (FMD) program works to detect and control outbreaks of animal 
diseases in foreign countries far from our shores. This is our first 
line of defense against foreign animal diseases and has become more 
significant as international trade and travel have increased. APHIS 
conducts operations overseas through bilateral agreements and works 
with multilateral organizations, such as the World Organization for 
Animal Health (OIE). Last year, for example, through an agreement with 
Panama and Mexico, we collected 1,260 samples of suspected vesicular 
disease throughout Central America from field investigations and tested 
the samples in Panama. Fortunately, all tested negative for FMD, while 
639 were diagnosed as vesicular stomatitis.
    Through our Fruit Fly Exclusion and Detection program, we cooperate 
with the Governments of Mexico, Guatemala, and Belize on the Moscamed 
program to eradicate and control the Mediterranean Fruity Fly (Medfly), 
which could cause $2 billion in losses if it became established in the 
United States. Moscamed's current top priorities are to eradicate the 
Medfly from Chiapas, Mexico, and move the barrier south into Guatemala 
in an effort to achieve APHIS' and its cooperators' goal of eradicating 
Medfly from Central America and thereby providing more secure 
prevention against the threat Medfly poses to the United States. A 
major component of the program is the production and release of sterile 
flies to disrupt normal reproduction. In fiscal year 2003, the Central 
America Medfly program produced 2.2 billion sterile fruit flies a week, 
exceeding its goal of producing 2 billion per week. This production 
increase allowed more flies to go to the preventive release program in 
the United States.
    Through our Tropical Bont Tick program, APHIS employees are 
preventing the introduction of heartwater and other diseases 
transmitted by tropical bont ticks into the livestock industry and 
wildlife populations of the United States from affected Caribbean 
islands. The cooperative program has eradicated ticks from six of the 
nine islands involved so far, bringing us closer to our goal of 
eradicating this pest from the Western Hemisphere.
    Objective 1.2--Regulate and monitor to reduce the risk of 
introduction of invasive species.--APHIS regulates the import of 
agricultural products, including commercial shipments and items carried 
into the United States by travelers, to prevent the entry of foreign 
pests and diseases. We work closely with the Department of Homeland 
Security (DHS) to monitor and intercept items that arrive at ports of 
entry.
    In fiscal year 2003, APHIS and DHS agricultural employees inspected 
the baggage of nearly 74 million arriving passengers. Passenger baggage 
is inspected manually, with x-ray technology, or through the use of 
detector dogs. Agricultural inspectors also cleared 54,033 ships and 
3,128,660 cargo shipments. In cooperation with DHS, we increased the 
number of cargo inspections by 43 percent over fiscal year 2002 because 
of the high entry risk of exotic wood boring and bark beetles, like 
Asian long-horned beetle and emerald ash borer. In total, agricultural 
inspectors intercepted 82,631 reportable pests at land borders, 
maritime ports, airports, and post offices. At plant inspection 
stations, our inspectors cleared 176,761 shipments containing over 1.2 
billion plants units (cuttings, whole plants, or other propagative 
materials) and intercepted 4,260 pests.
    Part of APHIS' safeguarding strategy is to prevent the intentional 
introduction of illegal products through market surveys, 
investigations, and enforcement action. In fiscal year 2003, our 
Safeguarding, Intervention, and Trade Compliance (SITC) staff and field 
personnel seized 15,706 illegal plant products and 488 illegal meat, 
poultry, and dairy products and found 112 reportable pests. When SITC 
detects a prohibited item, we identify the item's origin and the 
responsible shippers, importers, and broker. By maintaining the 
relevant information in databases, the program can target specific 
commodities and importers. This year, SITC investigations led to the 
detection of 82 violations at markets and distributors' warehouses.
    APHIS' Animal and Plant Health Regulatory Enforcement program 
conducts regulatory enforcement activities to prevent the spread of 
animal and plant pests and diseases in interstate trade. These 
activities include inspection, surveillance, animal identification, and 
prosecution. This year, APHIS continued the development of a multi-year 
project to improve a headquarters-based, on-line computer system to 
track investigations and automate the enforcement process. The database 
will help our enforcement efforts by allowing APHIS programs and other 
agencies such as the Departments of Homeland Security and Treasury to 
share critical information and identify individuals, companies, 
cargoes, carriers, or pathways posing risk.
    In fiscal year 2003, APHIS conducted 1,782 investigations involving 
plant quarantine violations resulting in 142 warnings, 682 civil 
penalty stipulations, seven Administrative Law Judge decisions, and 
approximately $1 million in fines. Regarding animal health programs, we 
conducted 1,425 investigations, resulting in 210 warnings, 39 civil 
penalty stipulations, five Administrative Law Judge decisions, and 
approximately $44,900 in fines. Also during fiscal year 2003, the 
program conducted 76 investigations of alleged Swine Health Protection 
Act violations in Puerto Rico. This was slightly less than the target 
of 80 investigations, mostly due to providing support for the exotic 
Newcastle disease outbreak in California.
    Objective 1.3--Ensure safe research, release, and movement of 
agricultural biotechnology events, veterinary biologics, and other 
organisms.--The growth of agricultural biotechnology hinges on the 
public's acceptance of this technology as safe, and APHIS' regulatory 
role is key to ensuring global acceptance. In addition to agricultural 
biotechnology, the Agency monitors and regulates to ensure safe 
agricultural research and commercialization activities involving the 
movement of non-indigenous organisms and veterinary biologics.
    APHIS' Biotechnology Regulatory Services (BRS) program, created in 
August 2002, regulates the introduction (importation, interstate 
movement, and field release) of genetically engineered organisms such 
as plants, insects, microorganisms and any other organism that is known 
to, or could be, a pest. APHIS also has determined that BRS may 
potentially regulate animals, insects, and other disease agents 
relevant to livestock health. Through a strong regulatory framework, 
BRS determines the conditions under which genetically engineered 
organisms can be introduced into the United States and allows for the 
importation, interstate movement, and field release of these materials 
only after rigorous conditions and safeguards are put into place. Under 
the authority of the Plant Protection Act of 2000, APHIS can pursue 
penalties for failure to adhere to our regulations, permit conditions, 
and requirements.
    With the creation of our new biotechnology compliance program, we 
have chosen measures that will accurately and visibly reflect the 
effectiveness of our inspection efforts for the testing of products 
that carry a higher degree of perceived risk. We believe that increased 
frequency of inspections--especially at high risk sites--coupled with 
efforts to improve the quality of inspections through expanded 
training, will translate into a high degree of stakeholder and public 
confidence that these products will be safely confined and not 
inadvertently enter the food supply. Our performance target for fiscal 
year 2004 is to inspect 10 percent of low risk sites, 40 percent of 
medium risk sites at least once during the growing season, and 100 
percent of pharmaceutical and industrial sites a total of seven times--
five times during the growing season and two times afterwards.
    Our Veterinary Biologics program continues to ensure that 
veterinary biologics products are pure, safe, potent, and effective. 
Our goal is to ensure the availability of quality veterinary biological 
products for the diagnosis, prevention, and treatment of animal 
diseases. The program will continue to respond to emerging diseases 
with expedited reviews and inspections for new veterinary biologics, 
and it will follow a risk-based approach to inspect and test other 
products.
    In fiscal year 2003, APHIS performed 78 regulatory actions 
following routine inspections and 24 investigations of possible 
regulation violations. APHIS' Center for Veterinary Biologics found the 
marketing of unlicensed veterinary biologics and false or misleading 
advertising of licensed veterinary biologics in over half of these 
investigations. Through education, cooperation, and regulatory actions, 
APHIS helped industry achieve increased compliance with the Virus-
Serum-Toxin Act.
    Objective 1.4--Manage issues related to the health of U.S. animal 
and plant resources and conflicts with wildlife. Agricultural 
stakeholders also expect APHIS to help solve many types of health-
related production issues in the United States. For example, producers 
need help in dealing with area-wide wildlife damage control problems. 
Indigenous pest problems affecting multiple States, such as boll weevil 
and grasshoppers, also require APHIS' attention. We are not alone in 
these efforts and have good relationships are with our State and Tribal 
partners in conducting these eradication and control programs. That 
cooperation, in addition to support from academia and industry, is 
essential for these types of programs to succeed.
    We continue to make progress on a number of other animal health 
programs as well. At the beginning of fiscal year 2003, there was one 
pseudorabies-quarantined premise in the United States, compared to 12 
at the beginning of fiscal year 2002. By the end of fiscal year 2003, 
there were no swine commercial production premises under quarantine for 
pseudorabies. As of September 30, 2003, there were 1,776 flocks 
participating in the Scrapie Flock Certification Program of which 105 
are certified, 1,663 are completely monitored, and 8 are selective 
monitored flocks. This is in comparison to 1,539 flocks enrolled, 78 
flocks certified, 1,452 flocks completely monitored, and 9 flocks 
selectively monitored as of September 30, 2002. To continually improve 
on the 46 States, Puerto Rico, and the Virgin Islands as accredited 
Tuberculosis-free, the program depopulated three dairy herds in 
California, four beef herds in Michigan, and one beef herd in Texas 
during fiscal year 2003.
    Among a number of protection efforts, APHIS' Wildlife Services (WS) 
Operations program works to protect agricultural crops from wildlife 
damage, to protect livestock from predation, and to protect human 
safety by preventing wildlife collisions with aircraft. In fiscal year 
2003, the Agency's beaver damage management activities in several 
States averted $25 million in impending damage to forest and 
agricultural resources, waterways and highway infrastructures. As wolf 
populations continue to increase, so do requests for assistance with 
wolf predation. As a result, APHIS responded to 179 requests for 
assistance with wolf predation on livestock or domestic dogs during 
fiscal year 2003 in Minnesota alone. In the west, APHIS responded to 41 
requests for assistance with gray wolf predation in Idaho and 87 
requests in Montana. Airports reported approximately 6,100 wildlife 
strikes to civil aircraft in 2002, with the U.S. Air Force alone 
reporting more than 3,800 strikes to military aircraft. Wildlife 
strikes cost civil aviation in the United States over $480 million in 
damages in 2002. The requests for APHIS assistance in managing wildlife 
hazards at airports and military air bases continue to increase. In 
fiscal year 2003, APHIS wildlife biologists provided wildlife hazard 
management assistance to over 500 airports nationwide for the 
protection of human safety and property, compared to only 42 airports 
in fiscal year 1990 and 409 airports in fiscal year 2002. At JFK 
International Airport, APHIS biologists have reduced gull strikes by 
over 80 percent in 2000-2003 compared to strike levels in the early 
1990s.
    APHIS' Wildlife Services (WS) Methods Development program, through 
the National Wildlife Research Center (NWRC), functions as the research 
arm of APHIS' Wildlife Services program by providing scientific 
information for the development and implementation of effective, 
practical, and socially acceptable methods for wildlife damage 
management. This helps ensure that high-quality technical and 
scientific information on wildlife damage management is available for 
the protection of crops, livestock, natural resources, property, and 
public health and safety. The program provides technical support for 
the development of 5 drug/vaccine products through Investigational New 
Animal Drug Authorizations under the Food and Drug Administration. 
These materials are under development as wildlife immobilizing agents 
and contraceptive products. APHIS continued to develop and evaluate 
non-lethal methods for managing blackbird damage to sunflowers and rice 
by conducting extensive laboratory testing of registered chemicals for 
bird repellency characteristics. Scientists continued multi-year 
research studies at various airports in the United States to reduce 
wildlife strike hazards. These scientists researched turf management, 
non-lethal repellents, and dispersal techniques to minimize strikes by 
gulls, waterfowl, turkey vultures, hawks, and other species that 
threaten aviation safety. In fiscal year 2003, we met our performance 
target of testing and/or improving 18 wildlife damage management 
methods and will maintain this target for fiscal year 2004.
    APHIS' Animal Welfare program carries out activities designed to 
ensure the humane care and handling of animals used in research, 
exhibition, the wholesale pet trade, or transported in commerce. The 
program places primary emphasis on voluntary compliance through 
education with secondary emphasis on inspection of facilities, records, 
investigation of complaints, reinspection of problem facilities, and 
training of inspectors. However, when necessary, APHIS personnel 
investigate alleged violations of Federal animal welfare and horse 
protection laws and regulations and oversee and coordinate subsequent 
prosecution of violators through appropriate civil or criminal 
procedures. In fiscal year 2003, we conducted 365 animal welfare 
investigations resulting in 172 formal cases submitted for civil 
administrative action. We also issued 90 letters of warning and 
resolved 44 cases with civil penalty stipulations resulting in $56,373 
in fines. Administrative Law Judge Decisions resolved another 58 cases 
resulting in $668,995 in fines.
    Objective 1.5--Respond to emergencies--response planning, 
surveillance, quick detection, containment, and eradication.--Even 
though we devote many resources to pest and disease prevention and 
regulatory compliance to safeguard agricultural health, it is 
impossible to intercept every potential biological threat. APHIS must 
have the capacity to quickly respond in order to limit the spread of 
the outbreak and to eradicate it so that production losses are 
minimized and exports of affected commodities do not suffer long-term 
disruptions.
    APHIS' Emergency Management System (EMS) is a joint Federal-State-
industry effort to improve the ability of the United States to deal 
successfully with animal health emergencies, ranging from natural 
disasters to introductions of foreign animal diseases. The EMS program 
identifies national infrastructure needs for anticipating, preventing, 
mitigating, responding to, and recovering from such emergencies. By 
Presidential Homeland Security Directive, APHIS is restructuring its 
emergency response systems according to the National Incident 
Management System, or NIMS. APHIS implemented the incident command 
structure in response to the exotic Newcastle disease (END) outbreak in 
California, Arizona, Nevada, and Texas during fiscal year 2003. During 
the END outbreak, APHIS followed the NIMS structure and established 
five incident command posts in three States.
    This same structure was put into place when, on December 23, 2003, 
laboratory testing at the National Veterinary Services Laboratories 
indicated that a single cow, slaughtered on December 9, 2003, in 
Washington State, tested positive for BSE. The world reference 
laboratory in the United Kingdom confirmed these presumptive positive 
results on December 25 for BSE, and we immediately began a swift and 
comprehensive investigation.
    The epidemiological tracing and DNA evidence proved that the BSE 
positive cow was born on a dairy farm in Alberta, Canada in 1997. She 
was moved to the United States in September 2001 along with 80 other 
cattle from that dairy. The epidemiological investigation to find 
additional animals from the source herd led to a total of 189 trace-out 
investigations. These investigations resulted in complete herd 
inventories on 51 premises in three States: Washington, Oregon and 
Idaho.
    On February 9, 2004, APHIS announced that we had completed our 
field investigation of the BSE case in Washington. During our 
investigation, a total of 255 ``Animals of Interest''--animals that 
were or could have been from the source herd--were identified on 10 
premises in Washington, Oregon and Idaho. All 255 animals were 
depopulated and sampled for BSE testing. Results were negative on all 
samples. The carcasses from all of the euthanized animals were properly 
disposed of in accordance with all Federal, State, and local 
regulations. Consistent with international guidelines on BSE, we 
focused on tracing the 25 animals born into the birth herd of the index 
cow during a 2-year window around her birth. Based on normal culling 
practices of local dairies, we estimated that we would be able to 
locate approximately 11 of these animals. In fact, APHIS definitively 
located 14 of these animals.
    We are confident that the remaining animals represent very little 
risk. Even in countries like the United Kingdom where the prevalence of 
BSE has been very high, it has been very uncommon to find more than one 
or maybe two positive animals within a herd.
    Thus far in fiscal year 2004, USDA has transferred $80.4 million 
from the Commodity Credit Corporation (CCC) to APHIS for BSE-related 
activities. APHIS is using these funds to respond to the Washington 
State incident and to enhance BSE surveillance around the country. This 
CCC funding will supplement the funds already set aside for BSE 
surveillance in APHIS' base appropriation. This enhanced surveillance 
plan incorporates recommendations from the international scientific 
review panel and the Harvard Center for Risk Analysis; both have 
reviewed and supported the plan.
    On December 30, 2003, Secretary Veneman announced that an 
international panel of experts would be convened to review our BSE 
investigative efforts and recommend enhancements to our BSE program. 
The panel delivered their report on February 4, 2004, and commended 
USDA for conducting such a comprehensive epidemiological investigation. 
The panel also made recommendations for further enhancements to the BSE 
program. The Secretary applied all of this information in considering 
future actions with regard to BSE, and on March 15, she announced a 
plan to enhance the BSE surveillance program. Previous targeted 
surveillance efforts were designed to detect BSE in the adult cattle 
population at the level of at least one infected animal per million 
adult cattle with a 95 percent confidence level. The goal of the new 
plan is to test as many cattle in the targeted high-risk population as 
possible in 12 to 18 months, and then evaluate future actions based on 
the results of this effort.
    The plan also incorporates random sampling of apparently normal, 
aged animals at slaughter. More than 86 percent of all adult cattle 
processed annually are slaughtered in 40 plants; random sampling 
efforts will be focused on these plants.
    More intensive surveillance will allow us to refine our estimates 
of the level of disease present in the U.S. cattle population and 
provide consumers, trading partners, and industry better assurances 
about our BSE status. Testing will be conducted at USDA's National 
Veterinary Services Laboratories and at participating network contract 
laboratories. As an example, if a total of at least 268,444 samples is 
collected from the targeted population, we believe this level of 
sampling would allow USDA to detect BSE at a rate of 1 positive in 10 
million adult cattle (or 5 positives in the entire country with a 99 
percent confidence level). We also plan on testing at least 20,000 BSE 
slaughter samples from apparently healthy, aged bulls and cows. During 
this effort, we will be utilizing approved rapid screening tests, 
working with industry on disposal issues, and enhancing our BSE 
education and outreach activities.
    USDA remains confident in the safety of the U.S. beef supply. Out 
of an abundance of caution, USDA recalled all meat products processed 
in the affected slaughter plant the same day as the positive cow. 
However, the meat presents an extremely low risk to consumers, because 
all of the central nervous system related tissues--those most likely to 
contain the BSE agent--were removed from the affected animal during 
slaughter and did not enter the human food supply.
    Even with the recent detection, the United States continues to have 
a very low BSE risk. An independent assessment conducted by Harvard 
University in 2001 and again in 2003 demonstrated that even with a 
detection of BSE in this country, United States control efforts would 
minimize any possible spread of the disease and ultimately eliminate it 
from the U.S. cattle population. These controls include a long-standing 
ban on imports of live cattle, other ruminants, and most ruminant 
products from high risk countries; the Food and Drug Administration's 
1997 prohibition on the use of most mammalian protein in cattle feed; 
and an aggressive surveillance program that has been in place for more 
than a decade. In each of the past 2 years, the United States tested 
over 20,000 head of cattle for BSE, which is 47 times the recommended 
international standard.
    We opened the APHIS Emergency Operations Center (AEOC) in March 
2003. The AEOC is a state-of-the-art facility that allows a national 
management response team to communicate with field personnel and USDA 
leadership during an outbreak situation. Communications capabilities 
include video teleconferencing, advanced computer interfaces, 
geographical information system mapping, and a strong multimedia 
component.
    Through the Pest Detection program, APHIS and its State cooperators 
work to ensure the early detection of harmful or invasive plant pests 
and weeds through the Cooperative Agricultural Pests Survey (CAPS) 
program. The CAPS program provides the domestic infrastructure 
necessary to conduct national surveys for plant pests and weeds and 
document the results in a national database, the National Agricultural 
Pest Information System (NAPIS). NAPIS provides a summary of pest 
survey results and allows APHIS to track the spread of pests within the 
United States, demonstrate their presence or absence, plan their 
control, and support the export of agricultural commodities. APHIS is 
currently engaged in a multi-year effort to enhance its early detection 
program through an increased level of communication and cooperation 
with its State partners, increased staffing levels, the use of new 
technology, and a new focus on international pest risk analysis. These 
efforts will help us meet our goal of detecting significant pest 
introductions before a new pest can cause serious damage. Finding newly 
arrived exotic pests before they spread will reduce the money spent on 
costly eradication programs and prevent losses to farmers and our 
natural ecosystems.
    APHIS has completed pest risk assessments for ten of the 18 pests 
on the national CAPS list for fiscal year 2003 and 2004 and is working 
with State cooperators to develop State CAPS lists. We are also 
instituting CAPS committees at the State, regional, and national levels 
to ensure that stakeholders are involved in the process of targeting 
pests for survey. In fiscal year 2003, APHIS and 21 States conducted 
the Exotic Wood-Borer and Bark Beetle Survey, one of our new commodity-
or resource-based surveys. While the data is still not complete, this 
year's survey turned up evidence of three new forest pests previously 
not known to exist in the United States. We believe that these new 
pests provide strong evidence of the need for the nationally directed 
and risk-based detection program that we are currently implementing.
    APHIS' Animal Health Monitoring and Surveillance program continues 
to conduct activities such as: monitoring and surveillance of various 
animal disease programs, foreign animal disease surveillance and 
detection, emergency disease preparedness and response, animal health 
monitoring, and epidemilologic support and delivery for both ongoing 
disease programs and post-disease eradication programs. For example, 
APHIS completed the Scrapie Ovine Slaughter Surveillance project sample 
collection by gathering 12,508 samples from 22 slaughter plants and one 
slaughter market. Losses from affected flocks cost producers 
approximately $20 to $25 million annually.
    APHIS has been challenged with numerous emergencies over the last 
several years. However, we took quick and aggressive action to address 
the following plant and animal situations: Asian Longhorned Beetle, 
Chronic Wasting Disease, Citrus Canker, Emerald Ash Borer, Exotic 
Newcastle Disease, Karnal Bunt, Mediterranean Fruit Fly, Mexican Fruit 
Fly, Pierce's Disease/Glassy-winged Sharpshooter, Rabies, Spring 
Viremia of Carp, and Tuberculosis. The Secretary used her authority to 
transfer over $378 million to battle these pests and diseases. Without 
the quick detection and early, rapid response, the cost to control 
these outbreaks would have undoubtedly been higher.
Four Objectives for Facilitating Safe Agricultural Trade
    APHIS' two goals of safeguarding U.S. agriculture and facilitating 
international agricultural trade reinforce each other. By protecting 
and documenting the health of our agricultural products, we can retain 
existing markets and open new markets for our farmers. By facilitating 
safe trade with other countries (including activities such as 
monitoring world agricultural health and helping developing countries 
build regulatory capacity), we help ensure that imported products will 
not threaten our domestic production capability and health status.
    Objective 2.1--Verify and document the pest and disease status of 
U.S. agriculture and related ecosystems.--The World Trade 
Organization's (WTO) Sanitary and Phytosanitary (SPS) Agreement and the 
North American Free Trade Agreement commit countries to recognizing 
disease- and pest-free areas within a country even if a particular pest 
or disease exists elsewhere in the nation. This concept of 
regionalization has resulted in APHIS' becoming increasingly involved 
in demonstrating our pest and disease free status to allow agricultural 
exports to trading partners.
    APHIS' Pest Detection program conducted 150 surveys to document the 
pest status of our plant resources and support U.S. producers' ability 
to export their products. For example, by collecting extensive survey 
data demonstrating the limited distribution of Karnal bunt in the 
United States, APHIS provides assurance to our trading partners that 
the disease is not present in major wheat-producing areas of the United 
States, thereby ensuring annual agricultural exports of up to $5 
billion and supplying the raw ingredients for domestic and foreign 
customers of flour, pasta, and other wheat products. Plum pox is 
another case in which the collection of national data has helped to 
keep budwood markets open by demonstrating the absence of the pest from 
various areas around the United States.
    APHIS officials collaborate with State and other Federal agencies 
to conduct animal health surveillance activities through the Animal 
Health Monitoring and Surveillance (AHMS) program. These activities 
include pre- and post-entry testing of imported animals, sample 
collection at slaughter, and routine testing of animals for export and 
interstate movement. APHIS also conducts surveillance for domestic 
animal disease eradication programs, like brucellosis, tuberculosis, 
chronic wasting disease, and others. This surveillance information 
allows APHIS to make key regulatory decisions. In doing so, APHIS 
strives to preserve U.S. exports markets, protect livestock or poultry 
producers in disease-free areas, and provide the best options possible 
for those producers who are affected by our regulatory decisions.
    When foreign animal disease outbreaks occur in the United States, 
our trading partners routinely ban U.S. animal and animal product 
exports until APHIS has the opportunity to confirm the extent of the 
disease's spread and demonstrate what regulatory actions are being 
taken to contain it. Last year, the poultry breeding and hatchery 
industry lost approximately $1 million per week due to bans by various 
trading partners on U.S. poultry exports because of exotic Newcastle 
disease. Our trading partners will lift such bans in unaffected and 
unregulated areas only if we can convince them that measures are being 
taken to mitigate the risk of the disease's spread via host commodity 
exports. Providing our trading partners accurate and detailed 
information about a foreign animal disease outbreak and the subsequent 
Federal/State disease management response is critical. This information 
gives our trading partners the assurances they need without exposing 
them to undue risk. Such a regionalized approach helps minimize trade 
disruption and negative market reactions.
    Objective 2.2--Certify the health of animals and plants and related 
products for export and interstate commerce.--In carrying out this 
role, APHIS spends well over $100 million on disease diagnostics and 
epidemiology and pest detection infrastructure. This infrastructure 
makes our health certificates credible for trading partners, but it 
also is instrumental for quickly detecting and limiting the spread of 
outbreaks of new pests and diseases, part of our emergency response 
strategy (Objective 1.5).
    The Import/Export program promotes simple, science-based export 
conditions and negotiates requirements based on technical-level 
mitigation and guidelines established by OIE. The program is working 
hard to strengthen its evaluation and risk assessment capabilities to 
meet international and domestic responsibilities and respond to 
international and domestic requests for regionalization in a timely 
manner. For example, during fiscal year 2003 the Import/Export program 
increased its capacity to conduct regionalization analyses for foreign 
markets (import purposes) and domestic markets (export purposes). 
During the early stages of the exotic Newcastle disease outbreak in 
fiscal year 2003, many countries--including all members of the European 
Union--suspended poultry imports from all regions of the United States. 
APHIS, however, identified END-free regions of the country and helped 
these regions regain market access. These actions helped protect the 
entire U.S. poultry export industry, which has an estimated annual 
worth of $2.5 billion.
    APHIS' Agricultural Quarantine Inspection program facilitates the 
export of agriculture shipments through EXCERT, an electronic database 
containing plant health import requirements for over 200 countries. 
APHIS export certifications ensure that U.S. products meet the 
agricultural requirements of the country of destination. In fiscal year 
2003, APHIS issued over 400,000 Federal plant health export 
certificates for agriculture shipments, including the issuance of heat 
treatment certificates for coniferous solid wood packing materials to 
the People's Republic of China.
    Objective 2.3--Resolve trade barrier issues related to animal and 
plant health.--Because of APHIS' expertise in animal and plant health 
issues and our regulatory role (Objective 1.2), the Agency serves as a 
key resource for trade policy agencies, like the Foreign Agricultural 
Service and the U.S. Trade Representative, in resolving sanitary and 
phytosanitary issues that often become trade barriers (Objective 2.3). 
The negotiations that occur to resolve these issues often result in 
trading partners providing additional information about the pests or 
diseases in question, and this information in turn leads to more 
effective preventive regulatory strategies.
    Officials with the Trade Issue Resolution and Management program 
work to minimize trade disruptions caused by animal and plant health 
issues. In fiscal year 2003, APHIS retained poultry markets in Japan, 
Korea, and the Philippines worth over $169 million, expanded market 
access for apples in Mexico worth $88 million, and opened new markets 
for seed potatoes to Uruguay and apricots from the Pacific Northwest to 
Mexico. Additionally, APHIS expanded market access for U.S. cherries, 
canola seed, and potatoes in Mexico, and with the concerted efforts of 
APHIS, Foreign Agricultural Service, and the Office of the United 
States Trade Representative, we retained markets for wheat in Argentina 
and Peru.
    When individual agricultural shipments are held up at foreign 
ports, APHIS attaches correct problems and negotiate with host 
government officials to facilitate the shipment's acceptance. APHIS 
obtained authorization for apples at four additional ports of entry in 
Mexico resulting in the release of a $5 million apple shipment. In 
addition, APHIS facilitated $1 million worth of U.S. cotton in Chile, 
three rice shipments in Costa Rica and Guatemala, the release of $13 
million in citrus shipments held by Japanese officials, and the waiving 
of phytosanitary certification with Romanian officials for soy beans, 
allowing a shipment of 14,000 tons of soybeans valued at over $3 
million.
    Objective 2.4--Provide expertise and training in animal and plant 
health.--The WTO's SPS Agreement requires member countries to provide 
technical assistance to developing countries to enable those countries 
to participate more fully in the global trade arena. Using cooperative 
agreements, preclearance trust fund agreements, and other international 
arrangements, APHIS provides many countries with technical assistance 
to strengthen their animal and plant health infrastructure, risk 
assessment capacity, and food production capabilities (Objective 2.4). 
By doing this, APHIS not only fulfills requirements for the SPS 
Agreement but also improves offshore threat assessment and risk 
reduction capabilities (Objective 1.1).
    APHIS attaches continue to identify specific weaknesses in foreign 
regulatory systems and provide technical assistance where appropriate. 
Capacity building improves foreign countries' regulatory 
infrastructure, U.S. relationships with key foreign officials, United 
States regulatory concepts and approaches, and, ultimately, the 
agricultural health status of the foreign country.
    In fiscal year 2003, the Veterinary Biologics program continued 
working with the Committee of the Americas for the Harmonization for 
Registration and Control of Veterinary Medicines (CAMEVET). The 
objectives of this committee include coordinating technical information 
for the registration and control of veterinary medicines. The intention 
of this program is to exchange information and harmonizes technical 
procedures to improve the quality of veterinary medicines and the trade 
of products among countries in the Americas.
    A part of APHIS' Veterinary Diagnostics program assists foreign 
governments in the diagnosis of animal diseases by maintaining national 
and international laboratory recognition with the highest quality 
reference assistance and by conducting developmental projects for 
rapidly advancing technologies. In fiscal year 2003, as an OIE 
reference laboratory, APHIS' National Veterinary Services Laboratories 
(NVSL) continued to use their diagnostic expertise to provide training, 
consultation, and assistance to both domestic and international 
laboratories. NVSL prioritized the evaluation/validation of new 
technologies such as the exotic Newcastle disease and Avian Influenza 
polymerase chain reaction and Chronic Wasting Disease kits to offer new 
tools for control of certain key diseases. NVSL also shipped 117,095 
vials of reagents to domestic and foreign customers to meet critical 
testing needs. And, NVSL acquired a new chemistry analyzer for blood 
screening purposes and doubled the number of fraudulent cases detected 
over those detected in fiscal year 2002. The fraudulent blood testing 
program at NSVL helps to assure confidence in the health of animals 
exported from the United States to other countries.
                             new direction
    After evaluating the current challenges and opportunities that 
exist today, APHIS has developed a new strategic plan of action that 
will set the Agency's course over the next 5 years. During this time, 
APHIS is committed to focusing on the following overarching goals: 
safeguarding the health of animals, plants, and ecosystems in the 
United States; facilitating safe agricultural trade; and ensuring 
effective and efficient management of programs to achieve its mission.
    As part of its new strategic plan, APHIS intends to strengthen key 
components of its protection system by focusing on the following 
objectives:
  --Ensuring the safe research, release, and movement of agricultural 
        biotechnology;
  --Strengthening the Agency's emergency preparedness and response;
  --Resolving trade barriers related to sanitary and phytosanitary 
        requirements;
  --Reducing domestic threats through increased offshore threat-
        assessment and risk-reduction activities;
  --Reducing the risk of invasive species introductions by enhancing 
        risk-analysis capabilities; and,
  --Managing issues related to the health of U.S. animal and plant 
        resources and conflicts with wildlife.
                    fiscal year 2005 budget request
    APHIS has developed its fiscal year 2005 Budget Request in the 
context of the Strategic Plan, the overriding imperative of Homeland 
Security, and the need to restrain Federal spending. The fiscal year 
2005 Budget Request for Salaries and Expenses under current law totals 
$828.4 million or $112 million more than the fiscal year 2004 
Consolidated Appropriations Act. About $8.5 million is for the cost of 
the pay raise.
    The fiscal year 2005 increase, approximately 15.5 percent above the 
fiscal year 2004 appropriation, is for initiatives designed to address 
the increasing threats to the health of American agriculture and 
Homeland Security and to support the President's Food and Agriculture 
Defense Initiative. About 40 percent of the increase, approximately 
$45.4 million, is an investment to substantially reduce the over $378 
million fiscal year 2003 emergency transfers and to protect and expand 
the $53 billion annual agricultural export market by fully funding 
Federal costs up front in the budget. Other notable increases stem from 
the highest priority components of APHIS' Strategic Plan and the Food 
and Agriculture Defense Initiative. APHIS' request for fiscal year 2005 
contains $94.36 million for programs that support the Food and 
Agriculture Defense Initiative, an increase of nearly $50 million over 
fiscal year 2004.
highest priority components of the strategic plan and homeland security
    APHIS proposes to increase funding for the Biotechnology Regulatory 
Services program by $6.544 million. This will enable us to inspect all 
high risk fields five times during the growing season and two times in 
the subsequent season to provide the maximum confidence level that 
pharmaceutical and industrial developments are managed safely. Such a 
confidence level is necessary to convince skeptics and trading partners 
that these, and other biotechnologically derived products, are safe. 
That confidence is vital to the growth of the industry and American 
agriculture.
    We propose to increase the Import-Export program by $3 million and 
the Pest Detection program by $1.5 million to fulfill APHIS' 
responsibilities under the Bioterrorism Preparedness and Response Act 
of 2002. APHIS must regulate possessors and users of ``select agents,'' 
toxins and pathogens necessary for research and other beneficial 
purposes which could be deadly in the hands of terrorists.
    In light of the first BSE case in the United States, we propose 
increasing the Animal Health Monitoring and Surveillance program by an 
additional $8.641 million to support enhanced BSE surveillance to 
maintain the confidence of the American people in the safety of the 
beef supply and allow us to continue our efforts to prevent the 
introduction and spread of BSE in the U.S. cattle population. In this 
program, we also request $33.197 million to accelerate implementation 
of a National Animal Identification program. Timely tracebacks of 
animals are integral to a rapid response and recovery to incursions of 
animal illness and foreign animal disease.
    Early detection of new animal and plant pest or disease 
introductions has the potential to significantly reduce eradication 
costs and producer losses and, accordingly, is a high priority for 
APHIS. We propose to increase the funding available to our State 
cooperators through cooperative agreements for plant pest surveys and 
animal health monitoring efforts by $15.2 million (including $9.1 
million for the Pest Detection program and $6.1 million for the Animal 
Health Monitoring and Surveillance program). In addition to requesting 
increased funding to provide to our cooperators, we are proposing a 
$6.202 million increase for the Pest Detection program to enhance our 
pest detection infrastructure and national coordination efforts. By 
establishing basic capacity in all 50 States now, we will enhance our 
ability to find and contain pests and diseases like citrus canker, 
Asian longhorned beetle, emerald ash borer, Karnal bunt, exotic 
Newcastle disease, and avian influenza before they become widespread 
and require expensive emergency eradication programs. Similarly, we 
request an increase in the Wildlife Services Operations program by $5 
million to expand infrastructure to monitor and gather data on the 
disease status of free-ranging animals and integrate this data with 
existing agricultural animal health monitoring systems. APHIS will use 
this information to detect and respond to disease outbreaks in wildlife 
populations and mitigate the risk of wildlife diseases transmission to 
farmed livestock.
    The budget requests a $5 million increase for the Biosurveillance 
program to enhance several data collection systems already in use, 
allowing us to improve our surveillance capabilities and establish 
connectivity with the integration and analysis function at DHS.
    The increase of $3.149 million in the Trade Issue Resolution and 
Management program will allow APHIS to place more officials overseas to 
facilitate the entry of U.S. agricultural products and to help 
establish international standards based on sound science. Having APHIS 
attaches on site in foreign countries pays dividends weekly. They can 
intervene when foreign officials raise false barriers to the entry of 
individual American export shipments. In 2002, APHIS attaches 
successfully intervened to clear shipments worth $53 million in such 
cases.
    We propose to increases the Low Pathogenic Avian Influenza (LPAI) 
program by $11.783 million to conduct a vigorous surveillance and 
control program in the live bird markets in the Northeast--the most 
threatening continuing reservoir of LPAI in the United States. 
Eliminating LPAI in these markets would help prevent costly eradication 
programs like the one we conducted in Virginia in 2002. It also would 
remove a barrier to poultry exports--a $2.2 billion market--that many 
countries have or are threatening to invoke. OIE is likely to upgrade 
LPAI status to ``List A,'' which could result in more restrictions on 
our exports if we do not move to eradicate LPAI in the United States.
    We also propose to increase the Foot and Mouth Disease/Foreign 
Animal Disease program by $4.229 million to further our goal of 
reducing domestic threats through increased offshore threat assessment 
and risk-reduction activities by placing more officers overseas to 
monitor animal disease incidence and assist foreign countries in 
controlling outbreaks. We propose to increase the Pest Detection 
program by $3.875 million to do the same for plant pests and diseases. 
We request an increase in the Tropical Bont Tick (TBT) program by 
$2.495 million to eradicate TBT from Antigua completely and quickly 
prevent threats to other islands already free, to control and eradicate 
TBT from St. Croix, and establish surveillance on other U.S. islands 
and mainland to determine if TBT has spread.
    We propose to increase the Emergency Management Systems program by 
$10.625 million to enhance animal health emergency preparedness 
throughout the United States and to establish a vaccine bank to 
complement the North American Foot and Mouth Disease Vaccine Bank. This 
additional resource would include vaccines or preventives for other 
foreign animal disease of significance. These efforts will help protect 
our Nation's meat, poultry, and livestock exports, which are valued at 
$7.7 billion annually, and the livestock and poultry industries 
overall, which are valued at $87 billion.
    The budget proposes an increase in the Veterinary Biologics program 
by $1.861 million to increase inspections, licensing, and testing of 
biotechnology-derived veterinary biologics and to enhance tools 
available to the national animal health laboratory network that would 
fulfill international standardization requirements. United States sales 
of agricultural biotechnology products (transgenic seeds [excluding 
rice and wheat], animal growth hormones, biopesticides, and other 
products) are projected to increase from $2.4 billion in 2003 to $2.8 
billion by 2006, an increase of $144 million annually.
    The budget proposes an increase in the Veterinary Diagnostics 
program by $4.347 million to enhance the national animal health 
laboratory network and continue its diagnostic work at the Foreign 
Animal Diseases Diagnostic Laboratory on Plum Island to provide 
critical services to the animal industry and help protect the United 
States herd against potential acts of bioterrorism.
    The request increases the Agricultural Quarantine Inspection 
program by $3 million to enhance operations at the National Germplasm 
and Biotechnology Laboratory to develop technology to detect and 
identify high-risk plant pathogens as well as protocols for quarantine 
testing. These efforts support APHIS' emergency response capabilities, 
eradication programs, pest exclusion activities, biotechnology 
permitting programs, and the newly mandated Select Agents program. This 
increase is offset by a decrease of $2.771 million associated with 
inter-line inspections in Hawaii and a decrease of $1.246 million for 
fiscal year 2004 equipment investments.
    The budget increases the Import/Export program by $1.355 million to 
fully develop and begin implementing an automated system to track 
animal and animal product movements. We are developing this tool in 
response to increasing global trade and travel and demands for 
increased efficiency in tracking animals and animal products entering 
and leaving the country.
                 funding to continue emergency programs
    APHIS has been battling several pests and diseases that have 
entered or unexpectedly spread to new areas of the United States over 
the past few years. Finishing the job is important if we are to achieve 
the goals we established when these programs began. Chief among these 
goals is maintaining export markets. Only by aggressively attacking 
pest and disease introductions can we assure trading partners that the 
problems are not endemic to the United States and thus not a reason to 
ban our products from their markets. The budget requests, and the value 
of the industries and markets at stake, follow.
  --Emerald ash borer, $12.5 million, an increase of $11.009 million. 
        This pest has emerged as a serious pest in the Northern Midwest 
        States and threatens the ash saw timber industry, with a value 
        of $25 billion. Much like the Asian Longhorned Beetle, this 
        pest probably arrived via non-agricultural imports and reflects 
        a new threat; not only do the contents of a container pose a 
        risk, so does the container itself. The budget request would 
        provide for Federal cost-sharing of 75 percent for this 
        program.
  --Glassy-winged sharpshooter (vector of Pierce's Disease), $24 
        million, an increase of $1.881 million. Without a program to 
        control Pierce's Disease, the U.S. wine industry could face 
        losses of $33 billion. The budget request would provide for 
        Federal cost-sharing of 57 percent for this program.
  --Citrus Longhorned Beetle (CLHB), $325,000. The CLHB attacks over 40 
        varieties of hardwood and fruit trees and has no natural 
        enemies. The CLHB could cause $41 billion in losses to forest 
        resources nationwide. The budget request would provide for 
        Federal cost-sharing of 100 percent for this program.
  --Citrus Canker, $52.5 million, an increase of $19.071 million. This 
        program protects the Florida citrus industry worth over $9 
        billion. The budget request would provide for Federal cost-
        sharing of 57 percent for this program.
  --Infectious Salmon Anemia, $235,000. This program protects a part of 
        the burgeoning aquaculture industry--salmon exports of over 
        $100 million annually. The budget request would provide for 
        Federal cost-sharing of 47 percent for this program.
  --Spring Viremia of Carp, $285,000. This program protects the common 
        and silver carp industries, with a value of $2.8 billion. The 
        budget request would provide for Federal cost-sharing of 77 
        percent for this program.
  --Chronic Wasting Disease, $20.1 million, an increase of $1.478 
        million. In addition to the potential spread to other species, 
        this program directly protects the elk farming and antler 
        industry (with annual gross receipts of $150 million) and 
        white-tailed deer farms (with capital investments estimated at 
        $2.5 billion). The budget request would provide for Federal 
        cost-sharing of 77 percent for this program.
  --Bovine Tuberculosis, $20.9 million, an increase of $5.998 million. 
        This program protects the entire livestock industry, which has 
        annual earnings from exports of $5.4 billion. The budget 
        request would provide for Federal cost-sharing of 57 percent 
        for this program.
  --Scrapie, $20.9 million, an increase of $5.106 million. This program 
        minimizes losses to sheep and goat producers, who currently 
        incur annual losses of $20-25 million because of scrapie. The 
        budget request would provide for Federal cost-sharing of 67 
        percent for this program.
                            other increases
    We recognize the need for fiscal restraint, but believe that the 
following additional investments are important if we are to meet the 
challenges facing us.
  --To support the Biotechnology priority, we request an increase of 
        $441,000 for the Animal and Plant Health Regulatory Enforcement 
        program to help ensure compliance by investigating alleged 
        violations of permit restrictions regarding pharmaceutical and 
        industrial plants.
  --To further improve our pest and disease surveillance and detection 
        capability--both to protect and gain export markets and to 
        prevent recurring, costly emergency programs--we request $6.171 
        million for the Fruit Fly Eradication and Detection Program to 
        increase detection trapping in Florida and California.
  --To provide the funding requested by the State Department in 
        providing adequate security for APHIS personnel overseas and to 
        continue security and mission critical facilities, we request 
        $7.133 million in our Physical/Operational Security program.
  --To establish and maintain liaison positions at key government 
        agencies and to investigate and evaluate disposal techniques 
        for contaminated biological materials, e.g., animal carcasses, 
        we request $932,000 for our Biosecurity program.
  --To continue to modernize our information technology infrastructure 
        to include network capacity planning and management, 
        implementation of eGov initiatives, and cyber security 
        compliance and management, we request $891,000 in our APHIS 
        Information Technology Infrastructure program.
  --To increase nematode resistant potato varieties and regulatory 
        treatments, we request $184,000 for the Golden Nematode program 
        and to maintain current efficiencies, we request $451,000 in 
        the Screwworm program.
                               decreases
    To allow us to fund these high priority programs, we offer key 
offsets:
    With $15.585 million in reduced funding for the Johne's program, 
APHIS would rely more on the collaborative working relationship between 
Federal and State animal health workers. For the Boll Weevil program, 
we are proposing that the Federal Government assume 15 percent of 
program costs, which in conjunction with the projections of lower 
nationwide needs, will result in a request of $17 million, a reduction 
of $33.4 million. To offset the $5 million increase for the wildlife 
surveillance system, we assume a $5.556 million increase for State 
cooperators to fund a larger share of the cost of other wildlife 
management programs such as predator, bird, and invasive species 
damage. Funding for the Asian longhorned beetle program is requested to 
be $9.3 million, or a reduction of $20.670 million. The fiscal year 
2005 request is based on an overall program level consistent with the 
$4 million traditionally provided by cooperating (non-Federal) 
agencies. This would change the program from an eradication program to 
a control program. The aim is still to protect $41 billion of U.S. 
forest resources while facilitating the $122 billion trade market with 
China, the source of the pest.
    We also propose a reduction of $10.857 million associated with 
animal welfare user fees. This will allow the industry to cover an 
estimated 66 percent of the cost of enforcing the animal welfare 
regulations.
                               conclusion
    APHIS' mission of safeguarding U.S. agriculture is becoming ever 
more critical. Although the processes by which we protect America's 
healthy and diverse food supply are being increasingly challenged, 
APHIS is committed to taking the lead in building and maintaining a 
world-class system of pest exclusion, surveillance, detection, 
diagnosis, and response. Like the APHIS Strategic Plan, the APHIS 
Budget consists of interdependent components that only when taken 
together can truly protect the health and value of American agriculture 
and natural resources.
    On behalf of APHIS, I appreciate all of your past support and look 
forward to even closer working relationships in the future. We are 
prepared to answer any questions you may have.
                                 ______
                                 

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

                              introduction
    Mr. Chairman and Members of the Committee, I am pleased to 
highlight the accomplishments of the Grain Inspection, Packers and 
Stockyards Administration (GIPSA), and to discuss the fiscal year 2005 
budget proposal.
    GIPSA is part of USDA's Marketing and Regulatory Programs, which 
works to support a competitive global marketplace for U.S. agricultural 
products. GIPSA's mission is to facilitate the marketing of livestock, 
poultry, meat, cereals, oilseeds, and related agricultural products, 
and to promote fair and competitive trading practices for the overall 
benefit of consumers and American agriculture.
    GIPSA serves in both service and regulatory capacities. The Packers 
and Stockyards Programs promote a fair, open, and competitive marketing 
environment for the livestock, meat, and poultry industries. The 
Federal Grain Inspection Service provides the U.S. grain market with 
Federal quality standards, a uniform system for applying these 
standards, and impartial, accurate grain quality measurements that 
promote an equitable and efficient grain marketing system. Overall, 
GIPSA helps promote and ensure fair and competitive marketing systems 
for all involved in the merchandising of livestock, meat, poultry, and 
grain and related products.
                              organization
    GIPSA comprises 737 employees. Grain inspection services are 
delivered by the national inspection system, a network of Federal, 
State, and private inspection personnel that is overseen by GIPSA. The 
system includes 12 GIPSA field offices, 2 Federal/State offices, and 8 
State and 58 private agencies that are authorized by GIPSA to provide 
official services. This network insures the availability of official 
inspection and weighing services anywhere in the United States. GIPSA 
also maintains 3 Packers and Stockyards Programs regional offices that 
specialize in poultry, hogs, and cattle/lamb.
                    packers and stockyards programs
    GIPSA's Packers and Stockyards Programs (P&SP) administers the 
Packers and Stockyards Act (P&S Act) to promote fair and open 
competition, fair trade practices, and financial protection in the 
livestock, meat packing, meat marketing, and poultry industries. The 
objective of the P&S Act is to protect producers, growers, market 
competitors, and consumers against unfair, unjustly discriminatory, or 
deceptive practices that might be carried out by those subject to the 
P&S Act. To meet this objective, GIPSA seeks to deter individuals and 
firms subject to the P&S Act from engaging in anti-competitive 
behavior, engaging in unfair, deceptive, or unjustly discriminatory 
trade practices, and failing to pay livestock producers and poultry 
growers. GIPSA initiates appropriate corrective action when there is 
evidence that firms or individuals have engaged in anti-competitive, 
trade, payment or financial practices that violate the P&S Act.
    The livestock, meatpacking, and poultry industries are important to 
American agriculture and the Nation's economy. With only 166 employees, 
GIPSA regulates these industries, estimated by the Department of 
Commerce in fiscal year 2002 to have an annual wholesale value of $118 
billion. At the close of fiscal year 2003, 5,287 market agencies and 
dealers, and 2,067 packer buyers were registered with GIPSA. In 
addition, there were 1,429 facilities that provided stockyard services, 
with an estimated 6,000 slaughtering and processing packers, meat 
distributors, brokers and dealers, and 128 poultry firms running 202 
poultry complexes operating subject to the P&S Act.
    Our regulatory responsibilities are the heart of our mission to 
administer the P&S Act. To this end, GIPSA closely monitors practices 
that may violate the P&S Act. Our top priority continues to be 
investigating complaints alleging anti-competitive, unjustly 
discriminatory, or unfair practices in the livestock, meat, and poultry 
industries. Last year, GIPSA conducted over 1,700 investigations. As a 
result of these investigations, the Packers and Stockyards Programs 
helped restore over $27 million to the livestock, meatpacking, and 
poultry industries. While this is not the largest amount GIPSA has ever 
reported to Congress, it constitutes more than the amount that P&SP 
received in appropriated funding.
    GIPSA divides its regulatory responsibilities into three areas: 
financial protection, trade practices, and competition. In the area of 
financial protection, GIPSA continued to provide payment protection to 
livestock producers and poultry growers in a year where the livestock, 
meatpacking, and poultry industries faced tremendous financial 
pressures. Financial investigations last year resulted in $3.2 million 
being restored to custodial accounts that are established and 
maintained for the benefit of livestock sellers. Livestock sellers 
recovered over $1.5 million under the P&S Act's packer trust 
provisions. During fiscal year 2003, 55 insolvent dealers, market 
agencies and packers corrected or reduced their insolvencies by $6.6 
million. In addition, GIPSA's financial investigators analyzed more 
than 400 bond claims exceeding $7 million. However, GIPSA has no 
statutory authority to compel payment by the trustee or bond surety.
    In its Trade Practices Programs, GIPSA continued to promote fair 
trading between industry participants. Much of GIPSA's work in the 
Trade Practices Program focuses on insuring accurate weights and 
prices. GIPSA continued to work with local states weights and measures 
programs to provide scale training and to secure testing of every scale 
used to weigh livestock or live poultry twice a year. In addition, 
GIPSA initiated or completed 41 investigations of weight and price 
manipulation of livestock. Some of these investigations are on-going. 
GIPSA also investigated the operations of 143 live poultry dealers; 
most of these investigations examined whether live poultry dealers were 
in compliance with contracts entered into with poultry growers. With 
members of the regulated industries, we developed industry standards on 
new technologies that are entering the marketplace to evaluate and 
price livestock purchased on a carcass merit basis. We anticipate 
implementing two more voluntary standards in the next 6 months.
    GIPSA continues to develop its Competition Program. During fiscal 
year 2003, the Competition Branch began or continues evaluations of 31 
complaints regarding attempted restriction of competition, failure to 
compete, buyers acting in concert to purchase livestock, apportionment 
of territory, unlawful price discrimination, and predatory pricing. Of 
these complaints, one firm was brought into compliance, and a second 
firm went out of business. Six of the investigations revealed that the 
concerns raised were not supported by evidence. 23 complaints were 
still pending at the end of the fiscal year. GIPSA continues to work 
closely with the CFTC, attending CFTC Commissioner briefings on the 
cattle, hog, and meat markets.
    GIPSA's Rapid Response Teams remain a powerful tool to address 
urgent industry issues that place the industries in imminent financial 
harm. Last year, GIPSA rapid response teams investigated 59 situations 
across the Nation. During fiscal year 2003, these rapid response 
investigations contributed to returning $5.9 million to livestock 
producers and poultry growers at a cost of $413,010 in salary and 
travel expenses.
    GIPSA continues to work with violating firms to achieve voluntary 
compliance, and GIPSA continues to initiate appropriate corrective 
action when we discover evidence that the P&S Act has been willfully 
violated. During fiscal year 2003, GIPSA, with assistance from the 
Office of the General Counsel, filed 22 administrative or justice 
complaints alleging violations of the P&S Act. This number, similar to 
last year, represents more than a 50 percent increase over the number 
of complaints filed in fiscal year 2001.
    To ensure that producers and growers are aware of the protections 
the P&S Act provides, the Agency provides a hotline (1-800-998-3447) by 
which stakeholders and others may anonymously voice their concerns. 
Last year GIPSA responded to and investigated issues raised by 88 
callers. These calls were in addition to calls received in our regional 
offices. GIPSA also increased its outreach activities. GIPSA conducted 
28 orientation sessions for new auction market owners and managers and 
4 feed mill orientations to educate them about their fiduciary and 
other responsibilities under the P&S Act.
    It is important to note some of the activities that GIPSA has been 
engaged with in recent months. Following the discovery of the bovine 
spongiform encephalopathy (BSE) positive cow in December, 2003, GIPSA 
created Financial Protection, Trade Practices and Competition Task 
Forces to provide protection to livestock producers and members of the 
cattle industry commensurate with its authority under the Packers and 
Stockyards Act. These task forces are based in Denver, Colorado, 
GIPSA's cattle office, and include technical experts from each of 
GIPSA's regional offices and headquarters. The task forces have 
developed strategies to identify and respond to potentially unlawful 
practices unique to current market conditions. Daily Agency-wide 
meetings are being held to inform and share all BSE related information 
so that employees, task forces, and headquarters are all current on the 
latest issues.
    GIPSA's Financial Protection Task Force is monitoring livestock 
markets for financial failures. The Task Force has identified scheduled 
sales at auction markets that were cancelled in the days and weeks 
following the BSE announcement. It's monitoring firms likely to be more 
vulnerable to impacts of the BSE incident, identifying industry changes 
in payment practices, and standing ready to deploy rapid response teams 
to investigate financial concerns in the industry. GIPSA is currently 
conducting several investigations of particularly financially 
vulnerable firms.
    GIPSA's Trade Practices Task Force is reviewing changes in 
marketing and procurement practices implemented by packers in response 
to the BSE incident. GIPSA has been in contact with major packers and 
industry groups to stay current on packer responses. GIPSA is reviewing 
notices sent by packers to livestock producers informing producers of 
purchasing and pricing changes implemented as a result of BSE. GIPSA 
has received complaints from producers who claim that packers have 
changed the payment terms of their contracts and has deployed rapid 
response teams to investigate these complaints. GIPSA's Competition 
Task Force is analyzing, and when warranted, investigating cattle 
markets when anti-competitive practices may be occurring. Several 
investigations have been initiated. The Competition Task Force analyzes 
reported fed-cattle prices in various geographic markets to identify 
abnormal patterns that may indicate violations of the P&S Act. The task 
force assesses whether price differences are the result of normal 
market forces, or packer behavior that may violate Section 202 of the 
P&S Act. When normal market forces fail to explain abnormal prices, the 
Competition Task Force conducts a rapid response investigation to 
determine whether the P&S Act has been violated.
    GIPSA has also communicated with the Commodity Futures Trading 
Commission (CFTC), the Agricultural Marketing Service, Food Safety and 
Inspection Service, the Animal and Plant Health Inspection Service, and 
local and State governmental organizations to discuss issues and 
coordinate plans. GIPSA attends CFTC's surveillance meetings and is 
prepared to work with CFTC on any investigation that may involve a 
potential violation of the P&S Act. GIPSA is actively responding to the 
BSE incident and is prepared to continue enforcement of the Packers and 
Stockyards Act and regulations in light of this situation.
    In addition, this year GIPSA made significant progress on the 
Livestock and Meat Marketing Study for which Congress appropriated $4.5 
million in fiscal year 2003. The study will look at issues surrounding 
a ban on packer ownership. GIPSA, through APHIS, is in the process of 
contracting out the study. Since packers' use of non-spot arrangements 
is intertwined with other advance marketing arrangements throughout the 
supply chain, the study has a broad focus.
    The issues addressed by the study are complex. The research is 
expected to involve several academic disciplines, varied research 
methods, and large amounts of data that are not already available. 
Business schools, economics departments, and agricultural economics 
departments at universities have indicated an interest in bidding, as 
have consulting firms. GIPSA expects to see collaborations of 
disciplines in the bids.
    Contractors are expected to complete the study in phases over 2 
years, with the first reports due 1 year after contract award. Some 
descriptive findings will be released prior to completion of the 
analytical parts of the study. Information about the study, including 
the Federal Register notice, the public comments, and RFP notices, is 
available on GIPSA's website at: www.usda.gov/gipsa, by following the 
``marketing study'' icon.
    Also in fiscal year 2003, GIPSA completed development of the Swine 
Contract Library as an internet application that meets the requirements 
of the Livestock Mandatory Reporting Act of 1999's amendments to the 
Packers and Stockyards Act. Packers are required to file swine purchase 
contracts with GIPSA, and monthly reports about the number of swine 
expected to be delivered, under contract, to packers.
    The Swine Contract Library includes information from swine packing 
plants with a slaughter capacity of 100,000 swine or more per year. 31 
firms operating 51 plants accounting for approximately 96 percent of 
industry slaughter are subject to the SCL. GIPSA has received over 530 
contracts to date. In the first 2 months of operation, the SCL recorded 
more than 1,400 hits. Through the SCL, producers have the ability to 
see contract terms, including, but not limited to, base price 
determination formula and the schedules of premiums or discounts, and 
packers' expected annual contract purchases by region.
    The Swine Contract Library went live with information on contract 
provisions available to the public in early fiscal year 2004, and is 
available on the GIPSA web site at http://www.usda.gov/gipsa/.
                    federal grain inspection service
    GIPSA's Federal Grain Inspection Service (FGIS) facilitates the 
marketing of U.S. grain in domestic and international markets by 
providing the market with services and information that effectively and 
accurately communicate the quality and quantity of grain being traded. 
GIPSA administers its inspection and weighing programs under the 
authority of the U.S. Grain Standards Act, as amended, and the 
Agricultural Marketing Act of 1946 (AMA) as it relates to the 
inspection of rice, pulses, lentils, and processed grain products.
    Providing reliable, high quality inspection and weighing services 
at a reasonable price remains a key commitment of GIPSA and the State 
and private officials comprising the official inspection system. 
Federal export inspection services average $0.30 per metric ton, or 
approximately 0.23 percent of the $14 billion value of U.S. grain 
exports. In fiscal year 2003, more than 1.8 million inspections were 
performed on more than 222 million metric tons of grains and oilseeds. 
Over 84,000 weighing certificates were issued on 91.5 million metric 
tons of grain.
    There have been many changes in official inspection services over 
the past several years to respond to changing market demands. GIPSA has 
programs and services in place to facilitate the loading of shuttle 
trains; to address greater product differentiation; and to provide 
customers with inspection results electronically. These all represent 
steps in the right direction, but we recognize that the market is 
changing daily and we must change with it to remain relevant.
    GIPSA is focusing on a number of key areas to better facilitate the 
marketing of U.S. grain. We are enhancing our international outreach 
capabilities to remove obstacles to U.S. grain reaching world markets. 
We are bringing standardization to domestic and international markets. 
We are focusing on providing the market with the information it needs 
on the end-use functional quality attributes of grain that determine 
its true value in an increasingly quality-specific market. We are 
improving service delivery, and the efficiency and cost-effectiveness 
of the official system.
    International outreach is one component of our efforts to 
facilitate the marketing of U.S. grain. We will continue to expand our 
outreach efforts to support market development around the world. Our 
international customers are making great use of the wide array of 
recently produced multimedia educational materials.
    In recent years, we have significantly expanded our outreach 
efforts to ensure open markets for U.S. grain in Asia and Mexico. Last 
year, GIPSA initiated two 3-month regional assignments, one in Asia and 
one in Mexico, to address immediate and long-term grain marketing 
issues in each region. In Mexico, GIPSA has worked extensively with 
APPAMEX (an organization of Mexican grain importers), the USDA/Foreign 
Agricultural Service (FAS), and USDA cooperator organizations to 
address Mexico's concerns about U.S. grain quality. We have conducted 
in-depth grain grading seminars to educate Mexican buyers, traders, and 
end users on the U.S. grain marketing system, GIPSA's impartial grain 
quality assessment, and U.S. grain standards, sampling procedures, and 
inspection methods. In fiscal year 2003, GIPSA also helped several of 
Mexico's private sector grain elevators and processing facilities set 
up grain inspection laboratories mirrored after GIPSA's. Last fiscal 
year, we also worked with Mexican and Canadian officials to secure a 
trilateral agreement on implementation of the Biosafety Protocol.
    Our international outreach program also includes technical 
consultative services for international customers. In fiscal year 2003, 
GIPSA responded to 17 requests for technical assistance from exporters, 
importers, and end users of U.S. grains and oilseeds, as well as other 
USDA agencies, USDA Cooperator organizations, and other governments.
    Our international outreach are not the only initiatives we have 
underway to improve the standardization of, and in turn, facilitate 
marketing in, domestic and international markets. In the biotech arena, 
GIPSA is helping bring standardization, consistency, reliability, and 
accuracy to the biotech testing entities and tools used by the market. 
GIPSA's test kit evaluation program validates the performance of rapid 
tests for biotechnology-derived grains and oilseeds. Our Proficiency 
Program improves the performance and reliability of government and 
private laboratories in the United States and worldwide that test for 
biotechnology-derived grains. Under this voluntary program, 
participants are evaluated based on results of their quantitative and/
or qualitative testing of samples of all commercially available corn 
and soybean biotechnology events. More than 88 organizations 
participated in the program in fiscal year 2003, a threefold increase 
from 22 organizations in February 2002.
    In fiscal year 2002, GIPSA established formal research 
collaboration with the National Institute of Science and Technology 
(NIST) to investigate DNA-based testing for biotechnology-derived 
grains and oilseeds, and to investigate the development of reference 
materials and methods for DNA-based testing. Using information obtained 
through confidentiality agreements with life science organizations, 
GIPSA and NIST produced event-specific plasmids for evaluation as 
reference materials and potentially to be in the development of 
reference methods. In fiscal year 2003, GIPSA and NIST hosted a 
workshop entitled AStandard Reference Materials for Biotechnology 
Crops.'' Thirty-six representatives from the life science 
organizations, testing laboratories, test kit manufacturers, food 
processors, Canada, European Union, and Japan attended.
    In fiscal year 2004, GIPSA will continue to collaborate with NIST 
to investigate challenges associated with Polyermase Chain Reaction 
(PCR) technology and develop reference materials to improve the 
reliability and accuracy of DNA-based testing and to harmonize testing 
on a global basis, and will continue to work with NIST to establish 
global agreement on the development of reference materials for 
biotechnology-derived grains and oilseeds.
    Our market facilitation efforts also include bringing standardized 
information to markets. In 1999, wheat importers and exporters asked 
GIPSA to declare that the United States does not produce transgenic 
wheat. In September 1999, GIPSA began, in accordance with the authority 
provided under the U.S. Grain Standards Act (7 U.S.C. 79), issuing the 
following letterhead statement upon an applicant's request: ``There are 
no transgenic wheat varieties for sale or in commercial production in 
the United States.'' The potential deregulation of Round-Up Ready wheat 
added potential uncertainty to world markets. Wheat industry 
representatives anticipate that continued issuance of the current 
statement will be essential to ensure the continued marketing of U.S. 
wheat. To facilitate the marketing of U.S. wheat if deregulation 
occurs, GIPSA has agreed to continue issuing the non-transgenic wheat 
statement, upon request, provided that Monsanto meets several 
requirements verifying that seed has not been sold for commercial 
production.
    GIPSA also continues to ensure that the official United States 
standards are responsive to the needs of the domestic marketplace. 
Developments in plant breeding, the use of new marketing strategies 
such as identity preservation, increasingly complex processing, food 
manufacturing, and feed formulation, and other factors will 
continuously challenge GIPSA to promote current, market-relevant grades 
and standards that reflect required quality characteristics for 
specific end uses. In fiscal year 2003, GIPSA proposed creating two 
subclasses in the class Hard White wheat, which would differ based on 
seed coat color. Seed coat color can be an important quality factor 
depending on the target flour product and the miller's flour extraction 
goal. Also underway are reviews of the soybean standards with a focus 
on test weight, and the sorghum standards to clarify the various class 
definitions and to revise the definition of non-grain sorghum.
    Working closely with barley producers and the barley malting 
industry, GIPSA began developing new official criteria called 
``Injured-by-Sprout'' in malting barley. Sprouting occurred in barley 
in the U.S. Northern Plains region during 2002, which prevented malting 
barley production contracts from being honored. Barley producers' 
insurance claims also were denied because official procedures to assess 
barley sprout damage differ from those used by the malting industry. 
GIPSA's response is facilitating the marketing of malting barley by 
enabling USDA's Risk Management Agency to implement the new procedure 
for the 2004 barley crop year.
    Other standards enhancements undertaken to facilitate marketing in 
fiscal year 2003 include amendments to the U.S. Standards for Rice to 
establish and add Ahard milled ``rice as a new milling degree level and 
to eliminate the reference Alightly milled.'' These changes better 
align the GIPSA standard with current industry processing and marketing 
standards.
    GIPSA knows that customers also need more information about the 
specific end-use qualities of the products they are purchasing. We are 
focusing on providing rapid testing of end-use functionality factors to 
differentiate the functional qualities that meet specific end-use 
needs.
    GIPSA continues cooperative efforts with groups from Canada, 
Australia, and several European countries to develop and evaluate 
global artificial neural network (ANN) near-infrared transmittance 
(NIRT) calibrations for wheat and barley protein. GIPSA conducted a 
field study on current partial least squares (PLS) wheat protein 
calibrations and the global ANN calibration. GIPSA also evaluated the 
field performance of the ANN barley protein calibration. In fiscal year 
2004, GIPSA will finalize individual instrument standardization 
procedures to support implementation of an ANN calibration for wheat 
and barley protein.
    In April 2003, GIPSA convened a meeting of leading North American 
wheat researchers to generate new avenues of research that would lead 
to rapid tests for wheat end-use functional characteristics, applicable 
at the time of inspection and at other points in the value chain. 
Participants developed a list of quality factors and possible technical 
approaches for measuring them, with the overarching goal of having a 
market applicable test ready for use by May 2006. To help keep 
researchers focused on the task, GIPSA will establish a virtual 
discussion room for researchers to further collaboration on and support 
for this effort, and to help researchers find extramural grant sources.
    GIPSA is working with the United Soybean Board on their ``Better 
Bean Initiative,'' a program directed at improving the nutritional 
composition of U.S. soybean meal and oil. USDA/ARS currently is 
receiving funding to develop measurement technology for meal and oil. 
GIPSA is taking part in the Soybean Quality Trait initiative that is 
seeking to standardize soybean protein, oil, moisture, and fatty acid 
measurements. GIPSA is part of an inter-laboratory collaborative study 
to evaluate the consistency of soybean protein, oil, and moisture 
reference methods. GIPSA is also helping to assemble a soybean sample 
library suitable for use in developing and evaluating near-infrared 
(NIR) calibrations.
    GIPSA is also exploring new approaches to compliment and supplement 
our traditional array of services. In fiscal year 2003, GIPSA continued 
developing a process verification service for grains in response to 
market demand.
    Our efforts to develop new programs did not preclude us from making 
significant improvements to existing ones. During fiscal year 2003, 
GIPSA revised the regulations on reinspections and appeal inspections 
under the U.S. Grain Standards Act to better reflect market needs and 
to remove an inefficient, costly, and unnecessary regulatory 
requirement. Previously, reinspections and appeal inspections for grade 
included a review of all official factors that may determine the grade, 
are reported on the original certificate, or are required to be shown. 
The revised regulations allow interested parties to specify which 
official factor(s) should be redetermined during the reinspection or 
appeal inspection service. To safeguard against inadvertent misgrading, 
official personnel may determine other factors, when deemed necessary. 
In fiscal year 2004, GIPSA plans to propose a similar action for rice 
and pulses and other commodities that are inspected for quality factors 
under the authority of the Agricultural Marketing Act of 1946.
    Improving service delivery is essential, as is improving the 
efficiency and cost-effectiveness of the official system. This will 
include many initiatives, ranging from harnessing technology to improve 
operational efficiency and service delivery to making needed program 
policy changes.
    In addition, GIPSA has dedicated resources to homeland security 
efforts. GIPSA continues to work closely with the USDA Office of Crisis 
Planning and Management (OCPM) to refine the Department's and the 
Agency's Continuity of Operations Plan (COOP) and to support and staff 
the Department's Crisis Action Team (CAT). In fiscal year 2003, GIPSA's 
COOP and CAT representatives participated in numerous USDA and 
Marketing and Regulatory Program-sponsored disaster-related exercises 
and training sessions. They also completed the GIPSA Supplement to the 
USDA Headquarters COOP Plan, which provides guidance for the 
continuation/reestablishment of GIPSA's COOP essential functions, 
including identifying GIPSA's emergency relocation facilities where 
these functions will be performed and GIPSA personnel who will be 
required to perform them. The provisions of the GIPSA Supplement, which 
mirrors the USDA Headquarters COOP Plan, applies only to GIPSA 
headquarters offices in Washington, D.C.
    GIPSA provided technical assistance related to homeland security 
issues to a number of industry and governmental groups, including the 
National Grain and Feed Association Safety Committee, the Security 
Analysis System for U.S. Agriculture (SAS-USA) Technical Advisory 
Committee, the Interagency Food Working Group, and the USDA Homeland 
Security Working Group. The Agency is currently working with the 
National Food Laboratory Steering Committee to coordinate and integrate 
resources to support the key components of the Food Emergency Response 
Network (FERN).
    GIPSA also continued to face challenges in maintaining an 
appropriate operating cushion in its user fee account. During fiscal 
year 2003, GIPSA transferred $2 million from our appropriated account 
to preclude fiscal over-obligation in violation of the Anti-Deficiency 
Act. As of May 31, 2003, the cash balance of GIPSA's user fee account 
had fallen to $2.9 million, a dangerously low amount considering 
GIPSA's monthly obligations of about $3.0 million.
    Due to flat or decreasing exports, and marketing trends that are 
reducing revenue generated by our current fee structure, there has been 
a persistent gap between costs and revenue. GIPSA has absorbed losses 
in its reserve user fee funds. GIPSA has executed many cost-cutting 
measures to reduce obligations. The Agency has cut employment levels, 
closed field and sub-offices, streamlined support staffs, and 
introduced new technology to improve program efficiency.
    In the longer term, GIPSA is pursuing several options to preclude 
future funding difficulties, including implementing a new fee schedule. 
Program efficiencies, such as streamlining the official inspection 
processes using a web-based technology and re-engineering program 
delivery, and opening discussions with stakeholders on how and by whom 
official inspection services should be delivered to American 
agriculture were undertaken. 2005 Budget Request
    To fund important initiatives and address the Agency's 
responsibilities, GIPSA's budget request for fiscal year 2005 is $44.1 
million under current law for salaries and expenses and $42.5 million 
for our Inspection and Weighing Services. There is an increase of 
$662,000 for employee compensation. GIPSA already submitted legislation 
last fall which would collect $29.0 million in new user fees in fiscal 
year 2005, $5.8 million for the grain standardization activities and 
$23.2 million for the Packers and Stockyards Programs. A substantial 
portion of the IT increases will be one-time only requests.
    For grain inspection, the President's fiscal year 2005 budget 
proposes a current law request of $20.0 million; a total increase of 
$1.8 million.
    An increase of $1,300,000 would allow GIPSA to merge data from 
several Agency computer information systems for efficient oversight and 
management of the official grain inspection system and to provide on-
demand, Web based access to this data by our partners, customers, and 
GIPSA personnel. Management needs a single source to capture 
information about each inspection provided to track work 
accomplishment, technical analysis, and compliance verification. With 
the information reported, GIPSA will be able to automate the generation 
of billings records that will be used by the NFC FFIS to generate the 
invoice for each customer. GIPSA will also use the data system to 
automatically document and generate a statement of fees owed by each 
customer on a monthly basis.
    By implementing this application, GIPSA will be able to retire two 
Unix applications and the computer equipment that it runs on. Retiring 
these Unix applications will allow GIPSA to move towards achieving its 
goal of a common computing environment within and between FGIS and 
P&SP, free up one half of a staff year required today for support, and 
eliminate dependency for support of this application to a single 
developer.
    Also requested is $500,000 to expand GIPSA's technical outreach in 
key international markets, which is required because GIPSA has 
experienced a growing demand for cooperative participation with other 
agencies with international trade responsibilities--for example, State 
Department, U.S. Trade Representative (USTR), Foreign Agricultural 
Service (FAS), and the Animal and Plant Health Inspection Service 
(APHIS)--toward achieving our overall mutual objective of expanding 
markets for agricultural products and removing barriers to trade.
    Modern biotechnology has presented new challenges to U.S. grain 
markets as many countries develop domestic regulations regarding 
biotech grains. GIPSA has served the international grain trade 
community by developing programs to address these emerging needs, and 
working with related agencies--State, USTR, FAS, and APHIS, among 
others--to share information regarding these programs and contribute 
our expertise. For example, China announced broad biosafety regulations 
2 years ago that continue to threaten U.S. soybean exports. Partner 
agencies have sought GIPSA's active participation in negotiations 
challenging this technical barrier to trade. Such issues are likely to 
increase in number and frequency in the future.
    As another example, a new international environmental treaty, the 
Biosafety Protocol, which entered into force in September 2003, 
requires new documentation on biotech grain shipments, and many 
countries already are developing regulations that are unnecessarily 
trade-disruptive. During the years ahead, it will be essential for 
GIPSA to continue in what has been its integral role in an interagency 
process for implementation of the Protocol by contributing expertise in 
grain handling, transportation, and marketing, to prevent unnecessary 
trade disruption.
    The funding increase will enable GIPSA to provide personnel on 
overseas temporary duty to better address and resolve grain trade 
issues, precluding market disruption due to technical differences in 
analytical methods and standards; expand U.S. market share due to 
increased customer satisfaction; and continue to provide critically 
important technical support as the U.S. government seeks to ensure 
practical implementation of new regulatory requirements being developed 
by a growing number of trading partners.
    For the Packers and Stockyards Programs, the President's fiscal 
year 2005 budget proposes a current law request of $24.2 million; a 
total increase of $3.81 million.
    An increase of $1,460,000 for the development of web applications 
which is required because the current database and application 
architecture will not support the volume, security, or recovery 
requirements of GIPSA and USDA as GIPSA moves to support GPEA and OMB 
and USDA eGov initiatives. Further, the Enterprise Architecture project 
completed in 2003 identified fifteen (15) business functions that are 
not supported by any applications within the Packers & Stockyards 
Programs area, seven of those being key business functions. In 
addition, the current applications lack integration on the information 
that is common between the applications, hence requiring duplication 
(albeit minimal) information entry by program users.
    To enable the timely implementation of customer-centric 
applications within the Packers and Stockyards Program, additional 
Information Technology developmental resources are required. Currently 
the Packers and Stockyards Program does not have the web designers or 
programmers that would allow it to rapidly and accurately deploy Web-
based applications. To supplement the current information technology 
staff and to bring new technology into the program area, GIPSA is 
requesting contracting funds.
    These funds would be used to contract-out the design, development, 
implementation, and maintenance of important Web initiatives as 
identified as part of GIPSA's overall Enterprise Architecture and 
approved by USDA's OCIO. For example, with the requested funding, 
entities regulated under the Packers and Stockyards Act would be able 
to register with GIPSA via the internet, electronically file annual 
reports, and submit bond claims and complaints via the internet. GIPSA 
would be able to increase its efficiency by electronically verifying 
bond and trust accounts with banks, the integration of three stove 
piped applications, and the real-time tracking of the status and cost 
of an investigation. (The submission of annual reports alone would save 
GIPSA over 1,500 hours annually by personnel that are GS14s and 15s.) 
This would allow the Resident Agents to complete an additional 200 
investigations in the future.
    An increase of $150,000 is required to operate and maintain the 
Swine Contract Library (SCL), which is one of GIPSA's Packers and 
Stockyards Programs' (P&SP) first e-government initiatives. As such, 
GIPSA has developed an Internet web site that offers packers the 
opportunity to submit their contracts and anticipated number of hogs 
procured under contract to GIPSA via a secured connection and producers 
the opportunity to view contract information via the Internet.
    The funding increase will be used to operate and maintain the SCL 
system. This position will monitor, review, and analyze the contract 
information and monthly reports submitted by packers, ensure that 
packers are in compliance by examining submissions for completeness, 
consistency, and accuracy, conduct confidentiality analysis on 
information before release, and make the information available at the 
P&SP regional office and on the GIPSA web site. The increase will also 
fund Information Technology services and the annual renewal cost for 
computer software licenses. This IT position will provide software, 
hardware, and web site maintenance for the SCL program.
    An increase of $1,200,000 to support fair and transparent product 
differentiation and valuation which is required because packers 
significantly reduced the numbers of livestock purchased based on live 
weight in recent years. In a stated effort to better meet consumer 
demand and provide greater ``value,'' packers and producers began 
trading livestock through contract and marketing agreement or formula-
priced transactions. In conjunction with this change in marketing 
methods, packers explored and began using new means of automating the 
evaluation of live cattle and hogs, and carcasses based on new 
technologies, including among other methods, ultrasound and 
photographic imaging.
    Technologies and their applications for evaluating the quality of 
both live animals and carcasses are changing at an accelerating pace. 
Previously, carcass merit purchases were generally based on a carcass 
weight and often one or two grades assigned by USDA graders. Today, 
packers increasingly rely on internally assigned measures of carcass 
quality using modern and complex technologies.
    Live poultry dealers, as well, are exploring new technologies to 
assist in evaluating the quality of birds obtained from poultry 
growers. Implementation of new technologies in the poultry industry may 
supplement or replace the current methods used by live poultry dealers 
to determine bird quality and payment to growers, including contract 
growers.
    The technologies now being implemented by packers have a direct 
effect in determining the prices paid to producers for livestock. 
Technologies being developed by live poultry dealers will likely affect 
prices paid to poultry growers. These changes introduce new risks for 
producers and growers, because these new technologies are not 
standardized and their accuracy is inconsistent.
    This lack of standardization and inconsistent accuracy makes it 
difficult for producers and growers to detect errors and deliberate 
changes in the way the technology is used, leaving producers and 
growers vulnerable to unfair and unjustly discriminatory practices by 
members of the meat packing and poultry industries. A change that 
affects as little as one half of 1 percent of the value of livestock in 
a multi-billion dollar industry can have a huge impact on producers and 
growers over time. Therefore, P&SP needs to dramatically increase its 
monitoring and regulatory presence.
    This increase in funding will provide P&SP ongoing funding to 
obtain industrial engineering expertise in the operation of these new 
electronic evaluation technologies and the methods in which packers and 
live poultry dealers use them; to develop enforcement tools, 
investigation techniques and regulatory policies necessary to continue 
to effectively regulate the meat packing and poultry industries, and 
when appropriate, initiate enforcement action; to educate and inform 
the meat packing and poultry industries about responsibilities under 
the P&S Act with regard to these new technologies; and to educate and 
inform livestock producers and poultry growers about how the electronic 
evaluation technologies are used in the meat packing and poultry 
industries, and how the technologies are regulated by P&SP.
    An increase of $1,000,000 is required because immediately following 
the announcement that a U.S. cow tested positive for BSE, P&SP created 
task forces to provide protection to livestock producers and members of 
the cattle industry. These task forces are developing strategies to 
identify and respond to anti-competitive practices unique to current 
market conditions; monitor markets for financial failures and 
investigate any livestock sale barn or slaughtering facility that 
closes to ensure that any unpaid cattle sellers are identified and 
appropriately compensated and investigate complaints related to 
livestock marketing and procurement contracts.
    P&SP regulates 1,429 posted stockyards, 5,287 market agencies and 
dealers, 2,067 packer-buyers, and 340 bonded packers (those purchasing 
over $500,000 worth of livestock per year). An additional group of 
packers that purchase less than $500,000 are also subject to P&SP 
jurisdiction. A large number of these entities may be adversely 
impacted as the BSE situation develops, creating circumstances that 
require immediate P&SP action.
    P&SP is developing strategies to identify anti-competitive 
practices that could occur as a result of current market conditions. 
These strategies will be implemented and appropriate responses will be 
initiated where anti-competitive conduct is suspected.
    P&SP is looking closely at suspect livestock transactions to ensure 
that market participants are not taking advantage of the unique market 
conditions created by the BSE situation. P&SP will deploy rapid 
response teams to investigate BSE-related complaints. Costs for rapid 
response investigations related to BSE could easily exceed amounts 
typically expended on all other rapid response investigations. In the 
past three fiscal years, P&SP spent $1,372,210 conducting 150 rapid 
response investigations, or an average of 50 investigations per year at 
a cost of $457,403.
    An increase of $1,200,000 will allow the Agency to establish 
computer industry standard hardware, software, and facilities to 
implement the development of customer oriented electronic interfaces to 
the Federal Grain Inspection Program and the Packers and Stockyards 
Program. This will allow for a common Information Technology 
environment for the receipt and delivery of electronic data necessary 
to efficiently conduct the Agency's programs.
    These capabilities will by necessity need to be closely integrated 
with the existing Information Technology Architecture in GIPSA and 
conform to the USDA Enterprise Architecture. The computer equipment 
will be composed of multiple, high performance servers which must 
accommodate the transfer of very large amounts of data securely and 
transparently between themselves and the existing Agency information 
systems. These computer servers must be developed to have the 
capability to implement a wide range of Web based interactive 
applications.
    Finally, an increase of $1,000,000 is needed because in order to 
bring the Information Technology Systems security up to an acceptable 
level within GIPSA, the Agency's network infrastructure must be brought 
up to the standards as depicted in the USDA Enterprise Architecture. 
The Agency will need to add network switches, routers and firewalls to 
bring the network infrastructure up to an acceptable security standard. 
To insure thorough security planning, the Agency will need funding for 
additional contractor support in the development of disaster recovery 
plans, continuity of operations plans, risk analysis, and the 
certification and accreditation of existing information systems.
                               conclusion
    Mr. Chairman, Members of the Committee, I would like to conclude my 
testimony on the fiscal year 2005 budget proposal for the Grain 
Inspection, Packers and Stockyards Administration with an observation.
    Technological advances in new products and in business practices 
create remarkable opportunities and challenges for producers, 
marketers, and consumers. GIPSA is uniquely situated to facilitate the 
marketing of products at a time when assurances of product content or 
production processes are in demand. Further, GIPSA helps ensure that 
market power by some is not abused. Responding effectively to the needs 
of our stakeholders requires dynamic activity.
    We continue to adapt our efforts, look toward our capabilities, 
work to understand and accommodate the changes, and serve American 
agriculture through our efforts to ensure a productive and competitive 
global marketplace for U.S. agricultural products.
    I would be pleased to address any issues or answer any questions 
that you may have.
    Thank you.

                      STATEMENT OF ELSA A. MURANO

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

                                  BSE

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

              SIGNIFICANT FOOD SAFETY ADVANCEMENT OF 2003

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

                          CHALLENGES FOR 2004

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

                    FISCAL YEAR 2005 BUDGET REQUEST

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

                          prepared statements

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

                Prepared Statement of Dr. Elsa A. Murano

    Mr. Chairman and Members of the Subcommittee, I am glad to have the 
opportunity to speak with you regarding the status of the Food Safety 
and Inspection Service (FSIS) programs and on the fiscal year 2005 
budget request for food safety within the U.S. Department of 
Agriculture (USDA).
    In Washington, people talk about their inspiring view of the 
Capitol or the monuments, and the sights that inspire them to work 
harder and better. The view in my office is quite awesome--at once 
humbling and challenging. I am referring to a famous portrait on my 
wall of Louis Pasteur, examining a spinal cord sample. Pasteur 
disagreed with the popular attitude of the day, ``science for science's 
sake;'' he felt that science as a purely academic exercise did not 
properly serve the people of the 19th century. Instead, he believed 
that science should have practical applications that could be used to 
improve the lives of others. As we begin the new year at USDA, I am 
proud to highlight several areas in which we have used science to 
improve public health during the past year. I also will share with you 
our goals for this year, and will conclude with a discussion of the 
fiscal year 2005 budget request.
    First though, I want to briefly touch on the Bovine Spongiform 
Encephalopathy (BSE) issue. Since December 23, 2003, BSE has been 
``front and center'' with us, as it has with everyone who has concerns 
about public health and food safety. Upon learning of the BSE find, we 
immediately took action to protect the public's health. New regulations 
were published on January 12th, a mere 2 weeks after the BSE case was 
announced--truly a remarkable example of how quickly the Bush 
Administration responded to this threat. The removal of specified risk 
material (SRM) (brain, spinal cord, etc.) from the food supply, which 
was the hallmark of these new regulations, was indeed the single most 
significant step we could have taken to protect the public's health. To 
ensure that these measures are implemented effectively, part of the 
fiscal year 2005 budget request that I will discuss later consists of 
$3 million for the agency to conduct surveillance of SRM and advanced 
meat recovery (AMR). We are confident that the aggressive BSE measures 
we have developed will continue to protect the U.S. food supply.
              significant food safety advancements of 2003
    The American public remains confident in the safety of the U.S. 
meat supply--and with good reason. The confidence is due, in part, to 
the significant advancements that we made during 2003. One such 
advancement has been the dramatic decline in pathogen levels in 
regulatory samples. Late last year, we released data that showed a 25 
percent drop in the percentage of positive Listeria monocytogenes 
samples from the previous year, and a 70 percent decline compared with 
years prior to the implementation of the Hazard Analysis and Critical 
Control Point (HACCP) program. In June 2003, to further reduce the 
incidence of Listeria monocytogenes, we issued regulations for 
establishments producing ready-to-eat products.
    Our measures to prevent E. coli O157:H7 contamination of ground 
beef have yielded similar results. In September 2002, based on evidence 
that E. coli O157:H7 is a hazard reasonably likely to occur at all 
stages of handling raw beef products, FSIS issued a directive requiring 
all establishments that produce raw beef products to reassess their 
HACCP plans. Last year, FSIS' scientifically trained personnel 
conducted the first-ever comprehensive audits of more than 1,000 beef 
establishments' HACCP plans. A majority of those plants made major 
improvements based on their reassessments, and, as a result, we are 
seeing a substantial drop in the percentage of ground beef samples that 
are positive for E. coli O157:H7. In 2003, of the ground beef samples 
collected and analyzed for E. coli O157:H7, only 0.30 percent tested 
positive, compared to 0.78 percent in 2002--a 62 percent reduction. 
This is a definite improvement, and the strongest signal that science 
can drive down the threat from pathogens.
    In 2002, we issued new enforcement procedures for the Salmonella 
performance standard that are paying off. Instead of waiting for three 
cycles of tests for Salmonella, the failure of the first set now 
triggers an FSIS review of an establishment's HAACP plan. Due to this 
process and other science-based initiatives, the percentage of ``A'' 
samples (a sample from a randomly scheduled initial set) positive for 
Salmonella in raw meat and poultry has dropped by 65 percent over the 
past 6 years. Out of the number of random ``A'' samples collected and 
analyzed by FSIS during 2003, only 3.8 percent of the samples were 
positive for Salmonella, as compared with 10.6 percent in 1998. Again, 
this is very good news. The data for these three pathogens validate our 
scientific approach to improving public health through safer food.
    We also had a striking decline in the number of meat and poultry 
product recalls last year. In fact, the number of Class I recalls has 
nearly been cut in half from the total during 2002. This is a dramatic 
indicator that our scientifically-based policies and programs are 
working to ensure that the American public receives the safest food 
possible.
    FSIS has also had great success with its food safety education 
programs. Through new and innovative methods, FSIS is sharing its food 
safety message with the general public, including culturally diverse 
and underserved populations and those at highest risk for foodborne 
illnesses. From March to November 2003, the USDA Food Safety Mobile 
traveled over 24,000 miles and participated in 87 events in 64 cities 
across the country, providing information and publications on food 
safety to approximately 179,000 people face-to-face and making an 
estimated 64.4 million media impressions. Another success story is a 
public service announcement (PSA) featuring former Miss America Heather 
Whitestone McCallum, which has aired 14,448 times since September 2003. 
This PSA ranked in the top 3 percent of all PSA's shown during the 
month of January 2004 along with PSA's by the American Red Cross, the 
Federal Emergency Management Agency (FEMA), and the Department of 
Homeland Security (DHS). We are very proud of these far-reaching FSIS 
food safety education campaigns.
                          challenges for 2004
    Despite the advancements we made last year, there is always room 
for improvement, and FSIS has identified challenges for 2004. Louis 
Pasteur said, ``In the realm of science, luck is only granted to those 
who are prepared.'' Food safety is too important to be left to guess 
work or luck; we must be prepared to identify and meet challenges head-
on.
    When I joined USDA over 2 years ago, I established five goals--a 
roadmap of improvements for our food safety mission:
  --To improve the management and effectiveness of our regulatory 
        programs;
  --To ensure that policy decisions are based on science;
  --To improve coordination of food safety activities with other public 
        health agencies;
  --To enhance public education; and
  --To protect FSIS regulated products from intentional contamination.
    Through reflection and refinement, we have outlined specific 
initiatives to make sure we fulfill those goals, thereby improving 
health outcomes for American families. These initiatives were outlined 
in our food safety vision document, Enhancing Public Health: Strategies 
for the Future. This detailed plan will continue to drive our policies 
and actions during this calendar year.
Initiative One: Training
    In April 2003, FSIS inaugurated new Food Safety Regulatory 
Essentials (FSRE) training, which is designed to better equip 
inspection personnel in verifying an establishment's HACCP food safety 
system. All trainees received training in the fundamentals of 
inspection, covering the Rules of Practice, Sanitation Performance 
Standards, and Sanitation Standard Operating Procedures. FSIS also 
provides food safety training based on the types of products being 
produced at the establishments where inspectors are assigned. As of the 
end of last year, more than 1,000 individuals had completed this 
training regime.
    During 2004, FSIS will continue to train all new entry level 
slaughter establishment inspectors and veterinary medical officers in 
technical, regulatory and public health methods. We are also looking at 
expanding the types of training in the future to meet evolving agency 
needs and challenges.
Initiative Two: Furthering the Use of Innovative Food Safety 
        Technologies
    I believe that we must encourage the use of safe and effective 
interventions. One way we can encourage such intervention is by hosting 
public meetings. In January, in Omaha, Nebraska, FSIS held a public 
meeting to discuss the development and use of new food safety 
technologies to enhance public health. The meeting generated useful 
ideas regarding how plants can best utilize new technologies in their 
operations.
    FSIS established a New Technology Office in August 2003. This group 
is tasked with reviewing new technologies and, where appropriate, 
expediting the use of new technologies at meat and poultry official 
establishments and egg products plants. Our New Technology staff is an 
experienced team of 9 veteran FSIS employees who serve as the single 
portal for all new technology submissions. We designed this group to 
better manage the new technology process and allow for implementation 
as quickly as possible. They also ensure that FSIS personnel are aware 
of new technologies and where they are being used.
    To increase the pool of new technology submissions to the agency, 
we have established an e-mail address, [email protected], 
through which parties may submit their information. I am happy to 
report that we have received over 30 Notifications and Protocols for 
new food safety technologies since we have streamlined the submission 
process. Of the 27 Notifications received, 19 have been issued letters 
indicating that FSIS has no objections, and 4 are still pending. Once 
the agency issues a no objection letter, the firm that submitted the 
proposal may use the new technology.
Initiative Three: Risk Assessment Coordination
    In order to better focus its resources on food safety risk 
assessment activities, FSIS established a risk assessment coordination 
team with USDA-wide membership. As risk assessment becomes increasingly 
important as a means of providing the science behind policy decisions, 
the need for such a group within USDA is clear. This group will promote 
scientifically sound risk assessments and foster research to support 
risk assessments.
    Microbial risk assessment is still in its infancy compared to 
chemical risk assessments, so the need to share ideas and resources is 
critical. In November 2003, we started this interactive process by 
holding a public meeting to discuss how the government uses the three 
components of the risk analysis framework--risk assessment, risk 
management, and risk communication--to inform and implement risk 
management decisions. In particular, we examined several crucial 
elements for FSIS to consider in its risk assessments, including how:
  --FSIS can improve the transparency of the risk analysis process;
  --FSIS can balance the need for transparency, stakeholder involvement 
        and peer review with the need for timely scientific guidance; 
        and
  --Risk assessments can better inform policy development and decision-
        making.
Initiative Four: Developing a Research Agenda
    In November 2003, FSIS and the Research, Education and Economics 
mission area, announced a unified research agenda to coordinate USDA 
food safety research priorities and needs. For FSIS, research is 
critical to achieving its public health vision. Although FSIS does not 
conduct research itself, the agency must identify its research needs 
based on its public health goals so that the research community can 
meet them. The unified agenda includes research to:
  --Investigate the ecology, epidemiology, virulence and genetic 
        characteristics related to pathogenicity for E. coli O157:H7, 
        Salmonella, Listeria monocytogenes, and other foodborne 
        pathogens to identify targeted control measures;
  --Develop effective on-farm, feedlot, transportation, handling, and 
        other pre-processing intervention strategies for reducing the 
        incidence and levels of antibiotic resistant microorganisms and 
        key foodborne pathogens in meat, poultry, eggs and fresh 
        produce;
  --Develop, validate, and transfer technology of new and improved 
        processing methods to reduce or eliminate key foodborne 
        pathogens in meat, poultry, fresh produce, seafood, and ready-
        to-eat foods; and
  --Develop rapid and sensitive detection methods for abnormal prions 
        to prevent the possible spread of transmissible spongiform 
        encephalopathies.
Initiative Five: To Develop Best Practices for Animal Production
    In consultation with producers, researchers, and other 
stakeholders, FSIS is developing a list of best management practices 
for animal production in order to provide guidance for reducing 
pathogen loads before slaughter.
    Last September, FSIS arranged a symposium with USDA partners to 
discuss ways to significantly reduce the levels of E. coli O157:H7 in 
live animals before slaughter. We understand that preventing the spread 
of E. coli and other pathogens on the farm is vital to increasing food 
safety and protecting public health. The dialogue generated at the 
meeting helped us develop guidelines outlining the best management 
practices at the pre-harvest stage, which we expect to publish this 
year. Once these guidelines are published, FSIS will initiate an 
aggressive outreach effort to distribute them to producers.
Initiative Six: Baseline Studies
    It is imperative that FSIS develops baseline studies. FSIS is 
developing protocols to conduct continuous baseline studies to 
determine the nationwide prevalence and levels of various pathogenic 
microorganisms in raw meat and poultry. The studies will help the 
agency and the industry to better understand what interventions are 
working or how they could be improved. To achieve the agency's goal of 
applying science to all policy decisions, the fiscal year 2004 budget 
included a new $1.7 million initiative to establish a continuous 
baseline program for risk assessments and performance measurement.
    In the past, baseline studies have been used to establish pathogen 
reduction performance standards, which are an important part of 
verifying the sanitary operation of meat and poultry establishments. 
The new baseline studies will take into account regional variation, 
seasonality and other critical factors.
    The continuing nature of the baseline studies will provide 
information on national trends and a tool to assess performance of 
initiatives designed to reduce the prevalence of pathogens in meat and 
poultry products. These baseline studies will also yield important 
information for conducting risk assessments that can outline steps we 
can take to reduce foodborne illness.
    These surveys will also be important in establishing the link 
between foodborne disease and ecological niches, as well as levels and 
incidence of pathogens in meat and poultry. The net result will be more 
targeted interventions and the effective elimination of sources of 
foodborne microorganisms.
Initiative Seven: Food Biosecurity
    While the events of September 11, 2001, brought the issue of the 
vulnerability of our food supply to the forefront, FSIS' food 
biosecurity efforts did not start on September 12, 2001. FSIS' 100 plus 
years worth of experience in dealing with food emergencies have allowed 
the agency to develop the expertise to protect the U.S. meat, poultry, 
and egg products supply wherever and whenever emergencies or new 
threats arise.
    It is imperative that FSIS coordinates with other public health 
agencies to protect the food supply against intentional harm. The 
agency has improved such coordination, as well as strengthened existing 
efforts to prevent, detect, and respond to food-related emergencies 
resulting from acts of terrorism. With a strong food safety 
infrastructure already in place, FSIS has been able to focus on 
strengthening existing programs and improving lines of communication, 
both internally and externally. Later, when I discuss the fiscal year 
2005 budget request, I will describe the components of our food and 
agriculture defense initiative.
                achieving the next level of food safety
    The emergence of previously unrecognized pathogens, as well as new 
trends in food distribution and consumption, highlights our need for 
new strategies to reduce the health risks associated with pathogenic 
microorganisms in meat, poultry and egg products. Through analysis and 
discussions with stakeholders, we have identified three issues that 
need to be addressed to attain the next level of public health 
protection.
Issue One: To anticipate/predict risk through enhanced data integration
    To better anticipate risks involving meat and poultry products, we 
must have the best available data to clearly identify the extent and 
nature of these risks, so that we may determine an effective response. 
These data consist of regulatory samples, as well as samples collected 
by food processing establishments. Thus, we must improve data analysis 
while encouraging data sharing from all reliable sources.
    With regard to food biosecurity, FSIS works closely with the White 
House Homeland Security Council, DHS, the Food and Drug Administration 
(FDA) and the USDA Homeland Security Staff to develop strategies to 
protect the food supply from an intentional attack. For example, FSIS, 
along with FDA and industry partners, is working with DHS to establish 
new food information sharing and analysis activity for the food sector. 
This public/private partnership will aid in the protection of the 
critical food infrastructure by centralizing the information about 
threats, incidents, and vulnerabilities.
Issue Two: To improve the application of risk analysis to regulatory 
        and enforcement activities
    Food safety problems need to be documented as they occur, so that 
conditions may be analyzed and, if need be, corrected. A better 
understanding of the prevalence and causes of food safety failures 
could allow better assessment of how to best address them. Data 
regarding the causes of food safety violations, either within a 
specific establishment, or within a class of establishments, can be 
utilized in order to better focus prevention and regulatory enforcement 
strategies.
    FSIS is exploring the development of a real-time measure of how 
well an establishment controls the biological, chemical, and physical 
hazards inherent in its operations. Such a predictive model would help 
the agency make resource allocation decisions across the country's more 
than 6,000 meat and poultry establishments to maximize food safety and 
public health protection.
Issue Three: To better associate program outcomes with public health 
        surveillance data
    We have seen notable advances in preventing foodborne illness, 
which the Centers for Disease Control and Prevention (CDC) have 
attributed, in part, to the implementation of HACCP. However, there 
still is a need to determine how specific policies affect public 
health. In order to accomplish this, we need to obtain and document 
data that links foodborne illness outbreaks with specific foods. It may 
then be linked with prevalence data of specific pathogens in specific 
foods. However, to complete the linkage with public health outcomes, we 
need accurate and timely human health surveillance data.
    We have already taken steps to secure such surveillance data, and 
we continue to update our systems. In 1995, FSIS worked with CDC, FDA, 
and public health laboratories in several States to establish FoodNet, 
the Foodborne Diseases Active Surveillance Network, as part of CDC's 
Emerging Infections Program.
    FoodNet includes active surveillance of foodborne diseases, case-
control studies to identify risk factors for acquiring foodborne 
illness, and surveys to assess medical and laboratory practices related 
to foodborne illness diagnosis. FoodNet provides estimates of foodborne 
illness and sources of specific diseases that are usually found in the 
United States, and interprets these trends over time. Data are used to 
help analyze the effectiveness of the Pathogen Reduction/Hazard 
Analysis and Critical Control Point rule and other regulatory actions, 
as well as public education aimed at decreasing foodborne disease in 
the United States. We are also considering establishing a joint task 
force with CDC to determine ways to improve FoodNet.
    In addition to data collected through FoodNet, FSIS is a partner 
with CDC and State agencies in PulseNet, a national computer network of 
public health laboratories that helps to rapidly identify outbreaks of 
foodborne illness. Laboratories perform DNA ``fingerprinting'' on 
bacteria that may be foodborne, then the network permits rapid 
comparison of the ``fingerprint'' patterns through a CDC database. 
PulseNet is an early warning system that links seemingly sporadic 
illnesses, and enables public health officials to more quickly identify 
and react to the emergence of multi-State illness outbreaks.
    FSIS is also working with CDC's National Center for Infectious 
Diseases to design and support studies that enable definite connections 
to be made between occurrence of specific pathogens in specific foods 
and the occurrence of human foodborne illness.
    FoodNet, PulseNet and other similar programs are excellent examples 
of Federal and State agencies working together to accomplish public 
health goals. These programs will help FSIS and other regulatory 
agencies to focus inspection and enforcement on those practices where 
risk is deemed to be highest, resulting in a more efficient use of 
government resources.
                    fiscal year 2005 budget request
    I will now turn to the fiscal year 2005 budget request for FSIS. In 
fiscal year 2005, FSIS is requesting a program level of $951.7 million, 
a net increase of about $61 million from the enacted level for fiscal 
year 2004. Under current law, we are requesting an appropriation of 
$838.7 million, with an additional $113 million in existing user fees. 
The budget request will fund the increased BSE surveillance programs I 
mentioned earlier, as well as additional training for inspection 
personnel and numerous programs that will continue to keep FSIS among 
the leading public health agencies in the world. By continuing the 
principle of making policy based on sound science, we will modernize 
our inspection system to handle the challenges of food safety in this 
century. Implementation of these budget initiatives is imperative to 
help us attain the public health vision we have set for FSIS.
Supporting FSIS' Basic Mission
    The FSIS budget request for fiscal year 2005 supports the agency's 
basic mission of providing continuous food safety inspection in each 
meat, poultry, and egg products establishment in the United States. The 
budget request includes a $15.5 million increase for pay raises in 
Federal and State programs. In addition, the budget supports an agency-
wide staff-year ceiling of 9,641, an 84 staff year increase from the 
2004 appropriation level. The budget reflects the proposed calendar 
year 2005 pay raise of 1.5 percent for Federal and State personnel, a 
0.2 percent increase for employee rewards, and the annualized cost of 
the 4.1 percent pay increase for calendar year 2004. The costs also 
include a total net increase of approximately $721,000 for state food 
safety and inspection.
    Two critical elements of FSIS' mission are to continue the 
enforcement of humane slaughter regulations and to provide for the full 
cost of front-line inspection. FSIS will continue strict enforcement of 
its regulations for the humane handling and slaughter of livestock. In 
fiscal year 2003, over 7,600 inspection personnel stationed in over 
6,000 federally inspected meat, poultry, and egg products plants 
verified that the processing of 43.6 billion pounds of red meat, 49.2 
billion pounds of poultry, and 3.7 billion pounds of liquid egg 
products complied with statutory requirements. The fiscal year 2005 
budget request includes a $17.3 million increase for humane slaughter 
enforcement and the full cost of in-plant inspection. Included in the 
request is $5.0 million to continue the work funded in fiscal year 2003 
for fiscal year 2003 through fiscal year 2004.
    The remaining $12.3 million of the $17.3 million is for staff 
support costs that are critically important to maintaining front line 
inspection. Over 80 percent of FSIS costs are for salaries, benefits, 
and travel costs for inspectors to travel between plants. Increases in 
benefit and travel costs cannot be deferred to another year. The 
agency's share of employee benefits costs has been rising in recent 
years by over $4 million annually. The agency has also experienced 
large increases in retirement costs, hiring incentives, and employee 
allowances for the purchase of safety equipment and related items. The 
increase is needed to avoid employment restrictions in the inspection 
program, which would result if unavoidable cost increases are not fully 
funded and must be absorbed.
New Initiatives
    The fiscal year 2005 request includes a $33.6 million increase for 
new initiatives that support the Department's goals for FSIS.
    First, as I discussed in my opening, the fiscal year 2005 budget 
request includes an increase of $3 million for BSE surveillance. FSIS' 
BSE inspection program will add permanent BSE control measures in 
fiscal year 2005. These control measures will include increased in-
plant verification of slaughter plant designs for controlling SRMs, 
overtime inspection, and travel for Veterinary Medical Officers to test 
non-ambulatory disabled livestock when they arrive at small slaughter 
plants that do not have a resident veterinarian. In fiscal year 2005, 
FSIS will also perform about 60,000 screening tests at processing 
plants that use AMR equipment, to ensure that SRMs do not enter the 
food supply.
    The fiscal year 2005 budget also requests a $23.5 million increase 
to support our food and agriculture defense initiative. Food 
contamination and animal and plant diseases and infestations can have 
catastrophic effects on human health and the economy. USDA, the 
Department of Health and Human Services and DHS are working together to 
create a comprehensive food and agriculture policy that will improve 
the government's ability to respond to the dangers of disease, pests 
and poisons, whether natural or intentionally introduced. FSIS' portion 
of the food and agriculture defense initiative has five components:
  --Biosurveillance;
  --The Food Emergency Response Network;
  --Data systems to support the Food Emergency Response Network;
  --Enhancing FSIS laboratory capabilities; and
  --Follow-up biosecurity training.
    To finance the biosurveillance component of the food and 
agriculture defense initiative, the fiscal year 2005 budget requests $5 
million. The Homeland Security Council (HSC) Biodefense End-to-End 
Assessment, in cooperation with all relevant U.S. Government agencies, 
identified early attack warning and surveillance as a top priority to 
prepare against a potential bioterrorist attack. The HSC supports an 
interagency biosurveillance initiative to improve the Federal 
Government's ability to rapidly identify and characterize such an 
attack. This initiative will improve Federal surveillance capabilities 
in human health, food, agriculture, and environmental monitoring. It 
will also allow Federal agencies to establish integration capability at 
DHS so that DHS may rapidly compile these streams of data and integrate 
them with threat information.
    FSIS has conducted its own vulnerability assessments of regulated 
domestic and imported products. The assessments identify potentially 
vulnerable products and processes, likely threat agents, and points 
along the production/consumption continuum where attack is most likely 
to occur. The agency will focus its resources on the points of greatest 
vulnerability.
    The second component of the food and agriculture defense initiative 
is the Food Emergency Response Network (FERN). A nationwide laboratory 
system with sufficient capacity to meet the needs of anticipated 
emergences is integral to any bioterror surveillance and monitoring 
system. FERN consists of Federal and State governmental laboratories 
which are responsible for protecting citizens and the food supply from 
intentional acts of biological, chemical, and radiological terrorism. 
Currently, over 60 laboratories, including public health and veterinary 
diagnostic laboratories, representing 27 States and five Federal 
agencies, have agreed to participate in FERN. The goal is to establish 
100 FERN laboratories, creating a network of Federal, State and local 
laboratories that FSIS could call upon to handle the numerous samples 
that would be required to be tested in the event of a terrorist attack 
on the meat, poultry or egg supply.
    To improve the infrastructure under FERN, the budget request calls 
for a $10 million expansion. Of that funding, $6.1 million would be 
spent on contracts with State and local laboratories, and $2.6 million 
would be used to establish five Regional Hubs and a National Operating 
Center to coordinate FERN's efforts and conduct training. In addition, 
during fiscal year 2005, FSIS would also use $1.3 million to establish 
five to seven State laboratories for screening of microbiological 
agents, with more laboratories in the future, based on the availability 
of funds. The staff of these laboratories will receive training, 
perform methods validation, and analyze surveillance and check samples.
    The third and fourth components of the food and agriculture defense 
initiative support FERN. The electronic laboratory exchange network 
(eLEXNET) is a national, web-based system that allows laboratories to 
rapidly report and exchange standardized data. The fiscal year 2005 
budget request of $4 million will be used to make eLEXNET available to 
additional FERN and other food-testing laboratories nationwide. Access 
to properly validated methods used for screening, confirmation, and 
forensic analysis is critical to all laboratories, and laboratories 
need rapid access to new or improved methods that use emerging 
technologies, have greater sensitivity, or are more efficient. FSIS is 
working with FDA to develop a web-based repository of analytical 
methods that is compatible with eLEXNET. The budget request also 
includes $2.5 million to enhance FSIS' laboratory capabilities for 
detecting new bioterror-associated agents, and to ensure FSIS' 
capability and capacity to perform the toxin and chemical testing that 
will be standardized across all FERN laboratories.
    The final component of the food and agriculture defense initiative 
is follow-up biosecurity training for the workforce. Follow-up training 
is essential as part of the ongoing effort to protect the public by 
educating the workforce regarding the latest threat agents and 
countermeasures to those agents. The budget request includes $2 million 
for follow-up training for fiscal year 2005.
    The final new initiative I will discuss is training. FSIS has been 
criticized over the years by the General Accounting Office and the 
Office of the Inspector General for having poorly trained field 
employees. We have been addressing these concerns over the last year, 
but need additional resources in order to significantly improve our 
training. We are requesting $7.1 million--over a 50 percent increase--
in the FSIS training budget for fiscal year 2005. Of the requested 
training budget, $4.0 million would be used to increase the number of 
entry level inspectors receiving formal classroom training from 20 
percent to 100 percent. Under this proposal, all new inspectors will 
receive formal training on how to identify and respond to food safety 
problems. New employees will be required to demonstrate mastery of 
training in order to be certified to assume inspection duties.
    The requested training budget also includes $3.1 million for Food 
Safety Regulatory Essentials training, to supplement training for 
current on- and off-line field employees to improve enforcement of 
Pathogen Reduction/Hazard Analysis and Critical Control Point 
regulations and food safety sampling. These frontline employees are 
responsible for making the critical decisions to ensure that products 
are safe to eat, so it is essential to have a scientifically and 
technically trained workforce.
User Fee Proposal
    FSIS' fiscal year 2005 budget also includes a legislative proposal 
to recover the costs of providing inspection services beyond an 
approved 8-hour primary shift. The proposal was submitted to Congress 
last August. If the proposal is enacted, the level of appropriated 
funds needed would be reduced by an estimated $124 million, making the 
FSIS budget request $714.7 million. Under current law in 2005, FSIS 
estimates it will collect $113 million in annual user fees to recover 
the costs of overtime, holiday, and voluntary inspection.
                                closing
    We intend to continue to engage the scientific community, public 
health experts and all interested parties in an effort to identify 
science-based solutions to public health issues to ensure positive 
public health outcomes. It is our intention to pursue such a course of 
action this year in as transparent and inclusive a manner as is 
possible. The strategies I discussed today will help FSIS continue to 
pursue its goals and achieve its mission of reducing foodborne illness.
    Mr. Chairman, thank you again for providing me with the opportunity 
to speak with the Subcommittee and submit testimony regarding the steps 
that FSIS is taking to remain the world leader in public health. I look 
forward to working with you to improve our food safety system, ensuring 
that we continue to have the safest food supply in the world.






                                 ______
                                 

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

    Mr. Chairman and distinguished members of the Subcommittee, I am 
pleased to be here today as we discuss public health and the U.S. 
Department of Agriculture's (USDA) fiscal year 2005 budget request for 
the Food Safety and Inspection Service (FSIS).
Infrastructure
    FSIS has a long, proud history of protecting public health. 
Although the Agency under its current name was established by the 
Secretary of Agriculture on June 17, 1981, its history dates back to 
1906. FSIS' mission is to ensure that meat, poultry, and egg products 
prepared for use as human food are safe, secure, wholesome, and 
accurately labeled. FSIS is charged with administering and enforcing 
the Federal Meat Inspection Act (FMIA), the Poultry Products Inspection 
Act (PPIA), the Egg Products Inspection Act (EPIA), and the regulations 
that implement these laws.
    Ensuring the safety of meat, poultry, and egg products requires a 
strong infrastructure. To accomplish this task, FSIS has a large 
workforce of approximately 10,000 employees, most of who are stationed 
in the field, dedicated to inspection. In fiscal year 2003, over 7,600 
inspection personnel stationed in over 6,000 federally inspected meat, 
poultry, and egg products plants verified that the processing of 43.6 
billion pounds of red meat, 49.2 billion pounds of poultry, and 3.7 
billion pounds of liquid egg products complied with statutory 
requirements. In addition, we re-inspected 3.8 billion pounds of 
imported meat, poultry and processed egg products from 28 of 33 
countries that we determined have inspection systems equivalent to our 
own. Assuring that these products are safe and wholesome is a serious 
responsibility.
    As you are well aware, these are compelling times in food safety, 
and it is because of your support that we are making real progress in 
improving the safety of the U.S. food supply. I would like to thank you 
for the past support you have given us in our budget requests. Now, I 
would like to tell you how we are fulfilling our responsibilities 
through FSIS' food safety vision and about our initiatives for better 
ensuring the safety of meat, poultry, and egg products.
Fulfilling the Vision
    The continued mission of FSIS is to ensure that consumers have the 
safest possible food supply. To fulfill this vision, we have set out to 
continuously modernize FSIS' ability to improve the safety of meat, 
poultry, and egg products. Our efforts are paying off, as seen by the 
16 percent decline in foodborne illness over the last 6 years. The 
Centers for Disease Control and Prevention (CDC) attributes these 
results in part to the implementation of the Hazard Analysis Critical 
Control Point (HACCP) system in all meat and poultry plants in the 
United States. However, in spite of these positive trends towards a 
safer food supply, FSIS recognizes that intensified efforts are needed 
to reach the next level of food safety. That is why the agency has 
diligently worked to carry out Dr. Murano's five core goals:
  --To improve the management and effectiveness of our regulatory 
        programs;
  --To ensure that policy decisions are based on science;
  --To improve coordination of food safety activities with other public 
        health agencies;
  --To enhance public education; and
  --To protect FSIS regulated products from intentional contamination.
Improving the Management and Effectiveness of Regulatory Programs
    In order for policies and programs to be successful, they must be 
uniformly and correctly applied. Thus, proper training of the workforce 
is essential. In addition, communication to field personnel needs to be 
timely and accurate, with proper supervision from the district and from 
headquarters in order to foster accountability in the system.
Training and Education
    The key to improving the management and effectiveness of FSIS' 
considerable infrastructure is to ensure that the agency is well 
prepared with the tools necessary to protect the food supply. Training 
is a top priority of the agency. FSIS can only achieve its public 
health, food safety, and food security mission with adequate 
preparation of its workforce through scientific and technical training.
    In April 2003, FSIS began the Food Safety Regulatory Essentials 
(FSRE). The goal of the training is to teach inspection personnel how 
to do their jobs properly, and emphasizes the regulatory decision-
making thought process both through lecture and workshop examples. In 
fiscal year 2003, FSIS exceeded its goal to train 800 inspectors under 
FSRE. A comparison between pre-test and post-test scores has shown that 
the knowledge improvement of our inspectors has increased by an average 
of 20 percent. Feedback from our inspectors has been extremely 
positive, and industry representatives have noted the positive 
difference that these courses are having on how inspection procedures 
are performed.
    FSIS has also initiated a comprehensive 2-year training and 
education effort designed to ensure that every FSIS employee fully 
understands their role in preventing or responding to an attack on the 
food supply. Last year, over 1,600 employees received food security 
training. By the end of fiscal year 2004, over half of our workforce 
will have received this training. The Law Enforcement Academic Research 
Network (LEARN), which is carrying out the training, has stated that 
this training effort is unparalleled in the Federal sector since it is 
being provided to such a broad base of our employees.
    Another initiative the agency has undertaken to enhance FSIS' 
training effort is taking training opportunities closer to our 
employees. In August 2003, the agency announced new regional training 
centers designed to bring comprehensive workforce training programs to 
FSIS field employees throughout the country. FSIS has established the 
regional training centers in five field locations: Atlanta, GA; Dallas, 
TX; Philadelphia, PA; Des Moines, IA; and Boulder, CO. FSIS has hired 
three of the regional trainers to head the new centers, and expects to 
hire the remaining two trainers by April. In addition, FSIS will be 
providing distance learning that will be easily accessible to our field 
employees. These approaches will allow FSIS to train more inspectors 
each year in various skills to enhance their technical and regulatory 
abilities.
    Another step we've taken is to increase our cadre of scientifically 
trained personnel, known as Consumer Safety Officers (CSOs). CSOs have 
a scientific and technical background and receive additional FSIS 
training that enables them to use a disciplined methodology to assess 
and verify the design of food safety systems. FSIS has trained every 
entering CSO--150 of them--in a cooperative agreement through the Texas 
Agricultural Experiment Station. In fiscal year 2004, the agency plans 
to train 200 additional employees in this program, including employees 
who have been promoted to CSOs, Veterinary Medical Officers, Program 
Investigators, and others.
Accountability
    FSIS inspection personnel are held accountable for ensuring that 
public health is protected. To emphasize the importance of 
accountability, FSIS created the Office of Program Evaluation, 
Enforcement and Review (PEER) during the agency's recent 
reorganization. PEER serves as a quality control team by ensuring that 
FSIS functions, such as reviews of plants for compliance and food 
safety investigations, are carried out in a way most conducive to 
protecting the public health. PEER retains the role of ensuring prompt 
and appropriate enforcement of the inspection laws. The work of the 
field Program Investigators in PEER places them on a daily basis in 
close proximity to performance and compliance problems and concerns at 
the in-plant level, which affords the agency the ability to deal with 
necessary adjustments and problems in a much more immediate and direct 
fashion than in the past. PEER was formed because a strong quality 
assurance program that uses reviews, evaluations, and audits as its 
tools can have a significant impact on management effectiveness, 
efficiency and policy development.
    Because accountability is crucial in delivering programs in a 
consistent and effective manner, FSIS implemented the Humane Activities 
Tracking (HAT) program in February 2004. This new electronic tracking 
system will document inspection activities to ensure that livestock are 
humanely handled and slaughtered in federally inspected facilities. The 
HAT program will provide FSIS with more accurate and complete data on 
the time spent by FSIS personnel performing nine specific humane 
handling related tasks to ensure humane handling and slaughter 
requirements are met.
    In addition, in November of 2003, FSIS issued an updated directive 
to all inspection personnel and district offices providing specific, 
detailed information about requirements of the Humane Methods of 
Slaughter Act to ensure that verification and enforcement requirements 
are clearly and uniformly understood. In May of 2003, FSIS also issued 
a directive to provide guidance and direction to inspection personnel 
to ensure consistent use of enforcement actions.
           ensure that policy decisions are based on science
    FSIS continuously reviews its existing authorities and regulations 
to ensure that emerging food safety challenges are adequately 
addressed. In addition, FSIS is committed to continuing its emphasis on 
the use of science, research, and technology in the development of 
improved food safety policies, focused on prevention whenever possible.
Risk Assessment
    Risk assessment is one tool that can provide FSIS with the solid 
scientific foundation on which to base regulatory and policy decisions. 
In fact, the Agency has used risk assessment to estimate the likelihood 
of exposure to various hazards, and to estimate the resulting public 
health impact. For example, in February 2003, FSIS released a draft of 
a quantitative risk assessment conducted on Listeria in ready-to-eat 
(RTE) meat and poultry products. On February 26, 2003, FSIS held a 
public meeting to discuss the design of the risk assessment, the 
results, and conclusions that could be drawn from it regarding the risk 
of contamination of RTE products with this pathogen during processing.
    The Listeria risk assessment, in conjunction with a previously 
released Food and Drug Administration (FDA)/FSIS risk ranking, peer 
review, and public comment, provided important data enabling FSIS on 
June 6 to publish a final Listeria rule originally proposed in early 
2001. This risk-based regulation will serve as the cornerstone of the 
FSIS efforts to prevent listeriosis from RTE meat and poultry products. 
The rule requires all establishments that produce RTE products that are 
exposed to the environment after cooking to develop written programs to 
control Listeria monocytogenes and to verify the effectiveness of those 
programs through testing. Establishments must share testing data and 
plant-generated information relevant to their controls with FSIS. The 
rule also encourages all establishments to employ additional and more 
effective Listeria monocytogenes control measures.
Innovative Testing Methods
    In October 2003, FSIS announced the adoption of the BAX system to 
screen for Salmonella in raw meat and poultry products. The Microbial 
Outbreak and Special Projects Laboratory, in collaboration with three 
FSIS field service laboratories, evaluated the BAX system to determine 
whether it would be beneficial to the agency and to determine its 
validity and reliability. FSIS determined that the BAX system was as 
sensitive as the existing method of detecting Salmonella in raw meat 
and poultry products, but also reduced the reporting time for negative 
samples by one to 2 days. FSIS has been using the BAX screening system 
for Salmonella in ready-to-eat meat, poultry and pasteurized egg 
products since February 2003, and for Listeria monocytogenes since 
April 2002. This new measure increases efficiency in detecting 
pathogens and saves valuable agency time and resources.
Reducing E. coli O157:H7
    FSIS has instituted major changes in its E. coli O157:H7 policy to 
further ensure that beef plants address and reduce the presence of E. 
coli O157:H7. In October 2002, the agency took strong steps to address 
E. coli O157:H7 contamination based on USDA's Agricultural Research 
Service's data and FSIS' draft risk assessment. Those measures are 
starting to pay dividends to the American consumer. Our scientifically 
trained personnel have examined prevention mechanisms at more than 
1,000 beef establishments and a majority of those plants have made 
major improvements based on reassessments of their HACCP plans. As a 
result, we are seeing a drop in the number of E. coli O157:H7 positive 
samples in ground beef. For instance, in E. coli O157:H7 samples 
collected and analyzed during 2003, 0.30 percent tested positive, 
compared to 0.78 in 2002--or a 62 percent reduction.
improve coordination of food safety activities with other public health 
                                agencies
    With primary authority over meat, poultry, and egg products, FSIS 
plays an integral role in ensuring the safety of America's food supply. 
As one partner in the U.S. food safety effort, FSIS strives to maintain 
a strong working relationship with its sister public health agencies. 
Cooperation, communication, and coordination are absolutely essential 
if we are to be effective in addressing public health issues.
BSE Coordination
    The December 2003 discovery of a single case of Bovine Spongiform 
Encephalopathy (BSE) in Washington State provides an excellent example 
of the strong communication ties and the cooperation between USDA and 
its Federal and State food safety partners. The Federal Government's 
swift and substantial reaction to the BSE diagnosis played a vital role 
in maintaining high consumer confidence. FSIS and its sister agencies 
moved effectively and forcefully upon the discovery of a BSE case in 
this country, further strengthening already formidable BSE preventive 
measures. Being a part of the continuous briefings, planning meetings, 
international trade discussions, and all the other events surrounding 
this situation has been both challenging and rewarding. FSIS has worked 
closely with USDA's Animal and Plant Health Inspection Service (APHIS) 
and other mission areas in USDA, FDA, state governments, industry and 
consumers to ensure our BSE prevention and response measures are fully 
effective in the United States.
MOU with FDA
    Since 1999, FSIS and the Food and Drug Administration (FDA) have 
had a Memorandum of Understanding (MOU) to exchange information on an 
on-going basis about establishments that fall under both jurisdictions. 
FSIS will continue engaging in substantive discussions with FDA and 
other agencies who share public health and food safety 
responsibilities. The Bioterrorism Act of 2001 (Public Law 107-188) 
further enhanced this cooperation by authorizing FDA to commission FSIS 
employees to conduct inspection at dual jurisdiction facilities.
Public Health Service Commissioned Corps Officers
    In addition to its partnerships with the White House and Federal 
agencies, FSIS has entered into a working relationship with the U.S. 
Public Health Service (PHS) and the Office of the Surgeon General. In 
April 2003, FSIS signed a Memorandum of Agreement with the Surgeon 
General and the PHS that allows expanded numbers of PHS Commissioned 
Corps Officers to be detailed to the agency. FSIS currently has 19 PHS 
Commissioned Corps Officers detailed to the agency and will incorporate 
additional PHS Officers nationwide across all program areas under the 
agreement. Not only will these officers help FSIS respond to foodborne 
disease outbreaks and assist in preventing foodborne illness, but they 
will assist in the agency's homeland security efforts as well. Since 
the Commissioned Corps Officers are available 24 hours a day, 7 days a 
week, this affords a greater flexibility to respond immediately during 
heightened security alerts or an actual threat to the food supply.
USDA's Unified Food Safety Research Agenda
    Another example of FSIS' commitment to communication, cooperation, 
and coordination was the November 2003 announcement of a unified food 
safety research agenda to improve the efficiency and effectiveness of 
food safety programs. USDA also released a list of additional research 
needs specific to meat, poultry and egg products that FSIS will 
encourage non-governmental entities to address. The government research 
agenda will complement these efforts by industry and academia. USDA's 
Research, Education, and Economics (REE) mission area worked with 
USDA's Office of Food Safety, other government food safety agencies, 
and stakeholders to develop the unified research agenda. The unified 
agenda prioritizes research needs and maximizes use of available 
resources.
                    enhance public education efforts
    Because everyone has a responsibility for food safety, educating 
the public about this responsibility is a crucial element in FSIS' food 
safety mission. All food preparers, from consumers to food service 
employees, must know and understand basic safe food-handling practices. 
These efforts must be broad enough to ensure that no segment of the 
public is uninformed about safe food handling practices, yet at the 
same time, target various segments of the population to positively 
influence those behaviors that pose the greatest potential risk. 
Communicating with the public about food safety must be accomplished in 
a manner that is easily understandable so that it is useful to every 
segment of the population. Thus, FSIS has considered innovative and 
collaborative methods for delivering the food safety message.
The Food Safety Mobile
    One such innovative way of spreading the food safety message is 
USDA's Food Safety Mobile, which was introduced in March 2003. This 
eye-catching ``food safety educator-on-wheels'' brings food safety 
information to consumers and builds on our partnerships in communities 
across the country. Through the Food Safety Mobile, FSIS is sharing its 
food safety message with the general public as well as culturally 
diverse and underserved populations and those with the highest risk 
from foodborne illnesses. From March to November 2003, the Mobile 
traveled over 24,000 miles and participated in 87 events in 64 cities 
across the country. These events ranged from county fairs and grocery 
store demonstrations, to the Taste of Minnesota and the Philadelphia 
Thanksgiving Day Parade. FSIS used these opportunities to provide 
information and publications on food safety to approximately 179,000 
people face-to-face at Mobile events. FSIS estimates 64.4 million media 
impressions from the Mobile, and that does not include internet 
exposure.
Educational Campaign
    FSIS has also been conducting an educational campaign through 
public events and media interviews with national and regional media 
organizations in order to reach more of the population with important 
public health messages. Recent events were held in Houston, 
Philadelphia, Portland, San Francisco, Miami, and the Flathead 
Reservation in Montana. National television interviews have been 
conducted with major television networks, including Fox News, Telemundo 
and Univision. National celebrities, such as former Miss America 
Heather Whitestone McCallum, pop music legend Olivia Newton-John, and 
country singer Wynonna Judd, have also been recruited to help FSIS 
reach even larger audiences with food safety messages through special 
events and the filming of Public Service Announcements (PSA). The 
results have been impressive. The Heather Whitestone McCallum PSA has 
aired 14,448 times since September 2003. This PSA ranked in the top 3 
percent of all PSA's shown during the month of January 2004 along with 
PSA's by the American Red Cross, the Federal Emergency Management 
Agency (FEMA), and the Department of Homeland Security (DHS).
USDA's Meat and Poultry Hotline
    USDA's Meat and Poultry Hotline is an additional tool that FSIS 
uses to share its food safety message. The Hotline handled over 98,000 
calls and 80 media and information multiplier calls during fiscal year 
2003. Calls included requests from newspapers, magazines, radio, 
television, and book authors, and included live interviews with radio 
and television stations. The Hotline also provides recorded information 
and live assistance for our Spanish-speaking callers. Additionally, the 
Hotline was a key resource for keeping the public informed about the 
BSE situation in Washington and has handled approximately 4,000 calls 
and 1,000 emails concerning BSE since December 23, 2003.
      protect meat, poultry, and egg products against intentional 
                             contamination
    In the aftermath of September 11, 2001, there is recognition that 
threats to the well being of the Nation's citizens can come in the form 
of terrorist attacks, including the intentional contamination of food. 
With a strong food safety infrastructure already in place, FSIS has 
been focusing on fortifying existing programs and improving internal 
and external lines of communication. By partnering with other agencies, 
including CDC, FDA, USDA's Agricultural Research Service (ARS), DHS, 
APHIS, the Environmental Protection Agency (EPA), as well as 
international partners such as the Canadian and Mexican governments' 
food inspection agencies, and State and local health agencies, FSIS is 
in a pivotal position to share information and to strengthen critical 
infrastructure protection activities concerning food from farm to 
table.
FSIS Office of Food Security and Emergency Preparedness
    To date, FSIS has undertaken a number of initiatives to protect 
meat, poultry, and egg products from the potential of a terrorist 
attack. Immediately following September 11, 2001, FSIS established the 
Food Biosecurity Action Team (F-BAT). The charge of F-BAT was to 
coordinate all activities related to biosecurity, counter-terrorism, 
and emergency preparedness within FSIS. These activities are 
coordinated with USDA's Homeland Security Council, other government 
agencies, and industry. Currently, FSIS' newly created Office of Food 
Security and Emergency Preparedness (OFSEP) has assumed the 
responsibilities of F-BAT and serves as the centralized office within 
FSIS for food security issues.
    OFSEP interacts closely with USDA's Homeland Security Council and 
represents the agency on all food security matters throughout the 
Federal Government, as well as in State and local activities. The 
Office's mission is to lead in the development of the agency's 
infrastructure and capacity to prepare for, prevent, and respond to, 
deliberate attacks or other threats to the U.S. food supply. As the 
lead coordinator and primary point of contact on all food security and 
emergency preparedness activities within FSIS, OFSEP focuses primarily 
on:
  --Emergency preparedness and response;
  --Federal/State/Industry Relations;
  --Continuity of operations (COOP);
  --Scientific expertise in chemical, biological, and radiological 
        terrorism; and,
  --Security clearance and safeguarding classified information.
    To ensure coordination of these activities involves all program 
areas of the agency, OFSEP established a new standing advisory group, 
the Food Security Advisory Team (FSAT), comprised of representatives of 
the major program areas within FSIS, to provide program-specific 
technical support.
Expanding Coordination with Federal, State, and Local Agencies
    FSIS collaborates and coordinates closely with its State partners 
to ensure an effective prevention and response program. Some of the 
many state organizations FSIS works with include the Association of 
Food and Drug Officials (AFDO); the Association of State and 
Territorial Health Officials (ASTHO); and the National Association of 
State Departments of Agriculture (NASDA). Most recently, FSIS teamed 
with FDA in cosponsoring a joint meeting between ASTHO and NASDA, 
entitled ``Homeland Security: Protecting Agriculture, the Food Supply, 
and Public Health--The Role of the States.'' The purpose of this 
meeting was to enhance collaboration between State public health and 
agriculture agencies and the Federal Government. Both the Secretary of 
Agriculture and the Secretary of Health and Human Services (HHS) were 
on hand for this joint meeting.
    FSIS also works closely with the White House Homeland Security 
Council, DHS, FDA, and the USDA Homeland Security Staff to develop 
strategies to protect the food supply from an intentional attack. For 
example, FSIS, along with FDA and industry partners, is working with 
DHS to establish a new food information sharing and analysis activity 
for the food sector. This public/private partnership will aid in the 
protection of the critical food infrastructure by centralizing the 
information about threats, incidents, and vulnerabilities.
Consumer Homeland Security Education
    Because everyone has a stake in a safe and secure food supply, FSIS 
published Food Safety and Food Security: What Consumers Need to Know in 
November 2003, as part of the agency's continuing effort to protect 
public health by preventing and responding to contamination of the food 
supply throughout the farm-to-table continuum. The brochure, developed 
by FSIS, is available in both English and Spanish. In a concise and 
easy-to-follow format, Food Safety and Food Security: What Consumers 
Need to Know, lays out comprehensive and practical information about 
safe food handling practices, foodborne illness, product recalls, 
keeping foods safe during an emergency and reporting suspected 
instances of food tampering. This publication is the latest in a series 
of food security guidelines issued by FSIS that includes FSIS Security 
Guidelines for Food Processors and FSIS Safety and Security Guidelines 
for the Transportation and Distribution of Meat, Poultry and Egg 
Products.
Ensuring the Safety of Imports
    To further strengthen our import inspection program, we established 
a new position called the import surveillance liaison inspector, using 
funds provided in the fiscal year 2001 Homeland Security Supplemental 
Appropriations Act. These inspectors augment the current activities of 
traditional import inspectors at locations across the country. The 
import surveillance liaison inspectors conduct a broader range of 
surveillance activities, and they coordinate with other agencies, such 
as the APHIS, FDA, and the U.S. Customs and Border Protection within 
the DHS. Currently, 20 of these new inspectors are on board, and we 
anticipate more will be added.
Laboratories
    Laboratories play a key role in our ability to quickly detect 
contamination of the food supply. FSIS has four ISO accredited 
laboratories--three regulatory laboratories that conduct testing on 
samples of meat, poultry and egg products, and a fourth laboratory that 
focuses on microbial outbreaks. FSIS has increased security at all of 
our laboratories. This includes instituting procedures to ensure proper 
chain of custody and other controls on all samples and materials 
received by the labs. The labs participate in the Electronic Laboratory 
Exchange Network (eLEXNET), which is a system designed to provide a 
secure network in which food safety labs at various levels of 
government can share test data on food samples.
    Furthermore, FSIS laboratories have enhanced analytical capability 
for compounds of concern and developed surge capacity. Our four labs 
have expanded capability to test for non-traditional microbial, 
chemical and radiological threat agents. In addition, the Agency has 
also begun construction of a Bio Security Level 3 facility that will be 
able to conduct analyses on a larger range of potential bioterrorism 
agents.
    FSIS is also represented on the interagency Laboratory Response 
Network and has worked to develop the Food Emergency Response Network 
(FERN) for potential foodborne contamination incidents. FERN was formed 
in 2002 and currently has about 61 members, including FSIS, FDA, and 
state labs. Participation is open to Federal, State, and local 
government labs that are capable of conducting food testing and 
forensic analysis for a wide variety of chemical, biological and 
radiological agents. FERN can help respond to national emergencies, 
including terrorist threats that might affect the food supply. In 
fiscal year 2005, FSIS plans to significantly expand its participation 
in FERN.
                    fiscal year 2005 budget request
    I appreciate having the opportunity to discuss a number of FSIS' 
accomplishments with you. Now I would like to present an overview of 
the fiscal year 2005 budget request for FSIS. Implementation of these 
budget initiatives is imperative to helping us attain FSIS' public 
health mission. In fiscal year 2005, FSIS is requesting a program level 
of $951.7 million, a net increase of about $61 million from the enacted 
level for fiscal year 2004. Under current law, we are requesting an 
appropriation of $838.7 million, with an additional $113 million in 
existing user fees.
Supporting FSIS' Basic Mission
    The FSIS budget request for fiscal year 2005 supports the Agency's 
basic mission of providing continuous food safety inspection in each 
meat, poultry, and egg products establishment in the United States. The 
fiscal year 2005 budget includes $15.5 million in increases for 
mandatory pay raises in Federal and State programs. This includes 
annualization of the calendar year 2004 pay raise, as well as the 
anticipated calendar year 2005 pay raise.
    The fiscal year 2005 budget request includes a $17.3 million 
increase for the full cost of in-plant inspection and enforcement of 
humane handling and slaughter. FSIS employee salary, benefits, and 
inspector travel between plants make up a large portion of the FSIS 
budget and have a serious affect on our ability to staff plants if not 
fully funded. Thus, FSIS requires a $12.3 million increase to avoid 
detrimental employment restrictions within the agency, which would 
result if unavoidable cost increases are not fully funded and must be 
absorbed. An additional $5 million is requested so that FSIS' 
inspection workforce can continue its strict enforcement of regulations 
for humane slaughter and handling of livestock, a top priority at FSIS.
New Initiatives
    The fiscal year 2005 request includes a $33.6 million increase for 
new initiatives that support the Department's goals for FSIS.
BSE Surveillance
    First, the fiscal year 2005 budget request includes an increase of 
$3 million for BSE surveillance. FSIS' BSE inspection program will add 
permanent BSE control measures in fiscal year 2005, which include: 
increased in-plant verification of slaughter plant designs for 
controlling specified risk materials (SRMs), overtime inspection, and 
travel for Veterinary Medical Officers to test non-ambulatory disabled 
livestock when they arrive at small slaughter plants that do not have a 
resident veterinarian. FSIS will also perform about 60,000 screening 
tests in fiscal year 2005 at processing plants that use advanced meat 
recovery (AMR) equipment, to ensure that SRMs do not enter the food 
supply.
Food and Agriculture Defense Initiative
    The fiscal year 2005 budget also requests a $23.5 million increase 
to support a food and agriculture defense initiative in partnership 
with USDA, HHS, and DHS. Food contamination and animal and plant 
diseases and infestations can have catastrophic effects on human health 
and the economy. The three Federal Departments involved are working 
together to create a comprehensive food and agriculture policy that 
will improve the government's ability to respond to the dangers of 
disease, pests and poisons, whether natural or intentionally 
introduced. Our food and agriculture defense initiative has five 
components:
  --Biosurveillance;
  --The Food Emergency Response Network;
  --Data systems to support the Food Emergency Response Network;
  --Enhancing FSIS laboratory capabilities; and
  --Follow-up bio-security training.
    First, the food and agriculture defense initiative will allow FSIS 
to participate in an interagency biosurveillance initiative that would 
improve the Federal Government's ability to rapidly identify and 
characterize a potential bioterrorist attack. Funding this initiative 
will improve Federal surveillance capabilities and enable FSIS to 
integrate with DHS to compile FSIS surveillance information rapidly 
with threat information. This funding would also allow FSIS to focus 
its resources on the vulnerable products and processes identified 
during the agency's vulnerability assessments of imported and domestic 
products; increase regulatory sampling for three additional threat 
agents; add five Import Surveillance Liaison Inspectors, 30 program 
investigators for transportation, distribution, and retail 
surveillance, and two Public Health and Epidemiology Liaison Officers 
to our workforce; and establish a Foodborne Disease Surveillance 
Communication system to coordinate with DHS systems.
    The second component of the food and agriculture defense initiative 
is the Food Emergency Response Network (FERN), which I discussed 
earlier. A nationwide laboratory system with sufficient capacity to 
meet the needs of anticipated emergences is integral to any 
bioterrorism surveillance and monitoring system. The goal is to 
establish 100 FERN laboratories, creating a network of Federal, State 
and local laboratories that FSIS could call upon to handle the numerous 
samples that would be required to be tested in the event of a terrorist 
attack on the meat, poultry or egg products supply. The fiscal year 
2005 budget request would expand FERN to contract with State and local 
laboratories, and to establish five regional hubs and a National 
Operating Center to coordinate FERN's efforts and conduct training. In 
addition, FSIS would also fund the establishment of five to seven State 
laboratories for screening of microbiological agents, with more 
laboratories in the future, based on the availability of funds.
    The third and fourth components of the food and agriculture defense 
initiative provide further support to FERN. The electronic laboratory 
exchange network (eLEXNET), which I mentioned previously, is a 
national, web-based, electronic data reporting system that allows 
analytical laboratories to rapidly report and exchange standardized 
data. The fiscal year 2005 budget request would provide funding needed 
to make eLEXNET available to additional FERN and other food-testing 
laboratories nationwide. In turn, the budget request would enhance 
FSIS' laboratory capabilities in order to detect new bioterror-
associated agents, and to ensure FSIS' capability and capacity to 
perform the toxin and chemical testing that will be standardized across 
all FERN laboratories.
    Because the realm of biosecurity is ever changing, FSIS must 
provide its workforce with the most up-to-date information necessary to 
ensure that meat, poultry, and egg products are protected from 
intentional contamination. Therefore, the final component of the food 
and agriculture defense initiative is follow-up biosecurity training of 
the workforce. This additional training is essential as part of the 
ongoing effort to protect the public by educating the workforce 
regarding the latest threat agents and countermeasures to those agents.
Training and Education
    Training is a top priority at FSIS. Our inspection workforce is our 
greatest asset, and this is why FSIS is dedicated to establishing and 
maintaining a comprehensive and fully integrated training program. The 
agency is continuing its extensive training effort by requesting 
approximately $7.1 million, or an increase of 50 percent over fiscal 
year 2004, to train all new inspection personnel and to expand existing 
training programs in fiscal year 2005.
    To ensure that newly hired inspection personnel receive the proper 
orientation and training to perform their jobs when they report to 
duty, FSIS is requesting approximately $4 million in fiscal year 2005. 
The agency has been criticized in the past for not immediately training 
all new employees. This initiative will provide the formal training 
needed to ensure that inspection procedures are performed consistently 
and appropriately under agency policies. This initiative will also 
enable FSIS to place 10 district trainers, in addition to five already 
funded in the agency's baseline, throughout the Nation, to orient and 
train FSIS employees.
    Last year, FSIS began retooling and expanding its existing training 
programs by incorporating a public health focus and integrating 
scientific and technical principles with training on technical and 
regulatory approaches to inspection. Through the $3.1 million requested 
by FSIS in fiscal year 2005, the agency would continue to provide Food 
Safety Regulatory Essentials (FSRE) training to field employees, 
including food inspectors, CSOs, Inspectors-in-Charge, and Compliance 
Officers. The agency will offer the training regionally to accommodate 
inspection staff. Additional computer-based-training will be provided 
to implement the training, and will be catered to the inspection 
personnel's specific food safety responsibilities.
User Fee Proposal
    Under current law, in 2005 FSIS estimates it will collect $113 
million in annual user fees to recover the costs of overtime, holiday, 
and voluntary inspection. FSIS' fiscal year 2005 budget includes a 
legislative proposal to recover the costs of providing inspection 
services beyond an approved 8-hour primary shift. The proposal was 
submitted to Congress last August. If enacted, the level of 
appropriated funds needed would be reduced by an estimated $124 
million, making the FSIS budget request $714.7 million. This will 
result in significant savings for the American taxpayer.
                                closing
    The goals and initiatives that FSIS has laid out as its vision 
represent a monumental task. But let me assure you; this is a task that 
we are ready and willing to take on. I believe that with the 
appropriate support, FSIS will be able to achieve its public health 
vision and strengthen the safety of meat, poultry, and egg products.
    Mr. Chairman, this concludes my prepared statement. Thank you for 
your continued support. Thank you also for the opportunity to submit 
testimony to the Subcommittee on how FSIS is working with Congress and 
other partners to achieve its public health vision.

                     ADDITIONAL COMMITTEE QUESTIONS

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

            Questions Submitted by Senator Robert F. Bennett

                                  bse
    Question. On March 15, 2004, the Department of Agriculture 
announced details for an expanded surveillance effort for BSE. The 
release also stated that $70 million is being transferred from the 
Commodity Credit Corporation (CCC) to test cattle in the high risk 
population. According to the announcement, the $70 million will allow 
testing of 268,000 animals. Using the Department estimate, testing all 
animals destined for export could cost at or near $1 billion.
    In your opinion, do you believe testing 100 percent of the export 
market is possible? Also, any additional comments or updates in regard 
to the cost of animal testing would be appreciated.
    Answer. Although it is logistically possible to test 100 percent of 
the cattle slaughtered in the United States every year, USDA does not 
recommend following this course of action. Testing predominantly young, 
healthy animals beyond the bounds of a scientific surveillance plan 
would create a false sense of security for consumers and could lead to 
either a tiered system (testing for exports but not for domestic 
consumption) or, more probably, testing all cattle slaughtered.
    USDA's targeted surveillance program is designed to identify the 
presence of BSE in the U.S. cattle population if it exists. We 
understand that some in industry have suggested blanket-testing all 
animals presented at slaughter as a means of providing ``BSE-screened 
products'' and easing trade barriers. However, it is our contention 
that current barriers against U.S. beef are scientifically unwarranted, 
and we continue working at the highest levels to reopen foreign markets 
for U.S. producers.
    We must clarify that surveillance testing for BSE--especially if it 
is performed on clinically normal animals at slaughter--is not an 
efficient risk mitigation measure for protecting public health. USDA is 
confident that the removal of specified risk materials, along with 
other measures such as feed practices regulated by the Food and Drug 
Administration address the potential health risk of BSE.
    USDA's BSE surveillance program has always focused testing efforts 
on those animals that fall into the highest-risk category for the 
disease. These include cattle exhibiting signs of neurologic disease; 
condemned at slaughter for neurologic reasons; testing negative for 
rabies and submitted to public health laboratories and teaching 
hospitals; and appearing non-ambulatory (including those exhibiting 
general weakness severe enough to make it difficult but not impossible 
to stand), also known as ``downer cattle.'' We also sample adult cattle 
that have died for unexplained reasons.
    We estimate that approximately 35 million cattle are slaughtered in 
the United States annually. If each one of these animals were to be 
tested, and we included the cost of the test kit, sample collection, 
shipping and handling, laboratory processing and support, training, 
equipment, and other associated fees, USDA estimates that the total 
cost would be between $175 and $200 per animal. Thus, the total cost 
for testing every animal slaughtered could reach as high as $6 to $7 
billion per year.
    Question. The livestock industry and Department of Agriculture are 
working toward reopening export markets in Japan, Mexico, and other 
exporting countries. The controversy arises over testing each animal 
and whether or not animals under the age of 30 months should be tested.
    Do you believe each animal, including those under 30 months of age, 
should be tested prior to export?
    Answer. USDA's targeted surveillance program is designed to 
identify the presence of BSE in the U.S. cattle population if it 
exists. We do not agree that blanket-testing all animals prior to 
export, including those under 30 months of age, is a scientifically 
sound approach to disease surveillance.
    USDA's BSE surveillance program has always focused testing efforts 
on those animals that fall into the highest-risk category for the 
disease. These include cattle exhibiting signs of neurologic disease; 
condemned at slaughter for neurologic reasons; testing negative for 
rabies and submitted to public health laboratories and teaching 
hospitals; and appearing non-ambulatory (including those exhibiting 
general weakness severe enough to make it difficult but not impossible 
to stand), also known as ``downer cattle.'' We also sample adult cattle 
that have died for unexplained reasons.
                            avian influenza
    Question. The Administration's fiscal year 2005 Budget request 
includes an increase in funding of $11.783 million to address Low 
Pathogenic Avian Influenza (LPAI) in live bird markets.
    Can you update the Committee in regard to ongoing action related to 
avian influenza and explain how the Department would utilize the 
additional funding?
    Answer. APHIS has been working to establish a national LPAI program 
and incorporate it into the National Poultry Improvement Plan (NPIP). 
The national LPAI program will be discussed and hopefully adopted at 
the NPIP meeting in July 2004. The program has drafted a Uniform 
Methods and Rules (UM&R) for the live bird marketing portion of the 
program and the subcommittee of the U.S. Animal Health Association is 
currently reviewing the draft to obtain their recommendations for 
program improvement.
    APHIS would utilize the additional funding for cooperative 
agreements with states that will support the LPAI prevention and 
control program; for indemnities; for additional field personnel, 
equipment, and other resources necessary to assist states with long-
term prevention and control; for educational materials and training for 
recognition of avian influenza and for biosecurity practices to protect 
against the disease; for development and administration of vaccine to 
support industry when infected with LPAI; and for reagents and other 
laboratory support to incorporate the commercial program through the 
National Poultry Improvement Program (NPIP). This program is currently 
testing poultry breeder flocks and will continue to expand its 
activities until all segments of the commercial industry are monitored 
and certified as avian influenza clean.
    Question. With the discovery of avian influenza, a number of 
countries have banned poultry imports from the United States.
    Can you provide the Committee with an update on poultry export 
markets and exactly what actions USDA is taking to reopen these 
markets?
    Answer. The USDA is currently working with countries that have 
imposed bans on taking the necessary actions to remove the bans on 
exports and reopen all poultry markets. Our actions include: 
depopulating positive testing flocks, cleaning and disinfecting those 
flocks, providing additional surveillance activities to ensure that all 
positive have been removed, and responding to inquiries and 
questionnaires to prove that areas are free of avian influenza and 
trade bans can be removed.
    On April 6, the Canadian Food Inspection Agency (CFIA) recognized 
the United States as free of highly pathogenic avian influenza (HPAI) 
and lifted all HPAI-related importation bans on U.S.-origin birds, 
poultry, and poultry products. Other countries including Armenia, 
Macedonia, and Serbia have removed their bans and have allowed exports 
to enter their country. Several other countries including: Chile, Czech 
Republic, Hungary, Israel, Poland, and Taiwan have reduced their 
restrictions to allow poultry exports from all states except for Texas.
                           childhood obesity
    Question. Childhood obesity is a growing health concern for many 
Americans. The Department of Agriculture has and continues to conduct 
research to further understand the factors that contribute to obesity.
    Can you update the Committee in regard to actions that the 
Department is taking to inform consumers and to combat obesity?
    Answer. The Department is making a substantial commitment to 
promoting healthy weight through nutrition education and promotion. In 
the Food, Nutrition, and Consumer Services (FNCS) mission area, the 
Food and Nutrition Service (FNS) nutrition education efforts are 
targeted primarily to participants or potential participants in the 
nutrition assistance programs it administers, while the Center for 
Nutrition Policy and Promotion (CNPP) provides nutrition education and 
information for the general public. In addition, the Cooperative State 
Research, Education and Extension Service (CSREES) has a significant 
commitment to nutrition education, as well as the Agricultural Research 
Service and the Economic Research Service, who perform basic and 
applied research supporting this effort.
    FNCS undertakes a range of ongoing activities each year to deliver 
nutrition education and promotion to program recipients; all of these 
include maintenance of proper weight as one component of a healthy 
lifestyle, including:
  --Integrating nutrition and physical activity promotion within and 
        across the programs.--The Eat Smart. Play Hard.TM 
        campaign for children and their caregivers stresses the need to 
        balance what you eat with how active you are, and Team 
        Nutrition provides nutrition education for the Nation's 
        schoolchildren. Materials such as brochures, activity sheets 
        and posters, coordinated with nutrition curricula, are used to 
        help children, their parents, and caregivers learn healthy 
        eating and active living behaviors.
  --Reshaping nutrition education in the Food Stamp Program.--To target 
        activities that promote healthy weight. For example, we are 
        developing new nutrition education materials that program staff 
        can use to motivate low-income elderly people and women with 
        children to improve their eating behaviors.
  --Developing new ways to support healthy weight through the WIC 
        program.--The Fit WIC project developed five intervention 
        programs that WIC and other community agencies can implement to 
        prevent overweight in young children. Educational packages such 
        as Fathers Supporting Breastfeeding are used in WIC clinics to 
        support breastfeeding. Breastfed babies are less likely to 
        become overweight as they grow, and mothers who breastfeed may 
        return to pre-pregnancy weight more easily.
  --Promoting healthy school nutrition environments.--Unhealthful 
        beverage and food choices at school can undermine children's 
        ability to learn and practice healthy eating. We developed and 
        are distributing the Changing the Scene action kit to help 
        local schools and communities to support healthier eating and 
        active living behaviors.
  --Promoting increased fruit and vegetable intake.--Through 
        partnerships with other Federal Agencies and the National 5-A-
        Day Program. For example, we worked together to develop the 
        Fruits and Vegetables Galore-Helping Kids Eat More tool kit, 
        which helps foodservice professionals with planning, 
        preparation, and promotion strategies to encourage the children 
        they serve to consume more fruit and vegetables. For fiscal 
        year 2005, the President's Budget proposes several initiatives 
        to enhance these efforts to better address obesity and promote 
        healthy weight. These include:
  --The budget requests $20 million, a $5 million increase, to enhance 
        WIC breastfeeding promotion efforts through peer counseling. 
        The use of breastfeeding peer counselors has proven to be an 
        effective method of increasing initiation and duration of 
        breastfeeding, and breastfed babies are more likely to maintain 
        a healthy weight as they grow.
  --The budget requests $5 million to initiate a new series of WIC 
        Childhood Obesity Prevention Projects, which build on the 
        success of the Fit WIC projects to work in partnership with 
        States on innovative strategies to use WIC to prevent and 
        reduce childhood obesity through enhanced nutrition and 
        education, physical activity promotion, and environmental 
        efforts. Ongoing funding for such projects is critical to 
        ensuring continuous improvement in this area.
  --It requests $2.5 million to expand the Eat Smart. Play 
        Hard.TM Campaign and establish a cross-program 
        nutrition framework to help ensure a comprehensive, integrated 
        approach to nutrition education in all FNS nutrition assistance 
        programs.
  --The budget includes $1 million for the Center for Nutrition Policy 
        and Promotion (CNPP) plans to build on previous work to 
        implement the consumer messages developed and pilot tested with 
        20- to 40- year-old women, especially low-income women, to help 
        consumers aim for a healthy weight.
  --The budget requests as additional $655,000 to complete the 
        development of the 6th edition of the Dietary Guidelines for 
        Americans, as well as an additional $1 million to update and 
        promote the new food guidance system which will update the Food 
        Guide Pyramid. CNPP also plans to develop obesity prevention 
        materials based on the Dietary Guidelines and the new food 
        guidance system, as well as promote the consumption of fresh 
        fruit and vegetables. Plans include the development of print 
        materials and interactive tools, such as the Interactive 
        Healthy Eating Index, that direct dietary guidance to the 
        individual to facilitate healthful behavior change.
                indefinite funding in the food stamp act
    Question. The Administration's fiscal year 2005 Budget includes a 
request for new legislative language to allow for indefinite funding 
authority for the Food Stamp Act.
    Can you provide the Committee with an explanation of why this 
legislative language has been requested?
    Answer. The indefinite authority proposal in this year's Food Stamp 
Program budget would provide such sums as necessary to fund program 
benefits and payments to States, in the last 4 months of the fiscal 
year if program needs exceed the anticipated level. It would ensure 
that sufficient resources will always be available to provide access to 
the program for all eligible persons who wish to participate. It can be 
difficult to estimate program needs or the size of an adequate 
contingency reserve, particularly when there are changes in the 
economy. With indefinite authority, if program costs should 
significantly exceed budget estimates, it would never be necessary to 
seek a supplementary appropriation or implement a benefit reduction. 
This proposal would bring the structure of this critical program in 
line with other major social welfare programs that already have 
indefinite authority.
                                 ______
                                 

           Questions Submitted by Senator Christopher S. Bond

                     guidelines on fat consumption
    Question. There is a linear relationship between high transfatty 
acid and high saturated fat intake and chronic disease. We also know 
that the consumption of foods high in these two elements likely 
contribute to the statistics on obesity.
    Does USDA intend to draft guidelines or standards for the 
consumption of these fats?
    Answer. The 2005 Dietary Guidelines Advisory Committee (DGAC) is in 
the process of evaluating the most recent scientific evidence on fatty 
acids and health and is preparing to make science-based recommendations 
specifically for saturated and trans fatty acids consumption. At its 
most recent public meeting held on March 30 and 31, 2004, members of 
the Committee discussed the possibility of setting intake goals for 
both types of these fatty acids--saturated and trans--and also 
discussed the implications these proposed recommendations would have 
for the general public. It is expected that the dietary fat 
recommendations will emphasize the reduction of current intake for 
saturated and trans fatty acids. The Committee is also expected to 
address the need for encouraging product reformulations by food 
manufacturers to reduce unhealthy fats in food products. It should be 
noted that on July 11, 2003, the Food and Drug Administration published 
a final rule requiring food manufacturers to list the amount of trans 
fatty acids on product nutrition labels by January 1, 2006. Some 
manufacturers have already responded to the rule by implementing the 
labeling requirement or by eliminating trans fatty acids from their 
products.
    The Committee is continuing its deliberations on specific fatty 
acid recommendations. However, the final advisory report is expected to 
be submitted to USDA and HHS by June 30, 2004. The final science-based 
recommendations on saturated and trans fatty acids will be incorporated 
in the agency's education and communication efforts after completion of 
the DGAC report.
    In an effort to help Americans reduce their risk of cardiovascular 
disease and improve their health, USDA's proposed new Food Guidance 
System, to be released in 2005, emphasizes consumption of oils instead 
of solid fats in the diet and differentiates between saturated and 
unsaturated fats. The guidance recommends that Americans choose fats 
mostly from foods higher in polyunsaturated or monounsaturated fat, and 
particularly Omega-3 fats such as those found in fish.
    Question. Since not all oils are equally healthy, will USDA provide 
guidelines and or regulations to restaurants and other food 
manufacturers and--more importantly--provide them a roadmap to 
increasing the nutritional content and decrease trans and saturated fat 
levels of their products?
    Answer. The 2005 Dietary Guidelines Advisory Committee (DGAC) is in 
the process of evaluating the most recent scientific evidence on fatty 
acids and health and is preparing to make science-based recommendations 
specifically for saturated and trans fatty acids consumption. The 
Committee is also expected to address the need for encouraging product 
reformulations by food manufacturers to reduce unhealthy fats in food 
products.
    Additionally, researchers from the Agricultural Research Service 
are working with agricultural producers and the fats and oils industry 
to find alternative ingredients and develop oils such as canola and 
sunflower oils with higher levels of the fatty acids that may help 
reduce levels of low-density lipoproteins--or bad cholesterol--without 
reducing the high-density lipoproteins--or good cholesterol. Through 
Federal research and education efforts, these ``heart-friendlier'' oil 
products are expected to be utilized by the food industry, offering 
trans fatty acid-free products in the marketplace.
    Question. Does USDA intend to provide specific guidelines and or 
regulations on the characteristics of healthy oils highlighting those 
oils that have low saturated fat and transfat profiles that can be used 
in most food manufacturing to improve overall health and nutrition of 
those foods?
    Answer. The 2005 Dietary Guidelines Advisory Committee (DGAC) is in 
the process of evaluating the most recent scientific evidence on fatty 
acids and health and is preparing to make science-based recommendations 
specifically for saturated and trans fatty acids consumption. At its 
most recent public meeting held on March 30 and 31, 2004, members of 
the Committee discussed the possibility of setting intake goals for 
both types of these fatty acids and also discussed the implications 
these proposed recommendations would have for the general public. It is 
expected that the dietary fat recommendations will emphasize reduction 
in saturated fatty acids and trans fatty acids. The Committee is also 
expected to address healthy fats and provide intake recommendations on 
how consumers can incorporate ``healthy'' oils in their diets. The USDA 
will incorporate the recommendations from the DGAC into its education 
and communication efforts after completion of the DGAC report. The USDA 
will provide consumers with information on the most common sources for 
``healthy'' oils to offer them healthy choices in selecting a balanced 
diet.
    Question. Does USDA have this authority?
    Answer. USDA has authority to provide consumers with information on 
the nutritional content of foods, including oils and common sources for 
``healthy'' oils. USDA attempts to help consumers, producers and 
industry by offering information regarding healthy choices when 
selecting a balanced diet.
    Question. How does USDA intend to incorporate the information it 
hopes to disseminate through the campaigns mentioned in Mr. Bost's 
testimony into USDA run food programs?
    Answer. Nutrition promotion efforts such as the Eat Smart.Play 
Hard.TM campaign and Team Nutrition are designed 
specifically to be delivered through the Federal nutrition assistance 
programs. Materials are developed by the Food and Nutrition Service 
(FNS) and disseminated to State and local program partners through the 
web and direct delivery. Program cooperators also order campaign 
materials through the Department of Commerce's National Technical 
Information Service (NTIS).
    Most of the materials developed to date are designed for use in 
specific programs. Part of the requested $2.5 million increase for 
cross-program nutrition activities will support development of 
nutrition promotion materials that can be integrated into more than one 
program, maximizing the impact of limited nutrition education funding.
    FNS and the Center on Nutrition Policy and Promotion (CNPP) also 
work closely together to ensure that program-based nutrition education 
activities are fully consistent with the Dietary Guidelines for 
Americans and the food guidance system intended to deliver the 
Guidelines to the general population. These agencies confer directly, 
and participate together in the Dietary Guidance Working Group, which 
reviews nutrition education materials to ensure their consistency with 
Federal nutrition policy and guidance. When the new Guidelines and food 
guidance system are finalized, FNS will review all of its nutrition 
education interventions to ensure that they are consistent with the 
updated guidance, and make any needed changes.
                              soybean rust
    Question. In part due to a short U.S. soybean crop in 2003, the 
U.S. livestock industry is expected to import a larger amount of 
soybean meal this year than in the recent past. The usual source for 
U.S. soymeal imports is Brazil, which experienced the arrival of Asian 
soybean rust a few years ago. Since Asian soybean rust has not yet 
arrived in the United States, it is important that we do everything we 
can to delay that arrival as long as possible.
    When will APHIS make a decision about any additional quarantine 
steps for imported soybeans or soybean meal that it will impose, and 
will APHIS consult with the relevant stakeholder groups, such as the 
American Soybean Association and livestock groups, before making a 
final decision?
    Answer. APHIS officials are looking closely at our country's 
importation of soybean seed, meal, and grain. Our analysis to date has 
shown that clean soybean seed and soybean meal--which is a heat-
treated, processed product--is unlikely to pose any risk of introducing 
this disease. Historically, there has never been a documented instance 
of soybean rust spread through trade. Rather, it is spread naturally 
through airborne spore dispersal. We are currently conducting a risk 
assessment to study the viability of the pathogen. The preliminary 
results of the assessment indicate a very low risk, if any, of 
introducing this disease through imports. We posted our initial risk 
document on the APHIS' Web site and requested public comments. The 
comment period closed April 12, 2004.
    We have been working very closely with the American Soybean 
Association and other stakeholders throughout our efforts to prevent 
and prepare for the introduction of soybean rust. Most recently, USDA 
officials participated in a soybean rust conference that was 
cooperatively organized by USDA, five pesticide companies, and the 
American Soybean Association. The primary goal of the conference was to 
disseminate to soybean farmers the knowledge, information, and 
techniques they will need to manage this pathogen when it reaches the 
continental United States. We are committed to continuing and expanding 
this outreach, including working with the livestock industry, in our 
efforts develop policies for preventing the human-assisted entry of the 
disease. We will ensure that any new regulations regarding soybean 
imports are based on the best available scientific information.
                                 ______
                                 

                Questions Submitted by Senator Herb Kohl

                      combating childhood obesity
    Question. Mr. Bost, both USDA and FDA have recently announced new 
efforts to combat the increasing problem of obesity. FDA announced the 
``Calories Count'' program, and USDA has money in several programs, 
including WIC, to help battle this problem. However, for all of the 
government's efforts, all of the money being put into this effort pales 
in comparison to the food industry's billions of dollars worth of 
advertising.
    How can the government successfully get its message out when, at 
first glance, its efforts appear to be dwarfed by the food industry? 
How do your agencies compete with that?
    Answer. USDA has a strong partnership with the Department of Health 
and Human Services, including CDC and FDA, which helps ensure that the 
Federal investment to combat obesity is a collaborative effort with 
consistent messages to the public. USDA plans to capitalize on the 
Federal infrastructure working with the vast network of State, county, 
and other local government agencies and groups to extend the reach of 
their messages and materials. USDA is participating in the creation of 
a new Food Guidance System which would be the cornerstone of other 
Federal nutrition assistance programs. USDA is also actively exploring 
options for partnerships and seeking opportunities to collaborate with 
other health organizations, advocacy and industry groups to help carry 
the Federal Government messages.
    Question. Mr. Bost, the Senate report of the fiscal year 2004 
Agriculture Appropriations bill encouraged the USDA to work with Share 
Our Strength and its Operation Frontline (as well as other innovative 
organizations) to improve eating habits and food budgeting skills of 
program participants. In view of growing concern about obesity and 
health, those objectives seem as valid as ever.
    What progress can the Department report in response to this 
encouragement?
    Answer. Share Our Strength SOS provided my office with a proposal 
for Operation Frontline to provide nutrition education to nutrition 
assistance program participants. I also met with Bill Shore, the 
Executive Director of SOS, to discuss it with him personally before it 
was sent to the Food and Nutrition Service for a more thorough review. 
In our discussion, I learned that the project shares many of the same 
goals as USDA's nutrition education efforts, and uses a model similar 
to that used by State agencies in providing nutrition education and 
promotion to Food Stamp recipients.
    As you know, nearly all of the nutrition education funding provided 
to FNS must be used for grants to State agencies that operate the 
programs, often for specifically earmarked purposes. The Department's 
ability to provide direct funding for organizations such as SOS is thus 
highly constrained, and we were unable to offer a grant to support 
Operation Frontline in response to their proposal. However, I was 
pleased to learn more about their efforts, and value SOS as a non-
profit sector partner in our shared effort to promote healthy eating 
and wise use of food resources among low-income people.
      commodity supplemental food program fiscal year 2004 funding
    Question. The Commodity Supplemental Food Program was forced to cut 
nearly 30,000 participants in fiscal year 2004. The current budget flat 
lines program funding, but the carryover funding from the previous 
years is no longer available. It has been estimated that this will 
cause another 30,000 people taken off the roles--all senior citizens.
    How do you propose people at the state level, who actually carry 
out these programs, deal with a cut this deep?
    Answer. About 29,500 fewer caseload slots were assigned in 2004 
than in 2003. However, the caseload of 536,196 allocated in 2004 
exceeds actual participation in any month to date, including the peak 
participation of 526,955 achieved in September 2003. Thus, the caseload 
available in 2004 covered actual nationwide program participation.
    In reference to the President's fiscal year 2005 budget request, 
the $98.335 million requested for the Commodity Supplemental Food 
Program (CSFP) equals Congress' fiscal year 2004 program appropriation, 
and is higher than the $94.991 million requested in the budgets for 
fiscal years 2002 through 2004. However, variables beyond the 
Administration's control have yielded significantly fluctuating levels 
of total program resources over the same period. These variables are 
the amounts that Congress appropriates and cash carryover from the 
previous year, which is determined primarily by the extent to which 
States utilize their assigned caseloads. Even though the fiscal year 
2005 budget request includes an increase over the prior year's request, 
the anticipated lack of cash carryover would result in a projected 
participation decrease of 60,700 nationally.
    The Department will pursue all means to minimize the impact of 
straight-line funding for the program. We also wish to point out that 
we are implementing major initiatives, including more extensive and 
varied Food Stamp Program outreach efforts, which address the 
nutritional needs of the population served by the CSFP. People eligible 
for the program should also be eligible to receive benefits under the 
Emergency Food Assistance Program and the Nutrition Services Incentive 
Program now administered by the Department of Health and Human 
Services. The Food and Nutrition Service will work closely with State 
agencies to help affected individuals meet their nutritional needs 
through these other Federal nutrition assistance programs.
                           food guide pyramid
    Question. Mr. Bost, you mentioned in your statement that the FNS is 
currently working on updating the food guide pyramid. I understand that 
you have received a significant number of comments so far on your 
efforts.
    How many comments has FNS received on the proposed food guide 
pyramid?
    Answer. Last September, a Notice was published in the Federal 
Register requesting comments from all stakeholders on the proposed 
technical revisions to the current Food Guide Pyramid. USDA is using an 
open and transparent process to revise the science base and 
communications elements for the current Food Guidance System, the Food 
Guide Pyramid. This process resulted in 255 response letters with 1,101 
separate comments from a broad array of nutrition professionals, health 
organizations, academic faculty, food industry organizations and the 
general public. To continue this transparent process, we have made 
these comments available for anyone to view on our website at http://
www.usda.gov/cnpp/pyramid-update/index.html.
    Question. Do you believe you will be able to make the June deadline 
for publication?
    Answer. The report to the Secretaries of Agriculture and Health and 
Human Services from the Dietary Guidelines Advisory Committee is 
expected to be finalized by June 30, 2004. The scientific advisory 
report will be published in electronic format on the USDA and HHS 
websites. The two Departments will then jointly review and publish the 
revised Dietary Guidelines, which is anticipated to be released in 
January 2005. The revised Food Guidance System is scheduled to be 
released approximately a month later, in February 2005.
                         low-carbohydrate diets
    Question. How is USDA working to take into consideration the 
various low-carbohydrate diets that have become so popular in this 
country?
    Answer. USDA continues to rely on consensus science from 
authoritative bodies and reports such as the report from the Dietary 
Guidelines Advisory Committee, the National Academy of Sciences, and 
USDA's food consumption surveys. USDA's Agricultural Research Service 
has six nutrition research centers that continually explore timely 
nutrition issues. As new weight-loss diet trends emerge, USDA works in 
collaboration with HHS as well as reputable organizations such as the 
American Dietetic Association and the Society for Nutrition Education, 
to plan communications strategies to help guide the American public to 
make healthy food choices.
    Question. Is USDA, NIH or CDC doing any research on the safety and 
validity of these diets?
    Answer. USDA's research is focused on energy balance and nutrient 
adequacy to effect long-term health. For optimal nutrient adequacy, the 
research continues to look at the nutrition requirements that ensure a 
healthy life, maximum vigor and well being and reduced risk of chronic 
disease, not to study the comparative effects of weight-loss diets. 
Where many new diet programs capture the interest of the public and 
come and go, nutritional requirements remain constant regardless of any 
particular diet. Much of our Federal research includes the role of 
carbohydrates, proteins, and fats and other nutrients play in a healthy 
diet.
                    national organic standards board
    Question. Mr. Hawks, the Organic Foods Production Act is very clear 
that the NOSB should be able to hire their own Executive Director, and 
that that person should report to the NOSB directly. Is the job 
announcement published by USDA intended to meet the requirements of the 
statute in this regard?
    Answer. AMS intends to meet the requirements of the Organic Foods 
Production Act (OFPA) which provides that the Board shall have a staff 
director.
    The General Provisions of the Consolidated Appropriations Act, 
2004, (Title VII) limit the Department's spending authority to ``not 
more than $1.8 million for all advisory committees within USDA. Of this 
total, AMS has been allotted $90,000 for the National Organic Standards 
Board. This means that AMS can spend up to $90,000 of the funds 
appropriated for Organic Standards on the expenses of the NOSB. The 
Organic Foods Production Act requires that Board members be reimbursed 
for their travel expenses, including per diem. AMS cannot transfer 
appropriated funds to the Board to hire its own staff, nor do we have 
the authority to hire or contract for an employee who is not 
responsible to AMS.
    Consequently, AMS recently filled an Advisory Board Specialist 
position. All of the specialist's time is dedicated to NOSB support 
under the direction of the National Organic Program (NOP) Manager. A 
complete description of the Advisory Board Specialist's duties will be 
provided for the record.
    The increased funding provided by Congress in fiscal year 2004 will 
enable the Department to hire additional staff which will further 
increase the program's quantity and timeliness of service.
    [The information follows:]
    Advisory Board Specialist Responsibilities:
  --Bi-annual re-establishment of the NOSB Charter
  --Development and publication of news releases and Federal Register 
        notices seeking nominees for NOSB membership
  --Preparation of nominations packages and supporting documents for 
        NOSB appointments
  --Development and publication of news releases and Federal Register 
        notices alerting the public to NOSB meetings
  --Arranging public meetings; travel, hotel and meeting 
        accommodations, and contracting for Court Reporters and Audio 
        Visual Equipment
  --Arranging guest speakers at NOSB meetings
  --Reimbursing NOSB members for travel expenses in accordance with 
        Federal travel regulations
  --Development, maintenance, and administration of an NOSB website
  --Reporting on Board activities
  --Arranging and participating in NOSB committee conference call 
        meetings
  --Developing and publishing rulemaking actions to implement NOSB 
        recommendations
  --Contracting with vendors for Technical Advisory Panel (TAP) review 
        of petitioned materials
  --Reviewing petitions for compliance with OFPA, its implementing 
        regulations, and the petition procedures
  --Communicating with petitioners and the TAP vendors
  --Identifying program needs for which the NOSB can provide advice
  --Reviewing the work of the NOSB for completeness, accuracy, and 
        compliance with OFPA, its implementing regulations, and the 
        requirements of other Federal entities
  --Performing all activities required for compliance with FACA
  --Representing USDA at all meetings of the NOSB and its committees
    Question. I understand that AMS has contracted with the American 
National Standards Institute to review the National Organic Program. 
Will the ANSI effort be a one-time audit or ongoing oversight panel, 
which is what was envisioned by the statute and the organic community. 
If the ANSI effort is a one-time review, what steps, if any, are being 
taken to create an ongoing Peer Review Panel, to oversee the 
accreditation activities of the National Organic Program?
    Answer. We are in the process of completing an initial peer review 
of the NOP and hope to complete that review later this fiscal year. 
After this review is completed, we will make the results public and 
invite members of industry and the Board to work with us to develop a 
process for ongoing Peer Reviews of the NOP.
    Question. Could you please provide the Committee with a list of the 
policy recommendations made by the NOSB since passage of the final 
organic rule, and what action has been taken by the Department in 
response to those recommendations?
    Answer. The information is submitted for the record.

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

                             beaver control
    Question. How does APHIS/Wildlife Services plan to uphold their 
cooperative responsibility with the Wisconsin Department of Natural 
Resources to provide beaver damage management activities that are being 
requested of them to restore trout streams that have been damaged by 
beavers?
    Answer. APHIS/Wildlife Services (WS) cooperates with the Wisconsin 
Department of Natural Resources (WDNR) to conduct beaver damage 
management on high quality trout streams in Wisconsin. Beaver dam 
building activities can greatly alter the natural flow of a trout 
stream, destroying its ability to support trout. Beaver dams and the 
impoundments they create cause decreased water flow, water warming, and 
increased siltation. They also pose a barrier to trout, interfering 
with spawning. One component of the WS trout habitat protection program 
is to maintain select trout streams in free flowing, natural condition 
in order to improve or restore trout habitat and protect habitat 
improvement structures. The fiscal year 2005 budget will continue to 
fund these programs at current levels.
    Question. Beaver damage to roads, bridges, crops, forests and 
property are also increasing in Wisconsin resulting in an increasing 
number of requests to Wildlife Services for assistance. The State of 
Wisconsin, some counties and some townships provide cooperative funding 
to Wildlife Services for their assistance with beaver damage problems.
    How does Wildlife Services plan to fulfill their cooperative 
responsibilities in responding to Wisconsin citizens' requests for 
beaver damage assistance?
    Answer. APHIS/Wildlife Services (WS) cooperates with a number of 
northern Wisconsin county highway and forestry departments, and 
numerous local township road departments, to provide beaver damage 
management services for the protection of roads and road structures, 
and forestry resources. The fiscal year 2005 budget will continue to 
fund these programs at current levels.
                bovine spongiform encephalopathy recall
    Question. Dr. Murano, during the BSE scare, USDA announced that 
approximately 38,000 pounds of beef were recalled, after originally 
stating that the recall was only 10,400 pounds. Over the course of the 
following few weeks, we read stories about consumers who feared that 
they ate the contaminated meat because they were never informed that 
they purchased a part of the recalled amount, because proprietary 
information, including sales and distribution records, is kept secret 
during a voluntary recall. Further, there was a 3 week delay between 
the time the recall was announced and the time retailers found out 
about it.
    How much of the recalled beef was actually found?
    Answer. FSIS field personnel worked cooperatively with other 
Federal and State partners to conduct recall effectiveness checks on 
100 percent of the establishments that sold or distributed the product 
associated with the recall. FSIS is confident that the product was 
quickly removed from the marketplace. FSIS determined that the 
recalling firm and its customers made extensive efforts to retrieve and 
dispose of the recalled product.
    FSIS announced the recall at 1:00 a.m. on December 24, 2003. Less 
than 18 hours later, over 325 locations--primarily grocery stores--had 
received notifications from their suppliers.
    On February 9, 2004, FSIS issued an update to the recall stating 
that approximately 21,000 pounds of product had been returned. This 
estimate was developed in late January 2004 using information from the 
FSIS investigation, including recall effectiveness checks.
    Question. How long did it take between the time USDA announced the 
recall and the time individual grocery stores found out they had part 
of the contaminated beef? Was the responsibility on the grocers to find 
out for themselves, or were they all informed by either their state 
governments or USDA?
    Answer. FSIS announced the recall at 1:00 a.m. on December 24, 
2003. FSIS issued a press release that was distributed nationally. 
Simultaneously, its recall management division began collecting 
distribution information from the establishments that slaughtered and 
processed meat from the affected animal. Less than 18 hours later, over 
325 locations--primarily grocery stores--had received notifications 
from their suppliers. It is the responsibility of the recalling company 
to notify its customers, including grocers, that they had received 
recalled product. FSIS then conducted effectiveness checks on the 
recall to confirm that the responsibilities of the recalling firm were 
met.
    Question. If USDA had the authority to initiate mandatory recalls, 
do you think consumers would have found out more quickly? Why or why 
not?
    Answer. No establishment has refused to comply with a recall 
requested by FSIS. Should they refuse, then FSIS has the legal 
authority to detain and/or seize meat, poultry and egg products in 
commerce. The current recall process is the quickest way to determine 
where the affected product has been distributed because companies are 
familiar with who their customers are and can notify them much more 
quickly than the Federal Government could. Public health would not 
likely be enhanced by the addition of mandatory recall authority 
because the Agency already has the means to remove product quickly from 
commerce.
    Question. After all of the dust has settled, is USDA looking again 
at its policy of not wanting the authority for mandatory recalls?
    Answer. Through effectiveness checks, public meetings and other 
means, FSIS is constantly reviewing and looking for ways to improve the 
recall process. In December 2002, FSIS held a public meeting to discuss 
improving the process for recalls of meat, poultry and egg products and 
to gather useful input on related topics. FSIS expects to issue a 
revised recall directive in fiscal year 2004 taking into account the 
comments it received at the public meeting. The directive will discuss 
how public notification of recalls is to take place and will provide 
information on the new risk-based system the agency will use for 
determining the scope of effectiveness checks.
                             sound science
    Question. Dr. Murano, in your testimony you stated that there was a 
significant drop in E.coli 157:H7 between 2002 and 2003, and credited 
this drop to reassessment of plants' HACCP plans and increased audits.
    Were the same plants that were sampled in 2002 sampled in 2003? If 
not, how can you make a comparison between the two years? Unless the 
exact same plants were sampled, how can you be statistically certain 
that the plants sampled in 2002, but not sampled in 2003 have shown any 
improvement?
    Answer. There are valid methods for analyzing a time series of data 
even though, as in this dataset, there are changes in the 
establishments being sampled from year to year. The analysis conducted 
by FSIS compares over 6,000 scheduled samples of ground beef production 
from fiscal year 2002 with over 6,000 samples of ground beef production 
from fiscal year 2003 and tests whether the populations are the same 
from year to year with respect to the presence of E. coli O157:H7. 
Statistical analysis was done using the Chi-square test to show the 
association between positive E. coli O157:H7 samples and laboratory 
method, season and year. A Poisson regression model was used to 
demonstrate the significant decline in percent positive samples from 
2002 to 2003, after controlling for season and laboratory method. The 
conclusion is that the reduction in E. coli O157:H7 in raw ground beef 
from fiscal year 2002 to fiscal year 2003 was statistically 
significant.
    On April 29, 2004, the Centers for Disease Control and Prevention, 
in its annual report on the incidence of infections from foodborne 
pathogens, noted a decline of 42 percent of illness caused by E.coli 
O157:H7 from 1996 to 2003. Most significantly, between 2002 and 2003, 
illnesses caused by E.coli O157:H7, typically associated with ground 
beef, dropped by 36 percent.
    Question. Further, I have been informed that of the 58,000 samples 
collected for Salmonella in 2002, nearly 40,000 were collected from 
beef products, which have a lower rate of Salmonella than poultry 
products. It would appear that due to the high percentage of beef 
products sampled relative to other products, FSIS would be more likely 
to find a lower rate of positive Salmonella samples than if the 
percentages were weighted for equal comparison. Can you comment on 
this?
    Answer. The agency has seven Salmonella performance standards for 
classes of raw product, and the highest number of samples is for raw 
ground beef because more establishments are subject to this standard 
than other standards.
    On April 29, 2004, the Centers for Disease Control and Prevention, 
in its annual report on the incidence of infections from foodborne 
pathogens, noted that from 1996 to 2003, illnesses caused by Salmonella 
decreased 17 percent and Salmonella Typhimurium (typically associated 
with meat and poultry) decreased 38 percent.
    Question. You mention the new need for new baseline studies in your 
statement. In fiscal year 2004 FSIS received funding for these 
activities.
    What will you do, or are you currently doing, to ensure that these 
studies do not have some of the same problems as the previous studies, 
as outlined by the National Academy of Science? Will FSIS be using any 
of its fiscal year 2005 funding to continue conducting new baseline 
studies?
    Answer. For the current baseline project, using the funds provided 
for fiscal year 2004, the agency developed a study protocol that was 
reviewed by the National Advisory Committee on Microbiological Criteria 
for Foods (NACMCF). FSIS modified the current plans based on NACMCF 
recommendations and will continue to seek comments from the National 
Advisory Committee on Microbiological Criteria for Foods on future 
baseline projects.
    FSIS considers the fiscal year 2004 $1.65 million baseline 
initiative to be an addition to its base program and will continue to 
review funding needs for fiscal year 2005.
                            inspector travel
    Question. Dr. Murano, it has been suggested that FSIS inspection 
personnel would benefit greatly from exposure and visits to slaughter 
facilities in different parts of the country, in order to compare 
differing methods of animal handling and slaughter practices to help 
them better enforce HMSA.
    Would you consider making changes to your travel policy to provide 
an employee per diem for time spent visiting slaughter facilities, if 
done as part of an unrelated personal or business trip?
    Answer. USDA is committed to strong enforcement of the HMSA. FSIS 
continually assesses its HMSA oversight and enforcement, primarily 
through the activities of the District Veterinary Medical Specialists 
(DVMSs). As methods are available to improve our HMSA efforts, the 
DVMSs develop strategies for incorporating them into the overall roles 
and responsibilities of the agency. Currently, DVMSs have authority and 
opportunity to travel across district boundaries for humane activities 
when necessary.
                            sausage casings
    Question. Dr. Murano, this question involves a very specific issue 
related to food safety and sausage production in this time of concern 
about BSE. FSIS interim final regulations issued January 12 identify 
the distal ileum section of beef cattle small intestine as Specified 
Risk Material (SRM) in U.S. animals. In practice FSIS requires that the 
entire small intestine be removed and disposed of as inedible--
presumably to ensure that the distal ileum is removed--even though I am 
told that the distal ileum can be definitively identified and removed 
without destroying the entire small intestine. This situation has the 
potential to cause harm to that segment of the sausage industry that 
relies on beef rounds as casing for their products.
    Is there a way to ensure that the distal ileum SRM is completely 
removed, while still ensuring the safety and availability of beef 
rounds used as sausage casings?
    Answer. FSIS is aware of the various methods for ensuring that the 
distal ileum is properly removed. FSIS specifically asked for comment 
in a Federal Register notice (January 12, 2004, Docket #03-025IF) on 
this issue and will be analyzing the comments. Meanwhile, FSIS also is 
aware that more than the distal ileum of the small intestine may 
demonstrate infectivity based on preliminary studies from the United 
Kingdom. FSIS is interested in gaining more information about this new 
development as FSIS analyzes the comments.
    Question. I am told that current inventories for sausage casings 
could be exhausted within 2 months. Is it possible to provide further 
regulatory refinements to address this issue within that time frame?
    Answer. Casings made from the small intestine of cattle slaughtered 
after January 12, 2004, are not currently allowed for human 
consumption. FSIS is aware of the demand for sausage casings made from 
the small intestine of cattle. However, in the interest of public 
health, FSIS will be analyzing the comments received on the interim 
final rule published on January 12, 2004, and further considering the 
potential ramifications of new findings that additional sections of the 
small intestine may demonstrate infectivity. FSIS will not change the 
restriction on the use of the small intestine in human food until after 
review of comments received.

                DEPARTMENT OF HEALTH AND HUMAN SERVICES


                      Food and Drug Administration

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

                           prepared statement

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

                Prepared Statement of Lester M. Crawford

Introduction
    Good morning. Mr. Chairman and distinguished members of the 
Subcommittee, I'm pleased to have the opportunity to speak with you 
today and present to you the Food and Drug Administration's fiscal year 
2005 budget request. I am Dr. Lester M. Crawford, DVM, Ph.D. Acting 
Commissioner, Food and Drug Administration.
    The FDA is responsible for protecting the public health by assuring 
the safety, efficacy, and security of human and veterinary drugs, 
biological products, medical devices, our Nation's food supply, 
cosmetics, and products that emit radiation. The FDA is also 
responsible for advancing the public health by helping to speed 
innovations that make medicines and foods more effective, safer, and 
more affordable; and helping the public get the accurate, science-based 
information they need to use medicines and foods to improve their 
health.
    I'd like to begin by conveying my appreciation to the Subcommittee 
members and their staffs for providing FDA with several key increases 
in the fiscal year 2004 appropriation such as those funds for generic 
drugs, food defense, and medical device review. In a moment, I will 
elaborate on how we have spent or plan to spend those funds in the 
current year. I can assure you that funds appropriated in the current 
year and additional increases appropriated in fiscal year 2005 will 
continue to be spent wisely. The American people would be impressed if 
they really knew how much bang for their buck they get out of FDA.
    I am fully aware of the difficult funding decisions all of you must 
face in the current session, but I want to remind you that marginal 
investments in FDA's programs can have such a positive ripple effect 
across all of your constituencies--from the consumer to the farmer to 
the manufacturer and beyond. FDA is working diligently to reduce 
administrative and IT costs in fiscal year 2004 and 2005. In fiscal 
year 2004, we offered $57 million in IT and administrative savings and 
we have again proposed another $23 million in administrative savings in 
fiscal year 2005, which we are realizing through efficient 
administrative resource management. We will continue to seek 
administrative resource savings in order to support our critical 
mission requirements.
Executive Summary
    FDA makes substantial and meaningful differences in the lives of 
over 290 million Americans. I am extremely thankful for the 
professional dedication, creativity, and expertise of our staff. 
Through a combination of dedicated and skilled staff, new authorities 
of recently passed legislation, and the resources this Subcommittee 
provides us to carry out our mission, we will be in a better position 
to meet our challenges than ever before.
    The Administration and Congress have an obligation to the American 
public to ensure that adequate and properly targeted resources are 
available for the continued success of the Agency and the success of 
the Federal Government's efforts to promote quality health care. The 
importance and complexity of FDA's work will only increase in the years 
to come as FDA continues to carry out its primary mission of protecting 
and promoting the public health. This means that while more medical 
products and therapies will be available to save and improve lives, FDA 
also must think critically and carefully about how it uses its 
resources to improve the public wellbeing. In guiding us through our 
new Strategic Action Plan that attempts to balance demands with limited 
resources, we will constantly follow the practice of ``efficient risk 
management.''
FDA's Strategic Plan
    On August 20, 2003, FDA released a 5-Part Strategic Action Plan 
entitled ``Protecting and Advancing America's Health: A Strategic 
Action Plan for the 21st Century.'' This is a dynamic and evolving 
document that outlines how the Agency is taking new steps to protect 
and advance America's public health. In response to various public 
health threats, the Agency developed a core set of consumer-focused 
goals that includes the following: helping consumers get truthful and 
non-misleading information about FDA regulated products; promoting 
quick access to new medical technologies that are safe and effective; 
improving patient and consumer safety; responding to the new challenges 
of bioterrorism and food defense, and building a stronger, science-
based FDA. These goals were developed and refined in conjunction with a 
number of key healthcare stakeholders, and were based on important 
feedback from the consumer and patient communities. These are among the 
many critical challenges the Agency faces as it moves forward into the 
21st century. I will first discuss these challenges and progress within 
our strategic planning effort, and then will discuss the specifics of 
FDA's 2005 budget request.
Efficient, Science-Based Risk Management
    In fiscal year 2005, FDA will be charged with regulating over 
150,000 drugs and devices, overseeing the development of almost 3,000 
investigational new drugs, monitoring 125,000 domestic product 
establishments including over 10,000 firms involved in the animal drugs 
and feed process, reviewing and acting upon an estimated 13 million 
import line entries, and the list goes on and on. On top of this 
workload, we cover the full life cycle of nearly all food and medical 
products, and also interact on a daily basis with all facets of Federal 
and State governments, consumers, public and private institutions, and 
foreign entities. Our proposed budget includes the equivalent of 10,844 
full-time employees, including reimbursables. The numbers speak for 
themselves and they explain why we must practice efficient, science 
based risk management in fulfilling our increasingly complex mission.
    FDA's approach entails the use of the best scientific data, the 
development of quality standards, and the use of efficient systems and 
practices that provide clear and consistent decisions and 
communications to the American public and the regulated industries. 
This is achieved by employing principles and technologies that can 
reduce avoidable delays and cost in product approvals, overhauling and 
updating the way medical products are manufactured, implementing more 
effective strategies for food imports and food safety, and by 
implementing an enforcement strategy that combines clear communications 
to industry backed up by effective civil and criminal enforcement, FDA 
will achieve quicker access to safe and effective new products, and 
reduce public health risks without unnecessary costs. Over the past 
year, our work resulted in a wealth of success stories related to 
enforcement, new medical product development, imports and the safety of 
our food supply.
    Our science based enforcement strategy is one based on clarity, 
science, leveraging resources with our enforcement partners in Justice, 
Homeland Security, and the states, and most importantly, deterrence. In 
fiscal year 2003, our efforts led to 341 arrests, 199 convictions, 
fines and restitutions of more than $800 million submitted to the U.S. 
Treasury (including a multimillion dollar settlement for health care 
fraud), 17 injunctions of firms/individuals, nearly 400 criminal cases 
opened, 25 seizures of violative products, and more than 500 Warning 
Letters. Additionally, we took action against drug counterfeiters, 
unscrupulous parties in the dietary supplement industry, and those who 
spread misinformation or commit fraud via false labeling and 
advertising. We remain vigilant when necessary but hold the belief that 
our regulations and the enforcement of the regulations should be no 
more burdensome than necessary. In addition, FDA remains concerned 
about the public health implications of unapproved prescription drugs 
from entities seeking to profit by getting around U.S. legal standards 
for drug safety and effectiveness. Many drugs obtained from foreign 
sources that either purport to be or appear to be the same as U.S.-
approved prescription drugs are, in fact, of unknown quality. Consumers 
are exposed to a number of potential risks when they purchase drugs 
from foreign sources or from sources that are not operated by 
pharmacies properly licensed under state pharmacy laws. Although some 
purchasers of drugs from foreign sources may receive genuine product, 
others may unknowingly buy counterfeit copies that contain only inert 
ingredients, legitimate drugs that are outdated and have been diverted 
to unscrupulous resellers, or dangerous sub-potent or super-potent 
products that were improperly manufactured. The Agency has responded to 
the challenge of importation by employing a risk-based enforcement 
strategy to target our existing enforcement resources effectively in 
the face of multiple priorities, including homeland security, food 
safety and counterfeit drugs. However, the number of incoming packages, 
as it works today, already overwhelms the system, and this presents a 
significant ongoing challenge for the Agency. The Agency understands 
Congress' desire to address importation of drugs and appreciates their 
understanding of FDA's responsibility to uphold he current law.
    New drug development is an extremely costly process. Today, we see 
cases where the cost of developing a novel drug may reach $800 million 
and take a decade to get from discovery to the marketplace. According 
to a Tufts University study, only 21.5 percent of new drugs 
successfully pass through the clinical phase and gain FDA approval. FDA 
must foster and encourage new product development by ensuring that its 
review and approval processes are efficient, transparent, consistent, 
and predictable. We need to ensure that biomedical innovation leads to 
the quick development of safe and effective medical products. As 
recently discussed in our report entitled ``Innovation or Stagnation?--
Challenge and Opportunity on the Critical Path to New Medical 
Products,'' FDA, together with academia, patient groups, industry, and 
other government agencies, must embark on an aggressive, collaborative 
research effort to create a new generation of performance standards and 
predictive tools that will provide better answers about the safety and 
effectiveness of investigational products, faster and with more 
certainty. This action promises not only to bring medical breakthroughs 
to patients more quickly, but to do so in ways that ensure greater 
understanding about how to maximize patient benefits and minimize their 
risks. This can be accomplished by developing quality systems for the 
Agency's review procedures, developing guidances in new areas of 
technology development, and continuing encouragement of quality 
improvement in the manufacturing sector.
    We want to build on the past success of industry-supported programs 
such as the drug review process, which is funded by a combination of 
appropriated dollars and user fees defined by the Prescription Drug 
User Fee Act that will allow FDA to collect up to $284 million in 
fiscal year 2005. This program's support helped bring median approval 
times for standard new drug applications from 26.9 months in 1993 to 
15.4 months in 2003. Increased funding for the past several years in 
the generic drugs program has allowed median approval times to drop 
from 39.7 months in 1993 to 17.3 in 2003, and an estimated time under 
17 months with the fiscal year 2004 appropriation. We plan on this kind 
of support translating into similar success for the medical device 
review program with the help of budget authority and user fee dollars 
in fiscal year 2004 and beyond. Increased funding in fiscal year 2005 
will allow the Agency to expedite the speed and quality of the medical 
device review process.
    In the past year, highlights of our medical product review process 
include:
  --in total, approved 483 new and generic drugs and biological 
        products, including 21 New Molecular Entities with active 
        ingredients never before marketed in the United States;
    --approved 85 new drug applications;
    --approved 373 generic drug applications;
    --approved 25 biologic license applications;
  --generic approvals included drugs for the treatment of hypertension 
        and heart failure, the treatment and prevention of 
        Cytomegalovirus Retinitis in AIDS and transplant patients; a 
        treatment for major depressive disorder; and another for 
        impetigo, an infection of the skin;
  --accelerated approvals of a drug used for the treatment of pediatric 
        patients with a type of myeloid leukemia--a rare, life-
        threatening form of cancer that accounts for approximately 2 
        percent of all leukemias in children, and another for use in 
        combination therapy for chronic Hepatitis C;
  --over-the-counter drug approvals including Claritin for allergies 
        and Prilosec for frequent heartburn;
  --device approvals included the first drug-eluting stent for 
        angioplasty procedures to open clogged coronary arteries, 
        clearance of the first device for diabetics which integrates a 
        glucose meter and an insulin pump with a dose calculator into 
        one device, and an innovative rapid HIV diagnostic test kit 
        that provides results with 99.6 percent accuracy in as little 
        as 20 minutes.
    Lastly, FDA continues to pursue the most cost effective allocation 
of resources to identify food safety hazards and reduce injury and 
illness associated with food products. In 2003, building on an HHS 
strategic goal, FDA implemented new food security regulations that 
amount to the most substantial expansion of FDA's food safety 
activities in three decades. The Agency also instituted various new 
risk communications to improve upon more routine food safety for 
consumers. Additionally, the Agency continues to practice a cost 
effective allocation of resources through the targeting of field 
resources to imports that present the most significant risk. With no 
sign of import entries decreasing, FDA will intensify these efforts by 
implementing preventative food safety measures through collaborative 
arrangements with domestic and foreign governmental bodies.
Patient and Consumer Safety
    As beneficiaries of the world's premiere heath care system, 
Americans should not have to endure preventable medical errors and 
adverse events related to medical products, dietary supplements, and 
foods that are responsible for thousands of deaths, millions of 
hospitalizations, and tens of billions in added health care costs. 
Americans deserve better than settling for serious health consequences 
that can't be spotted until many years after a product has been on the 
market. And Americans and their physicians deserve better than having 
to rely on limited and often outdated information about risks, 
benefits, and costs of medical treatments when they are making medical 
decisions--which, these days, are among the costliest and most 
important decisions in their lives. So we are taking new steps to make 
our systems and processes for assuring the safety of food and medical 
products work better than ever, and to build new ways to assure better 
patient safety by taking advantage of modern information technology 
tools. We are thankful for the appropriated increases for patient, 
medical product safety and our various adverse event systems in the 
food and medical product centers that we have received in past years.
    Preventing medical errors is a top priority at the Department of 
Health and Human Services and at FDA, and over the past year, FDA has 
introduced a number of solutions that are enabling a more sophisticated 
and effective 21st century patient safety system, thus helping lower 
healthcare costs and ensure longer, healthier lives for Americans. As a 
result of these new strategic initiatives, more programs are now in 
place to improve consumer safety than at any time in the Agency's 
history. In fiscal year 2003, FDA issued a new proposed requirement for 
bar codes on nearly all prescription drugs and some over-the-counter 
drugs, as well as machine-readable information on blood and blood 
components intended for transfusion, that will result in an estimated 
413,000 fewer adverse events over the next 20 years. FDA has initiated 
partnerships that will allow use of external medical databases to 
investigate specific product safety issues. We continue to encourage 
the development of ``active'' reporting systems that use fast, easy 
web-based reports and systems to get more extensive and timely 
information on new drugs, important complications, and adverse events 
that are not well understood. In fiscal year 2003, we also proposed new 
safety standards to further reduce the incidence of adverse events, 
such as proposed amendments to radiation-safety standards for 
diagnostic x-ray equipment and new antibiotic labeling to prevent drug-
resistant bacterial strains.
    Through enhanced testing and other improvements in blood safety, 
the risk of transmission of viruses such as HIV, hepatitis B and C has 
been dramatically reduced. While a blood supply with zero risk of 
transmitting infectious disease may not be possible, the blood supply 
is safer than it has ever been. The agency's Center for Biologics 
Evaluation and Research, worked closely with other FDA Centers, the 
Center for Disease Control and Prevention, the National Institutes of 
Health, academic scientists, and the blood and diagnostic industries, 
in an unprecedented team effort that resulted in the development and 
implementation of investigational blood donor screening for West Nile 
Virus within 8 months of when the threat was first recognized. As a 
result, over 1,000 units of potentially WNV infected blood were 
identified and removed this past year before they could be transfused.
    Lastly, the Agency's Center for Food Safety and Applied Nutrition 
launched the CFSAN Adverse Event Reporting System covering all food, 
dietary supplement, and cosmetic products. Consumers submitted and FDA 
reviewed more than 6,000 adverse events and consumer complaints in an 
attempt to ensure consumers are alerted quickly to any potential new 
dangers. Recently, the CFSAN Adverse Event Reporting System provided 
information on the dangers of ephedra, which has been banned by FDA.
    Better Informed Consumers So many of our stakeholders focus their 
attention on our mission to protect public health, and ensure the 
safety of the food supply and the safety and effectiveness of medical 
products or therapies. However, at the beginning of my testimony I 
restated FDA's mission which includes mention of our duty to promote 
public health and ``[help] the public get the accurate, science-based 
information they need to use medicines and foods to improve their 
health.'' The public entrusts our subject matter experts and public 
affairs specialists in Congressional districts across the country at 
the state and local level to provide consumers with the tools they need 
to make better-informed choices. These choices range from diet to 
medical practice recommendations to disease management on the part of 
the individual. Our role as an educator or informer of the public will 
become evermore important as patients make more independent decisions 
about their health and medical care. We must continue to assist the 
public in how to use their health care dollars as we have done with our 
generic drug campaigns, and at times protect them from misleading 
information that could endanger the public's health.
    Providing information on diabetes care and prevention is a top 
priority of FDA and the Administration. In recent years, diabetes rates 
among people ages 30 to 39 rose by 70 percent. Research shows that good 
nutrition lowers people's risk for many chronic diseases, including 
obesity, heart disease, stroke, some types of cancer, diabetes, and 
osteoporosis. For at least 10 million Americans at risk for type 2 
diabetes, proper nutrition along with physical activity can sharply 
lower their chances of getting the disease.
    FDA is also attempting to enhance the consumer understanding of the 
relationship between diet/obesity and chronic disease. A recently 
released report by FDA's Obesity Working Group includes recommendations 
to strengthen food labeling, to educate consumers about maintaining a 
healthy diet and weight and to encourage restaurants to provide calorie 
and nutrition information. It also recommends increasing enforcement to 
ensure food labels accurately portray serving size, revising and 
reissuing guidance on developing obesity drugs and strengthening 
coordinated scientific research to reduce obesity and to develop foods 
that are healthier and low in calories. This effort is important, as a 
new study from Centers for Disease Control and Prevention (CDC) shows 
poor diet and inactivity are poised to become the leading preventable 
cause of death among Americans--causing an estimated 400,000 deaths in 
2000. CDC estimates that 64 percent of all Americans are overweight, 
including more than 30 percent who are considered obese. In addition, 
about 15 percent of children and adolescents, aged 6 to 19, are 
overweight--almost double the rate of two decades ago. FDA must promote 
good nutrition by allowing consumers access to credible, science-based 
information, and fostering competition based on the real nutritional 
value of foods rather than on portion size or spurious and unreliable 
claims. Such labeling can promote better public health by empowering 
consumers to make smart, healthy choices about the foods that they buy 
and consume. This is a high priority for the Administration to ensure 
that health claims are supported by scientific information. President 
Bush continues to emphasize the improvement of health through better 
diets and lifestyles.
    FDA is undertaking major new efforts to ensure consumers have the 
most up-to-date, truthful information on the benefits and risks of FDA 
regulated products. In this arena, FDA fulfills two complementary 
roles: ensuring that the information sponsors provide about products is 
accurate and allows for their safe use; and, communicating directly 
with the public concerning benefits and risks of products FDA 
regulates.
    FDA's strategic plan calls for the Agency to learn how to more 
effectively communicate the risks and benefits of FDA regulated 
products to consumers, as well as those in the health and medical 
professions. The goal is a well-informed public, empowered to make 
better choices to improve their health. Just this past year, FDA has 
been involved in a number of consumer education campaigns related to 
the prudent use of antibiotics, the misuse of pain relievers, the 
parity between generic and name brand drugs, buying medicines and 
medical products online, and several other campaigns aimed at 
addressing a number of areas where the consumer needs to minimize the 
risks and maximize the benefits of medicine use. FDA also teamed up 
with women's health organizations to raise awareness about hormone 
replacement therapy (HRT). The previous year, we conducted a similar 
campaign to raise awareness about diabetes. We spread the word widely 
about these efforts and we almost always try to provide these messages 
in Spanish to reach as much of the public as possible.
Counterterrorism
    FDA is improving its capability to assess and respond effectively 
to its mission of protecting the security of the Nation's food supply, 
and ensuring the safety and effectiveness of medical products used to 
prepare and respond to biological, chemical, or radiological attacks. 
As Secretary Thompson reported in the July 2003 report entitled, 
``Ensuring the Safety and Security of the Nation's Food Supply,'' the 
Agency is working with other government agencies and the private sector 
to develop and implement a comprehensive strategy to protect the food 
supply from attack. These include additional staff for food safety 
field activities, greater import presence at our Nation's borders, 
threat assessments, and additional money for food security research. 
FDA's medical product centers are also working harder and more 
creatively than ever to speed the availability of the next generation 
of safer, more effective countermeasures to protect Americans against 
biological, chemical, nuclear, and radiological agents of terrorism.
    In fiscal year 2003, FDA implemented a number of fundamental 
enhancements on both the food defense and medical countermeasures 
fronts, in meeting the objectives of this strategic goal. In direct 
response to this heightened threat, and in conjunction with the 
Department of Health and Human Service's larger counterterrorism 
initiatives, FDA has implemented new steps in food defense that 
represent the most fundamental enhancements in the Agency's food safety 
activities in many years. FDA's implementation of four new food 
security regulations prompted by the Public Health Security and 
Bioterrorism Preparedness and Response Act of 2002 (Bioterrorism Act), 
will be fundamental and long lasting. Two additional regulations are 
expected to be finalized in the near future. The Bioterrorism Act gave 
the Agency some potentially effective tools in identifying, preparing 
for or responding to terrorist attacks on the food supply. The design 
and implementation of these four regulations has also spawned a closer 
working relationship with the U.S. Customs and Border Protection Agency 
(CBP). Our close relationship led to a recent Memorandum of 
Understanding (MOU) between FDA and CBP in December 2003 that allows 
FDA to commission thousands of CBP officers to conduct, on FDA's 
behalf, investigations and examinations of imported foods in accordance 
with the prior notice requirements. This cooperative arrangement with 
FDA's sister enforcement agency was in addition to a more than six-fold 
increase in the number of field examinations of imported foods from 
fiscal year 2001 to fiscal year 2003 (78,000) conducted by FDA 
inspectors and our state partners. Much more needs to be done in this 
area as we note in our Congressional budget request for an increase of 
$65 million.
    Protecting consumers against terrorism also requires that Americans 
have access to safe and effective medical countermeasures. This year, 
FDA has worked closely with scientists and product developers and has 
taken new steps to speed the development of these safe, effective 
treatments and preventive vaccines. FDA works closely with NIH, CDC, 
DHHS, DOD and industry to develop new and improved treatments and 
vaccines to counter smallpox, anthrax, and other potential emerging 
biowarfare and public health threats.
    FDA has had to become more proactive in identifying possible 
products for approval for medical countermeasures due to the fact that 
no known group of patients are currently affected by many of the 
conditions linked to biological, chemical, or radiological agents. So, 
in fiscal year 2003, the Agency issued new guidance on the development 
of Radiogardase (``Prussian Blue'') for treatment of internal 
contamination with thallium or radioactive cesium. Several months 
later, a firm submitted an application and FDA approved Radiogardase to 
treat people exposed to radiation contamination from harmful levels of 
cesium-137 or thallium after identifying existing safety and efficacy 
data. FDA has worked with other government agencies to facilitate the 
development of counter-terrorism products, such as vaccines and immune 
globulins against anthrax, smallpox, and botulism, by resolving 
regulatory issues and developing assays for potency testing. FDA also 
took various steps to make sure that manufacturers of medical 
countermeasures are following Current Good Manufacturing Practices 
(CGMPs). In 2003, FDA determined that CGMP inspections were lacking for 
27 manufacturers of identified medical countermeasures, and the Agency 
took action to address this. Even without the legislation creating 
Project BioShield, an act designed in part to provide incentives for 
developing safer, more effective countermeasures, FDA will remain the 
only governmental Agency involved with the approval of products 
necessary to prevent or treat human exposure to these terrorist agents. 
We hope this Subcommittee supports our $5 million request in fiscal 
year 2005.
A Strong FDA
    The final goal of our Strategic Plan revolves around our world-
class, professional workforce that is highly dedicated and committed to 
making a difference. FDA is aware of the need to maintain the highest 
level of public trust in its activities. I believe this component of 
our plan is the bedrock and the most critical component for the success 
of the Agency. For that reason, the Agency must adequately develop and 
support its cadre of experienced physicians, toxicologists, chemists, 
biologists, statisticians, mathematicians, and other highly qualified 
professions. Since 2001 and into the foreseeable future, we have 
continually sought new opportunities to improve our management, and 
efficiencies in our organization, infrastructure and information 
technology. The practice of efficient risk management certainly applies 
here as we must strive to adopt management practices that make the 
Agency's core programs most efficient. The fiscal year 2005 request 
fully funds the $33.1 million ($20.6 million of which is budget 
authority) to complete a part of the work force consolidation at White 
Oak, Maryland.
    FDA's adherences to the strategies and goals of the President's 
Management Agenda have brought about real and positive change toward 
improving the management of the Agency. These five goals are Strategic 
Management of Human Capital, Competitive Sourcing, Improved Financial 
Performance, Expanded E-government, and Budget and Performance 
Integration. Over the past year, FDA management achieved a number of 
milestones in the area of ``Strategic Management of Human Capital,'' 
including the development and phased stand-up implementation of the new 
shared service organization (SSO). Consolidation into the SSO, combined 
with improved business processes, will allow FDA to maintain 
administrative service levels with substantially fewer staff. Another 
area of continued progress is towards the goal of ``improved financial 
performance.'' Due to this Subcommittee's continued support, the Agency 
is making progress towards the eventual replacement of its obsolete 
legacy accounting systems. The Department-wide Unified Financial 
Management System will integrate financial management to provide more 
timely and consistent information, and promote the consolidation of 
accounting operations that will substantially reduce the cost of 
accounting services. In addition, FDA has continued its progress 
towards the consolidation of its IT infrastructure by collaborating 
with HHS toward achieving its ``One HHS'' goals and objectives. FDA 
also competed six agency support functions in fiscal year 2003 to 
determine the most efficient organization for running and managing each 
function. The agency determined that the in-house operations for all 
six functions were the most efficient organizations for providing their 
respective services. We estimate savings of $16.3 million over a 5 year 
performance period from just these six organizations. These are just a 
few examples of FDA's outstanding progress in making efficient use out 
of limited resources, and practicing efficient risk management.
Fiscal year 2005 Budget Request
    As I noted earlier, adequate funding of the Agency's highest 
priorities is vital to our success. Our fiscal year 2005 President's 
budget request totals $1.845 billion, including $1.495 billion in 
budget authority and $350 million in user fees. The Administration 
proposes both increases and savings related to the President's 
initiatives for a net budget authority increase of $108.8 million above 
the fiscal year 2004 Appropriation. Requested increases cover: Cost of 
Living, Food Defense, Medical Device Review, Medical Countermeasures, 
Bovine Spongiform Encephalopathy prevention, and the Agency's 
relocation of the Center for Drugs to the consolidated campus. 
Additionally, the budget includes management savings achieved through 
administrative efficiencies and savings achieved by using carryover 
funds from our Buildings and Facilities account. The user fee increases 
total more than $40 million. This proposed budget will support a total 
of nearly 10,800 full time employees.
Cost of Living
    Adequate annual pay increases are essential to allow FDA to fully 
utilize programmatic increases. More than 60 percent of FDA's budget 
goes toward paying our highly skilled scientific workforce, far more 
than some Agencies. FDA's labor percentage is higher due to a number of 
reasons, but most importantly because the Agency's diverse workload 
requires numerous interdependent specialists in each of the Agency's 
product areas, the inspectional responsibilities require great 
geographic diversity to perform duties across the country and around 
the world, and the number of personnel necessary to monitor the entire 
life-cycle of all products under the Agency's purview (e.g., clinical 
drug trials to drug application review to advertising of approved 
product to actual effect of drug on patient's health). The lack of cost 
of living increases has the potential to limit or nullify other 
targeted increases towards high priority Administration, Congressional 
and/or mission critical initiatives.
    FDA is thankful for this Subcommittee's involvement in providing 
the Agency with additional funding to cover the cost of inflationary 
pay increases between fiscal year 2002 and fiscal year 2004. We 
approach you once again and request that you provide a $14.4 million 
increase representing a congressionally approved 4.1 percent cost of 
living increase for calendar year 2004 as well as a 1.5 percent 
increase for calendar year 2005 as proposed by the President.
Food Defense
    As I noted earlier, Food Defense is a major component of FDA's 
strategic goal to protect America from terrorism as it relates to foods 
and medical products under our purview. I am also pleased to report 
that this Subcommittee's support in the hiring of 655 new field staff 
through the fiscal year 2002 supplemental appropriation as well as the 
increases provided in fiscal year 2003 is beginning to produce positive 
results.
    Despite some significant progress over the past year with the rapid 
implementation of the food registration and prior notice regulations 
and systems, increased training and outreach, record amounts of import 
examinations, expanded research programs, daily intelligence briefings 
of FDA officials, etc., additional steps need to be taken to fully 
prepare our Nation to handle various types of intentional attacks on 
the food supply.
    FDA has spent an extensive amount of time over the past year 
coordinating this multifaceted plan with the White House Homeland 
Security Council, the Department of Homeland Security, and the USDA. 
The result is a joint budget developed with USDA and DHS for food 
defense to protect the agriculture and food sectors. Based upon the 
Administration's current knowledge, ability to respond, and capacity to 
handle an actual attack, FDA requests $65 million in increased funding 
to shore up five key areas--$35 million for the Food Emergency Response 
Network [FERN], $15 million for research, $7 million for inspections, 
$3 million for incident management, and $5 million for biosurveillance. 
The investments in these particular areas will help develop awareness 
amongst the various components of the food sector, build upon existing 
surveillance tools, institute prevention techniques to shield against 
an attack, prepare for an attack, and provide the capacity to respond 
if such an event should occur.
    It is also vital that the Agency has the capability to coordinate 
and handle a food defense response with state and local governments and 
other Federal agencies. We are seeking to build a food defense 
laboratory network among states, part of a system called FERN. FERN is 
comprised of labs specializing in food testing for biological, chemical 
and radiological threat agents and these laboratories will have the 
capacity to rapidly test a large number of food products. We need to 
make a distinction here between a corresponding network of labs handled 
by the Centers for Disease Control and Prevention. CDC is in charge of 
the Laboratory Response Network that primarily handles clinical testing 
of human specimens such as blood or urine.
    Another system we will build upon with our fiscal year 2005 request 
is the Electronic Laboratory Exchange Network or eLEXNET. This network 
is the Nation's first seamless, integrated, secure, web-based data 
exchange system for food testing information. eLEXNET allows health 
officials at multiple government agencies engaged in food safety 
activities to compare, share, and coordinate laboratory analysis 
findings on food products. Whereas FERN laboratories are involved in 
the actual analysis of food samples, eLEXNET provides a forum for the 
exchange of laboratory data. FDA is continuing efforts to expand 
eLEXNET to provide better nationwide data on food product analyses by 
regulatory agencies.
    Between fiscal year 2001-2005, FDA will increase the number of 
import food inspections from approximately 12,000 to 97,000. Along with 
increased inspectional needs, FDA must take the lead in conducting or 
overseeing research projects that help us understand the effects of 
contaminated food supplies on people. There are some hostile agents 
capable of entering our food supply that we don't know how they will 
react in humans. This is a complex challenge and we must conduct 
calculated risk assessments and then use limited resources to study 
human food consumption contaminated with these agents. Our food defense 
task is challenging and we will make a concerted effort to gain a 
greater understanding of these threats to the food supply. We currently 
have over 90 research projects devoted to identifying food adulteration 
and we hope to improve testing and identification with these projects.
Bovine Spongiform Encephalopathy (BSE)
    Although 150 deaths in Europe from variant Creutzfeldt-Jakob 
disease (vCJD) are linked to consumption of beef from cows with BSE, 
the economic impact to the farming communities was also devastating. 
The European Union estimated the cost of BSE contamination in affected 
countries to reach $107 billion and Canada's recent discovery was 
costing an average of $11 million a day in lost exports. The 
Administration is acting vigorously to limit the distribution or spread 
of any products suspected of carrying BSE following the December 23, 
2003 discovery of a Holstein cow with BSE in the state of Washington. 
On January 26 of this year, FDA announced several new public health 
measures to strengthen the five existing firewalls that protect 
Americans from exposure to the agent thought to cause BSE. FDA intends 
to ban from human food, dietary supplements, and cosmetics a wide range 
of bovine-derived material so that the same safeguards that USDA 
implemented for meat products, also apply to food products that FDA 
regulates. FDA will also prohibit certain feeding and manufacturing 
practices involving feed for cattle and other ruminant animals. The 
Agency will strengthen its current controls and implement these new 
protections by publishing two interim final rules.
    In fiscal year 2004, the base budget is $21.5 million for BSE 
activities across all FDA programs. In fiscal year 2005, we request 
$8.3 million for a total of $29.8 million in total funding for this 
initiative. With the increased funding, we will undertake a trilateral 
approach of increased inspections, enforcement activities, and 
education. The requested resources will enable the Agency to increase 
field BSE inspections, sample collections and analyses; increase 
targeted sample collections and analyses of both domestic and imported 
animal feed or feed components; fund 2,500 more state inspections of 
animal feed firms; conduct industry outreach to better inform industry 
of responsibilities and opportunities to prevent BSE from contaminating 
animal feed; and strengthen the states' infrastructures to monitor, and 
respond to, potential feed contamination with prohibited materials. The 
Administration believes that an $8.3 million request is a relatively 
modest increase in light of the potential health benefits and cost 
savings that can be achieved with these resources.
Medical Device
    Review FDA is committed to ensuring that the Medical Device User 
Fee and Modernization Act (MDUFMA) performance goals are met and that 
the strongest and most effective medical device review program possible 
is available. The Administration requests a budget authority increase 
of $25.5 million for a total of $217 million, the amount needed to 
match the original levels specified by law for fiscal year 2005. On 
October 29, 2003, OMB Director Josh Bolten wrote to Congress describing 
the Administration's commitment to support this program at the level 
intended by MDUFMA in fiscal year 2005 and beyond. Within the approach 
outlined by Mr. Bolten, the Agency is committed to meeting the original 
MDUFMA performance goals.
    As you know, MDUFMA requires that $205.7 million be appropriated in 
budget authority each year for FDA's Center for Devices and 
Radiological Health and related field activities, adjusted for 
inflation (CPI). The President's fiscal year 2005 budget meets the 
MDUFMA threshold for fiscal year 2005 appropriations requirements. We 
look forward to working with Congress to modify MDUFMA to preclude the 
requirement to appropriate the entire ``shortfall'' from fiscal year 
2003 and fiscal year 2004, in order to continue the user fee program 
beyond fiscal year 2005. FDA is committed to achieving the performance 
goals of MDUFMA.
    In fiscal year 2005, FDA will utilize the appropriated increases to 
build upon the success in fiscal year 2003 and fiscal year 2004. In 
fiscal year 2003, FDA invested user fee and appropriated dollars in a 
number of ways that will contribute to the ultimate improvement in the 
review process in later years, including the hiring of more than 50 new 
scientific, medical, engineering, and other review staff and the 
development of process improvements to speed review from beginning to 
end.
Medical Countermeasures
    Counterterrorism is a major priority for the FDA and the Department 
of Health and Human Services. Speeding the development of safe medical 
countermeasures to improve protection against terrorism and emerging 
diseases requires that Americans have access to safe and effective 
medical treatments. Prior to September 11th, FDA had been engaged in 
coordinated efforts with other Departments to develop and make 
available better countermeasures for biological, chemical and 
radiological attacks. The urgency is far greater now and so in fiscal 
year 2005, FDA will continue to work closely with scientists and 
product developers and take new steps to speed the development of these 
safe, effective treatments. FDA requests $5 million to expedite the 
review of new drug applications, biologics license applications, 
generic drugs and over-the-counter medical product countermeasures. The 
Agency must get involved in each facet of the process from animal 
studies to dosing requirements to the development of postmarket systems 
that will be in place to ensure rapid reaction to adverse events. These 
initiatives are all necessary to ensure that adequate treatments are 
available for a wide assortment of threats. One of these initiatives is 
Project BioShield, a program designed to help ensure that medical 
products are reviewed and approved for safety and effectiveness in the 
event of war or catastrophic events. The first request for proposals 
for procurement of a new generation anthrax vaccine through Project 
BioShield will be initiated shortly.
Center for Drugs Relocation
    I can only imagine that it is difficult for members of this 
Subcommittee to write home about the funding you helped secure for 
FDA's consolidation of its Washington, D.C. metro area Headquarters 
Offices from 16 locations to three. However, I think they would be 
happy to hear that the eventual settling into the three new sites in 
White Oak, Laurel, and College Park, MD, create greater economies of 
scale and operational efficiencies. The bottom line is that you will 
save the American taxpayers money when this project is complete. 
Although substantial facility needs at White Oak are mostly addressed 
through the GSA appropriation, FDA must continue to seek your support 
for relocation costs. In accordance with the President's Management 
Agenda, the FDA plans to modernize document handling, use shared 
library and conference facilities, reduce redundancies in a wide range 
of administrative management tasks, convert to a single computer 
network, and reduce management layers. Without the requested funds, 
these management improvements and efficiency gains would be 
jeopardized.
    This current plan calls for the relocation of 1,700 drug review 
personnel in April of 2005. The budget funds the total need for this 
move, $33.1 million, and the request includes an increase of $20.6 
million in new budget authority. The remainder would come from $2.4 
million in the base budget, and $10 million in PDUFA user fees. The 
General Services Administration has requested $89 million in their 
fiscal year 2005 budget request to continue construction on the campus. 
If GSA's subcommittee approves the full request, the building 
construction would proceed as schedule. However, if GSA does not 
receive its full request for White Oak, it would have severe financial 
consequences for FDA. In a 2003 GAO report entitled ``Federal Real 
Property: Executive and Legislative Actions Needed to Address Long-
Standing and Complex Problems,'' the report spells out the Federal 
Government's problems in managing property, including the inefficient 
use of space. FDA would be faced with paying unnecessary rental 
payments for multiple properties unless the funding of construction and 
relocation costs are synchronized as is currently the plan.
User Fees
    In fiscal year 2005, the Agency expects to collect $350 million in 
user fees, primarily from PDUFA, MDUFMA, and ADUFA fee programs. These 
user fee programs provide substantial funding that compliment budget 
authority resources and allow FDA to meet agreed upon performance 
measures that allow for more rapid reviews of human drugs, medical 
devices and animal drugs. Additionally, the Agency collects modest fee 
amounts for the Mammography Quality Standards Act program as well as 
export certification and color certification programs.
President's Management Agenda & Administrative Consolidation
    FDA has been very proactive in streamlining its operations and 
reducing its administrative expenses. Since November 2001, the Agency 
has worked with the Department of Health and Human Services to do its 
part to comply with the President's goal to improve the Strategic 
Management of Human Capital across the Federal Government. We have 
demonstrated tremendous success in efforts to delayer our 
organizational structure, consolidate FDA's decentralized Human 
Resources (HR) services to a single FDA HR office which has 
consolidated into the HHS Rockville HR Center; implement a shared 
services organization that makes best use of administrative resources; 
plan for consolidated facilities at White Oak Maryland, consolidation 
of IT activities, and, find efficiencies via competitive sourcing or A-
76 studies. Thanks to your support, we also continue to improve 
financial management at FDA through the planned implementation of a new 
financial system. In fiscal year 2005, FDA proposes its second straight 
year of reductions by way of $23.1 million in savings achieved through 
a seven and a half percent reduction in administrative staff, or a 
combined reduction of 15 percent between fiscal year 2004 and fiscal 
year 2005. In addition, no request is being made this year in the 
Buildings and Facilities appropriation. This represents a savings of $7 
million that was devoted to higher priority programs. Approximately 
$4.6 million in carryover funds will sustain the program through fiscal 
year 2005.
Conclusion
    I thank you for your commitment and continued support of FDA. I am 
confident that the information I provide to you today, and any 
additional information provided to the Subcommittee following this 
hearing, will give you further evidence of the Agency's needs in fiscal 
year 2005, and justify the requested increases these priorities. Thank 
you for the opportunity to testify today. I look forward to working 
with all of you and your staffs in the months ahead.

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

                          PROPOSED LEGISLATION

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

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

    Senator Bennett. Thank you.

                           FOOD GUIDE PYRAMID

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

                 LIVE BIRD MARKETS AND AVIAN INFLUENZA

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

                    BOVINE SPONGIFORM ENCEPHALOPATHY

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

              RECALL REPORT BY OFFICE OF INSPECTOR GENERAL

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

             MEDICAL DEVICE USER FEE AND MODERNIZATION ACT

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

                           GENERIC BIOLOGICS

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

                           COUNTERFEIT DRUGS

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

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

                           executive summary
    The counterfeiting of currency and consumer products are common 
problems that plague governments and manufacturers around the world, 
but the counterfeiting of medications is a particularly insidious 
practice. Drug counterfeiters not only defraud consumers, they also 
deny ill patients the therapies that can alleviate suffering and save 
lives. In some countries the counterfeiting of drugs is endemic--with 
some patients having a better chance of getting a fake medicine than a 
real one. In many more countries, counterfeit drugs are common. In the 
United States, a relatively comprehensive system of laws, regulations, 
and enforcement by Federal and State authorities has kept drug 
counterfeiting rare, so that Americans can have a high degree of 
confidence in the drugs they obtain through legal channels. In recent 
years, however, the FDA has seen growing evidence of efforts by 
increasingly well-organized counterfeiters backed by increasingly 
sophisticated technologies and criminal operations to profit from drug 
counterfeiting at the expense of American patients.
    To respond to this emerging threat, Commissioner of Food and Drugs 
Mark McClellan formed a Counterfeit Drug Task Force in July 2003. That 
group received extensive comment from security experts, Federal and 
State law enforcement officials, technology developers, manufacturers, 
wholesalers, retailers, consumer groups, and the general public on a 
very broad range of ideas for deterring counterfeiters. Those comments 
reinforced the need for FDA and others to take action in multiple areas 
to create a comprehensive system of modern protections against 
counterfeit drugs. FDA discussed those ideas, and considered 
alternatives and criticisms at its public meetings, to develop a 
comprehensive framework for a pharmaceutical supply chain that will be 
secure against modern counterfeit threats. The specific approach to 
assuring that Americans are protected from counterfeit drugs includes 
the following critical elements:
1. Implementation of new technologies to better protect our drug supply
    Because the capabilities of counterfeiters continue to evolve 
rapidly, there is no single ``magic bullet'' technology that provides 
any long-term assurance of drug security. However, a combination of 
rapidly improving ``track and trace'' technologies and product 
authentication technologies should provide a much greater level of 
security for drug products in the years ahead. Similar anti-
counterfeiting technologies are being used in other industries, and FDA 
intends to facilitate their rapid development and use to keep drugs 
secure against counterfeits.
    a. The adoption and common use of reliable track and trace 
technology is feasible by 2007, and would help secure the integrity of 
the drug supply chain by providing an accurate drug ``pedigree,'' which 
is a secure record documenting the drug was manufactured and 
distributed under safe and secure conditions.
    Modern electronic technology is rapidly approaching the State at 
which it can reliably and affordably provide much greater assurances 
that a drug product was manufactured safely and distributed under 
conditions that did not compromise its potency. FDA has concluded that 
this approach is a much more reliable direction for assuring the 
legitimacy of a drug than paper recordkeeping requirements, which are 
more likely to be incomplete or falsified, and that it is feasible for 
use by 2007. Radiofrequency Identification (RFID) tagging of products 
by manufacturers, wholesalers, and retailers appears to be the most 
promising approach to reliable product tracking and tracing. 
Significant feasibility studies and technology improvements are 
underway to confirm that RFID will provide cost-reducing benefits in 
areas such as inventory control, while also providing the ability to 
track and trace the movement of every package of drugs from production 
to dispensing. Most importantly, reliable RFID technology will make the 
copying of medications either extremely difficult or unprofitable. FDA 
is working with RFID product developers, sponsors, and participants of 
RFID feasibility studies to ensure that FDA's regulations facilitate 
the development and safe and secure use of this technology. FDA is also 
working with other governmental agencies to coordinate activities in 
this area.
    b. Authentication technologies for pharmaceuticals have been 
sufficiently perfected that they can now serve as a critical component 
of any strategy to protect products against counterfeiting.
    Authentication technologies include measures such as color shifting 
inks, holograms, fingerprints, taggants, or chemical markers embedded 
in a drug or its label. The use of one or more of these measures on 
drugs, starting with those considered most likely to be counterfeited, 
is an important part of an effective anti-counterfeiting strategy. 
Because counterfeiters will adapt rapidly to any particular measure and 
because the most effective measures differ by product, the most 
effective use of authentication technology will vary by drug product 
over time. FDA intends to clarify its policies and procedures to help 
manufacturers employ and update these technologies safely and 
effectively. In particular, FDA plans to publish a draft guidance on 
notification procedures for making changes to products (e.g., addition 
of taggants), their packaging, or their labeling, for the purpose of 
encouraging timely adoption and adaptation of effective technologies 
for detecting counterfeit drugs. FDA also intends to continue to 
evaluate and provide information to stakeholders on forensic 
technologies (e.g., use of product fingerprinting, addition of markers) 
and other analytical methods that allow for rapid authentication of 
drug products. FDA also plans to support the development of criteria 
that contribute to counterfeiting risk, and/or the development of a 
national list of drugs most likely to be counterfeited based on these 
criteria, to assist stakeholders in focusing their use of anti-
counterfeiting technologies as effectively as possible.
2. Adoption of electronic track and trace technology to accomplish and 
        surpass the goals of the Prescription Drug Marketing Act
    At the time PDMA was enacted the only way to pass on a pedigree for 
drugs was to use paper, which has posed practical and administrative 
challenges. RFID technology, which would provide a de facto electronic 
pedigree, could surpass the intent of PDMA and do so at a lower cost. 
In light of the rapid progress toward much more effective electronic 
pedigrees that can be implemented within several years, FDA intends to 
continue to stay its regulations regarding certain existing pedigree 
requirements to allow suppliers to focus on implementing modern 
effective pedigrees as quickly as possible.
3. Adoption and enforcement of strong, proven anti-counterfeiting laws 
        and regulations by the States
    Because States license and regulate wholesale drug distributors 
they have an important role in regulating the drug distribution supply 
chain. The FDA is working with the National Association of Boards of 
Pharmacy on its effort to develop and implement revised state model 
rules for licensure of wholesale drug distributors. Such rules will 
make it difficult for illegitimate wholesalers to become licensed and 
transact business, thus making it easier to deter and detect channels 
for counterfeit drugs. Some states have already reduced counterfeit 
threats by adopting such measures. FDA will continue working with NABP 
and states to facilitate adoption of the Model Rules.
4. Increased criminal penalties to deter counterfeiting and more 
        adequately punish those convicted
    Although increased criminal penalties would not affect FDA's 
regulatory framework for overseeing the U.S. drug supply, they would 
provide an added deterrent to criminals who work to counterfeit our 
citizens' medications. FDA has requested that the United States 
Sentencing Commission amend the sentencing guidelines to increase 
substantially the criminal penalties for manufacturing and distributing 
counterfeit drugs and to provide for enhanced penalties based on the 
level of risk to the public health involved in the offense.
5. Adoption of secure business practices by all participants in the 
        drug supply chain
    Effective protection against counterfeit drugs includes actions by 
drug producers, distributors, and dispensers to secure their business 
practices such as ensuring the legitimacy of business partners and 
refusing to do business with persons of unknown or dubious background, 
taking steps to ensure physical security, and identifying an individual 
or team in the organization with primary responsibility for ensuring 
that effective security practices are implemented. The wholesalers have 
already drafted a set of secure business practices and FDA will 
continue to work with other major participants of the drug supply chain 
to develop, implement, and disseminate such business practices, through 
such steps as issuing guidance and supporting the development of 
industry best practices. To help ensure secure business practices, FDA 
intends to increase its inspection efforts of re-packagers whose 
operating procedures place them at increased risk for the introduction 
of counterfeit drugs.
6. Development of a system that helps ensure effective reporting of 
        counterfeit drugs to the agency and that strengthens FDA's 
        rapid response to such reports
    If counterfeit drugs do enter the American marketplace, procedures 
should be in place to recognize the hazard and alert the public quickly 
and effectively. FDA plans to take new steps to encourage health 
professionals to report suspected counterfeit drugs to FDA's MedWatch 
system. FDA also intends to create a Counterfeit Alert Network to 
provide timely and effective notification to affected health 
professionals and the public whenever a counterfeit drug is identified.
7. Education of consumers and health professionals about the risks of 
        counterfeit drugs and how to protect against these risks
    FDA will develop educational materials, including new tools on the 
FDA website at www.fda.gov, new public service announcements, and new 
educational partnerships with consumer and health professional 
organizations, to help consumers avoid counterfeits. FDA will enhance 
its educational programs for pharmacists and other health professionals 
about their role in minimizing exposure to, identifying, and reporting 
counterfeits.
8. Collaboration with foreign stakeholders to develop strategies to 
        deter and detect counterfeit drugs globally
    Counterfeit drugs are a global challenge to all nations, and 
criminal counterfeiting operations are increasingly operating across 
national borders. FDA intends to work with the World Health 
Organization, Interpol, and other international public health and law 
enforcement organizations to develop and implement worldwide strategies 
to combat counterfeit drugs.
    The steps described in this report are intended to secure the 
safety and of the U.S. drug supply, which the FDA regulates. The FDA 
does not have the legal authority or resources to assure the safety and 
efficacy of drugs purchased from other countries outside our domestic 
drug distribution system, or from unregulated Internet sites that are 
not run by pharmacies licensed and regulated by U.S. States.
A. Purpose of the Anti-Counterfeiting Initiative
    The actions described in this report are based on the work of an 
internal FDA Counterfeit Drug Task Force \1\, which was formed in July 
2003 by Commissioner of Food and Drugs Mark McClellan, M.D., Ph.D., 
with the goals of:
---------------------------------------------------------------------------
    \1\ The Task Force consists of senior agency staff from the Office 
of the Commissioner (Office of Policy and Planning, Office of External 
Affairs, and Office of the Chief Counsel), Office of Regulatory 
Affairs, the Center for Drug Evaluation and Research, and the Center 
for Biologics Evaluation and Research.
---------------------------------------------------------------------------
  --Preventing the introduction of counterfeit drugs and biologics into 
        the U.S. drug distribution chain;
  --Facilitating the identification of counterfeit drugs and biologics;
  --Minimizing the risk and exposure of consumers to counterfeit drugs 
        and biologics; and
  --Avoiding the addition of unnecessary costs to the prescription drug 
        distribution system, or unnecessary restrictions on lower-cost 
        sources of drugs.
B. Scope of the Problem
    FDA believes that counterfeiting is not widespread within the 
system of manufacturing and distributing pharmaceuticals legally in the 
United States, as a result of an extensive system of Federal and State 
regulatory oversight and steps to prevent counterfeiting undertaken by 
drug manufacturers, distributors, and pharmacies. However, the agency 
has recently seen an increase in counterfeiting activities as well as 
increased sophistication in the methods used to introduce finished 
dosage form counterfeits into the otherwise legitimate U.S. drug 
distribution system. FDA counterfeit drug investigations have increased 
to over 20 per year since 2000, after averaging only 5 per year through 
the late 1990's. (See Figure 1--Chart of FDA investigations) 
Increasingly, these investigations have involved well-organized 
criminal operations that seek to introduce finished drug products that 
may closely resemble legitimate drugs yet may contain only inactive 
ingredients, incorrect ingredients, improper dosages, sub-potent or 
super-potent ingredients, or be contaminated. Thus, drug counterfeiting 
poses real public health and safety concerns today, and may pose an 
even greater threat in the future if we fail to take preventative 
measures now. As counterfeiters continue to seek out new technologies 
to make deceptive products and introduce them into legitimate commerce, 
our systems for protecting patients must respond effectively. 


    Although exact prevalence rates in the United States are not known, 
outside the U.S. drug counterfeiting is known to be widespread and 
affect both developing and developed countries. In some countries more 
than half of the drug supply may consist of counterfeit drugs. For 
example, recent reports have detailed that more than 50 percent of 
anti-malarials in Africa are believed to be counterfeit. In virtually 
all countries, counterfeit drug operations have been uncovered in 
recent years.
C. What is in this Report
    The body of this report contains a range of findings that have 
broad support from industry stakeholders and the public to identify and 
address the vulnerabilities in the U.S. drug distribution system to 
counterfeit drugs.
    This report is based on the potential options discussed in the Task 
Force's Interim Report, the comments FDA received in response to that 
report, our internal discussions, and on information gathered and 
reviewed by the Task Force including:
  --Meetings with government agencies, manufacturers, wholesalers, 
        retailers, professional and trade associations, standard-
        setting organizations, consumer groups, and manufacturers of 
        anti-counterfeiting measures;
  --Reviewing reports prepared by, or on behalf of, Federal and State 
        governments;
  --Sponsoring a public meeting where 72 presentations were made
  --Sponsoring a technology forum which included 54 exhibits
  --Reviewing public comments to the anti-counterfeiting initiative 
        docket
  --Site visits to manufacturing facilities, wholesale distribution 
        centers, retailers, radio-frequency identification (RFID) 
        laboratories and pilot facilities;
  --Attendance at stakeholder task force meetings and industry RFID 
        feasibility study meetings
  --Meetings with academic and industry experts
    Appendix A contains the Counterfeit Alert Network Co-sponsorship 
agreement. See www.fda.gov/oc/initiatives/counterfeit/ for background 
information that was included in the Task Force's Interim Report 
(released on October 2, 2003) as well as a detailed discussion of the 
comments FDA received. Appendix B contains a more detailed discussion 
of the comments FDA received and considered in developing the final 
report.
    The FDA is grateful for the input and universal support, not only 
with regard to the creation of the task force, but also with regard to 
the need for securing the Nation's drug supply.
D. Securing our Nation's Drug Supply
    To secure the U.S. drug supply chain, there are several areas that 
deserve attention, including the areas of technology, business 
practices, legislation, regulation, public awareness and education, 
creation of an alert network, and international cooperation.
                             1. technology
a. Unit of Use Packaging
            (1) What FDA sought comment on:
    Whether to package all finished dosage form drugs in unit of use 
packaging as appropriate for the particular product (e.g., tablet, 
multi-dose vial) at the point of manufacture?
            (2) What the comments said:
    Comments cited a large number of benefits, including eliminating 
the need for re-packaging and improved patient compliance, as well as a 
large number of costs, including those associated with shifting 
production from bulk packaging. The cost hurdle to counterfeiters, 
created by unit of use packaging, was said not to be high enough for it 
to be effective as a stand-alone anti-counterfeiting measure. A 
detailed discussion of the comments is in Appendix B.
            (3) Discussion:
    Although single unit containers (e.g., blister packs) usually come 
to mind, unit of use packaging is any container closure system designed 
to hold a specific quantity of drug product for a specific use and 
dispensed to a patient without any modification except for the addition 
of appropriate labeling.
    Unit of use packaging does not create a sufficiently high level of 
security to justify its use as a stand-alone anti-counterfeiting 
measure. However, because of its many other benefits, which may vary on 
a product specific basis (e.g., tablets, liquid forms), manufacturer 
initiated cost-benefit analyses of particular products, starting with 
newly approved products and products that are likely to be 
counterfeited, are likely to show that unit of use packaging could be 
effective as one layer in a multi-layered anti-counterfeiting strategy.
            (4) FDA Conclusions:
    Unit of use packaging can be beneficial in fighting counterfeit 
drugs.
  --It would be beneficial for all manufacturers and re-packagers to 
        analyze the costs and benefits of using unit of use packaging 
        for each product, starting with newly approved products and 
        products that are likely to be counterfeited, and to consider 
        implementing unit of use packaging for products where the 
        benefits are equal to or outweigh the costs;
  --Unit of use packaging can be helpful, but only as one layer in a 
        multi-layered anti-counterfeiting strategy;
  --FDA intends to encourage adoption of unit of use packaging by: 
        inviting stakeholders and other interested individuals and 
        organizations to submit research on the relative costs and 
        benefits of unit of use packaging to assist FDA in developing 
        future policy; and encouraging standard setting bodies to 
        develop standards for unit of use packaging with the goal of 
        reducing its costs (e.g., in areas such as size, shape, and 
        pill organization).
b. Tamper Evident Packaging
            (1) What FDA sought comment on:
    Whether to use tamper evident packaging from the point of 
manufacture, for all dosage forms, active pharmaceutical ingredients 
(APIs), and bulk chemicals?
            (2) What the comments said:
    The comments on tamper evident packaging mirrored the comments on 
unit of use packaging.
            (3) Discussion:
    Decisions to employ tamper evident packaging on prescription drug 
containers as an anti-counterfeiting measure require a product specific 
cost-benefit analysis. As with unit of use packaging, FDA does not 
believe that tamper evident packaging presents a high enough hurdle for 
counterfeiters to make it effective as a stand-alone anti-
counterfeiting measure.
            (4) FDA Conclusions:
    Tamper evident packaging may be beneficial in fighting 
counterfeiting of prescription drugs.
  --It would be beneficial for manufacturers and re-packagers to 
        consider using tamper evident packaging for prescription 
        product containers, starting with products likely to be 
        counterfeited or newly approved products, where the benefits 
        are equal to or outweigh the costs;
  --Tamper evident packing can be helpful, but only as one layer in a 
        multi-layered anti-counterfeiting strategy.
c. Authentication Technology
            (1) What FDA sought comment on:
    Whether to incorporate at least two types of anti-counterfeiting 
technologies into the packaging and labeling of all drugs, at the point 
of manufacture, with at least one of those technologies being covert 
(i.e., not made public, and requiring special equipment or knowledge 
for detection) starting with those products at high risk of being 
counterfeited and where the introduction of counterfeit product poses a 
serious health risk;
    Whether to incorporate a taggant, chemical marker, or other unique 
characteristics into the manufacturing process of all drugs that is 
only identifiable with the use of sophisticated analytic techniques 
starting with those products at high risk of being counterfeited and 
where the introduction of counterfeit product poses a serious health 
risk; and
    Whether to issue FDA guidances concerning the appropriate use of 
anti-counterfeiting technologies and the application and review process 
for labeling and packaging changes or product changes such as 
incorporation of taggants, chemical markers, or other unique 
characteristics into the product for the purpose of product 
authentication.
            (2) What the comments said:
    The comments stressed that there was no ``silver bullet'' anti-
counterfeiting technology because sophisticated, well-financed 
counterfeiters can defeat any anti-counterfeiting measure. Therefore, 
the best strategy is to use multiple, periodically changing, 
authentication measures on a product specific basis after doing a risk 
analysis that takes into account the risk that the product will be 
counterfeited and the public health risk if the product is 
counterfeited.
    Given the rapid developments in anti-counterfeiting technology and 
the dangers of aiding counterfeiters by locking in or requiring certain 
technologies, most comments stressed that the FDA should not mandate 
the use of specific anti-counterfeiting technologies.
    FDA issuance of guidance concerning the agency's application and 
notification policies and procedures related to incorporating anti-
counterfeiting measures into products (e.g., taggants), or labeling and 
packaging (e.g., inks, holograms) was universally supported.
    A detailed discussion of the comments is in Appendix B.
            (3) Discussion:
    FDA agrees that the danger of unwittingly assisting counterfeiters 
and stifling technologic development outweigh the benefits that would 
accrue if it were to mandate the use of a specific authentication 
technology at this time. Furthermore, the decision to deploy 
authentication technologies is best made by the manufacturer, based on 
a product specific risk-benefit analysis that, in the future, should 
take into account whether mass serialization and radio-frequency 
identification technology (see below) is being used for tracking and 
tracing the drug.
    However, due to the high costs and technical barriers that 
authentication technologies create for counterfeiters, their use is a 
critical component of any effective multi-layered anti-counterfeiting 
strategy, especially for products that are likely to be counterfeited. 
Therefore, FDA believes that an appropriate role for it is to 
facilitate the use of authentication technologies by reducing any 
regulatory hurdles that may exist relating to their use.
            (4) FDA Conclusions:
    Existing authentication technologies have been sufficiently 
perfected they can now serve as a critical component of any strategy to 
protect products against counterfeiting.
  --The use by manufacturers and re-packagers of one or more 
        authentication technologies on their products, particularly 
        those likely to be counterfeited, would protect the public 
        health and diminish counterfeiting;
  --To facilitate the use of authentication technologies on existing 
        products, FDA plans to publish a draft guidance on notification 
        procedures for making changes to products (e.g., addition of 
        taggants) their packaging, or their labeling for the purpose of 
        deterring and detecting counterfeit drugs;
  --FDA plans to continue to evaluate and disseminate information to 
        stakeholders on developing forensic technologies (e.g., use of 
        product fingerprinting, addition of markers) and other 
        analytical methods that allow for rapid authentication of drug 
        products.
d. Identification of Products likely to be counterfeited
            (1) What FDA sought comment on:
    Are all products at high risk for being counterfeited?
    How can products at high risk for being counterfeited be 
identified?
    What criteria should be used to determine if a product is at high 
risk for being counterfeited?
            (2) What the comments said:
    Although a few comments suggested that all products were at high 
risk for being counterfeited, most of the comments FDA received 
supported the idea of developing criteria by which stakeholders could 
determine which products are likely to be counterfeited and/or 
developing a national list of products likely to be counterfeited based 
on these criteria. There was general agreement that the existence of 
state specific lists, each with its own regulatory requirements, could 
inhibit commerce and adversely affect the availability of drugs. FDA 
notes that the State of Florida has already published a list of 
``specified products'' (i.e., a list of drugs most likely to be 
counterfeited) that is being used to implement state pedigree 
requirements. A detailed discussion of the comments is in Appendix B.
            (3) Discussion:
    Due to the large number of drugs with the potential to be 
counterfeited, FDA does not believe it is possible to create a 
comprehensive list of all such drugs. However, FDA does believe that a 
national list of those drugs most likely to be counterfeited and/or a 
set of criteria to use for determining those drugs would be useful for 
stakeholders to use at their discretion. Uses could include:
  --Assisting manufacturers and re-packagers in making decisions 
        whether to use authentication technologies and unit of use 
        packaging;
  --Assisting wholesalers in developing purchasing policies and 
        allocating resources for detecting counterfeits;
  --Assisting retailers in targeting certain drugs for authentication 
        and patient education prior to dispensing;
  --Assisting states in implementing regulatory requirements;
  --Assisting stakeholders in developing migratory paths to adoption of 
        mass serialization and electronic track and trace technology.
    FDA strongly supports the development of such a set of criteria, or 
a list based on these criteria, that has the support and participation 
of all stakeholders. Regular input from interested parties as well as 
the ability to add or delete drugs from the list on short notice are 
important parts of the process.
    FDA believes that members of regulated industry are better 
positioned at this time than FDA to develop a process for creating, 
maintaining, and updating such a list (and/or set of criteria).
            (4) FDA Conclusions:
    FDA has concluded that there would be great value in the creation 
of a national list of drugs most likely to be counterfeited based on 
factors that are likely to contribute to counterfeiting risk.
  --FDA intends to encourage stakeholders and standards setting 
        organizations to work together to create a national list of 
        drugs most likely to be counterfeited, based on an assessment 
        of criteria for determining counterfeit risk;
  --The best result would be achieved if all stakeholders, including 
        FDA, and other interested parties participate in developing a 
        list, or criteria for determining, drugs most likely to be 
        counterfeited;
  --Any such list, and/or criteria, would be most effective if made 
        publicly available to all stakeholders.
    FDA is aware of only one national list of drugs most likely to be 
counterfeited. The list was developed by the National Association of 
Boards of Pharmacy and is available at www.nabp.org.
e. Radio-frequency Identification (RFID) Technology
            (1) What FDA sought comment on:
    Whether a pedigree for all drug products can be achieved by phasing 
in track and trace technology (i.e., electronic pedigree) starting at a 
case and pallet level for products likely to be counterfeited and 
progressively including all products at the case, pallet, and package 
level; and
    Whether, as an interim measure, prior to widespread adoption of 
track and trace technology all drugs and biologics likely to be 
counterfeited should be tracked and traced either by limiting the 
number of transactions of the product or by using available track and 
trace technology, identifying the drug at the case and pallet level, 
and preferably at the product level, throughout the distribution 
system.
            (2) What the comments said:
    There was universal support for the adoption of electronic track 
and trace technology. RFID was cited as being the technology with the 
strongest potential for securing the supply chain but that it was not 
ready for widespread commercial use with pharmaceutical products. Many 
costs, potential benefits, and unresolved issues related to RFID were 
cited. The potential benefits included the ability to control inventory 
and conduct rapid, efficient recalls, while costs that could hinder the 
adoption of RFID included purchase of tags and other hardware, 
integration into existing information systems, and compliance with 
regulatory requirements (e.g., labeling, electronic records). Important 
unresolved issues included the need to develop standards and business 
rules for RFID, the need to address database management issues, and the 
need to determine the effect of RFID on product quality.
    FDA was also informed that some companies are planning feasibility 
studies concerning business uses of RFID for early this year and that 
other activities related to creating standards, business rules, and 
migratory pathways for RFID are also ongoing. A detailed discussion of 
these activities and other comments concerning RFID is in Appendix B.
            (3) Discussion
    Use of mass serialization to uniquely identify all drug products 
intended for use in the United States is the single most powerful tool 
available to secure the U.S. drug supply. Mass serialization involves 
assigning a unique number (the electronic product code or EPC) to each 
pallet, case, and package of drugs and then using that number to record 
information about all transactions involving the product, thus 
providing an electronic pedigree from the point of manufacture to the 
point of dispensing. This unique number would allow each drug purchaser 
to immediately determine a drug's authenticity, where it was intended 
for sale, and whether it was previously dispensed.
    Although there is general agreement that widespread use of mass 
serialization is inevitable, several important issues remain 
unresolved, including the migratory paths that participants in the drug 
distribution system will follow as they begin to serialize their 
products, and the most likely timeline for widespread commercial use.
    It currently appears that the technology most likely to bring mass 
serialization into widespread commercial use by the pharmaceutical 
industry is RFID, although two-dimensional bar codes may be used for 
some products. RFID technology includes not only the silicon tags 
containing the EPC, but also antennas, tag readers, and information 
systems that allow all users to identify each package of drugs and its 
associated data. This data can be used not only to authenticate drugs 
but also to manage inventory, conduct rapid, targeted recalls, prevent 
diversion, and ensure correct dispensing of prescriptions.
    Acquiring and integrating RFID technology into current 
manufacturing, distribution, and retailing processes will require 
considerable planning, experience, and investment of resources. 
Currently, some manufacturers, wholesalers, and retailers are 
developing business plans and testing mass serialization using RFID 
while others are taking a wait and see approach. Due to rapid 
technologic advancements, the lack of significant market place 
experience with it in the pharmaceutical supply chain, each participant 
is best situated to determine his optimal paths to adopting it.
    Therefore, FDA has identified near term actions, described below, 
for it to take in order to facilitate the performance of mass 
serialization feasibility studies using RFID, and to assist 
stakeholders as they migrate towards the use of RFID technology.
    In the long term, after there is significant market place 
experience with RFID, FDA plans to propose or clarify, as necessary and 
appropriate, policies and regulatory requirements relating to the use 
of RFID. Labeling, electronic records, product quality, and Current 
Good Manufacturing Practices (cGMP) requirements are issues that have 
arisen in connection with RFID. However, regulatory or policy 
determinations regarding these, or other, issues should not be made 
until they can be informed by sufficient data and significant 
marketplace experience with RFID. FDA has also identified a series of 
actions, discussed below, that would help industry stakeholders and 
standard-setting organizations achieve this goal.
    Lastly, stakeholders will need to ensure that they comply with the 
patient privacy protections provided by the Health Insurance 
Portability and Accountability Act as they implement use of RFID 
technology.
            (4) FDA Conclusions:
    The adoption and common use of RFID as the standard track and trace 
technology, which is feasible in 2007, would provide better protection.
  --Due to industry's current initiatives, mass serialization and RFID 
        technology is likely to be adopted according to the following 
        timeline:
    January--December 2004
  --Performance of mass serialization feasibility studies using RFID on 
        pallets, cases, and packages of pharmaceuticals;
    January--December 2005
  --Mass serialization of some pallets and cases of pharmaceuticals 
        likely to be counterfeited;
  --Mass serialization of some packages of pharmaceuticals likely to be 
        counterfeited; and
  --Acquisition and use of RFID technology (i.e., ability to read and 
        use the information contained in RFID tags and the associated 
        database) by some manufacturers, large wholesalers, some large 
        chain drug stores, and some hospitals.
    January--December 2006
  --Mass serialization of most pallets and cases of pharmaceuticals 
        likely to be counterfeited and some pallets and cases of other 
        pharmaceuticals;
  --Mass serialization of most packages of pharmaceuticals likely to be 
        counterfeited; and
  --Acquisition and use of RFID technology (i.e., ability to read and 
        use the information contained in RFID tags and the associated 
        database) by most manufacturers, most wholesalers, most chain 
        drug stores, most hospitals, and some small retailers.
    January--December 2007
  --Mass serialization of all pallets and cases of pharmaceuticals;
  --Mass serialization of most packages of pharmaceuticals; and
  --Acquisition and use of RFID technology (i.e., ability to read and 
        use the information contained in RFID tags and the associated 
        database) by all manufacturers, all wholesalers, all chain drug 
        stores, all hospitals, and most small retailers.
  --FDA plans to assist, to the extent necessary and appropriate, in 
        facilitating the rapid, widespread adoption of RFID in the drug 
        distribution system by working with stakeholders in the 
        following areas:
    --Addressing any regulatory and policy issues related to the 
            performance of feasibility studies;
    --Addressing any regulatory and policy issues relating to the 
            notification requirements associated with implementation of 
            RFID;
    --Addressing any product quality concerns and data issues related 
            to the performance of feasibility studies;
    --Reviewing protocols for feasibility studies;
    --Working with other governmental agencies to coordinate 
            activities;
    --Encouraging stakeholders to convene meetings of supply chain 
            participants to identify, discuss, and propose solutions to 
            technical, business, and policy issues related to the use 
            of RFID technology in the pharmaceutical distribution 
            system; and
    --Exploring the need for any other processes and venues that might 
            be needed to assist stakeholders as they migrate towards 
            the use of RFID technology.
  --FDA intends to regularly review the pace at which RFID is being 
        adopted in the U.S. drug distribution system;
  --FDA plans to publish or clarify, as appropriate, regulatory 
        requirements, policy guidance, and product quality testing 
        requirements related to the use of RFID after sufficient data 
        and marketplace experience with RFID are available to 
        adequately inform our decision-making; and
  --FDA intends to consider taking further steps to facilitate the 
        adoption of mass serialization.
            1. Business steps for industry
    Each industry stakeholder interested in implementing RFID would 
benefit from the following steps:
  --Create an internal team focused on the adoption of mass 
        serialization and use of RFID technology;
  --Perform internal feasibility studies to gain experience with mass 
        serialization and RFID technology and to identify internal 
        business issues requiring resolution;
  --Perform external pilot studies with stakeholders across the supply 
        chain to gain experience using mass serialization and RFID and 
        to identify opportunities, barriers and external business 
        issues associated with them;
  --Develop policy and a business case for the use of mass 
        serialization and RFID;
  --Cooperate and work with other stakeholders and government agencies 
        to develop infrastructure and information systems to use with 
        mass serialization of pallets, cases, and packages of drugs;
  --Participate on standard setting groups developing technical 
        standards and business rules for use of mass serialization and 
        RFID;
  --Work with government agencies and other members of the supply chain 
        to identify and address regulatory and economic issues that 
        could delay the adoption of mass serialization and RFID; and
  --Educate other members of the supply chain and government agencies 
        about mass serialization and RFID.
    To the extent possible, it would be most useful for interested 
firms to perform these actions concurrently. For example, standards 
development requires knowledge gained from feasibility studies in order 
to move forward, and vice versa.
            2. Standards Setting Issues
    Any effort to develop standards for mass serialization of pallets, 
cases, and packages would be most effective if it addressed the 
following issues:
  --Minimum Information Requirements for the serial number--in the case 
        of RFID tags this means containing a mass serialization code 
        that uniquely identifies the object to which it is attached 
        (e.g., minimum of 96 bits of information);
  --Communication protocol standards--in the case of RFID this means 
        standard protocols for interrogating and reading tags;
  --Reader Requirements--Readers of mass serialization codes should be 
        interoperable (e.g., readers must use protocols that allow them 
        to read multiple classes of tags or bar codes, as applicable) 
        and should be able to automatically upgrade software over an 
        information network;
  --Pedigree requirements--this means that databases containing 
        transaction information should be compatible (e.g., format, 
        mark-up language);
  --Information Network Requirements
    --1. Database Structure (e.g., centralized vs. distributive)
    --2. Data ownership
    --3. Data access (to meet business, track and trace, and recall 
            needs)
    --4. Data Access controls to assure information security;
  --Software Requirements--all applications should be compatible and 
        compliant to assure global interoperability; and
  --Best use of Frequencies--(e.g., 13.56 megahertz on packages and 915 
        megahertz on cases and pallets due to interference and read 
        range issues).
            2. regulatory initiatives and state model rules
    All levels of government, in addition to the private sector, should 
take responsibility for ensuring the safety and security of the U.S. 
drug distribution system. Each level has a role in deterring and 
preventing the introduction of counterfeit drugs into the Nation's drug 
supply chain. To complement and build on the technology measures 
described above, regulatory and legislative steps at all levels of 
government may be necessary. At the Federal level, FDA is taking steps 
to meet the objectives of the Prescription Drug Marketing Act (PDMA), 
which is intended to address vulnerabilities in the U.S. drug 
distribution system. At the State level, it would be beneficial for 
states to strengthen their provisions governing wholesale distribution, 
as described below in the revised Model Rules for Licensure of 
Wholesale Distributors. And, FDA plans to pursue increased criminal 
penalties for counterfeiting in the United States Sentencing 
Commission's sentencing guidelines.
A. Prescription Drug Marketing Act (PDMA)
            (1) What FDA sought comment on:
    What are the most effective ways to achieve the goals of PDMA and, 
given recent or impending advances in technology discuss the 
feasibility of using an electronic pedigree in lieu of a paper 
pedigree?
            (2) What the Comments Said:
    Many of the comments that discussed PDMA acknowledged the 
limitations and concerns of full implementation of PDMA. However, many 
comments also supported the use of paper pedigrees for their deterrent 
value and as a means to verify prior sales through due diligence. A 
risk-based approach to implementing PDMA, which focuses on those drugs 
that are at high risk of being counterfeited, was suggested, as well as 
maintaining a full pedigree that documents all sales and transactions 
back to the manufacturer for drugs and high risk. One comment suggested 
an interim solution of ``one forward, one back'' pedigree for high-risk 
drugs. However, a number of the comments noted the high cost and 
incomplete protection provided by such paper requirements, especially 
as a general interim measure; by the time these costly requirements 
were phased in, they could be replaced by a more modern system. A 
majority of the comments supported the eventual use of an electronic 
pedigree for all drug products in the supply chain and indicated that 
an electronic pedigree should be considered as a modern solution to 
fulfilling and exceeding the PDMA goals, and urged FDA to take steps to 
help achieve a reliable pedigree solution as quickly as possible. As 
noted above, FDA believes that substantial progress toward a more cost-
effective solution than incomplete and costly paper pedigrees is 
possible within the next several years. A detailed discussion of the 
comments is in Appendix B.
            (3) Discussion:
    FDA has worked closely with affected parties to identify and 
resolve concerns related to the implementation of the pedigree 
requirements of the PDMA. Through the various public comment 
opportunities over the years, the agency has heard mixed reviews about 
the value, utility, and difficulty of implementing a paper pedigree 
that identifies each prior sale, purchase, or trade of such drug. The 
comments received in response to questions raised in the Interim Report 
confirm that these concerns continue.
    FDA is encouraged by the enthusiasm and interest that stakeholders 
in the U.S. drug supply chain have expressed toward the adoption of 
sophisticated track and trace technologies that are more reliable than 
paper pedigrees. As discussed above, there appears to be movement by 
industry toward implementation of electronic track and trace capability 
in 2007. When this is in place, RFID should be able to function as a de 
facto electronic pedigree that follows the product from the place of 
manufacturer through the U.S. drug supply chain to the final dispenser. 
If developed properly, this electronic pedigree could be used to meet 
the statutory requirement in 21 U.S.C.  353(e)(1)(A) to provide a 
pedigree under certain circumstances.
    In the interim, until the electronic pedigree is in widespread use, 
voluntary adoption of multi-layer strategies and measures discussed in 
this report would reduce the likelihood that counterfeit drugs will be 
introduced into the U.S. drug distribution system. These measures, 
combined with RFID technology, can help provide effective long-term 
protections that will minimize the number of counterfeit drug products 
in the United States distribution system.
    As discussed in a notice published in the Federal Register in 
conjunction with the publication of this report, FDA plans to continue 
to stay the implementation of 21 CFR  203.3(u) and 203.50. However, 
the agency intends to continue to reassess the stay of implementation 
on an annual basis. The agency will monitor closely whether progress 
toward the implementation of electronic pedigrees continues at the 
rapid pace evident in this task force analysis. Our plan to reassess 
the stay annually is part of the agency's strong commitment to see that 
effective product tracing is implemented as quickly as possible. The 
agency also encourages wholesalers to provide pedigree information that 
documents the prior history of a drug product, particularly for drugs 
most likely to be counterfeited, even when the passing of such a 
pedigree is not required by the Act. The suggestion from the comments 
that there be a one-forward, one-back pedigree for high-risk drugs in 
the interim, until an electronic pedigree is uniformly adopted, may 
have merit. However, FDA believes that Congress would have to amend 
section 503(e) of the Act if such a system is to become a requirement.
            (4) FDA Conclusion:
    Adoption of electronic track and trace technology would help 
stakeholders meet and surpass the goals of PDMA. Therefore, FDA intends 
to focus its efforts on facilitating industry adoption of this 
technology within the next few years.
  --To allow stakeholders to continue to move toward the goal of an 
        electronic pedigree, FDA intends to delay the effective date of 
        21 CFR  203.3(u) (definition of ADR criterion) and 203.50 
        (specific requirements regarding pedigree) until December 2006;
  --By December 2006, FDA intends to determine whether to further stay 
        the regulations or take other appropriate regulatory action.
B. Model Rules for Wholesale Distributor Licensing Strengthened
            (1) What FDA sought comment on:
    How should the NABP Model Rules for Licensure of Wholesale 
Distributors (Model Rules) be updated?
    Whether FDA regulations at 21 CFR Part 205, should be updated, as 
appropriate, to make it consistent with updates to the NABP Model 
Rules?
            (2) What the Comments Said:
    The comments overwhelmingly supported strengthening state 
requirements governing the licensure and oversight of wholesale 
distributors. Many comments cited the systemic weaknesses in the 
oversight of the wholesale drug industry and that existing inspection 
and due diligence processes are often insufficient to detect criminal 
activity. Some comments noted the positive steps already taken by some 
states, such as Florida, toward more effective regulation of wholesale 
distributors. For example, Florida has implemented more stringent 
requirements for licensure, stronger penalties, and due diligence 
requirements. Most comments stated that the full adoption of revised 
NABP model rules would improve security nationwide, and that stricter 
uniform standards were desirable across all 50 states so as not to 
create 50 different sets of criteria and rules for licensing. FDA was 
encouraged to revisit the current minimum standards requirements 
described in 21 CFR Part 205 to assess whether a ``Federal floor'' for 
states would enhance or diminish state efforts to meet the NABP 
recommendations. A detailed discussion of the comments is in Appendix 
B.
            (3) Discussion
    FDA is pleased to recognize the recent efforts by NABP in revising 
the Model Rules. The revised Model Rules significantly strengthen the 
requirements for licensure, as well as put in place or fortify 
requirements that will ensure and protect the integrity of drug 
products as they travel through the U.S. drug supply chain from the 
manufacturer to the consumer.
    NABP sought comment from FDA, as well as interested stakeholders, 
in developing the revised Model Rules. The comments that FDA received 
as part of the anti-counterfeiting initiative have been discussed with 
NABP.
    The revision of the Model Rules sought to enhance the protections 
included in the original version of the Model Rules and close existing 
gaps. The table below contains highlights of the revised Model Rules: 


    NABP is taking steps to facilitate implementation of the revised 
Model Rules, including: (1) publishing a list of susceptible products 
and calling for a coalition of national organizations to develop a 
process to maintain and update the list; (2) serving as bondholder for 
wholesalers in order to consolidate the need to hold a bond in all 
states where a wholesaler may do business; and (3) establishing a 
clearinghouse that will list wholesalers who receive accreditation by 
NABP and who have passed an inspection by their newly created 
inspection service, which NABP will conduct in partnership with the 
states. FDA supports NABP's efforts to facilitate adoption and 
implementation of the enhanced Model Rules.
    Counterfeiting is a problem that is not isolated to one state. If a 
state strengthens its licensing requirements while a bordering state 
does not, the counterfeiters and illegitimate wholesalers will likely 
move into the bordering state. Widespread state adoption, 
implementation, and enforcement of the Model Rules would help combat 
counterfeiting.
            (4) FDA Conclusion:
    Because States have an important role in regulating drug 
distributors, adopting and enforcing stronger state anti-counterfeiting 
requirements would help in our collective effort to detect and deter 
counterfeiting.
  --FDA strongly supports the efforts taken by NABP to enhance the 
        Model Rules and other actions taken to facilitate 
        implementation;
  --FDA supports all efforts by the States to adopt these Model Rules. 
        Adoption of the model rules by all States would have a 
        significant impact on protecting the Nation's drug supply by 
        ensuring that all persons and entities involved in wholesale 
        distribution of drug products meet stringent licensing criteria 
        and maintained high ethical and business standards;
  --FDA encourages these state actions and the agency intends to 
        explore whether and to what extent to revise the current 
        minimum standards for state licensing of wholesale prescription 
        drug distributors in 21 CFR Part 205.
C. Higher Penalties for Drug Counterfeiting
            (1) What FDA sought comment on:
    Discuss the advantages and disadvantages of increased penalties for 
counterfeiting drugs
            (2) What the Comments Said:
    There was overwhelming support and unanimous agreement that higher 
penalties for counterfeiting are needed.
            (3) Discussion:
    FDA agrees with comments suggesting that higher penalties deter 
drug counterfeiters.
    Current sentencing guidelines for counterfeit drug distribution are 
not commensurate with the public health threat posed by this criminal 
activity and strengthening the guidelines should help deter such 
conduct in the first instance. Despite the significant threat to public 
health posed by counterfeit drug products, current law provides 
penalties far below the level of some purely economic crimes. For 
example, counterfeiting a prescription drug label (bearing a registered 
trademark) is punishable by up to 10 years in prison, while 
counterfeiting the drug itself is punishable by a maximum of only 3 
years in prison. Therefore, FDA plans to continue to pursue its request 
that the United States Sentencing Commission consider amending the 
sentencing guidelines to substantially increase criminal penalties for 
manufacturing and distributing counterfeit drug products and to 
specifically provide for enhanced penalties based on the level of risk 
to the public health involved in the offense.
            (4) FDA Conclusion
    FDA intends to pursue its request that the United States Sentencing 
Commission consider amending the sentencing guidelines to increase 
substantially criminal penalties for manufacturing and distributing 
counterfeit drugs and to provide specifically for enhanced penalties 
based on the level of risk to the public health involved in the 
offense.
3. Creation of a Counterfeit Alert Network for Information 
        Dissemination and Education
            (1) What FDA sought comment on:
    Whether a counterfeit alert network should be created through use 
of existing, or newly developed, communication tools, that allow 
reception, dissemination, and sharing of information about counterfeit 
drugs in a timely manner;
    What are the capabilities of current communication network, what a 
communication network should have in order to part of a counterfeit 
alert network, and costs associated with developing or adapting current 
systems.
            (2) What the Comments Said:
    The agency received many comments supporting the creation of a 
counterfeit alert network. Most of the comments suggested that the 
agency take steps to build on existing networks and several comments 
offered their organizations' distribution lists or network as a conduit 
for the counterfeit alert network. The agency was advised that the 
counterfeit alert network should not be overused in order to avoid 
alert ``fatigue,'' which could create indifference or doubt regarding 
the importance of the messages. The agency was encouraged to consider 
cost-effective public/private partnerships to design communication 
strategies and facilitate efforts to standardize anti-counterfeit 
communications and to augment and coordinate communication systems. A 
detailed discussion of the comments is in Appendix B.
            (3) Discussion:
    The FDA is committed to informing the public, particularly 
consumers, pharmacists, other health professionals, wholesalers, and 
others involved in the U.S. drug distribution system, about counterfeit 
drug incidents in a timely manner. FDA is also committed to educating 
them about ways to identify and prevent counterfeits from entering into 
this system. To increase awareness of counterfeit drugs and safeguard 
the Nations drug supply, FDA is creating a network of national 
organizations, consumer groups, and industry representatives to deliver 
time-sensitive messages and information about specific counterfeit 
incidents and educational messages about counterfeits in general. The 
network is called the ``Counterfeit Alert Network.''
    Partners in the Counterfeit Alert Network will be required to enter 
into a co-sponsorship agreement with FDA that lays out roles and 
responsibilities. Partners agree to disseminate the FDA time-sensitive 
messages to their members/subscribers/readers in the manner outlined in 
the co-sponsorship agreement, to partner in delivering educational 
messages, and in the case of health professionals, provide a link to 
the MedWatch website to report suspect counterfeits. A copy of the co-
sponsorship agreement can be found in Appendix C.
    The agency plans to maintain a list (as it does now) of additional 
health professional, consumer, and industry organizations, and media 
outlets to notify when an actual counterfeit incident is confirmed and 
what steps to take to minimize risks and remove the product from the 
U.S. distribution system. This will help ensure the widest possible 
distribution to the appropriate audience's.
    FDA met with consumer groups, pharmacy groups, and physician groups 
to determine the type of information that would be most useful to 
receive from FDA in the event of a counterfeiting incident. FDA intends 
to create templates for standardizing the format and content of health 
professional and consumer information in the event of a counterfeit 
incident that can guide outreach efforts in an efficient manner, while 
assuring the flexibility FDA needs to formulate the messages.
            (4) FDA Conclusions:
    FDA will create a Counterfeit Alert Network that links together and 
enhances existing counterfeit notification systems, to provide for 
timely and effective notification to health professionals and consumers 
of a counterfeit event.
  --FDA is creating a counterfeit alert network to partner with 
        national healthcare organizations, consumer groups, and 
        industry representatives to deliver time-sensitive messages 
        about specific counterfeit incidents and educational messages 
        about counterfeits in general, and information about how and 
        when to report suspect counterfeit drug products;
  --FDA plans to develop and execute multi-media informational 
        strategies for specific audiences to ensure that the messages 
        reach the largest number of interested people possible through 
        the network;
  --FDA plans to develop internal guidelines for the informational 
        contents of outgoing FDA messages that will bemost useful to 
        communicate a counterfeiting incident to individual stakeholder 
        groups.
4. Health Professional Reporting Encouraged via MedWatch
            (1) What FDA sought comment on:
    Whether FDA's MedWatch system should be used as a tool to receive 
and disseminate timely information about counterfeit drug products, 
especially identification of suspect drug product?
            (2) What the Comments Said:
    Most of the comments supported the use of MedWatch for reporting 
suspect counterfeit drugs. These comments stated that health 
professionals are familiar with MedWatch and it would be too cumbersome 
and expensive to develop a new system, which people would have to be 
educated to use. One comment believed that reports of possible 
counterfeiting should be separate from MedWatch because it is not 
designed for criminal activity reporting and oversight. Another comment 
stated that because MedWatch is a voluntary reporting system, there 
could be significant under-reporting.
            (3) Discussion:
    For nearly 10 years, MedWatch has been FDA's reporting portal for 
adverse drug reactions and ``product problems.'' These include problems 
with product quality that may occur during manufacturing, shipping, or 
storage, such as product contamination, defective components, poor 
packaging or product mix-up, questionable stability, and labeling 
concerns. If a pharmacist or consumer notices an unexplained change in 
size, shape, color, or taste of their dosage form, or notices that the 
coating is chipped or tablets are cracked, or that the drug is not 
working like it usually does, they may consider that to be a problem 
with their product. These are also characteristics that could occur if 
the product was a counterfeit drug. In fact, in the past, FDA has 
received some reports of suspect counterfeit drugs through MedWatch.
    If a consumer suspects that his or her medicine is counterfeit, 
they are encouraged to contact the pharmacist who dispensed the drug, 
rather than report directly to MedWatch. The pharmacist may have 
information from the manufacturer that the shape, color, or taste of 
the product may have changed, or other information that may be helpful 
in determining if the product may be counterfeit or if the suspicious 
characteristic of the product or its packaging is expected.
    The use of MedWatch is for health professional reporting. This 
would not affect the agreement with the Pharmaceutical Research and 
Manufacturers of America (PhRMA), whereby manufacturers have agreed to 
report counterfeits of their products to FDA's Office of Criminal 
Investigations, within 5 days of becoming aware of the counterfeit.
    FDA has streamlined procedures for processing reports of suspect 
counterfeit drugs. The MedWatch Central Triage Unit (CTU) standard 
operating procedures (SOPs) have been amended to include ``suspect 
counterfeit product'' as a category of reports, so the CTU will know 
where to send the report for expedited processing.
    It is easy and convenient to file a report with MedWatch. All 
reports are confidential and the identity of the reporter is not 
disclosed. FDA encourages reporting using the online reporting form 
that can be found at www.fda.gov/medwatch.
            (4) FDA Conclusion:
    FDA plans to encourage and educate health professionals to report 
suspect counterfeit drugs to MedWatch.
  --FDA plans to encourage and educate health professionals to report 
        suspect counterfeit drugs to MedWatch as an overarching 
        mechanism to report such information;
  --FDA plans to change the instructions for the MedWatch reporting 
        form, both paper and online versions, so reporters will know 
        how and when to report suspect counterfeits. Additionally, FDA 
        plans to amend the MedWatch website description of product 
        problems to include suspect counterfeits. 
        
        
5. Secure Business Practices
            (1) What FDA sought comment on:
    Whether to develop sets of ``secure business practices'' which 
would be voluntarily adopted by manufacturers, wholesalers, re-
packagers, and pharmacies?
    Whether stakeholders should designate an individual or team to 
coordinate security and anti-counterfeiting activities?
    Issuance of an FDA guidance document concerning physical site 
security and supply chain integrity?
    There was no proposal specific to re-packagers. However, FDA 
identified independent re-packaging operations, through several ongoing 
investigations, as a point of entry for counterfeit drugs into the 
distribution system, and some of the proposed options would have had 
the effect of limiting those re-packaging operations.
            (2) What the comments said:
    The comments supported the need for development of secure business 
practices by all stakeholders in the drug distribution chain because 
each stakeholder has a responsibility to ensure that pharmaceutical 
products are authentic. The comments suggested that such practices 
include ensuring the legitimacy of business partners and refusing to do 
business with persons of unknown or dubious background, taking steps to 
ensure physical security, and identifying an individual or team in the 
organization with primary responsibility for ensuring that effective 
security practices are implemented.
    It is critically important that the physical facilities involved in 
the production, distribution, or dispensing of pharmaceuticals are 
secure against counterfeit drugs. In the area of food safety, our 
Center for Food Safety and Nutrition (CFSAN) has issued guidance for 
the food industry on preventive measures that establishments may take 
to minimize the risk that products under their control will be subject 
to tampering or other malicious, criminal, or terrorist actions.
    Although it was acknowledged that re-packagers were required to 
comply with Current Good Manufacturing Practices as set forth in 21 CFR 
210 and 21 CFR 211, due to the involvement of re-packaging operations 
in some recent counterfeiting schemes, FDA was asked to provide more 
oversight and to conduct more frequent inspections of re-packagers.
    See Appendix B for a detailed discussion of actions taken by 
manufacturers, wholesalers, and pharmacists to develop secure business 
practices.
            (3) Discussion:
    Recent counterfeiting cases demonstrate that the current business 
practices of participants in the U.S. drug distribution system are in 
some cases inadequate to prevent the introduction of counterfeit drugs. 
Implementation of secure business practices by participants in the U.S. 
drug supply chain is critical for deterring and detecting counterfeit 
drugs. Therefore, FDA commends and strongly supports efforts to develop 
and implement secure business practices for these participants. FDA 
plans to facilitate and encourage the development of innovative 
approaches to securing business transactions in the drug supply chain. 
The number of stakeholders who have told FDA they are already 
implementing the business practices discussed above is very 
encouraging. In addition to identifying effective security measures, 
the designation of an individual or team to have primary responsibility 
for coordinating security activities helps ensure effective 
implementation.
    FDA agrees that re-packaging operations can be a significant 
vulnerability in the drug supply chain. Although current statutory and 
regulatory requirements allow for appropriate oversight of re-
packagers, FDA agrees that enforcement of those requirements could be 
strengthened.
            (4) FDA Conclusions:
    For government efforts against counterfeit drugs to be successful, 
drug producers, distributors, and dispensers will have to take 
effective actions to secure their business practices.
  --Efforts by stakeholders to develop the secure business practices 
        listed above would help protect the public health and diminish 
        counterfeiting;
  --FDA plans to work with individual stakeholders and groups 
        representing stakeholders, as necessary and appropriate, to 
        continue to develop, make publicly available, and widely 
        disseminate secure business practices;
  --Good security practices include designation of an individual or 
        team, reporting directly to the organization's senior 
        management, to coordinate the security and anti-counterfeiting 
        activities for the organization;
  --FDA supports efforts by pharmaceutical manufacturers, wholesalers, 
        and retailers to secure their physical facilities against 
        counterfeit drugs. FDA plans to issue guidance on physical site 
        security that applies to participants in the U.S. drug 
        distribution system.
  --FDA plans to make its oversight over re-packagers of drugs a higher 
        priority. FDA expects to increase the frequency with which it 
        inspects re-packagers whose operations are found to be at 
        increased risk for the introduction of counterfeit drugs. The 
        increase in frequency will be based on the degree of risk, as 
        determined by applying to re-packaging operations the risk 
        based model FDA is developing for prioritizing inspections of 
        drug manufacturing sites.
6. FDA'S Rapid Response to Reports of Suspect Counterfeit Drugs 
        Streamlined
            (1) What FDA sought comment on:
    Enhancing FDA's internal processes for responding to and 
investigating reports of suspected counterfeit products
            (2) What the Comments Said:
    The comments unanimously supported any efforts by the agency to 
rapidly respond to reports of suspect counterfeit drugs.
            (3) Discussion:
    FDA takes reports of suspect counterfeit products very seriously. 
The agency is proud of its investigative tools and talents and its 
quick response to the public health needs when a counterfeit has been 
reported and has been confirmed. To improve this process, the agency 
evaluated its policies and procedures for responding to reports of 
counterfeit drugs to determine if FDA's response could be more 
efficient. Although FDA has had many positive experiences in responding 
and working with manufacturers and the public, FDA identified several 
ways to further enhance coordination and communication among all 
initial responders within the agency.
    Because different parts of the agency throughout the country may 
receive the potential counterfeiting report, in some instances, it may 
take time for the information to flow to the appropriate people who 
need it to respond efficiently. Therefore, FDA has established an FDA-
wide rapid response protocol for suspect counterfeit drugs that will 
ensure that specified persons/offices/divisions within the agency are 
notified and engaged as soon as possible after the report is made to 
the agency. Policies and procedures have been or will be amended to 
reflect this streamlined information flow and coordination of agency 
response. Increased coordination and communication will help FDA to 
initiate rapidly any criminal or civil investigation, as well as to 
assess the health hazard of the counterfeit situation so the public 
health response can be launched.
            (4) FDA Conclusion:
    To respond rapidly to a report of a suspect counterfeit, FDA is 
further streamlining its internal processes to respond quickly to 
reports of suspect counterfeit drugs by improving coordination and 
communication among all initial responders in the agency.
  --FDA intends to amend its internal SOPs, where appropriate, to 
        provide for more rapid response when a suspect counterfeit is 
        reported;
  --FDA intends to build on lessons learned from working with 
        manufacturers in past counterfeiting experiences to determine 
        how industry/agency collaboration can and should be 
        strengthened.
7. Educating the Public and Health Professionals
            a. Consumers
            (1) What FDA sought comment on:
    As the sophistication of the ``final product'' drug counterfeiting 
operations has increased, the public needs to be more aware of ways to 
identify the risk of counterfeit drugs, receive instructions on ways to 
minimize the chance of receiving fake products and to identify 
potential counterfeits.
            (2) What comments said:
    The comments stated that it is imperative that consumers be 
encouraged to be more proactive in managing their health and be given 
useful tools to be vigilant to help avoid potential counterfeit drugs. 
Consumers should be educated to be aware of noticeable differences in 
their medication, the packaging, or any adverse events. In addition, 
consumers should understand the important role that their pharmacist 
and healthcare providers can play in identifying, reporting, and 
responding to counterfeit drug events. However, the comments warned 
that care should be taken in any education campaign to not 
unnecessarily alarm the public.
            (3) Discussion:
    Despite the growing sophistication of counterfeit drug threats, 
many consumers are not fully aware of these risks. The Agency, in 
conjunction with consumer and patient advocates, as well as industry 
representatives is eager to find additional creative ways to educate 
the public of the potential threat of counterfeit drugs. The messages 
should alert consumers to the risk, offer ways consumers can recognize 
the signs of a potentially counterfeit product, teach them how to 
reduce the risk of exposure and tell them what to do if they suspect 
they have encountered one. Of course, FDA wants to strike an 
appropriate balance in the need to proactively educate consumers 
without causing unnecessary alarm that could interfere with their use 
of prescribed drug regimes. Most important, it is critical to focus 
awareness, and education programs should focus on issues that consumers 
can control.
    FDA has an ongoing educational campaign that is intended to educate 
consumers about the risks of buying medicines online. FDA intends to 
reaffirm this message and focus the educational campaign on teaching 
safe purchasing methods. Particular focus will be placed on encouraging 
the public to seek out the Verified Internet Pharmacy Practice Site 
(VIPPS) seal when purchasing from an online pharmacy.
    In addition, stakeholders indicated that there is a need for 
better, timelier, accurate information about specific counterfeit 
situations. FDA plans to create a counterfeit drug resource page on our 
website. The objective of this webpage is to concentrate customized 
education tools into a resource library that can empower individual 
stakeholder groups.
            (4) FDA Conclusions:
    Educating the consumers about the risks of counterfeits is a 
critical piece in the effort to stop counterfeits from entering the 
stream of commerce.
  --FDA plans to develop additional, multi-layer, consumer-oriented 
        educational materials that will help them learn about 
        counterfeits, what to watch for, and where to turn for useful 
        information if they think they have encountered a suspected 
        counterfeit;
  --FDA plans to re-launch the FDA public service announcement (PSA) 
        campaign for best online buying practices to educate consumers 
        about how to buy drugs online safely, and risks to avoid in 
        online purchasing;
  --FDA plans to house on its www.fda.gov website a comprehensive, 
        consumer-friendly online library that will contain both general 
        and specific counterfeit drug information. It will also contain 
        targeted educational materials for various interest groups that 
        discuss counterfeit issues generally. In addition, the agency 
        intends to develop a new FDA anti-counterfeiting resources icon 
        to increase familiarity with the issue.
            b. Pharmacists and Other Health Care Professionals
            (1) What FDA sought comment on:
    Pharmacists need improved tools to receive information and to 
educate themselves about how to handle these situations and to keep 
abreast of current counterfeit events. They need to know how to 
identify and counsel consumers who might have received counterfeit 
products.
    Physicians, nurses and other health professionals also have contact 
with consumers taking pharmaceuticals and can help identify and counsel 
patients that could have accessed a counterfeit. This will require 
these groups keep up to date on current counterfeit events and know 
steps to take to report situations if a counterfeit is suspected.
            (2) What the comments said:
    Groups representing pharmacists and pharmacies recognize the need 
for pharmacists to take a leadership role in the identification of 
counterfeits, prevention of their introduction into the distribution 
chain, and education of consumers about counterfeits.
    The healthcare community indicated that awareness and education 
campaigns are important if its health professionals are to be active 
participants in the fight against counterfeit drugs.
            (3) Discussion:
    Pharmacists and health professionals can play a major role in 
helping identify counterfeits and preventing their introduction into 
the distribution chain. FDA has been working with pharmacy and medical 
professional groups to develop educational materials for pharmacists 
and other healthcare professionals, including doctors, nurses, and 
physician assistants.
            (4) FDA Conclusion:
    FDA plans to enhance its educational programs for pharmacists and 
other health professionals about their role in minimizing exposure to, 
identifying, and reporting counterfeits.
  --FDA intends to work with pharmacy and health care professional 
        groups to develop materials to help educate their profession on 
        the risk of counterfeits, what to do in case a counterfeit is 
        suspected and ways to aid in educating consumers. This will 
        include development of clear, concise messages and protocols, 
        as well as the establishment of a delivery mechanisms that will 
        help them learn about the threat of counterfeits, what to watch 
        for, and where to turn for useful information in the case of a 
        suspected counterfeit;
  --FDA intends to encourage pharmacy and health care professionals to 
        become partners in the agency's newly established Counterfeit 
        Alert Network;
  --FDA intends to expand its outreach efforts by presenting at or 
        participating in conferences and by publishing articles in 
        professional journals and periodicals that target audiences of 
        doctors, nurses, pharmacist and hospital administrators to 
        educate them about counterfeits and raise awareness of the 
        risks;
  --FDA intends to work with health professional trade groups to 
        identify or improve data collection/reporting systems that 
        could help identify counterfeits as they enter the stream of 
        commerce (i.e, include appropriate questions on the ER patient 
        admission questionnaire that might help diagnose usage of a 
        counterfeit drug.)
8. International Approach
            (1) What FDA sought comment on:
    Strengthening international cooperation in law enforcement efforts, 
identifying counterfeit products, using anti-counterfeiting 
technologies, and educating stakeholders and consumers
    Whether there should be global standards for packaging of 
pharmaceuticals and the use of anti-counterfeiting technologies
            (2) What the comments said:
    The comments supported FDA involvement in global efforts to deter 
and detect counterfeit drugs.
            (3) Discussion:
    The growing global prevalence of counterfeit drugs must be 
curtailed. The steps described in this report are intended to secure 
the U.S. domestic drug supply. However, as long as counterfeit drugs 
exist worldwide, opportunities could arise for counterfeit drugs to 
find their way into the United States. Many countries have taken steps 
to secure their Nation's drugs supply, while others struggle because of 
limited resources, inadequate regulatory infrastructure, or competing 
national health priorities. The World Health Organization (WHO) has 
taken the lead to increase worldwide collaboration and to develop 
strategies to deter and detect counterfeit drugs. There are several 
international criminal enforcement collaborations, such as the 
Permanent Forum on International Pharmaceutical Crime and the Interpol 
Intellectual Property Crimes Action Group. FDA intends to work with WHO 
and other international organizations to develop and implement 
worldwide strategies to combat counterfeit drugs.
            (4) FDA Conclusions:
    FDA will collaborate with foreign stakeholders to develop 
strategies to deter and detect counterfeit drugs globally.
    Below is a table showing when certain anti-counterfeiting measures 
will be available: 


                               appendices
    Appendix A: Counterfeit Alert Network Co-sponsorship Agreement
     Appendix B: More detailed description of the comments received for 
certain issues (where the comments were diverse or lengthy)
                               appendix a
           counterfeit alert network co-sponsorship agreement
Background
    The U.S. Food and Drug Administration (FDA) is committed to 
informing the public, particularly consumers, pharmacists, other health 
care professionals, wholesalers, and others involved in the U.S. drug 
distribution system, about counterfeit drug incidents in a timely 
manner and educating these parties on ways to identify and prevent 
counterfeits from entering into this system. To increase awareness of 
counterfeit drugs and safeguard the Nations drug supply, FDA will 
create a network of national organizations, consumer groups, and 
industry representatives to deliver time-sensitive messages and 
information about specific counterfeit incidents and educational 
messages about counterfeits in general. FDA also will develop and 
execute informational strategies for specific audiences to ensure that 
the messages reach the largest number of interested people possible 
through the network. The network will be called the ``Counterfeit Alert 
Network.''
    The goals of the Counterfeit Alert Network include, but are not 
limited to:
  --disseminating alert messages to a wide audience about specific 
        counterfeit drug incidents in the United States and measures to 
        take to minimize exposure (e.g., recall information);
  --outlining the roles and responsibilities of consumers, pharmacists, 
        other health professionals, and wholesalers must play to 
        identify counterfeit drugs, report suspect counterfeit drugs, 
        and prevent them from entering the U.S. distribution system; 
        and
  --developing a network of national organizations, consumer groups, 
        and industry representatives to help disseminate the 
        information.
    [INSERT CO-SPONSIOR ORGANIZATION INFORMATION]
Importance of the Partnership to FDA and [Organization]
    This partnership will increase the potential audience of FDA's 
important notifications about specific counterfeit drug incidents and 
messages about how and when to report suspect counterfeit drugs. By 
distributing FDA developed messages through the [ORGANIZATION] 
information system, these messages can reach more than [#] people.
Responsibilities of FDA and [Organization]
    FDA will develop targeted messages, with a particular focus on 
consumers, pharmacists, and other health care professionals when a 
counterfeit drug is found in the U.S. distribution system. FDA will 
also develop educational and informational materials about how to 
detect a counterfeit drug, what to do if a drug is believed to be 
counterfeit, how to report the suspect counterfeit to the FDA, and ways 
to minimize the risk of receiving a counterfeit drug. These materials 
may include: web-based documents, print ads, posters, prepared 
newspaper articles, fact sheets, consumer brochures/pamphlets, and 
informational packets. FDA will provide any logistical and technical 
support, such as writing, layout, designing, and preparing 
illustrations for the products.
    FDA will ensure that all materials are cleared through the Agency 
and the U.S. Department of Health and Human Services before releasing 
material to the [ORGANIZATION] for public distribution FDA will provide 
these materials in a format (hard copy, digital, or electronic) that 
[ORGANIZATION] can use, as appropriate, to create, manufacture, and/or 
have printed in enough quantities to distribute to various audiences. 
FDA will not be responsible for any costs outside of the materials 
already produced by FDA.
    [ORGANIZATION] will distribute in a timely manner FDA's 
notifications about specific counterfeit incidents as an alert through 
an active messaging system (separate email or fax alert 
correspondence). [ORGANIZATION] will facilitate the ability of their 
members/subscribers/website visitors to report suspect counterfeit drug 
products to FDA, e.g., via a link to the FDA Counterfeit Drugs webpage 
or FDA's MedWatch webpage. [ORGANIZATION] will distribute relevant FDA-
educational messages about counterfeits, covering such issues as 
awareness, recognition, prevention, tracking, and authentication of 
drug products.
    The [ORGANIZATION] will pay for the cost, if any, of printing 
materials, posting materials on its website, email distribution, 
renting ad space, and securing print placement in magazines and 
newspapers, as appropriate. [ORGANIZATION] will make clear, in any 
solicitation for funds to cover its share of the distribution costs 
that it, not FDA, is asking for the funds. [ORGANIZATION] will not 
imply that FDA endorses any fundraising activities in connection with 
the event. [ORGANIZATION] will make clear to donors that any gift will 
go solely toward defraying the expenses of [ORGANIZATION], not FDA.
    FDA and the [ORGANIZATION] I will develop a dissemination plan that 
outlines where and how the educational materials and alert messages 
about specific counterfeit incidents will be distributed to various 
audiences.
    FDA and the [ORGANIZATION] will review this agreement in 2 years 
from the original date of this agreement, but either party to this 
agreement can terminate its participation at any time by notifying the 
other party of its intent to do so in writing.
Charges
    The [ORGANIZATION] will not sell any educational materials related 
to this joint effort. [ORGANIZATION] will not impose an enrollment or 
registration fee for subscribers to receive this information.
Independently Sponsored Portions and Endorsements
    All materials and efforts related to the Counterfeit Alert Network 
will be jointly sponsored. FDA staff will not be used to develop, 
promote, or otherwise support any event that is independently sponsored 
by the co-sponsor, although official announcements and brochures may 
contain factual references to the available materials and Counterfeit 
Alert Network messages.
    The [ORGANIZATION] will not use the name or logo of FDA except in 
factual publicity. Factual publicity includes materials provided to 
[ORGANIZATION] on FDA's program and Counterfeit Alert Network 
materials. Such factual publicity shall not imply that the involvement 
of FDA serves as an endorsement of the general policies, activities, or 
products of the [ORGANIZATION]. Where confusion could result, a 
disclaimer should accompany publicity to the effect that no endorsement 
is intended. The [ORGANIZATION] will clear all publicity materials with 
FDA to ensure compliance.
Records
    Records concerning this partnership shall account fully and 
accurately for any financial commitments and expenditures of FDA and 
[ORGANIZATION]. Such records shall reflect, at a minimum, the amounts, 
sources, and uses of all funds.
Public Availability
    This co-sponsorship agreement, as well as any financial records for 
this partnership, shall be publicly available.
Co-Sponsorship Guidance
    FDA and the [ORGANIZATION] will abide by the memorandum of August 
8, 2002, ``Co-sponsorship Guidance,'' issued by the Associate General 
Counsel for Ethics.  DATE FDA Signee DATE NIZAI Director, 
Ethics and Integrity Staff Office of Management and Programs Office of 
Management Food and Drug Administration DATE  deg.
                               appendix b
               expanded description of comments received
Technology
            Unit of Use Packaging
    Comments supporting widespread utilization of unit of use 
technology cited:
  --The decreased need for repackaging which is a point of entry for 
        counterfeit drugs;
  --Authentication technologies applied by the manufacturer would reach 
        the dispensing pharmacy and the patient;
  --The lower cost for utilizing unit of use packaging on newly 
        approved drugs;
  --The deterrent value to counterfeiters of the higher costs of 
        duplicating unit of use packages;
  --Improvement in patient safety due to reduction in dispensing errors 
        and better patient compliance; and
  --Increased pharmacist availability for patient counseling (due to 
        reduction in time needed to fill prescriptions).
    Some comments cautioned the FDA against mandating unit of use 
packaging for all drugs citing:
  --The high cost, and length of time, it would take to change 
        production lines from bulk to unit of use packaging;
  --The investment made by many pharmacies in re-packaging and pill 
        counting equipment;
  --The difficulty of packaging certain products (e. g. vaccines, 
        multi-dose liquid formulations) in unit of use form;
  --The need to differentiate repackaging performed under contract to a 
        manufacturer or by a pharmacy (which may achieve market 
        efficiencies) from repackaging by other entities;
  --The need to perform a careful product-by-product cost-benefit 
        analysis on unit of use packaging before creating any 
        requirements;
  --The minimal hurdle that unit of use packaging creates for 
        sophisticated drug counterfeiters;
  --The need to comply with the Consumer Product Safety Commission 
        (CPSC) regulatory requirements for child resistant unit of use 
        packaging;
  --The difficulty some consumers (e.g., arthritic patients) may have 
        in opening unit of use packaging such as some blister packs;
  --The need for pharmacists to modify prescribed quantities to 
        correspond with available unit of use packages which could 
        require changes in state law; and
  --The need to establish standards for such things as size and shape 
        of unit of use packaging in order to minimize patient confusion 
        and address shelf space issues.
Authentication Technologies
    They supported use of authentication technologies as part of an 
overall anti-counterfeiting strategy and stated that authentication 
technologies serve two purposes:
    They make it more difficult and expensive to produce a copy of the 
drug or its packaging and labeling, and
    They provide a means for determining if a specific drug, package, 
or label is authentic.
    Manufacturers of specific anti-counterfeiting technologies provided 
us with descriptions of their products that were extremely valuable in 
helping us understand how they work, their cost, and how they might be 
incorporated into pharmaceutical products, packaging, and labeling or 
used to detect counterfeit products through forensic and other 
analytical methods, including rapid methods.
    Many comments supported the issuance of an FDA guidance document on 
the use of authentication technologies. They stated that there was no 
clear FDA policy specifically targeted to this important subject. They 
suggested that current FDA policies and practices for New Drug 
Applications (NDAs), Abbreviated New Drug Applications (ANDAs), and 
Biologics License Applications (BLAs), supplements, and other 
notification procedures should be clarified so the policies and 
procedures applicable to use of anti-counterfeiting technologies are 
clearly articulated and available in a single document.
    The following points were made regarding the use of authentication 
technologies on drug products, their packaging and labeling:
  --There is no ``silver bullet'' solution--all anti-counterfeiting 
        technologies can be defeated;
  --Because all anti-counterfeiting technologies can be defeated, a 
        more extensive approach utilizing layered overt and covert 
        technologies that are changed on a regular basis is frequently 
        required;
  --Authentication technologies are expensive;
  --Manufacturers should determine which authentication technologies to 
        use, on a product specific basis. The FDA should not require 
        the use of any specific anti-counterfeiting technology. For 
        example: the number and type (e.g., overt, covert) of 
        technologies utilized for a given product need to take into 
        account the type of product (e.g., solid, liquid), use, cost, 
        history of counterfeiting etc.;
  --Repackaging destroys anti-counterfeiting technologies employed by 
        the manufacturer;
  --Incorporation of anti-counterfeiting measures into the product, 
        packaging, and labeling may be subject to application and 
        notification requirements which means that initiating or 
        changing such technology could require a significant time and 
        expense;
  --Although all products are at risk for being counterfeited there is 
        a need to develop criteria or a classification system to help 
        identify those products at highest risk for being counterfeited 
        and thereby assist stakeholders in identifying products that 
        might derive a greater benefit from the incorporation of 
        authentication technologies;
  --The large number of available technologies coupled with the number 
        of different products stocked in pharmacies and the need to 
        change anti-counterfeiting measures make it difficult for 
        pharmacists to be knowledgeable about the technologies used for 
        a product at any given time;
  --Technologies that do not allow for ``real time'' or consumer 
        authentication (e.g., covert technologies known only to the 
        manufacturer and/or the FDA) may have an uncertain benefit in 
        rapid identification of counterfeit drugs.
List of Drugs Likely to be Counterfeited
    Many comments stated that it was important for stakeholders to 
allocate financial resources to protect those products that are most 
likely to be counterfeited. There was agreement that the criteria we 
suggested to identify drugs that were likely to be counterfeited were 
correct. These included:
  --Impact on public health if the drug were counterfeited;
  --Drugs history of counterfeiting;
  --Drugs price;
  --Drugs volume;
  --Drugs dosage form;
  --Drugs clinical uses; and
  --Whether similar products had a history of being counterfeited.
    However, there was no consensus on how to apply these, or other, 
criteria in creating a list of such products.
    As stated above, some comments suggested that instead of developing 
a list of drugs likely to be counterfeited, a set of criteria for 
determining whether a drug was at likely to be counterfeited should be 
created. One proposal for such criteria was:
    A drug has been subjected to a seizure or stop sale notice because 
of counterfeiting, or
    There is documentation that a drug was counterfeited and is the 
subject of an investigation by Federal or State authorities AND
    The product is high cost (e.g., over $200 per dose) or high volume 
(e.g., top fifty drugs), or
    The product is used extensively for treatment of HIV/AIDS or 
cancer, or
    The product is injectable, or
    The product distributed in a special or limited way, or
    There are multiple documented instances of pedigrees not being 
passed with the product
Radiofrequency Identification Technology
    We received a large amount of information on the benefits, costs, 
and unresolved issues relating to RFID. These include:
    Benefits
  --Ability to deter and detect counterfeit drugs;
  --Ability to conduct efficient targeted recalls;
  --Ability to manage inventory;
  --Ability to identify theft;
  --Ability to identify diverted drugs; and
  --Improvement in patient safety by assuring correct dispensing of 
        drugs.
    Costs
  --Purchasing hardware (e.g., tags, readers) and software;
  --Integration into legacy information systems;
  --Database creation, security, and maintenance;
  --Integration of RFID technology into existing manufacturing 
        processes, distribution procedures;
  --Compliance with regulatory requirements (e.g., cGMP, notification, 
        product integrity); and
  --Feasibility studies.
    Unresolved Issues
  --Need for all stakeholders to embrace the technology in similar 
        timeframes in order to realize the full potential of RFID 
        technology including provision of a universal electronic 
        pedigree;
  --Need to develop standards and business rules;
  --Need to address database issues such as structure (e.g., central 
        vs. distributive), ownership, access, and security;
  --Clarification of regulatory requirements pertaining to use of RFID 
        (e.g., cGMP, electronic records, notification); and
  --Need for a flexible migration path to the use of RFID in order to 
        meet the needs of different stakeholders.
    Stakeholder Activities
    We have been informed of several feasibility studies, starting in 
early 2004, that should give members of the supply chain experience 
using RFID as well as provide them with an opportunity to test its 
business uses and identify potential barriers to its acceptance. These 
studies include:
  --Wal-Mart.--Drug manufacturers and wholesalers will attach RFID tags 
        to all bottles of controlled substances;
  --Accenture.--Coordinating a study of RFID involving manufacturers, 
        wholesalers, and retailers that will explore the use of RFID 
        for tracking, tracing, recalls and theft of selected 
        pharmaceuticals;
  --CVS.--Is studying the potential benefits that tagging and tracing 
        pharmaceuticals and prescriptions in a retail pharmacy would 
        have on operating efficiency, quality of patient care, and 
        customer service; and
  --Other feasibility studies using RFID are being planned in Europe to 
        study the use of serialization for authentication at the point 
        of dispensing.
    In addition to feasibility studies, we understand that several 
groups representing many supply chain participants have been meeting to 
discuss ways to facilitate the adoption of RFID. For example the 
Product Safety Task Force (PSTF) convened under the auspices of the 
Healthcare Distribution Management Association (HDMA) is developing 
business requirements and identifying business issues relating to RFID 
technology.
    The PSTF and other stakeholders have informed us that the migratory 
path (or phase in) to widespread use of RFID at a package level could 
vary by stakeholder based on the place of that stakeholder in the 
supply chain (e.g., manufacturer vs. retailer) and on specific costs 
and benefits accruing to that stakeholder (e.g., types of products 
manufactured, number of distribution centers, technology cost per 
product).
    Several migratory paths were mentioned, including:
  --Phasing in use of RFID technology with use at the case and pallet 
        preceding use at the package level;
  --Phasing in use of RFID technology starting with use on pallets, 
        cases, and packages of ``high risk'' products with gradual 
        inclusion of other products at all levels; and
  --Use of RFID technology at the pallet and case level coupled with 
        use of 2-D Bar Codes at the package level with gradual phase in 
        of RFID technology at the package level.
    According to stakeholders, these paths are not mutually exclusive 
and it is likely all of these, and other, paths will be utilized as 
RFID technology becomes more widely adopted.
Secure Business Practices
    Below are some of the secure business practices that have been 
developed by participants in the U.S. drug distribution system.
Manufacturers
    Several manufacturers have announced policies intended to secure 
the supply chain. These policies include:
  --Limiting sales to authorized wholesalers. Authorized wholesalers 
        are defined either as wholesalers who purchase a manufacturers 
        products exclusively from that manufacturer or as wholesalers 
        who purchase a manufacturers product directly from the 
        manufacturer or from other authorized wholesalers;
  --Making the list of authorized distributors publicly available;
  --Ability to audit the sales records of wholesale distributors;
  --Working with dispensing pharmacies to ensure they are aware of the 
        identities of authorized distributors; and
  --Designation of an individual or team to coordinate security and 
        anti-counterfeiting activities.
Wholesalers
    The Healthcare Distribution Management Association (HDMA) released 
a document entitled ``Recommended Guidelines for Pharmaceutical 
Distribution System Integrity'' which set forth a series of recommended 
actions for wholesalers to take prior to and while conducting business 
transactions with other wholesalers. In essence they comprise a ``due 
diligence'' checklist which includes items such as:
  --Obtaining detailed information about the wholesalers licensure, 
        inspection results, history of disciplinary actions, corporate 
        officers, owners, and management personnel;
  --Performing a criminal background check on the wholesaler, its 
        officers, owners, and other key personnel;
  --Obtaining a credit history and information about its business 
        activities, financial status, and liability insurance;
  --Performing a detailed physical site inspection; and
  --Ensure that the wholesaler is in compliance with Federal and State 
        requirements, verifies that the wholesaler is an authorized 
        distributor for the products being transferred or has a process 
        in place for verifying pedigrees.
    Individual wholesalers supported the HDMA guidelines and provided 
FDA with ideas for additional secure business practices including:
  --Not selling pharmaceuticals to other wholesalers at all; and
  --Completely separating the functions of quality assurance and 
        compliance from sales and marketing and requiring quality 
        assurance and compliance staff to perform due diligence on 
        potential business partners.
Pharmacies and Pharmacists
    We have been informed that several organizations representing 
pharmacies and pharmacists are developing secure business practices as 
a guide for pharmacies and pharmacists. One pharmacy group notified us 
that they have already published a list of strategies to use for 
assuring the integrity of pharmaceuticals. This list includes:
  --Staying informed about reports of counterfeit drugs;
  --Contacting wholesalers to get information about the status of their 
        licensure, whether they are authorized distributors, and where 
        they source their drugs;
  --Evaluate pharmacy security;
  --Educate hospital staff;
  --Follow up on patient complaints; and
  --Report suspect products.
Prescription Drug Marketing Act (PDMA)
    A majority of the comments that discussed PDMA noted the 
limitations and concerns of full implementation of PDMA. Such 
limitations include:
  --Paper pedigrees can be forged and counterfeited;
  --Paper pedigrees are logistically difficult to accommodate in the 
        drug distribution system;
  --ADRs are not required to pass pedigree information on to the next 
        purchaser, so subsequent wholesalers are unable to obtain the 
        pedigrees needed to sell their products;
  --The pedigree for a product that circulates several times through 
        the supply chain loses all prior sales history if the drug 
        product is sold to an ADR;
  --The net effect is that secondary wholesalers who cannot obtain 
        pedigrees necessary to legally market drugs could be driven out 
        of business; reducing the number of legitimate distributors in 
        the system, decreasing competition and increasing prices;
  --Manufacturers do not update their lists of ADRs so it is difficult 
        for a wholesaler to obtain ADR status; and
  --Costs of paper pedigrees outweigh the benefits.
    A number of other comments, however, supported the use of paper 
pedigrees for their deterrent value and as a means to verify prior 
sales through due diligence. Comments noted that even forged pedigree 
papers provide an additional opportunity to identify counterfeiters and 
block introduction of counterfeit drugs into the drug supply if 
wholesalers exercise due diligence by tracing the sales through the 
pedigree and identifying the place where the forgery occurred. A few 
comments suggested that FDA should exercise enforcement discretion and 
not take enforcement action against a wholesaler who fails to provide 
pedigree information back to the manufacturer as long as the wholesaler 
provides pedigree information back to the first ADR who received the 
drug from the manufacturer.
    Several comments suggested a risk-based approach to implementation 
of the PDMA, which focuses on those drugs that are at high-risk of 
being counterfeited. Many of these comments suggested that high-risk 
drugs maintain a full pedigree that documents all sales and 
transactions back to the manufacturer. One comment suggested an interim 
solution of ``one forward, one back'' pedigree for high risk drugs. 
This system would be analogous to recent bioterrorism legislation for 
food distributors, whereby participants in the food distribution system 
maintain only those records necessary to identify immediate previous 
sources and immediate subsequent recipients of food. However, comments 
on FDA's food regulations have suggested it will take at least several 
years to phase in the paper recordkeeping requirements. Moreover, in 
contrast to drugs, there are no major steps in development now to 
provide widespread electronic pedigrees for drug products. Finally, as 
noted throughout the riskiest drug products are the ones for which 
modern anti-counterfeiting and track-and-trace methods should be 
implemented soonest.
    Most comments supported the development of an electronic pedigree 
for all drug products in the supply chain and that an electronic 
pedigree should be considered as a long-term solution to fulfilling the 
PDMA requirements codified at 21 CFR 203.50. Given the costs of 
implementing the partial anti-counterfeiting measures included in the 
PDMA, and the expectation of continued significant progress toward 
implementation of modern pedigree systems for drugs, more effective 
modern pedigree systems are likely to be available before it would be 
possible to phase in and achieve compliance with paper pedigree 
requirements.
Model Rules for Wholesale Distributor Licensing
    The comments overwhelmingly supported strengthening requirements 
governing the licensure and oversight of wholesale distributors. Many 
comments cited the systemic weaknesses in the oversight of the 
wholesale drug industry, prior to Florida's implementation of licensing 
reform, that were described in the Florida Grand Jury Report, such as 
issuing licenses without proper background checks and granting licenses 
despite one or more felony convictions. The comments also stated that 
existing inspection and due diligence processes are often insufficient 
to detect criminal activity. As mentioned above, there was uniform 
agreement that the penalties for counterfeiting drugs are insufficient 
to serve as an adequate deterrent.
    Many comments supported the concept of tighter requirements 
generally, while others gave specific suggestions for improvement. Some 
of the specific suggestions included:
  --Detailed and robust applications that provide greater disclosure of 
        information about the applicant and their prior history;
  --Criminal background checks for applicant and company principals;
  --List of prescription drug-related or fraud-related activities that 
        are ``not in the public interest'' such that states should deny 
        licenses to persons with criminal records for these activities;
  --Pre-license inspection of wholesale distribution facilities;
  --Periodic and unannounced inspections;
  --National clearinghouse for information on wholesale licensure 
        status, debarments, exclusions, and/or results of criminal 
        background checks;
  --Bonds of up to $100,000;
  --Requiring all wholesalers to transmit pedigree tracing transactions 
        back to the manufacturer for susceptible products;
  --Non-ADRs must pass pedigree with all drugs with transaction 
        information back to an authorized distributor;
  --Amending the definition of ADR to include those on the 
        manufacturers list, have a written agreement currently in 
        effect with the manufacturer, or has a verifiable account with 
        the manufacturer and minimal transactional or volume 
        requirement thresholds from the manufacturer of 5,000 sales 
        units within 12 months or 12 purchases (invoices) within 12 
        months;
  --Requiring authentication of pedigree if there is reason to suspect 
        that the product may be counterfeit, as well as on a random 
        basis;
  --Migrating to electronic pedigree;
  --More aggressive penalties and enforcement on state and national 
        level;
  --Quickly suspending and/or revoking licenses of violators; and
  --Including due diligence requirements for wholesalers to conduct on 
        its suppliers.
    Most comments stated that the stricter standards should be uniform 
across all 50 states so as not to create 50 different sets of criteria 
and rules for licensing.
    Concerns about several provisions in the new Florida and Nevada 
laws regarding licensing of wholesale distributors were expressed. Some 
of the comments described implementation and logistical problems that 
wholesalers have experienced in these states as a result of the new 
law.
    Some comments encouraged FDA to revsit the minimum standards 
requirements described in 21 CFR Part 205 to create a ``Federal floor'' 
for States to meet. The comments were not uniform, however, on whether 
such a Federal floor might enhance or deter state efforts to implement 
the complete set of NABP recommendations.
Counterfeit Alert Network for Information Dissemination and Education
    The agency received many supportive comments about the counterfeit 
alert network concept. Most of the comments suggested that the agency 
use existing networks and several comments offered their organizations 
distribution list or network as a conduit for the counterfeit alert 
network.
    Some comments offered strategic approaches for the development of 
such a network, including suggested concepts for message delivery. 
Suggestions include using active notification via ``push'' e-mail 
technology, validated and secure systems, easily understood language 
with clear and unambiguous messages, multiple notification systems, 
accessible to all stakeholders, no cost for users, timely, visual alert 
to flag importance, redundant delivery vehicles such as email, fax, 
direct mail, and phone, and have an embedded link to take user back to 
FDA or MedWatch website. The comments also suggested that consistency 
is an important element so there is familiarity in times of emergency 
situations. The agency was warned not to overuse the counterfeit alert 
network in order to avoid alert ``fatigue,'' which could create 
indifference or doubt regarding the importance of the messages.
    The agency was encouraged to consider public/private partnerships 
to design communication strategies and facilitate efforts to 
standardize anti-counterfeit communications and to augment and 
coordinate communication systems. The comments also said that costs to 
FDA and private partners should be kept to a minimum.

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

                          WIC CONTINGENCY FUND

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

                             WIC FOOD COSTS

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

                        NATIONAL ORGANIC PROGRAM

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

                        ANIMAL FEED INSPECTIONS

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

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

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

                            WIC-ONLY STORES

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

                        CRITICAL PATH INITIATIVE

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

                        BIOTERRORISM REGULATIONS

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

                                  BSE

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

                     NATIONAL ANIMAL IDENTIFICATION

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

                              BSE TESTING

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

                               DENTICIAN

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

                     NATIONAL ANIMAL IDENTIFICATION

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

                     ADDITIONAL COMMITTEE QUESTIONS

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

            Questions Submitted by Senator Robert F. Bennett

                       drug information web site
    Question. I noted that the FDA recently launched a web site to 
allow both consumers and the medical community to find comprehensive 
information about FDA-approved drugs quickly and easily. Since the web 
site was launched on March 3, how many ``visitors'' has it had?
    Answer. Drugs@FDA has had 154,065 visitors for the period March 3 
through April 12, 2004.
    Question. Has the FDA received any feed-back from consumers and 
health care professionals about the ease of access, and whether the 
information is comprehensive and useful?
    Answer. Since March 1, 2004 we have received 70 comments on 
Drugs@FDA, version 1. It's important to note that there were two 
previous beta versions of Drugs@FDA on the Internet: beta 1 in June 
2003, and beta 2 from September 2003-March 2004. We received a 
significant volume of very helpful feedback which was incorporated into 
Drugs@FDA, version 1.
    The nature of the comments Drugs@FDA, version 1, ranged from the 
general (5) we liked it or didn't like it to questions about specific 
drug products (25) that were referred to CDER's Division of Drug 
Information for response. Most comments pertinent to Drugs@FDA (40) 
fall in the category of requesting new features. For example, users 
requested the ability to search by indication or drug class, wanted 
more labels added, to obtain NDC numbers and imprint information, to 
have more regulatory terms added to the glossary, links to the Orange 
Book, and even the ability to download the database for analysis.
                         medical device review
    Question. According to the 2003 Annual Report of the Office of 
Device Evaluation, the Center for Devices and Radiological Health was 
meeting or exceeding most of its MDUFMA-prescribed performance goals in 
2002. As previously noted, the fiscal year 2005 budget request includes 
$25.555 million for this user fee program. What will the FDA actually 
do with this increased funding?
    Answer. The FDA commitment letter defines the performance 
objectives FDA is pursuing under MDUFMA. It requires FDA to meet 
challenging objectives for both cycle and decision goals and to pursue 
a variety of other goals that do not involve quantifiable measures of 
progress, such as maintaining current performance in areas where 
specific performance goals are not identified, working with its 
stakeholders to develop appropriate performance goals for modular 
review of PMAs, and working to improve the scheduling and timeliness of 
pre-approval inspections.
    The appropriation requested by the President's fiscal year 2005 
Budget will provide FDA the resources needed to move forward to 
effectively implement MDUFMA. Substantial improvement will be required 
to meet both the fiscal year 2005 performance goals and to lay the 
foundation for the increasingly challenging performance goals of fiscal 
year 2006 through fiscal year 2007.
    The additional funding will be used to:
  --Cover the cost of living increases so that FDA can maintain 
        staffing levels and scientific capabilities to meet the demands 
        of an increasing workload and new challenges;
  --Enhance the IT systems that support the current review process and 
        develop system capabilities to facilitate the submission and 
        acceptance of electronic premarket applications;
  --Enhance reviewer training and skill maintenance so that FDA 
        reviewers are able to keep pace with rapidly developing and 
        increasingly complex device technologies;
  --Employ research and science based activities that provide support 
        critical to the device product approval process;
  --Invest in office and laboratory infrastructure to keep pace with 
        rapid technological and scientific change in diverse fields of 
        expertise;
  --Work with outside experts to develop guidance and standards to help 
        industry understand and meet FDA requirements, and to help 
        support FDA's role in international harmonization on emerging 
        technologies.
  --Expand FDA's small business assistance program as required by the 
        FD&C Act. Approximately 35 percent of the PMAs approved last 
        year were from first time submitters who needed FDA's 
        assistance;
  --Conduct pre-approval inspections of device manufacturers;
  --Enhance policy guidance document development, emergency response, 
        review management and risk communication for products developed 
        and used to respond to terrorist threats and national security 
        crisis; and
  --Contract with professional societies and agencies to address the 
        agency's needs, including the need for adequate laboratory 
        facilities, to plan bio-effects research, and to develop 
        requirements for the safe use of devices.
    Question. Since the agency has already reached most of its MDUFMA 
performance goals, should the FDA be working toward more aggressive 
goals?
    Answer. Although FDA is making satisfactory progress towards 
achieving the ambitious performance goals established under MDUFMA, the 
fiscal year 2003 Office of Device Evaluation/Office of In Vitro 
Diagnostic Device Evaluation and Safety (ODE/OIVD) Annual Report does 
not claim or imply that we ``have already reached most'' of MDUFMA's 
performance goals. MDUFMA's goals are based on receipt cohorts; for 
example, the fiscal year 2003 receipt cohort includes applications 
received from October 1, 2002 through September 30, 2003. For PMAs and 
PMA supplements, the receipt cohort performance data shown for fiscal 
year 2003 in the ODE/OIVD Annual Report represents only receipts 
through March 31, 2003 (6 months of data); for 510(k)s, the receipt 
cohort performance data shown for fiscal year 2003 represents only 
receipts through June 30, 2003 (9 months of data). See the footnotes on 
pages 48, 53, 56, and 68 of the fiscal year 2003 report. Furthermore, 
the results applicable to our MDUFMA performance goals will change over 
time as FDA completes work on pending applications. As of March 31, 
2004, the following fiscal year 2003 applications were still pending 
(the numbers were substantially higher when the fiscal year 2003 report 
was prepared):
  --PMAs--21
  --Expedited PMAs--1
  --180-day PMA Supplements--2
  --510(k)s--316
    Also, the goals become more stringent beginning in fiscal year 
2005.
    The ODE/OIVD Annual Report shows promising progress towards 
achieving MDUFMA's objectives, but those results represent only 
preliminary indicators of performance. FDA will provide quarterly 
reports updating our progress towards achieving MDUFMA's performance 
goals on our MDUFMA web site (www.fda.gov/cdrh/mdufma).
                     medical device/drug marketing
    Question. We have all heard that a particular DC laser surgeon 
fixed Tiger Woods' eyesight, and that former Senator Bob Dole has 
benefited from a particular prescription drug. Now we learn that golfer 
Jack Nicklaus has a new hip made by a particular company. The 
implications here are if it is good enough for Tiger/Bob/Jack, its good 
enough for me. What role does the FDA play in monitoring these types of 
advertisements?
    Answer. FDA regulates drugs and medical devices in the United 
States under the authority of the Federal Food, Drug, and Cosmetic Act 
(FDCA). This authority extends to promotional labeling for all drugs 
and devices and advertising for prescription drugs and so-called 
``restricted'' devices. (21 U.S.C. 342(a); 352(a), (n), (q), (r); 
362(a).) The Federal Trade Commission (FTC) also has legal authority to 
regulate advertising (15 U.S.C. 52), and takes the lead in regulating 
the advertising of OTC drugs and non-restricted devices. FDA takes the 
lead in regulating the labeling of over-the-counter (OTC) and 
prescription drugs and non-restricted and restricted devices, and the 
advertising of prescription drugs and restricted devices.
    Advertisements for prescription drugs must include, among other 
things, ``information in brief summary relating to side effects, 
contraindications, and effectiveness,'' as specified in FDA 
regulations. (21 U.S.C. 352(n); see also 21 CFR 202.1.) Advertisements 
for restricted devices must include ``a brief statement of the intended 
uses of the device and relevant warnings, precautions, side effects, 
and contraindications. . . .'' (21 U.S.C. 352(r).) Both prescription 
drug and restricted device advertisements also must not be false or 
misleading, meaning they must disclose material risk information. (21 
U.S.C. 352(q)(1) & 321(n); 21 CFR 202.1(e)(5).) FDA's rules for 
prescription drug and restricted device advertising are the same, 
whether the advertising is aimed at a consumer audience or at health 
care professionals.
    The FDCA contains no special rules for celebrity endorsements in 
advertising. In general, an endorsement could be subject to the general 
rules for advertising set forth above. Thus, if a celebrity 
spokesperson were to make a statement in an advertisement for a 
prescription drug or restricted device that is false or misleading, or 
if an advertisement contained a celebrity testimonial but lacked the 
risk information required under the above provisions, FDA likely would 
have authority to initiate enforcement action under the FDCA. 
Statements by independent individuals not speaking on behalf of a drug 
firm are not subject to FDA's advertising jurisdiction. Oral 
representations by paid representatives of drug firms concerning the 
safety or effectiveness of a product might also within FDA's regulatory 
authority if they create a new intended use for a product, for which 
adequate directions would be required in labeling and for which 
premarket approval might be required. (See 21 U.S.C. 352(f)(1), 355.)
    FDA believes consumer-directed advertisements play an important 
role in advancing the public health by encouraging consumers to seek 
treatment. Since 1997, consumer-directed advertisements have been aired 
(on television or radio) for about 98 prescription drugs. Of those, 14 
are intended for under-treated conditions, such as high cholesterol, 
heart disease, and mental health problems like depression. Others are 
for serious conditions such as asthma, Alzheimer's disease, arthritis, 
chronic obstructive pulmonary disease, diabetes, insomnia, migraine, 
obesity, osteoporosis, overactive bladder, serious heartburn, smoking 
cessation, and sexually transmitted diseases.
    FDA held a public meeting to discuss the results of FDA surveys and 
other research on consumer-directed advertising on September 22-23, 
2003. Based in part on discussion at that meeting, FDA has developed 
guidance to encourage advertising that provides risk and benefit 
information appropriate to support conversations between consumers and 
their health care providers. On February 4, 2004, the agency issued 
three draft guidance documents, addressing (1) options for presenting 
risk information in consumer-directed print advertisements for 
prescription drugs, to encourage use of consumer-friendly language and 
formats (2) criteria FDA uses to distinguish between disease awareness 
communications and promotional materials, to encourage manufacturers to 
disseminate disease educational messages to the public, and (3) a 
manner in which restricted device firms can comply with the rules for 
disclosure of risk information in consumer-directed broadcast 
advertising for their products, to help encourage compliance in this 
emerging area of medical product promotion.
    FDA has adopted a comprehensive, multi-faceted, and risk-based 
strategy for regulating consumer-directed advertising of medical 
products. This strategy includes legally sustainable letters, guidance 
development, frequent informal communications with industry and 
advertisers, and research on the public health effects of consumer-
directed promotional materials. We continue to monitor the impact of 
consumer-directed promotion on the public health.
                   methylmercury advisory for seafood
    Question. As you will recall, Dr. Crawford, in the Statement of the 
Managers to accompany the fiscal year 2004 Omnibus Appropriations bill, 
the conferees encouraged coordination between the FDA and the EPA on 
what is considered a safe level of methylmercury exposure. I was 
pleased to note that an updated consumer advisory regarding fish 
consumption and methylmercury was released in mid-March. How does this 
new advisory differ from that which was released by the FDA in July of 
2002?
    Answer. The FDA issued an advisory for mercury in fish in March of 
2001; this advisory was then reviewed by the FDA's Food Advisory 
Committee (FAC) in July 2002. There was no new advisory issued in July 
2002. The FAC made six recommendations at their meeting in July 2002 as 
follows:
  --Better define what is meant by ``eat a variety of fish'' so that 
        consumers can follow this recommendation effectively;
  --Work with other Federal and State agencies to bring commercial and 
        recreational fish under the same umbrella;
  --Publish a quantitative exposure assessment used to develop the 
        advisory recommendations;
  --Develop specific recommendations for canned tuna, based on a 
        detailed analysis of what contribution canned tuna makes to 
        overall methylmercury levels in women;
  --Address children more comprehensively in the advisory to relate 
        dietary recommendations in the advisory to the age/size of the 
        child; and,
  --Increase monitoring of methylmercury to include levels in fish and 
        the use of human biomarkers.
    Based on these recommendations, meetings with stakeholders, focus 
group testing as well as further input from the FACs in December 2003, 
the FDA issued a revised advisory on March 19th 2004. The revised 
advisory differed from the 2001 advisory in a number of ways as 
follows:
  --The 2004 Advisory is a joint advisory by FDA and EPA that addresses 
        both commercial caught and locally caught fish and shellfish;
  --The 2004 Advisory more strongly emphasizes the positive benefits of 
        eating fish;
  --The 2004 Advisory provides examples of commonly eaten fish that are 
        low in mercury;
  --The 2004 Advisory and the Question and Answers section specifically 
        addresses canned light tuna and canned albacore (``white'') 
        tuna, as well as tuna steaks;
  --The 2004 Advisory recommends not eating any other fish in the same 
        week as locally caught fish are consumed (the Advice on the 
        amount of locally caught fish to eat is the same as in the 2001 
        EPA advisory); and,
  --The 2004 Advisory contains a section that addresses the frequently 
        asked questions about mercury in fish.
    The 2004 advisory was revised to provide useful information for 
keeping fish as part of a healthy diet and at the same time reduce the 
exposure to mercury. The 2004 Revised Advisory more accurately reflects 
the purpose of the information.
                       new drug approval process
    Question. The FDA recently issued a report which described the 
decrease in the number of new innovative drug application, and 
recommends reform to the existing regulatory process. I would 
appreciate it if you could explain just exactly what the FDA plans to 
do in this regard.
    Answer. The ``critical path'' is best described as the crucial 
steps that determine whether and how quickly a medical discovery 
becomes a reliable medical treatment for patients. There are certain 
points on this path where difficulties are occurring. FDA believes that 
a major problem in today's drug development process is that the new 
science and scientific tools being used in the discovery process are 
not being harnessed to guide the development process that brings 
products to market. FDA has called for a new focus on modernizing the 
tools that applied biomedical researchers and product developers use to 
assess the safety and effectiveness of potential new products, and the 
manufacturing tools necessary for high-quality mass production of 
cutting-edge therapies. FDA is in a unique position to identify 
scientific challenges that cause delays and failures in product testing 
and manufacturing because of its experience overseeing medical product 
development, assessment, and manufacturing/marketing; its vast clinical 
and animal databases; and its close interactions with all the major 
players in the critical path process.
    FDA, through collaboration with academia, patient groups, industry, 
and other government agencies, will play a major role in identifying 
systemic medical product development problems via development of a 
Critical Path Opportunities List, and in conducting or collaborating on 
research to create a new generation of performance standards and 
predictive tools that will provide better answers about the safety and 
effectiveness of investigational products, faster, with more certainty, 
and at lower costs. Specific examples of critical path efforts include: 
developing guidances and scientific workshops on ``best practices'', 
developing new animal or computer-based predictive models, developing 
new biochemical and genomic assays as biomarkers for safety and 
effectiveness, collaboration on the design of new clinical evaluation 
techniques, and facilitating multi-company studies of technologies 
which no one company could mount. FDA will identify and prioritize the 
most pressing product development problems and the areas that provide 
the greatest opportunities for rapid improvement and public health 
benefits across the three dimensions of the ``critical path''--safety 
assessment, evaluation of medical utility, and product 
industrialization and will facilitate collaborative research in these 
areas.
    Question. A consumer group has expressed the opinion that the FDA 
should approve only drugs which show concrete advantages to drugs 
currently on the market. What is your response to that suggestion?
    Answer. Our present and future mission remains constant: to ensure 
that drug products available to the public are safe and effective. If 
the drug is effective and we are convinced its health benefits outweigh 
its risks, we approve it for sale. Statutory requirements dictate that 
we review products submitted to us requesting approval. From a medical 
perspective, it is desirable for physicians and consumers to have a 
variety of drug treatment choices. Not all people can tolerate a 
specific drug. Not all drugs have the intended affect in every person. 
From an economic perspective, it is also useful to have a market 
featuring a variety of products so that prices are competitive.
                     seafood inspection/gao report
    Question. The General Accounting Office recently issued a report on 
the FDA's imported seafood safety program. Basically, GAO found that 
although the FDA has made some progress in the number of foreign firms 
being inspected and the number of seafood products being tested at U.S. 
ports of entry, there is more work to be done. Among other things, GAO 
recommends that the FDA work with NOAA to have NOAA employees provide 
various services under their Seafood Inspection Program. Have you 
reviewed this GAO report? Do you agree with their observations? What 
steps has the FDA taken to work with NOAA in this regard?
    Answer. FDA reviewed the GAO report and provided a lengthy comment 
to the GAO on this particular recommendation. The comment was published 
in the Appendices to the report. In summary, FDA noted that it has a 
long and collegial working relationship with the seafood inspection 
program within the National Marine Fisheries Service (NMFS) and that 
the two agencies will be working together to find better ways of 
integrating their programs. Potential areas of integration were 
described, including the use of NOAA laboratory capacity to carry out 
analyses of seafood samples that FDA takes during the normal course of 
work; the commissioning of NMFS inspectors; the use of NMFS inspectors 
who might already be on site in distant locations; and the issuance by 
NMFS of European Health Certificates for a fee to U.S. industry that 
ships fish and fishery products to Europe. The latter would free up FDA 
resources that are now devoted to that activity.
    We have recently worked with NOAA Fisheries' National Seafood 
Inspection Laboratory (NSIL) located in Pascagoula, MS and the NOAA 
Fisheries' Northwest Fisheries Science Center in Seattle, WA to assess 
the use of NOAA laboratory capacity to carry out analyses of seafood 
samples that FDA takes during the normal course of our work, or during 
``crisis'' situations. Specifically for chloramphenicol analysis, our 
discussions have resulted in FDA's provisional approval (pending on 
site review) of these laboratory's methods for sample submission, 
custody, routing, and accounting and documentation procedures necessary 
to maintain the regulatory chain of custody and tracking required for 
import collections. While FDA is not able to fund this initiative this 
fiscal year, we hope that we will be able to implement this proposal in 
the future.
                         agricultural products
    Question. The White House Office of Science and Technology Policy, 
(OSTP) had recommended approximately 2 years ago (August 2, 2002) that 
various agencies--including the FDA--complete guidelines regarding the 
early safety assessment of agricultural products developed through 
biotechnology for food and feed use. To date, there is no evidence that 
the FDA has acknowledged this mandate nor made any progress towards 
finalizing a policy. The U.S. regulatory system currently imposes a 
zero tolerance on the presence of unapproved biotech-enhanced events in 
food and feed, regardless of the risk level. It does not recognize the 
realities of a biological system. This zero-tolerance' policy exposes 
grain handlers, food processors and feed manufacturers to the risk that 
any trace amounts of biotech-enhanced events in general commodity crops 
that have not been approved for food and feed under the U.S. regulatory 
process could render such crops adulterated and subject to seizure 
under Federal law. Such a policy is inconsistent with other food purity 
standards which have established thresholds for trace amounts of 
unexpected materials. Without having a policy in place, the United 
States risks significant disruptions in global agricultural trade. What 
is the FDA doing to meet their obligations and will they be able to 
complete their work by year's end?
    Answer. On August 2, 2002, OSTP announced proposed Federal actions 
to update field tests requirements for biotechnology derived plants and 
to establish early food safety assessments for new proteins produced by 
such plants. As part of this proposal, FDA announced that it would 
publish for comment draft guidance to address the possible 
intermittent, low level presence in food and feed of new non-pesticidal 
proteins from biotechnology-derived crops under development for food or 
feed use, but that have not gone through FDA's pre-market consultation 
process. FDA is preparing draft guidance and expects to publish the 
draft guidance for comment this year.
                       transgenic animals in cvm
    Question. The FDA has resources in place for regulation of 
transgenic animals in CVM. However, the agency has to date not provided 
any guidance to industry for the regulation of transgenic animals. What 
is the FDA doing to refine and clarify the regulatory process for 
transgenic animals, and when can we expect to see specific regulatory 
guidance published?
    Answer. It is true that CVM has not issued any general guidance to 
industry for the regulation of transgenic animals. Instead, CVM has 
worked with investigators one-on-one to ensure safe and efficient 
development of animal biotechnology products while an interagency group 
led by the White House Office of Science and Technology Policy (OSTP) 
develops a coordinated framework that is appropriate to animal 
biotechnology.
    In 1984, the Federal Government embarked on project to develop a 
Coordinated Framework for regulation of biotechnology products. The 
early efforts focused on plant biotechnology for agricultural purposes. 
The effort has resumed at various times as new categories of products 
became feasible. For example, in May 2000, the White House directed its 
Council on Environmental Quality, ``CEQ'', and Office of Science and 
Technology Policy to conduct an interagency assessment of Federal 
environmental regulations pertaining to agricultural which includes 
both plants and animals, biotechnology and, if appropriate, make 
recommendations to improve them. Information is available on the 
internet at http://www.ostp.gov/html/ceq_ostp_study1.pdf.
    The White House-directed interagency process continues with respect 
to animal biotechnology products. The OSTP has convened over the last 
year an interagency group--which was similar to the group convened in 
May 2000--with FDA, APHIS, EPA, and OMB, represented. The group is 
focusing on the application of the Coordinated Framework to the wide 
range of animal biotechnology products that have been developed since 
the framework was created in the 1980's. There were very few examples 
of animal biotechnology products available to consider in the 1980's 
and only a limited number in 2000. The discussions are continuing, 
using various product examples, and including listening sessions with 
various stakeholders. Ultimately, a seamless Federal oversight system 
for animal biotechnology products is expected.
    Both as part of this interagency process and separately, FDA has 
examined--and continues actively to consider--the many complex legal, 
scientific, and policy issues related to animal biotechnology. FDA has 
a variety of authorities potentially applicable to transgenic animals, 
including FDCA authorities over foods, food additives, and new animal 
drugs. In 2000, FDA commissioned the National Academy of Sciences/
National Research Council Committee on Agricultural Biotechnology, 
Health, and Environment, (NAS) to identify and rank, where possible, 
potential risks associated with the introduction of animal 
biotechnology into commerce. FDA is using the resulting report 
recommendations, issued in the fall of 2002, as guidance in developing 
an action plan for the future. FDA is also preparing a risk assessment 
on animal clones and considering risk management measures that might be 
appropriate as a condition for marketing animal clones for use in the 
human food chain.
    FDA is also involved in considering issues relating to particular 
applications of animal biotechnology. In March 2003, FDA began 
investigating and contacting universities engaged in genetic 
engineering research to ensure that genetically engineered animals do 
not enter the food or animal feed--as rendered animals--supply. In May, 
FDA issued a letter to the Presidents of the Land Grant Universities 
and posted the letter for more general access on its website. 
Information on the ``Letter from FDA to Land Grant University'', from 
May 13, 2003, may be found on the internet at http://www.fda.gov/cvm/
biotechnology/LandGrantLtr.htm. Roughly 2 dozen organizations have 
responded to FDA's outreach and identified multiple projects with 
transgenic animals. FDA is monitoring these and other projects as 
appropriate.
                              food safety
    Question. The Chicago Tribune recently published an article 
regarding the rising threat to the U.S. food supply. Many of the quoted 
experts used the word ``scary'' in describing our vulnerability. What 
strategy, if any, has the FDA adopted to counter intentional tampering 
with the U.S. food supply. An additional $65 million was requested in 
the fiscal year 2005 budget request for food defense. What exactly does 
the FDA plan to do with these funds? What outputs will these funds 
provide?
    Answer. FDA employs five food defense strategies:
  --Development of increased food security awareness among Federal, 
        State, local, and tribal governments and the private sector by 
        collecting, analyzing, and disseminating information and 
        knowledge (awareness);
  --Development of capacity for identification of a specific threat or 
        attack on the food supply (prevention);
  --Developing effective protection strategies to ``shield'' the food 
        supply from terrorist threats (preparedness);
  --Developing a rapid, coordinated response capability to a terrorist 
        attack (response); and,
  --Development of capacity for a rapid, coordinated recovery from a 
        terrorist attack (recovery).
    FDA's plan to protect the food supply will be executed on both the 
import and domestic fronts.
    The fiscal year 2005 requested increase of $65,000,000 for 
Counterterrorism food defense includes $35,000,000 (including eLEXNET) 
to establish the Food Emergency Response Network (FERN) for increasing 
lab testing capacity in the event of a threat to the food supply. 
Roughly $23,000,000 of FERN funds will be available to States for 
establishing food lab emergency response capabilities and $5,500,000 
for infrastructure costs. The request also includes $15,000,000 to 
address a significant research need for ensuring that we have the 
capability of detecting or inactivating a broad range of agents that 
could pose serious threats to the food supply; $7,000,000 to increase 
import and domestic inspections activities; $5,000,000 to coordinate 
with and establish connectivity of our existing food surveillance 
efforts to the Department of Homeland Security as part of the 
Administration's bio-surveillance initiative; and $3,000,000 for the 
Emergency Operations Network project to upgrade our crisis/incident 
management capabilities in the event of a potential threat to the food 
supply.
    Funds requested for FERN would establish 15 State food emergency 
response labs, and will also provide an additional 25 labs connected to 
the eLEXNET, plus necessary infrastructure such as a national 
operations center to support participating labs. Research funds would 
ensure that we have the capability of detecting or inactivating a broad 
range of agents that could pose serious threats to the food supply. The 
funds for inspections would result in an additional 37,000 import field 
exams over the projected 60,000 projected level in fiscal year 2004 for 
a total of 97,000 import field exams. It would also allow for increased 
surveillance of our food supply by funding an additional 750 domestic 
establishment inspections. Funds would also upgrade our Emergency 
Operations Center by investing in the Emergency Operations Network, and 
would increase coordination of our food surveillance efforts with the 
Department of Homeland Security.
    Question. Last year, the FDA joined with the U.S. Bureau of Customs 
and Border Protection to develop a program to protect the American 
public from food bioterrorist attacks. There were high hopes that as 
many as 420,000 manufacturing, processing, packing, and holding 
facilities, both in the United States and abroad, would quickly 
register under this program and provide advance notice of imports in 
order to expedite the entry process. According to press reports, only 
about half of those facilities have registered, and food shipments are 
still arriving without prior notice. Why haven't all covered facilities 
complied with these requirements? What efforts have the FDA and the 
Customs Bureau undertaken to make sure that covered facilities 
register? It is estimated that 25,000 shipments of imported food arrive 
at U.S. ports of entry every day. Does the FDA have sufficient 
resources to adequately inspect these shipments?
    Answer. In the Registration Interim Final Rule (IFR), FDA estimated 
that about 420,000 facilities would be covered by the requirements of 
the rule. In the Prior Notice IFR, FDA estimated that it would handle 
25,000 prior notice submissions per day. To clarify the above question, 
FDA has not estimated that the approximately 420,000 facilities 
estimated in the Registration IFR would necessarily provide prior 
notice to FDA.
    FDA is unsure why it has only received approximately 200,000 of the 
expected registrations to date. Because registration is a completely 
new requirement and covers so many food facilities, FDA believes many 
small facilities may still be unaware of the registration requirement. 
FDA continues to place a high emphasis on notifying as many affected 
entities as possible of the registration requirements through outreach. 
On April 1, 2004, FDA completed nine city domestic outreach meetings 
for small businesses and other stakeholders on the registration and 
prior notice IFRs. FDA's international component of Phase II outreach 
has been conducted through the collaboration and cooperation of the 
Department of State through a foreign press conference, Voice of 
America video teleconference, and USDA's Foreign Agricultural Service. 
Worldwide attaches disseminated the Registration and Prior Notice 
interim final rules, compliance policy guidance, and Questions and 
Answers. FDA, with Customs and Border Protection participation, is also 
conducting a series of four outreach meetings in Asia from April 21-29, 
2004. FDA will continue to conduct outreach in order to notify affected 
entities of the registration requirement.
    In response to the question regarding whether FDA has sufficient 
resources to adequately inspect the estimated 25,000 daily shipments of 
imported food arriving at U.S. ports, FDA would like to clarify that 
the goal is not to physically inspect each shipment associated with a 
prior notice submission. However, it is important to note that these 
shipments are reviewed electronically to determine if the shipment 
meets identified criteria for physical examination or sampling and 
analysis or warrants other reviews by FDA personnel. This electronic 
screening allows FDA to concentrate its limited inspection resources on 
high-risk shipments while allowing low-risk shipments to proceed into 
commerce.
    Prior to receiving our prior notice authority, FDA already was 
receiving much of the entry information contained in the prior notice 
submission. However, FDA was not receiving the entry information in 
advance of the shipment arriving in the United States. With the new 
prior notice authority, FDA is receiving the entry information in 
advance of the shipment arriving in the United States (timeframe 
depends on mode of transportation), and thus, the Agency is better able 
to focus inspection resources on those shipments for which there is 
reason to believe they may pose a danger to the food supply.
                     monograph drug approval system
    Question. The Senate Committee Report to accompany the fiscal year 
2004 Agriculture appropriations bill discussed the interest in the 
establishment of a monograph system for prescription drug products. The 
FDA was asked to provide a report regarding the feasibility and cost of 
such a new monograph system for prescription drug products. What is the 
status of the FDA review of this proposal? If a monograph system is not 
the appropriate way to go, what efforts has the FDA undertaken to find 
a way to preserve health and safety while at the same time encourage 
competition, keep prescription drug prices low, and keep small 
businesses open?
    Answer. In 2003, the Senate Committee on Appropriations asked FDA 
to prepare a report regarding the feasibility and cost of a new 
monograph system for prescription drugs that have been marketed to a 
material extent or for a material time without pre-market approval. The 
agency is currently preparing that report. The report will analyze 
critical issues that would need to be addressed if FDA were to develop 
monographs for the approval of marketed prescription drugs. The report 
will evaluate the cost and feasibility of developing such a system.
    Question. The FDA just extended the comment period for 
consideration of a guidance document regarding enforcement priorities 
for older prescription drugs marketed outside of the current new drug 
approval system. In examining comments, will the FDA examine 
alternative approaches to the enforcement policy, such as a 
prescription drug monograph for these older prescription drugs?
    Answer. In October 2003, the Agency issued a draft Compliance 
Policy Guide (CPG) outlining FDA policies to encourage companies to 
sponsor unapproved drugs through the agency's drug approval process. 
The draft CPG requests public comment and sets forth the agency's 
enforcement approach, explaining that FDA will continue to give 
priority to enforcement actions involving three categories of 
unapproved drugs: Those that pose safety risks; those that lack 
evidence of effectiveness; and those that constitute health fraud. It 
also explains how the agency intends to address those situations in 
which a firm obtains FDA approval to sell a drug that other firms have 
long been selling without FDA approval.
    FDA received requests to reopen the comment period and has reopened 
the comment period until April 27, 2004. The Agency will carefully 
examine all comments, including comments relating to alternative 
approaches that are submitted on the matter.
                        prescription drug abuse
    Question. Mr. Crawford, last month the FDA joined with the Office 
of National Drug Control Policy, the DEA, and the Surgeon General in 
releasing the President's National Drug Control Strategy. As noted in 
the ONDCP press release, this marks the first time that any 
Administration has included the issue of prescription drug abuse in 
this Strategy. What, exactly, is the FDA's role in this effort? Will 
the FDA be able to fulfill this mission with existing funds and 
authorities? If not, were additional resources requested in the fiscal 
year 2005 budget? Does the FDA need additional statutory authorities?
    Answer. The strategy for reducing prescription drug abuse focuses 
on three core tactics:
    First, Business Outreach and Consumer Protection: FDA will work to 
ensure product labeling that clearly articulates conditions for safe 
and effective use of controlled substances so that commercial 
advertising fully discloses safety issues associated with the drug's 
use. A specific example of this is labeling that properly identifies 
patients for whom these products are appropriate and that recommend a 
``stepped care'' approach to the treatment of chronic pain, in 
accordance with treatment guidelines.
    FDA will consider Risk Management Programs (RMPs). The Agency will 
evaluate the need for a RMP during the approval process for Schedule II 
opiate drug products. RMPs help ensure the safe prescribing and use of 
these drugs through identification of appropriate patients and 
monitoring for adverse outcomes.
    FDA in conjunction with the DEA and the White House Office of 
National Drug Control Policy (ONDCP) will work with physician 
organizations to encourage comprehensive patient assessment prior to 
prescription of opiate therapy.
    FDA and other Federal agencies are enlisting the support of 
responsible businesses affiliated with online commercial transactions. 
These legitimate businesses will be asked to alert law enforcement 
officials to suspicious or inappropriate activities related to these 
products.
    Second, Investigation and Enforcement: The Internet is one of the 
most popular sources of diverted prescription drugs. An increasing 
number of rogue pharmacies offer controlled substances and other 
prescriptions direct to consumers online.
    FDA's Office of Criminal Investigation (OCI) and DEA work together 
on criminal investigations involving the illegal sale, use, and 
diversion of controlled substances, including illegal sales over the 
Internet. Both FDA and DEA have utilized the full range of regulatory, 
administrative, and criminal investigative tools available, as well as 
engaged in extensive cooperative efforts with local law enforcement 
groups, to pursue cases involving controlled substances.
    FDA and U.S. Customs and Border Protection (CBP), with assistance 
from DEA, continue to conduct spot examinations of mail and courier 
shipments for foreign drugs to U.S. consumers to help FDA and CBP 
target, identify, and stop illegal and potentially unsafe drug from 
entering the United States from foreign countries via mail and common 
carriers.
    Finally, Protecting Safe and Effective Use of Medications: FDA will 
support DEA's efforts with medical associations to identify existing 
best practices in physician training in the field of pain management. 
DEA and FDA plan to develop a mechanism to support the wider 
dissemination and completion of approved Continuing Medical Education 
(CME) courses for use of opioids that include information on the risk 
of abuse and addiction.
    FDA in conjunction with ONDCP and DEA will develop public service 
announcements that appear automatically during Internet drug searching 
to alert consumers to the potential danger and illegality of making 
direct purchases of controlled substances online. Currently, FDA, along 
with its sister agency, the Substance Abuse and Mental Health Services 
(SAMHSA), have jointly developed a public service announcement campaign 
to better educate consumers on the abuse of prescription pain killers.
    FDA did not request additional resources in the fiscal year 2005 
budget in order to participate in the activities stated above. This 
initiative does not require additional regulatory authority.
                                obesity
    Question. In your prepared remarks you discuss the FDA Obesity 
Working Group whose recommendations were recently released as part of 
HHS Secretary Thompson's overarching new national education campaign 
for combating obesity. What is the FDA role in these anti-obesity 
efforts? Which of your Centers is responsible for these efforts? What, 
specifically, is the FDA doing to make sure labels on food is correct, 
and that claims made about food are factual and science-based? What, if 
any, additional plans will be implemented in fiscal year 2005?
    Answer. In support of the President's Healthier U.S. initiative, 
the DHHS established a complementary initiative, Steps to a Healthier 
United States, which emphasizes personal responsibility for the choices 
Americans make for healthy behaviors. One aspect of this initiative 
focuses on reducing the major health burden created by obesity and 
other chronic diseases. Following DHHS' July 2003 Roundtable on Obesity 
and Nutrition, on August 11, 2003, FDA established an Obesity Working 
Group, or OWG, to prepare a report that outlines an action plan to 
cover critical dimensions of the obesity problem from FDA's perspective 
and authorities. This report was released on March 12, 2004.
    There is no simple answer to the problem of obesity. Achieving 
success in reducing and avoiding obesity will occur only as a result of 
efforts over time by individuals as well as various sectors of our 
society. It should be noted, however, that most associations, agencies, 
and organizations believe that diet and physical activity should be 
addressed together in the fight against overweight and obesity.
    The OWG report provides a range of short and long-term 
recommendations to address the obesity epidemic with a focus on a 
``calories count'' emphasis for FDA actions. These recommendations are 
based on sound science and address multiple facets of the obesity 
problem under FDA's purview, including developing appropriate and 
effective consumer messages to aid consumers in making wiser dietary 
choices; establishing educational strategies and partnerships to 
support appropriate messages and teach people, particularly children, 
how to lead healthier lives through better nutrition; developing 
initiatives to improve the labeling of packaged foods with respect to 
caloric and other nutrition information; encouraging and enlisting 
restaurants in efforts to combat obesity and provide nutrition 
information to consumers, including information on calories, at the 
point-of-sale; developing new therapeutics for the treatment of 
obesity; designing and conducting effective research in the fight 
against obesity; and continuing to involve stakeholders in the process.
    Regarding food labeling, the OWG report contains several 
recommendations based on sound science. I will provide these 
recommendations for the record.
    [The information follows:]
    Publish an advance notice of proposed rulemaking, or ANPRM, to seek 
comment on the following:
  --How to give more prominence to calories on the food label, for 
        example, increasing the font size for calories, including a 
        column in the Nutrition Facts panel of food labels for percent 
        Daily Value for total calories, and eliminating the listing for 
        calories from fat;
  --Whether to authorize health claims on certain foods that meet FDA's 
        definition of ``reduced'' or ``low'' calorie. An example of a 
        health claim for a ``reduced'' or ``low'' calorie food might 
        be: ``Diets low in calories may reduce the risk of obesity, 
        which is associated with type 2 diabetes, heart disease, and 
        certain cancers.''
  --Whether to require additional columns on the Nutrition Facts panel 
        to list quantitative amounts and percent Daily Value of an 
        entire package on those products and package sizes that can 
        reasonably be consumed at one eating occasion--or declare 
        quantitative amounts and percent Daily Value of the whole 
        package as a single serving if it can reasonably be consumed at 
        a single eating occasion; and,
  --Which, if any, reference amounts customarily consumed of food 
        categories appear to have changed the most over the past decade 
        and hence require updating.
    File and respond in a timely way to petitions the agency has 
received that ask FDA to define terms such as ``low,'' ``reduced,'' and 
``free'' carbohydrate; and provide guidance for the use of the term 
``net'' in relation to carbohydrate content of food--these petitions 
were filed on March 11, 2004. Encourage manufacturers to use dietary 
guidance statements, an example of which would be, ``To manage your 
weight, balance the calories you eat with your physical activity.''
    Encourage manufacturers to take advantage of the flexibility in 
current regulations on serving sizes to label as a single-serving those 
food packages where the entire contents of the package can reasonably 
be consumed at a single eating occasion. Encourage manufacturers to use 
appropriate comparative labeling statements that make it easier for 
consumers to make healthy substitutions.
    We believe that if the report's recommendations are implemented 
they will make a worthy contribution to confronting our Nation's 
obesity epidemic and helping consumers' lead healthier lives through 
better nutrition.
    We also believe that the regulatory scheme for claims in food 
labeling, whether health claims, nutrient content claims, or other 
types of claims, are science based, and we continue to consider 
modifications to our regulations to keep up with recent scientific 
developments. Some of the modifications FDA is currently considering 
are described above in the list of topics to be covered by the ANPRM 
the agency intends to issue.
                    albuterol metered-dose inhalers
    Question. As noted in the Senate Report last year, there are a 
number of organizations which support the removal of ozone-destroying 
CFC albuterol metered-dose inhalers from the market. The FDA has 
indicated in its regulatory plan that it intends to issue a rule on 
this matter. Proponents of this rule had expected a proposed rule by 
now. When can this Committee expect the FDA to issue a proposed rule to 
remove albuterol metered-dose inhalers from the U.S. market? Can you 
tell us at this time what you expect the effective date would be for 
that rule? When do you expect the FDA will issue a final rule?
    Answer. FDA is currently working on the CFC albuterol proposed rule 
and expects it to publish shortly. The rulemaking process prohibits FDA 
from describing the contents of the proposed rule, so the Agency cannot 
state the effective date of the rule at this time. FDA expects the 
final rule to publish in March 2005.
                biotech-enhanced events in food and feed
    Question. The U.S. regulatory system currently imposes a zero 
tolerance on the presence of unapproved biotech-enhanced events in food 
and feed, regardless of the risk level. It does not recognize the 
realities of a biological system. This zero-tolerance' policy exposes 
grain handlers, food processors and feed manufacturers to the risk that 
any trace amounts of biotech-enhanced events in general commodity crops 
that have not been approved for food and feed under the U.S. regulatory 
process could render such crops adulterated and subject to seizure 
under Federal law. Such a policy is inconsistent with other food purity 
standards which have established thresholds for trace amounts of 
unexpected materials. Without having a policy in place, the United 
States risks significant disruptions in global agricultural trade. What 
is the FDA doing to meet their obligations and will they be able to 
complete their work by year's end?
    Answer. On August 2, 2002, OSTP announced proposed Federal actions 
to update field tests requirements for biotechnology derived plants and 
to establish early food safety assessments for new proteins produced by 
such plants. As part of this proposal, FDA announced that it would 
publish for comment draft guidance to address the possible 
intermittent, low level presence in food and feed of new non-pesticidal 
proteins from biotechnology-derived crops under development for food or 
feed use, but that have not gone through FDA's pre-market consultation 
process. FDA is preparing draft guidance and expects to publish the 
draft guidance for comment this calendar year.
                          generic biologicals
    Question. In your testimony you stressed the importance of being 
``open-minded'' about the science ``as the science improves.'' Can you 
assure the Subcommittee that the Agency will not adopt an approach that 
resurrects old science, and that the Agency intends to remain open 
minded as it evaluates application of the vast innovation in analytical 
tools to the development and evaluation of follow-on biologicals?
    Answer. We can assure the subcommittee that the Agency will not 
adopt an approach that resurrects or relies on outdated scientific 
techniques in the development and evaluation of follow-on biologics. 
Indeed, the Agency has been very proactive in striving to understand 
and embrace the latest technology used in the characterization of 
biotechnological products. For example, the Agency supports active 
research programs that utilize current technologies in addressing 
mission related research and in developing technologies that help 
address regulatory and scientific issues. These efforts are important 
to ensure that FDA scientists remain current with the latest advances 
in analytical techniques. Scientific staff also participates in 
scientific symposia and extensively interact with colleagues. Indeed, 
many of our scientific staff involved in the regulation of biotech 
products, are located on the NIH campus, which provides an enriched 
research environment utilizing advanced technology that is second to 
none.
    In June 2003, the Agency cosponsored, along with the International 
Association of Biologicals and the National Institute for Biological 
Standards and Control, a conference on the ``State of the Art 
Analytical Methods for the Characterization of Biological Products and 
Assessment of Comparability''. This meeting focused on what current 
analytical technologies can and cannot tell us about the 
physicochemical structure and function of biological therapeutics;
    The Agency's scientists participate yearly in the annual Symposium 
on ``Well Characterized Biotechnological Products'' cosponsored by FDA 
and the California Separation Sciences Society. This symposium includes 
highly technical seminars, workshops, and poster sessions that 
introduce the latest analytical technologies for the evaluation of 
biotechnological products. These technologies are presented by the 
leading academic, Industrial (pharmaceutical and equipment vendors), 
and government scientists;
    The Agency's scientists actively participate in many International 
conferences sponsored by biotech and pharmaceutical organizations (Bio, 
Pharma, and DIA) and other organizations that provide scientific, 
technological and regulatory information to the pharmaceutical 
industry. These conferences frequently present the application of the 
latest analytical methods for the characterization of protein and 
glycoproten therapeutics;
    The Agency also invites innovative scientists from academia and 
industry to present and discuss with FDA scientists the latest advances 
in analytical technology and the development of animal models that 
address some of the current limitations of physicochemical 
characterization of protein products.
    Regarding immune responses to biological therapeutics 
(immunogenicity), which can cause serious adverse events and limit 
product effectiveness, the agency co-sponsored a meeting entitled 
``Immunogenicity of Therapeutic Biological Products'' in October 2001, 
and has participated in numerous symposia on this topic in national 
meetings. Agency research scientists work with industry and academia in 
bringing to bear, on biological product development, informative animal 
models (transgenic, knockout, and knock-in) to more accurately predict 
the human immune response to various biotech products.
    Question. In your testimony you highlighted the extraordinary 
strides made over the past few years in developing instrumentation and 
other analytical tools that have vastly improved the ability to 
evaluate follow-on biologicals. Please identify for the Subcommittee 
the type of new analytical tools now available to industry and the 
Agency to conduct rigorous evaluations of follow-on biologics.
    Answer. Over the last several years there have been many advances 
in analytical tools that have improved the ability to evaluate follow-
on Biologicals.
    Electrospray, matrix assisted laser desorption (ES-MS), and fast 
atom bombardment mass spectrometry (MALDI-TOF) have been use in 
conjunction with advances in separation technologies (Reverse Phase-
High Performance Liquid Chromatography (RP-HPLC), Ion Exchange 
Chromatography, Hydrophobic Interaction Chromatography, Affinity 
Chromatography, and Size Exclusion Chromatography) to identify protein 
and carbohydrate heterogeneities and are very powerful tools for 
characterizing variations in a protein that are typically present in a 
single product.
    Recent advances in mass spectrometry (time of flight, fourier 
transform) have greatly improved the resolving powers of the technology 
and now provide the capability to resolve to within a 1 Da mass 
accuracy, the mass of a protein. In conjunction with powerful 
deconvulution software, this technology allows for very accurate mass 
data and a more comprehensive assessment of the carbohydrate profiles. 
This technology has resulted in a new approach called ``top down'' that 
allows for the analysis of intact proteins. In contrast, the 
traditional approach analyzes protein fragments generated by digestion 
with proteases, making it difficult to provide assurance that minor 
modifications to the protein have been identified.
    Protein aggregates can compromise the quality of a product as it 
relates to its safety and efficacy and are thought to be the most 
important product characteristic in generating immune responses. Such 
aggregates have typically been analyzed by size exclusion 
chromatography (SEC), an analytical method with limitations that result 
in the detection of only a very narrow spectrum of aggregates that can 
form in a protein product. Technological advances in a number of other 
analytical methods such as sedimentation velocity obtained by 
analytical ultracentrifugation and field flow fractionation can detect 
a much wider spectrum of aggregates, many of which are not detected by 
SEC.
    Advances in gel electrophoresis primarily various forms of 
capillary electrophoresis, now provide excellent resolution between 
protein species which differ slightly in net charge and can be coupled 
to various detention methods (UV, fluorescence, MS) for enhanced 
product characterization.
    Surface plasmon resonance technology monitors molecular interaction 
in real time and allows for the accurate detection and quantification 
of the on and off rates (kinetic rate constants) of protein-to-protein 
interactions. This technology has been applied to the design of 
immunoassays used for the detection of host antibodies formed against 
biotechnology products and to the characterization of mAB product 
interactions with their therapeutic target.
    Advances in the understanding of signal transduction mechanisms for 
many protein products have provided for the development of more precise 
in vitro bioassays that monitor an early event in the biological 
function of a protein rather then a cellular response, such as cell 
growth, that is subject to greater variability in outcomes.
    Protein products are not rigid structures and frequently the 
ability to flex and change conformations is critical to a protein's 
function. This property is difficult to detect by convention 
physicochemical techniques. However, advances in scanning probe 
microscopy particularly Atomic Force Microscopy (AFM), facilitate the 
mapping of biological samples to three-dimensional images and are 
capable of detecting multiple conformations. AFM-generated surface 
topology maps can portray in explicit detail the surface features of 
proteins and DNA. The application of this technology is broad and 
includes the study of protein and DNA structure, protein folding/
unfolding, protein-to-protein interactions, protein-to-DNA 
interactions, enzyme catalysis and protein crystal growth.
    Dynamic light scattering and multi-angle light scattering (LS) are 
beginning to be used in conjunction with advances in separation systems 
such as field flow fractionation and size exclusion chromatography. LS 
can provide absolute molecular weight, root-mean square radius and 
hydrodynamic radius of individual species of product.
    Microcalorimetry allows one to assess the thermodynamic profile of 
a protein, which provides a measurement of the structural stability of 
the protein product or interactions with other proteins. The method can 
determine affinity constants, enthalpy, entropy, heat capacity, Gibbes 
free energy and the number of binding sites, parameters that help 
characterize proteins but have not been routinely employed in the 
biotech industry.
    Fluorescence spectroscopy has been useful in monitoring flexibility 
of proteins and conformational stability.
    Nuclear Magnetic Resonance Spectroscopy (NMR) has traditionally 
been used to identify small molecules and their structures are now 
being applied to solving the structure of much larger and more complex 
biological macromolecules.
    Question. Please outline for the Subcommittee the history of FDA's 
regulation of biologicals, the range and volume of biological approvals 
issued by the Agency over the course of that history, and any other 
factors you consider relevant to FDA's vast scientific expertise that 
is being applied to development of the draft Guidance and that 
ultimately would be brought to bear in evaluating follow-on 
biologicals.
    Answer. The regulation of biologics began in the United States in 
1902, when Congress passed the Virus, Serum and Antitoxin Act (also 
known as the Biologics Control Act of 1902 and as the Virus Toxin Law). 
This law was enacted following the deaths of ten children who had 
received injections of diphtheria antitoxin contaminated with tetanus. 
In 1901, there was a serious epidemic of diphtheria resulting in a 
great demand for the diphtheria antitoxin. At the time, there was no 
requirement for safety testing and none was performed, and the 
manufacturing process was not controlled properly. The tetanus 
contamination was traced to an infected horse whose serum was used in 
producing the antitoxin.
    The 1902 Act required biologics to be manufactured in a manner that 
assured safety, purity, and potency. Provisions of the Act included:
  --Establishment license requirements;
  --Product license requirements;
  --Labeling requirements;
  --Inspection requirements;
  --Suspension/revocation of licenses; and,
  --Penalties for violations.
    The responsibility for implementing this new law was given to the 
Hygienic Laboratory of the Public Heath Service (PHS). In 1903, PHS 
issued regulations that included requirements that inspections would be 
unannounced and licenses were to be issued and re-issued on the basis 
of an annual inspection. The 1902 Act was amended in 1944. One change 
included a requirement that a biological license could be issued only 
upon demonstration that the product and the establishment met standards 
to ensure the continued safety, purity and potency of such products. 
This evaluation was to be made during pre-licensure inspections. These 
provisions are codified in section 351 of the PHS Act (42 U.S.C. 262). 
Another change that occurred at this time was the focal point for 
administering the Act. This responsibility was given to the National 
Institute of Health's National Microbiological Institute. Changes in 
responsibility for regulating biological products under the PHS Act 
occurred in the mid-1950 with the advent of polio vaccines. From 1955 
to 1972, biologics were regulated within the National Institutes of 
Health (NIH), in the Division of Biologics Standards (DBS). In 1972, 
biologic regulation was transferred to the FDA's Bureau of Biologics.
    After this transfer to the FDA began a merger of the regulatory 
requirements of the PHS Act and the Federal Food, Drug and Cosmetic 
(FD&C) Act (21 U.S.C.). Biologics were viewed as biological products 
under the PHS Act, and as drugs under the FD&C Act, subject to 
inspection under the Good Manufacturing Practices (GMP) regulations for 
drugs. The reagent manufacturers were also inspected under drug GMPs 
because there were no device regulations until 1976. Among the several 
changes that occurred, blood banks were required to register with the 
FDA and GMPs for blood and blood products were promulgated. Today one 
of the major responsibilities of FDA is to ensure the safety of the 
Nation's blood supply.
    In 1982, the FDA merged the Bureau of Biologics and the Bureau of 
Drugs into the Center for Drugs and Biologics. After a subsequent 
reorganization the responsibility for biologics regulation was placed 
under the Center for Biologics Evaluation and Research (CBER). The 
responsibilities for regulating biological products has grown and 
become more complex from its beginning in 1902, when technologies for 
producing biological products were in their infancy and the primary 
role was vaccine regulation. Today the regulation of a wide variety of 
novel biological products and their use as therapeutics requires 
knowledge of new scientific developments and concepts of research in 
the relevant biological disciplines. The therapeutic biological 
products that the FDA regulates are on the leading edge of technology. 
Rapid scientific advances in biochemistry, molecular biology, cell 
biology, immunology, genetics, and information technology are 
transforming drug discovery and development, paving the way for 
unprecedented progress in developing new medicines to conquer disease.
    As a representative sample of the range and volume of biological 
products approved, we offer below the fiscal year 2003 approvals. 
CBER's fiscal year 2003 major approvals include all approvals for 
original new BLAs (except those for blood banking), and other approvals 
for original biologic, drug, or device applications or supplements 
(e.g., for new/expanded indications, new routes of administration, new/
improved tests, new dosage formulations and regimens). Although most of 
the Office of Therapeutics Research and Review's applications were 
transferred to the Center for Drug Evaluation and Research on June 30, 
2003, all major BLA approvals are included in this list for both 
centers.
    [The information follows:]

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


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


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


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


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


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

                                 ______
                                 

           Questions Submitted by Senator Christopher S. Bond

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

                Questions Submitted by Senator Herb Kohl

                                obesity
    Question. Dr. Crawford, both USDA and FDA have recently announced 
new efforts to combat the increasing problem of obesity. FDA announced 
the ``Calories Count'' program, and USDA has money in several programs, 
including WIC, to help battle this problem. However, for all of the 
government's efforts, all of the money being put into this effort pales 
in comparison to the food industry's billions of dollars worth of 
advertising. How can the government successfully get its message out 
when, at first glance, its efforts appear to be dwarfed by the food 
industry? How do your agencies compete with that?
    Answer. In support of the President's Healthier U.S. initiative, 
the DHHS established a complementary initiative, Steps to a Healthier 
U.S., which emphasizes personal responsibility for the choices 
Americans make for healthy behaviors. One aspect of this initiative 
focuses on reducing the major health burden created by obesity and 
other chronic diseases. Following DHHS' July 2003 Roundtable on Obesity 
and Nutrition, on August 11, 2003, FDA established an Obesity Working 
Group, or OWG, to prepare a report that outlines an action plan to 
cover critical dimensions of the obesity problem from FDA's perspective 
and authorities. This report was released on March 12, 2004.
    There is no simple answer to the problem of obesity. Achieving 
success in reducing and avoiding obesity will occur only as a result of 
efforts over time by individuals as well as various sectors of our 
society. It should be noted, however, that most associations, agencies, 
and organizations believe that diet and physical activity should be 
addressed together in the fight against overweight and obesity.
    The OWG report provides a range of short and long-term 
recommendations to address the obesity epidemic with a focus on a 
``calories count'' emphasis for FDA actions. These recommendations are 
based on sound science and address multiple facets of the obesity 
problem under FDA's purview, including developing appropriate and 
effective consumer messages to aid consumers in making wiser dietary 
choices; establishing educational strategies and partnerships to 
support appropriate messages and teach people, particularly children, 
how to lead healthier lives through better nutrition; developing 
initiatives to improve the labeling of packaged foods with respect to 
caloric and other nutrition information; encouraging and enlisting 
restaurants in efforts to combat obesity and provide nutrition 
information to consumers, including information on calories, at the 
point-of-sale; developing new therapeutics for the treatment of 
obesity; designing and conducting effective research in the fight 
against obesity; and continuing to involve stakeholders in the process.
    Regarding food labeling, the OWG report contains several 
recommendations based on sound science. I will provide these 
recommendations for the record.
    [The information follows:]
    Publish an advance notice of proposed rulemaking, or ANPRM, to seek 
comment on the following:
  --How to give more prominence to calories on the food label, for 
        example, increasing the font size for calories, including a 
        column in the Nutrition Facts panel of food labels for percent 
        Daily Value for total calories, and eliminating the listing for 
        calories from fat;
  --Whether to authorize health claims on certain foods that meet FDA's 
        definition of ``reduced'' or ``low'' calorie. An example of a 
        health claim for a ``reduced'' or ``low'' calorie food might 
        be: ``Diets low in calories may reduce the risk of obesity, 
        which is associated with type 2 diabetes, heart disease, and 
        certain cancers.''
  --Whether to require additional columns on the Nutrition Facts panel 
        to list quantitative amounts and percent Daily Value of an 
        entire package on those products and package sizes that can 
        reasonably be consumed at one eating occasion--or declare 
        quantitative amounts and percent Daily Value of the whole 
        package as a single serving if it can reasonably be consumed at 
        a single eating occasion; and,
  --Which, if any, reference amounts customarily consumed of food 
        categories appear to have changed the most over the past decade 
        and hence require updating.
    In addition, FDA will file and respond in a timely way to petitions 
the agency has received that ask FDA to define terms such as ``low,'' 
``reduced,'' and ``free'' carbohydrate; and provide guidance for the 
use of the term ``net'' in relation to carbohydrate content of food--
these petitions were filed on March 11, 2004.
    FDA will also encourage manufacturers to use dietary guidance 
statements, an example of which would be, ``To manage your weight, 
balance the calories you eat with your physical activity.'' In 
addition, the Agency will encourage manufacturers to take advantage of 
the flexibility in current regulations on serving sizes to label as a 
single-serving those food packages where the entire contents of the 
package can reasonably be consumed at a single eating occasion and 
encourage manufacturers to use appropriate comparative labeling 
statements that make it easier for consumers to make healthy 
substitutions.
    FDA believes that if the report's recommendations are implemented 
they will make a worthy contribution to confronting the Nation's 
obesity epidemic and helping consumers' lead healthier lives through 
better nutrition.
    FDA also believes that the regulatory scheme for claims in food 
labeling, whether health claims, nutrient content claims, or other 
types of claims, are science based, and we continue to consider 
modifications to our regulations to keep up with recent scientific 
developments. A benefit of standardized, science-based terminology, as 
with other terms that FDA has defined that consumers may use to make 
health-based dietary choices--e.g., terminology concerning fat content-
, is that it allows consumers to compare across products and it 
encourages manufacturers to compete based on the nutritional value of 
the food. However, FDA does not regulate television and other media 
marketing of food products. Some of the modifications FDA is currently 
considering are described above in the list of topics to be covered by 
the ANPRM the agency intends to issue.
    With respect to conveying the report's messages to the public, FDA 
believes that all parties, including the packaged food industry, 
restaurants, academia, and other private and public sector 
organizations in addition to government agencies at all levels, have an 
essential role to play. On April 22, 2004, FDA's Science Board focused 
on specific recommendations from the OWG report. These recommendations 
call on FDA to work through a third-party facilitator to engage all 
involved stakeholders in a dialogue on how best to construct and convey 
obesity messages in the restaurant setting and in the area of pediatric 
obesity education.
    This approach is one example of how the Agency intends, by means of 
public and private partnerships, to leverage its ability to convey 
appropriate messages on obesity to the public with the goal of changing 
behavior and ultimately reversing obesity trends in the United States.
                           import inspections
    Question. Dr. Crawford, the FDA budget this year includes a $7 
million increase to fund 97,000 food import examinations. This is a big 
increase in inspections over any previous year--still, however, less 
than one percent of all of the food imported into this country will be 
inspected. How would you respond to charges that you still aren't 
inspecting nearly enough imported food, especially in light of events 
during the past year where bad food has gotten in and people have died? 
How do we ensure consumers that their food is indeed safe?
    Answer. FDA is appreciative of the additional funding we have 
received for the inspection of domestic firms and for inspections of 
imported foods. FDA believes it is more effective to focus our 
resources in a risk-based manner than to focus simply on increasing the 
percentage of imported food shipments that are physically inspected. It 
is important to note that every shipment of FDA-regulated food which is 
entered through Customs and Border Protection as a consumption entry is 
electronically reviewed by FDA's Operational and Administrative System 
for Import Support to determine if it meets identified criteria for 
further evaluation by FDA reviewers and physical examination and/or 
sampling and analysis or refusal. This electronic screening allows FDA 
to concentrate its limited inspection resources on high-risk shipments 
while allowing low-risk shipments to proceed into commerce.
    Due to constantly changing environments of operation, e.g., 
counterterrorism and BSE, our domestic inspection and import strategy 
cannot be defined in terms of a percentage of coverage through 
inspections, physical examinations and sample analyses. It needs to be 
a flexible blend of the use of people, technology, information and 
partnerships to help protect Americans from unsafe imported products. 
Accordingly, the Agency is developing and using strategies for 
mitigating risks prior to importation through partnerships and 
initiatives based on best practices and other science based factors 
relevant to the import life cycle, i.e., from foreign manufacturer to 
the U.S. consumer. Recently this principle has been applied in the 
``Canadian Facility Voluntary Best Management Practices for Expediting 
Shipments of Canadian Grains, Oilseeds and Products to the United 
States'' implemented February 24, 2004, and designed to mitigate the 
potential of mammalian protein prohibited from being fed to cattle or 
other ruminants under BSE-prevention regulations promulgated by CFIA 
and FDA.
    Another piece of the long term solution to a higher level of 
confidence in the security and safety of food products lies in 
information technology that will merge information on products and 
producers with intelligence on anticipated risks to target products for 
physical and laboratory examination or refusal. This strategy would 
rely on data integrity activities that reduce the opportunity for 
products to be incorrectly identified at ports. It would also rely on 
cooperation from producers so that FDA can identify sources that are 
unlikely to need physical testing. However, even with such targeting, 
improvements are limited by the available methodologies for assessing 
threat agents and our ability to predict which tests ought to be used.
    We are ramping up our food inspections, but we recognize that we 
also need to inspect smarter, not just inspect more. That is why FDA is 
making significant investments in technology and information resources 
such as the development of the Mission Accomplishment and Regulatory 
Compliance Services System, MARCS. MARCS is a comprehensive redesign 
and reengineering of two core mission critical systems at FDA: FACTS 
and the Operational and Administrative System for Import Support, 
OASIS. OASIS supports the review and decision making process of 
products for which entry is sought into the United States. We are using 
funds to work to further improve targeting and using force multipliers 
such as IT.
    FDA also has a proof of concept project, called ``Predict,'' with 
New Mexico State University under a Department of Defense contract 
which is being designed to enhance agency capability to rapidly assess 
and identify import entries based on risk using relevant information 
from various sources including regulated industry, trade, other 
Federal, State, and local entities, and foreign industry and 
governments. This project, if successful, will greatly enhance FDA's 
capability to be smarter in directing field activities on products of 
greater risk to public health and safety. The proof of concept project 
is projected to be completed in the Fall of 2004. The relentless growth 
in the volume of domestic as well as imported food products, which are 
increasingly in ``ready for consumer sale packaging.'' Food imports are 
now growing at 19 percent per year. FDA needs to use all the potential 
tools available to improve its efficiency in food security and safety 
coverage.
    In addition, FDA has several strategic initiatives to enhance 
safety. One of these is ``Agency Initiatives to Improve Coverage,'' 
which includes the creation of the Southwest Import District to better 
coordinate import activities on the southern border. Another is 
reciprocal FDA and U.S. Customs and Border Protection training to 
improve product integrity of goods offered for import and increase 
enforcement actions by Customs to deter willful violations of U.S. laws 
and regulations. While foreign inspections and border operations 
provide some assurance that imported foods are safe, the agency 
continues to work to foster international agreements and harmonize 
regulatory systems. For instance, we actively participate in the 
Canada/U.S./Mexico Compliance Information Group, which shares 
information on regulatory systems and the regulatory compliance status 
of international firms to protect and promote human health.
    It is very important that American consumers trust the safety of 
the food supply. FDA has made fundamental changes in how we implement 
our mission of protecting the food supply, so that all Americans can 
have confidence that their food has been handled under secure 
conditions that provide assurance of its safety.
                           fda foia policies
    Question. Dr. Crawford, my office has been working with a non-
profit patient advocacy group, the TMJ Association, in their efforts to 
have two FOIA requests that are well over a year old responded to. 
Their original FOIA request was made on November 1, 2002 (request 
number 02017071), more than 17 months ago, and the subsequent request 
was made on March 25, 2003 (request number 03004361). They have not yet 
received the information requested, and have been unable to get a date 
commitment by FDA as to when the information will be provided. It is my 
understanding that they have been informed that FOIA requests are 
severely backlogged, and the FDA has no idea when they will be able to 
process their request. What is the current backlog for FOIA requests?
    Answer. As of April 28, 2004, FDA has 19,369 pending FOIA 
requests--17,555 have been pending more than 20 days and 1,814 have 
been pending 20 days or less. The Denver District Office is responsible 
for responding to the two requests from the TMJ Association. As of 
April 28, 2004, Denver District Office has 369 pending FOIA requests--
357 requests have been pending more than 20 days, and 12 requests have 
been pending 20 days or less.
    Question. How many FDA staff are responsible for handling these 
requests? Is this their sole responsibility, or do they have other 
responsibilities as well?
    Answer. For fiscal year 2003 the total number of personnel 
responsible for processing FOIA requests was 91 FTE, 75 full time 
employees, and 16 FTE work years representing personnel with part-time 
FOIA duties in addition to other responsibilities.
    Question. Does FDA need additional staff or resources in order to 
process these requests on a timely basis?
    Answer. In some agency components FOIA is a collateral duty. For 
example, in most FDA field offices, Compliance Officers whose primary 
responsibilities are related to the Agency's regulatory enforcement 
activities also perform FOIA duties as permitted by time and regulatory 
workload. Additional staff devoted to FOIA could shorten the amount of 
time for processing requests.
    Question. What do you believe is a reasonable length of time for a 
group to wait for an information request to be processed and responded 
to?
    Answer. Requests are processed by the agency component that 
maintains the requested records. There are a number of factors that 
must be considered in order to predict a reasonable amount of time for 
a request to be processed. Those factors include the volume of requests 
received by the component, the complexity of requests received, the 
amount of time required to search for records, the amount of time 
require to review the records to determine whether information is 
releasable under FOIA, and the resources available to process requests.
    Question. What is the average length of time it takes to process a 
FOIA request? Can you please explain the severe delay in processing 
this specific one, which has taken over 2 years and apparently has no 
end in sight? Can you please provide me a timeframe within which the 
FDA will respond to these two particular FOIA requests?
    Answer. Under the Electronic Freedom of Act Amendments of 1996, 
agencies are permitted to establish multiple tracks for processing FOIA 
requests based on the complexity of the requests and the amount of work 
and time required to process requests. Some FDA components have 
established multiple processing tracks. Requests are processed on a 
first in, first out basis within each track. The median number of days 
to process requests in the simple processing track is 19 days. The 
median number of days to process requests in the complex processing 
track, for more complicated requests, is 363 days. For requests that 
are not processed in multiple processing tracks, the median number of 
days to process is 44 days.
    Due to a heavy load of regulatory cases in the Denver District 
Office that must be handled by the Compliance Officers in addition to 
staff shortages, FOIA work in the Denver District is being performed by 
one individual on a part-time basis. This has resulted in a significant 
backlog of FOIA requests. The Denver District Office expects to fill 
request 02-17071 from the TMJ Association in six months, and request 
03-4361 in one month.
    Question. What additional efforts can this group undertake in order 
to speed up their request?
    Answer. The Denver District Office expects to fill request 02-17071 
from the TMJ Association in 6 months, and request 03-4361 in one month.
    In addition, the Denver District is reviewing and evaluating its 
FOIA workload and will develop a strategy aimed at reducing the backlog 
of FOIA requests.
    Question. What is the FDA's policy on charging for FOIA requests 
made by non-profit patient advocacy groups?
    Answer. The FOIA sets forth criteria that agencies must follow with 
respect to charging for processing FOIA requests. Non-profit 
organizations are considered Category III requesters. Such requesters 
receive 100 pages of duplication and 2 hours of search at no charge. If 
the number of pages exceed 100 and/or if the amount of search time 
exceeds 2 hours, Category III requesters are charged based on the FOIA 
fee schedule of the Department of Health and Human Services. The fee 
for duplication is $.10 per page, and the fee for search is based on 
the grade level of the individual who processes the request. I will be 
happy to provide the current grade rates for the record.
    [The information follows:]
Current Grade Rates
    GS-1 through 8--$18.00 per hour
    GS-9 through 14--$36.00 per hour
    GS-15 and above--$64.00 per hour
    In addition, requesters may make a request for waiver or reduction 
of fees if their request meets the following criteria: disclosure of 
the information is in the public interest because it is likely to 
contribute significantly to public understanding of the operations or 
activities of the Government; and, disclosure is not primarily in the 
commercial interest of the requester.
                          implicit pre-emption
    Question. Adverse reactions to prescription drugs and other 
medicines take the lives of more than 100,000 Americans each year, and 
millions more are seriously injured. For many years, state tort laws 
have enabled some victims to receive compensation for their injuries. 
It has been brought to my attention that the Food and Drug 
Administration (FDA) has stepped in to protect drug companies from 
liability in some of these lawsuits, potentially robbing individuals of 
their only means of compensation. FDA's actions are even more troubling 
when you consider that these lawsuits have other important purposes, 
such as deterring future bad behavior and providing the American public 
with access to important health and safety information. How many times 
has the FDA interfered in lawsuits, arguing that implicit pre-emption 
prohibits a plaintiff from receiving compensation for their injuries? 
In how many of these cases has a court held that the plaintiff's tort 
claim was implicitly pre-empted by Federal law?
    Answer. In the past several years, the Department of Justice (DOJ) 
has represented the United States in four cases involving state-law 
challenges to the adequacy of FDA-approved risk information 
disseminated for FDA-approved new drugs.\1\ In each case, DOJ contended 
that the state-law claim was preempted by Federal law. In addition, in 
some cases, DOJ argued that the state-law claim was not properly before 
the court by operation of the doctrine of primary jurisdiction.\2\
---------------------------------------------------------------------------
    \1\ FDA also periodically becomes involved, through the Department 
of Justice, in cases involving preemption of state-law requirements 
under the medical device provisions of the FDCA, which include an 
express preemption provision, 21 U.S.C. 360k(a).
    \2\ Primary jurisdiction allows a court to refer a matter to an 
administrative agency for an initial determination where the matter 
involves technical questions of fact and policy within the agency's 
jurisdiction. See, e.g., Israel v. Baxter Labs., Inc., 466 F.2d 272, 
283 (D.C. Cir. 1972); see also 21 CFR 10.60.
---------------------------------------------------------------------------
    The legal basis for preemption in these cases is FDA's careful 
control over drug safety, effectiveness, and labeling according to the 
agency's comprehensive authority under the FDCA and FDA implementing 
regulations. If state authorities, including judges and juries applying 
state law, were permitted to reach conclusions about the safety and 
effectiveness information disseminated with respect to drugs for which 
FDA has already made a series of regulatory determinations based on its 
considerable institutional expertise and statutory mandate, the Federal 
system for regulation of drugs would be disrupted. I will be happy to 
include information on the four cases for the record.
    [The information follows:]
Bernhardt
    In 2000, two individual plaintiffs filed product liability actions 
in a New York court against Pfizer, Inc., seeking a court order 
requiring the company to send emergency notices to users of the 
prescription antihypertensive drug CARDURA (doxazosin mesylate) and 
their physicians. The notices would have described the results of a 
study by a component of the National Institutes of Health (NIH) that, 
the plaintiffs alleged, demonstrated that Cardura was less effective in 
preventing heart failure than a widely used diuretic. FDA had not 
invoked its authority to send ``Dear Doctor'' letters or otherwise 
disseminate information regarding a drug that the agency has determined 
creates an ``imminent danger to health or gross deception of the 
consumer.'' (21 U.S.C. 375(b).) The plaintiffs, nevertheless, filed a 
lawsuit under state common law seeking relief that, if awarded, would 
have pressured the sponsor to disseminate risk information that FDA 
itself had not disseminated pursuant to its statutory authority.
    FDA's views were submitted to the Federal district court in the 
form of a Statement of Interest.\3\ The Statement relied on the 
doctrine of primary jurisdiction. The Statement also took the position 
that the plaintiffs' request for a court order requiring the 
dissemination of information about NIH study results to users and 
prescribers of CARDURA was impliedly preempted. According to the 
Statement, the court order ``would frustrate the FDA's ability 
effectively to regulate prescription drugs by having the Court 
substitute its judgment for the FDA's scientific expertise.'' The 
Statement also noted that, if the court granted the requested order, a 
direct conflict would be created between the information required to be 
disseminated by the court and the information required to be 
disseminated by FDA under the FDCA (in the form of the FDA-approved 
labeling).
---------------------------------------------------------------------------
    \3\ Statement of Interest of the United States; Preliminary 
Statement, Bernhardt v. Pfizer, Inc., Case No. 00 Civ. 4042 (LMM) 
(S.D.N.Y. filed Nov. 13, 2000).
---------------------------------------------------------------------------
    The Statement contended that state law could not provide a basis 
for requiring a drug manufacturer to issue drug information that FDA 
had authority to, but did not, require. Importantly, the submission did 
not argue that the state-law claim was preempted because FDA had 
reached a determination that directly conflicted with the plaintiff's 
view. Nor did it assert that FDA had specifically determined that the 
information on the NIH study requested by the plaintiffs was 
unsubstantiated, false, or misleading. In this sense, the Statement of 
Interest in Bernhardt was the most aggressive, from a legal 
perspective, than the three subsequent DOJ submissions on FDA's behalf 
in preemption cases made during the present Administration.
    The United States District Court for the Southern District of New 
York accepted the primary jurisdiction argument made on FDA's behalf. 
(Bernhardt v. Pfizer, Inc., 2000 U.S. Dist. LEXIS 16963, *9 (whether 
the additional warnings sought by the plaintiffs were appropriate ``is 
a decision that has been squarely placed within the FDA's informed 
expert discretion'').) It did not address the preemption issue. The 
case was voluntarily dismissed on April 22, 2003.
Dowhal
    In 1998, an individual plaintiff in California asked that State's 
attorney general to initiate an enforcement action against SmithKline 
Beecham and other firms marketing OTC nicotine replacement therapy 
products in California. (These products are marketed pursuant to an 
approved new drug application.) The plaintiff contended that the FDA-
approved warnings for the defendants' products did not meet the 
requirements of a state statute called the Safe Drinking Water and 
Toxic Enforcement Act (Cal. Health & Safety Code  25249.5 et seq.), 
also known as Proposition 65. From 1996 through 2001, FDA had 
repeatedly advised the defendants that they could be liable under the 
FDCA for selling misbranded products if they deviated from the FDA-
approved warning labeling for their products. FDA also advised the 
state attorney general in writing in 1998 that the defendants' warning 
in the labeling clearly and accurately identified the risks associated 
with the products and, therefore, met FDA requirements under the FDCA. 
After receiving the letter, the attorney general declined to initiate 
enforcement action.
    Nevertheless, in 1999, the individual plaintiff initiated a lawsuit 
of his own in California state court under Proposition 65's ``bounty-
hunter'' provision, which empowers individuals to file enforcement 
actions under that statute on behalf of the people of the State of 
California. The lawsuit asked the court to award civil money penalties 
and restitution, and to issue an injunction requiring the defendants to 
disseminate warnings for their products that differed from the warnings 
required by FDA. In 2000, the plaintiff filed a citizen petition with 
FDA requesting that the agency require the defendants to change their 
warnings to reflect the language sought by the plaintiff in the 
lawsuit. FDA rejected the proposed language, determining that it lacked 
sufficient support in scientific evidence and presented a risk of 
mischaracterizing the risk-benefit profile of the products in a way 
that threatened the public health. Although the trial court found for 
the defendant, the California Court of Appeal rejected the defendant's 
contention that the plaintiff's claim was preempted under the FDCA, and 
allowed the lawsuit to proceed. (Dowhal v. SmithKline Beecham Consumer 
Healthcare, 2002 Cal. App. LEXIS 4384 (Cal. Ct. App. 2002), argued, 
Case No. S-109306 (Cal. Feb. 9, 2004).)
    FDA's views were presented to the Court of Appeal of California in 
an amicus curiae (``friend of the court'') brief and to the Supreme 
Court of California in a letter brief and an amicus brief.\4\ All three 
documents explained that the warning language sought by the plaintiffs 
had been specifically considered and rejected by FDA as scientifically 
unsubstantiated and misleading. Including the language would, 
therefore, misbrand those products and cause the defendants to violate 
the FDCA. The documents explained, further, that principles of conflict 
preemption applied to the plaintiffs' claim because it was impossible 
for defendants to comply with both Federal and State law and because 
the state law posed an obstacle to the accomplishment of the full 
purposes and objectives of the FDCA.
---------------------------------------------------------------------------
    \4\ Letter from Robert D. McCallum, Jr., Ass't Attorney General, et 
al., to Frederick K. Ohlrich, Supreme Court Clerk/Administrator, Dowhal 
v. SmithKline Beecham Consumer Healthcare LP, et al., Case No. S-109306 
(Cal. filed Sept. 12, 2002); Amicus Curiae Brief of the United States 
of America in Support of Defendants/Respondents SmithKline Beecham 
Consumer Healthcare LP, et al., Dowhal v. SmithKline Beecham, Case No. 
A094460 (Cal. Ct. App. filed Mar. 22, 2002); Amicus Curiae Brief of the 
United States of America in Support of Defendants/Appellants SmithKline 
Beecham Consumer Healthcare LP, et al., Dowhal v. SmithKline Beecham, 
Case No. S109306 (Cal. filed July 31, 2003).
---------------------------------------------------------------------------
    The California Court of Appeal rejected the preemption argument. 
(Dowhal v. SmithKline Beecham Consumer Healthcare, 2002 Cal. App. LEXIS 
4384, . . . 16-17 (Cal. Ct. App. 2002) (reversing trial court decision 
granting summary judgment for defendants on preemption grounds).) On 
April 15, 2004, the California Supreme Court reversed the appeals court 
decision, finding a direct conflict between FDA requirements and the 
state-law warning requirement advocated by the plaintiff. (Dowhal v. 
SmithKline Beecham Consumer Healthcare, 2004 Cal. LEXIS 3040.)
Motus
    Also in 2000, an individual plaintiff sued Pfizer in a California 
court alleging, among other things, that the company had failed to 
fulfill its state common law duty to warn against the risk of suicide 
the plaintiff alleged was presented by ZOLOFT (sertraline HCl), an FDA-
approved drug in the selective serotonin reuptake inhibitor (SSRI) 
class indicated to treat depression (among other things). On numerous 
occasions, FDA had specifically considered and rejected such language 
for SSRIs as scientifically unsupportable and inconsistent with FDA 
determinations as to the safety and effectiveness of the products.
    The United States District Court for the Central District of 
California (to which the case had been removed on the ground of 
diversity) rejected the defendant's preemption argument, allowing the 
lawsuit to proceed. (Motus v. Pfizer Inc., 127 F. Supp. 2d 1085 (C.D. 
Cal. 2000).) The court later granted the defendant's motion for summary 
judgment on non-preemption grounds (196 F. Supp. 2d 984, 986 (C.D. Cal. 
2001)), and the plaintiff appealed. DOJ submitted an amicus curiae 
brief to the United States Court of Appeals for the Ninth Circuit on 
FDA's behalf.\5\ The brief's arguments were essentially the same as the 
arguments advanced in Bernhardt. In contrast to the situation in 
Bernhardt, however, in Motus, FDA had specifically considered, and 
rejected, the language requested by the plaintiff under state law. The 
appeals court affirmed the trial court's decision earlier this year 
(2004 U.S. App. LEXIS 1944 (9th Cir. February 9, 2004)).
---------------------------------------------------------------------------
    \5\ Amicus Brief for the United States in Support of the Defendant-
Appellee and Cross-Appellant, and in Favor of Reversal of the District 
Court's Order Denying Partial Summary Judgment to Defendant-Appellee 
and Cross-Appellant, Motus v. Pfizer, Case Nos. 02-55372 & 02-55498 
(9th Cir. filed Sept. 3, 2002).
---------------------------------------------------------------------------
In re PAXIL
    In 2001, individuals filed suit in a California court on behalf of 
past or current users of PAXIL (paroxetine HCl) against the drug's 
manufacturer, GlaxoSmithKline (GSK), alleging that the company's 
direct-to-consumer (DTC) broadcast advertisements for the drug failed 
adequately to warn about the consequences of discontinuing the drug. In 
reviewing the new drug application for the drug, FDA had found no 
evidence that it was habit-forming and did not require GSK to address 
that risk in FDA-approved labeling. FDA did, however, require GSK to 
include in labeling statements regarding discontinuation syndrome, and 
the labeling consequently recommends that doctors gradually reduce 
dosages and monitor patients for syndrome symptoms. FDA reviewed 
proposed DTC advertisements GSK had submitted for Paxil that said that 
the drug was not habit-forming. The agency at no time determined that 
this statement was misleading. In August 2002, notwithstanding FDA's 
determination, the court issued a preliminary injunction prohibiting 
GSK from running DTC advertisements stating that Paxil is not habit-
forming. (In re Paxil Litigation, 2002 U.S. Dist. LEXIS 16221 (C.D. 
Cal. Aug. 16, 2002).)
    On reconsideration, the court declared that the preliminary 
injunction challenged only ``FDA's . . .  determination that the public 
is not likely to equate the words `not habit forming' as used in 
direct[-]to[-]consumer advertisements with no withdrawal symptoms.'' 
According to the court, ``The question of how members of the general 
public are likely to interpret (or misinterpret) a statement is within 
one of the courts' core competencies.'' Declaring itself ``unwilling to 
blindly accept FDA's ultimate determination here,'' the court rejected 
the defendants' preemption and primary jurisdiction arguments. It 
nevertheless denied the injunction on the ground that the plaintiff was 
not likely to succeed in demonstrating that ``non-habit forming'' 
statement in the advertisement is misleading. Thus, although the court 
ultimately declined to award the injunctive relief sought by the 
plaintiff, it continued to distinguish between FDA's determinations as 
to the adequacy of drug warnings under Federal law, and its own view of 
warnings adequacy under state common law. (In re Paxil Litigation, 2002 
U.S. Dist. LEXIS 24621 (C.D. Cal. Oct. 16, 2002).)
    DOJ submitted to the court a Statement of Interest and a brief 
asserting preemption.\6\ The Statement of Interest contended that a 
court order requiring GSK to remove the ``non-habit-forming'' claim 
from its advertisements for Paxil would be inconsistent with FDA's 
determination that the company's advertisements were proper and that 
Paxil is not, in fact, ``habit-forming.'' The brief contended that the 
court should find the plaintiff's state-law request for a court order 
preempted because it poses an obstacle to achievement of the full 
objectives of Congress ``by attempting to substitute th[e] Court's 
judgment for FDA's scientific expertise.'' As the brief pointed out, 
FDA had specifically reviewed the advertisements, made suggestions 
concerning the proper manner of presenting information relating to 
whether Paxil is ``habit-forming,'' and, in the exercise of its 
scientific and medical expertise, found the advertisements acceptable. 
The brief also included a primary jurisdiction argument. The court 
reversed its earlier award of an injunction prohibiting the 
manufacturer from running advertisements that had been reviewed and 
approved by FDA, but the reversal was based on a ground other than 
preemption. (In re Paxil Litigation, 2002 U.S. Dist. LEXIS 24621 (C.D. 
Cal. 2002).) \7\
---------------------------------------------------------------------------
    \6\ Statement of Interest of the United States of America, In re 
PAXIL Litigation, Case No. CV 01-07937 MRP (CWx) (C.D. Cal. filed 
August 20, 2002); Brief of the United States of America, In re PAXIL 
Litigation, Case No. CV 01-07937 MRP (CWx) (C.D. Cal. filed Sept. 4, 
2002).
    \7\ In December 2003 (296 F. Supp. 2d 1374), the litigation, 
consisting of twelve action in eleven Federal judicial districts, was 
centralized for pretrial proceedings in the United States District 
Court for the Central District of California.
---------------------------------------------------------------------------
Conclusion
    As these cases illustrate, courts entertaining lawsuits filed under 
state law do not always defer to FDA on matters that Congress has 
placed squarely within the agency's authority. In FDA regulatory areas 
characterized by comprehensive regulation and requiring a careful and 
expert evaluation of scientific data and public health issues, state 
coregulation can stand as an obstacle to or directly conflict with the 
agency's administration of its statutory mandate. Preemption is the 
constitutionally prescribed mechanism for resolving these conflicts.
    The practice of citing preemption and primary jurisdiction under 
the FDCA in litigation in which the United States is not a party is 
well-established and substantially predates the current Administration. 
DOJ and FDA participation in these cases is unusual. In the current 
Administration, DOJ has participated in private state-law actions on 
FDA's behalf only following a judicial finding that the action should 
proceed, and only to address a state-law finding that, left 
undisturbed, would undermine FDA's execution of its statutory mission 
or directly conflict with Federal law. Responsibility for making final 
decisions whether to make submissions in private lawsuits, on 
preemption, primary jurisdiction, or any other issue, rests with the 
Department of Justice--not FDA itself.

    Question. These arguments conflict with long-standing FDA policy. 
The law appears to contradict what the FDA has argued. What motivated 
FDA to change its policy?
    Answer. The Government's participation in cases arising under 
state-law and presenting preemption issues is consistent with past FDA 
practice and with the pertinent law.
    The principal enabling statute of the Food and Drug Administration 
is the Federal Food, Drug, and Cosmetic Act, FDCA. Under this statute, 
FDA has broad authority to protect the public health by ensuring that 
foods are safe, wholesome, sanitary, and properly labeled, and that 
drugs and medical products are safe and effective. (See 21 U.S.C.  
393(b)(2)(A)-(C).) By operation of the Supremacy Clause of the United 
States Constitution (U.S. Const. Art. VI, clause 2), the FDCA nullifies 
conflicting requirements established by the States in legislation, 
regulations, or common law. (See Gibbons v. Ogden, 22 U.S. (9 Wheat.) 
1, 211 (1824) (Marshall, C.J.).)
    In the past, FDA has addressed conflicting state requirements in 
the context of rulemaking. In 1982, for example, FDA promulgated 
regulations requiring tamper-resistant packaging for over-the-counter 
drugs. In the preamble accompanying the regulations, FDA stated its 
intention that the regulations preempt any state or local requirements 
that were ``not identical to . . .  [the rule] in all respects.'' (47 
FR 50442, 50447; Nov. 5, 1982.) Similarly, in 1986, FDA issued 
regulations requiring aspirin manufacturers to include in labeling a 
warning against use in treating chicken pox or flu symptoms in children 
due to the risk of Reye's Syndrome. In the accompanying preamble, FDA 
said the regulations preempted ``State and local packaging requirements 
that are not identical to it with respect to OTC aspirin-containing 
products for human use.'' (51 FR 8180, 8181; Mar. 7, 1986.) In 1994, 
FDA amended 21 CFR 20.63 to preempt state requirements for the 
disclosure of adverse event-related information treated as confidential 
under FDA regulations. (59 FR 3944; Jan. 27, 1994.)
    In addition, for many years, conflicting state requirements have 
been addressed by FDA through case-by-case participation in selected 
lawsuits to which the
    United States has not been a party. Because FDA lacks independent 
litigating authority, this participation has been by the Department of 
Justice (DOJ) on FDA's behalf. The practice of addressing conflicting 
state requirements through participation in litigation dates back many 
years. For example, DOJ participated on FDA's behalf in favor of 
preemption in both Jones v. Rath Packing Company, 430 U.S. 519 (1977), 
and Grocery Manufacturers of America, Inc. v. Gerace, 755 F.2d 993 (2d 
Cir. 1985). In addition, as discussed in our response to the previous 
question on preemption, FDA has recently participated in several cases 
involving state-law requirements for the communication of risk 
information for prescription drugs. Of note, the first--and most 
aggressive, from a legal perspective--of these submissions occurred 
during the previous Administration--Bernhardt case included in 
materials for the record.
                                 narms
    Question. What is the total amount of funding for NARMS, and from 
what account does it come?
    Answer. The total amount of funding for NARMS in fiscal year 2004 
is $7.634 million. This funding is located in the Salaries and 
Expenses, or S&E, account.
    Question. How much is FDA giving to USDA and CDC in fiscal year 
2005? How does that compare to fiscal year 2004? Please describe what 
factors are used to determine the division of funds.
    Answer. At this time, FDA has not determined the exact funding for 
CDC and USDA for NARMS for fiscal year 2005 but plans to make decisions 
by Fall 2004. In fiscal year 2004, FDA funding on NARMS will be reduced 
due to government-wide rescissions. In fiscal year 2004, FDA provided 
funds of approximately $1.6 million to USDA and $2 million to CDC. It 
is important to point out that a large portion of the funds provided to 
CDC is given to the states for the collection, isolation and 
identification of bacterial isolates, which are then shipped to CDC and 
the Food and Drug Administration's Center for Veterinary Medicine--
NARMS retail arm--for susceptibility testing. In determining the funds 
provided to CDC and USDA, we analyze the entire NARMS program, 
including the retail food arm of NARMS, and strive to fill in data gaps 
and avoid duplication of organisms to be tested.
    Question. How much NARMS money is currently being spent in foreign 
countries, specifically Mexico? How is this money being used?
    Answer. FDA is not spending any current year NARMS funding in 
Mexico or other foreign countries.
    Question. Does USDA or CDC spend any of their NARMS money in 
foreign countries?
    Answer. In fiscal year 2004 FDA is providing USDA and CDC, $1.6 
million and $2 million respectively. FDA does not keep detailed records 
of USDA and CDC funding for NARMS.
                           counterfeit drugs
    Question. In February, FDA released a report on combating 
counterfeit drugs. Several new technologies were mentioned that could 
be used to this effect, including Radiofrequency Identification 
tagging, color shifting inks, and holograms. Specifically regarding 
color shifting inks, which I understand are currently available, has 
FDA taken any action, or do you have any plans to pursue this option?
    Answer. It is true that color shifting ink technology is currently 
available for use on drug packaging and labeling. However, we heard 
uniformly from all stakeholders that this technology is expensive and 
requires significant investment of resources and time prior to 
implementation. Due to the wide variety of products, packaging, and 
labeling on the market, we heard from manufacturers, wholesalers, and 
retailers that the decision to use color shifting inks, or any other 
authentication technology, should be made by the manufacturer after a 
manufacturer initiated product risk assessment. Without such an 
analysis, use of color-shifting ink, or other authentication 
technology, could lead to an unnecessary increase in the cost of drugs 
to consumers. For example, we heard that color-shifting ink could be 
appropriate for use on a very expensive, high volume brand name drug 
product that is likely to be counterfeited, but not on a generic or low 
volume drug product that is less likely to be counterfeited.
    Based on our discussions with manufacturers, we estimate that it 
would take a minimum of six to twelve months to implement a technology 
such as color shifting ink from the time a decision is made to use the 
authentication technology on the packaging and/or labeling of a drug 
product. It could take longer if the technology, e.g., color-shifting 
ink, is used on the product itself because safety studies might have to 
be performed to ensure that the technology, e.g., the ink, does not 
affect the safety or stability of the product.
                        animal drug compounding
    Question. Dr. Crawford, on February 10, I submitted a letter to Dr. 
McClellan regarding FDA's new Compliance Policy Guidelines, issued July 
14, 2003, regarding animal drug compounding. I received a response from 
FDA on March 31st, and I thank you for that. However, I do have a few 
more questions in light of the response.
    First, the letter stated that FDA issued the CPG for immediate 
implementation because of the ``urgent need to explain how it intended 
to exercise its enforcement discretion regarding compounded drugs for 
animal use in light of Thompson v. Western States Medical Center.'' 
However, this case dealt only with compounding in human drugs, not 
animal drugs. How does this create an urgent need to deal with animal 
drugs?
    Answer. After the Western States decision, FDA revised its 
enforcement policy on pharmacy compounding of human drugs. FDA was 
concerned that without updated guidance regarding compounding of animal 
drugs, the public would remain uncertain about whether and how FDA 
would change its enforcement policy with respect to compounded animal 
drugs. In addition, agency staff would lack clear guidance on 
enforcement matters.
    As FDA stated in its letter, although prior public comment was not 
sought in this case, pursuant to the good guidance practices 
regulations the public was invited to comment on the CPG when it was 
issued and may comment on it at any time (68 FR 41591 (July 14, 2003)). 
FDA has been reviewing those comments and will revise the guidance as 
appropriate upon completion of our review.
    Question. Second, the response states that two Federal appeals 
court decisions have held that ``the Federal Drug & Cosmetic Act does 
not permit veterinarians to compound unapproved finished drugs from 
bulk substances, unless the finished drug is not a new animal drug. 
These cases support FDA's position that new animal drugs that are 
compounded from bulk substances are adulterated under the FD&C Act and 
may be subject to regulatory action.'' I have been informed that the 
cases cited deal only with veterinarians compounding drugs, not 
pharmacists. Why do you limit pharmacists as well as veterinarians? Is 
this supported by any congressionally-enacted statutory authority, 
legislative history or case law?
    Answer. The principle established by the courts applies equally to 
compounding by pharmacists and veterinarians.
    Veterinary medicine has not traditionally utilized the services of 
compounding pharmacies to the extent that they have been utilized 
within human medicine. The increasing activities and presence of 
compounding pharmacies in veterinary medicine is a relatively recent 
development.
    The Federal Food Drug and Cosmetic Act, or ``the Act'', and its 
implementing regulations do not exempt veterinarians or pharmacists 
from the approval requirements in the new animal drug provisions of the 
Act, 21 U.S.C. Section 360b. In the absence of an approved new animal 
drug application, the compounding of a new animal drug from any 
unapproved drug or from bulk drug substances results in an adulterated 
new animal drug within the meaning of section 21 U.S.C. Section 
351(a)(5). The compounding of a new animal drug from an approved human 
or animal drug also results in an adulterated new animal drug within 
the meaning of 21 U.S.C. Section 351(a)(5), unless the conditions set 
forth in 21 CFR 530.13(b) relating to extralable use are met.
    FDA is concerned about veterinarians and pharmacists that are 
engaged in manufacturing and distributing unapproved new animal drugs 
in a manner that is clearly outside the bounds of traditional pharmacy 
practice and that violates the Act--such as compounding that is 
intended to circumvent the drug approval process and provide for the 
mass marketing of products that have been produced with little or no 
quality control or manufacturing standards to ensure the purity, 
potency, and stability of the product.
    Pharmacists and veterinarians who engage in activities analogous to 
manufacturing and distributing drugs for use in animals may be held to 
the same provisions of the Act as manufacturers.
    Question. Finally, the final paragraph of the FDA response states 
``Accordingly, the regulations that implement AMDUCA provide that 
extralabel use by compounding applies only to compounding of a product 
from approved drugs, and that nothing in the regulations is to be 
construed as permitting compounding from bulk drugs.'' Is there in the 
agency's view anything in AMDUCA's regulations or the Act that is to be 
construed as not permitting compounding from bulk substances?
    Answer. As previously noted, under the Federal Food, Drug and 
Cosmetic Act, in the absence of an approved new animal drug 
application, the compounding of a new animal drug from a bulk substance 
results in a new animal drug that is adulterated as a matter of law. 
This has been FDA's longstanding position, which is supported by two 
Federal appeals court decisions, United States v. Algon Chemical Inc., 
879 F.2d 1154 (3d Cir. 1989) and United States v. 9/1 Kg. Containers, 
854 F.2d 173 (7th Cir. 1988).
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

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

            Questions Submitted by Senator Dianne Feinstein

                          larium (mefloquine)
    Question. Mefloquine is an anti-malarial product that is approved 
and prescribed in the United States but is used by consumers overseas 
to prevent or treat malaria infections. There have been many reports in 
the press about mefloquine's potentially dangerous side effects and FDA 
issued a press release describing these side effects. With most of the 
consumers of mefloquine using the product abroad how can we be certain 
that the reporting of adverse events experienced overseas is occurring 
sufficient for adequate assessments of risk and benefit during the 
post-marketing period?
    Answer. Adverse event reporting is voluntary for consumers and 
health care providers. Health care providers or consumers may report to 
the drug manufacturer (who is required to forward the report to FDA 
under 21CFR 314.80) or directly to FDA. The reports received are then 
entered into the AERS database, which is used to evaluate the adverse 
events associated with a particular drug in the aggregate. This data is 
used to identify potential drug safety concerns, on which FDA can 
either take immediate action, or study further in some way. In the case 
of mefloquine hydrochloride, the response to your next question 
demonstrates that we are receiving reports of serious adverse events, 
even though the drug is primarily used while patients are overseas.
    Question. How many and what types of adverse events are being 
reported? Who is submitting the reports, the consumer experiencing the 
adverse event or the practitioner? Given the serious nature and 
potential for long term side effects is there a registry or follow-up 
of consumers of this product, either during use or after finishing use 
of the product?
    Answer. As of April 13, 2004, the FDA's Adverse Event Reporting 
System (AERS) post marketing database contains 2,786 cases with Lariam 
(mefloquine hydrochloride) as a suspect drug. Case reports have been 
received since Lariam was approved in 1989 and continue to come to the 
Agency at a rate of more than 100 per year. For example, AERS has 
received 139 posts marketing adverse event cases1 associated with 
Lariam since April 1, 2003. As with most drugs, many types of adverse 
events are reported for Lariam. However, the largest number of reports 
is for neuropsychiatric events; of the 2,786 Lariam cases in AERS, 
1,821 contain at least one event categorized as neurological and/or 
psychiatric in nature. Seven of the ten events most frequently reported 
for Lariam (see below) are neuropsychiatric in nature:
    Dizziness 381 cases; \1\ Headache 235; Anxiety 360; Fever 196; 
Depression 303; Hallucination 179; Insomnia 268; Diarrhea 169; Nausea 
238; Abnormal dreams 148.
---------------------------------------------------------------------------
    \1\ This raw count from AERS probably contains some duplicate 
cases, as well as cases resulting from literature articles and studies.
---------------------------------------------------------------------------
    The Lariam labeling (package insert) was recently updated to 
include stronger warnings about neuropsychiatric events. In addition, 
an official Medication Guide discussing neuropsychiatric and other 
adverse events, and describing malaria chemoprevention, is required by 
law to be given to every patient to whom Lariam is dispensed.
    Lariam reports are being submitted from multiple sources. 
According to AERS, of the 2,786 reported cases, 512 cases were reported 
by consumers and 1,540 by health professionals.\2\
---------------------------------------------------------------------------
    \2\ The categorization by source includes a large number of cases 
with null values. In addition, more than one source can be indicated 
for a given case (for example, both ``health professional'' and 
``literature'').
---------------------------------------------------------------------------
    Although most Lariam adverse events occur while the users are 
traveling, more than 1,500 of the 2,786 Lariam cases were reported 
from the United States. This indicates that travelers are notifying 
their health practitioners, Roche Pharmaceuticals, and/or the FDA 
directly of adverse events associated with Lariam upon their return to 
this country.
    There is no registry for follow-up of Lariam adverse events. It 
should be noted that post-market reporting is only one component of 
FDA's adverse event monitoring. Controlled comparative trials give us 
the most reliable data, and there are many such trials in the published 
literature. In addition, there are publications describing active 
surveys, which provide information on very large numbers of patients in 
a relatively controlled manner.
    Question. DOD has begun an investigation into psychiatric adverse 
events in soldiers and plans a study of mefloquine. DOD has stated that 
it has not included in its assessments several incidents in soldiers 
who have taken mefloquine or soldiers who do not demonstrate blood 
levels of the drug. FDA's News Release of July 9, 2003 states that 
``Sometimes these psychiatric adverse events may persist even after 
stopping the medication.'' What is being done by FDA to investigate the 
incidents of suicides in soldiers while on or returning from 
deployment?
    Answer. As a general matter, FDA takes numerous steps to improve 
product and patient safety and reduce medical errors. Suicides in the 
military are not investigated by FDA and would fall presumably within 
the purview of DOD. Frequent discussion between DOD and FDA has 
occurred related to antimalarial prophylaxis, and DOD has not 
communicated concerns regarding soldier suicides and the use of 
Lariam. Since Lariam was approved in 1989, AERS has identified 17 
cases of suicide worldwide, associated with Lariam use. These cases 
are reviewed on an ongoing basis. Many of the cases lack sufficient 
evidence to conclude that the suicide was related to Lariam. The 
relationship between suicide and Lariam is not conclusive since many 
of the cases involve previous psychiatric disease or other confounding 
factors. Only five of the reported cases occurred in U.S. residents, 
and none of them were soldiers. One, however, was a former Marine who 
had taken Lariam while serving in Somalia, more than 6 years before 
his eventual suicide. Suicides have also been reported with other 
antimalarial agents including chloroquine and malarone.
    Current labeling of Lariam includes the following warning: 
Mefloquine may cause psychiatric symptoms in a number of patients, 
ranging from anxiety, paranoia, and depression to hallucinations and 
psychotic behavior. On occasions, these symptoms have been reported to 
continue long after mefloquine has been stopped. Rare cases of suicidal 
ideation and suicide have been reported though no relationship to drug 
administration has been confirmed. To minimize the chances of these 
adverse events, mefloquine should not be taken for prophylaxis in 
patients with active depression or with a recent history of depression, 
generalized anxiety disorder, psychosis, or schizophrenia or other 
major psychiatric disorders. Lariam should be used with caution in 
patients with a previous history of depression. During prophylactic 
use, if psychiatric symptoms such as acute anxiety, depression, 
restlessness or confusion occur, these may be considered prodromal to a 
more serious event. In these cases, the drug must be discontinued and 
an alternative medication should be substituted.
    A Medication Guide was developed that communicates these issues to 
the patient.
                        emergency contraception
    Question. There are reports in the press that decisions about OTC 
approval of Plan B contraception are being made differently than 
decisions about other products, made outside the Center, at the 
Commissioner level or above. Could you explain if this is true, if FDA 
is politicizing the approval process and why this is the case? Why is 
the Plan B OTC approval being handled differently from other products?
    Answer. The review and decision-making for the Plan B application 
is not being made differently than other applications. The review is 
occurring within the FDA's Center for Drug Evaluation and Research. FDA 
will have signatory authority of the application. The Center commonly 
involves the Office of the Commissioner in prominent regulatory 
decisions.
    Question. Given that advisory committee members voted unanimously 
that Plan B Emergency contraception was safe under OTC conditions of 
use and that studies investigating the OTC instructions, including 
contraindications, side effects and precautions were well understood by 
users of the product and that there was low abuse and misuse potential, 
why has the decision to approve OTC use of Plan B emergency 
contraception been delayed? When does FDA plan to make a decision on 
OTC use of Plan B emergency contraception?
    Answer. Since the December 2003 joint meeting of two FDA advisory 
committees, the sponsors of the supplemental new drug application (NDA) 
submitted additional information to FDA in support of their application 
to change Plan B from a prescription to an over-the-counter product. 
This additional information was extensive enough to qualify as a major 
amendment to the NDA. Under the terms of the PDUFA, major amendments 
such as this automatically trigger a 90-day extension of the original 
PDUFA deadline. The PDUFA extension will permit the FDA to complete its 
review of the application, including additional data on adolescent use 
that was submitted by Barr and WCC in support of the application. The 
new PDUFA deadline is May 21st. Such extensions are required so that 
FDA staff has adequate time to review the additional medical and 
scientific evidence. FDA's final decision will be based on sound 
science and in full compliance with the applicable laws and 
regulations, while taking into consideration the recommendations of 
these advisory committees.
    Question. Plan B, levonorgestrel, has been proven most effective 
when taken within 24 hours of coitus. Retaining prescription status of 
this drug impedes the ability of consumers to use the product when it 
is most effective. If FDA does not anticipate approving Plan B 
emergency contraception for OTC status, please explain the rationale, 
when the product has been identified as safe and effective and eligible 
for transfer to OTC status under the 1951 Durham-Humphrey Amendment to 
the Food Drug and Cosmetic Act, that this change in status was not 
approved?
    Answer. FDA is still reviewing the application, so therefore we are 
unable to answer this question until the review is complete and a 
decision has been made based on this review.
    Question. Some questions were raised by groups against the approval 
of Plan B as an OTC product, that use of an OTC emergency contraceptive 
may promote promiscuity in teens. Studies indicated that this was not 
the case. Is this still an issue for the FDA?
    Answer. FDA is still reviewing the application, so therefore we are 
unable to answer this question until the review is complete and a 
decision has been made that is based on the safety and efficacy in an 
OTC setting, which includes comprehension of the label and usage of the 
product.
                                 ______
                                 

            Questions Submitted by Senator Richard J. Durbin

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

                          SUBCOMMITTEE RECESS

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











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

                              ----------                              


                        WEDNESDAY, APRIL 7, 2004

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 3:33 p.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Robert F. Bennett (chairman) 
presiding.
    Present: Senators Bennett, Kohl, and Harkin.

                       DEPARTMENT OF AGRICULTURE

STATEMENTS OF:
        KEITH COLLINS, CHIEF ECONOMIST
        J.B. PENN, UNDER SECRETARY FOR FARM AND FOREIGN AGRICULTURAL 
            SERVICES
        MARK REY, UNDER SECRETARY FOR NATURAL RESOURCES AND ENVIRONMENT
        GILBERT G. GONZALEZ, ACTING 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.
    Last week, we had a budget hearing with a number of Under 
Secretaries of the Department of Agriculture which was very 
informative, and this week, we are going to continue with the 
rest of the Under Secretaries as well as the Chief Economist. 
We welcome you all, thank you for your service, thank you for 
your willingness to work in a situation that sometimes is 
stimulating and exciting and rewarding and sometimes makes you 
the target of the slings and arrows of outrageous constituents 
or Congressmen, and we are trying not to do that here today.
    Since this will be the last hearing you will appear at in 
this Administration in this capacity, I want to take the 
occasion to thank each of you for your willingness to serve 
your country in this way. We look forward to hearing your 
testimony. Senator Kohl is tied up in another hearing and will 
be joining us as quickly as he can but has indicated that he 
would be comfortable with our proceeding with the testimony 
without him and will be brought up to date on what we have to 
say.
    So we will hear from the following witnesses in the 
following order: Keith Collins, who is the Chief Economist at 
USDA; J.B. Penn, who is the Under Secretary for Farm and 
Foreign Agricultural Services; Mark E. Rey, who is the Under 
Secretary for Natural Resources and Environment; Gilbert 
Gonzalez, who is acting as Under Secretary for Rural 
Development; and then Joseph Jen, who is the Under Secretary 
for Research, Education and Economics.
    I remember our previous conversations in last year's 
hearing with some pleasure and look forward to what each of you 
has to say here today. So, Dr. Collins, we will begin with you, 
and welcome to the Subcommittee.

                       STATEMENT OF KEITH COLLINS

    Dr. Collins. Thank you very much, Mr. Chairman, and thanks 
for the chance to start this hearing by providing a brief 
overview on the economic situation in agriculture, which I 
think will help set at least part of the context for the 
comments of our mission area leaders who will follow mine.

                       U.S. AGRICULTURAL ECONOMY

    The U.S. agricultural economy is showing remarkable 
strength after several years of weakness. Last week, you may 
know that we released the index of prices received by farmers 
for the month of March, and that was the highest price ever 
received for farmers for any month since we started keeping 
records in 1910. And that price occurred despite generally good 
harvests in 2003 and disease-caused disruptions in livestock 
and poultry trade.
    Consequently, as we look forward to this year, we expect 
that farm income will have another reasonably strong year. The 
improvement in agriculture is a result of some transitory 
factors on the supply side, such as last year's poor grain 
crops in Europe and in the former Soviet Union, but several 
demand factors, I think, will persist. First, we predict farm 
exports at $59 billion this year, and that nearly equals the 
all-time record high. And had it not been for the finding of 
BSE and the lost beef exports, total U.S. agricultural exports 
surely would have been or would be an all-time record by 
several billion dollars. The improving world economy, the 
weaker dollar and China's growing net imports are all factors.
    The second factor is domestic demand, which is very strong. 
If you consider sales by grocery stores and restaurants for the 
month of February, the most recent data, they were up 6 percent 
year over year. And for some foods such as meat and poultry, 
dietary changes seem clearly to be affecting demand trends.
    A third factor is the industrial uses of agricultural 
products are growing; in particular, ethanol production reached 
another record in January.
    If you look at the supply side, USDA's Planting Intention 
Survey released last week gives some indication of how farmers 
might respond to this year's tight markets compared with last 
year. Producers said they plan to plant 8 percent more rice, 7 
percent more cotton, 3 percent more soybeans but about the same 
level of corn. The wheat area, however, will be down because of 
poor fall weather and better prospects for these other crops.
    With average weather, we could have record high corn and 
soybean crops this year, good cotton and rice crops, but wheat 
would be down over 10 percent from last year's record high 
yield. But even with large U.S. production in prospect, and 
even with a rebound in production overseas, world markets are 
likely to remain firm. World grain demand is expected to exceed 
production for the fifth consecutive year this year. So by the 
end of this summer, we expect the grain stocks, global grain 
stocks as a percent of use, will be the lowest since 1981 for 
rice, the lowest since 1972 for wheat, and the lowest ever 
recorded for coarse grains. And stocks are also low for cotton 
and soybeans as well.
    Regarding animal agriculture, U.S. production of meat and 
poultry was down last year, and we think it will be flat this 
year. So if you combine that with stronger consumer demand, 
livestock prices remain above historical levels despite the 
discovery of BSE and the outbreaks of avian influenza in the 
United States. And we had stable milk production last year; we 
expect stable milk production this year, and with strong demand 
for dairy products, that has resulted in surging milk prices.
    With these kinds of markets, farm cash receipts are 
expected to be a record high $215 billion this year; however, 
with higher spending on energy-based inputs this year as well 
as lower government payments and the reduction in cattle 
revenue due to the BSE finding, net cash farm income is going 
to decline from the record high 2003 level, but it would still 
equal the average of the last 2 years.
    This reduction in earnings from farm sources will have a 
small effect on the majority of households that operate 
residential and intermediate-sized farms, because their incomes 
are mostly derived off the farm. The incomes of households that 
run commercial-sized operations will be somewhat lower in 2004, 
although their average incomes will remain well above the 
average of nonfarm households.

                           PREPARED STATEMENT

    With another sound income year in prospect, farm land 
values will likely rise again, which would continue the 
improvement in the farm sector balance sheet that we saw in 
2003. Finally, consumers will continue to have abundant and 
affordable food, although with the strong farm prices I 
mentioned, retail food prices are expected to be up 3 to 3.5 
percent this year compared with 2.2 percent in 2003 as dairy 
products, poultry and fats and oils prices increase.
    That completes my statement, 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. The agricultural economy continues to 
show improvement after several years of low prices. Farm prices for 
major crops have reached levels unseen in several years and livestock 
prices generally remain well above levels of 2 years ago, despite the 
sharp reduction in beef exports following the discovery of a cow in 
Washington with Bovine Spongiform Encephalopathy (BSE) in December of 
last year. While cash receipts are expected to register another strong 
gain in 2004, rising prices for energy-related inputs and higher feed 
costs along with sharply lower government payments will likely cause 
net cash farm income to decline from last year's record, although it 
would equal the average of the past 2 years. Despite a pull back in 
farm income, cash flow and balance sheet prospects suggest the farm 
economy will remain on a solid footing in 2004.
Outlook for United States and World Economies and the Implications for 
        Agriculture
    After several years of a weak and variable global economy that 
constrained the demand for U.S. agricultural products, the U.S. economy 
and the world economy had a very positive year in 2003. Both the U.S. 
economy and the world economy are poised to experience another sound 
and prosperous year ahead, which will bolster the demand of U.S. 
agricultural products domestically and abroad.
    In 2003, we saw the U.S. economy grow 3.2 percent. Expansionary 
fiscal policy resulting from the budget deficit and the Jobs and Growth 
Act of 2001; the lowest interest rates since the 1950's leading to 
rising consumer confidence and spending; and, during the second half of 
the year, increasing business fixed investment all boosted growth. With 
these factors all in place again in 2004, combined with an expectation 
of even stronger business investment, a depreciating dollar, few signs 
of inflation and stronger foreign economic growth, macroeconomic 
forecasters foresee U.S. Gross Domestic Product (GDP) growth of 4.5 to 
5 percent.
    The improving domestic demand base may be seen in the demand for 
food, which also drives demand for animal feed. Monthly retail sales of 
grocery stores, food and beverage stores and food service 
establishments are usually higher than sales a year earlier. The U.S. 
economic slowdown in 2002 noticeably slowed sales. As the U.S. economic 
recovery took hold in 2003, sales moved up nicely and strong sales are 
again likely for 2004. Sales in February were 6 percent above a year 
earlier.
    In addition to rising food demand, domestic industrial demand for 
farm products is also increasing. As an example, monthly ethanol 
production is setting new record highs almost every month. In 2004, 
spurred by phase-outs of Methyl Tertiary Butyl Ether (MTBE) in 
California, New York and Connecticut, U.S. ethanol production from corn 
should reach 3.25 billion gallons and account for over 1.1 billion 
bushels of corn use.
    Foreign GDP is projected to grow about 3 percent this year, after 
averaging less than 2 percent annually over the past 3 years. Japan is 
finally growing, and Asia and Latin America are expected to propel 
developing country growth to the highest rate in 4 years. With the 
European economies lagging, foreign economic growth likely will not 
push over the 3 percent rate, which has often been a level associated 
with an upward surge in U.S. agricultural exports.
    Although the dollar remains relatively strong, 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. A further drop is anticipated in 2004 
reflecting the trade deficit and the continuation of low real interest 
rates in the United States.
    U.S. agricultural exports are forecast to reach $59 billion in 
fiscal year 2004, up $2.5 billion from the previous year. This forecast 
is $0.5 billion below USDA's forecast published prior to the finding of 
a cow with BSE at the end of last year. The new export forecast 
reflects, in part, the assumption that the markets that are now closed 
to U.S. beef exports will remain closed in 2004. This is not a forecast 
of what foreign countries will do. It simply reflects our standard 
forecasting procedure to assume the policies of foreign countries 
remain in place until they are changed.
    At $59 billion, U.S. farm exports would experience the 5th 
consecutive annual increase since hitting the cyclical low of $49 
billion in fiscal year 1999, following the onset of the Asian currency 
crisis. A strengthening world economy, the declining value of the 
dollar, low global commodity stocks, and expanding U.S. crop acreage 
will all support export growth in 2004. During the first three months 
of fiscal year 2004, U.S. agricultural exports were up $3 billion over 
a year earlier. Also notable is the upward trend we are beginning to 
see in bulk exports, which, since 1980, have been experiencing a long, 
slow downward trend.
    United States meat exports experienced explosive growth in the 
1990s but have faced slower growth over the past few years due to 
animal diseases and policy-driven import limitations in some countries. 
The United States finding of BSE has resulted in the closing of over 80 
percent of U.S. export markets for beef and related products, and U.S. 
poultry exports are expected to be flat in fiscal year 2004, as 
outbreaks of Avian Influenza in several States has resulted in a number 
of countries placing restrictions on poultry imports from the United 
States. However, this, stronger global incomes, and restrictions on 
poultry trade due to outbreaks of Avian Influenza abroad are expected 
to create additional export opportunities for pork.
Outlook for Major Crops
    For major crops, the supply-demand balances are favorable for 
strong markets again in 2004, even with normal yields and a rebound in 
global production. With relatively low world and U.S. stocks going into 
the 2004/2005 marketing year, crop prices could move higher if adverse 
weather lowers production prospects over the coming months.
    In 2003/2004, total use is generally exceeding total supplies of 
major crops, leading to higher prices and reduced world and United 
States carryover. Wheat is an exception, as a sharp increase in U.S. 
production is expected to lead to a slight increase in United States 
carryover. However, world wheat stocks are expected to decline from 166 
million tons at the end of the 2002/2003 marketing year to 125 million 
tons at the end of the 2003/2004 marketing year. At the end of this 
marketing year, world stocks of coarse grains are forecast to be 44 
million tons lower than 1 year ago, world stocks of oilseeds are 
forecast to fall from 43 million tons to 40 million tons and world 
cotton stocks are projected to decline from 36 to 32 million bales.
    For wheat, plantings in 2003 increased by 1.2 million acres to 61.7 
million acres. Reflecting the increase in acreage and a record yield, 
U.S. wheat production rose from 1.6 billion bushels in 2002 to 2.3 
billion bushels in 2003. Total wheat supplies increased by 430 million 
bushels, as lower beginning stocks partially offset the increase in 
production. Despite the sharp increase in wheat production and total 
supplies, U.S. wheat carryover is forecast to increase by only 53 
million bushels, as increases in domestic use and exports are expected 
to absorb nearly all of the increase in domestic supplies. U.S. wheat 
exports are forecast to increase by nearly 300 million bushels to 1.15 
billion bushels in 2003/2004. In 2003/2004, U.S. wheat exports expanded 
to fill production shortfalls created by a 38-million-ton drop in 
foreign wheat production. For the current marketing year, the farm 
price of wheat is projected to average $3.30-$3.40 per bushel compared 
with last season's $3.56 per bushel.
    U.S. rice acreage was off 7 percent in 2003, as rice producers 
responded to two consecutive years of very weak prices and returns. The 
decline in acreage and reduced beginning stocks lowered total supplies 
from 265 million cwt in 2002/2003 to 241 million cwt in 2003/2004. 
Ending stocks at the end of the current market year are forecast at 23 
million cwt, down from 27 million cwt at the end of the 2002/2003 
marketing year. The farm price of rice is forecast to average $7.45-
$7.75 per cwt this marketing year, compared with $4.49 per cwt during 
the 2002/03.
    In 2003, the corn crop was a record 10.1 billion bushels, causing 
total corn supplies to increase from 10.6 billion bushels in 2002/2003 
to 11.2 billion bushels this season. Despite the increase in total 
supplies, carryover stocks are projected to decline from 1.1 billion 
bushels at the end of the 2002/2003 marketing year to 0.9 billion 
bushels at the end of the current marketing year. U.S. corn exports are 
forecast to increase to 2.0 billion bushels, up 0.4 billion bushels in 
2002/2003, as reduced foreign supplies have increased export 
opportunities. Domestic use is also up this marketing year, reflecting 
increase feed and industrial use. This marketing year the farm price of 
corn is projected to average $2.35-$2.55 per bushel, compared with 
$2.32 per bushel last season.
    Hot, dry weather during pollination reduced soybean production to 
2.4 billion bushels in 2003, and total soybean supplies fell from 3.0 
billion bushels in 2002/2003 to 2.6 billion bushels in 2003/2004. The 
drop in soybean supplies has boosted U.S. farm prices and is lowering 
domestic use, exports and carryover stocks. U.S. carryover stocks are 
projected to fall to 125 million bushels, which would be the lowest 
carryover in 27 years. In recent weeks the Brazilian crop potential has 
been reduced, and that putting further demand pressure on the limited 
U.S. supplies, driving up recent cash prices to over $10.00 per bushel, 
the highest in over 15 years. Reflecting the expected decline in 
carryover stocks, the farm price of soybeans is projected to increase 
from last season's average of $5.53 per bushel to $7.15-$7.55 per 
bushel this marketing year.
    In 2003, the United States produced 18.2 million bales of cotton, 
compared with 17.2 million bales in 2002. Lower supplies coupled with 
increased exports have lowered projected carryover and pushed prices 
higher this season. Increased exports to China are projected to boost 
U.S. exports of cotton to a record-high 13.8 million bales, up 1.9 
million from last season's 11.9 million. Carryover stocks at the end of 
this season are projected to fall to 3.6 million bales, the lowest in 8 
years. During the first 6 months of the current marketing year, cotton 
prices have averaged 62.8 cents per pound, compared with last season's 
average of 44.5 cents per pound.
    As we look to the 2004-crop spring planting season, prices for 
corn, rice, soybeans and cotton will be the highest at planting time 
since 1998. Despite this, USDA's survey of spring planting intentions 
of producers that was taken in early March 2004, showed little 
prospective change in total acreage of principal crops. One reason is 
that fall seedings of winter wheat, combined with intended spring wheat 
planted area, indicate a 3.6-percent decline in total wheat planted 
area for the 2004 crop, compared with the 2003 crop. The survey 
indicated strong prices are expected to lead to record high soybean 
planted area of 75.4 million acres, up nearly 3 percent. Producers 
indicated little change in corn planted area, nearly a 7-percent 
increase in cotton area and an 8-percent increase in rice planted area. 
These acreages and trend yields would result in record high corn and 
soybean crops of 10.2 billion and 2.97 billion bushels, respectively, a 
cotton crop of 18.0 million bales, about the same as last year, and a 
rice crop of 218 million cwt, near last year's level. The wheat crop 
would be about 11 percent below 2003's level, which had a record-high 
yield.
    These production levels could cause corn farm prices to rise again 
for the 2004/2005 crop as demand remains at or above production, 
soybean prices to decline somewhat under some stock rebuilding, and 
wheat prices to remain about the same as this season, as foreign 
production rebounds, assuming trend yields. While we should expect 
production rebounds in 2004/2005 from poor weather in Europe, the 
former Soviet Union (SU) and Brazil, there are several reasons to think 
global markets will remain robust. First, there is a very strong 
foundation under global grain demand. For the 2003/2004 crop years, 
global grain demand is expected to exceed global grain production for 
the 5th consecutive year.
    Second, this gap means that by the end of the summer, global grain 
stocks as a percent of use will be at the lowest level since 1972 for 
wheat, 1981 for rice and the lowest on record for coarse grains. Stocks 
are also low compared with history for soybeans and cotton. With low 
stocks and the improving global economy, it is likely that even with a 
return to normal yields in the key producing countries, crop stocks 
will remain low and prices firm for most major commodities.
    A third factor has been China's production and trade changes. After 
emphasizing self-sufficiency in the early 1990s and building large 
grain stocks, China has sharply reduced their grain surpluses. China's 
role as a U.S. competitor in grain markets declined in 2003 and could 
drop further in 2004. In addition, their growing oilseed crushing and 
textile export industries have resulted in soaring soybean and cotton 
imports. China is likely to continue to be a positive factor for U.S. 
agriculture in 2004/2005. USDA forecasts U.S. farm exports to China in 
fiscal year 2004 of $5.4 billion, imports from China of $1.4 billion, 
for a trade surplus of $4 billion.
    United States producers will continue to face significant 
competition from a host of foreign producers. For example, Brazil has 
increased its soybean planted area by 25 million acres since the mid 
1990s. They have also increased production of beef, broilers, corn, 
cotton and pork by 25 to 75 percent since the late 1990s. Summing up 
the soybean exports of Brazil and Argentina, the coarse grain exports 
of China and the former SU, and the wheat exports of India and the 
former SU provides an indication of the recent increase in competition 
facing U.S. crop producers. Exports from these countries grew from less 
than 10 million tons in 1994 to about 85 million in 2002--from 2 
percent of world grain and soybean trade to 25 percent. This growth 
limited U.S. exports and market prices. However, in 2003, exports from 
these competitors has fallen back following lower production in the 
former SU, China and India, helping to boost U.S. exports and farm 
prices.
    Horticultural markets have become an important contributor to farm 
income for all size producers. For 2003, cash receipts from fruits, 
vegetables and greenhouse and nursery crops are forecast to be $45.3 
billion, up 2 percent from last year and 17 percent over 1998. In 2004, 
we look for larger crops of citrus and processing vegetables while 
prices for deciduous fruits are strong on tight world supplies. With 
average weather, farm receipts for fresh vegetables are expected to 
decline as prices retreat from the strong levels of the past couple of 
years. Exports for fiscal year 2004 are forecast at $12.8 billion, up 
substantially from last year's $11.9 billion.
Outlook for Livestock, Poultry and Dairy
    Reduced supplies of red meat and nearly stable production of 
poultry and milk combined with increasing demand led to higher 
livestock and milk prices in 2003. The livestock sector was poised for 
another boom year in 2004, as red meat production continued its 
cyclical decline and milk production continued to lag. While the 
discovery in Washington of BSE in late December has severely reduced 
beef exports and outbreaks of Avian Influenza have lowered poultry 
exports, livestock prices continue to remain well above 2 year ago 
levels and market fundamentals generally remain quite strong. Higher 
feed costs could also lower returns in 2004, especially if feed grain 
and soybean yields fall below trend.
    Beef supplies became progressively tighter throughout 2003 and 
markets were forced to adjust to these tight supplies by rationing 
product. Production for the year was down about 3 percent, with fourth-
quarter production down 12 percent. Beef prices rose through mid-
October and sharply higher prices encouraged cattle feeders to market 
cattle ahead of schedule. Fewer of these lighter weight animals graded 
Choice and Prime. Monthly fed cattle prices peaked in October at 
$105.50 per cwt, up nearly 62 percent from a year earlier. Over the 
entire year, the price of choice steers averaged a record $84.69 per 
cwt in 2003, compared with $67.04 per cwt one year earlier.
    Strong demand for meat protein by consumers; the improving global 
economy; the improving restaurant and hotel business, which uses 
higher-valued meat cuts such as Choice beef; and Japan's consumer 
recovery after its BSE issues, combined with a steadily declining U.S. 
cattle inventory, all pointed toward another year of record-high cattle 
prices in 2004. With the finding of BSE and subsequent loss in beef 
exports, which are currently projected to decline by 83 percent in 
2004, more beef will have to be consumed in the U.S. market, and that 
means a decline in prices must occur to absorb the higher domestic 
supplies. USDA has reduced its 2004 fed cattle price projection from 
$87.50 per cwt before BSE to its current forecast of $76.50 per cwt, 
down 13 percent. Despite the projected drop, fed cattle prices would 
still be the second highest on record.
    The fed cattle price forecast assumes that the countries that have 
bans on the importation of U.S. beef will continue to do so throughout 
2004. This is an assumption for forecast purposes and reflects the 
current policies of importing countries, which could change over the 
coming months. Mexico recently announced they are lifting the ban on 
boneless U.S. beef from animals under 30 months and, over the next 
several months, additional restrictions could be lifted allowing for 
increased exports that would lend further support to cattle prices in 
2004.
    In 2003, pork production increased 1.6 percent to a record 20 
billion pounds. Hog imports from Canada climbed to more than 7.4 
million head last year, up 30 percent from a year earlier. Two-thirds 
of these imported hogs were feeder pigs destined for finishing 
operations in the Midwest. Despite the increase in pork supplies, the 
price of slaughter hogs averaged $39.45 per cwt in 2003, up from $34.92 
in 2002, as tight supplies of beef boosted the demand for pork.
    Pork production is expected to reach a record 20.3 billion pounds 
in 2004, an increase of 1.3 percent. During the first quarter, hog 
prices averaged about 20 percent above a year ago, while pork 
production ran 3 percent ahead of last year. Consumer interest in high 
protein diets, relatively high prices for substitute animal proteins, 
and strong Asian demand for U.S. pork products are the major factors 
contributing to the increase in hog prices. For the entire year, the 
price of slaughter hogs is forecast to average about $1 per cwt higher 
than last year.
    In 2004, U.S. pork exports are forecast to increase 6 percent to 
1.8 billion pounds, which follows nearly a 7 percent increase in 2003. 
Major factors supporting the increase in pork exports are the lower 
valued U.S. dollar, global economic growth, and disease-related foreign 
market closures to beef and poultry.
    In 2003, broiler production increased 1.6 percent to 32.7 billion 
pounds. The production increase reflected higher average weight at 
slaughter as total broiler slaughter declined slightly. Relatively 
small growth in broiler production, higher prices for competing meat 
products and an improving domestic economy pushed broiler prices well 
above year-earlier levels. In 2003, whole-bird broiler prices averaged 
62 cents per pound, up from 55.6 cents per pound in 2002.
    Strong United States demand for chicken is expected to lead to 
record high broiler prices in 2004, despite a 3.6-percent increase in 
production and little growth in exports. In 2003, broiler exports grew 
2.6 percent and were expected to grow 7 percent in 2004 prior to the 
outbreaks of Avian Influenza in Delaware, New Jersey, Pennsylvania, 
Texas and Maryland. These outbreaks led several countries to restrict 
the importation of all U.S. poultry, causing USDA to lower its poultry 
export forecast. It is likely that the countries currently banning all 
U.S. poultry shipments will eventually allow exports of U.S. poultry 
from selected States, provided there are no further outbreaks. The 
timetable for this regionalization process will vary from country to 
country. For example, Mexico recently announced that it would allow 
broiler shipments from selected States.
    In 2003, milk production increased by just 0.1 percent, as cow 
numbers fell by 0.6 percent and milk production per cow rose by 0.8 
percent. Factors contributing to the sluggish growth in milk production 
per cow included low milk prices relative to concentrate feed prices, 
tight supplies of good quality hay, an unusually large share of first-
calf heifers, and somewhat conservative use of recombinant bovine 
somatotropin (rBST). Low milk prices, especially during the first half 
of 2003, probably made producers leery of using rBST on below-average 
producing cows.
    Milk cow numbers declined rapidly during the last three quarters of 
2003. During the first quarter, the number of milk cows averaged 0.3 
percent above a year earlier but averaged 1.4 percent below a year 
earlier during the final three quarters of 2003. Tightening milk 
supplies caused milk prices to average $13.80 per cwt during the second 
half of 2003, compared with $11.22 per cwt during the first half of 
2003. For the entire year, the all-milk price averaged $12.51 per cwt 
in 2003, up from $12.19 per cwt in 2002.
    The Commodity Credit Corporation (CCC) continues to purchase large 
quantities of nonfat dry milk under the price support program, and 
during most of 2003, made payments to producers under the Milk Income 
Loss Contract (MILC) program. In 2003, the CCC purchased 670 million 
pounds of nonfat dry milk, down slightly from the 680 million pounds 
purchased last year. In 2003, the payment rate under the MILC program 
averaged $1.09 per cwt.
    Milk production is expected to be about unchanged in 2004, as cow 
numbers continue to decline and the expansion in milk production per 
cow continues to be below trend. Monsanto has announced that it will 
accept no new rBST customers in 2004 and that established users will be 
allowed only half their normal purchases. Stagnant production combined 
with stronger demand for dairy products is expected to lead to much 
higher milk prices in 2004. The all-milk price is projected to average 
$14.30 per cwt in 2004, which would be the fifth highest on record. 
Still, USDA will probably again purchase in excess of 500 million 
pounds of nonfat dry milk, as that market continues in surplus.
Outlook for Farm Income
    For major commodities, the current USDA published forecasts for the 
2003/2004 marketing year for crops and the 2004 calendar year for 
livestock are all well above the previous 5-year average farm prices. 
The only commodity showing a decline is hogs.
    With trend production and a continuing close balance between supply 
and demand in most crop markets, we forecast the value of crop 
production will be record high in 2004. Also, despite the adverse 
effects of BSE and Avian Influenza on U.S. beef and poultry exports, 
the value of livestock and poultry production is expected to exceed 
$100 billion for only the third time in history. The drop in cattle and 
calf receipts, somewhat higher production expenses and lower government 
payments will reduce farm income from 2003's record high of $63 billion 
in 2002. Net cash farm income is forecast at about $56 billion, down 11 
percent from 2003. However, this income level would be the same as the 
average of the past two years.
    An indicator of the underlying fundamental strength of commodity 
markets is farm income excluding government payments. In 2000, net cash 
farm income excluding government payments hit a cyclical low of $34 
billion. This year, net cash farm income excluding government payments, 
is forecast at over $45 billion, up 35 percent since 2000. As markets 
have strengthened, payments based on prices have declined, so that more 
of net cash income is now coming from market sales. Government payments 
in 2004 are forecast at $10.3 billion, down from more than $17 billion 
in 2003, and the lowest level since 1997.
    Farm production expenses are expected to register another gain in 
2004. In 2003, total farm production expenses increased $11 billion to 
$204 billion. Higher prices for feed and feeder livestock accounted for 
about one-third and higher prices for energy-related inputs comprised 
about 40 percent of the increase in production expenses in 2003. In 
2004, total production expenses are forecast to reach a record $207.5 
billion, as prices of a variety of farm inputs are projected to 
register gains.
    The reduction in earnings from farm sources will have a small 
effect across the majority of households that operate residential and 
intermediate size farms, as their incomes are derived mostly off the 
farm. The incomes of households that run commercial-size operations 
will be lower in 2004, yet their average incomes will likely remain 
well above the average incomes of other farm households and all U.S. 
households.
    With another sound income year in prospect, farmland values may 
rise 3.5 percent in 2004, compared with 4 percent annual gains in the 
1990s and 5 percent in recent years. This increase would continue the 
improvement in the farm sector balance sheet that we saw in 2003. While 
this is a positive economic picture for U.S. production agriculture in 
2004, risks to the outlook include potential consequences of continued 
production growth in Brazil and other emerging competitors, tight oil 
supplies and high prices for energy-related inputs, the closure of 
export markets due to animal diseases and, as always, the weather here 
and abroad.
    That completes my statement, and I will be happy to respond to any 
questions.



    Senator Bennett. Thank you very much. Dr. Penn.

                         STATEMENT OF J.B. PENN

    Dr. Penn. Thank you, Mr. Chairman.
    It is a pleasure to be with you again this year and to 
present the budget for the Farm and Foreign Agricultural 
Services mission area of the Department. If you will recall, 
this mission area is comprised of the Farm Service Agency, the 
Risk Management Agency, and the Foreign Agricultural Service.
    I understand that you have already had an opportunity to 
review my prepared statement, so I will be very brief in my 
opening remarks.
    Senator Bennett. All of the prepared statements will be 
printed in the record.
    Dr. Penn. Thank you.
    Let me begin by mentioning the role of the Farm and Foreign 
Ag Services mission area within the entire Department. Our 
agencies provide a broad array of services that are the 
foundation for USDA's efforts to ensure the continued economic 
health and vitality of American agriculture. During the past 
year, the FFAS agencies continued to be heavily involved in 
these activities. We continued implementation of the far-
reaching and complex 2002 Farm Bill and the supplemental 
emergency disaster assistance that was included in the 2003 
Omnibus Appropriations Act.
    We maintained our strong commitment to keeping the Federal 
Crop Insurance Program a vital component of the overall safety 
net for our Nation's farmers and ranchers. The Risk Management 
Agency is currently renegotiating the Standard Reinsurance 
Agreement for delivering the risk management products through 
private companies. At the same time, we have actively supported 
the very ambitious trade agenda that will reduce trade barriers 
and open new markets overseas, and we have expanded our efforts 
to keep existing markets open.
    For the past three and a half months, we have been working 
very hard to reopen the markets that were closed due to the BSE 
and avian influenza incidents. The budget proposals that we are 
discussing today fully support continuation of these 
activities.

                          FARM SERVICE AGENCY

    I would first turn to the Farm Service Agency. This is our 
key agency for delivering farm assistance. This agency is 
located in about 2,400 offices throughout the country, and it 
is the one that farmers and ranchers deal with most frequently. 
The budget that we are proposing places a priority on 
maintaining FSA's ability to provide efficient, responsive 
services to our producers. It provides $1.3 billion for FSA 
salaries and expenses, which will support about 6,000 Federal 
staff years and approximately 10,300 county non-Federal staff 
years. The budget also provides an additional 100 Federal staff 
years to improve service to farm credit borrowers in our 
service centers.
    Implementing new technology is absolutely critical to our 
continued efficiency gains and to providing increasingly better 
services in the future. This includes new automation tools and 
the geospatial information system, GIS. The budget for the 
Office of the Chief Information Officer includes an $18 million 
increase that will provide for essential investments in the 
capability of FSA and the other service center agencies to 
improve services.

                         RISK MANAGEMENT AGENCY

    Turning now to the Risk Management Agency, the Federal Crop 
Insurance Program plays a very key role in helping producers 
manage their risk. The 2005 budget requests an appropriation of 
such sums as may be necessary for the mandatory costs of the 
program, and this will provide the necessary resources to meet 
program expenses at whatever level of coverage producers choose 
to purchase.
    The budget provides $92 million for RMA salaries and 
expenses. That is an increase of $21 million over 2004, and 
this net increase includes additional funding for information 
technology, increased staff years to improve monitoring of the 
insurance companies, and pay costs. About $16 million of the 
$21 million increase is for new information technology for RMA. 
The core information technology systems that RMA now uses are 
over 15 years old, and that is very ancient by IT standards. 
Over that time, the size and scope of the crop insurance 
program has increased dramatically, dramatically placing 
incredible strain on this aging system. So about $7 million of 
this increase will provide for the development of a new IT 
system, and $9 million will be for IT infrastructure 
improvements.

                      FOREIGN AGRICULTURAL SERVICE

    And finally, Mr. Chairman, turning to the Foreign 
Agricultural Service and our international activities, the 
importance of trade for American agriculture cannot be 
overstated, as Dr. Collins indicated in his remarks. If we are 
to ensure continued income growth for our producers, we must 
expand market opportunities overseas.
    Now, our budget proposals provide a program level of $148 
million for FAS activities in 2005. That is an increase of $12 
million over 2004. These increases include funding to meet 
higher overseas operating costs and improved telecommunications 
systems at FAS overseas offices. And as we have noted before, 
FAS carries out its activities through a network of 80 overseas 
offices and the headquarters here in Washington.
    Recent significant declines in the value of the dollar 
coupled with overseas inflation and rising wage rates have led 
to sharply higher costs that must be accommodated if FAS is to 
maintain its overseas presence. That presence is vital for FAS 
to represent the interests of American agriculture on a global 
basis and implement the Department's trade promotion programs 
effectively.
    Funding is also included for an FAS global computing 
environment initiative to modernize the agency's information 
technology systems. There is an urgent need for this additional 
funding. Our current systems are outdated; they have proven to 
be outdated, and they are inhibiting the ability of the agency 
to communicate effectively between Washington and the foreign 
posts.
    Also, this ancient system does not allow participation in 
the new e-government initiatives with other U.S. trade agencies 
that are designed to provide more efficient services to the 
public and help bolster our trade expansion efforts. So this 
proposed initiative would allow FAS to modernize its IT systems 
and improve its services to agricultural producers, exporters, 
and the various market development organizations.
    And I want to mention in closing, Mr. Chairman, that the 
United States continues to be a leader in global food aid 
efforts. We provide over one half of all of the food assistance 
that is provided in the world. That commitment is demonstrated 
by the fact that Public Law 480 program, the Food for Peace 
program, will observe its 50th anniversary in July of this 
year.
    Now, our 2005 budget proposal supports a program level of 
over $1.5 billion for U.S. foreign food assistance activities. 
This includes $1.3 billion for Public Law 480 credit and 
donation programs. The newest of the food assistance activities 
is the McGovern-Dole International Food for Education and Child 
Nutrition Program. This program was successfully implemented in 
2003. We had projects in 21 countries that fed 2.3 million 
women and children. The budget provides for a request of $75 
million for the program, which is an increase of 50 percent 
over 2004.

                          PREPARED STATEMENTS

    So in closing, Mr. Chairman, I would note that we think 
that these are very modest and very positive budget proposals 
that ensure we can continue to provide service to our 
producers. We appreciate the support of this Committee for our 
mission area in the past, and we look forward to working with 
you in the future on behalf of the agricultural sector.
    Thank you, sir.
    [The statements follow:]

                    Prepared Statement of J.B. Penn

    Mr. Chairman and Members of the Committee, I am pleased to appear 
before you this afternoon to present the 2005 budget and program 
proposals for the Farm and Foreign Agricultural Services (FFAS) mission 
area of the Department of Agriculture (USDA). The FFAS mission area is 
comprised of three agencies: the Farm Service Agency; Risk Management 
Agency; and Foreign Agricultural Service.
    Statements by the Administrators of the FFAS agencies, which 
provide details on their budget and program proposals for 2005, have 
already been submitted to the Committee. My statement will summarize 
those proposals, after which I will be pleased to respond to any 
questions you may have.
    Mr. Chairman, one of the five primary goals in the Department's 
strategic 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 achieve that goal. 
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. 
They continued to implement the far reaching and complex Farm Security 
and Rural Investment Act of 2002 (2002 Farm Bill), and they implemented 
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 2004 will be a critical year for negotiations 
aimed at further reducing trade barriers and opening new markets 
overseas, as well as reestablishing export markets following the recent 
incidents of bovine spongiform encephalopathy (BSE) and avian 
influenza.
    The 2005 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 operations of the domestic commodity and income support, 
conservation, trade, and related programs provided by the 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 over $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 key agency for delivering farm 
assistance. It is the agency that the majority of farmers and ranchers 
interact with most frequently. Producers rely on FSA to access farm 
programs such as direct and countercyclical payments, commodity 
marketing assistance loans, loan deficiency payments, farm ownership 
and operating loans, disaster assistance, and certain conservation 
programs such as the Conservation Reserve Program (CRP). Because FSA is 
the primary delivery agency for most of the major farm assistance 
programs, the budget places a priority on maintaining and enhancing 
FSA's ability to provide efficient, responsive services to our 
producers.
Farm Program Delivery
    The 2002 Farm Bill required the FSA to undertake a massive task of 
implementing a complex set of new farm programs within a short time 
period. FSA has successfully put these programs in place in less than 2 
years since the Bill was enacted. Nearly two million producers were 
signed up quickly under the new direct and countercyclical payments 
program. Several billion dollars of direct and countercyclical payments 
have been paid out; a new Milk Income Loss Contract program was 
implemented and over $1.8 billion has been paid so far to eligible 
producers; and the peanut program has been radically transformed and 
$1.2 billion of peanut quota buyout payments have been made. At the 
same time as these and other new programs were being implemented, FSA 
successfully programmed over $3 billion in disaster assistance required 
by the Agricultural Assistance Act of 2003. These programs and 
improving markets combined to provide the Nation's farmers with a 
record level of net cash income in 2003.
    The massive workload associated with implementing these programs 
over the past 2 years is now moderating. As a consequence, FSA has 
begun to reduce the number of temporary, non-Federal county office 
staff years from the roughly 3,000 staff years in 2003, to about 1,000 
staff years provided for in the 2005 budget. The proposed 2005 level 
for FSA salaries and expenses of $1.3 billion will support about 6,000 
Federal staff years and nearly 10,300 county non-Federal staff years, 
including the 1,000 temporary staff years. Permanent non-Federal 
staffing will remain near the levels of 2003 and 2004 to accommodate 
the essential ongoing workload of the agency. The budget also will 
provide an additional 100 Federal staff years to improve service to 
farm credit borrowers in our Service Centers.
    High priority is being placed on enhancing services to FSA's 
clientele by improving agency operations and expanding diversity of the 
customer base and staff. Improvements in operations based on new 
automation tools and Geospatial Information Systems (GIS) are coming on 
line and promise increasingly better services in the future. The budget 
for the Office of the Chief Information Office includes an $18 million 
increase for Service Center Modernization that will provide for 
essential investments in the capability for FSA and the other Service 
Center agencies to improve services to producers.
    FSA has already utilized newly modernized systems for a recent 
sign-up for the CRP to reduce costs and improve timeliness. Work is 
underway to continue modernization improvements in other program areas, 
including farm loan servicing.
Conservation
    The 2002 Farm Bill provided for significant growth in the 
Department's conservation programs. The CRP, which is funded by the 
Commodity Credit Corporation (CCC) and administered by FSA, was among 
the programs that expanded. A general sign-up in 2003 added nearly 2 
million acres to the CRP. Also, 430,000 acres were added under 
continuous and Farmable Wetlands Program (FWP) sign-ups.
    The 2005 budget assumes a general sign-up in 2004 of about 800,000 
acres, and none in 2005. In addition, about 450,000 acres are projected 
to be enrolled under continuous sign-up and the Conservation Reserve 
Enhancement Program (CREP) in each of 2004 and 2005. The FWP is 
estimated to be expanded by about 50,000 acres in each of 2004 and 
2005. In total, CRP is projected to increase gradually from 34.1 
million acres at the end of 2003 to 39.2 million acres by 2008.
Commodity Credit Corporation
    Domestic farm commodity price and income support programs are 
financed through the CCC, a Government corporation for which FSA 
provides operating personnel. The CCC also provides funding for 
conservation programs including the CRP and certain programs 
administered by the Natural Resources Conservation Service. In 
addition, CCC funds many of the export programs administered by the 
Foreign Agricultural Service.
    CCC net expenditures were $17.4 billion in 2003. This level is 
expected to decline to an estimated $14.8 billion in 2004, and then 
increase slightly to $15.0 billion in 2005. However, these estimates 
are sensitive to changing supply and demand conditions for the 
supported farm commodities and may change as we move forward.
    Annual 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 this preceding year.
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 2005, 70 percent of direct farm ownership loans are 
reserved for beginning farmers, and 20 percent are reserved for 
socially disadvantaged borrowers, who may also be beginning farmers.
    The 2005 budget includes funding for about $937 million in direct 
loans and $2.9 billion in guarantees. In recent years, the Department 
has used its authority to shift funding from guaranteed operating loans 
to meet excess demand in the direct loan programs. The levels requested 
for 2005 reflect those shifts and are expected to reflect actual 
program demand more accurately. The overall increase in loan levels is 
reflective of generally stable to lower subsidy rates for the farm loan 
programs, which make those programs less expensive to operate. We 
believe the proposed loan levels will be sufficient to meet the demand 
in 2005.
    The 2005 budget maintains funding of $2 million for the Indian Land 
Acquisition program. For the Boll Weevil Eradication loan program, the 
budget requests $60 million, a reduction of $40 million from 2004. This 
reduction is due to the successful completion of eradication efforts in 
several areas. The amount requested is expected to provide full funding 
for those eradication programs operating in 2005. For emergency 
disaster loans, the budget requests $25 million. No additional funding 
was requested for emergency loans in 2004 due to carryover funding from 
2003. About $191 million is currently available for use in 2004, and a 
portion of that is likely to carry over into 2005. The combined request 
and anticipated carryover are expected to provide sufficient credit in 
2005 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 contained in the Department's Food and 
Agricultural Policy report of 2001 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 2003, the crop insurance program provided about $41 billion in 
protection on over 218 million acres, which is about one million acres 
more than were insured in 2002. Our current projection is that 
indemnity payments to producers on their 2003 crops will be about $3.3 
billion which is about $800 million less than in 2002.
    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 2005 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 2003.
    The 2005 budget requests an appropriation of ``such sums as may be 
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. For 
salaries and expenses of the Risk Management Agency (RMA), $92 million 
in discretionary spending is proposed, an increase of $21 million above 
the 2004 level of $71 million. This net increase includes additional 
funding for information technology (IT), increased staff years to 
improve monitoring of the insurance companies, and pay costs.
    Nearly every RMA function or activity is in some part dependent on 
IT. All of their databases, internal controls, payments to producers 
and companies are tied to IT. All of RMA's rates, prices, products, 
training and financial activity also depend on this technology.
    Because RMA core IT systems are 15 years old, they no longer meet 
the minimum requirements mandated by the Department for security, 
architecture, and e-Government initiatives. In addition, ARPA funds 
that were earmarked for data mining and other compliance activities 
will be depleted at the end of this fiscal year, and there are no 
alternative funding sources available.
    ARPA mandated and funded a substantial increase in the number and 
reach of risk management tools for America's producers and the RMA is 
meeting the challenge. Approximately 80 new risk management tools are 
in various stages of development and deployment. However, RMA's ability 
to maintain the integrity and effectiveness of the critical systems 
that support the growing portfolio of risk management tools that serve 
America's agricultural producers is being threatened due to an aging IT 
system. Unless the situation is corrected, RMA will be required to make 
some difficult resource choices that will unavoidably and negatively 
affect its ability to support safe and effective development, 
deployment and regulation of these important risk management tools.
    Several major changes have also occurred over that time in the way 
producers protect their operations from losses. In 1994, there were no 
plans of insurance which offered protection against changes in market 
prices. Today, over 50 percent of the covered acreage has revenue 
protection, and nearly 62 percent of the premium collected is for 
revenue based protection. In addition, ARPA authorized the development 
of insurance products to protect livestock. Because livestock 
production occurs year-round, these products must be priced and sold in 
a different manner than traditional crop insurance. The advent of new 
types of insurance, not contemplated when the IT system was designed, 
has placed tremendous strain on the aging system.
    ARPA also instituted new data reconciliation, data mining and other 
anti-fraud, waste and abuse activities that require the data to be used 
in a variety of new ways. The current IT system was not designed to 
handle these types of data operations. Consequently, the data must be 
stored in multiple databases which increases data storage costs and 
processing times and increases the risk of data errors.
    The development of the new IT system will result in some additional 
up-front costs to the Government. Until the new system is fully 
operational, we will be required to finance both the developmental 
costs as well as the increasingly expensive maintenance costs of the 
legacy system. However, once the new system is operational, the legacy 
system will be eliminated and a substantial reduction in maintenance 
costs is projected.
    Finally, I would note that this budget for the RMA includes a 
request for 30 additional staff years. The additional staff will 
provide needed support in employing advanced technology-based methods 
to detect and prosecute fraud, waste and abuse; following up on 
referrals from FSA, OIG and the public; making recommendations for 
formal fraud investigations to OIG; and supporting OIG and U.S. 
Attorneys' offices on fraud cases. They also will address outstanding 
OIG and GAO recommendations to improve oversight and internal controls 
over insurance providers; monitor and manage contractual agreements and 
partnerships with the public and private business sectors; and support 
the review and evaluation by the FCIC Board of Directors of the 
increasing number of new private product submissions received each 
year. All of these activities result in savings to the program far in 
excess of their cost through enhanced program oversight and avoidance, 
detection and remediation of program fraud, waste and abuse.
                      foreign agricultural service
    Trade is critically important for American agriculture, and the 
Department's work to expand overseas markets and promote trade is one 
the primary means we have to enhance economic opportunities for our 
farmers and ranchers. With gains in productive capacity continuing to 
outpace growth in demand here at home, the economic growth and future 
prosperity of America's farmers and ranchers will depend heavily upon 
our continued success in reducing trade barriers and expanding exports.
    The Department's efforts to expand trade are carried out on 
multiple fronts. At the center of these activities is the negotiation 
of trade agreements that will reduce barriers and improve access to 
overseas markets. We continue our efforts to reach a new agreement 
through the World Trade Organization (WTO) that will provide for 
further, significant liberalization of global agricultural trade. 
Although the Cancun Ministerial was a missed opportunity, the benefits 
of a successful negotiation for all trading partners remain clear and, 
on that basis, we continue our efforts to advance the negotiating 
process. Negotiations on agriculture resumed last month, and we are 
hopeful that a Ministerial meeting to set the stage for a conclusion to 
the negotiations can be held by the end of this year. Our objectives 
for the negotiations remain the elimination of export subsidies, 
improvement in market access through substantial reductions in tariffs, 
and reduction in trade-distorting domestic support.
    Regional and bilateral trade agreements also provide an important 
avenue for opening new markets, and the Department is an important 
participant in the ambitious agenda that has been established for 
negotiating such agreements. Recently, the United States concluded 
successful negotiations for a Central American Free Trade Area that 
will create new opportunities in this nearby and growing market of over 
35 million consumers. Negotiations also have been concluded recently 
with Australia and Morocco. Other negotiations currently underway will 
establish the Free Trade Area of the Americas and an agreement with the 
Southern African Customs Union. Negotiations expected to begin later 
this year will involve the Andean countries, as well as bilateral 
agreements with Bahrain, Panama, and Thailand.
    While these important efforts to negotiate market-opening 
agreements move forward, we also are increasing our activities to 
monitor compliance with existing agreements and ensure that U.S. trade 
rights are protected. During the past year, we have worked to solve a 
significant number of trade problems, including China's implementation 
of its WTO accession commitments on tariff-rate quota administration 
and export subsidy obligations, and Mexico's implementation of the 
provisions of the North American Free Trade Agreement.
    At the same time, we are addressing other technical barriers to 
trade that arise because the adoption of non-science based standards 
and resistance to the adoption of new technologies, such as 
biotechnology. In this regard, we were encouraged by China's 
announcement in February that it had completed its regulatory review 
and issued permanent safety certificates for Roundup Ready soybeans, as 
well as for two corn and two cotton products. This is extremely 
positive news as China is now the leading foreign customer for U.S. 
soybeans and cotton.
    At present, we are confronted with the challenge of reopening 
foreign markets that have been closed due to the discovery of the one 
case of BSE and the recent outbreaks of avian influenza in the United 
States. We understand the critical importance of reopening these 
markets as soon as possible, and we have committed, and will continue 
to commit, the resources and energy necessary to resolve these 
situations and resume normal trade. With that as our goal, we were very 
pleased with last month's announcement by Mexico of the reopening of 
their border to U.S. beef products.
FAS Salaries and Expenses
    The Foreign Agricultural Service (FAS) is the lead agency for the 
Department's international activities and is at the forefront of our 
efforts to expand and preserve overseas markets. Through its network of 
80 overseas offices and its headquarters staff here in Washington, FAS 
carries out a wide variety of activities that contribute to the goal of 
expanding overseas market opportunities.
    Our budget proposals provide a program level of $148 million for 
FAS activities in 2005. This is an increase above the 2004 level of 
nearly $12 million and is designed to ensure the agency's continued 
ability to conduct its activities effectively and provide important 
services to U.S. agriculture.
    The proposed increase includes funding to meet higher overseas 
operating costs and improve telecommunications systems at FAS' overseas 
offices. FAS is unique as a USDA agency because a sizeable component of 
the agency's operational costs are vulnerable to macroeconomic 
developments beyond its control. Recent significant declines in the 
value of the dollar, coupled with overseas inflation and rising wage 
rates, have led to sharply higher costs that must be accommodated if 
FAS is to maintain its overseas presence. That presence is critical for 
FAS to represent the interests of American agriculture on a global 
basis, for its continued reporting and analysis of agricultural 
developments around the world, and for effective implementation of 
USDA's trade promotion and market development programs.
    Funding also is included for an FAS Global Computing Environment 
initiative to modernize the agency's information technology systems and 
applications. There is an urgent need for additional funding because 
the current systems are outdated, have proven to be unreliable, and are 
inhibiting our ability to communicate effectively between Washington, 
D.C. and foreign posts. They also do not allow participation in e-
Government initiatives with other U.S. trade agencies that are designed 
to provide more efficient services to the public and help bolster U.S. 
trade expansion efforts. The proposed initiative will allow FAS to 
modernize and restructure its IT systems, and improve the services it 
provides to U.S. agricultural producers, exporters, and market 
development organizations.
    Finally, the budget also provides increased funding for FAS to meet 
the higher pay costs in 2005.
Export Promotion and Market Development Programs
    FAS administers the Department's export promotion and market 
development programs which play a key role in our efforts to assist 
American producers and exporters to take advantage of new market 
opportunities, including those created through market-opening trade 
agreements.
    The largest of these programs are the CCC export credit guarantees, 
which help to ensure that credit is available to finance commercial 
exports of U.S. agricultural products. As overseas markets for U.S. 
agricultural products continue to improve, that improvement will be 
reflected in export sales facilitated under the guarantee programs. For 
2005, the budget projects a program level of $4.5 billion for the 
guarantee programs, an increase of just over $250 million above the 
current estimate for 2004.
    For the Department's market development programs, including the 
Market Access Program and Foreign Market Development Cooperator 
Program, the budget provides funding of $173 million, unchanged from 
this year's level. The budget also includes $53 million for the Dairy 
Export Incentive Program and $28 million for the Export Enhancement 
Program.
Trade Adjustment Assistance for Farmers
    For the newly implemented Trade Adjustment Assistance (TAA) for 
Farmers Program, the budget includes a program level of $90 million, as 
authorized by the Trade Act of 2002. The TAA program provides 
assistance to producers of raw agricultural commodities who have 
suffered lower prices due to import competition, and to fisherman who 
compete with imported aquaculture producers. In order to qualify for 
assistance, the price received by producers of a specified commodity 
during the most recent marketing year must be less than 80 percent of 
the national average price during the previous 5 marketing years. Also, 
a determination must be made that increases in imports of like or 
competitive products ``contributed importantly'' to the decline in 
prices.
    Since the program was implemented last August, 12 petitions for 
assistance have been approved involving five different products--wild 
blueberries, salmon, shrimp, catfish, and lychee fruit. Once a petition 
is approved, producers have 90 days to apply for benefits. Eligible 
producers receive technical assistance and cash benefits of up to 
$10,000 per producer. We expect to begin making the first payments 
under the program within the next several months once the producer 
application periods have closed.
International Food Assistance
    The efficiency and productivity of our producers allows the United 
States to be a leader in global food aid efforts, and the United States 
continues to provide over one-half of the world food assistance. The 
commitment of the United States to these activities is demonstrated by 
the fact that the Public Law 480 program, our primary vehicle for 
providing food assistance overseas, will observe its 50th anniversary 
in July of this year.
    The 2005 budget supports a program level of over $1.5 billion for 
U.S. foreign food assistance activities. This includes $1.3 billion for 
the Public Law 480 Title I credit and Title II donation programs, which 
is expected to support the export of 3.2 million metric tons of 
commodity assistance.
    The newest of our food assistance activities is the McGovern-Dole 
International Food for Education and Child Nutrition Program, which was 
authorized in the 2002 Farm Bill. FAS successfully implemented the 
program in 2003, and projects were approved in 21 countries where 
nearly 2.3 million women and children will benefit. Beginning in 2004, 
the Farm Bill requires the McGovern-Dole program to be funded through 
discretionary appropriations, and the 2004 Omnibus Appropriations Act 
provides a program level of $50 million for the program. The 2005 
budget requests that program funding be increased by 50 percent to $75 
million.
    In addition, the budget includes an estimated program level of $149 
million for the CCC-funded Food for Progress program. This is expected 
to support 400,000 metric tons of assistance consistent the authorizing 
statute. The budget also assumes that donations of nonfat dry milk with 
continue under the authority of section 416(b) of the Agricultural Act 
of 1949. The total value of the commodity assistance and associated 
costs is projected to be $147 million.
    That concludes my statement, Mr. Chairman. I would be pleased to 
answer any questions that you and other Members of the Committee may 
have. Thank you.
                                 ______
                                 

  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 2005 budget for the Farm Service 
Agency (FSA). Since we met last year, I am pleased to report that FSA 
successfully completed its implementation of the most complicated farm 
bill ever--the Farm Security and Rural Investment Act of 2002 (Farm 
Bill)--as well as the 2003 ad hoc disaster bill--the Disaster 
Assistance Act of 2003 (Disaster Bill). We signed up nearly 2 million 
producers in one of the most complex yet quickly implemented signups 
ever conducted and also began and completed the multi-faceted and 
extremely complicated Disaster Bill. In total, we have paid out over 
$19 billion--$11.1 billion in direct and countercyclical payments, over 
$1 billion in benefits to the livestock industry, over $1.8 billion in 
Milk Income Loss Contract payments, $1.2 billion in peanut quota buyout 
payments, and $2.4 billion in disaster assistance. These and other 
programs contributed significantly to record farm income in 2003.
    For the first time since 1997, FSA is not absorbed in 
simultaneously implementing multiple provisions of either ad hoc 
disaster legislation or a new farm bill, and our employees deserve 
considerable recognition for a job well done. As we look forward to 
fiscal year 2005 and beyond, we are taking stock and directing our 
attention to enhancing customer service. We have begun a number of 
projects and initiatives designed to achieve substantial and systemic 
improvements that will position us for more rapid implementation of the 
next farm bill or any ad hoc provisions that might come our way. Our 
fiscal year 2005 budget request supports these initiatives. Before 
discussing specifics of the budget, however, I would like to briefly 
highlight some of the efforts we already have under way which will be 
bolstered by our fiscal year 2005 request.
    With the ultimate goal of better serving our customers, FSA is 
focusing on four areas, all coupled with the President's Management 
Agenda: Budget and Performance Integration, eGovernment, Human Capital, 
and improving Financial Performance.
Budget and Performance Integration
    FSA is overhauling its existing 5-year Strategic Plan to create a 
much more effective tool for telling our story--the results FSA will 
deliver to the American public. The new plan will be used to guide the 
way we carry out our mission. The plan will better support and link to 
our budget in how we identify and justify the financial, personnel, and 
other resources necessary to best deliver our programs and measure 
results. For the fiscal year 2005 Budget process, we worked with OMB to 
identify four of FSA's programs--Commodity Credit Corporation (CCC) 
Direct Payments, CCC Marketing Loans, Guaranteed Farm Loans, and 
Bioenergy--to take part in OMB's Program Assessment Rating Tool (PART) 
evaluation process. On a rating scale ranging from a lowest of 
``Ineffective'' to the highest of ``Effective,'' the PART reviews rated 
CCC Marketing Loans and Guaranteed Farm Loan programs as ``Moderately 
Effective'' and our CCC Direct Payments and Bioenergy programs as 
``Adequate.'' These ratings indicate that we have to improve our 
integration of budget and performance to better demonstrate results. 
For example, the guaranteed farm loan PART evaluation found that while 
the program serves a clear need, improvements in performance 
measurement are needed to more fully understand program impact and the 
effectiveness of targeted assistance. As a result, FSA is conducting a 
performance-focused review of its loan portfolio, which could lead to 
development of additional measures of efficiency and effectiveness.
    To make FSA a more results-focused and customer-driven agency, we 
are refining our key goals designed to improve agency mission 
effectiveness; identifying workable strategies for accomplishing the 
goals; and establishing quantifiable measures, so we can effectively 
and convincingly gauge our progress. Through a process that started 
last fall, we expect by this summer to have a new 5-year Strategic Plan 
with a set of credible measures that will be used to support and 
justify FSA's fiscal year 2006 Budget and beyond.
eGovernment
    Most of the FSA information technology systems used to implement 
the Farm Bill and Disaster Bill are COBOL-based and date back to the 
1980's, and some of the processes we used date back as many as 40 or 50 
years. Through several years of effort, FSA has already begun migrating 
these legacy systems under the Service Center Common Computing 
Environment initiative. For example, our Geospatial Information System 
(GIS) initiative is progressing well. Currently, we have about 50 
percent of counties digitized and expect to have the entire Nation 
completed in fiscal year 2005. GIS technology will be the cornerstone 
of all future FSA system architecture, which I will speak to in a 
moment. Also, last year, we completely redesigned the way we conducted 
the Conservation Reserve Program general signup held in May and June. 
By applying new automation tools, utilizing GIS tools where available, 
and linking with Natural Resources Conservation Service databases, we 
were able to reduce:
  --signup-related technical assistance needs for an estimated savings 
        of $11.2 million.
  --the number of Environmental Benefits Index data entries by 90 
        percent and the time spent on each offer by 60-70 percent. In 
        offices with GIS, additional time was saved by outlining 
        eligible acreage boundaries and calculating acreage by soil map 
        unit symbol. The calculation of field boundaries saved 
        producers approximately $160 thousand in measurement service 
        fees.
  --the error rate and validation and cleanup processes by about 80 
        percent.
  --the time between the end of signup and the completion of data for 
        offer acceptance decision making by about 30 percent, from 10 
        weeks to 7 weeks.
    Last fall, we also purchased a new Farm Business Plan (FBP) that 
will completely change the way we interact with our credit customers, 
analyze and evaluate farm loan requests, and provide farm business 
planning and credit risk analysis for our farmers and ranchers. This 
new system, which will significantly improve our overall ability to 
provide improved customer service for our most needy customers, will be 
phased in Nationwide over the course of the spring and summer and will 
require a major training effort that begins the first week in April.
    As we continue to migrate all of our legacy systems, we are 
undergoing a self-evaluation and are engaged in a range of business 
process reengineering (BPR) initiatives to improve the way we operate 
in the 21st century, using GIS as the cornerstone. Throughout the 
agency, program managers are examining innovative ways to improve their 
processes and reduce duplication of effort through automation, web-
based systems, and collaboration.
    While BPR generally revolves around automation improvements, we are 
looking at processes. The Internet has created great opportunities to 
identify better ways to deliver services on-line, giving our farmers 
and ranchers more time to be in the field and less time in our Service 
Center offices. For example, our Electronic Loan Deficiency Payment 
(LDP) process will allow producers to apply for LDP's on-line from 
their home or place of business and receive their payments through 
electronic funds transfer. This year, FSA is conducting a top-to-bottom 
review of all of its business processes to ensure the services we 
deliver are the most effective and customer-centered, utilizing today's 
technology.
Financial Management
    In fiscal year 2003, CCC received, for the second year in a row, an 
unqualified audit opinion on its financial statements. We continue to 
improve our financial performance by developing system improvements and 
establishing controls that will not only maintain the clean opinion, 
but also resolve management control weaknesses identified through the 
annual financial audit process and other internal and external reviews. 
We are also aggressively addressing erroneous payments to ensure 
controls are in place to improve the financial integrity of all of 
FSA's program delivery and payment processes.
Human Capital
    Last year we aligned our human capital plan to support our 
strategic plan and the accomplishment of our programmatic goals. One of 
the major tasks included a basic analysis of our workforce. That 
analysis revealed that over the next 5 years, we are facing the 
potential of losing 34 percent of our workforce--a little over 5,100 
employees, many in leadership positions--due to retirements alone. 
Targeted investments and corrective measures must be implemented in the 
coming years to replace the skills, talents, and historical knowledge 
of departing employees. The results of our workforce analysis now drive 
the major human capital initiatives under way in leadership 
development, talent management, and performance management.
    For leadership development, we have implemented several management 
training programs and are developing others, including leadership 
succession programs. To ensure that our current and future employees 
have the right talent or skills, especially in mission critical 
occupations, we have re-tooled existing training programs and have 
begun to develop programs to sustain a better learning environment. In 
terms of managing talent, our new 5-year recruitment strategy calls for 
annual plans that target specific occupations, improvements in hiring 
processes and flexibilities, and steps to become an employer of choice. 
And, to ensure a results-driven performance workforce, we have launched 
a performance culture initiative to address specific areas where our 
managers can more effectively manage people and drive continuous 
improvement. In addition, we have begun aligning management performance 
plans to the agency's mission, goals and outcomes. This effort will 
cascade into the workforce over time. We are also enhancing our efforts 
to hold employees accountable for results and differentiate among 
levels of performance to improve overall program delivery.
    In conjunction with our Human Capital Plan, FSA is committed to 
equal employment opportunity in our workforce. Where minorities are 
underrepresented among our ranks, FSA is engaging in some aggressive 
initiatives to address this deficiency. We are utilizing regional 
recruitment teams that will:
  --capitalize on our recruitment flexibilities by ensuring that 
        managers are well versed in appointment authorities such as the 
        Career Intern Program and the Student Career Experience 
        Program.
  --locate a diversity of quality candidates by working with 
        institutions of higher education that serve minority 
        populations; the National Society for Minorities in Agriculture 
        and Natural Resources and Related Sciences (MANRRS), which is 
        dedicated to educating minorities about career opportunities in 
        agriculture; and various minority professional organizations 
        representing more experienced workers to fill higher level 
        positions.
  --advertise career opportunities through magazines, news 
        publications, and websites targeted to the relevant minority 
        audiences.
    Achieving a workforce that reflects the population it serves is not 
only the right thing to do in principle, it will improve FSA's 
reputation and foster an increased sense of trust that will enhance 
customer relations.
Civil Rights and Outreach
    Equal access to agency programs is fundamental to customer service. 
Where problems of disparate treatment exist, our civil rights staff is 
working to meet the issue head on. We have conducted reviews in 11 
States that had not been reviewed in the last few years. In eight of 
those States a corrective action plan is in place to address the 
problems discovered. We are continuing to monitor the remaining three, 
and we are determined to hold senior management in those States 
accountable for providing the leadership needed to eliminate problems 
of discrimination. FSA remains dedicated to ensuring that all 
employees, regardless of level, are held accountable for superior 
customer service, effective communications, and providing all 
participants equal access to all FSA programs.
    We have established an Office of Minority and Socially 
Disadvantaged Farmer Assistance to work with minority and socially 
disadvantaged farmers who have concerns and questions about loan 
applications they have filed in their Service Centers. Through a 
national toll-free telephone help line, we answer producer inquiries 
about loan programs and other FSA programs.
    To rectify instances where certain producer populations are 
underserved, our outreach staff is working to increase participation of 
minorities in FSA programs. The staff utilizes a network of State 
outreach coordinators and works in conjunction with community-based 
organizations, non-profit groups, educational institutions that serve 
minorities, and USDA's Cooperative State Research, Education, and 
Extension Service to reach small farm operators in local communities.
    Some of our activities for 2004 include continued participation in 
the highly successful American Indian Credit Outreach Initiative, 
refining our translation of FSA program forms into Spanish, and 
reaching out to underserved groups by participating in conferences such 
as the NAACP National Convention, the Hmong National Conference, the 
Asian Pacific American Federal Career Advancement Summit, and the 
National Hispanic Farmers and Ranchers Conference.
                            budget requests
    Turning now to the specifics of the 2005 Budget, I would like to 
highlight our proposals for the commodity and conservation programs 
funded by the Commodity Credit Corporation the (CCC); 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, upland cotton and extra 
long staple cotton, rice, tobacco, milk and milk products, honey, 
peanuts, pulse crops, sugar, wool and mohair are facilitated primarily 
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 2004, $1.7 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. In 
addition, CCC funds many of the export programs administered by the 
Foreign Agricultural Service.
Program Outlays
    The fiscal year 2005 budget estimates largely reflect supply and 
demand assumptions for the 2004 crop, based on November 2003 data. CCC 
net expenditures for fiscal year 2005 are estimated at $15.0 billion, 
up about $0.2 billion from $14.8 billion in fiscal year 2004.
    This small net increase in projected expenditures is attributable 
to increases for the counter-cyclical and loan deficiency payment 
programs, as well as the Noninsured Assistance Program and CRP, all of 
which are mostly offset by decreases in other programs.
Reimbursement for Realized Losses
    CCC is authorized to replenish its borrowing authority, as needed, 
through annual appropriations up-to-the amount of realized losses 
recorded in CCC's financial statements at the end of the preceding 
fiscal year. For fiscal year 2003 losses, CCC was reimbursed $22.9 
billion.
Conservation Reserve Program
    The Conservation Reserve Program (CRP), administered by FSA, is 
currently USDA's largest conservation/environmental program. It is 
designed to cost-effectively assist farm owners and operators in 
conserving and improving soil, water, air, and wildlife resources by 
converting highly erodible and other environmentally sensitive acreage, 
normally devoted to the production of agricultural commodities, 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 enrollment under 
this program from 36.4 million acres up to 39.2 million acres.
    The 2003 general signup I mentioned earlier brought nearly 2 
million acres into the CRP. Also in 2003, under continuous and Farmable 
Wetlands Program (FWP) signups, a combined total of 430,000 acres was 
enrolled. We issued incentive payments totaling approximately $104 
million under continuous signup, Conservation Reserve Enhancement 
Program (CREP), and FWP under the incentives program that began in May 
2000 to boost participation.
    The fiscal year 2005 budget assumes general signups in fiscal years 
2004 and 2006 to enroll approximately 800,000 acres and 2.5 million 
acres, respectively. No general signup is expected in 2005. However, in 
each of fiscal years 2004 and 2005, we anticipate enrolling 450,000 
acres under continuous signup and the CREP. About 50,000 acres are 
estimated to be enrolled in the FWP in fiscal years 2004 and 2005.
    Overall, CRP enrollment is assumed to gradually increase from 34.1 
million acres at the end of fiscal year 2003 to 39.2 million acres by 
fiscal year 2008, and to remain at 39.2 million acres through fiscal 
year 2014, maintaining a reserve sufficient to provide for enrollment 
of 4.2 million acres in continuous signup and CREP.
                           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 2005 Budget proposes a total program level of about 
$3.8 billion. Of this total, approximately $0.9 billion is requested 
for direct loans and nearly $2.9 billion for guaranteed loans offered 
in cooperation with private lenders. These levels should be sufficient 
to provide adequate funding for our most needy farmers and ranchers 
throughout the year.
    For direct farm ownership loans we are requesting a loan level of 
$200 million. The proposed program level would enable FSA to extend 
credit to about 1,700 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. 
Also, 70 percent of direct farm ownership loans are reserved for 
beginning farmers, and historically about 35 percent are made at a 
reduced interest rate to limited resource borrowers, who may also be 
beginning farmers. Recently, however, the reduced-rate provisions have 
not been utilized since regular interest rates are lower than the 
reduced rates provided by law. 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 2005, we are 
requesting a loan level of $1.4 billion. This program level will 
provide about 4,800 farmers the opportunity to acquire their own farm 
or to preserve an existing one. One critical use of guaranteed farm 
ownership loans is to allow real estate equity to be used to 
restructure short-term debt into more favorable long-term rates. For 
guaranteed farm operating loans we propose an fiscal year 2005 program 
level of approximately $1.5 billion to assist over 8,000 producers in 
financing their farming operations. This program enables private 
lenders to extend credit to farm customers who otherwise would not 
qualify for commercial loans and ultimately be forced to seek direct 
loans from FSA.
    We are particularly proud of all of our loan programs. As a matter 
of fact, since fiscal year 2000, our direct and guaranteed loans to 
minorities and women have increased every year. And in fiscal year 
2003, there was an increase in direct loans to each minority group and 
we set a record for guaranteed farm ownership loans.
    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, our budget proposes 
program levels of $25 million 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 to deal 
with disputes involving a variety of agricultural issues including 
distressed farm loans, wetland determinations, conservation compliance, 
pesticides, and others. 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. Authority for State Mediation Grants 
expires at the end of fiscal year 2005. The Department plans to propose 
extending the program through fiscal year 2010.
    For fiscal year 2004, grants have been issued to 30 States. With 
the requested $4 million for fiscal year 2005, we anticipate that 
between 30 and 33 States will receive mediation grants.
Emergency Conservation Program
    Since it is impossible to predict natural disasters, it is 
difficult to forecast an appropriate funding level for the Emergency 
Conservation Program. No funding was provided for the program in 2002 
or 2003; however, it continued to operate throughout the two fiscal 
years using unobligated funds carried forward together with recoveries 
of unused funds previously allocated to the States.
    For fiscal year 2004, the Consolidated Appropriations Act provides 
$11.9 million for use in southern California only. Emergency cost-
sharing for the nationwide program has continued into 2004 through 
recoveries from the States. As of March 26, we have issued allocations 
totaling about $8.1 million. No other funding is currently available to 
provide assistance nationally to producers who have suffered losses due 
to natural disasters. Unfunded pending requests from producers for 
damage from ice storms, drought, tornadoes, hurricane and other natural 
disasters total about $63.5 million. The fiscal year 2005 President's 
Budget does not request funding for this program.
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 other sources, such as litigation. As of March 26, we have paid 
fiscal year 2004 DIP claims totaling $309,000 in 12 States.
    The fiscal year 2005 appropriation request of $100 thousand, 
together with unobligated carryover funds expected to be available at 
the end of fiscal year 2004, would cover a higher than normal, but not 
catastrophic, level of claims. Extended through 2007 by the 2002 Farm 
Bill, DIP is a potentially important element in the financial safety 
net for dairy producers in the event of a serious contamination 
incident.
Tree Assistance Program
    The Tree Assistance Program (TAP) provides financial assistance to 
qualifying orchardists to replace eligible trees, bushes, and vines 
damaged by natural disasters.
    No TAP outlays were made during fiscal year 2003. The fiscal year 
1998 program expired at the end of fiscal year 2003, and all 
unobligated funds were returned to Treasury. The fiscal year 1999 
program will expire at the end of fiscal year 2004. The Consolidated 
Appropriations Act, 2004, provides $12.4 million in appropriated 
funding for southern California. Separate legislative provisions have 
also made available CCC funding of $5 million for New York and $9.7 
million for Michigan. No funding is requested for fiscal year 2005.
                         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 2005 Budget requests $1.3 billion from appropriated 
sources including credit reform transfers. The request reflects 
decreases in non-Federal county staff-years and operating expenses, as 
well as increases in pay-related costs to sustain essential program 
delivery.
    The fiscal year 2005 request reflects a ceiling of 6,017 Federal 
staff years and 10,284 non-Federal staff years. Temporary non-Federal 
county staff years will be reduced to 1,000--from the fiscal year 2004 
level of 2,067--due to completion of initial farm bill implementation 
and disaster activities. Permanent non-Federal county staff years are 
estimated to remain at the 2004 level.
    Federal staff years will increase by 100 to enhance farm loan 
servicing in the field. The additional staff will be assigned to high 
volume county offices throughout the country. We anticipate that the 
additional staff will bring about decreased loan-processing times, 
improve servicing of existing loans, and help avert increases in direct 
loan delinquency and loss rates. The additional employees will also 
help meet the needs of minority applicants, who often require 
considerable technical assistance from FSA staff to complete financial 
documents and formulate business plans. The resources to furnish this 
assistance are critical in supporting FSA's outreach effort.
    Before closing I would like to note that support of FSA's 
modernization effort is provided through the Department's Common 
Computing Environment account. Funding made available to FSA under this 
account will provide needed telecommunications improvements and permit 
us to continue implementation of the GIS, which is so crucial to rapid 
and accurate program delivery.
    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 2005. Our budget request reflects several initiatives 
needed to ensure FAS' continued ability to accomplish its mission and 
provide service to U.S. agriculture.
    Last year, FAS had much to celebrate--its 50th anniversary as an 
agency, implementation of the new McGovern-Dole International Food for 
Education and Child Nutrition Program, the Secretary's successful 
Ministerial Conference and Expo on Agricultural Science and Technology, 
a recovery in U.S. agricultural exports, and the conclusion of 
negotiations on a historic free trade agreement (FTA) with Central 
American countries. This year, FAS also has much to highlight--a near 
record export forecast, the 50th anniversary of Public Law 480, the 
conclusion of negotiations for free trade agreements with Australia and 
Morocco, and the anticipated conclusion of negotiations for a Free 
Trade Area of the Americas (FTAA) and FTAs with the Dominican Republic 
and five Southern African countries.
    These events demonstrate FAS' commitment to fulfilling its mission 
of expanding and maintaining export opportunities for U.S. 
agricultural, fish, and forest products and helping to alleviate world 
hunger and food insecurity. The agency's mission is critical to U.S. 
farmers as our agriculture sector is twice as dependent on exports as 
the rest of the U.S. economy.
    Last fiscal year, U.S. agricultural exports reached $56.2 billion, 
an increase of nearly $3 billion over 2002. USDA predicts near-record 
U.S. agricultural exports of $59 billion in fiscal year 2004, more than 
5 percent above exports in 2003 and nearly equal to the record $59.8 
billion set in fiscal year 1996. The Western Hemisphere remains the 
largest regional market for U.S. agricultural products, with exports 
projected at $22.6 billion. Canada is now the largest U.S. agricultural 
export market, with sales to Canada forecast at $9.9 billion. Exports 
of corn, wheat, soybeans, and horticultural products are expected to 
increase over fiscal year 2003.
    While the anticipated recovery in exports is good news for U.S. 
farmers and exporters, the U.S. beef and cattle industry lost export 
markets in late 2003 since a single case of Bovine Spongiform 
Encephalopathy (BSE) or mad cow disease was discovered in Washington 
state. More than 70 U.S. trade partners closed their markets to U.S. 
beef, cattle, sheep, and goats, and other products. Since late 
December, FAS has worked tirelessly to inform our trade partners about 
the steps we are taking to investigate the situation and the additional 
safeguards we have implemented. We have been successful in keeping a 
portion of the Canadian and Philippine markets open to U.S. beef and 
had productive discussions with Mexican officials, as evidenced by 
Mexico reopening its market to U.S. beef products earlier this month. 
We are working with our Canadian and Mexican counterparts to enhance 
and coordinate a consistent North American response to the animal 
health and trade issues that BSE raises. We have dispatched high-level 
officials and technical teams from USDA and the Food and Drug 
Administration to Japan, South Korea, Hong Kong, and the Philippines 
and have hosted technical teams from Japan and Mexico here. We will 
continue such efforts to exchange information in the hope of eventually 
resuming trade.
    Here in Washington and at U.S. embassies abroad FAS staff continues 
to inform foreign governments of actions taken and to reassure them of 
the safety of our beef. Our efforts to restore our foreign markets 
continue to be our top priority, and we urge our trading partners to 
resume trade based on sound scientific principles.
    An additional wrinkle was added to the U.S. broiler export outlook 
when an outbreak of Low Pathogenic Avian Influenza (LPAI) was reported 
in several U.S. States in early February, followed by the confirmation 
of a Highly Pathogenic Avian Influenza (HPAI) case in Texas on February 
23. U.S. trading partners immediately imposed bans on imports of U.S. 
chicken and turkey meat. The HPAI case was the first one in the United 
States in 20 years and it may keep us out of some of our larger markets 
for several months because this version of the disease is recognized 
internationally as highly contagious and import restrictions may be 
valid as long as they are limited to the state of Texas.
FAS Program Activities
    Last year, we continued to use our long-standing export programs 
vigorously and have implemented new initiatives mandated in the Farm 
Security and Rural Investment Act of 2002 (2002 Farm Act).
    The 2002 Farm Act established the Technical Assistance for 
Specialty Crops program and authorizes $2 million in Commodity Credit 
Corporation (CCC) funds for each fiscal year from 2002 to 2007. Last 
year, we allocated $2 million to 19 entities for projects to help 
address unique barriers that prohibit or threaten the export of U.S. 
specialty crops.
    The Farm Act also increased funding for the Market Access Program. 
For fiscal year 2003, we allocated $110 million to 65 trade 
organizations to promote their products overseas. The Farm Act also 
increased funds for the Foreign Market Development Program, and FAS 
approved marketing plans totaling $38.0 million for 23 trade 
organizations for fiscal year 2003.
    The Emerging Markets Program is authorized at $10 million each year 
and provides funds for technical assistance activities that will 
increase market access for U.S. commodities and products in emerging 
markets. A total of 75 projects were approved for fiscal year 2003. 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 more than $1.7 million in fiscal year 2003 to 21 
organizations under this program.
    The GSM-102 short-term export credit guarantee program facilitated 
sales of more than $2.5 billion in U.S. agricultural products last year 
to 12 countries and five regions. At the same time, U.S. exporters 
continue to discover the benefits of the Supplier Credit Guarantee 
Program. We issued $670 million in credit guarantees under this program 
in 2003, a more than 33-percent increase over last year, demonstrating 
increased awareness of the usefulness of this program.
    With the aid of the Dairy Export Incentive Program, U.S. exporters 
sold more than 86,000 tons of dairy products in fiscal year 2003. The 
CCC awarded more than $31 million in bonuses to help U.S. dairy 
exporters meet prevailing world prices and develop foreign markets, 
primarily in Asia and Latin America.
    The 2002 Trade Act established a new program, which is being 
administered by FAS--Trade Adjustment Assistance (TAA) for Farmers. 
Under this program, USDA provides technical assistance and cash 
benefits to eligible U.S. producers of agricultural commodities if 
increased imports have contributed to a specific price decline over 
five preceding market years. Last fiscal year, we got the program up 
and running and began accepting petitions for evaluation of eligibility 
for the program. Trade Adjustment Assistance petitions for 12 producer 
groups have been approved: catfish producers in 18 states; shrimp 
producers in Alabama, Arizona, Florida (the 2nd Florida petition), 
Georgia, North Carolina, South Carolina, and Texas; wild blueberry 
producers in Maine; salmon fishermen in Alaska and Washington; and 
fresh lychee producers in Florida.
    On the trade policy front, we are working to open, expand, and 
maintain markets for U.S. agriculture. We are actively pursuing what 
U.S. Trade Representative (USTR) Robert Zoellick has called the 
competition for liberalization by seeking trade agreements in 
multilateral, regional, and bilateral contexts.
    Although the outcome of the World Trade Organization (WTO) 
negotiations in Cancun last September was a lost opportunity, the 
United States has not given up its efforts to achieve an international 
agreement that will liberalize agricultural trade. The United States 
and many other countries remain committed to eliminating trade 
distorting subsidies and tariffs, but we must do so together. The 
Cancun meetings resulted in a text that establishes a good basis for 
continuing negotiations. We will continue to work with all players, 
including countries that raised objections in Cancun, to seek common 
ground.
    In the meantime, we are pressing ahead with efforts to reach 
regional and bilateral trade agreements.
    In September, the President signed legislation to implement FTAs 
with Chile and Singapore. In December, we concluded negotiations on a 
historic and comprehensive Central American Free Trade Agreement 
(CAFTA) with El Salvador, Honduras, Guatemala, and Nicaragua. This 
agreement will strip away barriers to trade, eliminate tariffs, open 
markets, and promote investment, economic growth, and opportunity. 
Costa Rica joined CAFTA in January.
    While pursuing new negotiations, we have begun to see the benefits 
of earlier agreements. For example, on January 1, 2004, the United 
States, Canada, and Mexico celebrated the tenth anniversary of the 
implementation of the North American Free Trade Agreement (NAFTA). This 
groundbreaking agreement made North America the world's largest free 
trade area. The success of the agreement for agriculture has been quite 
remarkable. Since 1994, Canada and Mexico have been our two top 
agricultural growth markets in the world--by a wide margin. Exports to 
Canada rose by about $3.1 billion over those years, while sales to 
Mexico rose about $2.7 billion. U.S. exports to the rest of the world 
rose by only $1.1 billion. In 2002, U.S. consumer-oriented products 
made up the lion's share of all U.S. agricultural exports to Canada (70 
percent) and Mexico (39 percent). Demand in both Canada and Mexico 
continues to look promising. Real economic growth in Canada is 
projected at roughly 3 to 3.5 percent a year over the next 10 years, 
while the Mexican economy is expected to grow by 4 to 4.5 percent a 
year. As incomes grow, food demand will likely follow, making NAFTA 
beneficial to U.S. agricultural exporters for years to come.
    As with all trade agreements, however, progress is not always 
straightforward. FAS monitors and enforces trade agreements to ensure 
that the benefits gained through long, hard negotiations are realized. 
Last year, our monitoring of the Uruguay Round Agreement on Agriculture 
and the Sanitary and Phytosanitary Agreement preserved an estimated 
$1.6 billion in U.S. trade. We continue to work to ensure that China 
adheres to its WTO accession commitments to change its tariff-rate 
quota system. In 2003, China purchased U.S. cotton and soybean oil 
exports of $330 million and $48 million, respectively. We also worked 
to help win a WTO case against Japan's unscientific import restrictions 
on U.S. apples, thus saving a potential $30-million market; and are 
working to preserve almost $400 million in U.S. exports of animal by-
products to the European Union (EU).
    In addition, we helped resolve Russia's technical issues related to 
poultry plant inspections, thus saving a market worth more than $300 
million and restored access for U.S. dry beans to Mexico, resulting in 
the resumption of trade valued at $60 million last year.
    July 10, 2004, marks the 50th anniversary of Public Law (Public 
Law) 480, the Agricultural Trade Development and Assistance Act of 
1954. This landmark program is the U.S. Government's primary vehicle to 
meet humanitarian food needs; it also helps to spur economic and 
agricultural growth in developing countries, leading to expanded trade.
    Last year, we used this program to ship commodities from the United 
States to needy people around the world. Under numerous programs, FAS 
programmed nearly 575,000 metric tons of food assistance in fiscal year 
2003 under Public Law 480, Title I credit agreements and Title I--
funded Food for Progress donations. These products, valued at $122 
million, went to 15 countries. The U.S. Agency for International 
Development (USAID), which manages the Title II program of Public Law 
480, provided about 3.7 million metric tons (grain equivalent basis) of 
food to needy people.
    Also last year, FAS launched the McGovern-Dole International Food 
for Education and Child Nutrition Program allowing us to build on the 
success of the Global Food for Education (GFE) pilot program, which 
began in fiscal year 2001. It is designed to both encourage education 
and deliver food to improve nutrition for preschoolers, school 
children, mothers, and infants in impoverished regions. The 2002 Farm 
Act authorized the program through fiscal year 2007, providing $100 
million in CCC funding for fiscal year 2003. Under fiscal year 2003 
programming, Food for Education donations were announced for 21 
countries, totaling 131,000 metric tons valued at about $42 million.
    In addition to these food assistance programs, last year FAS 
employees were deployed to Afghanistan and Iraq to help rebuild those 
countries' agricultural sectors. The reconstruction challenges in these 
two countries are enormous, the security and logistical challenges 
tremendous, and the obstacles to progress great. However, we are 
committed, along with USAID, the Department of State (DOS), and the 
Department of Defense, to do all that we can in the reconstruction 
effort.
    In Afghanistan, we provided technical guidance to help establish an 
Afghan Conservation Corps. This corps will provide jobs to thousands of 
unemployed Afghans, putting them to work to grow and plant trees, 
collect and conserve water, and stop soil erosion. FAS led the 
Department's assistance efforts for the corps, sending three technical 
teams on short-term assignments last year. In addition, FAS placed 
three USDA staff employees in provincial reconstruction teams, with the 
goal of placing a total of eight, to work in rural agricultural areas 
rehabilitating Afghanistan's agricultural sector.
    In Iraq, USDA is playing a key role in the United States' overall 
efforts to create a democratic, market driven economy. With DOS and 
USAID, USDA is assessing food needs and providing expertise on 
restoring water, agriculture, forestry, and rangelands. Rebuilding 
Iraq's agricultural infrastructure continues to be a major priority. To 
that end, USDA continues to work on the revitalization of Iraq's 
agriculture ministry and is working with other U.S. Government agencies 
on reconstruction and development priorities, looking forward to 
commercial trade with Iraq. In recognition of Iraq's many needs, FAS 
sent a U.S. agricultural officer there in February 2004 to work as a 
senior advisor for food trade issues in the Ministry of Trade. This 
comes at a critical time, when Iraq begins to take more responsibility 
for its important agricultural and trade programs.
    Last year, the United States committed a total of $478 million for 
food assistance to Iraq, shipping a total of 255,320 tons of U.S. 
commodities including wheat, flour, rice, soybean oil, nonfat dry milk, 
and pulses (Great Northern beans, chickpeas, and black-eyed peas) under 
Public Law 480, Title II and Section 416(b) of the Agricultural Act of 
1949.
    Another example of our continuing efforts to help countries help 
themselves was Secretary Veneman's historic Ministerial Conference and 
Expo on Agricultural Science and Technology last June. The conference 
focused on how science and technology and a supportive policy 
environment can drive agricultural productivity and economic growth to 
alleviate world hunger and poverty.
    About 1,000 participants attended including 119 ministers of 
agriculture, science and technology, health, environment, and commerce. 
It was one of the largest, most diverse gatherings of decision-makers 
from around the world to address global hunger. One-hundred seventeen 
countries were represented. Other attendees came from the private 
sector, academia, research institutes, foundations, and non-
governmental and international organizations.
    The Ministerial provided an extraordinary opportunity for dialogue, 
knowledge sharing, and the creation of partnerships. It sparked 
tremendous enthusiasm among ministers and other developing-country 
representatives for science and technology to deliver solutions.
    Given the tremendous energy the event generated, many ministers 
from developing countries have agreed to partner with USDA to keep the 
momentum going in finding technology- and policy-based solutions to 
global food insecurity. For example, ministers from Africa and Latin 
America offered to host follow-up conferences for their regions. A 
Central American regional conference will be held in Costa Rica in May 
in partnership with the Inter-American Institute for Cooperation on 
Agriculture (IICA). A regional conference for West Africa will take 
place this summer in Ouagadougou, Burkina Faso. Other conferences and 
follow-up activities are planned throughout the coming years.
    As we work to organize and conduct follow-up activities, we are 
building invaluable relationships with developing countries that will 
help us work together in the future to resolve trade disputes and 
prepare developing countries for global trade. Our longstanding 
training program, the Cochran Fellowship Program was used to introduce 
853 Cochran Fellows from 82 countries to U.S. products and policies in 
2003. 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.
    During Secretary Veneman's visit to Afghanistan in November, she 
announced the first Cochran Fellowship Program with Afghanistan to 
provide short-term, U.S.-based training for eight Afghan women to study 
agricultural finance. They will learn about business plans, financial 
management, farmers' cooperatives, and micro-credit programs to promote 
food security and income-generating small businesses.
    We also collaborated with a diverse group of U.S. institutions in 
research partnerships with more than 50 countries to promote food 
security and trade. These research and exchange activities made 
practical use of biotechnology and other scientific techniques to help 
solve critical problems affecting food, agriculture, fisheries, 
forestry, and the environment. Activities also were conducted to 
evaluate the food, nutritional, and water needs of vulnerable 
populations in rural and urban areas to help expand the livelihoods of 
small and limited-resource farmers, ranchers, and communities.
    In the end, the technical assistance that we provide will help 
build the institutions needed for developing countries to attract 
investment and grow their economies. When 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 multilateral, regional, 
and bilateral trade negotiations on agriculture. Although getting the 
WTO negotiations restarted and on a positive path will not be easy, we 
must resume the long journey toward worldwide multilateral trade 
liberalization.
    The Doha Round will not likely meet its deadline of having an 
agreement completed by January 2005. However, all countries have much 
to gain from successful reform of the international trading system, and 
we must continue our efforts to resolve the issues that stalled the 
talks in Cancun.
    In January, Ambassador Zoellick sent a letter to his counterparts 
in the WTO suggesting a ``common sense'' approach to advance the 
negotiations in 2004. Ambassador Zoellick recommended that the 
negotiations focus on core market access topics of agriculture, goods, 
and services.
    In the area of agriculture, the letter suggests that WTO members 
agree to eliminate export subsidies by a date certain, agree to 
substantially decrease and harmonize levels of trade-distorting 
domestic support, and provide a substantial increase in market access 
opportunities. The letter notes that the United States stands by its 
2002 proposal to eliminate all trade distorting subsidies and barriers 
to market access.
    To hammer home the points he made in his letter, Ambassador 
Zoellick traveled extensively at the end of February, meeting with more 
than 30 countries in Asia, Africa, and Europe. He also attended the 
Cairns Group meeting, which gave him a good opportunity to talk with 
many Latin American countries. In addition, Secretary Veneman had a 
very fruitful meeting with EU Commissioner Franz Fischler during which 
she pressed for the resumption of the Doha Agenda talks. The response 
to Ambassador Zoellick's proposal has been very positive, and most 
countries appear to be genuinely interested in moving the negotiations 
forward. Serious, substantive discussions will resume in Geneva next 
week. We are optimistic that we will have a framework in place by July 
and possibly a Ministerial conference by the end of the year.
    In addition, we will continue to press ahead with our efforts to 
reach regional and bilateral trade agreements. During the last year, we 
implemented FTAs with Chile and Singapore and concluded negotiations 
with Central America. Earlier this year, we concluded free trade talks 
with Australia and Morocco. We also hope to bring the Dominican 
Republic into the CAFTA agreement, and we will continue to work towards 
establishing an FTA with the Southern African Customs Union--which 
includes the countries of Botswana, Lesotho, Namibia, South Africa, and 
Swaziland. We have recently launched negotiations with Bahrain and will 
soon begin discussions with Panama, Colombia, and Peru.
    Another major trade initiative is the FTAA. Launched in 1998, these 
negotiations could establish a free trade zone, covering 800 million 
people in 34 countries that stretch from the Arctic Circle to Tierra 
del Fuego. These negotiations have proven to be quite challenging 
because of the large number of participants, each with its own 
interests and external relationships. An important breakthrough was 
made at the Miami Ministerial meeting in November at which trade 
ministers established a new framework that will allow countries with 
greater ambition for trade liberalization to pursue those goals with 
like-minded partners within the FTAA, while ensuring that all 
participants will be covered by a common set of rights and obligations. 
Concluding these negotiations on schedule will be a challenge, but it 
can be done as long as we all remain committed to regional integration 
as a tool to stimulate economic growth in the hemisphere.
    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.
    The effort to keep markets open in the face of unscientific or 
artificial trade barriers is inherent in the FAS mission. This is 
perhaps our most important task, yet it is the least 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 
Washington 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. FAS' overseas 
officers work continuously to prevent trade problems from occurring or 
to resolve them as soon as they crop up.
    Every year, these activities preserve millions of dollars in trade 
that potentially could have 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 priority this year is reopening our major export markets for U.S. 
beef and poultry exports. As a result of the single BSE case in 
Washington state, most U.S. export markets have banned our cattle, 
beef, and beef product exports, including rendered products, pet foods, 
and cattle genetics. At the same time, most U.S. export markets have 
banned or partially banned U.S. poultry and poultry exports because of 
outbreaks of LPAI.
    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 forum to ensure countries adopt science-based policies 
in this area.
    To focus our efforts, FAS formed a new office last year to work 
with a myriad of public and private, domestic and international 
organizations on a broad array of biotech issues. Activities this year 
include working to ensure that the Cartagena Protocol on Biosafety does 
not disrupt grain trade; participating in the third annual Asia Pacific 
Economic Cooperation policy dialogue on biotechnology; working with 
USTR on the U.S. case against the EU's moratorium on biotech products; 
and a host of other issues and activities too long to mention.
    As you see, we will be working on many fronts to continue to 
improve export opportunities for the American food and agriculture 
sector, but we cannot do it alone.
Strengthening Market Development Partnerships and Programs
    The challenges we face in multilateral, regional, and bilateral 
trade negotiations make it imperative that we work closely with our 
foreign market development cooperators to strengthen our partnership 
and keep the lines of communication open. This will help us become an 
even more potent force in improving the competitive position of U.S. 
agriculture in the global marketplace.
    We will continue to use our export assistance programs--Emerging 
Markets Program, Market Access Program, Quality Samples Program, 
Technical Assistance for Specialty Crops program, and Foreign Market 
Development Cooperator Program--to open and maintain export 
opportunities for U.S. farmers and exporters.
    We are working on a Global Broad-Based Initiative (GBI) to better 
utilize our marketing resources. GBI will allow FAS cooperator groups 
to address a broad range of issues that may be regional in scope. Under 
the GBI process, proposals for program funding from cooperator groups 
in concert with input from our overseas posts will address key 
priorities, such as market access and unfair competition; 
biotechnology, sanitary and phytosanitary issues, and food safety; best 
growth markets; high-value products; capacity building; and food 
security and trade financing.
    Proposals that cut across multiple product or industry lines--as 
well as multiple markets--will have greater impact than those that 
focus on one product or one market. Under GBI, FAS and cooperators have 
a unique opportunity to address common strategic challenges and 
opportunities.
    We will continue to encourage U.S. exporters to develop and refine 
their marketing strategies, look to new market opportunities, and fully 
use all the FAS tools at their disposal.
Building Trade Capacity
    Hand-in-hand with our negotiating efforts are our activities 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 USTR and USAID 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. We must address the concerns of developing countries, a 
requirement made evident in Cancun. Without their support, there will 
be no new multilateral agreement.
    FAS provides technical expertise to enhance developing countries' 
abilities to engage in two-way trade. FAS recruits expertise from USDA 
agencies, universities, and the private sector. We have been 
particularly active in providing information about science-based animal 
and plant health and food safety rules and systems. We also are working 
with countries to help them build information systems that provide 
accurate agricultural production, trade, and price data. Providing 
technical advice on cold storage, handling, and transportation systems 
facilitates two-way trade in high-value, perishable foods. By helping 
countries understand the advantages of using efficient biotechnology 
tools, we help lower costs and improve the quality of farm products.
    Throughout the year, we will use all our available tools--the 
Cochran Fellowship Program, the Emerging Markets Program, and our 
involvement in international organizations such as IICA--to educate and 
assist countries seeking to reform and improve their economies so they 
can participate in the world marketplace.
Ensuring World Food Security
    During the past 2 years, the U.S. contribution of global food aid 
has reached about 60 percent of total world aid, and we remain 
committed to these efforts that address world food insecurity and help 
to alleviate hunger, malnutrition, and poverty.
    During 2004, we will be working closely with the World Food Program 
and our private voluntary organization partners to ensure that the new 
McGovern-Dole International Food for Education and Child Nutrition 
program builds on the success achieved by the Global Food for Education 
Initiative. USDA will donate approximately 66,000 metric tons of 
commodities to provide nutritious school meals to school and pre-school 
children, as well as nutritional assistance to mothers and infants. In 
addition, we estimate that the United States will be able to distribute 
about 3.8 million metric tons of commodities through Public Law 480, 
Food for Progress, and other programs in fiscal year 2004.
    But we know food aid is not the only tool to achieve world food 
security. Developing countries must strengthen their agricultural 
policies and institutions and increase their investments in 
agricultural productivity if they are to find their way out of the 
seemingly endless cycle of hunger, poverty, and economic stagnation. 
Agricultural science and technology transfer and extension along with 
supportive policy and regulatory frameworks are critical.
Budget Request
    Mr. Chairman, our fiscal year 2005 budget proposes a funding level 
of $147.6 million for FAS and 1,005 staff years. This represents an 
increase of $11.9 million above the fiscal year 2004 level and supports 
several initiatives needed to ensure the agency's continued ability to 
conduct its activities and provide services to U.S. agriculture.
    The budget proposes an increase of $4.8 million for support of FAS 
overseas offices. The FAS network of 80 overseas offices covering over 
130 countries is vulnerable to the vagaries of macro-economic events 
that are beyond the agency's control. The significantly weakened U.S. 
dollar and higher International Cooperative Administrative Support 
Services (ICASS) payments to DOS have caused overseas operating costs 
to increase sharply. Specifically, these increases include:
  --$2.0 million to replenish the Buying Power Maintenance Account 
        (BPMA). FAS has the authority to carry over up to $2.0 million 
        in exchange rate gains from current year appropriations in a 
        BPMA to offset future exchange rate losses. The account was 
        fully funded at the end of fiscal year 2002, but was depleted 
        by the end of fiscal year 2003 due to the weakness of the 
        dollar. Continued weakness of the dollar implies that future 
        exchange rate gains are unlikely.
  --$1.76 million to fund higher payments to DOS. DOS provides overseas 
        administrative support for U.S. foreign affairs agencies 
        through ICASS. FAS has no administrative staff overseas, and 
        thus relies entirely on DOS/ICASS for this support. Based on 
        current cost growth trends, we are estimating that our ICASS 
        assessment will increase by about 10 percent or $1,104,000. 
        Additionally, for security reasons, and as a precondition to 
        moving into the new embassy in Beijing, all agencies are 
        required to purchase new furniture through DOS. DOS has 
        assessed individual agency charges on a per-capita basis; the 
        FAS assessment is $655,000.
  --$581,000 to fund mandatory costs of participating in the Capital 
        Security Cost Sharing Program. Beginning in fiscal year 2005, 
        DOS will implement a program through which all agencies with an 
        overseas presence in U.S. diplomatic facilities will pay a 
        proportionate share for accelerated construction of new, 
        secure, safe, and functional diplomatic facilities. These costs 
        will be allocated annually based on the number of authorized 
        positions. This plan is designed to generate a total of $17.5 
        billion to fund 150 new facilities over a 14-year period. The 
        FAS assessment starts at $3.6 million in fiscal year 2005; 
        however, $3 million of this amount will be offset though a 
        credit for overseas rental costs currently incurred by FAS. The 
        FAS assessment is estimated to increase annually in roughly $3-
        million increments until fiscal year 2009, at which time the 
        annual assessed level will total an estimated $15 million. This 
        level is assumed to remain constant for the following 9 years.
  --$490,000 for the costs of overseas telecommunications improvements. 
        This increase will allow for the upgrade from 9.6 KBPS to 128 
        KBPS on the State Department's Diplomatic Telecommunications 
        Service (DTS) communication lines where DTS is the only option.
    A crosscutting departmental priority is expanding our eGov 
capability. Secretary Veneman recently announced that USDA would focus 
on eGovernment initiatives this year. This multi-faceted initiative 
will change the way we in FAS communicate with each other, with the 
rest of government, and most importantly, with the customers we serve 
here and around the world. In this regard, the budget proposes an 
increase of $5.3 million to implement an FAS Global Computing 
Environment initiative. The 4-year initiative will modernize FAS 
information technology systems and applications to ensure compliance 
with eGovernment objectives and standards for Federal agencies. Under 
the Global Computing Environment initiative, FAS will modernize 
existing systems, restructure its agricultural production and trade 
databases, and improve the timeliness and efficiency of its reporting 
systems. The FAS information technology system is aging and in danger 
of failing. As examples:
  --Of the 35 servers currently providing e-mail and network services 
        for FAS, 25 are 5 or more years old, operating well beyond 
        their normal life cycle.
  --Over 2/3's of FAS desktop PC's (about 900) are already 5-years old 
        and are only running at one-third the current industry standard 
        operating speed. (800 mh vs. 2.4 gh)
  --More than half of the agency's mission-critical information 
        systems--which are of highest interest to USDA customers--are 
        more than 7 years old.
    Our goal is to improve the services provided to U.S. agricultural 
producers and exporters by electronically sharing information, 
providing FAS program interfaces in real time, with no delays, and in 
easy to manipulate formats.
    As our information systems are modernized, FAS will move 
aggressively to integrate its information systems with those in Federal 
and State agencies involved in similar lines of business, i.e., 
international commerce and trade, international development, trade-
capacity building, food aid, trade negotiations, and participation in 
international organizations.
    This will include integration with other USDA agencies through 
USDA.gov, which will provide the Department's customers with the 
ability to customize the information they receive from the Department 
through a personalized web portal. FAS will also need to integrate with 
DOS' information management system for communications within U.S. 
embassies and between embassies and Washington. This will give USDA 
officials access to internal government communications and policy 
papers on relevant issues such as agricultural trade, food aid, and 
biotechnology.
    Finally, the budget includes an increase of $1.8 million to cover 
higher personnel compensation costs associated with the anticipated 
fiscal year 2005 pay raise and efforts to recognize employee 
performance. Pay cost increases are non-discretionary and must be 
funded. Absorption of these costs in fiscal year 2005 would primarily 
come from reductions in agency personnel levels, which would 
significantly affect FAS' ability to contribute to USDA's strategic 
goal of enhancing economic opportunities for agricultural producers.
Export Programs
    Mr. Chairman, the fiscal year 2005 budget includes over $6 billion 
for programs administered by FAS that are designed to promote U.S. 
agricultural exports, develop long-term markets overseas, and foster 
economic growth in developing countries.
Export Credit Guarantee Programs
    The budget includes a projected overall program level of $4.5 
billion for export credit guarantees in fiscal year 2005.
    Under these programs, the 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:
  --$3.4 billion for the GSM-102 short-term guarantees;
  --$5.0 million for the GSM-103 intermediate-term guarantees;
  --$1.1 billion for Supplier Credit guarantees, and
  --$10.0 million for Facility Financing guarantees.
Market Development Programs
    Funded by CCC, FAS administers a number of programs that promote 
the development, maintenance, and expansion of commercial export 
markets for U.S. agricultural commodities and products. For fiscal year 
2005, the CCC estimates include a total of $173.0 million for the 
market development programs, unchanged from fiscal year 2004 these 
include:
  --$125.0 million for the Market Access Program;
  --$34.5 million for the Foreign Market Development Cooperator 
        Program;
  --$10.0 million for the Emerging Markets Program;
  --$2.5 million for the Quality Samples Program; and
  --$2.0 million for the Technical Assistance for Specialty Crops 
        Program.
International Food Assistance
    The fiscal year 2005 budget continues the worldwide leadership of 
the United States in providing international food aid. The fiscal year 
2005 request for foreign food assistance totals more than $1.5 billion 
including $1.3 billion for Public Law 480 to provide approximately 3.2 
million metric tons of commodity assistance. For Title I, the budget 
provides for a program level of $123.0 million, which will support 
approximately 500,000 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 2.7 million metric tons of commodity 
donations
  --$149 million for CCC-funded Food for Progress. This level is 
        expected to meet the minimum level of 400,000 metric tons 
        established in the 2002 Farm Bill;
  --$147 million for Section 416(b) donations. Under this authority, 
        surplus commodities that are acquired by CCC in the normal 
        course of its domestic support operations are available for 
        donation. For fiscal year 2005, current CCC baseline estimates 
        project the availability of surplus nonfat dry milk that can be 
        made available for programming under section 416(b) authority; 
        and
  --$75.0 million for the McGovern-Dole International Food for 
        Education and Child Nutrition Program. This represents an 
        increase of $25 million over the fiscal year 2004 appropriation 
        and will assist an estimated 1.9 million participants.
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 2005 budget assumes a 
        continuation of EEP at the fiscal year 2004 level. However, the 
        2002 Farm Bill does include the maximum annual EEP program 
        level of $478.0 million allowable under Uruguay Round 
        commitments that could be utilized should market conditions 
        warrant.
  --$53 million for the Dairy Export Incentive Program (DEIP), $31 
        million above the current fiscal year 2004 estimate of $22 
        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.
Trade Adjustment Assistance for Farmers
    Under the Trade Act of 2002, the TAA authorizes USDA to make 
payments up to $90.0 million annually to eligible producer groups when 
the current year's price of an eligible agricultural commodity is less 
than 80 percent of the national average price for the 5 marketing years 
preceding the most recent marketing year, and the Secretary determines 
that imports have contributed importantly to the decline in price. As 
of the beginning of March, petitions from eight producer groups had 
been certified as eligible for TAA and an additional 10 petitions were 
under review to determine eligibility. Payments under the program will 
begin later this year once the benefit application period has closed.
    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, I am pleased to 
present the fiscal year 2005 budget for the Risk Management Agency 
(RMA). RMA continues to make rapid progress in meeting its legislative 
mandates to provide an actuarially sound crop insurance program to 
America's agricultural producers. Crop insurance is USDA's principal 
means of helping farmers survive a crop loss. In 2005, the program is 
expected to provide producers with more than $42 billion in protection 
on approximately 220 million acres through about 1.2 million policies.
    To improve service to our customers and stakeholders, in 2003, we 
began an evaluation of crop insurance business processes to integrate 
performance and create higher productivity, and to achieve key 
performance goals. To hear first-hand the challenges affecting 
producers in the crop insurance program, we have conducted listening 
sessions with producers and grower groups throughout the United States; 
over 26 listening sessions have been held to date. It is no coincidence 
that the top concerns expressed by our customers and stakeholders have 
become the foundation of our key performance objectives in support of 
the Agency's mission. These objectives are: (1) Provide widely 
available and effective risk management solutions; (2) Provide a fair 
and effective delivery system; (3) Ensure customers and stakeholders 
are well-informed; (4) Maintain program integrity; and (5) Provide 
excellent service.
    To effectively address the concerns and challenges within the crop 
insurance program, RMA's total fiscal year 2005 budget request is $3.09 
billion. The funding level proposed for the Federal Crop Insurance 
Corporation (FCIC) Fund is $3,000,443,000 and for the Administrative 
and Operating Expenses, the request is $91,582,000.
FCIC Fund
    The fiscal year 2005 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 requirements is based on USDA's latest projections of planted 
acreage and expected market prices. The budget request includes $2.1 
billion for Premium Subsidy, $782.4 million for Delivery Expenses, and 
$77.3 million for mandated Agricultural Risk Protection Act of 2000 
(ARPA) activities.
Administrative and Operating Expenses (A&O)
    RMA's fiscal year 2005 request of $91.6 million for Administrative 
and Operating Expenses represents an increase of about $20.6 million 
from fiscal year 2004. This budget supports increases for information 
technology (IT) initiatives of $15.5 million.
    These IT funds are targeted toward the infrastructure improvements 
and enhancement of the corporate operating systems necessary to support 
growth in the program as new products are developed and existing 
products are improved and offered for sale. Due to the rapid growth in 
the program, it has been difficult to maintain adequate funding for 
RMA's information technology system. The Agency's IT infrastructure 
supports the crop insurance program's business operations at the 
national and local levels, provides risk management products to 
producers nationwide and is the basis for payments to private companies 
reinsured by the FCIC. RMA is using system and database designs 
originally developed in 1994. There have been few hardware and software 
upgrades and business process analysis and re-engineering of the entire 
business delivery system are needed to support current and future 
program growth. The IT systems do not meet the minimum requirements 
mandated by the USDA Office of the Chief Information Officer due to 
advanced age and architecture. Without adequate funding of the IT 
requirements, the Agency will not be able to safely sustain additional 
changes required by new product development or changes in existing 
products. Future program expansion will increase the risk of system 
failure and possible inability to handle day-to-day processing of 
applications and indemnity payments.
    Also, included in the total request is $1.0 million to expand the 
monitoring and evaluation of reinsured companies. RMA is requesting 
funds to establish a systematic process of monitoring, evaluating, and 
auditing, on an annual basis, the performance of the product delivery 
system. These funds will be used to support insurance company expense 
audits, performance management audits and reinsurance portfolio 
evaluations to ensure internal and management controls are a basic part 
of reinsured companies' business operations.
    To support an increase of 30 staff years, $3.0 million is requested 
to raise RMA's employment ceiling from 568 to 598. Funding for 
additional staff years is necessary to strengthen the safety net for 
agricultural producers through sound risk management programs. The 
fiscal year 2005 budget request includes five additional staff years 
for the Research and Development Offices, to provide necessary support 
to evaluate, monitor and manage contractual agreements and partnerships 
with public and private business sectors. The additional staff years 
will aid in the review and evaluation of the increasing number of new 
private product submissions received by the Agency each year. They will 
also provide oversight of privately contracted product development 
needed to fulfill ARPA mandates that RMA provide risk management tools 
for producers of specialty crops, livestock, forage pasture, hay and 
other underserved commodities, areas and producers.
    To support the increased workload for the Compliance function, a 
request for 15 staff years is included. The additional staff years will 
provide the Compliance function the necessary support to address 
outstanding OIG and GAO recommendations to improve oversight and 
internal controls over insurance providers. In response to several OIG 
audit reports, RMA needs to establish a systematic process of auditing 
insurance providers to detect and correct vulnerabilities to 
proactively prevent improper payment of indemnities. RMA's studies 
suggest that additional resources in this area would provide a minimum 
of $4 in reduced fraud cost for every dollar spent. The additional 
staffing will provide the necessary oversight to ensure taxpayers' 
funds are expended as intended.
    In addition, 10 staff years are requested for the Insurance 
Services Offices, to implement good farming practice determinations, 
and to adequately evaluate claims based on questionable farming 
practices. ARPA requires RMA to establish a process to reconsider 
determinations of goods farming practices. The Regional Offices of 
Insurance Services are in a unique position by virtue of their 
education in production agriculture, agronomy and related fields, and 
knowledge of local crops and growing conditions to effectively carry 
out the important function of determining good farming practices. RMA 
data indicate that approved insurance providers rarely assess uninsured 
causes of loss against a producer for failure to follow good farming 
practices. With approved insurance providers operating in an 
environment of risk sharing, there is a tremendous need for support and 
incentives for tightening loss adjustment, particularly in the good 
farming practices area to ensure that payments for losses is consistent 
with the requirements of Federal Crop Insurance Act. For example in 
crop year 2002, of approximately 1.25 million policies earning premium, 
about .03 percent were assessed uninsured causes of loss. This small 
percentage appears to be inconsistent with data uncovered through 
various oversight activities. Based on 2002 indemnities of over $4 
billion, if RMA determinations and reconsiderations of good farming 
practices had prevented only 3 percent of indemnities from being paid 
improperly, the resulting savings would be an estimated $121 million.
    Lastly, an increase of $1.1 million is requested for pay cost. 
These funds are necessary to maintain required staffing to carry out 
RMA's mission and mandated requirements.
    The fiscal year 2005 budget request supports the President's 
Management Initiatives and is aligned with the Agency's five 
performance objectives.
    Provide Widely Available and Effective Risk Management Solutions.--
The FCIC Board of Directors (Board) will continue its work to maintain 
an aggressive agenda focused on addressing producer's 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.
    The Board is focusing on the overall FCIC portfolio of insurance 
products, with new strategies to provide the greatest amount of 
protection. We are actively working with the private sector to find new 
and better ways to provide risk protection for forage, rangeland, and 
pasture and to address the long term production declines that result 
from extended drought in many areas. Priority also is directed towards 
identifying opportunities to expand participation in current crop 
insurance programs in areas with below average participation.
    In addition, many of the new product development contracts, 
authorized by Section 508(h) of the Federal Corp Insurance Act, are 
coming to fruition. The Board will review these private product 
submissions and decide on the appropriateness of pilot testing the 
products.
    Beginning February of 2002, RMA initiated a series of listening 
sessions throughout the United States to gather market feedback on 
issues and concerns that affect the agricultural community. From this 
initiative, 26 listening sessions have been organized by the Regional 
Offices in various locations. The focus of the meetings was to obtain 
feedback from farmers on what is working well in our program, factors 
that impact product acceptance and market penetration, what program 
issues need to be addressed, and whether products were meeting the 
needs of the agricultural sector. To gather the widest possible 
representation, we focused on inviting the various regional Grower 
Associations and agricultural interest groups, both private and 
governmental. The feedback from the listening sessions identified a 
broad theme of issues such as requests to expand products such as 
Adjusted Gross Revenue (AGR/AGR-Lite) and Crop Revenue Coverage (CRC), 
simplify prevent planting regulations, and extend crop dates. In 
addition, irrigation issues and the knowledge and training of insurance 
agents were topics of discussion.
    RMA is already engaged in working toward solutions to resolve many 
of the issues identified at these listening sessions and, is evaluating 
the feasibility of many others with the legal limitations and 
parameters established in statute to operating an actuarially sound 
insurance program. In addition, the FCIC Board of Directors 
commissioned a Product Portfolio Review to assist in evaluating and 
developing a strategic product development plan. Our initial plan 
growing out of that review focuses on identifying and pursuing 
opportunities to more comprehensively provide risk coverage and other 
risk management solutions for producers, regions, commodities and 
risks. It gives priority to the development of new insurance products 
and other risk management solutions to fill identified gaps, including 
coverage for livestock, forage, rangeland, long-term drought and 
specialty crops; and simplifies and improves the effectiveness of 
revenue and other insurance products that will meet the needs of the 
agriculture sector.
    Provide a Fair and Effective Delivery System.--RMA relies on 
private sector insurance companies to deliver and service risk 
management tools to producers. The financial agreement that compensates 
insurers for their service and established standards for performance is 
the Standard Reinsurance Agreement (SRA). The current agreement has 
been in effect since 1998 and needs to be updated to reflect the 
changing nature and scope of the program as well as recent development 
of the delivery system.
    ARPA gave RMA the authority to renegotiate the current SRA once 
during the 2001 through 2005 reinsurance years. On December 31, 2003, 
RMA provided the required notice of cancellation of the current 
agreement effective July 1, 2004 and its intent to renegotiate the 
agreement for the 2005 reinsurance year, which begins on July 1, 2004. 
On December 30, 2003, RMA issued the draft of the proposed SRA to 
insurance providers. The first round of negotiations with insurance 
providers has been completed. A range of issues was identified and a 
second draft of the SRA addressing those issues is near completion for 
review and negotiation with the companies. We are working with all 
insurers to have a new and equitable SRA in place by the 2005 
reinsurance year.
    Through this private sector delivery system, in crop year 2003, RMA 
provided approximately $41 billion of protection to farmers, and 
expects indemnity payments for crop year losses of approximately $3.3 
billion. The participation rate for major program crops was 
approximately 82 percent. An important part of the delivery system is 
having effective and useable products. RMA continues to efficiently 
evaluate risk management products, review and approve private sector 
products to be reinsured by the FCIC, to promote new risk management 
strategies, and ensure effective delivery of these products to 
agricultural producers. RMA's education, outreach, and non-insurance 
risk management assistance initiatives, delivered through the public 
and private sector organizations, further contribute to the producer's 
ability, skill and willingness to access and effectively use RMA's 
growing portfolio of risk management tools to protect their financial 
stability.
    Under the Agricultural Management Assistance Program (AMA), Section 
524(b) of the Federal Crop Insurance Act, financial assistance is 
authorized for producers in 15 ``Targeted'' States. Under this 
authority, and in response to the need to improve crop insurance 
delivery and acceptance in these States, for fiscal year 2003 RMA 
offered a cost-share program for producers purchasing AGR, AGR-Lite, 
and spring policies with sales closing dates on or after February 21, 
2003. The States in which this program was offered were: Connecticut, 
Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, New 
Jersey, Nevada, Pennsylvania, Rhode Island, Utah, Vermont, West 
Virginia, and Wyoming. The primary goal of the program was to enable 
producers to buy-up to higher levels of insurance coverage, and to 
provide an incentive for new producers to purchase insurance. To meet 
this objective, RMA paid a portion of the producer premium remaining 
after the normal USDA subsidy was applied. Moreover, to encourage buy-
up, RMA paid a higher percentage of this premium for higher levels of 
coverage. USDA has received many positive letters from producers, 
producer groups and insurance agents in many States who are pleased 
with the program. RMA recently announced the availability of financial 
assistance for crop year 2004 spring crops for the same States, 
consistent with new statutory requirements for the application of these 
funds.
    In early 2004, RMA approved Occidental Fire & Casualty (OFC) and 
its Managing General Agent, Crop1 to sell and service crop insurance 
under a premium reduction plan as allowed by Federal statute, and in 
accordance with standards and procedures established and approved by 
the FCIC Board. The States for which OFC was approved are: Illinois, 
Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North 
Dakota, Ohio, South Dakota, Texas (State approval pending), and 
Wisconsin. OFC is required to offer Premium Discount Plan (PDP) on FCIC 
insurance covering all crops in these States. Farmers who purchase crop 
insurance under OFC's Premium Discount Plan (PDP) will receive a 
discount on their portion of the insurance premium of up to 10 percent 
or more depending on the level of coverage they purchase. The discount 
(equal to 3.5 percent of the total unsubsidized premium) results from 
OFC passing along the cost savings generated by its cost efficient 
approach to delivering crop insurance.
    We continue to work with the private sector to improve producers' 
ease of access to and awareness of risk management products; increase 
the emphasis on improving service coverage for underserved producers 
and regions; and expand the ability to reach underserved producers, 
areas and commodities through traditional channels and developing 
technologies.
    Ensure Customers and Stakeholders are Well-Informed.--RMA has 
implemented an extensive national outreach and education program, 
including several initiatives to increase awareness and service to 
small and limited resource farmers and ranchers and other underserved 
groups and areas.
    In 2003, RMA sponsored the second national outreach conference 
titled: Survival Strategies for Small and Limited Resource Farmers and 
Ranchers, in San Diego, California. Public and private professionals, 
who provide agricultural services to underserved groups, were the 
targeted audience. Over 300 professionals representing 45 States, 22 
universities and three foreign countries convened at this conference to 
share ideas and develop strategies to benefit the underserved 
communities. During 2004, regional and local workshops will be 
customized in several regions to deliver proven survival strategies 
directly to producers. RMA is also partnering with community-based 
organizations, 1890, 1994, 1862 land grant colleges and universities, 
and Hispanic Serving Institutions (HSIs) to provide program technical 
assistance and risk management education on managing farming risks 
associated with the many legal, production, marketing, human resources 
and labor aspects of farm operation. RMA funded 49 outreach projects in 
fiscal year 2003 totaling $4 million to provide outreach and assistance 
to women, small and limited resource farmers and ranchers.
    During fiscal year 2003, our education program focused on 
underserved States, specialty crop producers, and grants through the 
Cooperative State Research, Education, and Extension Service. RMA 
Regional Offices held 833 outreach and educational meetings during 
2003, which attracted 42,020 participants.
    In June 2003, RMA announced a Request for Applications for two 
programs. The first was to establish cooperative education agreements 
in States that have been historically underserved with respect to crop 
insurance. As a result of this announcement, 15 cooperative agreements 
were established totaling $4.5 million. These agreements were executed 
with State departments of agriculture, universities, and non-profit 
organizations to deliver crop insurance education to producers in 
Connecticut, Delaware, Maine, Pennsylvania, Rhode Island, Maryland, 
Massachusetts, Nevada, New Hampshire, New Jersey, New York, Utah, 
Vermont, West Virginia, and Wyoming. Specifically, these cooperative 
agreements will: expand the amount of risk management information 
available; promote risk management education opportunities; inform 
agribusiness leaders of increased emphasis on risk management; and 
deliver training on risk management to producers with an emphasis on 
reaching small farms.
    The second program was for commodity partnership agreements to 
reach producers of specialty crops. A total of 35 commodity partnership 
agreements were established at a cost of $4.6 million. These agreements 
were executed with State departments of agriculture, universities, 
grower groups, and non-profit organizations in Alabama, Arizona, 
Arkansas, California, Colorado, Florida, Georgia, Hawaii, Idaho, 
Illinois, Indiana, Kansas, Kentucky, Louisiana, Michigan, Minnesota, 
Mississippi, Missouri, Montana, Multi-state Area 1 (NV, UT, WY), Multi-
state Area 2 (ME, NH, VT, CT, RI, MA, NY), Multi-state Area 3 (PA, NJ, 
DE, MD, WV), Nebraska, North Carolina, North Dakota, Ohio, Oklahoma, 
Oregon, South Carolina, South Dakota, Tennessee, Texas, Virginia, 
Washington, and Wisconsin. These agreements will reach specialty crop 
producers with broad risk management education. In addition, efforts 
were continued with the Future Farmers of America organization to 
educate and encourage youths' participation in agriculture.
    Maintain Program Integrity.--Our Compliance function workload has 
increased substantially due to the expansion of the Crop Insurance 
Program and the implementation of ARPA. In order to deal with the 
increased referral activity and to fulfill the responsibilities of data 
reconciliation with Farm Service Agency (FSA), RMA has sought to manage 
the increase in workload by emphasizing the use of data mining, remote 
sensing, Geospatial Information technologies and other computer-based 
resources. During the 12-month period from January 2002 through 
December 2002, RMA projects more than $125 million was saved by 
deterring or preventing potentially fraudulent claims through data 
mining and other related activities. Similar savings were realized for 
2003 as we expanded data mining capabilities.
    In 2004, we continue to develop data management and integration 
tools to effectively evaluate, track, and improve program compliance, 
integrity and to reduce the potential for erroneous payments. The need 
for the authority to regulate certain insurance provider business 
activities associated with the Federal Crop Insurance Program and the 
ability to perform timely and effective reviews of insurance providers 
became apparent in 2002 with the failure of the American Growers 
Insurance Company. The fiscal year 2005 budget request includes $1.0 
million for monitoring and evaluating the reinsured companies. 
Improving RMA's ability to monitor the reinsured companies will provide 
the means to perform the necessary analysis and pursue any needed 
corrective actions to reduce the likelihood and cost of future 
failures.
    Recent progress in the Compliance area has been concentrated on the 
mission-critical tasks of evaluating and improving new processes 
established to prevent and deter waste, fraud and abuses. In addition, 
extensive progress has been made in building and adapting RMA's 
compliance investigation caseload reporting, tracking, and feedback 
systems to meet the requirements that were mandated by ARPA. RMA, the 
FSA, the Office of Inspector General, U.S. Attorneys' offices 
throughout the Nation, and the insurance providers continue to work 
together to improve program compliance and integrity of the Federal 
crop insurance program by: fine tuning the RMA/FSA data reconciliation 
and matching process; evaluating and amending the procedures for 
referring potential crop insurance errors or abuse between FSA and RMA; 
creating an anti-fraud and distance learning training package to 
complete the requirements of ARPA; and detecting, prosecuting and 
sanctioning perpetrators of crop insurance fraud. We also have 
dedicated additional efforts to integrating data mining analysis into 
all Agency functions to assist in proactive preemption of fraud through 
effective underwriting and product design; exploring ways to expedite 
increasing sanctions requests; and establishing a fraud investigation 
case management and issue tracking system.
    During fiscal year 2003, RMA published ARPA mandated revisions to 
the Common Crop Insurance Policy, also known as the Basic Provisions. 
RMA proposed many changes to the Basic Provisions, including changes 
mandated by ARPA or requested by OIG, as well as changes related to 
program integrity and administrative issues. Due to the large number of 
comments received, and in order to implement the changes mandated by 
ARPA for the 2004 crop year, RMA chose to implement the proposed 
changes in two separate regulations.
    The first final rule was published in the Federal Register on June 
25, 2003. It contained all of the proposed changes mandated by ARPA and 
a change requested by OIG for an earlier notice of loss for prevented 
planting.
    RMA is finalizing the second final rule that addresses all of the 
proposed changes that were not contained in the first final rule. RMA 
expects publication of this final rule in time to implement for the 
2005 crop year, provided all departmental and other necessary 
concurrences can be obtained.
American Growers Insurance Corporation
    In addition to accomplishing APRA mandated compliance regulations, 
RMA has maintained program integrity despite the fallout of the largest 
policy issuing company in the Federal crop insurance program. On 
November 22, 2002, L. Tim Wagner, Director of the Nebraska Department 
of Insurance, placed American Growers Insurance Company under 
supervision by issuing an Order of Supervision and List of Requirements 
to Abate Supervision and Notice of Hearing. RMA immediately, 
thereafter, entered into a memorandum of understanding with the State 
of Nebraska to insure that the interests of the government and the 
policyholders were protected.
    Senior RMA officials were placed on site with the State appointed 
rehabilitator to keep focus on the priorities. Despite an enormous 
claims caseload caused by the drought of 2002, the policyholders were 
paid in a timely manner. Only a handful of claims are pending, which is 
typical at this juncture for any operating company. The policies of 
American Growers (Am Ag) were also successfully transferred to other 
reinsured companies ensuring that coverage remained in force for the 
2003 crop year. This seamless transfer has provided confidence to all 
our customers, within the Federal crop insurance program, that their 
interest will be protected.
    And, I am happy to say, the interests of the taxpayers also have 
been protected. RMA's onsite presence and supervision of the claims 
processing has resulted in cost avoidance of several millions dollars. 
RMA continues to work with the State of Nebraska to bring finality to 
our work on Am Ag.
    Provide Excellent Service.--RMA continues to pursue initiatives to 
make higher levels of crop insurance protection more affordable and 
useful to producers, provide better protection to farmers experiencing 
multi-year losses, expand risk management education opportunities, fund 
and oversee development of new risk management products and improve 
program integrity.
    RMA's product portfolio includes coverage for 362 different 
commodities in over 3,060 counties covering all 50 States, and Puerto 
Rico. RMA will conduct regular market assessments to establish a 
baseline for customer satisfaction and to measure progress in achieving 
key elements of customer service to ensure the needs of our customers 
are being addressed. Also, we plan to address the needs and changes to 
products, programs and processes to improve service to customers as 
identified from our listening sessions and RMA's product portfolio 
evaluation.
                           program highlights
    Now, I would like to conclude with an update on some of our key 
products and initiatives:
Livestock Insurance Plans
    The FCIC approved two pilot insurance programs for Iowa swine 
producers to protect them from declines in hog prices. The new 
programs, which began in 2002, were authorized under the provisions of 
Section 132 of the Agricultural Risk Protection Act of 2000 (ARPA). 
Until ARPA, federally backed insurance plans providing livestock 
protection were prohibited by law. The livestock insurance programs 
provide livestock producers with risk management tools for reducing 
their price risks. Livestock revenue represents about one-half of the 
total farm cash receipts.
    The two programs approved are: The Livestock Gross Margin (LGM) 
pilot, submitted by Iowa Agricultural Insurance Innovations, and the 
Livestock Risk Protection (LRP) pilot for Swine submitted by the 
American Agri-Business Insurance Company. The LGM pilot provides 
coverage to swine producers from price risks for 6 months and up to 
15,000 hogs per period. The product 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, and depends 
on the coverage level selected by the producer. Coverage levels range 
from 85-100 percent.
    The LRP pilot protects producers against a decline in hog prices. 
Swine can be insured for 90, 120, 150, or 180 days, and 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 continuously throughout the year. The LRP policy 
protects producers against declining hog prices if the price index 
specified in the policy drops below the producer's selected coverage 
price. Coverage levels range from approximately 70-95 percent of the 
daily hog prices. LRP Swine and LGM Swine have been available to 
producers for over a year and have protected over 60,000 head of swine 
in Iowa. Both products are available from private insurance agents. The 
length of the pilot programs will be determined by farmer 
participation, and the financial performance of the programs. In crop 
year 2003, the FCIC Board did not approve any requests for expansion of 
the LRP Swine. Consideration for expansion is deferred until testing is 
completed and the program demonstrates that the premium rates are 
actuarially sufficient, the interests of the producers are protected, 
and that there are no adverse affects on program integrity.
    LRP was expanded to fed and feeder cattle for the 2003 crop year. 
LRP Fed Cattle protects producers in Illinois, Iowa, and Nebraska. LRP 
Feeder Cattle protects producers in Colorado, Iowa, Kansas, Nebraska, 
Nevada, Oklahoma, South Dakota, Texas, Utah and Wyoming. Both products 
use similar methodology to LRP Swine and protect producers against a 
decline in cattle prices.
Livestock Risk Program (LRP) and Livestock Gross Margin (LGM) 
        Suspensions
    Upon the discovery of Bovine Spongiform Encephalopathy (BSE) in the 
State of Washington, RMA determined it was prudent to suspend the sales 
of LRP cattle policies to new policyholders. When originally developed, 
the LRP premium structure was based on the relatively stable futures 
market prices, which existed prior to the discovery of BSE in 
Washington State. However, the discovery of BSE destabilized the 
futures market resulting in large price swings and increased the 
probability that a producer would receive an indemnity. The crop 
insurance program is statutorily required to operate on an actuarially 
sound basis. The volatility present in the market after the discovery 
of BSE caused the product to no longer be actuarially sound. Current 
policyholders are not affected by the suspension of sales. The FCIC 
Board believes RMA acted quickly and responsibly to protect the 
integrity of the crop insurance program. At present, RMA is actively 
evaluating the rating structure and other design components of the 
program that may be affected by the BSE development. Sales will be 
restored when it is determined by the FCIC Board that the LRP is 
operating an actuarially sound manner and will serve the best interests 
of the producers.
    On December 17, 2003, the FCIC Board discontinued new sales of the 
LGM Swine. The Board determined LGM Swine presented excess risk for the 
FCIC. Coverage price is determined two weeks prior to sales closing. 
Because LGM coverage prices are determined using the Chicago Mercantile 
Exchange and the Chicago Board of Trade, insureds may speculate as 
price on either exchange drops (hogs) or rises (corn and soybeans meal) 
and purchase LGM; RMA refers to this phenomena as stale pricing. While 
this strategy is sound, (buy low, sell high) for speculative purposes, 
LGM is a risk management tool and reinsured by FCIC; this strategy is 
not appropriate for insurance purposes. As directed by the Board, RMA 
will work with the submitter of the LGM to address the concerns 
regarding the program for subsequent insurance periods. Current 
policyholders of this plan of insurance are not affected by the 
discontinuance.
Forage and Rangeland
    We recently solicited private sector participation in proposing and 
developing new products and changes to existing products and programs 
involving pasture, rangeland, forage and hay that are vital to 
livestock producers. The agency is providing $3 million in funding for 
these projects, and may provide more depending on the number and 
quality of submissions that meet program objectives.
Declining Yield
    For most FCIC insurance plans, an individual insured's yield 
guarantee (approved actual production history (APH) yield) is 
principally based on a simple average of 4 to 10 years of actual 
yields. Producers and others have argued that insureds are underserved 
when guarantees decline following successive years of poor growing 
conditions. The reduction in guarantee adversely affects the viability 
of future crop insurance coverage and discourages continued 
participation in the program. RMA's goal is to contract for: (1) 
research and development of new and innovative approaches to mitigating 
declines in yield guarantees following successive years of low yield, 
or provide improvements to existing procedures; and/or (2) research and 
development of new and innovative procedures for determination of 
approved APH yields. Through this approach, RMA will seek proposals for 
new or modified approaches to establishing approved APH yields that are 
less subject to decreases during successive years of low yields as 
compared to current procedures; and that are equitable across insureds 
with differing average yields; and broadly applicable to all crops and 
regions; affordable to insureds; feasible and cost-effective for RMA 
and reinsured companies; and is actuarially sound.
Extend Drought Coverage
    RMA is constantly evaluating the impact of consecutive years of 
drought or other natural disasters on declining yields, which affect 
available coverage, on producers in those States affected. RMA has held 
meetings in drought stricken States to explain RMA policy and has 
published a fact sheet regarding prevented planting provisions in FCIC 
insurance policies and to assist producers, insurance agents, and 
reinsured companies in understanding how that coverage addresses some 
of the challenges of drought. Prevented planting coverage is generally 
straightforward on its face, but it becomes very complex when applied 
to specific planting situations. RMA has sought producer and insurer 
input on this issue in a series of prevented planting forums held in 
2003. Recommendations from these sessions are being evaluated for 
possible inclusion in a proposed rule that will make constructive 
changes in the program. RMA is also preparing to seek private sector 
assistance in evaluating possible product modifications or new products 
to address declining yield experience caused by extended drought.
Adjusted Gross Revenue-Lite
    The FCIC approved the Adjusted Gross Revenue-Lite (AGR-Lite) 
insurance plan in late 2002 and began sales for 2003. This product was 
also submitted to FCIC through Section 508(h) of the Act and was 
authorized by ARPA. AGR-Lite is available in most of Pennsylvania and 
covers whole farm revenue up to $100,000, including revenue from 
animals and animal products. AGR-Lite covers the adjusted gross revenue 
from the whole farm based on 5 years of tax forms and a farm plan. AGR-
Lite was expanded for the 2004 crop year to include selected counties 
of Connecticut, Delaware, Maine, Maryland, Massachusetts, New 
Hampshire, New Jersey, New York, Rhode Island, Vermont, and West 
Virginia. Program changes were approved that will increase 
participation, qualify producers for higher coverage levels, increase 
insurable adjusted gross revenues, and allow for expansion of farms, 
beginning with the 2004 crop year.
Pilot Programs
    Currently, RMA has 31 pilot programs. The pilot programs are: 
Adjusted Gross Revenue (AGR/AGR-Lite), Apple Pilot Quality Option, 
avocado APH, avocado revenue, avocado/mango tree, cabbage, cherry, 
citrus dollar (navel oranges only), Coverage Enhancement Option, 
crambe, cultivated clams, cultivated wild rice, Florida fruit trees, 
forage seed, fresh market snap beans, Income Protection Plan of 
Insurance (IP), livestock (swine) gross margin, livestock risk 
protection (swine/cattle), mint, mustard, Onion Pilot Stage Removal 
Option, pecans, processing chile peppers, processing cucumbers, 
rangeland GRP, raspberry/blackberry, strawberries, sweet potatoes, and 
winter squash/pumpkins.
    The FCIC Board of Directors approved the expansion of the millet 
pilot program and conversion from a pilot program to permanent status 
for the 2003 crop year. The Board also approved expansion of the pecan-
revenue pilot program to be offered in eighty-two counties for the 2003 
crop year and subsequently approved the program to permanent status for 
the 2004 crop year. Additionally, the Board approved conversion of the 
blueberry pilot program to permanent status effective beginning the 
2004 crop year.
Revenue Insurance
    Revenue insurance programs include Group Revenue Insurance Policy 
(GRIP), Adjusted Gross Revenue (AGR), Crop Revenue Coverage (CRC), 
Revenue Assurance (RA), and Income Protection (IP). Under CRC, RA, and 
IP revenue insurance programs, indemnities are triggered by low 
revenues for an individual producer (caused either by low yields, or 
low prices, or both). Under AGR, indemnities are triggered by low 
revenue for an entire farm's operations, based on the producer's 
Schedule F Federal tax forms. Under GRIP contracts, indemnity payments 
are triggered by low county-wide crop revenues. Two of these 
alternatives, CRC and RA, allow producers the option of insuring 
separate areas of land either under separate insurance contracts or 
under the same insurance contract. Each of these alternate contracts 
requires that producers establish an approved Actual Production History 
(APH) yield for the crop to be insured.
    Effective for the 2003 crop year, changes to CRC and RA-High Price 
Option (HPO) rating methodologies were implemented for corn and 
soybeans to respond to dissimilar rates being charged for similar 
coverage protection. RMA is currently evaluating the feasibility of 
merging CRC, RA and IP into a master product with several options. This 
will reduce market confusion over these separate but similar products 
and should significantly reduce administrative costs associated with 
their sales, service and administration.
Research and Development
    During fiscal year 2003, over $24 million was obligated and 
approximately 45 contracts and partnership agreements were awarded to 
further program goals for expanding and improving risk management 
opportunities for producers. Examples include a contract to review 
RMA's product portfolio, fifteen research and development partnership 
agreements such as Organic Price Index, development of a Forage and 
Rangeland Decision Support System and a number of other program 
research, development, and evaluation projects to expand and improve 
the risk management tools for American producers.
                               conclusion
    RMA provides agricultural producers with the opportunity to achieve 
financial stability through effective risk management tools. RMA 
strives to foster, at reasonable cost, an environment of financial 
stability, safety, and confidence, enabling the American agricultural 
producer to manage the perils associated with nature and markets. The 
private sector crop insurance industry markets, delivers, and services 
many USDA risk management products. RMA also provides the educational 
opportunities to help producers choose and employ effective risk 
management tools. RMA works with the Farm Service Agency, Commodity 
Futures Trading commission, and other private and public organizations 
to provide producers with an effective safety net.
    I ask that you approve this budget to enable RMA to continue 
providing 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, sir. Mr. Rey.

                         STATEMENT OF MARK REY

    Mr. Rey. Good afternoon, Mr. Chairman.
    Our prepared statement for the record highlights our 
funding request for fiscal year 2005, and in the interest of 
time, I will not go into great detail except to assure you that 
we are continuing to work diligently in accountability and 
results measurement for the funds provided by Congress. I am 
proud of the strong efforts that NRCS continues to make their 
programs more accessible to farmers, ranchers and the general 
public.

                     CONSERVATION SECURITY PROGRAM

    What I would like to do in the short time available today 
is focus my remarks on our continuing efforts to implement the 
Conservation Security Program as provided for in the fiscal 
year 2004 budget and as requested in the fiscal year 2005 
request. The Department is moving forward aggressively to 
implement the program, and we are enthusiastic about the 
prospects of the Conservation Security Program and look forward 
to making it available in farms and ranches across America.
    The proposed rule was published for public comment on 
January 2, 2004, with a comment period that closed in the 
beginning of March. The response from the public was 
extraordinary, with 14,010 comments plus one seed order and a 
misdirected check responding to a fundraising request from a 
group that was opposing the regulation. You will be happy to 
know that the seed order was returned, and the check was 
forwarded to the appropriate party.
    Mr. Rey. In addition to the comments we received, the 
agency conducted 10 national listening sessions around the 
country and many individual sessions in States on the proposed 
rule. Our staff has worked diligently to assemble the docket of 
comments and assure that each comment will receive fair 
consideration and review. We have made the comments available 
for public viewing and copying down in the Department of 
Agriculture. And while we are not in a position today to debate 
the contents of the proposed rule, I would like to put the 
contents of the proposed rule in a broad perspective in terms 
of our approach and rationale in discussing three areas which 
were highlighted in the comments that we received.
    The first is the budgetary aspects of the CSP program. When 
the President signed the 2002 Farm Bill into law, the 
Conservation Security Program was estimated to cost $2 billion 
over 10 years. Just as a matter of perspective, this would be 
400 times the amount originally authorized for the Wildlife 
Habitat Incentive Program and 571 times greater than the 
original funding for the Farm and Ranch Lands Protection 
Program.
    So as envisioned, it was a significant program. Congress 
has seen fit to amend the program three times since signing of 
the Farm Bill in the last 21 months; that would be an amendment 
on the average of every 7 months, making program implementation 
a somewhat difficult task as some of the direction was changed 
as we went. Under the most recent revised law, the Congress 
expected an expenditure of less than $7 billion on the program 
over a 10-year period, with a cap of only $41.4 million for 
fiscal year 2004.
    Through the work of the NRCS, we have been able to design 
the program in a way that provides funding obligations in a 
fashion similar to the way that the Conservation Reserve 
Program obligations are structured. For example, the 
President's budget request of $209 million for CSP in fiscal 
year 2005 will represent about a $2 billion total in funding 
provided for farmers and ranchers as the contracts signed in 
2005 play out. If unchanged by either us or the Congress, the 
proposed CSP would provide more than $13 billion in CSP 
assistance to farmers and ranchers over 7 years, which is an 
amount greater than proponents of an open-ended program have 
been discussing.

                      A WATERSHED APPROACH TO CSP

    A second area of considerable discussion in the public 
comments is our proposed approach to focusing on priority 
watersheds. Even though we have been able to maximize funding 
obligations, the dollars available will not even begin to 
satiate the immediate demand for the program. There is a 
potential applicant pool of 700,000 producers to sign up for 
CSP. The CSP statute, the Farm Bill language, prohibits ranking 
applications but would instead mandate that all applicants be 
accepted into the program and potentially receive a payment.
    Given the $41 million available for this fiscal year, and 
of course, unknown amounts for fiscal year 2005 and beyond, we 
have proposed a program that is flexible enough to match 
funding available for any given fiscal year by making the 
program available in watersheds and emphasizing enrollment 
categories. Our approach also deals with the constraint placed 
in statute on technical assistance at a maximum of 15 percent 
of the expended CSP funding.
    It is clear that we have proposed the best course of action 
in designing a staged program that can be expanded based upon 
available funding, and what you see in the map before you is a 
map of all of the watershed units in the United States. As the 
program is drafted now, it will start in the first year by 
identifying priority watersheds, the criteria for which will be 
published for public review shortly.
    If and as funding expands, more watersheds can be made 
available, and using the watershed-based approach, the program 
could be theoretically expanded to the entirety of the land 
area of the United States. So it is a staged program that can 
be made into--is intended to be made into--a national program 
commensurate with whatever funding support that this Congress 
and subsequent Congresses provide.

                            CSP BASE PAYMENT

    A third area which enjoyed considerable discussion in the 
comments regards the way the CSP base payment is structured 
under the proposed rule. In order to ensure defensible 
environmental results for the program, we have proposed placing 
increased emphasis on increased conservation. That is to say 
those farmers and ranchers who agree to do more, get more in 
the way of financial support from the program.
    It is our goal to design a program that is easy to 
understand for farmers, ranchers and those implementing the 
program. We also want to make sure that the program produces 
demonstrable conservation results that will show the American 
taxpayer the value of good conservation on working agricultural 
lands so that this program can be expanded and developed into 
the base program to affect working conservation in the future.

                          PREPARED STATEMENTS

    As I mentioned, our next step is to undertake a thorough 
review and consideration of comments from the public. It will 
be this input that assists us in finalizing the program design. 
The task will be massive, but we have dedicated appropriate 
staff expertise to tackle the job. Our goal is to publish a 
final rule with a sign-up period occurring in fiscal year 2004. 
USDA is ready to deliver the program to the public and begin to 
see results.
    We consider CSP to be a brand new day for conservation 
policy. With that, I would be happy to respond to your 
questions at the appropriate time.
    [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 2005 budget and program 
proposals for the Natural Resources Conservation Service (NRCS) of the 
Department of Agriculture (USDA). I am grateful to the Chairman and 
members of this body for its ongoing support of private lands 
conservation and the protection of soil, water, and other natural 
resources.
Performance and Results
    Mr. Chairman, before I highlight our funding request for fiscal 
year 2005, let me assure you that we are continuing to work diligently 
in accountability and results measurement for the funds provided by 
Congress. I am proud of the strong efforts that NRCS has made on 
performance and making NRCS more accessible to farmers, ranchers and 
the general public. I believe we are offering value and accountability 
to both American taxpayers and to Congress. Our performance management 
system was recently featured in two publications that focus on 
government management and accountability.
    In past testimony before this Subcommittee, I have discussed the 
excellent score that NRCS received in a measure of customer 
satisfaction for conservation assistance. This year, I am proud to 
report that NRCS was ranked as one of the best places to work in the 
Federal Government, including the highest score for a natural resource 
agency. The scores in the report were derived from the Office of 
Personnel Management's government-wide 2002 Federal Human Capital 
Survey. Also, this year we have worked hard on the Program Assessment 
Rating Tool (PART) to evaluate and improve our performance measures 
with a focus on outcomes and results. As we move forward this fiscal 
year, and into fiscal year 2005, we will continue to improve operations 
and accountability systems so that we may best serve our customers and 
protect and improve natural resources.
    As you know, the NRCS is proposing a reorganization to improve its 
operational, technology support, and resource assessment functions to 
strengthen our ability to help America's farmers and ranchers reach 
their conservation goals and offer them the latest science-based 
technologies. We look forward to continue working with you to move 
forward with implementation.
Looking Ahead
    The 2002 Farm Bill contained many new conservation programs 
designed to protect and enhance the environment. The Department 
continues to focus efforts on implementing the conservation programs in 
the Farm Bill. The 2005 President's 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 levels.
    The 2005 budget request for NRCS includes $908 million in 
appropriated funding, and $1.86 billion in mandatory CCC funding for 
the Farm Bill conservation programs, including $1 billion for the 
Environmental Quality Incentives Program. The appropriation request 
includes $604 million for Conservation Technical Assistance, the base 
program that supports the Department's conservation partnership with 
State and local entities and the conservation planning needed to 
successfully implement farm bill programs.
    The 2005 budget for NRCS will also enable the agency to maintain 
support for important ongoing activities such as addressing the 
problems associated with runoff from animal feeding operations and 
providing specialized technical assistance to land users on grazing 
lands.
    Another element in the NRCS account structure is a Farm Bill 
Technical Assistance Account that will fund all technical assistance 
costs associated with the implementation of two Farm Bill conservation 
programs--the Conservation Reserve Program and the Wetlands Reserve 
Program. In 2005, this new appropriation account is requested at $92 
million.
Technical Assistance
    Technical assistance funding for conservation programs has been the 
subject of ongoing discussion for several years and a topic of interest 
to this Subcommittee. We appreciate Congress taking steps to deal with 
the long-standing problem of technical assistance for Farm Bill 
conservation programs in the Consolidated Appropriations Act, 2003. The 
long term solution to the technical assistance issue is proposed in 
fiscal year 2005 with the establishment of a new Farm Bill Technical 
Assistance account for CRP and WRP and dedicating resources for this 
purpose. This will allow the agency to provide more financial 
assistance to farmers and ranchers in the other mandatory farm bill 
programs.
    Conservation Operations (CO).--The 2005 budget proposes $710 
million for CO which includes $582 million for Conservation Technical 
Assistance (CTA) and $21.5 million for technical assistance targeted 
specifically for the Grazing Lands Conservation Initiative. 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 enable NRCS to 
maintain funding for ongoing high priority work.
    Mr. Chairman, I believe that NRCS can continue and build upon this 
level of excellence, if they are provided the support and the resources 
as provided in the President's budget request.
    Given the challenges presented in the Farm Bill, I suggest the 
following highest priority areas of emphasis:
  --Provide adequate support for Conservation Reserve and Wetlands 
        Reserve programs implementation through a separate Technical 
        Assistance discretionary account.
  --Further leverage assistance through our conservation partners and 
        the new Technical Service Provider system. These new sources of 
        technical assistance will complement our existing delivery 
        system.
  --Provide the support in the President's budget for Conservation 
        Operations, with an emphasis on developing technical tools and 
        streamlining efforts to gain efficiencies where possible.
Conservation Security Program
    Mr. Chairman, I also want to take a few moments to highlight our 
work on the Conservation Security Program (CSP). A keystone of the 2002 
Farm Bill conservation title, the CSP has the potential to 
revolutionize the way we approach conservation assistance. We have been 
working hard to design a program that is farmer friendly, provides 
demonstrable environmental benefits, and matches the funding available 
to operate the program.
    There has been a lot of discussion here on Capitol Hill, and around 
farm production and conservation organizations about the amount of 
resources available for the program. Needless to say, this has been a 
moving target for those of us attempting to develop a program under 
ever-changing funding scenarios. At the time the President signed the 
Conservation Security Program into law, there was a Congressional 
Budget Office (CBO) estimate of $2 billion over ten years attached to 
the CSP. As such, our Department began implementation discussions with 
that funding figure in mind.
    Subsequently, the Omnibus Appropriations Act of 2003 (Public Law 
108-7) transformed the CSP into a capped entitlement at $3.773 billion 
over a 10-year period between fiscal year 2003-2013. This change in 
statute led to further revisions of the CBO score. Most recently, the 
Omnibus Appropriations Bill for fiscal year 2004 (Public Law 108-199) 
contains language that once again has impacted the funding authority 
for the Conservation Security Program. The fiscal year 2004 Omnibus 
removed the $3.773 Billion funding limitation for the program over 10 
years, while establishing funding for the CSP at $41.443 million for 
fiscal year 2004.
    Another challenge that the Department faced was how to implement 
CSP with a statutory cap on the amount NRCS could spend to pay for 
technical assistance. Language in the 2002 Farm Bill limits technical 
assistance spending to 15 percent. This statutory cap on technical 
assistance has driven NRCS to develop innovative information technology 
tools and technical assistance management techniques to help the agency 
implement CSP as widely, efficiently, and effectively as possible.
    We have attempted to meet these challenges in the CSP proposed 
rule, by designing a program that is flexible enough to match whatever 
funding that Congress might approve for the program. The President's 
budget request will provide assistance to a large number of producers 
across the country. The budget's proposal of $209 million represents 
the amount of assistance the Department will provide in one year to 
approximately 15,000 producers on millions of acres of crop and grazing 
land. We are proud of what we are accomplishing, and are looking 
forward to making CSP available to producers this year.
    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 2005 request 
reflects sound policy and provides stability to the vital mission of 
conservation on private lands. The budget request reflects sound 
business management practices and the best way to utilize valuable 
conservation dollars as we look forward to the future.
    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 2005 budget request.
    Last year, I focused much of my remarks on implementation of the 
Farm Bill and the challenges that we faced in carrying out that 
legislation. I am very proud of the performance of our agency in 
getting the work done. To date, NRCS has published rules for nine major 
programs, with the Conservation Security Program proposed rule comment 
period recently completed and the receipt of over 12,000 letters we are 
currently analyzing. In addition, we have three new rules soon to be 
released as well.
    We challenged NRCS staff throughout the Nation in fiscal year 2003. 
And when the year drew to a close it was clear that our field staff had 
answered the call. Roughly $2.3 billion in discretionary and mandatory 
conservation dollars successfully reached farmers, ranchers and other 
customers. This represents a half-billion dollar increase over last 
year. In turn, the streamlining and efficiencies NRCS has gained meant 
that even more conservation funding could be utilized for financial 
assistance to producers. But beyond the successes measured in terms of 
funds, the work NRCS completed this year will have a lasting impact on 
the nation's land, water, and air resources for generations to come. 
Along with the Farm Service Agency, NRCS successfully deployed the 
Grassland Reserve Program, with more than $1.7 billion in potential 
projects offered up by producers. All of these milestones were realized 
while the agency was developing and utilizing a nationwide cadre of 
technical service providers, and continuing to strive toward even 
greater efficiencies and organizational improvements. NRCS staff has 
worked tirelessly to meet the demands and opportunities presented by 
the Farm Bill legislation and we are proud of their accomplishments.
    These accomplishments have also come within the context of the 
challenges that we face on funding for technical assistance. As you are 
aware, the current situation has necessitated that we utilize funding 
from various Farm Bill program accounts to support other conservation 
programs including the Wetlands Reserve Program and Conservation 
Reserve Program. The President's budget request proposes to address 
that issue by establishing a discretionary account for technical 
assistance for CRP and WRP.
    Our focus remains to provide excellent service to our customers, 
and I am very proud of what we accomplished. Last year, NRCS and our 
partners:
  --Provided technical assistance on over 32.5 million acres of working 
        farm and ranch land to reduce erosion, sedimentation and 
        nutrient runoff, enhance water quality, restore and create 
        wetlands, and improve and establish wildlife habitat;
  --Developed and applied more than 8,000 comprehensive nutrient 
        management plans;
  --Served nearly 3.8 million customers around the country;
  --Completed or updated soil survey mapping on 22.5 million acres;
  --Logged over a million hours of Earth Team volunteer time for the 
        second year in a row;
  --Executed over 30,000 Environmental Quality Incentives Program 
        contracts with more than $483 million in financial assistance 
        provided to producers;
  --Funded more than 500 easements in the Farm and Ranch Lands 
        Protection Program, protecting 119,000 acres of prime farmland;
  --Funded over 2,100 Wildlife Habitat Incentives Program contracts; 
        and,
  --Helped land managers create, restore or enhance 334,000 acres of 
        wetlands;
  --Helped local sponsors complete construction of 60 flood protection 
        structures.
    Mr. Chairman, I also want to take a moment to highlight important 
work in Western states that NRCS has undertaken surrounding to the Sage 
Grouse habitat and population. NRCS is actively reviewing the 11 
primary habitat states (WA, CA, UT, CO, ND, SD, OR, NV, ID, WY, and 
MT). Private lands comprise 30 percent of the total acreage where 
existing habitat populations occur and this agency plays a critical 
role in the conservation of existing habitat through the Farm and 
Ranchland Protection, Wildlife Habitat Incentives Program (WHIP) and 
the Environmental Quality Incentives Program (EQIP) Program (FRPP) as 
well as our general conservation technical assistance. NRCS staff are 
currently reviewing all existing projects that have a primary or 
secondary benefit to sage grouse as well as quantifying the total acres 
and total dollars in support of this species. Some states are also 
giving more program focus for sage grouse projects under the EQIP 
program and the NRCS state technical committee.
    As we move forward in fiscal year 2005, there are many challenges 
and opportunities ahead, with NRCS playing a central role in meeting 
the Administration's conservation objectives. We will look to you to 
build upon the fine accomplishments achieved this year to reach an even 
brighter future.
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 and 
private technical service providers to supply the technical assistance 
needed to plan and oversee the installation of conservation practices. 
I am proud to report that, as of the beginning of February 2004, NRCS 
has over 1,500 individuals certified as TSPs, with 1,100 more 
individuals pending. In terms of businesses, NRCS has certified 130, 
with over 200 more applications in process. In fiscal year 2003, NRCS 
set aside $20 million for utilization of TSPs, with that funding 
quickly utilized across the nation. For fiscal year 2004, we are 
goaling a figure of $40 million for TSPs. We are excited about the 
prospect of TSP expertise continuing to complement our ongoing work.
Streamlining and Cost Savings
    In 2003, NRCS devoted considerable effort to streamline our 
operations, becoming leaner and more efficient in delivering our core 
work. Last year, NRCS:
  --Updated nearly 70 conservation technical standards;
  --Deployed the NRCS Electronic Field Office Technical Guide;
  --Streamlined program delivery, resulting in reduced costs without 
        compromising quality;
  --Worked closely with FSA to implement Conservation Reserve Program 
        technical assistance cost savings that resulted in an 
        additional $38 million in allocations to Environmental Quality 
        Incentives Program, Wildlife Habitat Incentives Program, 
        Grassland Reserve Program and the Wetlands Reserve Program;
  --Developed new software called PROTRACTS to speed up and keep up 
        with the processing of the large increase in farm bill program 
        contracts to allow more time and dollars to be directed toward 
        planning and applying conservation on the land; and
  --Transitioned from an offset to a direct charge method of accounting 
        to be better able to identify and control costs.
    In 2005, we will continue working on many fronts. We will continue 
streamlining and getting more efficient in working with our partners as 
well.
                         discretionary funding
    The President's fiscal year 2005 Budget request for NRCS reflects 
our ever-changing environment by providing resources for the ongoing 
mission of NRCS and ensuring that new opportunities can be realized.
Conservation Operations
    The President's fiscal year 2005 Budget request for Conservation 
Operations proposes a funding level of $710 million which includes $604 
million for Conservation Technical Assistance (CTA). The CTA budget 
will enable NRCS to maintain funding for ongoing high priority work.
    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 provide funding for the Grazing 
Land Conservation Initiative (GLCI) at $21.5 million in 2005 which is 
included in the $604 million for CTA. The GLCI is a private coalition 
of producer groups and environmental organizations that supports 
voluntary technical assistance to private grazing land owners 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 plans to conserve and use their resources. Conservation 
Operations supports the site-specific technical assistance NRCS 
provides to individual landowners to help them develop and implement 
plans that are tailored to their individual goals. It also includes 
developing and implementing the technology and standards that are used 
by everyone managing private lands natural resources. 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.
    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 our accomplishments and 
costs.
Farm Bill Technical Assistance
    As I described earlier in my statement, technical assistance 
funding for farm bill programs continues to be a challenge as we look 
ahead to fiscal year 2005. 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. The 2005 Budget proposes to establish a Farm Bill Technical 
Assistance (FBTA) account at a level of $92 million and would provide 
technical assistance funding for two of the 2002 Farm Bill conservation 
programs, the Conservation Reserve Program and the Wetlands Reserve 
Program.
    This new account will be used to develop contracts, 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 a technical assistance 
account for these two programs will also increase the financial 
assistance dollars available to carry out other Farm Bill programs.
    Watershed and Flood Prevention Operations.--The 2005 Budget 
proposes funding for the Public Law 566 Watershed Program, 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 to their 
successful implementation. The fiscal year 2005 budget proposes 
$40,173,000 for this program.
    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 2005 Budget requests $5.1 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 dam safety. The 
budget proposes $10.1 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 resource 
conservation. NRCS also helps coordinate available Federal, State, and 
local programs that blend natural resource use with local economic and 
social values. The 2005 Budget proposes a level of $50.7 million which 
will support the 375 RC&D areas now authorized.
                     farm bill authorized programs
    Environmental Quality Incentives Program (EQIP).--The purpose of 
EQIP is to provide flexible technical and financial assistance to 
landowners that face serious natural resources 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. At the 
end of January 2003, we published revised resource concerns and 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. The budget 
proposes a level of $1 billion for EQIP. Mr. Chairman, I would also 
note that NRCS recently announced nearly $20 million in EQIP assistance 
to support salinity control in the Colorado River Bain.
    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 enrollment cap to 2,275,000 acres. In fiscal year 
2003, the administration apportioned a total of 213,280 acres for the 
year. The fiscal year 2005 Budget request estimates that about 200,000 
acres will be enrolled in 2005, an appropriate level to keep us on 
schedule to meet the total acreage authorization provided in the Farm 
Bill.
    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. The fiscal year 2005 Budget 
proposes funding GRP at $84 million.
    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. While 
NRCS is currently in the rule making process, this program will round 
out the portfolio of conservation programs. The fiscal year 2005 Budget 
proposes funding the CSP at $209.4 million and would enroll nearly 
12,000 contracts. Although the cap of 15 percent on technical 
assistance funding established in statute continues to be a serious 
obstacle, through the hard work of the Administration in designing a 
flexible program, the President's budget request of $209 million will 
result in nearly $1.7 billion in obligations.
    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 habitats that will support upland 
wildlife, wetland wildlife, threatened and endangered species, 
fisheries, and other types of wildlife. The budget proposes a funding 
level for WHIP of $60 million.
    Farm and Ranch Lands Protection Program (FRPP).--Through FRPP, the 
Federal Government establishes partnerships 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 budget proposes a level of $125 million for FRPP in 
fiscal year 2005.
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, State and local agencies, and 
other valuable partners continue to make immeasurable contributions to 
the conservation movement. In fiscal year 2003, these organizations 
contributed over $1 billion to NRCS programs. It is this partnership at 
the local level that makes a real difference to farmers and ranchers. 
And 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. 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 we 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 very much. Mr. Gonzalez.

                    STATEMENT OF GILBERT G. GONZALEZ

    Mr. Gonzalez. Good afternoon, Mr. Chairman.
    Mr. Chairman, thank you for the opportunity to come before 
you to discuss the fiscal year 2005 appropriation for Rural 
Development. I would like to submit for the record my written 
testimony and share a few highlights and indicate my focus on 
helping individuals, families and organizations within rural 
communities.
    We are all aware of the priorities of the war on terror, 
homeland security, and deficit reduction. I am committed to 
leveraging the precious USDA Rural Development assets to create 
economic opportunity and improve the quality of life of rural 
America. Since the beginning of the Bush Administration, USDA 
Rural Development has provided over $37 billion in investment 
financing and has assisted with the creation or saving of over 
500,000 jobs. We have expanded our investment from $9.6 billion 
in 2000 to $13 billion this past year.
    USDA Rural Development is one of the few Federal agencies 
that can essentially build a rural community from the ground up 
through its investment in infrastructure, housing and business 
programs. However, that is not always enough. I want to 
leverage the resources that you have provided to work with all 
agencies, organizations and the private sector in an effort to 
bring more economic opportunity to rural America.

                   RURAL DEVELOPMENT ACCOMPLISHMENTS

    I have implemented a major marketing effort to improve 
customer service while expanding our outreach to underserved 
and qualified individuals and organizations. I am putting 
especial emphasis on our efforts to increase minority 
participation in all of our programs. We talk a lot about 
numbers, but Rural Development is really about people: people 
who want to find better jobs, people who want better schools 
and hospitals, people who want to own a home and give their 
sons and daughters that first room of their own.
    I had the opportunity last April to meet with Matt and 
Riley Reed of Payson, Utah. They had been married 2 years and 
had one little girl with another baby on the way and no hope 
for qualifying for a home loan for several years. Matt was an 
electrician with little construction experience. Under the 
direction of a construction supervisor, the Reed family started 
building their own home in September of 2000. They moved into 
their new house in June of 2001.
    Imagine the pride these families must have felt when they 
walked into their home for the very first time. We are pleased 
to announce that the number of contracts offered under the 
self-help program almost doubled from 2002 to 2004.
    Through our utility programs, we invested nearly $18 
billion in the past 3 years for technology, water, wastewater 
treatment, and electric infrastructure through loans and 
grants. These investments have benefitted 2.7 million people in 
rural areas, providing nearly 2,000 rural educational 
facilities with expanded access to telecommunications 
technologies and over 800 health care institutions with 
enhanced medical care.
    We have helped numerous rural communities through value-
added grant awards. One interesting project is the United 
Wisconsin Grain Producers, which received a $450,000 grant for 
working capital startup costs for a 40 million gallon annual 
capacity corn ethanol production facility to be built in 
Freesden, Wisconsin.
    In total, there were 184 value-added grants, totaling 
nearly $29 million, helping stimulate economic opportunity and 
create jobs in rural America. In support of these local 
investment efforts, I am working towards the implementation of 
two key business programs: The Rural Business Investment 
Program and the Low Documentation Business and Industry 
Guarantee Program. Both will bring much-needed capital to rural 
communities to support the development of small businesses and 
to support the President's efforts to create jobs across rural 
areas.
    These two programs, along with our ongoing efforts to 
support value-added agriculture and the development of 
renewable energy will increase the opportunities for 
communities to thrive and to compete domestically and globally.

                          PREPARED STATEMENTS

    In summary, I would like to thank the members of this 
Subcommittee and you, Mr. Chairman, for the continued support 
to USDA Rural Development and the many important programs that 
we administer.
    Mr. Chairman, that concludes my remarks.
    [The statements follow:]

               Prepared Statement of Gilbert G. Gonzales

    Mr. Chairman, Members of the Committee, it is a pleasure to present 
to you the President's fiscal year 2005 Budget request for USDA, Rural 
Development.
    This is my first opportunity to appear before you as Acting Under 
Secretary of Agriculture for Rural Development. I am honored to serve 
in this position, and to have the opportunity to work with you to carry 
out Rural Development's fundamental mission to increase economic 
opportunity and improve the quality of life in rural America.
    Everyday, we bring people and resources together.
    As Secretary Veneman recently testified, a primary component in 
USDA's efforts to better serve rural Americans is through greater 
customer service and efficiency in the delivery of our programs. At 
Rural Development we are seeking to accomplish these objectives through 
better marketing of our programs to qualified applicants and through 
developing a consistent structure of operation that lends itself to 
better customer service and improved outreach.
    I believe that given the opportunity, Americans will create 
strength through investments in their own economic future. And I 
believe it is our role at Rural Development to support these efforts in 
ways that will maximize the benefits of rural economies.
    With the assistance of this subcommittee, the Bush Administration 
has established a proud legacy of accomplishments in rural areas.
    The Bush Administration has committed over $37 billion in rural 
development investments in the last 3 years to support rural Americans' 
pursuit of economic opportunities and an improved quality of life.
    Rural Development delivers over 40 different loan, loan guarantee, 
and grant programs enhancing business development, cooperative 
development, housing, community facilities, water supply, waste 
disposal, electric power, and telecommunications, including distance 
learning and telemedicine. Rural Development staff also provide 
technical assistance to rural families, and business and community 
leaders to ensure the success of those projects. In addition to loan-
making responsibilities, Rural Development is responsible for the 
servicing and collection of a loan portfolio that exceeds $86 billion.
    Rural Development is the only Federal organization that can 
essentially build a town from the ground up through investments in 
infrastructure, homeownership and job creation through business 
development programs. We help rural Americans achieve their part of the 
American Dream.
    To further support these efforts, we are working to build a 
collaborative group of Federal agencies that will act to strategically 
put Federal resources in place to serve as a catalyst for private 
investment. Partners in this effort include: Rural Development; Housing 
and Urban Development (HUD); the Small Business Administration; the 
Economic Development Administration; and the National Credit Union 
Association. In addition, we are working to increase the ability of 
faith-based organizations that partner with Rural Development to also 
support rural communities and their economic development efforts.
    Successful economic development in rural areas is driven by local 
strategies where communities take ownership and focus on developing 
leadership, technology, entrepreneurship, and higher education 
opportunities.
    This new direction of collaborative effort follows the model the 
President established with the successful minority homeownership 
initiative he unveiled 2 years ago. This initiative is yielding 
tangible positive results and creating achievements we all take pride 
in.
                            responsibilities
    Rural Development provides rural individuals, communities, 
businesses, associations, and other organizations with financial and 
technical assistance needed to increase economic opportunities and 
improve the quality of life in rural America. This financial and 
technical assistance may be provided solely by Rural Development or in 
collaboration with other public and private organizations promoting 
development in rural areas.
                                 vision
    To achieve our dual mission of creating greater economic 
opportunities and improving the quality of life for rural citizens, we 
understand the need to structure the delivery of Rural Development 
programs so that those who are most qualified receive investment 
assistance. Reaching maximum efficiency and utilization also requires 
that Rural Development do a better job of outreach and education on the 
programs that are available. Last year, during our testimony before 
this Committee, we stated that the marketing of Rural Development 
programs is a critical component in better serving rural areas. Today, 
we have embarked upon an aggressive outreach and marketing effort 
focused on the programs receiving appropriations rather than on the 
names of individual agencies receiving the appropriations. This effort 
is a key priority and we believe it will help ensure greater 
utilization of program investment dollars by those who are most 
qualified.
    Over the last 3 years (fiscal year 2001-fiscal year 2003) with your 
assistance Rural Development has delivered over $37 billion in loans 
and grants to rural Americans. Through this infusion of infrastructure 
investment and local area income stimulus, many rural areas are primed 
to attract an increase in private sector investment. We expect to see 
these Federal investments returned many times over in the form of new 
private ventures, with their associated multiplier effects on household 
incomes and local quality of life.
    Other primary goals include:
    Homeownership.--The bedrock of this Administration's commitment to 
rural America is homeownership and you are key to fulfilling this 
commitment. A safe, secure home is the foundation for the family unit 
and owning a home is the oldest and best form of building equity. I am 
proud of the fact that Rural Development has invested over $10.2 
billion in the last 3 years in single family housing, which supports 
the President's minority homeownership goal.
    Entrepreneurship.--I believe there are two key economic drivers for 
building competitiveness in rural communities. One is our ability to 
grasp and utilize the power of technology. The Internet, and the 
technology that has flowed from it, has resulted in the free flow of 
capital and easy access to knowledge across borders. It has made it 
possible for competition to develop and build production and value-
added systems. The second economic driver is supporting the growth of 
small businesses in rural communities.
    That is why we are focusing our energies on implementing a new low-
documentation Business & Industry guarantee loan program, implementing 
the Rural Business Investment Program, underwriting broadband loans, 
and employing other new economic development tools to make the most of 
these key economic drivers.
                    rural development budget request
    The President's commitment to rural America remains strong, and our 
request will support a total program level of $11.6 billion in loans 
and grants. This program level is very close to the fiscal year 2004 
budget request, in spite of elevated priorities in other areas and the 
increased interest costs of our credit programs.
    I will now discuss the requests for specific Rural Development 
programs.
                         rural utility programs
    Through the Rural Utilities Service, USDA Rural Development 
provides financing for electric, telecommunications, and water and 
waste disposal services that are essential for economic development in 
rural areas. The utilities program requests a total loan level of $4.9 
billion, which is comprised of $2.6 billion for electric loan programs, 
$495 million for rural telecommunication loans, $25 million for 
Distance Learning and Telemedicine grants, $331 million in loans for 
broadband transmission, over $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.
    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. The fiscal year 
2005 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. With the broadband program, we are building on over $2 billion 
in mandatory and discretionary loan funding that was provided over the 
last 2 years. To date, approximately 90 applications totaling $1.1 
billion have been received and are in the review pipeline. Of those 
received, $134 million in loans have been approved. Due to the 
uniqueness of this new program, from evaluating the pricing mechanism 
and ever-advancing technology component, to the ongoing subsidy debate 
associated with the prerequisite level of equity requirements, and the 
built-in commercial nature of the lending competition associated with 
this program, review of the applications has not been as swift as we 
would have hoped. However, we do believe that careful deliberation of 
these elements is required if we are to ensure the credit worthiness 
and soundness of the loans we make, especially since many of these 
companies are start-ups. This Administration is firmly committed to 
developing rural technology infrastructure and we are working hard to 
meet the expectations of the Congress and the public. For fiscal year 
2005, we are requesting $9.9 million in discretionary budget authority, 
which will sustain an additional $331 million of loans. This level of 
funding, coupled with the remaining balances from prior years, will 
provide ample support for the continued expansion of broadband services 
in rural areas.
    Second, we are able to support the funding of water and wastewater 
infrastructure through heavier reliance on loans rather than grants due 
to more affordable interest rates which allow rural communities to 
assume a greater portion of the infrastructure debt.
                  rural business-cooperative programs
    Since 2001, USDA Rural Development has provided over $3.3 billion 
for rural business development in the form of loans, grants and 
technical assistance.
    The Rural Development business and cooperative program budget 
request for fiscal year 2005 is about $738 million, the bulk of which 
is comprised of $600 million for the Business & Industry loan guarantee 
program.
    As I stated earlier in my testimony, creating economic 
opportunities is a primary pillar supporting the Rural Development 
mission. One of my priorities, which I have personally been working to 
implement, is the Rural Business Investment Program, authorized in the 
2002 Farm Bill. This program is being developed in partnership with the 
Small Business Administration and is critical to economic growth in 
rural areas. Further, we are working to create a low-documentation 
version of the business and industry guarantee loan program that has 
less reliance on paperwork and more flexibility in providing smaller 
loan amounts to help more smaller businesses access much needed 
capital.
    We are requesting $40 million for the Rural Business Enterprise 
Grant program, $3 million for the Rural Business Opportunity Grant 
program, over $34 million for the Intermediary Relending Program, $25 
million for Rural Economic Development loans, $5.5 million for Rural 
Cooperative Development grants, $10.8 million in discretionary budget 
authority for renewable energy loans and grants, and $15.5 million of 
discretionary funding for the Value-Added grant program.
    The $10.8 million of discretionary budget authority for renewable 
energy loans and grants 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. The allocation of 
this budget authority among direct loans, guaranteed loans, and grants 
is not determined at this time. Once the subsidy rates for the loan 
programs are finalized we will determine the distribution of loans and 
grants. This is important for rural communities and our country's 
ability to rely less on imported energy. I am committed to this program 
and the benefits it holds for America.
    Rural Development has administered the value-added grant program 
since its inception as a pilot in fiscal year 2001. Over that time, we 
have concentrated on improving outreach to assist in stimulating the 
most effective projects, and improving the application review process 
to ensure an empirically based, evenhanded review. We instituted a 
contract effort with highly educated and experienced academicians to 
make certain the scoring was unbiased. Geographic dispersion was not 
included as an evaluation criterion. However, I am concerned that the 
distribution of the latest awards does not reflect the breadth of 
innovative talent that I know is spread across rural America. I am 
instituting a review of our outreach and technical assistance 
provisions, to determine if improvements are needed in Rural 
Development's assistance to potential applicants. I have also initiated 
a review of project results. We would like to identify the 
characteristics of successful projects, and what benefits are accruing 
to rural areas.
    As we stated during our testimony last year, one of our top 
priorities is to review the current cooperative service delivery 
structure. I am committed to completing this review and ensuring that 
we have a program that not only meets the current cooperative needs, 
but also focuses on helping new generations of cooperatives develop 
structures that will increase bottom lined profitability and allow them 
to be more competitive in domestic and global markets.
                         rural housing programs
    The budget request for USDA Rural Development's housing programs 
totals $5.3 billion in loan and grant funds. This funding commitment 
will improve housing conditions in rural areas, and continue to promote 
homeownership opportunities for minority populations. In support of the 
President's homeownership initiative, Rural Development's goal is to 
increase minority participation in housing programs by 10 percent over 
the next few years.
    The request for single-family direct and guaranteed homeownership 
loans exceeds $3.8 billion, which will assist almost 42,800 households, 
who are unable to obtain credit elsewhere.
    The housing program 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 maintains Rural Development's commitment to focus on 
repair, rehabilitation, and preservation of multi-family housing 
projects. We have placed a very high priority on completing review and 
development of a comprehensive strategy for delivering this important 
program. I am committed to seeing this review completed as quickly as 
possible. Additionally, we are working to complete the promulgation of 
revised multi-family housing regulations that we believe will increase 
program efficiency. We are proposing a multi-family housing request of 
$60 million for direct loans, $100 million for guaranteed loans, $42 
million for farm labor housing loans, $17 million for farm labor 
housing grants, and $592 million in rental assistance. Rural 
Development has an existing multi-family housing portfolio of $12 
billion that includes 17,800 projects. Many of these projects are 20 
years old or older, and face rehabilitation needs. In the face of the 
demands for repair/rehabilitation and preservation of existing 
projects, and our ongoing study of program alternatives, we are 
deferring requesting new construction funding this year. I would add, 
however, that we are working with the secondary market to increase 
utilization of the guaranteed loan program, for which the 
Administration has requested $100 million for new construction needs.
    This budget sustains the farm labor-housing program at an aggregate 
level of $59 million--$42 million of loans and $17 million of grants. 
Maintaining this level is necessary to support agriculture's need for 
dependable labor to harvest the abundance produced by rural farms, and 
provide housing to the poorest housed workers of any sector in the 
economy.
    Rental Assistance 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 and the elderly, with annual incomes averaging about 
$8,000). The budget includes $592 million for Rental Assistance, which 
will be delivered through 4-year agreements. This level of funding will 
provide rental assistance to over 42,000 households, most of which 
would be used for renewing expiring contracts in existing projects. 
With the fiscal year 2004 reduction in contract term to 4 years, the 
appropriations act allows Rural Development to utilize unliquidated 
balances at the end of that contract term for many other eligible 
multi-family housing purposes. For the history of this program, 
unliquidated balances remained with the contract, and continued to be 
expended on that contract until exhausted. This budget reflects a 
return to that arrangement. We are concerned that providing this extra 
program flexibility to Rural Development may, in fact, reduce the 
confidence of future Section 515 participants that necessary Rental 
Assistance will be provided in the future.
    The Community Facilities request totals $527 million, including 
$300 million for direct loans, $210 million for guaranteed loans, and 
$17 million for grants. A portion of the direct loan program will be 
directed to homeland security health and safety issues in rural areas. 
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. We intend to target $100 million to homeland 
security uses, such as first responders.
                        administrative expenses
    Delivering these programs to the remote, isolated, and low-income 
areas of rural America requires administrative expenses sufficient to 
the task. From fiscal year 1996 through fiscal year 2003 Rural 
Development's annual delivered program level increased by 89 percent. 
Over that same period Rural Development's Salaries and Expenses 
appropriation increased only 16 percent. Rural Development has the 
staff and the dispersed distribution mechanism to reach the ambitious 
program targets outlined above, but adequate administrative support 
must be made available.
    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. Limited S&E funding could jeopardize 
our ability to provide adequate underwriting and loan servicing to 
safeguard the public's interests.
    For 2005, the budget proposes a total of $665.6 million for Rural 
Development S&E, or an increase of $38.9 million over fiscal year 2004. 
Of this increase, $11.6 million will fund pay costs and related 
expenses; and $13 million is for increasing Departmental charges 
(Greenbook and Working Capital Fund increases) and funding to continue 
to support the move of St. Louis staff to the Goodfellow facility. An 
additional $14 million will support Information Technology (IT) needs, 
including data warehousing, continued expansion and upgrading of 
systems supporting the multi-family housing program, enhancement of the 
Rural Utilities Loan Servicing system to meet rural utilities program 
needs, e-Gov requirements, and IT security needs.
    Mr. Chairman and 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

    Mr. Chairman, Members of the Subcommittee, thank you for the 
opportunity to present the President's fiscal year 2005 budget for the 
USDA Rural Development, rural utilities program. We appreciate the work 
and support you and other members of this subcommittee have provided 
for a strong, dependable infrastructure in the rural United States.
    All aspects of a rural society are work together to make a strong 
Nation. Safe, affordable, modern utility infrastructure is an 
investment in economic competitiveness and serves as a fundamental 
building block of economic development. Changes in the landscape of 
rural America, along with developments in technology, and changes in 
the market structure are combined with an aging utility infrastructure. 
These changes are occurring in the electric, telecommunications, and 
water sectors. Without the help of USDA Rural Development rural 
utilities program, rural citizens face monumental challenges in 
participating in today's economy and improving their quality of life.
    The $42 billion rural utilities program loan portfolio includes 
investments in approximately 2,000 electric and telecommunications 
systems and 7,500 small community and rural water and waste disposal 
systems serving rural communities. This local and Federal partnership 
is an ongoing success story. Eighty percent of the Nation's landmass 
continues to be rural, encompassing 25 percent of the population. In a 
recovering economy, this infrastructure investment spurs economic 
growth, creates jobs, and improves the quality of life in rural 
America.
                            electric program
    The rural utilities program budget proposes $5 million in budget 
authority (BA) to support a program level of $2.6 billion. This 
includes $3.6 million in BA for a hardship program level of $120 
million, over $1 million in BA for a $100 million program level for 
direct municipal rates loans, $700 million program level for the direct 
Treasury rate loans, $60 thousand BA for $100 million program level for 
guaranteed electric loans, and $1.6 billion for Federal Financing Bank 
(FFB) direct loans. The Treasury loans are made at the cost of money to 
the Federal Government; therefore the FFB loans do not require BA. 
Because Congress has provided very generous loan levels over the past 3 
years, we have been able to eliminate most of the backlog in loan 
applications; and we feel the President's budget level will meet the 
demand during fiscal year 2005.
    To meet the demands of economic growth across our Nation, the need 
for transmission lines to deliver electric power where it is needed is 
placing new demands on cooperatives providing transmission service. To 
protect the quality of our environment while meeting growing power 
generation needs, the costs of maintaining and building power 
generation capacity is ever growing. We are seeing requests for large 
loan generation loans for the first time in almost 15 years.
              advanced telecommunications in rural america
    No aspect of the rural utilities infrastructure faces more changes 
than the area of telecommunications. Congress, with the leadership of 
this Committee, has shown great confidence in the rural utilities 
program Telecommunications Program's ability to empower rural America 
with the most modern telecommunication tools to participate in today's 
global, digital economy. Job growth, economic development, and 
continued quality of life in rural America is directly tied to access 
to today's high-speed telecommunications.
    I would like to take this opportunity to tell you where we stand 
with our Broadband Program in terms of (1) program delivery; (2) our 
drive to balance fiduciary responsibility with mission delivery; (3) 
our expertise in administering a very complex lending program; and (4) 
the administration's continued support for the deployment of Nation-
wide broadband service.
    The Broadband loan program is distinctive from all other lending 
programs within the agency's portfolio. Nearly half of the applicants 
are ``start-up'' companies with little, if any, history of doing 
business in this industry. In addition, two distinctly different 
characteristics are at play--competition (rather than a monopolistic 
environment) and multi-state businesses (rather than a single 
cooperative or independent company serving a single rural community). 
Very few of the applications are designed to serve a single rural 
community or even a small grouping of geographically close rural 
communities. Most are applications requesting to serve 50, 75, or in 
excess of 100 rural communities in multiple states. In these multiple 
community applications, the vast majority of the communities already 
have broadband service available in some of the proposed service area; 
in some instances, from more than one provider. Therefore, to determine 
financial feasibility, the agency must determine what portion, if any, 
of a competitive market the applicant will be able to penetrate. As you 
can imagine, these factors contribute to increased review and 
processing efforts.
    I am pleased to report that, as of today, the agency has made 12 
loans totaling $134 million which will serve 215 communities with more 
than 670,000 rural citizens. The agency has also completed its review 
of every application received in this program. It should be noted that 
nearly 70 percent of those applications were received within a one-
month timeframe between mid-July and mid-August of 2003.
    Our country is facing challenging domestic spending decisions. In 
order to balance fiduciary responsibility with mission delivery, USDA 
is focusing on ``quality loans'' that produce exponential benefits 
through reduced subsidy rates and greater lending levels and that 
strengthen not only rural economies, but our national economy and its 
role in the global economic system. A failed business plan translates 
not only into loss of taxpayer investment, but deprives millions of 
citizens living in rural communities of the technology needed to 
attract new businesses, create jobs, and deliver quality education and 
health care services.
    Building on USDA's experience and local presence in serving rural 
communities, we bring a unique lending expertise that includes the 
tools necessary to examine, and provide solutions for, the financial 
and the technical challenges facing entities dedicated to serving rural 
America. This model has resulted in a lending agency with unprecedented 
success in our other programs and we are dedicated to bringing that 
same level of success to this program.
    From the beginning, the President has recognized the importance of 
broadband technology to our rural communities. The President stated, 
``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.'' The 
Bush Administration has been unwavering in its support for this and 
other programs that will revitalize and strengthen our rural 
communities.
    Let me assure you that we are on track, we remain focused, and we 
will complete our mission. We must continue to balance fiduciary 
responsibility with mission delivery everyday. Our unique lending 
expertise--the marriage of financial and technical analysis--helps to 
maximize the success rate of borrowers' business models. And we will 
strive to do our part for rural America in fulfilling the President's 
promise of bringing broadband service to millions of citizens. Making 
bad loans helps no one, making successful loans helps everyone.
                       telecommunications budget
    This year's budget proposes approximately $35 million in budget 
authority for an overall broadband and distance learning and 
telemedicine telecommunications program level of $356 million. The 
fiscal year 2005 budget proposes a broadband loan program level of 
approximately $331 million. This level of funding, coupled with the 
remaining balances from prior years, will provide ample support for the 
continued expansion of broadband services in rural areas. Included in 
the broadband loans request is approximately $36 million in direct 4 
percent loans, $255 million in direct Treasury Rate Loans, and $40 
million in guaranteed loans.
    In the regular telecommunications program, the fiscal year 2005 
budget proposes a program level of $495 million. Included is $145 
million in direct 5 percent loans, $250 million in direct treasury rate 
Loans, and $100 million in Federal Financing Bank (FFB) direct loans 
guaranteed by the rural utilities program. All of this is driven by 
$100 thousand in budget authority.
    The budget also reflects the Administration's commitment to 
privatize the Rural Telephone Bank and does not request any budget 
authority or loan level for fiscal year 2005.
    Distance learning and telemedicine (DLT) technologies are having a 
profound impact on the lives of rural residents by assisting rural 
schools and learning centers in taking advantage of the information age 
and enabling rural hospitals and health care centers to have access to 
quality medical services only found in large hospitals. The distance 
learning and telemedicine program pulls together the best of Federal 
assistance and local leadership.
    The DLT grants are budgeted at $25 million, the same as Congress 
appropriated for fiscal year 2004. The Budget proposes to zero out the 
loan program, simply because loan repayment is out of reach for most 
applicants, which are schools and hospitals. Even with increased 
marketing efforts over the past 2 years, less than $21 million in loans 
were made in fiscal year 2003.
                    water and environmental programs
    The water and environmental programs provide two of the most basic 
of infrastructure needs for rural citizens which are clean, safe, and 
affordable drinking water and ecologically sound waste disposal. The 
Centers for Disease Control and Prevention in Atlanta, Georgia, reports 
there are still over 1,000 deaths each year from water borne diseases.
    The budget request seeks approximately $439 million in budget 
authority for a program level of $1.4 billion in water and waste 
disposal loans and grants. The program consists of $90 million in 
budget authority to support $1 billion in direct loans and $75 million 
in loan guarantees and nearly $346 million in water and waste disposal 
grants. In addition, the budget requests $3.5 million in solid waste 
management grants.
                                summary
    Rural utility infrastructure programs are interwoven in the fabric 
of USDA Rural Development programs. They are utilized to provide clean 
and safe water; modernize communications; create reliable electric 
power so that businesses can develop and homes can have lighting and 
heating, as well as open up access to information from the rest of the 
world.
                                 ______
                                 

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

    Mr. Chairman and Members of the Committee, thank you for the 
opportunity to testify on the proposed fiscal year 2005 budget for the 
USDA Rural Development, rural housing program. As an integral part of 
Rural Development, rural housing program assists rural communities in 
many fundamental ways. We provide a variety of both single and multi-
family housing options to residents of rural communities. We also help 
to fund medical facilities, local government buildings, childcare 
centers, and other essential community facilities.
    Rural Development programs are delivered through a network of 47 
state offices and approximately 800 local offices. In addition, 
approximately 2,000 guaranteed lenders participate in the guaranteed 
single-family housing (SFH) program.
    The proposed budget for rural housing program in fiscal year 2005 
supports a program level of approximately $5.3 billion in loans, grants 
and technical assistance. The fiscal year 2005 budget for the rural 
housing program maintains the Administration's strong commitment to 
addressing the needs of rural America, including the needs of minority 
homeownership. We believe that our efforts, combined with the best of 
both the nonprofit and private sectors, will ensure that this budget 
makes a tremendous difference in rural communities. Let me share with 
you how we plan to continue improving the lives of rural residents 
under the President's fiscal year 2005 budget proposal for our rural 
housing programs.
                     single family housing programs
    The single-family homeownership programs provide several 
opportunities for rural Americans with very low-to moderate-incomes to 
obtain homes of their own. Of the $3.8 billion in program level 
requested for the SFH programs in fiscal year 2005, $2.5 billion will 
be available as loan guarantees of private sector loans. An additional 
$225 million in loan guarantees will be used to refinance more 
affordable loans for rural families.
    The 2005 budget reflects an increase in the fee on new SFH 
guaranteed loans from 1.5 to 1.75 percent. To offset this increase, the 
proposed legislation will not only allow the loan amount to exceed 100 
percent of approved value by the amount of the fee. This proposal will 
help ensure that families with limited resources are not prevented from 
participating in the program.
    Our commitment to serving those most in need in rural areas through 
our direct homeownership program remains strong. The fiscal year 2005 
budget includes $1.1 billion in loans to create housing opportunities 
for low and very low-income families.
self-help technical assistance and other single family housing programs
    The fiscal year 2005 proposed budget requests $76.7 million in 
budget authority to make over $120 million in program level funding 
available to assist up to 12,000 families with incomes below 50 percent 
of the area median income. This includes $35 million in program level 
for home repair loan funds for 5,800 very low-income families and $31.5 
million for grants to assist approximately 6,000 elderly homeowners. 
The fiscal year 2005 proposed budget for SFH programs also includes $34 
million to support the Section 523 mutual and self-help technical 
assistance grant program, $5 million in loan level for each of two site 
loan programs, and $10 million in loan level for sales of acquired 
properties, and $1 million for supervisory and technical assistance 
grants.
                     multi-family housing programs
    The Multi-Family Housing (MFH) budget preserves Rural Development's 
commitment to maintaining the availability of affordable housing for 
the many rural Americans who rent their homes.
    With a total request of $822.5 million program level, of this 
amount $592 million would be used for rental assistance payments. The 
majority of these funds will be used to renew more than 42,000 4-year 
RA contracts. Most of the remainder will be used to provide new rental 
assistance contract for farm labor housing programs. We estimate using 
$60 million for MFH direct loans to provide much needed repairs or 
rehabilitation to approximately 3,400 units of the 17,800 rental 
properties in the portfolio. These apartments provide decent, safe, 
sanitary, and affordable residences for more than 450,000 tenant 
households.
    The budget request will fund $100 million in guaranteed loans that 
may be used for new construction. In addition, the request funds $42 
million in loans and $17 million in grants for the Section 514/516 Farm 
Labor Housing program, $1.5 million in loans for MFH credit sales, and 
$10 million for housing preservation grants.
    Under the President's fiscal year 2005 budget, MFH guarantee loans 
will enable 2,500 rental units to be built. In the farm labor-housing 
program, about 3,000 units will be built or repaired. Both programs 
provide year-round homes to migrant and farm workers.
                           community programs
    The Community Facilities budget will enable rural housing program 
to provide essential community facilities, such as educational 
facilities, fire, rescue and public safety facilities, health care 
facilities, and childcare centers in rural areas and towns of up to 
20,000 in population. The total requested program level of $527 million 
includes $300 million for direct loans, $210 million for loan 
guarantees, and $17 million for grants.
    In fiscal year 2003, we assisted 83 communities by investing over 
$66 million in educational and cultural facilities, over $54 million in 
public safety facilities in 359 rural communities, and over $162 
million in health care facilities in 124 rural communities. Funding for 
these types of facilities totaled $282 million. The remaining balance 
was used for other essential community facilities.
    In partnership with local governments, state governments, and 
Federally-recognized Indian Tribes, the fiscal year 2005 Community 
Facilities budget will support more than 375 new or improved public 
safety facilities, 140 new and improved health care facilities, and 
approximately 100 new and improved educational facilities.
                    program highlights & initiatives
    I am pleased to provide you with an update on several highlights 
from our major programs, as well as key initiatives being undertaken.
                      single family housing update
                section 523 mutual and self-help housing
    Funding for our mutual and self-help housing technical assistance 
(TA) program increased significantly in the 1990s from $13 million per 
year to $35 million per year. I am proud to report that fiscal year 
2003 was the best year ever for our mutual and self-help housing 
program. A total of $40 million was awarded in contracts and two-year 
grants to conduct self-help housing programs or assist sponsor groups.
    The demand for TA funding continues to grow rapidly. There were 46 
``pre-development'' grants awarded in fiscal year 2002-03, including 
many first-time sponsors and groups in states with no self-help housing 
programs. Pre-development funds may be used for market analysis, 
determining feasibility of potential sites and applicants, and as seed 
money to develop a full-fledged application. Groups in the pre-
development phase typically need 6 to 12 months before they are ready 
to apply for full funding. We expect a considerable portion of these 
groups to seek full funding in fiscal year 2005.
                     section 502 guaranteed program
    Demand for our section 502 guaranteed program continues to be 
strong based upon:
  --Aggressive outreach and customer service by Rural Development 
        staff;
  --Growing recognition and acceptance of the program by the mortgage 
        industry as an outstanding loan product for lower income rural 
        families. The program requires no down payment and no monthly 
        mortgage insurance premiums;
  --Historic low interest rates, which coupled with a Rural Development 
        guarantee, have helped moderate income families achieve 
        homeownership;
  --Rural Development's commitment to reducing barriers to 
        homeownership, especially for lower-income and minority 
        families;
  --Redirecting low-income families who can afford current low interest 
        rates from our Direct homeownership program to our Guaranteed 
        program;
  --The Secretary's Five-Star Commitment to increase homeownership, 
        including minority homeownership.
    We developed an Automated Underwriting System (AUS), which will 
allow lenders to input customer application data and determine 
immediately whether the Agency will issue a commitment. This system 
should be fully operational by next summer.
    Our Centralized Servicing Center in St. Louis, Missouri will soon 
begin centralizing loss claims submitted by lenders under our guarantee 
SFH program. This process is currently being done in State Offices. 
Centralization will improve efficiency, consistency, and provide better 
management data to program officials.
     usda's five star commitment to increase minority homeownership
    The rural housing program is committed to increasing homeownership 
for all Americans, including minorities. Approximately 13 percent of 
rural America is comprised of minorities. We are pleased to report that 
over 20 percent of our housing resources reach minority families. 
Several of our programs, most notably our mutual and self-help housing 
program, serve over 50 percent minorities. In response to the 
President's minority homeownership goals, USDA is committed to 
increasing its success. In October 2002, USDA issued a Five Star 
Commitment to expand homeownership opportunities for all Americans. We 
believe this plan will also expand minority homeownership by 10 percent 
by 2010. Our Five Star Commitment includes the following:
  --Doubling the number of self-help participants by 2010;
  --Increasing participation by minority lenders through outreach;
  --Lowering fees to reduce barriers to minority homeownership;
  --Promoting credit counseling and homeownership education; and
  --Monitoring lending activities to expand minority homeownership 
        opportunities.
    Since announcing the Five-Star Commitment, USDA has:
  --Awarded a total of $40 million in self-help housing grants in 
        fiscal year 2003, which was the best year ever for the program. 
        Demand for funding continues to grow. There were 46 ``pre-
        development'' grants awarded in fiscal year 2002-2003, 
        including many first-time sponsors and groups in states with no 
        self-help programs.
  --Entered into a memorandum of agreement with the Federal Deposit 
        Insurance Corporation (FDIC) to promote and utilize their 
        ``Money Smart'' training program. FDIC assisted us by providing 
        training to all of our State Offices on delivery of this 
        valuable financial literacy program.
  --Lowered the fee for the guaranteed SFH loan program from 2 percent 
        to 1.5 percent for purchase loans and 0.5 percent for refinance 
        transactions. This change, coupled with record low interest 
        rates, has increased demand for the program. Although the 
        Administration's fiscal year 2005 budget proposes a small 
        increase in the fee (25 basis points), this is coupled with 
        proposed legislation that will allow the Agency to include the 
        entire fee in the loan. This small increase (less than $500 per 
        loan) will help reduce government outlays and the accompanying 
        legislative proposal ensures that families will not be 
        adversely impacted.
  --Obtained commitment from Rural Development State Offices to 
        increase the number of American homeowners, including minority 
        homeowners, served through our direct and guaranteed programs. 
        All states have developed individual plans to increase 
        homeownership levels for all Americans, including minority 
        homeownership, and to expand the availability of the self-help 
        program. We met our overall objectives for fiscal year 2003 and 
        are on target for fiscal year 2004.
                          multi-family update
                    comprehensive program assessment
    We are addressing concerns about our aging portfolio of multi-
family housing properties through a Comprehensive Program Assessment 
(CPA). The CPA was designed to evaluate the multi-family housing 
programs from several perspectives, including program delivery, 
organizational structure, effectiveness of programs and alternative 
financing tools, and a comprehensive analysis of the Section 515 
properties in our portfolio.
    We selected a statistically random sample of properties from the 
portfolio (333 of 17,800 or about 2 percent) and they are being 
evaluated for:
  --Assessment of a property's physical condition;
  --Assessment of a property's financial health;
  --Assessment of a property's position in the real estate rental 
        market;
  --Determination of continuing need for this rental housing;
  --Assessment of needed capital improvements and cost;
  --Assessment of future capital reserves needs;
  --Analysis of prepayment potential and;
  --Analysis of prepayment incentive costs to retain properties and use 
        restrictions.
    From this assessment and analysis, we will develop a model to apply 
to all portfolio properties. It will tell us the cost of capital needs, 
the current funds available in reserve accounts, and where 
revitalization efforts should be concentrated.
    The CPA review is on schedule. All sample properties were inspected 
last year. We expect a report on the physical and market analyses by 
this spring.
    The CPA is also evaluating the organizational structure of the MFH 
division and determining better ways of delivering our loan programs. 
Through discussions with stakeholders and HUD, the CPA will determine 
the best organizational method to address prepayment issues. The 
evaluations are being done by our contractor, ICF Consulting, in 
concert with Rural Development senior management and our MFH Advisory 
Board, consisting of National and State Office staff. As the 
comprehensive program assessment concludes, we will present results and 
recommendations to the Subcommittee.
                           rental assistance
    During the past year, the Agency undertook an initiative to 
automate the forecasting of the cost of renewals of Rental Assistance 
(RA) contracts. This automated system uses actual operating and rental 
data from each MFH property that receives RA and predicts the cost of 
RA needed for these very low and low-income tenants. The automation 
initiative started in March 2003 and is currently being tested. We 
expect the forecasting tool to be available by March of fiscal year 
2004.
    In other efforts to improve internal controls, we plan to add 
several staff members to the RA program and to develop an internal 
operating manual. This month, the Department will undertake a 
Management Control Review of the Section 521 Rental Assistance program, 
which entails auditing the performance of State Offices in program and 
funds delivery, and in compliance with program and National Office 
policy requirements.
    We will continue our efforts to more efficiently deliver RA. Last 
year, we reported on outstanding unliquidated obligations from prior 
years' RA contracts. The majority of the unliquidated obligations come 
from RA contracts entered into between 1978 and 1982. These contracts 
were vastly overestimated at the time by a methodology that 
incorporated the lowest social security payment, a 25 percent tenant 
contribution (since increased to 30 percent), and double-digit 
inflation. Additionally, over 50 percent of these contracts are 
concentrated in areas that continue to experience low rents, low tenant 
incomes, and out migration of the population. These factors combined to 
yield an extremely low rate of RA usage. In the end, the funds for 
those contracts between 1978 and 1982 have lasted much longer than 
originally planned. The funds remain in the form of unliquidated 
obligations on our books, and will continue to be drawn on until they 
have been exhausted. For those units, this alleviates having to renew 
the contract until they have exhausted all funds.
    The removal of the 20-year time frame for projections coupled with 
an improved and automated forecasting methodology over the last 4-5 
years has contributed to better accuracy in providing just the right 
amount of RA to last through the term of the contract. We believe that 
only a very small amount of the fiscal year 2005 funds, if any, will 
last longer than 4 years. Administratively, continuation of the 
original purpose of these funds is the most efficient way to handle any 
of these small and unanticipated surpluses.
    Concerning the unliquidated obligations for the old 20-year 
contracts, last year, the House Financial Services Committee--Oversight 
and Investigations Subcommittee asked us to investigate using these 
outstanding balances. When a rental assistance agreement is terminated 
because the project owner no longer needs units that are receiving RA 
or by means of a loan payoff or foreclosure, the unexpended funds are 
applied to other units in the MFH program. However, our Office of the 
General Counsel has advised that we do not have the authority to 
recapture obligated, but unexpended RA funds associated with a still 
active RA agreement. Even if we had that specific authority, there 
would be substantial litigative risks that affected project owners 
would be able to successfully bring breach of contract action against 
rural housing program under the agreement and the ability to use these 
funds would be the same as if the funds were appropriated from the 
General Fund.
                           proposed rule 3560
    Proposed Rule 3560 consolidates 13 regulations and a number of 
administrative notices affecting Sections 514, 515, 516, and 521 MFH 
programs. RHS received 3,000 comments on the proposed rule. We have 
completed our review and consideration of these comments and are 
working on drafting the final rule.
          section 538 guaranteed rural rental housing program
    Currently, the Section 538 Loan Guarantee Program has 16 properties 
containing 1,111 units that are built and occupied. There are 26 
properties containing 1,345 units under construction and another 65 
properties containing 3,610 units with the funds obligated. Also, there 
are applications representing 32 projects containing 2,569 units 
awaiting approval.
    In the built and occupied units, the average monthly rent is $481. 
This translates to a median income of about 17 percent of area median 
income. We also have Section 8 vouchers in about 10 percent of the 
units to serve low and very-low income residents.
    This program can be combined with several other funding sources, 
such as, Low Income Housing Tax Credits; HOME; and Federal Home Loan 
Bank Affordable Housing Program funds to provide affordable housing to 
rural residents presently not assisted.
                       mfh automation initiatives
    In addition to the automation of RA forecasting, rural housing 
program has continued to improve its management information systems. 
The Agency is developing a data warehouse for both its SFH and MFH 
loans, which will dramatically improve our reporting capabilities. The 
data warehouse is now functional and continues to be populated with 
data from several existing databases.
    Phase 4 of the Multi-Family Information System (MFIS), scheduled 
for implementation in May 2004, will provide for electronic debiting 
and crediting of borrowers' accounts, thereby eliminating funds 
handling in area offices. Phase 4 will also provide the public with a 
website to locate all the MFH properties, with pictures, property 
information, contact information, and links to property or management 
company websites.
    Another automation improvement is the Management Agent Interactive 
Network Connection, which allows property managers to transmit tenant 
and property data to RHS via the Internet. This data goes directly into 
the MFIS database and the data warehouse. This web-based system is now 
being used voluntarily, and is scheduled to become mandatory this 
summer with the publication of the MFH Final Rule 3560.
                               prepayment
    The efforts to preserve the Section 515 multifamily portfolio are a 
top priority of the rural housing program. These efforts are needed 
because of the increasing age of the portfolio and the need for 
existing owners to seek viable exit strategies. However, exceptional 
efforts are needed by existing owners, potential purchasers, non-rural 
housing program housing financiers, and rural housing program to make 
these efforts work. At stake is an irreplaceable affordable housing 
option in rural America that addresses a critical need for rural 
residents with few housing alternatives.
    Owners wishing to sell their Section 515 properties or their 
ownership interests in a borrower entity may do so at any time. If the 
property is sold to another owner who will keep their project in the 
program, we may make resources available or agree to allow third-party 
resources to be used to compensate the seller for its equity and make 
repairs to the buildings. If the owner seeks to sell the property to 
another owner outside the section 515 program, we offer incentives to 
the owners to stay in the program or provide a 100 percent equity loan 
to sell it to a non-profit or public body.
    Key factors that affect many owners when selling their property is 
the effect of exit taxes and expectations for equity. We continue to 
work with owners to develop realistic exit strategies within the 
limited resources available to affordable housing providers.
    In our efforts to preserve the portfolio, a ``revitalization tool 
kit'' is being developed that will enable us to offer several 
alternatives to rural housing program borrowers in financing, debt 
write-off and subordination, third party financing, and transfer 
approvals. Rural housing program is currently working to accelerate the 
loan approval process at the state level by reducing the number of 
exceptions and waivers, and streamlining the overall transfer approval 
process.
    We are continuing to work with lenders and nonprofits to leverage 
our subsidy dollars to the maximum extent. For example, we partnered 
with Fannie Mae to preserve a 44-unit apartment complex in Saranac 
Lake, NY by subordinating our debt. We eliminated underwriting 
duplication and established processes going forward that would permit 
acceptance of underwriting, appraisals, inspections, and reserve 
account requirements between partners. This is our first joint effort 
and it will establish a precedent that we intend to use with other 
partners in preserving the portfolio.
    We continue to work with industry partners to develop options for 
the preservation of the portfolio. Completion of the comprehensive 
program assessment and implementation of recommendations to improve 
program efficiency will enable us to better utilize existing resources 
such as Fannie Mae, HUD, the Federal Home Loan Bank Board, and others.
                             rural partners
    In our programming for fiscal year 2005, we are stretching the 
rural housing programs' resources and its ability to serve the housing 
needs of rural America through increased cooperation with the 
Department of Housing and Urban Development (HUD) and other partners. 
We are committed to working with these partners to leverage resources 
for rural communities. For example, we expect to adopt HUD's TOTAL 
scorecard for single-family loans. This cooperation between USDA and 
HUD will save time and money in system development.
    In our multi-family housing program, HUD has been extremely helpful 
in sharing data on their own rural portfolio. We were able to access 
this information to use in developing comparable properties to those in 
our section 515 portfolio for our comprehensive property assessment. 
Additionally, we have approximately 1,700 properties with a rural 
housing program mortgage and project-based Section 8 from HUD. On these 
properties, we have an established agreement with HUD that the rural 
housing program will review and approve operating budgets and rent 
increases. This eliminates duplicative work and ensures better 
consistency. In addition, last June USDA and HUD entered into a 
Memorandum of Agreement committing our mutual efforts and resources to 
improving the quality of life in the Southwest Border Region. USDA and 
HUD have also formed an Interagency Task Force that now includes other 
federal agencies to better direct limited resources to the region, 
address jurisdictional issues, and further enhance our collaborative 
efforts.
                               conclusion
    Mr. Chairman and members of the Committee, we thank you for your 
support, and 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.
    We recognize that we 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. We will continue to reach out to and partner 
with lenders, the many 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.
                                 ______
                                 

    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 
2005 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 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 budget requests $738 
million for Rural Business-Cooperative Service programs.
                          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. We endeavor to enhance the quality 
of life for rural Americans by encouraging the use of cooperatively 
owned business as a self-help tool in the marketplace. Our programs of 
research, technical assistance, education and information, statistics, 
and assistance in starting new cooperatives are designed to establish 
viable business entities that help individual farm operators and other 
rural residents retain access to markets and sources of supplies and 
services in a sector that is becoming rapidly vertically coordinated 
and industrialized. Cooperatives are a means for helping to ensure that 
rural people are treated more fairly in the marketplace by providing 
structural strength in dealings with buyers and suppliers.
    Some of our State Office technical assistance efforts involve non-
agricultural cooperative development. For example, in Wisconsin, our 
cooperative development specialist was instrumental in developing an 
effective home health-care cooperative called Cooperative Care. 
Cooperative Care is a group of home and personal care providers in 
rural Wisconsin that joined forces with county officials, community 
leaders, a Federal agency, a technical college, and a community action 
agency. Together they organized a worker-owned cooperative where the 
members have a voice and share profits. This program addresses growing 
concerns about the care of elderly and disabled individuals and 
provides an efficient alternative to nursing home care.
              rural cooperative development grant program
    For the Rural Cooperative Development Grant (RCDG) Program, the 
fiscal year 2005 budget requests $21 million. Of this amount, up to 
$1.5 million would be used for projects focusing on assistance to 
small, minority producers through their cooperative businesses. This 
program, along with our other Rural Cooperative Development grants, 
complements our 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.
    One example is the Family Farm Opportunity Center in Missouri. The 
Center has helped form, through feasibility and market analysis, the 
Gateway Beef Cooperative, the Southwest Missouri Natural Dairy, and the 
Osage Independent Pork Producers. Several other cooperatives are 
receiving assistance from the Center, most involving the processing and 
marketing of value-added agricultural products. Among others, the 
Center targets Missouri counties with the highest percentage of poverty 
and unemployment.
    We are requesting $500,000 for cooperative research agreements to 
encourage research on critical issues vital to the development and 
sustainability of cooperatives as a means of improving the quality of 
life in America's rural communities. These will address the need for a 
solid information base on which to render judgments on critical 
cooperative operational and organizational issues, such as alternative 
ways of sourcing equity capital from within and outside the 
cooperative.
    The Farm Bill formalized the value-added grant program. Over the 
past 3 years, 478 grants have been awarded for approximately $86 
million. This program has four components including Value-Added 
Producer Grants (VAPG), Agriculture Innovation Centers (AIC), 
Agricultural Marketing Resource Center (AgMRC), and university 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.
    For fiscal year 2005, the budget requests $15.5 million for the 
value-added grant program. This amount will provide funding for the 
VAPG and the AgMRC. Funding is not needed in fiscal year 2005 for the 
AIC program or university research on the impact of value-added 
projects.
    One example of a successful VAPG venture is the Pacific Coast 
Producers cooperative of Lodi, California. This cooperative used grant 
funds to pay for the production and marketing of single-serving fruit 
bowls under the private labels of U.S. retailers. Initially, the 
cooperative produced single-serving fruit bowls for a national food 
company under that company's label. The company canceled the contract 
and began purchasing these items from a foreign company. Pacific Coast 
Producers viewed this lost contract as an opportunity to capture the 
emerging market in private label fruit bowls. They have since shipped 
fruit bowls to 40 customers under 32 different store brands. Those 40 
customers have ordered 2 million cases using over 70 tons of fruit. The 
cooperative has plans to add at least 10 more retail chains to its 
customer list over the next year.
    Another example is Missouri Food and Fiber (MOFF), the first new 
generation Identity-Preserved (IP) marketing cooperative organized 
across an entire State. MOFF delivers the highest quality soybeans, 
rice, corn, wheat, grain sorghum, and cotton to worldwide locations. It 
specializes in identifying the customer's product needs, matching input 
seed stock with premium growing environments and managing the IP 
product during planting, growing, harvesting, storing, transporting, 
processing, and distributing to the customer's global locations. While 
MOFF has been extremely successful in the premium IP business, the 
farmer-owned company is seeking entrance into one of the world's most 
exclusive and profitable agricultural markets: super-premium, identity-
preserved, food-grade tofu beans for the Asian market. MOFF recently 
received a grant award of approximately $82,000 from USDA Rural 
Development that will allow it to enter this lucrative market.
             business and industry guaranteed loan program
    For the Business and Industry (B&I) Program, the fiscal year 2005 
budget includes $30.2 million in budget authority to support $600 
million in guaranteed loans. We estimate that the funding requested for 
fiscal year 2005 would create or save about 15,020 jobs and provide 
financial assistance to 367 businesses. We anticipate continued strong 
demand for this program.
    The B&I 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 or 
existing cooperative established for value-added processing.
    I would like to share a story to illustrate how this program, 
partnering with a local lender, allowed a locally owned and operated 
ethanol producing business in rural Wisconsin to expand, providing 
security for 35 existing jobs and creating 4 new jobs. ACE Ethanol, LLC 
received a $10 million B&I Loan guarantee that was used in conjunction 
with other funding to refinance existing debt and expand the capacity 
of the ethanol plant to 30 million gallons per year. This expanded 
plant will purchase 1.5 million bushels of corn from the local market 
and in effect increase the price of local corn by $0.20 per bushel. 
This plant provides an alternate market for the corn that historically 
has been marketed for the declining livestock operations.
                     intermediary relending program
    The fiscal year 2005 budget also includes $15.9 million in budget 
authority to support $34.2 million in loans under the Intermediary 
Relending Program (IRP). We estimate the proposed level of funding will 
create or save about 26,175 jobs over the 30-year loan term.
    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 success 
story from rural Louisiana. The Coordinating and Development 
Corporation (CDC) of Shreveport, Louisiana was awarded a $750,000 IRP 
Loan. Rural Development funds were used to recapitalize a revolving 
loan fund to be administered by CDC. CDC is a non-profit, private 
corporation that was organized in 1954 to administer a wide range of 
Federal, State, and loan development programs and initiatives. CDC's 
coverage area includes Bienville, Bossier, Caddo, Claiborne, DeSoto, 
Lincoln, Natchitoches, Red River, Sabine, and Webster Parishes in 
northeast Louisiana as well as peripheral counties in northeast Texas 
and southwest Arkansas.
    CDC's coverage area includes a special emphasis parish (Lincoln 
Parish) in the Lower Mississippi Delta Development Initiative and 
Persistent Poverty Area (Claiborne, DeSoto, Lincoln, Natchitoches, Red 
River, and Sabine Parishes). In addition, businesses and residents in 
this area experienced devastating agriculture losses due to Hurricane 
Isadore and Hurricane Lili in September and October of 2002.
    As a result of Rural Development funding, CDC was able to provide 
low-interest loan funds to area businesses--in turn growing, 
sustaining, and expanding businesses throughout their coverage area. 
Because of Rural Development funding, CDC was able to provide critical 
financial resources to area businesses resulting in 26 jobs created and 
205 jobs saved.
                rural business enterprise grant program
    For the Rural Business Enterprise Grant (RBEG) program, the fiscal 
year 2005 budget includes $40 million. We anticipate that this level of 
funding will create or save about 17,200 jobs and impact over 7,900 
businesses. The demand for this grant program continues to be strong. 
The purpose of this program is to assist small and emerging businesses. 
It is estimated that for each dollar of investment of an RBEG, another 
$2.40 in private capital is generated.
    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. I would like to share 
with you an example of how these funds are being used to support small 
and emerging business opportunities in rural Idaho. A $59,752 RBEG was 
awarded to the NEZ Perce Tribe in Lapwai to fund a study on the 
feasibility of oil seed production as a substantial alternate crop for 
farming operations in North Central Idaho. Farmers in this highly 
productive dryland-farming region have demonstrated the land's capacity 
to grow a range of oil seed crops. The study will determine if it would 
be feasible to produce and process these crops into value added 
products such as bio-diesel, meal, edible oil, etc. If the results of 
this study are favorable, this would provide stabilization to the 
regions farming operations while creating employment opportunities.
           rural economic development loan and grant programs
    The fiscal year 2005 budget includes $25 million in Rural Economic 
Development Loans (REDL) and $4 million in Rural Economic Development 
Grants (REDG). 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 and grants to intermediaries, who invest the funds 
locally. In fiscal year 2003, each dollar invested through these 
programs attracted an estimated $6.00 in other capital.
    The return on our equity investment in rural America is strong. Two 
examples demonstrate the impact of REDL and REDG. In Missouri, the REDG 
program has been utilized by the Intercounty Electric Cooperative to 
provide improved health care and fire protection to rural residents by 
using a $200,000 REDG grant to provide a portion of the financial 
assistance needed by the Salem Memorial District Hospital to relocate 
and expand the emergency room and the Raymondville Fire Department to 
construct a new fire station. In Iowa, the REDL program assisted 
business development by enabling the Franklin County Rural Electric 
Cooperative to utilize a $450,000 loan to assist with financing the 
construction of a $3.2 million industrial facility in the Hampton Air 
Industrial Park, which was in turn leased to Northern Pipe Products. As 
a result of this business locating in the facility, there have been 11 
jobs initially created with a potential for a total of 50 jobs.
                rural business opportunity grant program
    The fiscal year 2005 budget includes $3 million for Rural Business 
Opportunity Grants (RBOG) to provide much-needed technical assistance 
and capacity building in rural areas. The demand for this program 
continues to grow. We anticipate that this level of funding will create 
or staff over 8,500 jobs and impact 730 businesses. 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. The following is an example of how this grant program has 
been utilized to assist the Qglala Oyate Woitancan Tribe in South 
Dakota with sustainable economic development on the reservation. The 
tribe used a $39,000 grant to provide technical assistance and training 
for tribal business development and planning activities identified in 
the Tribe's comprehensive strategic plan. The project goal is to start 
five businesses and create 15 job opportunities on the reservation.
                    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 2005 budget proposes $10.8 million in discretionary funds. 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. In addition, we anticipate that 15,000 households will be 
served, and 156 million-kilowatt hours of energy will be generated, 
while greenhouse gasses will be reduced by 39,000 metric tons. The 
following is an example of how this program was utilized in fiscal year 
2003 to support renewable energy development in rural Illinois. The 
Illinois Rural Electric Cooperative was awarded a $438,544 renewable 
energy grant to construct a 1.65-megawatt wind turbine in rural Pike 
County. The energy that will be generated from this wind turbine, once 
constructed and operational, will be distributed to the cooperative 
members as part of the overall electric power supply to a six county 
area in west central Illinois served by the cooperative.
    Mr. Chairman, and Members of the Subcommittee, this concludes my 
testimony for the Rural Development fiscal year 2005 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, sir. Dr. Jen.

                       STATEMENT OF JOSEPH J. JEN

    Dr. Jen. Mr. Chairman, thank you for the opportunity to 
testify before you about important research efforts at the 
USDA.

                            GENOMIC SCIENCE

    I, too, have submitted written testimony for the record. 
Due to the limited time here, I will discuss briefly two areas 
of research: genomics and obesity prevention. Genomic science 
is the core of 21st Century biology. From the DNA sequencing of 
genomes to the functional genomic research to translation of 
genome research to applied biotechnology, genomic science holds 
the key to agriculture and food research now and for the next 
several decades.
    Genomic science has the potential to provide food to 
alleviate world hunger, to practice environmentally-friendly 
production, to create new, nutritious foods, to eliminate 
animal and plant disease and to conserve the limited resources 
on Earth, the water, air and land.
    I am happy to report that USDA has been very successful in 
leveraging limited funds to advance genomic research. For 
example, we launched the DNA sequencing of the bovine genome 
last December. USDA contributed $11 million toward a total cost 
of a $53 million project. USDA's contribution would not have 
been possible without your generous support of the fiscal year 
2003 National Research Initiative funding. We hope that you 
will continue to support more funding for genomic science and 
the NRI. In particular, we need funding for bioinformatics 
research, which includes interpreting the results of genomic 
science data.

                           OBESITY PREVENTION

    Obesity is now epidemic in our nation. USDA would like to 
be the leader of the Federal agencies in conducting obesity 
prevention research. We have asked for a modest increase in 
research funds for the six ARS human nutrition centers in the 
Presidential fiscal year 2005 budget. We will apply part of the 
NRI increases in the CSREES budget toward obesity prevention 
research as well. Most importantly, we are asking for $8.7 
million, Mr. Chairman, for ERS to establish a consumer 
consumption database. This database is essential for us to 
understand consumer behavior toward eating and consumption.
    Obesity prevention must be handled through integrated 
programs that involve medical, nutritional, and physical 
activity research, as well as behavioral science research. 
However, until we are able to have quality behavioral science 
research to complement the other fields of research, obesity 
prevention is unlikely to be successful.

                          PREPARED STATEMENTS

    Lastly, investment in agriculture and food research not 
only solves problems we face today, but it also builds the 
groundwork for solutions to problems our children, our 
grandchildren and our great-grandchildren will face in the 
future.
    Thank you for your attention, sir.
    [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 2005 budgets for the Research, 
Education, and Economics (REE) mission area agencies of the USDA. I 
have with me today Deputy Under Secretary Brown, Acting Administrator 
of the Agricultural Research Service (ARS) Knipling, Administrator of 
the Cooperative State Research, Education, and Extension Service 
(CSREES) Hefferan, Administrator of the Economic Research Service (ERS) 
Offutt, Administrator of the National Agricultural Statistics Service 
(NASS) Bosecker and Office of Budget and Program Analysis Director 
Dewhurst. Each Administrator has submitted written testimony for the 
record.
    First of all, I appreciate the support received from Congress in 
our appropriations for fiscal year 2004. With the continuation of a 
tight domestic, non-homeland security budget, the President's fiscal 
year 2005 budget proposes $2.403 billion for the four REE agencies, 
about $66 million less than the level appropriated in fiscal year 2004. 
However, the agency budgets include important and valuable increases in 
Food and Agriculture Defense, Bovine Spongiform Encephalopathy or BSE 
related activities and Better Nutrition for a Healthy US, all strategic 
target areas within the entire Department.
    The budget that we are discussing today obviously relates to 
requested funds for the four agencies in the REE. In reality, the REE 
budget is a reflection of the Department budget. An important role for 
the REE agencies is to provide the science-based information and 
technology needed by the Department's regulatory and action agencies. 
To meet this mission, the REE agencies' programs are very broad and 
numerous. REE is the only mission area that contributes to all five 
goals and 17 objectives of the USDA strategic plan.
    We take our role as the science provider for policy and regulatory 
decisions very seriously and are proactive in making sure our research 
agendas are responsive to the needs of fellow agencies. For example, 
ARS has an annual meeting with Food Safety and Inspection Service 
(FSIS) to jointly identify research needs and set priorities. ARS and 
NASS are cooperating with the Natural Resources Conservation Service 
(NRCS) in an ambitious program to evaluate the effect of the 
conservation programs in the 2002 Farm Bill. CSREES is working closely 
with the Animal and Plant Health Inspection Service (APHIS) in 
developing a national diagnostic laboratory network. ERS routinely 
provides economic analyses for the Foreign Agricultural Service (FAS) 
and the Chief Economist, among others, and plays a major role in the 
analysis of our nutrition assistance programs and policies. The Risk 
Management Agency (RMA) and the Farm Service Agency (FSA) use NASS 
statistics heavily. The net effect is that the REE agency budgets not 
only influence the size and shape of our research, education, and 
statistical programs, but also our capacity to serve the rest of the 
Department. The public is calling on the government to provide the 
scientific evidence in decision-making and science-based solutions for 
specific production, nutrition, security, and environmental challenges. 
Secretary Veneman and other USDA officials repeatedly used REE-
generated information to guide USDA policy decisions.
    It is no news to this subcommittee that the success of the American 
food and agricultural system over many decades has been built on 
agricultural research and technology. Numerous studies have found that 
the return on investment in agriculture research is high. Whether 
measured in productivity, competitive strength in global markets, use 
of environmentally sustainable production practices, or new science-
based food safety technology, research and development underpins 
essentially all advances in the food and agriculture system. High 
quality, relevant research cannot guarantee a successful, competitive 
food and agricultural business. Natural events, markets conditions, and 
resistance to the adoption of new technologies can be barriers to the 
translation of new knowledge and technology into sector gains. At the 
same time, in the absence of such research, the food and agricultural 
sector runs the risk of losing its competitive edge in global markets.
    As scientific opportunities continue to expand and the agricultural 
and food system becomes even more scientifically and technologically 
dependent, the reliance on research to stay competitive is likely to be 
even greater. The advance of molecular biology and resulting remarkable 
manner in which plants and animals can be modified to enhance their 
nutritional value, resistance to disease, or ability to grow in adverse 
conditions hold amazing possibilities in the near future. In fact, we 
are already benefiting from such advances with Bt corn and cotton. But 
advances like these do not happen overnight. Studies show there is a 
lag of as much as 15 years for the payoffs from research to reach the 
marketplace. Wonderful advances are coming out of the research and 
development pipelines today, from programs in universities and colleges 
across the country and within USDA and other Federal laboratories. 
Often they are the product of investments started several years, if not 
decades ago. We must keep up our investment in agriculture now, so our 
children and grandchildren will benefit years from now. I hope you keep 
this fact in mind as you appropriate research funds budgets for this 
and future years.
    The REE agency fiscal year 2005 budgets include long-term 
investments, as well as others that will yield a return in the 
immediate or near future. Before turning to the specific agency 
budgets, I would like to highlight three programs.
    The Food and Agriculture Defense Initiative.--The fiscal year 2005 
budget provides a funding increase of $201 million for ARS and $27 
million for CSREES to participate in this interagency Food and 
Agriculture Defense Initiative, focused on strengthening the Federal 
Government's capacity to identify and characterize bioterriorist 
attacks. These increases represent investments that would result in 
strengthened homeland security.
    Under the Food Defense component of the initiative, ARS will 
conduct research to develop tests that rapidly detect and accurately 
identify pathogens, toxins and metal contaminants in foods. The actual 
tests should be available for adoption by APHIS and other agencies 
within a short time.
    The Animal Defense component includes $178 million for ARS to 
complete the largest facility construction project in USDA history, the 
modernization of the National Centers for Animal Health in Ames, Iowa 
by October 2007. This consolidated ARS/APHIS facility, including 
biosecurity level or BSL-2, BSL-3, and BSL-3 Ag space, will house and 
support an integrated, multidisciplinary scientific capability, 
combining animal disease research with the development of diagnostic 
tools and vaccines. It will produce benefits immediately by replacing 
inefficient and obsolete facilities.
    Other agricultural defense funds for ARS would support research on 
controlling exotic and emerging diseases and a new National Plant 
Disease Recovery System that would develop the capacity to help the 
agriculture sector recover from catastrophic outbreaks of plant 
diseases, whether naturally occurring or intentionally introduced.
    Working cooperatively with APHIS, the budget provides CSREES $30 
million, which is an increase of $22 million from last year's 
appropriation, to maintain and enhance the recently established, 
unified Federal-State network of public agricultural institutions that 
serves as a backup to APHIS diagnostic laboratories. The initiative 
also includes $5 million in CSREES' Higher Education Program for a new 
competitive program that would promote the training of food system 
defense professionals who will be critical national assets in the years 
to come.
    BSE Related Activities.--As you know, USDA is responding 
aggressively to the recent detection of BSE in a cow in Washington 
State. REE agencies and the knowledge and technology resulting from 
past research were important to the Department in its actions to deal 
with the positive BSE test results. ARS also supported APHIS in running 
several back-up tests to confirm the diagnosis, to validate that the 
tissue sample was bovine, and to establish the parentage of the index 
animal. Looking forward, the budget provides ARS an increase of $1 
million over last year's appropriation to discover genetic resistance 
to BSE that could be bred into cattle and other livestock.
    Better Nutrition for a Healthier US.--One need only read almost any 
newspaper in almost any week to be reminded of the epidemic of obesity 
in this Nation. The causes are many and complex, such as a reduction in 
physical exercise, greater reliance on the convenience of fast food and 
restaurants, and consumption of more calories. The consequences of 
obesity and overweight are well documented in the higher incidence of 
weight-associated diseases, greater health care costs, and billions of 
dollars in lost productivity. What is less clear is how to help 
individuals and families gain and maintain healthy weights with the 
right balance of nutritious diets and exercise. As a Nation, we spend 
billions of dollars on diets with little sustained success.
    USDA and its research agencies have a valuable role in addressing 
the obesity challenge. As part of the Department initiative, Better 
Nutrition for a Healthier US, and the White House ``Healthier US'' 
Initiative, the fiscal year 2005 budget proposes increases for ARS, 
CSREES, and ERS to address this major national health problem and 
associated issues. The increases will focus principally on gaining a 
better understanding of the factors influencing food consumption 
patterns and developing effective and culturally appropriate diet 
strategies and interventions.
    An ARS increase of $5 million will support research on the benefits 
of self-selected healthy diets in achieving healthy weight and 
preventing obesity as input to developing and evaluating culturally 
relevant behavioral strategies to promote healthy diets. The CSREES 
budget provides an increase of $7 million in the NRI to gain a better 
understanding of the factors influencing obesity and their interaction, 
including how they vary by gender, race, age, ethnicity and 
socioeconomic characteristics. Issues relating to the nutrition value 
of functional foods will also be addressed. Funding for the Expanded 
Food and Nutrition Education Program is also provided in the CSREES 
budget to increase the number of low-income individuals participating 
in this program, one that has a very impressive track record in 
achieving sustained, positive changes in behavior related to food and 
diets.
    The President's budget proposes $8.7 million for ERS to establish a 
new consumer information system designed to gain a better understanding 
of our increasingly consumer-driven food and agricultural system. An 
important component of the new system will be a survey on individuals' 
knowledge and attitudes about healthy diets and how those factors are 
associated with the quality of their diet and their health status. In 
collaboration with the Department of Health and Human Services and ARS, 
the survey will be conducted as part of the National Health and 
Nutrition Examination Survey or NHANES.
    Other survey data and analysis in the proposed information system 
will be used to identify, track and gain a better understanding of 
changes in food supply and consumption patterns, valuable input for 
making policy decisions in the food, consumer and health arenas. While 
the Department has a robust data system on the production agricultural 
system, far less is available for understanding the linkages between 
the farm gate and the consumer. The data and the analysis will be 
valuable to production agriculture and the processing industry in their 
adjustment to the growing emphasis on health and nutrition in the 
consumer-driven food and agricultural system of today.
    Before turning to the agency budgets, I would like to express my 
appreciation for your past support of genomics research. This research 
continues to be critical to our overall research portfolio, providing 
the base knowledge on which much of our problem solving research is 
built. The future of agriculture is in genomics and related fields such 
as proteomics and functional genomics. Sequencing the genome of 
important agricultural plants and animals and learning about the 
functions of different genes hold the promise of a whole new generation 
of agricultural and food products that are nutritionally enhanced, 
disease resistant, higher yield, less dependent on fertilizers and 
herbicides and facilitate better use of land. Genetic research is also 
central to the development of rapid diagnostic tests, such as the one 
used by APHIS to identify avian influenza and exotic Newcastle disease. 
Genomics is a prime example of research that takes years to carry out 
and realize many of the benefits, but we are well on the way.
    USDA has once again been very successful in leveraging our limited 
genomics research funds with funds from other Federal agencies, the 
private sector, State government, and foreign partners. Funding for the 
sequencing of the first large domestic animal, the bovine genome, was 
secured, with USDA providing $11 million of the total $53 million. The 
USDA contribution would not be possible without your generous 
appropriations for the NRI. The actual sequencing began at Baylor 
University last December. This revolutionary research project will be 
completed in 18 months. The resulting genome sequence will give animal 
science researchers new tools for decades to come. USDA also continues 
to work with the National Science Foundation on the National Plant 
Genome Initiative and the Microbial Genomics Project.
    Both the ARS and CSREES proposed budgets include increases in their 
genomics programs. The President's fiscal year 2005 budget proposes 
increases of $12 million in ARS and $9 million in the NRI of CSREES.
                  ree agency fiscal year 2005 budgets
    I would now like to turn briefly to the budgets of the four REE 
agencies.
    Agricultural Research Service.--The Agricultural Research Service 
fiscal year 2005 budget requests approximately $1.2 billion, or 
slightly more than in fiscal year 2004. Within this total $988 million 
is proposed for research and information programs, approximately $100 
million less than in fiscal year 2004. A total of $178 million for 
buildings and facilities is devoted entirely to the modernization of 
the ARS/APHIS facilities at Ames.
    The ARS budget proposes increases for high priority program 
initiatives of national and regional importance. In order to 
accommodate these high priority increases, including homeland security, 
the budget proposes redirection or termination of approximately $169 
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 those of the broader 
producer and processor community.
    In addition to the increases previously described, the ARS budget 
proposes increases for climate change, invasive species research, and 
for the Abraham Lincoln National Agricultural Library (NAL). 
Independent of cause, agriculture is vulnerable to changes in climate, 
such as rising temperatures, changing amounts of precipitation, 
increased variability in weather, and increases in the frequency and 
intensity of extreme weather events. While agriculture is vulnerable to 
these environmental changes, it also offers significant opportunities 
to mitigate the increase in greenhouse gases in the atmosphere. An 
increase of $5.2 million in the President's budget for climate change 
will support research providing information on balancing carbon 
storage, emissions, and agricultural productivity in different 
agricultural systems across the Nation.
    Invasive species, including weeds, insects and pathogens, are 
responsible for losses in agricultural productivity, environmental 
quality and biodiversity. An ARS increase of $5 million will support 
research to develop new target specific bio-intensive approaches to 
control invasive weeds, such as purple loosestrife, and insects, such 
as the Asian longhorn beetle. The increase will also support research 
for developing highly specific, potent, and inexpensive synthetic 
agents for controlling the red invasive fire ant and the southern 
cattle tick.
    In the age of digital information, the NAL is providing national 
leadership through the development of the National Digital Library of 
Agriculture that will deliver pertinent agriculture-related information 
and knowledge to the American agricultural community. The requested 
increase of $2 million will enhance NAL's ability to offer integrated 
services for accessing, managing, and preserving agricultural 
information through the application of advanced network technologies.
    Advances in information technology, including the ability to share 
information instantaneously, are enabling agencies such as ARS to gain 
significant efficiencies and collaborative power in conducting research 
programs and projects. However, these advances have also made ARS more 
vulnerable to cyber security attacks. The safety of sensitive research 
information from unauthorized intruders is critical to the agency's 
research program. The fiscal year 2005 budget proposes $1.5 million to 
strengthen ARS' cyber security program.
    Cooperative State Research, Education, and Extension Service.--The 
President's fiscal year 2005 budget provides just over $1 billion for 
the Cooperative State Research, Education, and Extension Service. 
Compared to fiscal year 2004, the budget includes an increase of $62 
million in on-going programs and the elimination of $166 million in 
Congressional add-ons and project terminations. The Administration's 
request places a strong emphasis on increases in the REE mission area 
for Food and Agriculture Defense and peer-reviewed competitive grants. 
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.
    As described above, the budget provides an increase of $16 million 
for genomics and nutrition research under the NRI, CSREES' flagship 
competitive research program. The NRI continues to be a very valuable 
avenue for supporting cutting-edge research conducted by the finest 
scientists across the country. In addition to the increases in the NRI 
and the higher education program under the Food and Agriculture Defense 
Initiative, the budget calls for an increase of $1.6 million in the 
CSREES Graduate Fellowship Grant Program. Despite recent gains in 
support of minority-serving institutions and programs encouraging 
diversity in higher education and the work force, the Nation faces 
chronic challenges in promoting human capital development that enables 
all citizens to realize their educational potential and promise of 
contributing to the food and agricultural system. The proposed increase 
will allow CSREES to further expand the number of fellowships offered 
at the Master of Science level essential for recruiting minority 
graduate students.
    Economic Research Service.--The Economic Research Service is 
provided $80 million in the President's fiscal year 2005 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.
    The Consumer Data Information System described above and supported 
with an increase of $8.7 million will provide the Department, for the 
first time ever, the data and analytical capacity to understand the 
quickly evolving consumer driven food and agricultural system. 
Knowledge about the dynamics of the system and its relationship to 
consumer behavior is critical for producers and processors to continue 
to compete effectively in domestic and global markets and for 
policymakers to identify and develop strategies addressing nutrition 
and obesity issues at different stages of the food system chain.
    National Agricultural Statistics Service.--The National 
Agricultural Statistics Service budget requests $138 million, an 
increase of $10 million over fiscal year 2004. NASS' comprehensive, 
reliable, and timely data are critical for policy decisions and stable 
agricultural markets, and to ensure a level playing field for all users 
of agricultural statistics. The budget includes a decrease of $2.6 
million for the Census of Agriculture, due to the cyclical basis of the 
Census. Preliminary results from the 2002 census were released early 
last month. Final results will be released in June.
    The budget provides $7 million for continuing a multiyear 
initiative begun in fiscal year 2004 to restore and modernize NASS' 
core estimates program to meet data users' needs with an improved level 
of precision. A second increase of $2.5 million will incrementally 
improve statistically defensible survey precision for small area 
statistics that are widely used by USDA agencies, such as RMA for 
indemnity calculations. An additional $.8 million increase will allow 
NASS to support Presidential, Departmental, and agency eGovernment 
initiatives.
                                summary
    In summary, I want to reiterate that, given an overall very tight 
but sensible fiscal year 2005 budget, the REE budget reflects a 
continuing commitment to investment in agricultural research, 
economics, statistics, education, and extension. It also reflects an 
understanding that research and education are critical for solving both 
the problems agriculture and its producers and consumers are facing 
today, as well as emerging problems and opportunities of the 21st 
century. With continued strong investment, we will be ready to meet 
future problems and take advantage of new opportunities presented by 
cutting-edge science. 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 2005. The President's fiscal year 2005 
budget request for ARS is $1.166 billion. This represents a net 
increase of $20 million from the fiscal year 2004 funding level. Within 
that total, there is a net reduction of $95 million for research 
projects and a net increase of $115 million for buildings and 
facilities. The fiscal year 2005 budget includes increases for new and 
expanded program initiatives and pay and operational costs. The fiscal 
year 2005 budget also proposes $178 million to finance the completion 
of the building and modernization of USDA's National Centers for Animal 
Health in Ames, Iowa.
    The proposed initiatives include research to maintain a viable U.S. 
food and fiber system and strengthen the Nation's Food and Agriculture 
Defense in the fight against terrorism. The budget proposes an increase 
of $23.4 million in support of the Food and Agriculture Defense 
Initiative for research in food safety, and exotic and emerging 
diseases of animals and plants, and initiates a National Plant Disease 
Recovery System. The President's budget also includes increased funding 
of $34.7 million for: animal and plant genomics; genetic resources; 
invasive species affecting livestock and crops; obesity prevention; 
climate change; information technology cyber security; and a National 
Digital Library for Agriculture.
                      proposed program initiatives
    Food Safety ($14,375,000).--ARS research will assist other Federal 
agencies in providing the technical means to ensure that our food 
supply is safe for American consumers. Research will focus on the 
reduction of hazards, both introduced and naturally occurring toxicants 
in food and feed, including pathogenic bacteria, viruses and parasites, 
chemical contaminants, mycotoxins produced by fungi growing on plants, 
and naturally occurring toxins produced by plants. ARS will work with 
other USDA/Federal agencies to implement a comprehensive Food and 
Agriculture Defense Initiative.
    Exotic and Emerging Diseases of Animals and Plants ($10,722,000).--
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 and 
animal management systems all provide opportunities for the emergence 
or reemergence and spread of animal and plant diseases. Porcine 
Reproductive Respiratory Syndrome (PRRS) in swine and virulent forms of 
Marek's Disease virus in chickens are two examples of diseases that 
have suddenly emerged. West Nile Virus and Monkey Pox are examples of 
exotic diseases which have been introduced from other countries. The 
methods for detecting, preventing, and suppressing animal and plant 
diseases, whether emergent, exotic, or intentionally introduced, are 
similar. ARS will use the proposed increase to develop vaccines for 
high priority threats, such as Foot and Mouth Disease, West Nile Virus, 
Rift Valley Fever, and Equine Encephalopathy, that could devastate the 
Nation's livestock. In addition, flexible and responsive surveillance 
systems that maximize rapid detection, and better methods to prevent 
and control plant and animal pathogens will be developed and tested. Of 
the proposed $10.722 million increase, $7.7 million will finance part 
of USDA's Homeland Security efforts.
    Genomics ($12,000,000).--Genetic improvements have been largely 
responsible for the productivity and quality of America's crops and 
livestock. Additional research is now needed to exploit the inherent 
potential in genomes. With the proposed increase, ARS will identify and 
characterize genes that influence important traits in plants (e.g., 
plant growth, disease resistance, and stress tolerance) and in animals 
(e.g., reproduction, feed efficiency, and well-being). ARS will also 
characterize available germplasm for traits of economic and behavioral 
importance in cattle, swine, and poultry (e.g., Marek's Disease Virus 
in poultry).
    Genetic Resources (4,000,000).--The prosperity of U.S. agriculture 
depends on the preservation of plant and animal germplasm collections. 
The current support of the germplasm program is inadequate to maintain 
animal and plant germplasm that is threatened or to prevent the loss of 
genetic diversity. With the availability of new genomic tools, genetic 
diversity is extremely valuable for improving plant and animal 
productivity and other important traits. ARS will use the proposed 
increase to collect, catalog, and preserve selected germplasm of 
cattle, swine, poultry, and fish. Also, it will collect, identify, 
characterize, and incorporate plant germplasm into centralized 
genebanks, and evaluate it for useful qualities (e.g., disease 
resistance). In addition, official insect and microbial germplasm 
repositories will be established.
    National Plant Disease Recovery System ($6,000,000).--In case of a 
national emergency involving a disease outbreak in a major economically 
important crop, a National Plant Disease Recovery System will provide 
the infrastructure and technology for recovery. With the proposed 
increase, ARS will establish and coordinate a network of the technology 
capabilities within Federal, State, and private sector organizations to 
prevent, slow, or stop the spread of a high consequence pathogen with 
resistant seed varieties and other pest control measures. This network 
will utilize the genetic resources contained in the U.S. National Plant 
Germplasm System which is administered by ARS. The proposed increase 
will also be used to identify and develop new sources of genetic 
resistance in crops to important disease pathogens.
    Invasive Species Affecting Animals and Plants ($5,000,000).--
Invasive weeds, insects, and other pests cost the Nation over $137 
billion per year. Weeds, including leafy spurge, melaleuca, salt cedar, 
water hyacinth, purple loosestrife, and jointed goat grass, infest over 
100 million acres in the United States. They reduce crop yields by 
approximately 12 percent and forage yields by 20 percent. The red 
invasive fire ant, whose venom can kill young animals, has steadily 
spread through all the Gulf States and is now reported in Southern 
California and New Mexico. The southern cattle tick and the disease it 
causes, once eradicated from the Nation, may reinvade the United States 
from Northern Mexico. The tick has become increasingly resistant to 
insecticides and there is no vaccine for the disease it carries. With 
the proposed increase, ARS will target its research on the southern 
cattle tick (by identifying the genes responsible for pesticide 
resistance) and the fire ant (by studying its genomics and developing 
more effective pesticides and pathogens). In addition, ARS will develop 
systematics for weeds and arthropods, and develop biologically-based 
integrated pest management components for pests.
    Obesity Prevention ($5,000,000).--Obesity is the Nation's fastest 
growing public health problem, which is affecting every segment of the 
American population. Obesity contributes to many diseases, such as 
heart disease, cancer, and diabetes, resulting in hundreds of thousands 
of deaths, as well as hundreds of billions of dollars in health care 
costs each year. The deterioration of American dietary habits has 
occurred with the increased consumption of low cost, convenient, fast 
foods that are typically nutrient diluted. ARS will use the proposed 
increase to assess the benefits from long-term consumption of self-
selected ``healthy'' diets to prevent obesity. Also, ARS will develop 
and evaluate culturally relevant behavioral strategies that promote the 
selection of healthy foods.
    Climate Change ($5,189,000).--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. Specifically, ARS will: conduct 
interdisciplinary research leading to technologies and practices for 
sustaining or enhancing food and fiber production and carbon 
sequestration by agricultural systems exposed to multiple environmental 
and management conditions; expand the existing network of ARS sites 
conducting measurements of greenhouse gas fluxes between the atmosphere 
and the land; and identify ways to decrease methane emissions 
associated with livestock.
    National Digital Library for Agriculture ($2,000,000).--ARS will 
use the proposed increase to enhance the National Agricultural 
Library's (NAL) ability to offer integrated services for assessing, 
managing, and preserving agricultural information through the 
application of advanced network technologies. The volume, quality, and 
timelines of information available to NAL's customers will be 
increased. In 2001, a ``Blue Ribbon Panel'' concluded that NAL needed 
increased resources to take advantage of technological innovations.
    Information Technology Cyber Security ($1,507,000).--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 
increasingly exposed to an unprecedented level of risk. Of particular 
importance is the safety of pathogenic, genomic, and other sensitive 
research information from being acquired or destroyed by unauthorized 
intruders through unprotected or undetected cyber links. ARS will use 
the proposed increase to increase the number of cyber security 
officers, and to implement cyber security management plans and 
strategies.
                      proposed operating increases
    In addition to the proposed program initiatives, ARS' budget 
provides funding to cover costs associated with pay raises and employee 
performance. These funds, $13,188,000 for pay costs and $1,013,000 for 
employee performance, are critically needed to avoid erosion of the 
agency's base resources. Absorption of these costs would reduce the 
number of scientists and staff who are essential for conducting viable 
research programs critical to the Nation's security.
                       proposed program decreases
    The President's budget for fiscal year 2005 addresses a number of 
national needs and priorities. Protecting the Nation's food and 
agricultural systems against terrorist attacks is a major concern. In 
order to finance these high priority initiatives related to Homeland 
Security and the Food and Agriculture Defense Initiative, the funding 
for important but lesser priority research must be reduced. Growing 
Federal deficits also dictate the need to generate savings by 
termination of unrequested research projects.
    The fiscal year 2005 budget proposes $169,472,000 in program 
reductions. This entire amount represents unrequested research projects 
added in fiscal years 2001, 2002, 2003 and 2004. The savings achieved 
will be redirected to finance the higher priority research initiatives 
related to Homeland Security and the Food and Agriculture Defense 
Initiative, and to reduce overall Federal spending.
             proposed increase for buildings and facilities
    The fiscal year 2005 budget recommends $178,000,000 for the ARS 
Buildings and Facilities account. In accordance with a previously 
documented and accepted master plan, the entire amount will be used to 
complete the modernization of the National Centers for Animal Health in 
Ames, Iowa. This $460 million construction project is already well 
underway. The program of work being carried out in the current 
inadequate facilities is internationally recognized for preventing and 
controlling animal diseases, and protecting the Nation's food supply 
and public health. The new facility is critical to supporting and 
sustaining the Administration's Homeland Security and Food and 
Agriculture Defense Initiative.
    The new facility combines ARS' National Animal Disease Center with 
two Animal and Plant Health Inspection Service facilities: the National 
Veterinary Services Laboratory and the Center for Veterinary Biologics. 
The new facility will provide an integrated, multidisciplinary 
scientific capability, combining animal disease research with the 
development of diagnostic tools and vaccines.
    Mr. Chairman, this concludes my statement. I will be happy to 
respond to 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 2005 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 2005 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, higher education, and related 
international activities. In addition, CSREES implements grants for 
organizations to better reach and assist disadvantaged farmers in 
accessing programs of USDA. These partnerships result in a breadth of 
expertise that is ready to deliver solutions to problems facing U.S. 
agriculture today.
    The broad portfolio of CSREES supports scientific discovery from 
idea to application. Formula and other base funds leverage dollars from 
other sources, provide the start-up funds needed for investigators to 
establish research programs and build the capacity to compete 
successfully in competitive programs, and allow for rapid responses to 
emerging problems. Competitively funded research from the National 
Research Initiative (NRI) supports individual investigators undertaking 
basic research aimed at generating new knowledge and supports 
integrated programs and activities focused on solutions to short- and 
intermediate-term problems. Research-based guidance is delivered 
through the Cooperative Extension System's educational efforts. Because 
these efforts occur primarily at universities, a very broad range of 
expertise is available to address increasing complex problems, and the 
research process contributes to an environment that prepares students 
to meet the ongoing needs of agriculture, the environment, human health 
and well-being, and communities. Funding for outreach and assistance 
for socially disadvantaged farmers encourages and assists those farmers 
by providing technical assistance and education for fuller 
participation in all USDA programs.
    The fiscal year 2005 CSREES budget request aligns funding and 
performance with the USDA strategic goals. CSREES manages its many 
budget elements in support of research, education, extension, and 
outreach programs as part of a cohesive whole supporting all five of 
the Department's strategic goals. Distinct performance criteria, 
including strategic objectives and key outcomes with identified annual 
targets, are defined for each program or activity. As part of an 
integrated budget and performance process, periodic portfolio reviews 
by external experts to monitor overall program progress, suggest 
alternative approaches, and propose management improvements are 
planned. Although the overall budget supports the breadth of USDA's 
goals and objectives, the funding increase requested in the CSREES 
fiscal year 2005 budget proposal emphasizes USDA Strategic Goal 3: 
Enhance Protection and Safety of the Nation's Agriculture and Food 
Supply, and Strategic Goal 4: Improve the Nation's Nutrition and 
Health.
    In continuing and expanding our efforts for agricultural security 
and in support of the President's Food and Agriculture Defense 
Initiative, 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 network is comprised of 13 State animal diagnostic 
laboratories and 6 plant diagnostic laboratories, dispersed 
strategically around the country. These 19 key laboratories are 
developing a two-way, secure communications network with other 
university and State Department of Agriculture diagnostic laboratories 
throughout their respective regions. The diagnostic laboratories are 
responsible for identifying, containing, and minimizing the impact of 
exotic and domestic pests and pathogens that are of concern to the 
security of our food and agricultural production systems. The budget 
proposal requests an increase of $22 million for a total of $30 million 
to maintain the national diagnostic laboratory network and increase the 
number of State plant diagnostic laboratories linked with the National 
Agricultural Pest Information System. The network will continue its 
link with the Extension Disaster Education Network (EDEN) to 
disseminate information to producers and professionals at the county 
level, and to expand these activities to provide more current and 
timely educational resources.
    As a benefit of the research and education information gained 
through the Animal and Plant Diagnostic networks in conjunction with 
dissemination efforts of EDEN, an influx of new knowledge will be used 
to fill gaps in addressing agrosecurity issues, and to educate students 
in increasing their risk assessment and mitigation skills in order to 
help manage large scale animal and plant disease outbreaks. CSREES 
proposes $5 million for the Agrosecurity Education Program that will 
support educational and professional development for personnel in 
securing the Nation's agricultural and food supply. The program will 
develop and promote curricula for undergraduate and graduate level 
higher education programs that support the protection of animals, 
plants, and public health. The program also is designed to support 
cross disciplinary degree programs that combine training in food 
sciences, agricultural sciences, medicine, veterinary medicine, 
epidemiology, microbiology, chemistry, engineering, and mathematics 
(statistical modeling) to prepare food system defense professionals.
    CSREES continues to provide new opportunities for discoveries and 
advances in knowledge through our programs such as the NRI and 
Integrated Research, Education, and Extension Competitive Grants. 
Funding for agricultural research, particularly for competitive or 
basic science programs, has lagged dramatically behind funding for 
other disciplines. The fiscal year 2005 budget request of $180 million 
for the NRI reflects the same underlying policy objectives of fiscal 
year 2004, 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. Expanded partnerships with other Federal agencies on research 
topics of mutual interest will be possible. For example, we may be able 
to expand working relationships with the National Institutes of Health 
and others on animal genomics. Current cooperation on the Bovine Genome 
Sequencing program will contribute to a working draft sequence 
(approximately 6-fold sequence coverage) of 90 percent of the bovine 
genome. Sequencing the bovine genome provides the gateway to studies of 
gene function and improved methods of selection of animals based on 
genotype. This knowledge will then be used to increase the efficiency 
and profitability of animal production systems by enhancing animal 
health and the quality and safety of food production. The goal of the 
NRI participation in the program is to assure the generation of high 
quality sequence data, that the assembly of the sequence reads into 
contiguous sequences, the annotation, and the deposition of all 
information into a publicly accessible, pre-existing database.
    We also will continue our partnership with the National Science 
Foundation on the Microbial Genome Sequencing program. The program 
supports high-throughput sequencing of the genomes of microorganisms 
that are of fundamental biological interest, and are important to the 
national interest, the productivity and sustainability of agriculture 
and forestry, or the safety and quality of the Nation's food supply. 
The fiscal year 2005 budget requests an increase of $9 million in the 
NRI to support genomics research. Support of animal genomics will 
increase fundamental knowledge of the composition, organization, and 
function of the genome and increase the ability to genetically improve 
the productivity, efficiency, and quality of agriculturally important 
animals, including horses and aquaculture species. Research also will 
contribute to reducing adverse environmental changes, preserving 
genetic diversity of wild stock, addressing new and re-emerging disease 
and pest threats, and providing new and renewable products to meet 
consumer needs.
    According to the President's Health and Fitness Initiative, 
Healthier US, too many Americans are overweight, have poor dietary 
habits, and do not exercise enough. Five chronic diseases associated 
with obesity--heart disease, cancer, stroke, chronic obstructive 
pulmonary disease (e.g. bronchitis, emphysema, asthma), and diabetes--
account for more than two-thirds of all deaths in the United States. In 
addition to claiming more than 1.7 million American lives each year, 
these diseases hinder daily living for more than one out of every ten 
Americans, or 25 million people. More than 100 million Americans live 
with chronic disease, and millions of new cases are diagnosed each 
year. Healthier US concluded that the health of Americans would improve 
with modest but regular better eating habits and physical activity. 
Under the NRI, an increase of $7 million in NRI funding is proposed in 
fiscal year 2005 to address nutrition, food choices, and the growing 
obesity epidemic. Research will focus specifically on investigating 
underlying causes of obesity, including physiological, environmental, 
cultural, social, and biological factors; factors controlling the onset 
of obesity; determining differences in obesity groups defined by race, 
age, gender, etc.; and developing and evaluating the weight loss 
potential of functional foods.
    Also within the fiscal year 2005 budget request is a proposed 
increase of $6 million for the Expanded Food and Nutrition Education 
Program (EFNEP). This would restore funding to approximately the fiscal 
year 2003 funding level. The EFNEP program reaches predominantly 
minority low-income youth and families with nutrition education that 
leads to sustainable behavior changes. EFNEP works with various 
partners in providing its services, which include collaborating with 
the National Institute of Health on the 5-A-Day program promoting 
increased consumption of fruits and vegetables, and the Centers for 
Disease Control and Prevention on their VERBtm program sharing 
curriculum material directed at teaching young people about the 
importance of nutrition and physical activity. Increased funding also 
will allow EFNEP to move forward with efforts to add a physical 
activity focus to help combat the rising problem of obesity in children 
and adults.
    CSREES continues to expand diversity and opportunity with 
activities under 1890 base and educational programs, and 1994 and 
Hispanic-Serving Institutions educational programs. Funding for our 
1890 base programs provides a stable level of support for the 
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 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 into the hands of 
all citizens, helping them solve problems important to their lives.
    CSREES also will more effectively reach underserved communities 
through sustained support for the Outreach and Assistance for Socially 
Disadvantaged Farmers and Ranchers Program (OASDFR). CSREES will award 
competitive multi-year projects to support outreach to disadvantaged 
farmers and ranchers. Funds 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.
    Sustained support through our base programs, including formula 
funding for research and extension, 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 and other 
base programs provide discretionary resources that foster regional and 
national joint planning, encourage multi-State planning and program 
execution, and minimize duplication of efforts. Formula and other base 
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 the 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. For example, leveraging funds from the 
Hatch Act with other sources, researchers at Ohio State University are 
continuing work with bacteriocins, naturally occurring substances in 
foods that inhibit pathogens. The researchers found that a type of 
``good'' bacteria in milk makes a bacteriocin that appears to inhibit 
E. coli and Salmonella. The researchers are working with a food 
packaging company to infuse bacteriocins into packaging material, 
making containers with a built-in, natural way to help keep food safe.
    The higher education programs contribute to the development of 
human capacity and respond to the need for a highly trained cadre of 
quality scientists, engineers, managers, and technical specialists in 
the food and fiber system. The fiscal year 2005 budget provides a $1.6 
million increase in the Food and Agricultural Sciences National Needs 
Graduate Fellowship program. This program will prepare graduates to 
deal with emerging challenges in such areas as agricultural biosecurity 
to ensure the safety and security of our agriculture and food supply, 
new issues in natural resources, and human health and nutrition 
including problems related to obesity, such as diabetes, cardiovascular 
health, and osteoporosis. The International Science and Education 
Grants program (ISEP) will support the land-grant community and other 
campuses in their efforts to prepare students and help American 
agriculture to maintain our global competitiveness 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.
    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 may not be national. 
The scope of the NRI, and the Integrated Research, Education, and 
Extension Competitive Grants is broad enough to provide a peer-reviewed 
forum for seeking and assessing much of the work funded through 
earmarks. For example in the past 4 years, CSREES supported research in 
animal identification and/or animal tracking under earmarked projects 
which fit within the scope of the NRI. In addition, earmarked projects 
for human nutrition are within the program areas of the NRI, and 
earmarked food safety projects can be supported through the CSREES 
Integrated Food Safety program. In order to ensure the highest quality 
research for these national needs within available funding, the fiscal 
year 2005 budget has therefore proposed to eliminate earmarked 
projects.
    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, higher education, and outreach and assistance 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 2005 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 2005 is $80 million, which includes 
increases for one initiative and pay costs. The agency is requesting an 
$8.7 million increase to develop an integrated and comprehensive data 
and analysis framework of the food system beyond the farm-gate to 
provide a basis for understanding, monitoring, tracking, and 
identifying changes in food supply, consumer behavior and reactions, 
and consumption patterns.
                ers contributions to mission area goals
    ERS supports the five USDA strategic goals to: (1) enhance economic 
opportunities for agricultural producers; (2) support increased 
economic opportunities and improved quality of life in rural America; 
(3) enhance protection and safety of the Nation's agriculture and food 
supply; (4) improve the Nation's nutrition and health; and (5) protect 
and enhance the Nation's natural resource base and environment.
Goal 1: Enhanced Economic Opportunities for Agricultural Producers
    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 
International Evidence on Food Consumption Patterns released in October 
2003, that analyze forces shaping the demand for food in global 
markets, in this case in rapidly growing developing countries, and The 
Structure of Global Markets for Meat released in September 2003, that 
analyze the economic forces behind the emergence of specialized trade 
patterns and new food marketing chains.
    ERS will continue to work closely with the World Agricultural 
Outlook Board (WAOB) and USDA agencies to provide short- and long-term 
projections of United States and world agricultural production, 
consumption, and trade. In 2004, several initiatives will increase the 
accessibility, timeliness and breadth of the data and analysis. We are 
creating dynamic web 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 timelier 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 market information system 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. In 2003, ERS organized workshops on global 
markets for high-value foods, such as meat, processed cereals, fruits, 
vegetables 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 was 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.
    New appropriations received in 2004 allow ERS to explore in greater 
depth the market for organic products and other commodities and foods 
that are differentiated in the marketplace by virtue of how or where 
they are produced. This form of product differentiation accommodates 
consumers' preferences (or producers' beliefs about consumers' 
preferences) for products that guarantee that particular production 
practices are (or are not) undertaken, or that are assured to be 
produced in particular countries or regions. In 2004, we plan to 
document the evolution, structure and function of differentiated 
product markets, and derive the implications of alternative extents, 
forms, and timing of government intervention in markets for products 
that embody production process or location characteristics.
    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 
food markets research focuses on enhancing knowledge and understanding 
of food prices, both their objective measurement and how they are set 
by firms at different stages of the food system, and of the performance 
of the food system to most efficiently supply consumers' needs.
    ERS research examined whether produce markets' retail 
consolidation, technological change in production and marketing, and 
changing consumer demand have altered the traditional market 
relationships between producers, wholesalers, and retailers. As the 
market for retail food has changed over time, so has the dynamics of 
market competition. ERS has begun to use micro-level household and 
store scanner data to measure the impact of changing store formats on 
food prices to focus on the changing environment and how these changes 
could impact our view of how customers make economic decisions in 
retail food stores. ERS research continues on understanding why food 
prices change over time and forecasting how they will change in the 
future. ERS research on the linkage of food and agriculture to the 
general economy in terms of employment and income provides a 
statistical foundation for describing both the changing nature of the 
Food and Fiber System and the economy-wide effects of agriculture.
    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. Hog production, highlighted in Economic and Structural 
Relationships in U.S. Hog Production released in February 2003, 
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 2004. 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 new Family Farm Report--Structural and 
Financial Characteristics of U.S. Farms, which will be published in 
2004, 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. Among the 
studies mandated by this Act is the report Characteristics and 
Production Costs for Dairy Operations to be released in 2004. This 
report examines how production costs vary among dairy producers and 
will indicate possible reasons for the cost variation of different 
commodities.
    In addition, ERS will continue to work closely with the Foreign 
Agricultural Service (FAS) and the Office of the U.S. Trade 
Representative to ensure that ongoing negotiations on the Doha 
Development Agenda under the auspices of the World Trade Organization 
(WTO) and regional trade agreements are successful and advantageous for 
U.S. agriculture. In the negotiations, the United States 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 
2003, 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.
    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 
all 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. Updating an initial 
report of organic production statistics in 2001 is the report U.S. 
Organic Farming in 2001: Adoption of Certified Systems, released in 
April 2003.
    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). An ERS report, Size and Distribution of Market Benefits From 
Adopting Biotech Crops, released in November 2003, estimated the size 
and distribution of benefits to consumers and the agricultural sector 
from adopting Bacillus thuringiensis (Bt) cotton, herbicide-tolerant 
cotton, and herbicide-tolerant soybeans in 1997. A more comprehensive 
study of seed industry changes was reported in The Seed Industry in 
U.S. Agriculture, released in February 2004, which examined the 
composition of United States and international seed markets, 
regulations affecting agricultural seeds, the structure and evolution 
of the seed industry, and trends in private and public R&D in plant 
breeding. Particular emphasis was placed on seeds for the major field 
crops: corn, cotton, soybeans, and wheat.
    In the publication The Effect of Information on Consumer Demand for 
Biotech Foods: Evidence from Experimental Auctions, released in March 
2003, ERS 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 created in 2003 a classification system and on-
line searchable database of agricultural biotechnology patents and 
licensing arrangements. This project identifies who generates the 
innovations, who controls the innovations and, to the extent possible, 
who has access to the innovations.
    Data from the Agricultural Resource Management Survey (ARMS) 
underlie important estimates of farm income and well-being, and 
constitute an essential component in much of ERS' research. Reflecting 
the 2003 budget initiative, in 2003 the ARMS survey sample was expanded 
sufficiently to allow ERS, with the National Agricultural Statistics 
Service (NASS), to produce State level estimates for the largest 
fifteen States (as measured by value of farm output). Also in 2003, ERS 
collaborated with NASS to develop new survey instruments and data 
collection approaches that merge mail surveys with in-person surveys, 
thereby reducing respondent burden and improving the efficiency of data 
collection. In addition, ERS has developed a path breaking, web-based, 
secure ARMS data retrieval and summarization prototype tool that is 
attractive and easy to use despite the complex tasks it performs on 
this massive data set. When implemented in 2004, this system will 
retrieve ARMS data in formats customized to the customers' needs while 
assuring that sensitive data are not disclosed.
Goal 2: Support Increased Economic Opportunities and Improved Quality 
        of Life in Rural America
    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, educational improvements, 
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. The rural development process is complex and sensitive to a 
wide range of factors that, to a large extent, are unique to each rural 
community. Nonetheless, ERS assesses general approaches to development 
to determine when, where, and under what circumstances rural 
development strategies will be most successful.
    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. Data from the 2000 Census and other Federal 
information sources provide the most up-to-date information on the 
current conditions and trends affecting rural areas and provide the 
factual base for rural development program initiatives. In 2003, the 
agency continued its series of publications that report the most 
current indicators of social and economic conditions in rural areas for 
use in developing policies and programs to assist rural people and 
their communities. Rural America at a Glance and Rural Education at a 
Glance, designed for a policy audience, summarize the most current 
information on population and migration, labor and education, poverty, 
race and ethnicity, infrastructure, and rural development policy. The 
ERS website (www.ers.usda.gov) serves as a major repository of rural 
data, offering unique mapping utilities and comprehensive county-level 
data bases. In January 2004, ERS joined Cornell University in 
sponsoring a conference on ``Population Change and Rural Society''. 
This conference showcased an integrated set of demographic studies by 
leading social scientists that analyzed critical demographic trends 
from the 2000 Census and drew conclusions about their implications for 
economic and social life in rural America. The conference focused on 
the policy implications of changing demographic composition, economic 
restructuring, changing land use patterns, and geographic patterns of 
chronic disadvantage and emerging growth. This conference marked the 
first comprehensive look at rural America based on data from the 2000 
Census.
    ERS is at the forefront of analysis assessing the critical role of 
education in local, regional, and national economic development. Rural 
communities view increased educational investments as an important part 
of economic development, but are sensitive to the partial loss of their 
investment, in the form of youth outmigration to areas with better 
opportunities. ERS is partnering with land-grant universities in a 
research program designed to measure the relationship between education 
and economic outcomes, both for the individual worker and rural 
community, to help local communities better target their economic 
development and school improvement efforts.
    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 the 
effectiveness of Federal programs to assist rural America. In 2003, ERS 
redesigned a county typology that maps out a geographic portrait of the 
rich diversity of rural America in ways that are meaningful for 
developing public policies and programs. ERS will now address how the 
economic, demographic, and policy themes identified in this typology 
translate into effective rural development strategies for enhancing 
rural economic opportunities and well being.
    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. Through its 
research on the measurement and dimensions of rural poverty, ERS helps 
to better target and improve the effectiveness of Federal assistance 
programs. One ERS study, Comparisons of Metropolitan-Nonmetropolitan 
Poverty During the 1990s, documents the greater incidence of poverty in 
nonmetro relative to metro areas, but finds that metro-nonmetro 
differences in the depth and severity of poverty are less striking and 
more variable over time. These findings and differences in the 
characteristics of the metro and nonmetro poor, suggest that poverty-
reduction policies will be most effective when tailored to specific 
local areas. A second ERS study, published in ERS' new magazine, Amber 
Waves, assessed the effect of major demographic, economic, and Federal 
policy changes on the magnitude and dimensions of poverty during the 
1990s. Race and ethnicity, family structure, and the ability to work 
are critical determinants of poverty in rural areas. In 2004, ERS will 
publish findings from a study assessing the factors affecting 
geographic and racial/ethnic concentration of high poverty in rural 
areas. Characteristics such as education, employment, family structure, 
disability, and language proficiency differentiate these areas with 
poverty rates of over 20 percent.
    The agency focuses research on the implications of changing racial/
ethnic composition in rural areas. Hispanics were the fastest growing 
racial/ethnic group in rural America, and accounted for over 25 percent 
of the rural population growth during the 1990s. One ERS study on the 
impacts of Hispanic population growth on rural wages, found that the 
growth of Hispanics in rural areas has negatively affected the wages of 
local workers with a high school education and some college, due 
largely to changes in labor demand in specific industries. A second ERS 
study examined changing Hispanic settlement patterns over the last two 
decades, and found extensive Hispanic population dispersion into non-
traditional Hispanic settlement regions. These patterns reduced 
residential separation at the national level between Hispanics and non-
Hispanic Whites, but led to increased residential separation at the 
neighborhood level, especially in rapid-growth counties.
    ERS conducts ongoing research on the impact and effectiveness of 
Federal programs in rural areas. For example, ERS assists USDA's Rural 
Development mission area in efforts to improve the delivery and 
effectiveness of rural development programs. In 2003, ERS worked with 
Rural Development staff to help design measurable performance 
indicators for their rural development programs. ERS also conducted 
analyses to help Rural Development staff assess the economic impacts of 
proposed changes in their rural business loan programs. In addition, in 
2004, ERS will focus attention on the effects of Federal farm policy on 
rural areas and farm households by co-hosting a workshop with the 
National Center for Food and Agricultural Policy. This workshop will 
provide policymakers with a better understanding of the linkages 
between farm policy, farm households, and rural communities well in 
advance of the next farm bill.
    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. 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. In 2003, ERS researchers developed a new 
department-wide definition of limited resource farms that will lead to 
a change in the farm typology in 2004.
Goal 3: Enhance Protection and Safety of the Nation's Agriculture and 
        Food Supply
    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; assessing industry incentives to enhance food safety through 
new technologies and supply chain linkages; evaluating regulatory 
options and change; and exploring linkages between food safety and 
international trade. 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.
    ERS, in cooperation with Washington State University, completed the 
first post-HACCP national survey of meat and poultry slaughter and 
processing plants. The survey finds that implementing the 1994 Pathogen 
Reduction (PR)/HACCP rule raised costs about 1 percent, or about $850 
million for the industry. Survey results will allow companies to assess 
their own adaptation performance vis-a-vis the industry average. While 
larger than pre-regulation estimates of PR/HACCP costs, the estimated 
costs are still considerably smaller than expected benefits. Results 
showed plants with branded products, strong customer requirements, and 
export orientation made the largest post-PR/HACCP investments in new 
food safety management processes or technologies, indicating market 
forces are at work to raise food safety above regulatory requirements 
in some cases. In 2003, ERS completed a study that summarizes the 
survey results and made the survey questions and summary results 
available on the ERS website.
    ERS has become well-known for its pioneering estimates of the 
societal costs associated with foodborne illnesses due to E. coli and 
other known pathogens. In Spring 2003, ERS launched its first 
interactive web-based data product, the foodborne illness cost 
calculator. The calculator allows users to choose a pathogen of 
interest, the number and severity of illnesses, and from among several 
alternative methodologies employed by economists for calculating 
societal costs.
    In 2003, ERS researchers completed a project that developed an 
economic framework for analyzing linkages between food safety and 
international trade. The project produced an ERS report, International 
Trade and Food Safety: Economic Theory and Cases Studies, which 
explores global trends in food safety regulation and food safety-trade 
policies, and analyzes food safety and trade conflicts and resolutions 
in various commodity sectors.
    In 2004, ERS will publish a study analyzing the private incentives 
for improving food safety in the U.S. Case studies include innovations 
the industry has developed and is using to produce safer beef, 
including new equipment, new testing technologies, and new management 
systems. Interviews with firms were used to determine the most 
significant factors contributing to the innovation. The collaborative 
and contractual relationships among firms in the meat, equipment, 
microbial testing, and restaurant industries are found to be key.
    Recently, policymakers have begun weighing the usefulness of 
mandatory traceability to address issues ranging from food safety and 
bioterrorism to the consumer right to know, as well as to inform 
consumers about food attributes including country of origin, animal 
welfare, and biotech content. Industry interviews, backed by industry-
level market studies, have been used to establish a description of the 
extent and type of traceability maintained by private sector firms. 
This information reveals that financial incentives are leading forms to 
develop a significant capability to trace. The findings indicate that 
mandatory traceability--possibly a one-size-fits-all regulation can be 
costly as firms already trace many product attributes. Further, other 
policies may be better targeted toward augmenting product 
differentiation or traceback for food safety.
    In response to increased risks to the Nation's agriculture and food 
supply due to bio-terrorism, ERS embarked on an ambitious new project 
in July of 2002. Security Analysis System for U.S. Agriculture (SAS-
USA) establishes a framework to systematically tie all food supply 
processes from farm production, food manufacturing, distribution of 
food products, to the food consumption in every region of the country. 
SAS-USA is capable of quickly distilling massive detailed regional 
information and displaying the information visually in user-friendly 
formats. These capabilities mean that emergencies can be managed 
efficiently and expeditiously by assessing vulnerabilities and 
predicting outcomes. SAS-USA is truly unique, filling a niche that 
previously required weeks and months of data assembly, analysis, and 
interpretation. In 2004, ERS will: continue to integrate agriculture, 
food, and transportation data to make the system more realistic in 
simulations; connect the U.S. agricultural/food supply chain to imports 
and exports; and continue to develop scenarios based on animal and 
plant diseases and food contamination.
Goal 4: Improve the Nation's Nutrition and Health
    ERS studies the relationships among the many factors that influence 
food choices and eating habits and their health outcomes. The roles of 
income, aging, race and ethnicity, household structure, knowledge of 
diet and health relationships, nutrition information and labeling, and 
economic incentives and policies that affect food prices and 
expenditures are of particular interest. Obesity--including 
understanding its costs to individuals and society, how income, diet 
and health knowledge affect obesity status, and considering private 
versus public roles in reducing obesity--is a priority for this 
Administration.
    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 Federal food and nutrition assistance 
programs. In April 2003, ERS organized the first national workshop on 
the economics of obesity. The workshop brought together leading health 
economists in the Nation and was attended by researchers from Federal 
agencies such as the CDC, Council of Economic Advisers, the Food and 
Drug Administration (FDA), the Federal Trade Commission (FTC), and the 
National Cancer Institute (NCI). Topics encompassed nearly all of the 
cutting-edge health economics research on the causes and consequences 
of the rise in U.S. obesity. A conference report has been drafted and 
is being edited for publication in 2004. Additionally, in 2004 studies 
will be completed on the effects of snack and fat taxes on food choices 
and diet quality; the demand for fruits and vegetables by consumers 
from different income groups; the effectiveness of labeling foods 
consumed away from home; and the link between obesity and awareness of 
Federal nutrition information programs.
    As part of our effort to improve the timeliness and quality of the 
Department's food consumption data, in 2003 ERS launched an interagency 
effort to develop a proposal for an external review of USDA's food 
consumption data needs and gaps. Enhancements to the food consumption 
data infrastructure are critical to understanding and addressing many 
market and policy issues in the Department. The interagency effort led 
to the funding of a review by the National Research Council's Committee 
on National Statistics. A panel of experts is being compiled, and the 
first stage of the data review will be a workshop to be held in spring 
2004.
    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 
information needs of USDA, Congress, program managers, policy 
officials, clients, the research community, and the public at large. 
FANRP research is conducted through internal research at ERS and 
through a portfolio of external research. Through partnerships with 
other agencies and organizations, FANRP also enhances national surveys 
by adding a food and nutrition assistance dimension. FANRP's long-term 
research themes are dietary and nutritional outcomes, food program 
targeting and delivery, and program dynamics and administration.
    ERS completed a Congressionally mandated study of USDA's Fruit and 
Vegetable Pilot Program (FVPP). Section 4305 of the 2002 Farm Act 
provided $6 million to the FVPP for the 2002-2003 school year to 
improve fruit and vegetable consumption among the Nation's school 
children. The FVPP provided fresh and dried fruits and fresh vegetables 
free to children in 107 elementary and secondary schools--100 schools 
in 4 States (25 schools each in Indiana, Iowa, Michigan, and Ohio) and 
7 schools in the Zuni Indian Tribal Organization (ITO) in New Mexico. 
The intent of the pilot was to determine the feasibility of such a 
program and its success as assessed by the students' interest in 
participating. The ERS monograph, Evaluation of the USDA Fruit and 
Vegetable Pilot Program: Report to Congress (May 2003), provides an 
early review of the pilot.
    Food pantries and emergency kitchens play an important role in 
feeding America's low-income and needy populations. During a typical 
month in 2001, food pantries served about 12.5 million people, and 
emergency kitchens served about 1.1 million people. These organizations 
are part of the Emergency Food Assistance System (EFAS), a network run 
largely by private organizations with some Federal support. As part of 
the first comprehensive government study of EFAS, the ERS monograph, 
The Emergency Food Assistance System--Findings From the Client Survey 
(August, 2003), presents findings from a national study of EFAS clients 
who received emergency food assistance from selected food pantries and 
emergency kitchens.
    ERS has continued to fund a national survey of food security and 
hunger, conducted by the Census Bureau as a supplement to the Current 
Population Survey (CPS). The survey is designed to measure whether U.S. 
households always have access to enough food to meet basic needs. ERS 
focuses its efforts on improving the measurement of food security, 
promoting the use of the CPS 18-item food security index, and 
contributing to a better understanding of the determinants and 
consequences of food insecurity in the United States. ERS released the 
annual report, Household Food Insecurity in the United States, 2002, 
that provides statistics on the food security of U.S. households, as 
well as on how much they spent for food and the extent to which food-
insecure households participated in Federal and community food and 
nutrition assistance programs.
    ERS delivered the Congressionally mandated study, Assessment of WIC 
Cost-Containment Practices: A Final Report to Congress in February, 
2003. WIC State agencies adopt various cost-containment practices to 
reduce food costs, such as limiting food-item selection by 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.
                  consumer data and information system
    The request for an increase of $8,676,000 will fund the development 
of an integrated and comprehensive data and analysis framework of the 
post-farm food system to identify, understand and track changes in food 
supply and consumption patterns and to explore the relationship between 
consumers' knowledge and attitudes and their consumption patterns. The 
centerpieces of this framework are nationally representative consumer 
and retail surveys of food prices, retail sales, consumption and 
purchases of food for at home and away-from-home eating, as well as 
data on consumer behavior, reactions, attitudes, knowledge, and 
awareness. This information system will provide market surveillance and 
insights into price changes, market demand, and consumer reactions to 
unforeseen events and disruptions such as the recent discovery of 
Bovine Spongiform Encephalopathy (BSE). In addition, the data and 
analysis framework will provide intelligence on diets, knowledge and 
awareness levels, helping policymakers respond to current events, such 
as the rise in obesity and overweight, and their interactions with the 
U.S. food and agriculture system. Such understanding will provide a 
basis for ensuring that consumers enjoy a low-cost, safe, secure, and 
nutritious food supply, as well as enhancing their health and 
productivity, and enabling farmers to prosper with new ways of doing 
business in diverse and ever-changing food markets by identifying 
changing consumer demand.
    The Consumer Data and Information System has four components 
providing intelligence across and within the food and agricultural 
complex. The first component, a Food Market Surveillance System, is an 
integrated set of surveys and supporting analysis concentrating on 
production and linkages in agriculture beyond the farm-gate. It would 
be the foundation of a research and monitoring program to: provide 
timely price, purchase, and sales data; identify food consumption 
patterns of consumers and how they change; provide consumers with 
improved information; quickly survey consumers about new issues or 
developments; and measure and identify strategies for managing food 
losses and waste. The second component, a new Rapid Consumer Response 
Module, would provide real-time information on consumer reactions to 
unforeseen events and disruptions, current market events, and 
government policies. This module would be integrated into several 
proprietary consumer data panels currently maintained by private 
vendors. The third component, a Flexible Consumer Behavior Survey 
Module (FCBSM), would complement data from the National Health and 
Nutrition Examination Survey (NHANES). The FCBSM would provide 
information needed to assess linkages between individuals' knowledge 
and attitudes about dietary guidance and food safety, their food-choice 
decisions, and their nutrient intakes. Combining the NHANES with this 
new module allows analysis of how individual attitudes and knowledge 
about healthful eating affect food choices, dietary status, and health 
outcomes. The last component is additional staff to ensure the 
successful design and implementation of the Consumer Data and 
Information System.
    As a Nation, we face challenges to our health, safety, and food 
arising from rapid changes in technology, social structure, and a 
globalizing economy. The cumulative effect of these issues and others 
is to strain and erode a general understanding of the role food and 
diet plays in our society. USDA's ability to assure nutritious foods 
and respond to these issues is grounded on investments in the creation 
of knowledge.
Goal 5: Protect and Enhance the Nation's Natural Resource Base and 
        Environment
    In this area, ERS research and analytical efforts, in cooperation 
with the Natural Resources 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 farm 
income 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 programs in the 
Conservation Title. In addition, ERS provided extensive support to 
other USDA agencies in developing rules for implementation of 2002 
conservation programs. ERS participated in Farm Service Agency (FSA) 
and NRCS working groups on the Conservation Reserve Program (CRP), the 
Environmental Quality Incentives Program (EQIP), 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, CSP and 
the third-party technical service provider rule. For instance, ERS 
participated in the EQIP Benefit-Cost Analysis Team and helped to 
prepare the NRCS report Environmental Quality Incentives Program: 
Benefit Cost Analysis released in May 2003. 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.
    Since 1985, U.S. agricultural producers have been required to 
practice soil conservation on highly erodible cropland and conserve 
wetlands as a condition of farm program eligibility. Compliance 
mechanisms have been criticized, however, for low standards and lax 
enforcement. A report to be released in 2004, Environmental Compliance 
in U.S. Agricultural Policy: Past Performance and Future Potential, 
discusses the general characteristics of compliance mechanisms, their 
effectiveness in their current form, and the potential for expanding 
compliance to address nutrient runoff from crop production. This report 
will empirically assess the extent of erosion reduction that is likely 
to be the direct result of compliance. NRCS has indicated that the data 
and analysis developed for the report will be useful in carrying out 
the benefit-cost analysis of compliance that the agency has been 
ordered to undertake.
    The Congressionally-mandated study, The Conservation Reserve 
Program's Economic and Social Impacts on Rural Counties, transmitted to 
Congress in January 2004, addresses a number of concerns about the 
unintended consequences of high levels of enrollment in the CRP. Long 
run trends in rural employment and population are influenced by a 
variety of characteristics, and some have argued that high levels of 
CRP enrollment exacerbate the declines suffered by many rural 
communities. However, the report finds no statistically significant 
evidence that high enrollments in the CRP have had a systematic, 
adverse effect on population or community services in rural counties 
across the country. High CRP enrollments were associated with a 
negative effect on jobs in the years immediately following program 
introduction, but this effect generally was short-lived as communities 
adjusted to changing demands and new economic opportunities. In 
addition, CRP has improved hunting and fishing opportunities in rural 
areas. Changing the way CRP participants are compensated can affect the 
productivity profile of enrolled soils, but these changes would be 
small and represent a necessary cost of enrolling environmentally 
sensitive land.
    ERS researchers have actively assisted NRCS 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 proposed to the Total Maximum Daily Load (TMDL) provisions. 
Following up on the report Confined Animal Production and Manure 
Nutrients, published in 2001, is a new report, Manure Management for 
Water Quality: Costs of Land Applying Nutrients from Animal Feeding 
Operations, released in June 2003, which 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.
    As rising populations and incomes increase pressure on land and 
other resources around the world, agricultural productivity plays an 
increasingly important role in improving food supplies and food 
security. The report, Linking Land Quality, Agricultural Productivity 
and Food Security, released in June 2003, explores the extent to which 
land quality and land degradation affect agricultural productivity, how 
farmers respond to land degradation, and whether land degradation poses 
a threat to productivity growth and food security in developing regions 
and around the world.
    In fiscal year 2003, ERS initiated the Program of Research on the 
Economics of Invasive Species Management (PREISM). PREISM promotes 
economic research and the development of decision support tools that 
have direct implications for USDA policies and programs for protection 
from, control/management of, regulation concerning, or trade policy 
relating to invasive species. Accomplishments in PREISM's first year 
included organizing the Economics of Invasive Species Workshop (May 12-
13) and conducting a competitive grants and cooperative agreements 
program. The workshop brought together invasive species experts from 
the USDA and other Federal agencies, State governments, universities, 
industry, and non-governmental organizations to identify research 
priorities that would inform USDA invasive species policy and program 
decisions. The competitive grants and cooperative agreements program 
funded 12 research projects in the areas of bioeconomic modeling and 
risk assessment, trade and invasive species, and the economics of 
alternative approaches to managing invasive species. When completed, 
these projects will provide insights, information, and practical 
decision tools to help USDA policy makers deal with the uncertainties 
and risks associated with invasive species outbreaks, jointly account 
for biological and economic factors in prioritizing invasive species 
threats, allocate resources between exclusion and control activities, 
and evaluate new approaches to addressing invasive species threats 
(including insurance schemes and producer purchased bonds).
                 customers, partners, and stakeholders
    The ultimate beneficiaries of ERS' 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: NASS 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 Statistics 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 2005 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, conducts 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 progression of American farms and ranches to make 
greater use of agricultural science and technology increases 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 
at the same time reviewing priorities in order to consider emerging 
data needs. The Farm Security and Rural Investment Act of 2002 created 
the need for several new data series. For example, NASS designed a new 
survey in cooperation with the Natural Resources Conservation Service 
(NRCS) and the Farm Service Agency (FSA) to collect information on land 
management and conservation practices. This assessment will be used by 
NRCS and FSA to report annual progress on the Farm Bill conservation 
program implementation. Additionally, the Act introduced several other 
new agricultural data needs and reinforced the importance of existing 
data series to ensure the continuation of farm security and rural 
investments. For example, counter-cyclical payments are determined in 
part by market year average prices determined by NASS. Each $0.01 
change in the average corn price can result in a change of more than 
$80 million in counter-cyclical payments. Similarly, large payment 
changes also apply for the other program crops. These are only a few 
specific data needs required by the Act, but they clearly highlight the 
importance of a strong, reliable agriculture statistics program.
    The 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 was demonstrated by NASS, through its 
State-Federal cooperation, during the planning, collection, and 
preliminary release of the 2002 Census of Agriculture. Improved 
quality, an 88 percent response rate, and professional customer service 
through the use of a toll-free telephone 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 products produced in the United States 
are changing rapidly as producers continue to become more efficient. 
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 fiscal 
year 2003, NASS issued the U.S. Broiler Industry Structure report. This 
report provided a summary of the changes in the structure of the U.S. 
broiler industry from 1934 to present.
    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. For example, a special 
report titled Corn, Soybeans, and Wheat Sold Through Marketing 
Contracts 2001 Summary was released in February 2003. This report 
included information on marketing contracts at the United States and 
regional levels by Economic Sales Classes and by Farm Production Region 
and was developed to help identify changes in the structure of the 
Nation's grain and oilseed markets.
    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 and can download any of these reports in a format easily 
accessible by standard software. A summary of NASS and other USDA 
statistical data are 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 streamlines 
Federal agricultural data collection activities and has improved the 
efficiency, timeliness, and quality of the census data. Preliminary 
results of the 2002 Census of Agriculture were released on February 3, 
2004. The preliminary release included selected demographic data at the 
National and State level and are available by request via CD-Rom, the 
NASS Website, or in paper copy. The final National, State, and county 
level data are scheduled to be released on June 3, 2004. The 2002 
Puerto Rico Census of Agriculture was also released on February 3, 
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 implemented statistical methodology to 
measure and adjust for the incompleteness of its list sampling frame. 
This allows for more complete coverage of farms traditionally difficult 
to identify during list building activities, mainly small and 
disadvantaged farm operations. 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. NASS is making considerable advancements 
in providing respondents the option of reporting via the Internet with 
the ultimate goal of giving the Nation's farmers and ranchers the 
opportunity to electronically respond to the 2007 Census of 
Agriculture.
    The fiscal year 2004 budget included $4.8 million for agricultural 
estimates restoration and modernization. These funds provided a much 
needed foundation for quality improvements in forecasts and estimates 
and are greatly appreciated. The 2004 funds are being used to improve 
the precision level from commodity surveys conducted by NASS. The 
majority of the funding is being allocated to increased sample sizes 
and the data collection activities of local interviewers throughout the 
Nation.
major activities of the national agricultural statistics service (nass)
    The primary activity of NASS is to provide reliable data for 
decision making based on 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 65 percent of NASS's staff are located in the 46 
field offices; 23 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. NASS 
data allows EPA to use actual chemical data from scientific surveys, 
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 (ERS) 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 United States, 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. Through funding 
provided by this Committee in fiscal year 2003, data on the status of 
the farm economy will now be expanded to the State level for 15 major 
agricultural States.
    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 148 special surveys 
in fiscal year 2003 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 Brazil, China, 
Ecuador, El Salvador, Ethiopia, Kazakhstan, Mexico, Russia, South 
Africa, and the Ukraine. In addition, NASS conducted training programs 
in the United States for 168 visitors representing 27 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 the Secretary of Agriculture's Advisory Committee on 
Agriculture Statistics, 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. As a result of these 
activities, the agency has made adjustments to its agricultural 
statistics program, published reports, and expanded electronic access 
capabilities to better meet the statistical needs of customers and 
stakeholders.
                         fiscal year 2005 plans
    The fiscal year 2005 budget request is for $137,594,000. This is a 
net increase of $9,433,000 from fiscal year 2004.
    The fiscal year 2005 request includes increases for the 
continuation of restoration and modernization of NASS's core survey and 
estimation program ($7,045,000); improvement in the statistical 
integrity and standardization of the data collection and processing 
activities of the Locality Based Agricultural County Estimates/Small 
Area estimation program ($2,500,000); collaborative Presidential and 
Departmental eGovernment initiatives ($785,000); funding for increased 
pay costs ($1,812,000) and funding to recognize employee performance 
($465,000). The request also includes a decrease due to the cyclical 
activities associated with the Census of Agriculture program 
(-$3,174,000).
    An increase of $7,045,000 and 10 staff years are requested to fund 
phase II of the restoration and modernization of NASS's core survey and 
estimation program. This increase will be directed at continuing 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. Funding in fiscal year 
2004 is primarily being used to restore sample sizes for greater 
statistical defensibility. These changes are designed to increase 
precision at the State and regional levels to promote the NASS goal for 
fiscal year 2004 of reaching precision target levels at least 60 
percent of the time for major survey indications. The additional 
funding requested in fiscal year 2005 will allow continued improvements 
and provide the necessary resources to reach precision target levels an 
estimated 77 percent of time.
    An increase of $2,500,000 and 4 staff years are requested 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 survey precision for small area statistics. Proper follow-up 
data collection activities and redesign of survey systems will improve 
the critical 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. 
This affects premium levels paid by producers. The FSA 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 2002 Farm Bill. In addition, 
financial institutions, agriculture input suppliers, agricultural 
marketing firms, and transportation utilize county level data to make 
informed business decisions.
    An increase of $785,000 for collaborative eGovernment efforts is 
requested to support Presidential and Departmental eGovernment 
initiatives. Specifically, the funding will support NASS's share of the 
USDA Presidential initiatives, the continued development of the USDA 
Enterprise Architecture, and the USDA Enablers initiative. Without this 
funding, NASS's efforts to increase the percentage of questionnaires 
available via the Internet will be negatively impacted.
    A net decrease of $2,610,000 and 7 staff-years is requested for the 
Census of Agriculture. The Census of Agriculture budget request is for 
$22,520,000. This includes a cyclical program cost decrease of 
$3,174,000, partially offset by $564,000 for employee compensation. The 
available funding includes monies to finalize analysis, summary, and 
dissemination of the 2002 Census of Agriculture. The reduction reflects 
the decrease in staffing and activity levels to be realized due to the 
cyclical nature of the 5-year census program and the postponement of 
the Census of Horticultural Specialties. Historically the Census of 
Horticultural Specialties has been conducted every 10 years, but due to 
the dynamic growth of this industry, NASS was planning to measure this 
component of agriculture every 5 years. Competing funding priorities 
have precluded this accelerated schedule. The annual program covering 
selected horticultural commodities will continue to be available.
    This concludes my statement, Mr. Chairman. Thank you for the 
opportunity to submit this for the record.

    Senator Bennett. Thank you all for your testimony.

                      FACILITY FEASIBILITY STUDIES

    Dr. Jen, in the Senate report that accompanied our bill 
last year and the narrative that accompanied the conference 
report, we both included direction to ARS to provide 
feasibility reports on various buildings and facilities 
projects. Took a little heat on that from some of my colleagues 
who said we want our building money right now without having to 
go through a feasibility report.
    But the House and Senate Committees both agreed that 
funding requests for construction projects would not be 
considered until a feasibility study and forwarded to the 
Committee by March 1, and we requested that FAS prioritize 
these projects. To date, we have not received your reports. I 
do not think that that means that there are not going to be any 
ARS appropriations, but I would like to know what the status of 
the preparation of these reports are and why they have not been 
forwarded to the Committee.
    Dr. Jen. Mr. Chairman, it is my understanding that those 
feasibility study reports have been delivered already to the 
Committee members. Is that correct?
    Senator Bennett. They came up by courier last Friday? Okay; 
has the courier reached us?
    Well, the report is in the mail.
    I think we better find out where it is, because obviously, 
if we are going to act on that basis, we need the reports, so I 
assume you kept a copy.
    Dr. Jen. We did. We will check on the courier.
    Senator Bennett. Send us another one.
    Dr. Jen. Yes.
    Senator Bennett. And when the courier shows up, wherever he 
or she may have wandered, why, then, we will have two, but we 
would appreciate getting those as quickly as we possibly could.
    Dr. Jen. We will make sure that you have them, Mr. 
Chairman.

                         CONGRESSIONAL ADD-ONS

    Senator Bennett. Okay; now, while I have you, let us 
concentrate on the impact on ARS. The fiscal year 2005 budget 
request assumes the termination of all additional funding 
provided by Congress during the last four appropriations 
cycles; that is, where the initiative came from the Congress. 
We are talking about $170 million roughly. Setting aside for 
the moment the debate about whether members of Congress have a 
better idea of the needs of their particular areas than the 
Department does, let us concentrate on the impact on ARS.
    If Congress were to agree to these terminations, we 
calculate 312 ARS scientists, researchers and support staff in 
42 States would lose their jobs, which is roughly 3 percent of 
the total ARS staffing. That is not a huge amount of people 
unless you happen to be one of the 312, but that does not count 
the people that ARS is currently in the process of hiring with 
fiscal year 2004 monies, nor does it include the impact on 
cooperative agreements with the various universities.
    I have been out and visited the universities and found the 
ARS to be probably the most popular single program at various 
agricultural schools, because of the synergy that they feel 
between their faculty and ARS people. When universities say we 
really do not know or care whether a researcher is an ARS type 
or a member of our faculty, the cooperation is so close.
    So this would be a very serious reduction, and how would 
you plan to go about conducting a reduction in force of this 
size, and do you have any ideas what it would cost?
    Dr. Jen. Mr. Chairman, I think I appreciate particularly 
your comments about the fact that ARS scientists are very well 
respected in the university campuses. In my travels, I have 
found it to be the same. Many universities would prefer that 
ARS scientists would never be relocated or change direction, 
and many of them wish ARS scientists would become university 
faculty members.
    Senator Bennett. Is that how we are going to do the RIF is 
get them all hired by the universities?
    Dr. Jen. No, I do not believe so, sir. Some of them 
probably will have that opportunity. Other ARS scientists would 
be offered reassignment in funded vacant positions either at 
the location or at other ARS locations throughout the country.
    We are under a very difficult budget situation. Personally, 
I recognize that this is a very difficult situation.
    Senator Bennett. Well, does that mean we no longer need to 
provide funding for diet, nutrition and obesity research at the 
Pennington Biomedical Research Center or Pierce's Disease 
research in California or Sudden Oak Disease research in 
Maryland? These are all projects that are terminated apparently 
because Congress thought of them rather than the 
Administration. Do we consider that these projects are now 
complete?
    Dr. Jen. Yes and no, sir. Some of the projects are being 
carried out in more than one location, so some of the slack 
will be picked up by the other research locations.
    ARS has over 1,100 projects. Some of the projects will have 
to be terminated after the job has been completed. However, if 
you allow researchers to determine when projects have been 
completed, they will never be done.
    Senator Bennett. I understand that.
    Dr. Jen. And so, sometimes, you know we have to make that 
hard choice.
    Senator Bennett. I understand that. I would just hope, and 
it does not appear, that the controlling factor as to which 
projects get terminated and which ones do not is which ones 
came from the Congress and which ones did not. I would like to 
think maybe Congress knows a little bit about some of these 
things and has a role to play as to who gets funded and who 
does not. There is an uncertainty here if, in every instance, 
and your Administration is not the first, in every instance 
where they request termination of every Congressionally-
originated project, Congress somehow finds the money to fund 
them anyway, but this is a year-to-year funding situation 
without the stability that comes elsewhere, and I would think 
it would have an unfortunate impact on the efficiency and 
continuity of some of these programs. Do you have any sense 
that the Congressionally-sponsored programs are, by definition, 
inferior to the others?
    Dr. Jen. I do not believe so, sir. In fact, we make a very 
conscious effort to coordinate the projects that were initiated 
by Congress with the base programs.
    Senator Bennett. Well, we will look at this closely. I note 
that the budget requests termination of the diet research and 
obesity research program at Pennington Biomedical Research 
Center at ARS headquarters and then requests funding for an 
Administration initiative to do similar research at the same 
facility. I am not sure we are going to do that. We will have 
this discussion as we go forward, and I appreciate your candor 
and your sensitivity to this issue.

                     CONSERVATION SECURITY PROGRAM

    Mr. Rey, you have estimated the cost for the CSP at $13.4 
billion. Did I get that number right?
    Mr. Rey. That would be our computation of the cost of the 
proposed rule projected forward through the life of the 
program. That is a theoretical estimate, obviously.
    Senator Bennett. That is a theoretical estimate.
    Mr. Rey. Right.
    Senator Bennett. All right; never mind. I had another name 
for it, but I will not put it on the record.
    Mr. Rey. Theoretical works better in a public hearing.
    Senator Bennett. Yes, yes; well, okay, if the program 
becomes an open-ended entitlement, as some have suggested, do 
you have any estimate of the cost?
    Mr. Rey. That is somewhat difficult to anticipate. I do not 
think anyone really knows what the total cost would be at that 
point. One of the limitations would be the limitation of a 15 
percent cap on the use of technical assistance in delivering 
the program. That will limit how many NRCS employees and hours 
could be spent delivering it, because there are, as I said in 
my remarks, 700,000 farmers and ranchers that would be 
eligible.
    So I think it is conceivable that there would be an excess 
of what we have projected the proposed rule forward to cost. 
But that would be hard to predict based on what we know today.
    Senator Bennett. All right. Senator Kohl has joined us, so 
I will stop in this round and turn it over to Senator Kohl, 
reserving the option of a second or third round.
    Senator Kohl. Thank you, Senator Bennett.

                        DAIRY FORWARD CONTACTING

    Dr. Collins, in 1999, Congress passed legislation to set up 
a dairy forward contracting pilot program, which is set to 
expire at the end of this year. Dairy forward contracting, as 
you know, allows buyers and sellers to voluntarily agree upon 
delivery of a specific amount of milk for a set price over a 
specified period. About 655 of Wisconsin's dairy farmers have 
participated in the pilot program. Many of them recommend 
making this voluntary program permanent because it gives them a 
new way to manage their risk.
    Can you tell us the Administration's position on this 
program? Do they support legislation that would make the dairy 
forward contracting program permanent?
    Dr. Collins. Senator Kohl, to answer that directly, I think 
I would have to see the legislation and get the Secretary's 
view on that. I would say that, however, we have looked at this 
program a couple of times. We did a mandated study of the 
program in 2001. We followed that up with a supplement to the 
report based on the experience of 2002. And in those cases we 
found that the forward contracting program worked perfectly 
fine. In 2001, producers actually were slightly worse off than 
they would have been had they not participated in forward 
contracting. In 2002, we found just the opposite, that 
producers were slightly better off than had they not 
participated in forward contracting.
    The only issue that the Department has raised with respect 
to this is, while it sees no problem with continuing a forward 
contracting program for milk used for Class III and Class IV 
purposes, it has been concerned about legislative proposals 
that would allow forward contracting for milk used for Class I 
purposes. So that would be the one reservation that I would 
raise on legislation on this issue.

             REOPENING EXPORT MARKETS FOR BEEF AND POULTRY

    Senator Kohl. All right. Secretary Penn, following the BSE 
discovery in Washington State last December, our beef export 
markets, as you know, were badly shaken. Similarly, we have 
seen problems with certain poultry export markets due to avian 
influenza. In both these cases, the problem originated in 
another country and was imported to the United States. Open 
markets are a two-way street. They allow our products to move 
in foreign commerce, but they also raise the possibility that 
we are importing serious problems.
    Could you update us on what USDA is doing to reopen export 
markets for our beef and poultry products? And can you please 
comment on how we protect our export markets from problems 
which are themselves foreign in origin?
    Dr. Penn. Well, thank you for the question, Senator. I 
think you characterized the situation very aptly. Since the 
discovery of this one cow on December 23rd in Washington State, 
and since early-year outbreaks of avian influenza on the east 
coast and the hi-path avian influenza case in Texas, we have 
seen our export markets summarily closed for beef and a large 
amount of our poultry products.
    Before the BSE outbreak, we had anticipated exporting $3.8 
billion worth of beef and beef products this year, and we had 
anticipated our poultry products to be $2.3 billion. Together, 
that is about 10 percent of the total amount of exports that we 
had forecast for the year.
    So this is very important to us, and we have set about 
immediately trying to engage our customers, our trading 
partners, and to try to get the markets reopened.
    In every case, we have tried to make sure that we do this 
on the basis of sound science, that is, that we try to make 
sure that we have taken all of the amelioration measures that 
are warranted, and then we have gone to great lengths to 
explain to our trading partners what we have done and why that 
ensures the safety of the product that we are trying to sell to 
them and the safety of the product for our own consumers.
    We have provided a large amount of technical information to 
all of these markets. We have sent technical teams to several 
of these countries to more fully explain what we have done and 
why our products are safe. And in several cases, we have 
invited technical teams from various countries to come and 
review our procedures and visit our plants and facilities. This 
has certainly been the case with Japan and Mexico. We 
anticipate a technical team to come from Korea in the very near 
future.
    Again, the international standards that govern trade in 
both of these products indicate that once certain measures have 
been taken, then it is okay for trade to resume. We think that 
we have taken all of the measures that are appropriate to take, 
all the measures that are based upon science, and we are now in 
the process of encouraging these countries to resume trade as 
quickly as possible.
    I am pleased to say that in the case of Canada, much of 
that market for beef has reopened. In the case of Mexico, we 
have restored about 65 percent of what we were formerly 
exporting to Mexico. And in the case of poultry, we have 
managed to get most of the pipeline shipments--those shipments 
that were caught on the water between the export point and the 
delivery point moved into the country. And we have managed to 
get many of those markets to regionalize, to only ban products 
from States in which we have had actual outbreaks of avian 
influenza, rather than banning all exports from the United 
States.
    So we are continuing to work diligently on this, and I hope 
that we get a substantial portion of these markets restored in 
the very near future.
    Senator Kohl. You said at the outset of your statement that 
we were predicting exports of beef products--did you say three-
point----
    Dr. Penn. $3.8 billion for beef.
    Senator Kohl. And poultry at?
    Dr. Penn. $2.3 billion.
    Senator Kohl. Yes. So what is your anticipation now for the 
year? Are you prepared to make some estimate?
    Dr. Penn. I have not done a new rack-up in a while, but we 
think that for beef, out of the $3.8 billion, we have about $1 
billion restored at the moment. We are hoping to get more of 
that restored, of course, with our big markets like Japan and 
Korea and Hong Kong, in the very near future.
    For poultry, the situation is much better. I don't know the 
percentages, but of the $2.3 billion, we now have trade flowing 
for a substantial part of that. We are not exporting from the 
State of Texas, where we had hi-path avian influenza, and a few 
other States. But we are doing much better for poultry than we 
are for beef at the current moment.

            TRADE IMPLICATIONS OF GENETICALLY MODIFIED CROPS

    Senator Kohl. Dr. Penn, given the fact that there has been 
a tremendous increase in U.S. production of genetically 
modified crops, and given the trade implications, do you think 
that we have allowed for too much production of biotech crops 
before we had the knowledge and the tools in hand to make sure 
contamination would not occur? If we have moved so quickly on 
biotech crops that we placed some of our export markets at 
risk, what steps are you taking to meet concerns of some 
countries that will not even accept those genetically modified 
crops as food aid?
    Dr. Penn. Well, this question has a connection to the 
previous question, and that is, we are increasing our exports 
of agricultural products almost every year, and more and more 
of our agricultural products involve genetically modified 
products. These are products that have gone through the 
regulatory system in this country, and we think that we have 
got one of the best, strictest regulatory systems anywhere in 
the world.
    We continue to insist that these trading rules must be 
based on solid scientific underpinnings, and there are 
international organizations that are involved more and more in 
helping to establish these trading rules--the OIE or the 
International Organization for Animal Products, the IPPC, which 
relates to plants, CODEX, which relates to food products--and I 
think more and more we are going to have to rely on these 
international standard-setting bodies to be the ones that 
govern rules for trading in various kinds of products.
    Now, with respect to biotech products, as you correctly 
note, biotechnology in a very substantial way burst upon U.S. 
agriculture in 1996, sort of all of a sudden, with Roundup 
Ready soybeans. In our most recent crop report, the acreages 
for corn, cotton, and soybeans, the proportion of the acreage 
that is biotech has substantially increased: 46 percent of the 
corn acreage for the coming year, farmers are indicating, will 
be biotech, and about three-quarters of our soybean and cotton 
acreage will be biotech.
    Now, these products have been approved by our regulatory 
authorities. They are as safe as other products. And we see no 
reason why there should be any restraint of trade in those 
products. We continue to have problems with some markets, most 
notably the European Union, of course, but we are continuing to 
try to educate and persuade in that case.
    You mentioned specifically food aid. I think that is very, 
very unfortunate that we have people who are literally starving 
and who are being denied perfectly safe food simply because 
their authorities are insisting that for various reasons no 
genetically modified food aid be allowed.
    Now, I am aware of the case, the most recent case in Angola 
that you mentioned, and our USDA authorities are working with 
the World Food Program and with the nongovernmental 
organizations that are supplying food in Angola. And we are 
trying to work around this problem because literally people's 
lives are at stake in this case. So we are trying to work 
through this, and then we are also trying to educate other 
countries about the safety of genetically modified food so that 
we don't have these kinds of disruptions of food aid in the 
future.

                     GEOSPATIAL INFORMATION SYSTEM

    Senator Kohl. All right. Finally, Dr. Penn, in the Common 
Computing Environment account, there is a request for $9 
million for FSA to complete digital data maps for rural farm 
communities across the country. These maps are an important 
tool to the farmer and for the agency to effectively administer 
farm, conservation and disaster programs and also to provide 
critical information with animal or plant disease outbreaks.
    It is my understanding that the data must be digitized and 
as a last step certified before this information can be of any 
use to the farmer or agency. In my own State of Wisconsin, not 
a single county has been certified.
    Can you tell us how many of the 3,051 counties in the 
United States targeted by FSA have been digitized and 
certified? When do you expect to finish this work?
    Dr. Penn. I cannot tell you that right now off the top of 
my head, but I will certainly be happy to get that information 
and we will provide it to you. We won't use Dr. Jen's courier.
    We will try to make sure that we hand-carry that 
information so that you have it in a short period of time.
    But I can say that this is, as you note, a very important 
step forward, being able to have these maps. They are important 
not only for FSA, but they have benefits for our colleagues in 
the natural resources conservation area and in the crop 
insurance area. It is very important that we complete this 
project, which is a multi-year task. We not only have money in 
the FSA budget, but there is also a request for support of the 
Geospatial Information System within the $18 million increase 
in the budget of the Office of the Chief Information Officer 
for USDA, which funds our common computing environment. And we 
very desperately need to get that funding because our 
efficiency gains in the future very much depend on being able 
to implement a lot of this new technology. Our budget does not 
support additional numbers of people, so we really do need the 
new technology.
    Senator Kohl. I do appreciate your willingness to supply a 
progress report on where we are.
    Dr. Penn. We will do that.
    [The information follows:]

              Geospatial Information System (GIS) Progress

    As of April 7, 2004, 1,767 counties have digitized common 
land units (CLU's) and 381 of these counties have been 
certified. Of the 72 counties in Wisconsin, 20 counties have 
digitized CLU's. While no counties in Wisconsin are currently 
certified, about 10 counties are planned for certification by 
the end of fiscal year 2004.
    Approximately 2,100 to 2,200 counties should be digitized 
by the end of the fiscal year. At the current rate, we would 
expect to have as many as 700 to 800 counties certified by the 
end of the fiscal year.

    Senator Kohl. Thank you so much, and thank you, Mr. 
Chairman.
    Senator Bennett. Thank you, sir.
    Senator Harkin.
    Senator Harkin. Thank you very much, Mr. Chairman.

                   NATURAL RESOURCES AND ENVIRONMENT

    First, I would like to start, if I could, with Under 
Secretary Rey. Mr. Rey, you are obviously the top official at 
the Department of Agriculture in the area of conservation and 
natural resources and environment. Dr. Penn sitting next to you 
there, he is the lead when it comes to commodities, like corn 
and wheat and beans and other products that are important to 
society.
    Mr. Rey, your responsibilities, I believe, also involve 
products or commodities that farmers and ranchers produce and 
which are very important to society and for which society has 
said that it is willing to pay. Those products or commodities 
include, of course, clean water and air, productive soil, 
wildlife habitat, and so forth.
    This idea of conservation and environmental benefits as 
commodities or products was part of our thinking in the Farm 
Bill. And as you know, it has further evolved, for example, 
when we envisioned carbon credit trading.

                           CSP PROPOSED RULE

    So, Mr. Rey, with that in mind, I want to convey my thanks 
to the Secretary, to you, to Mr. Knight, for providing public 
access to the comments on the CSP proposed rule. Farmers, 
ranchers, and the general public have sent more than 14,000 
comments, as I understand it, and I understand virtually all 
expressing disappointment in the proposed rule. I also know 
that you attended the listening session on the proposed rule in 
Des Moines in February, where over 250 people attended, again, 
which I understand most of whom opposed the proposed rule and 
everybody who spoke was against the proposed rule.
    So I guess I would just start off by saying that I am sure 
you acknowledge that there is a very high level of interest in 
the CSP and that there is a widespread disagreement with the 
proposed rule and that these are serious and substantive 
concerns. And I would just ask, you know, again, for any 
comments you have on what I have just said and what is 
happening to the proposed rules and when we can expect to see a 
final rule.
    Mr. Rey. First of all, I don't disagree with your 
characterization of how the comments were transmitted to us. As 
I said before you arrived, I think many of the comments 
expressed concerns which we have an obligation to address in 
clarifying our intent about how the rule is drafted and how it 
will work in practice. Other comments are concerns that are 
going to drive changes to the proposed rule, and that is why we 
have comment periods, to get those kinds of comments.
    We are trying to bring forward a final rule in time for 
there to be a CSP sign-up this year so that we can use the 
money that you and other Members of Congress appropriated in 
the fiscal year 2004 Agriculture and Related Agencies 
Appropriations bill. And I would be happy to share with the 
Committee for the record our current schedule, which we think 
will get us there in time to start a sign-up this year.
    [The information follows:]

                      TIMELINE TO FIRST CSP SIGN-UP
------------------------------------------------------------------------

------------------------------------------------------------------------
Mid May...................................  Complete analysis of the
                                             Public Comments on CSP
                                             proposed Rule
Mid June..................................  Clear and Publish CSP Final
                                             Rule
Early July................................  Conduct First CSP Signup
End of July...............................  Complete Signup
August....................................  Begin enrolling CSP
                                             contracts
September.................................  Complete full obligation of
                                             fiscal year 2004 CSP
                                             funding
------------------------------------------------------------------------


    Mr. Rey. I won't repeat my summary of some of the basic 
concerns and where we think we can either clarify our intent to 
address those concerns or make some changes to address those 
concerns. But I will share them with your staff today and later 
as we move forward in the rulemaking process.
    I will say that the Des Moines hearing was, I thought, a 
good one. I remarked to all of the assembled commentors that, 
because of their numbers, we had asked them to be very brief in 
their comments. And I told them that I was pleased that they 
were respectful of the time limits that we imposed on them, if 
not the regulatory proposal on which they were commenting. But 
we got a lot of good comments. I took somewhere in the 
neighborhood of eight or nine pages of notes from the session.
    Senator Harkin. I appreciate that, and I have heard from 
other States where you have had the forums, and I understand 
they were also well attended in other States and that the 
general consensus was that most of the farmers were very upset, 
ranchers that came in were very upset with the proposed rules, 
thinking that it really was going to cut a lot of them out of 
the program. That seems to be the general consensus, at least 
as I have heard from the input that I got.

                            CSP FUNDING CAP

    Now, again, in the proposed rule, USDA complains about the 
difficulties that come from running a program open to all 
producers but with a strict funding limit. The proposed rule 
says, ``The greatest challenge was to design a new conservation 
entitlement program with a cap.'' Well, as we both know, CSP 
does not have a set funding limit starting October 1st of this 
year.
    Mr. Rey. Right. At the time that the rule----
    Senator Harkin. And you talked about that in your 
statement. I read that. I read that. But the President's budget 
proposes one.
    Mr. Rey. We propose a cap for fiscal year 2004 and--well, 
Congress provided one for 2004.
    Senator Harkin. Yes.
    Mr. Rey. We are proposing an amount of money for 2005.
    Senator Harkin. Well, do you see the irony that I have 
just--the irony that USDA is complaining about the difficulty 
of implementing a rule that is open to all with a cap, okay? 
But we took off the cap. Then the Administration turns around 
and requests a cap for next year.
    Mr. Rey. But I think the order of sequence was that the cap 
was taken off after our budget was sent forward. It was taken 
off in the Omnibus Appropriations Bill for fiscal year 2004.
    Senator Harkin. Well, that is true. That is true. I don't 
know the sequence of events, but that is true. It was taken off 
in the Omnibus Appropriation before the budget.
    Mr. Rey. So, I mean, I think that is an issue----
    Senator Harkin. So is the Administration requesting a 
change then in their budget proposal to reflect what we did?
    Mr. Rey. Well, I don't think we have to. That is now before 
you, and I assume that Congress will continue to give us clear 
direction.

                    FISCAL YEAR 2005 FUNDING REQUEST

    Senator Harkin. Well, I mean, the Administration could come 
back and say look, you know, we do not need a cap now since 
Congress has taken it off, that--what, $205 million, I think it 
was, if I am not mistaken.
    Mr. Rey. $209 million for fiscal year 2005.
    Senator Harkin. For next year, yes, right.
    Mr. Rey. I think the more useful thing for us to provide to 
the Congress at this juncture as you consider the 2005 bill is 
our best estimate of what the different program options would 
cost.
    Senator Harkin. So you are no longer requesting a cap?
    Mr. Rey. We are going to abide by whatever Congress 
eventually tells us to do, which we should do.
    Senator Harkin. Which we said no cap.
    Mr. Rey. Right.
    Senator Harkin. I appreciate that. So, again, to continue 
this, the full funding was restored, as you pointed out, in the 
Omnibus Appropriations Bill. But the proposed CSP rule--I am 
getting back to that proposed rule again--would bar the vast 
majority of producers from participating.
    I wanted to do an analogy of what it would be like if we 
took the commodity program, which is an uncapped entitlement 
program. And I said, What would be the equivalent? In Iowa, 
with the proposed rule, if we did this on the commodity 
program, it would be like USDA arbitrarily limiting commodity 
payments only to those Iowa farmers who produce more than 200 
bushels an acre of corn and only if they live in one of 12 of 
our 99 counties chosen here in D.C. And, further, these farmers 
would receive no payments for their soybeans. To top it off, 
the payments would only be one-tenth of what is in the Farm 
Bill. And any farmer who does not qualify for the commodity 
program 1 year has to wait another 8 years to apply again.
    So I am just saying, if we think about conservation as a 
commodity, compared to the commodity programs, and one for 
which society has said it is willing to pay, then it would seem 
that we need some kind of equivalency. We need to start looking 
at this a little bit differently than what we have in the past.

                       ACCESS TO CSP BY PRODUCERS

    USDA says only 14,000 producers will get into CSP a year. 
Is that not your--you are looking at me quizzically. Did I 
misstate myself?
    Mr. Rey. No, that is----
    Senator Harkin. 14,000 a year. Again, in Iowa, with this 
percentage only 700 Iowa farmers out of 93,000 would get into 
the CSP a year.
    Now, I have tried to figure that out, and I figure it would 
take about a little over 100 years for them to get into the 
program if that is what we are going to do. My point is it 
would not be acceptable for a commodity program to do that, and 
it should not be acceptable for this kind of commodity program.

                          TECHNICAL ASSISTANCE

    Mr. Rey. But, again, to talk about terms of equivalency, 
one of the key limitations to the rate of entry of the program 
is how we provide NRCS technical assistance to producers who 
want to come into the program. That 14,000-producer limit is as 
much a reflection of the cap on the use of technical assistance 
funding in implementing the program as it is anything else. And 
with the commodity programs, we do not have such a limit on how 
the agency brings people into the program. That is something we 
can obviously work on and fix.
    Senator Harkin. I heard about that, and I read it in your 
testimony, and I heard you mentioned it earlier, too, I think, 
in answer to a question here. I thought about that. And so I 
asked my staff, I said, What do we provide, what is the 
technical assistance under EQIP? I think it is 19 percent.
    Mr. Rey. Yes, it is a little higher.
    Senator Harkin. Nineteen, but I am told that it has been 
much less than 19 percent.
    Mr. Rey. In the past, we have had the latitude to use 
conservation assistance funds to provide part of the support 
for EQIP, which is something that we have separately argued 
about over the last couple of appropriations cycles.
    Senator Harkin. My staff informs me that it was capped at 
19 percent in the past, the EQIP funding, my point being that 
if you can implement EQIP at that rate--I just want to take 
issue with you on the 15 percent being some kind of a problem 
for you. For the life of me, I do not understand that. I mean, 
15 percent is, I think, a considerable amount of money to 
implement a program. And keep in mind, this is a program, 
albeit a new one, but relying upon a lot of things that you 
have already developed in the past, Bruce, and all of you. You 
have got these things. You know what they are. It is not like 
it is making something out of whole cloth. I mean, this is 
something that you have all done in the past.
    So I cannot believe that a 15 percent limitation is any 
kind of a real onerous limit.
    Mr. Rey. Well, it is based on things that NRCS has done in 
the past.
    Senator Harkin. Sure.
    Mr. Rey. But it is clearly a new program that farmers are 
going to be facing for the first time, including, if the 
program works as Congress has intended, and we would like it to 
work, farmers that have not participated in some of the basic 
conservation programs like EQIP.
    Last year, I am told that we used 24 percent, which was the 
level for technical services in EQIP. I think, for a new 
program, it is not a reasonable assumption to assume that you 
can do it for 10 percent less. Much of the cost of technical 
assistance that is going to be provided for a new program is 
not going to be things that NRCS does by itself in developing 
the program, but rather the time NRCS field agents spend with 
farmers explaining how a new program works, particularly 
farmers who have not participated in EQIP or any of the other 
basic conservation programs in the past. So this is a problem 
we can fix working together, but I think it is a problem.

                      TECHNICAL SERVICE PROVIDERS

    Senator Harkin. And we also provided, if I am not mistaken, 
and I am reaching back now, we also provided in the Farm Bill 
that in this regard I believe you can use people outside of 
NRCS for the technical--what is the word I am looking for?
    Mr. Rey. Technical service providers.
    Senator Harkin. Technical service providers can be used for 
that that also have this knowledge and can assist in doing 
that. So, again, I just have a hard time thinking that 15 
percent is going to be a real onerous limitation on providing 
this because a lot of the practices that we are talking about 
are already being done by some farmers, not by others, but by 
some. So, therefore, since NRCS has got this history, they know 
the practices, it just does not seem to me to be a problem to 
transfer this over to others besides using the availability of 
outside people that we allowed you to use in the Farm Bill.
    Mr. Rey. The Technical Service Providers program is going 
to be instrumental in helping us deliver conservation programs, 
but that program itself has a ramp-up period to get technical 
service providers certified. And, moreover, they are going to 
be most useful in helping us apply specific conservation 
practices in existing programs. Now, that will help because 
that means that we can transfer some of our staff time out of 
EQIP, out of the Wetlands Reserve Program, out of the programs 
that are better established and use that time and effort to 
work on CSP, but that is going to be a ramp-up period as well.
    I think this is an issue that we should continue to 
discuss. It is not going to be a problem in fiscal year 2004. 
We will begin to see the effect of the limitation on technical 
services in 2005 and beyond, and I think we will have time to 
adjust, if we need to.
    But, at this point, I think I would say there is, if not 
the reality, then a high potential for a disconnect between the 
desire to bring as many producers into the program as quickly 
as possible and a limitation on how much NRSC staff time we can 
devote to going out and educating people about a new program 
and what their interests in it are and why they should be 
participants. That is a very resource-intensive process.

             TIME LAG ON CSP IMPLEMENTATION AND RULEMAKING

    Senator Harkin. I appreciate that, and I have not--Mr. 
Chairman, I thank you for your indulgence--I have not been too 
hard on this in the past. I have worked with the Secretary and 
others. But when we passed the Farm Bill, we put in a 270-day 
requirement to get the rule out. That did not happen. Then, 
they said, ``Well, we will get it out in a year.'' That did not 
happen. And they said, well, they had a lot of other things to 
do. And I understand that. They had new commodity programs and 
everything like that. So I think we have been fairly indulgent 
on this.
    We are now coming up on 2 years since the Farm Bill was 
passed--2 years--and not one farmer has been signed up in the 
CSP program. Now, you can understand why I am a little 
quizzical about the pace at which this is proceeding and 
whether or not--and I said this to the Secretary when she was 
here. Is there an attempt by some to kill the suborning--to 
kill it before it even gets off the ground?
    Mr. Rey. No such attempt.
    Senator Harkin. Well, it looks like that. I am just telling 
you. It is 2 years and not one farmer.
    Mr. Rey. Senator Harkin, you can usually explain most 
things by malfeasance rather than conspiracies. There is no 
conspiracy to do away with this program. It is a difficult 
program to implement. It is essential that we get it right 
because I believe we agree that it is the future of 
conservation on working lands. My testimony has said that. That 
is not a hollow commitment.
    We are grateful for the Committee's indulgence. You could 
do just one more thing to help us, and that is not help us 
again by changing it one more time between now and when we get 
the final program out.
    Senator Harkin. There are few things that I can assure you 
of. But because of what happened last year and the assurances I 
have from the Chairman of the Appropriations Committee, it will 
not happen again until the Farm Bill is up.
    Mr. Rey. Excellent.
    Senator Harkin. Take it to the bank--as long as I am here. 
I mean, you know----
    And as long as the Chairman is here. The Chairman has been 
very, very helpful on this, and I would not let this 
opportunity pass without thanking Chairman Bennett for his 
strong support of conservation programs, and I appreciate it 
very much.
    Mr. Chairman, I spent all of my time on this. Are you going 
to have a second round?
    Senator Bennett. Well, I was going to, but I find most of 
the burning questions that I had Senator Kohl has asked. If you 
want to pursue another issue, we can do that.
    Senator Harkin. Just a little bit, I would appreciate it.
    Senator Bennett. Yes.
    Senator Harkin. Thank you, Mr. Chairman.

                     STANDARD REINSURANCE AGREEMENT

    J.B., late last year, USDA cancelled the Standard 
Reinsurance Agreement--and I am sorry I am late. Has this been 
talked about? They cancelled the Standard Reinsurance Agreement 
with the crop insurance industry. I understand you are now in 
the process of negotiating a new one. I have heard a second 
draft of the SRA would impose $40 million in cuts annually from 
the delivery system.
    We have lost five companies in the last few years--five 
companies, the largest writer, American Growers, Fireman's Fund 
is now a reinsurer. Anyway, we have lost all of these 
companies. Two major reinsurers left the reinsurance market, 
and I understand there are a number of areas that are just 
served by only one company. So I am concerned about the 
proposed $40-million cut and what will that do to any 
competition that we might even have left in the crop insurance 
industry.
    Dr. Penn. Well, Senator Harkin, as you know, this is a 
process. It is a negotiation. And as you go through the 
negotiation, everybody makes their case, and everybody puts 
their most compelling arguments forward. And these are some of 
the arguments that are being put forward by some of the 
companies as we go through the negotiation.
    Since the passage of ARPA in 2000, the risk management area 
or crop insurance area has changed substantially. We have had a 
large expansion in the crop insurance program. Last year we 
covered about 218 million acres. The liability insured was 
about $40 billion. We have tremendously expanded the number of 
products that are available. There is continued expansion 
underway as the board reviews and approves new products, and 
the overall operating environment has changed.
    So we thought it was prudent to review and renegotiate the 
insurance agreement. This is the agreement by which we deliver 
all of the services to the producers in this very unique 
public-private partnership. I mean, this is a public program 
that is delivered through the private sector. And we thought 
that it was time that we reviewed that contract, and we take 
account of all of these changes that have occurred.
    As you said, it is a dynamic industry. There are companies 
that leave the industry. There are companies that come back 
into the industry. There are reinsurers that leave, reinsurers 
that come back. But we had one chance in the legislation and a 
5-year period to revise this standard reinsurance agreement. 
This is the last opportunity that we had. So we thought we 
should do it.
    RMA prepared a first draft to begin the process. And I have 
to say that first draft was pretty roundly criticized. We spent 
a lot of time with the companies, we listened to their 
concerns, and we have now prepared a second draft. That draft 
was made available last week to the companies, and they are 
beginning to review and to go through that now, and we are 
starting the process of having individual sessions with them to 
go through the second round.
    We have proposed some $40 million in savings. We think that 
we have a good basis for doing that, of course, or we would not 
have done it. Of course, it will be resisted. But there is more 
to it than just savings. There are some regulatory aspects of 
the agreement that we think need to be reviewed and revised, 
and a lot of the companies have said that they think it is good 
for the industry, that it is time that we try to achieve some 
new efficiencies, that we try to tighten up the possibilities 
for fraud, waste and abuse, and that we also try to give RMA a 
better opportunity to monitor the financial health of the 
companies.
    As you said last year, the largest insurer in the business 
left the business, and the American taxpayer had to step up and 
sweep up after that----
    Senator Harkin. I know.
    Dr. Penn [continuing]. It cost some $35 million of taxpayer 
money to do that. And we think that, by rights, RMA ought to 
have a little more authority to anticipate that kind of 
situation and to avoid that happening in the future. So we have 
tried to make some changes in the SRA to account for that.
    So we are in the middle of this process, and it is a 
negotiation. In a negotiation everybody wants to paint the 
situation in the most compelling way they can that would be to 
the greatest advantage to them. And so I think that is what you 
are hearing, but we are in the middle of a process. All we are 
asking now is to give us a little more time and let us work 
through this draft, and then we will come forward with a third, 
and we hope final, version of this.

                 RURAL BUSINESS INVESTMENT CORPORATION

    Senator Harkin. Thank you very much, Dr. Penn.
    Two quick ones. Mr. Gonzalez, will you have the final rules 
out on the RBIC Program this summer, the Rural Business 
Investment Corporation?
    Mr. Gonzalez. Yes, Senator Harkin. We will have that 
application window open in the summer or at least the fall of 
2004.
    Senator Harkin. Summer or early fall. How about summer?
    Mr. Gonzalez. Well, we are trying our hardest. We are 
looking at the fall of 2004 to have the application window for 
that program.
    Senator Harkin. So the first applications would be 
available this fall.
    Mr. Gonzalez. Yes, sir.
    Senator Harkin. Well, okay. I wish it was earlier.
    Dr. Jen, are you working with HHS and with maybe FDA--well, 
that is in HHS--maybe NIH to revise the food pyramid? Is that 
underway now?
    Dr. Jen. Senator Harkin, the USDA is responsible for the 
Food Guide Pyramid. It is Under Secretary Eric Bost's group, 
CNPP.
    Senator Bennett. We discussed that at the last hearing.
    Dr. Jen. Yes, last week.
    Senator Harkin. What is that, Mr. Chairman?
    Senator Bennett. We discussed that at the last hearing with 
the other Under Secretary.
    Senator Harkin. It is being done.
    Dr. Jen. Yes.
    Senator Bennett. Yes, we are monitoring that.
    Senator Harkin. Thank you, Mr. Chairman. I appreciate that. 
With that affirmation, I do not have any more questions.
    Thank you, Mr. Chairman.
    Senator Bennett. Having gotten the attention of all of the 
fat doctors in the world----
    I raised that a year ago, why we have to keep on top of it.
    Senator Harkin. So it is being--I mean, it is actually 
under review.
    Senator Bennett. Yes.
    Senator Harkin. That is good. Thank you.
    Senator Bennett. Are you through, sir?
    Senator Harkin. Yes, I am. Thank you.

                        SUPERCOMPUTER RESOURCES

    Senator Bennett. Dr. Jen, I have one last question. I was 
recently contacted about USDA's access to supercomputing 
resources, and I would appreciate it if you would furnish to 
the Committee information about the supercomputing resources 
that you currently have access to, I assume, in conjunction 
with universities, and how frequently you need this kind of 
power. And do you believe that you would benefit from a 
dedicated supercomputer facility?
    If you can answer that quickly, why we can do that now or 
you can furnish it.
    Dr. Jen. Genomic science research benefits from the use of 
supercomputers, particularly when the research moves from the 
DNA sequence, the nucleics, into the proteomics. Our need for 
analysis by supercomputers will increase in the future 
especially due to the extreme complexity of protein research.
    Currently, some universities have supercomputers, but I 
think we will also work with Department of Energy. A dedicated 
facility probably would be desirable a few years down the line, 
especially considering the other research that USDA has. At 
this point I could not even think about it because the cost is 
not only the cost of the computer itself, but it also includes 
associated operation and maintenance costs. That would be 
something that would worry me because I have absolutely no idea 
how much it costs.
    Senator Bennett. Thank you very much. That is helpful.
    Senator Kohl, do you have any last questions?
    Senator Kohl. Just one. Mr. Gonzalez, in fiscal year 2003, 
Wisconsin had four applications for funding through the Section 
525 Technical Assistance Account to provide homeownership 
education for people in rural areas.
    Wisconsin has historically received funding for our good 
work in this area. In fiscal year 2003 funding, I understand 
the Administration selected priority States primarily within 
one region of the country, with justification that there was 
not enough funding to reach more applicants for other regions.
    I included language in the fiscal year 2004 bill that 
increased funding, and provided limits any one State could 
receive under this account.
    How will you ensure that States like Wisconsin receive a 
fair consideration for funds available this year?
    Mr. Gonzalez. Thank you, Senator Kohl.
    In terms of the 525, there was a $2-million grant amount 
that was allocated to that program for homeownership training 
and credit counseling. And we are closely following the 
conferees' report in terms of administering that program. There 
was a 10-percent cap to those 10 States in terms of providing 
that technical assistance, and we are looking at a NOFA being 
published May of 2004.
    Senator Kohl. I appreciate your consideration.
    Mr. Gonzalez. Thank you, sir.
    Senator Kohl. Thank you.
    Senator Bennett. Thank you. I do have one last question for 
Dr. Collins. You say the ag economy is booming, exports, 
consumption, industrial use, all the rest of it. Any chance 
that this can mean lowering of mandatory payments, mandatory 
support payments to help us out with the budget?
    Dr. Collins. Sure, Mr. Chairman. I think that is exactly 
what is going to happen. When you say ``mandatory payments,'' 
if you look at Commodity Credit Corporation expenditures on 
price support and related activities, in the year 2000, it hit 
an all-time record of $32 billion. In 2003, it was down to 
about $17.5 billion. In 2004, the President's fiscal year 2005 
budget released in February estimated a spending level of about 
$14.8 billion. I think that that number is more likely to come 
in closer to $10 to $11 billion rather than $14.8, which is in 
the President's budget. That will be updated in the President's 
Mid-Session Review of the Budget that will be released in July.
    Clearly, there are a couple of expenditure categories that 
do not change, such as direct payments, which are not a 
function of prices, and they are about $5.5 billion a year.
    And then there is also conservation spending, such as the 
CRP, which is about $2 billion a year. Those things are not 
going to change, but the loan deficiency payments, the loan 
programs, the countercyclical payments all are coming down 
dramatically, including the milk income contract payment 
program as well. So, yes, I think we are looking at a several-
billion dollar decline below the President's budget and a 
number that is probably about a third of what it was in the 
year 2000.
    Senator Bennett. I would like to find a way to get that 
into discretionary funds. I am not sure we can.
    You have a last question?
    Senator Harkin. Let me just follow up on that because I 
think it is an interesting story. When we passed the Farm Bill 
in 2001--I think that is right, 2001--we were given a budget to 
work with by the Budget Committee for 10 years for our 
programs. We stayed within that. We did not go beyond what was 
allotted to our Committee for our mandatory programs, and so we 
passed that.
    In that estimate, there was an estimate for how much the 
outlays would be for 2002, 2003, 2004 or 2005, et cetera. And, 
Dr. Collins, you can correct me if I am wrong, but I believe, 
Mr. Chairman, that if you look at just the 2002, 2003, 2004 
estimate, basically, since we kind of know what 2004 is going 
to be, that we have spent about $15 billion less than what we 
were allotted; in other words, what the Budget Committee gave 
us to spend, we have spent about $15 billion less; is that 
about correct?
    Dr. Collins. I have not done that calculation, but I can 
tell you that what we are spending is tracking very closely to 
what we would have expected spending to be with an extension of 
the 1996 Farm Bill, that is, before you even added on the 
programs of the 2002 Farm Bill. So, yes, it is running below 
the spending levels that were projected in the spring of 2002 
for the life of the 2002 Farm Bill.
    Senator Harkin. Well, my figures show about $15 billion 
less, so I think agriculture has got a good story to tell 
there. Of course, I come back to things like the other 
commodity program, the Conservation Security Program, that when 
people start talking about capping and stuff, we have saved $15 
billion less than what we were allotted to spend. I think that 
is pretty darn good. Surely, we could get a couple of billion 
out of that or a billion-and-a-half at least to help on the 
conservation program. I just want to make that point. I think 
it is a good story.
    Senator Bennett. We may make an attempt at that. I am not 
sure whether we will get----
    My comment is, repeating what I say in my role as Chairman 
of the Joint Economic Committee, I do not know various 
estimates about the economy. People ask me about it. Can we cut 
the deficit in half in 5 years? Will the Kerry numbers hold up? 
Are the Bush numbers accurate?
    And I say the one thing I know about them is that they are 
all wrong.
    They have always been proven wrong. Any attempt to make a 
forecast in an $11 trillion economy that goes out much more 
than 6 months fits into the category that we decided not to use 
earlier as we were describing one of the other estimates. It is 
basically a guess, and it may be a very well-educated guess, 
but it is basically a guess. And I think this illustrates, 
also, we made the best guess we could, and then the economy 
behaved differently.
    And for those who say, ``Well, why can you not be more 
accurate?'' I will use the phrase with which all politicians 
are very familiar, ``The numbers are all within the margin of 
error.''
    The difference between surplus and deficit on a $2.7 
trillion budget, when you move a couple of hundred billion 
either way, is within the margin of error that a pollster might 
use. And we get carried away with our rhetoric around here 
about we created this huge deficit or are we not wonderful, we 
have created this huge surplus. The economy has done what it 
has done, and we are kind of following along on the trail of 
that and hoping to take credit when it is good, and hoping to 
point and assume blame when it is bad.

                     ADDITIONAL COMMITTEE QUESTIONS

    But, apparently, this is the same kind of situation, and I 
am glad that this one was wrong on the right side of things 
instead of wrong on the other side of things.
    Senator Harkin. Mr. Chairman, it is just not pencil dust. 
Let us just be careful of that phrase.
    [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

            consumer data and information system initiative
    Question. Dr. Jen, the Economic Research Service is looking for a 
significant increase in fiscal year 2005--$9 million and 6 additional 
research staff. The majority of this increase and all of the new staff 
would be for the Consumer Data and Information System initiative. The 
components of this initiative are a food market surveillance system, a 
rapid consumer response module, and a flexible consumer behavior survey 
module. What exactly, do you hope to accomplish with these additional 
information-gathering capabilities?
    Answer. Data and analysis from this initiative would provide a 
basis for understanding, monitoring, tracking, and identifying changes 
in food supply and consumption patterns. Without this increase in 
funding, many problems facing Americans will go unsolved. The data and 
analysis capability embodied in this forward-looking initiative will 
prove invaluable for policymakers in addressing issues ranging from 
obesity prevention to understanding market opportunities to food 
safety. Currently, large gaps exist in USDA's data and analysis system 
in the areas of consumer and industry behavior. Our Nation does not 
have timely consumer information upon which to base policy decisions 
and program actions. The centerpieces of this budget initiative are 
nationally representative consumer and retail surveys of food prices, 
retails sales, consumption and purchases of food for at-home and away-
from-home eating, as well as data on consumer behavior, reactions, 
attitudes, knowledge, and awareness.
    This information system will provide market surveillance and 
insights into price changes, market demand, and consumer reactions to 
unforeseen events and disruptions such as the recent discovery of 
bovine spongiform encephalopathy (BSE). In addition, the data and 
analysis framework will provide intelligence on the public's diets, 
knowledge and awareness levels helping policymakers respond to current 
events, such as the rise in obesity and overweight, especially in 
minority populations, and their interactions with the U.S. food and 
agriculture system.
    In addition, as our country faces bio-terrorist threats, increased 
knowledge about American eating behavior and its implications for food 
markets are of heightened importance. Understanding, where food is 
eaten and purchased and the amounts of different foods consumed by 
various demographic groups is important for understanding how to best 
protect our food supply, for designing and implementing rapid and 
effective government responses to unforeseen food related events, and 
for the management of events after they have occurred.
    The four components of the initiative in order of priority are:
  --The Flexible Consumer Behavior Survey Module would complement data 
        from the National Health and Nutrition Examination Survey 
        (NHANES). This module provides information needed to assess 
        linkages between individuals' knowledge and attitudes about 
        dietary guidance and food safety, their food-choice decisions, 
        and their nutrient intakes. Combining the NHANES with this new 
        module allows analysis of how individual attitudes and 
        knowledge and healthful eating affect food choices, dietary 
        status, and health outcomes. Cost: $3 million.
  --The Rapid Consumer Response Module would provide real-time 
        information on consumer reactions to unforeseen events and 
        disruptions, current market events, and government policies. 
        This module would be integrated into several proprietary 
        consumer data panels currently maintained by private vendors. 
        Consumer reactions would be linked to actual food purchases, 
        sales, consumption, and price information. For example, the 
        module could be executed to gather information on consumer 
        reactions to food safety problems and issues. Cost: $1 million.
  --The Food Market Surveillance System would consist of an integrated 
        set of surveys and supporting analysis concentrating on 
        linkages in the food and agriculture system. This system would 
        be the foundation of a research and monitoring program designed 
        to: provide timely price, purchase, and sales data; identify 
        food consumption patterns of consumers and how these change as 
        people age, households change, new products are introduced, and 
        new information is acquired; identify and develop consistent 
        strategies for consumers to adopt the Dietary Guidelines for 
        Americans; better understand the market dynamics of food safety 
        and other consumer health issues; and understand links between 
        foods, physical activity and health outcomes. Cost: $4.176 
        million.
  --Funding is needed to support 6 additional staff to ensure the 
        successful design and implementation of the initiative. Cost: 
        $500,000.
    Question. Is this a one-time expenditure, or are you envisioning 
continuing this level of funding in fiscal year 2006 and later?
    Answer. I envision that this level of funding will continue in 
fiscal year 2006 and beyond. This data system is a continuous, real 
time surveillance, tracking, and research vehicle whose demand will 
only grow over time as it becomes completely integrated into USDA 
operations.
                   agricultural estimates restoration
    Question. The National Agricultural Statistics Service is 
requesting a healthy increase in fiscal year 2005--almost $9.5 million 
and 14 new staff. Of this amount, $7 million and 10 new staff would go 
to the Agricultural Estimates Restoration and Modernization project. 
This is on top of $4.8 million provided in fiscal year 2004 for this 
purpose. Why is this additional funding necessary?
    Answer. Escalating survey expenses, unfunded pay costs, and 
declining response rates have forced adjustments to many of the 
Agency's survey and estimates programs, reducing the quality of survey 
data on which NASS estimates are based. The consequences of poor 
estimates can involve millions of dollars. For example, inaccurate crop 
and livestock forecasts may result in unstable market conditions for 
producers and consumers resulting in large price fluctuations. Funds 
are needed to increase area frame survey sample sizes to meet precision 
targets for major estimates from the base survey conducted in June, 
improve non-response follow-up for specialty commodities, increase 
sample sizes for surveys to measure coverage error, and increase list 
sample sizes to further improve commodity yield forecasts and 
production estimates. The fiscal year 2005 request will allow for 
continued progress in these areas, in addition to supporting adequate 
resources necessary to process, analyze, and disseminate vital 
statistical data.
    Question. Do you expect to request additional funds in fiscal year 
2006?
    Answer. At the present time, we do not know what will be reflected 
in the fiscal year 2006 budget request.
                       horticultural specialties
    Question. The National Agricultural Statistics Service is 
responsible for conducting the Census of Horticultural Specialties 
every 5 years. The fiscal year 2005 budget recommends that this program 
be delayed and, as a result, reduces the NASS budget by $3 million and 
the staffing by 6 staff years (FTE). When was the last Census of 
Horticultural Specialties conducted?
    Answer. The 1998 Census of Horticultural Specialties was conducted 
following the 1997 Census of Agriculture. This Census of Horticultural 
Specialities is completed on a 10 year schedule.
    Question. Why was the decision made to delay this next Census?
    Answer. The Census of Horticultural Specialities has traditionally 
been conducted every 10 years. Due to the dynamic growth of this 
industry, NASS was planning, pending available funding, to measure this 
component of agriculture every 5 years. Due to the tight budget 
constraints placed on all discretionary Federal spending, difficult 
decisions were necessary to maximize use of the available funds for 
improving and modernizing our base agricultural statistics, which are 
indispensable to the entire agricultural sector. The annual program 
covering selected horticultural commodities will continue to be 
available.
    Question. Who benefits from these updated statistics? How will they 
get their information absent this Census?
    Answer. The information provided by NASS surveys and the Census of 
Agriculture help to ensure an orderly flow of goods and services among 
agriculture's producing, processing, and marketing sectors. Many 
segments of the horticulture sector utilize NASS census data to make 
informed business decisions at the local level. Additionally, 
policymakers use NASS data in assessing the impact of potential 
legislation. In the absence of the Census of Horticultural 
Specialities, the NASS annual program provides information for selected 
horticultural commodities at the State level.
    The annual statistics program includes several reports on the 
production, value, and chemical usage for nursery and floriculture 
crops. Three main reports constitute the annual program. The 
Floriculture Crops Annual Summary is released each April and includes 
production, price, and wholesale value for growers having $100,000 or 
more in sales in 36 selected States. It also includes the number of 
growers and growing area for growers with $10,000 or more in sales. 
This report can be accessed via the Internet at http://
usda.mannlib.cornell.edu/reports/nassr/other/zfc-bb/. The Nursery Crops 
Summary is conducted periodically in tandem with the Agricultural 
Chemical Usage--Nursery and Floriculture Summary. The Nursery Crops 
Summary includes gross sales and the number of trees/plants sold for 17 
selected States and growers having $100,000 or more in sales. It also 
includes area in production and the number of growers and workers for 
operations having $10,000 or more in annual gross sales. The next 
summary will be released on July 26, 2004 and will be available at 
http://usda.mannlib.cornell.edu/reports/nassr/other/nursery/index.html. 
The Agricultural Chemical Usage--Nursery and Floriculture Summary is 
scheduled for release on September 15, 2004. This summary includes 
chemicals used (by active ingredient) and to what crop the chemicals 
were applied, the amount of chemicals applied, the method of 
application, who made the application, and the pest management 
practices used on operations for six selected States. Agricultural 
Chemical Usage Summaries are available at http://www.usda.gov/nass/
pubs/estindx1.htm#A.
    In addition to the annual program, the Census of Agriculture 
provides basic data on the area of nursery and floriculture crops 
grown, by crop, under protection or in the open, the total area 
irrigated, and an aggregate value of sales for nursery, greenhouse, 
floriculture, and sod. These data will be available in June 2004 at the 
National, State, and county level.
                         small area estimation
    Question. Dr. Jen, $2.5 million and 4 new staff are requested by 
NASS for data acquisition for the Small Area Estimation Program. It is 
my understanding that this information is used by the Risk Management 
Agency and the Farm Service Agency. How will these USDA agencies 
benefit by this increased funding and staff?
    Answer. The Risk Management Agency and the Farm Service Agency are 
two of the major users of the NASS small area estimates. Due to the 
dynamic growth of the agricultural insurance programs and the farm bill 
utilization of these estimates, both agencies rely heavily on the 
precision of county level estimates produced by NASS. Due to limited 
funding, current estimates are derived through a survey process that 
does not allow for full implementation of the probability design that 
produces statistically defensible survey precision. This funding will 
be used to allow follow-up data collection activities to support the 
probability design in an initial one-third of the U.S. counties. 
Therefore, users of NASS small area statistics will be able to 
accurately define the statistical precision of each estimate.
    Question. What additional data will be acquired?
    Answer. This funding will allow the initial implementation of 
follow-up data collection activities necessary to calculate 
statistically defensible survey precision for the current program. The 
county estimates program continues to grow in scope and importance for 
Federally administered farm programs, thus increasing the need for 
defensible survey precision.
    Question. What is the impact on these agencies if these funds are 
not provided?
    Answer. These agencies will be forced to continue to administer 
Federal farm programs based on data which does not have a calculated 
level of precision. As the number of farm programs, and Federal 
outlays, which depend on these estimates continues to grow, the 
absolute level of precision must be known. Without a calculated level 
of precision, some payment decisions to farm operators may result in 
either an overpayment to farmers at the taxpayers expense or an 
underpayment to farmers who have a legitimate claim.
                         bse trade restrictions
    Question. Last week Secretary Veneman sent Japan a proposal to 
break the impasse over BSE trade restrictions. The Japanese in turn 
sent a letter rejecting the proposal. In a joint statement released 
Thursday, Secretary Veneman and Trade Representative Zoellick expressed 
their disappointment in the Japanese response. Would you care to 
comment on the current situation regarding Japan's trade restrictions 
on the import of U.S. beef?
    Answer. The Department has been and remains in close contact with 
Japanese government officials. Immediately following USDA's 
announcement of the BSE case, senior USDA officials held talks with 
Japanese officials in Tokyo, Japan, on December 29 and January 23. A 
Japanese technical team visited USDA in Washington, D.C., and the BSE-
incident command center in Yakima, Washington, during the period 
January 9-15. On March 23, the Agricultural Affairs Office, American 
Embassy in Tokyo, reported meetings with the Japanese Ministry of 
Health and Welfare (MHLW), Ministry of Agriculture, Fish and Food 
(MAFF), and the Food Safety Commission (FSC).
    There is still a significant difference in our official positions 
regarding BSE testing and specified risk materials (SRM) removal. On 
March 29, Secretary Veneman sent a letter to Japanese Agriculture 
Minister Kamei proposing to have a World Animal Health Organization 
(OIE) technical experts panel meet before April 26 to discuss a 
definition of BSE and related testing methodologies as well as a common 
definition of SRM. On April 2, Japan rejected the proposal, reasoning 
that the United States first needed to reach a bilateral scientific 
understanding on BSE. USDA is planning another high-level visit to 
Japan to continue talks in late April. The United States exported over 
$1.3 billion in beef to Japan in 2003, representing over 50 percent of 
Japan's total beef imports. The import ban has severely impacted 
Japan's market supplies and beef prices. Given Japan's need for beef 
imports and the importance of beef exports to Japan to the U.S. beef 
and cattle industry, we are hopeful that a solution can be found.
                       genetically modified food
    Question. A recent Wall Street Journal article states that last 
week Angola decided to ban imports of genetically modified grain, even 
though it will disrupt the country's food aid. In 2002, 13 member 
countries of the Southern African Development Community all balked at 
accepting genetically modified food aid. Last year 17 scientists from 
the same Development Community conducted a fact-finding mission and 
concluded that genetically modified foods posed no danger to people or 
animals. What is FAS doing to educate countries regarding genetically 
modified foods?
    Answer. FAS is actively engaged in the interagency process to 
provide accurate information on the benefits and risks of agricultural 
biotechnology to food aid recipient countries. In the wake of the food 
crisis in southern Africa in the summer of 2002, USDA, the State 
Department, and the U.S. Agency for International Development committed 
to identifying food aid recipient countries where the issue of 
biotechnology could hamper relief efforts. Since being formed in the 
fall of 2002, this interagency group has also addressed new challenges 
to the delivery of food aid, including the entry into effect of the 
Cartagena Protocol on Biosafety in September 2003. This group has and 
will continue to work with foreign countries, international 
organizations and the private voluntary community to ensure that safe 
and wholesome U.S. food aid reaches those in need.
    Issues related to biotechnology are both varied and complex, 
affecting every country to differing degrees. FAS attaches are often 
relied upon in their host countries to provide answers to questions 
regarding the benefits and risks of agricultural biotechnology. A high 
premium is thus placed on ensuring that FAS attaches are properly 
trained in all facets of agricultural biotechnology and that they 
receive updated information regarding political, scientific, and trade 
developments affecting biotechnology.
    One of the most effective ways to encourage the acceptance and 
adoption of agricultural biotechnology around the world is to provide 
foreign regulators, policy makers, farmers, consumers, and members of 
the media with accurate information on agricultural biotechnology. FAS 
understands this and is heavily involved in developing exchange 
projects that showcase the U.S. regulatory system for agricultural 
biotechnology and allow foreigners to see firsthand how the technology 
is being used to benefit Americans. These programs are extremely 
effective in creating advocates for the technology at all levels of 
society, from farmers to high ranking government officials.
    International standards play an integral role in the movement in 
international trade of agricultural products of all types, including 
those containing the products of biotechnology. FAS plays the critical 
role of representing U.S. interests in a number of international fora 
that promulgate standards affecting agricultural biotechnology. FAS 
works with interested stakeholders to develop and advance U.S. 
positions within CODEX, the Cartgena Protocol on Biosafety, the World 
Trade Organization, the Organization for Economic Cooperation and 
Development, and the Food & Agriculture Organization, among others. 
Playing a prominent role in these international standards setting 
bodies is one of the many ways FAS encourages other countries to adopt 
science-based, transparent approaches to the regulation of agricultural 
biotechnology.
    Question. Is USDA currently conducting any research on the effects 
of genetically modified foods?
    Answer. The Agricultural Research Service (ARS) has identified 
three general areas for research on the effects of genetically 
engineered foods: environmental effects of crops, genetic effects from 
the introduction of new DNA into crop plants, and food safety/quality. 
The ARS research portfolio encompasses all three areas. Safety 
evaluations are currently focused on genetically engineered foods 
created by ARS research.
    The most notable genetically engineered food currently undergoing 
scrutiny by ARS is a soybean genetically engineered to reduce allergic 
reactions by two-thirds. Soy is one of the ``big eight'' sources of 
food allergies, estimated to affect 6 to 8 percent of children and 1 to 
2 percent of adults. The issue is especially important to vegetarians, 
for whom soy protein often serves as a staple of their diet. This 
example shows that genetically engineered foods can have highly 
beneficial effects, and they can in fact be less risky to human health 
than conventional foods.
    The Cooperative State Research, Education, and Extension Service 
(CSREES) also manages a Biotechnology Risk Assessment Competitive 
Grants Program that supports research to examine the effects of 
genetically engineered crops. This program, funded by a 2 percent set-
aside from all biotechnology research funding in USDA, is mandated to 
target only environmental risks.
                             iraq food aid
    Question. Last month it was reported that 110,000 metric tons of 
wheat is destined for export to Iraq. This is good news and will 
certainly be beneficial to the Iraqi people. Can you update the 
Committee on the current situation regarding food aid for Iraq?
    Answer. There are no U.S. plans to provide additional food aid to 
Iraq this year. The renegotiated Oil for Food contracts and some 
additional World Food Program commercial tenders, using Iraqi funds, 
are expected to keep the pipeline sufficiently supplied into the 
summer. The Ministry of Trade, through the Iraqi Grain Board, is 
expected to take over commodity purchasing this spring and to buy 
commodities commercially for delivery during the remainder of the year. 
Additional food aid would simply displace the emerging commercial 
markets in Iraq.
                        fsa farm loan portfolio
    Question. Dr. Penn, in fiscal 2003 the delinquency rate for direct 
farm operating loans was 12.5 percent and the default rate was 4.7 
percent. Fiscal 2003's delinquency and default rates are similar to 
past years even though last year was a good year for farm prices. Can 
you explain why this is?
    Answer. FSA has made considerable progress during the past 5 years 
in reducing both delinquency and loss (default) rates. In fiscal year 
1998, the direct farm operating loan program delinquency rate was 16.78 
percent; at the end of fiscal year 2003, it was 12.5 percent. The loss 
rate in 1998 was 5.6 percent, and in 2003 was 4.7 percent.
    A portion of the loss rate can be attributed to long-term 
indebtedness from the farm crisis period of the late 1980's and early 
1990's that had never been written off the Agency's books. Some of 
these debts had been reduced to judgments, which were still 
uncollected. Other loans could not be finally written off because of 
litigation and other circumstances.
    Implementation of the Debt Collection Improvement Act of 1996 in 
the past few years has resulted in more efficient and effective 
collection from the judgment accounts and delinquent debtors. This has 
allowed both greater recovery and final determination that some 
accounts are uncollectible, resulting in writing off of the latter 
debt, which had the effect of inflating losses during this period.
    Question. Does USDA believe these rates are acceptable?
    Answer. While the Agency would certainly like to see lower 
delinquency and default rates, the current numbers represent a vast 
improvement over historical rates. FSA will continue to make efforts to 
reduce these numbers. However, as the Government's ``lender of last 
resort,'' FSA can lend only to farmers who cannot obtain commercial 
credit. Providing credit to those who do not meet standard lending 
criteria will inevitably result in higher default and delinquency rates 
than are experienced by commercial lenders.
    Question. What specific actions are you taking to lower the 
delinquency and default rates?
    Answer. FSA has purchased and begun implementation of an automated, 
web-based farm business planning system widely used by commercial farm 
lenders. The new system will permit FSA staff to easily identify 
borrowers who, as the result of economic or production issues, will 
likely have financial problems. FSA loan personnel will then be able to 
proactively work with them to avoid delinquencies or mitigate them 
before financial problems become insurmountable. It will also help 
staff work with applicants and borrowers to identify potential risks 
and formulate risk management strategies.
    For those cases that do go into default, FSA and the Department of 
the Treasury continue to work together to enforce collection of 
delinquent debt through offset of Federal payments and salaries, income 
tax refunds, and a statutorily authorized portion of Social Security 
benefits, as well as other methods. In some cases, offset provides 
sufficient funds to cure the default, thereby reducing the delinquency 
rate.
    Through the cross-servicing program, Treasury contracts with 
private collection agencies to locate and attempt collection from 
delinquent debtors. Where the borrowers have no assets or prospects 
from which collection can be made, those accounts can then be written 
off, further reducing the delinquency rate.
    FSA also provides primary loan servicing to delinquent borrowers, 
through which their accounts can be restructured or written down to an 
amount they can repay, eliminating the default.
    Question. What level of delinquency and default are you aiming for?
    Answer. We aim for the lowest levels possible, given the type of 
customer we serve. FSA establishes goals for reduction of delinquency 
and loss rates, and has already exceeded those goals for the current 
year. Goals are revisited and adjusted each year, and the Agency will 
continue to make efforts to reduce these rates to the greatest degree 
possible.
    Question. FSA is requesting a loan level of $25 million for 
emergency disaster loans for fiscal year 2005. The default rate in 
fiscal 2002 was 20.3 percent and 11.5 percent in fiscal 2003. Based on 
historical data, we know there will be high loss rates on emergency 
loans. Do the benefits of these loans justify the high levels of loss?
    Answer. This assistance is available only to borrowers who have 
suffered losses through natural disasters and cannot obtain credit from 
commercial lenders. As in the Operating Loan program, this means that 
losses will always exceed those experienced by commercial lenders. 
Further, loans made to recover from disasters carry inherent risks that 
do not apply to normal operating and ownership loans. However, this 
program does appear to be the best method of providing assistance to 
those who have suffered disaster losses, especially considering that 
the alternative--grants and other aid that does not have to be repaid--
would increase the cost to the Federal Government.
    Question. What specific actions are you taking to lower the default 
rate?
    Answer. FSA has purchased and begun implementation of an automated, 
web-based farm business planning system widely used by commercial farm 
lenders. The new system will permit FSA staff to easily identify 
borrowers who, as the result of economic or production issues, will 
likely have financial problems. FSA loan personnel will then be able to 
proactively work with them to avoid delinquencies or mitigate them 
before financial problems become insurmountable. It will also help 
staff work with applicants and borrowers to identify potential risks 
and formulate risk management strategies.
    For those cases that do go into default, FSA and the Department of 
the Treasury continue to work together to enforce collection of 
delinquent debt through offset of Federal payments and salaries, income 
tax refunds, and a statutorily authorized portion of Social Security 
benefits, as well as other methods. In some cases, offset provides 
sufficient funds to cure the default, thereby reducing the delinquency 
rate.
                           performance review
    Question. Based on an OMB assessment, FSA is conducting a 
performance review of its loan portfolio. When will this review be 
complete?
    Answer. The Program Effectiveness Study of the FSA direct loan 
portfolio will be complete by June 2005. Preliminary data is expected 
by August 1, 2004.
    Question. What do you hope to learn from this review?
    Answer. We expect to learn more about financial characteristics of 
program participants as a group and how those characteristics change 
during the time borrowers have debts with FSA; how many participants 
``graduate'' to commercial credit and subsequently return to FSA for 
loans; the effectiveness of statutory assistance targets; potential 
improvements for administering the ``credit elsewhere'' requirement; 
and alternatives for reducing program subsidy rates.
    Question. Will you please share the results of the review with this 
Subcommittee?
    Answer. Yes, FSA will share the findings with the Subcommittee when 
the program effectiveness study is complete.
                           farm loan staffing
    Question. FSA is requesting 100 new staff years to administer its 
farm loan programs. In the FSA administrator's testimony, he states 
that the new staff will ``help avert increases in direct loan 
delinquency and loss rates.'' Is that the best we can do--attempt to 
stop the rate of increases? Why won't these staff contribute to 
decreasing the overall level of defaults and delinquencies?
    Answer. The FTE request is intended to avert increases in loan 
delinquency and loss rates, and continue improvement in loan 
performance. FSA's Farm Loan Program has an urgent need to establish a 
training ``pipeline'' of loan officers and technicians to replace large 
numbers of anticipated retirees, to maintain a cadre of experienced 
loan program delivery personnel. Adequate training for a loan officer 
takes at least 2 years. Inadequately trained staff cannot be efficient 
because they must learn as they work, and they make more and 
potentially more serious errors. Because FSA farm loan programs are 
complex, poorly or partially trained loan officers are prone to errors 
that create substantial program vulnerability and result in higher loss 
rates. Merely replacing retirees with new hires is ineffective in the 
short run and will adversely affect program performance in the long 
run.
    Question. How was this level determined?
    Answer. In determining the request, the agency took into account 
the fact that resources are limited and proposed an increase that, 
while not completely solving the trained loan officer ``pipeline'' 
problem, will be a major step in that direction.
    Question. Does it not make sense to wait for the results of the 
performance review before creating 100 new positions?
    Answer. No, these two issues are not directly related. The Program 
Effectiveness Study will provide data that will allow more informed 
policy decisions, and possibly result in administrative or policy 
adjustments to make the programs more effective. The FTE request is 
necessary to maintain a cadre of fully trained staff which will 
maintain and enhance current performance, protect the government's 
financial interest in existing loans and guarantees, and help existing 
borrowers stay on the path to financial success.
    Question. How do you know this is the agency's most pressing need?
    Answer. The Agency has a combined guaranteed and direct loan 
portfolio of nearly $17 billion, annual loan and guarantee commitments 
approaching $4 billion, and a commitment to assist nearly 120,000 
borrowers. Farm loan programs make FSA the largest single farm lender 
in the country. Given the level of financial exposure and the 
anticipated scope of retirements of seasoned staff in the farm loan 
programs, the need for this additional staff is critical.
                             crop insurance
    Question. The Risk Management Agency (RMA) is currently working to 
renegotiate the Standard Reinsurance Agreement (SRA). This agreement 
establishes the terms and conditions under which the Federal Government 
will provide subsidies and reinsurance on eligible crop insurance 
contracts. Can you provide the Committee with an update on the 
negotiation process and have you set a deadline for completion?
    Answer. The Department announced on December 31, 2003 that the 
current standard reinsurance agreement would be renegotiated effective 
for the 2005 crop year. The first proposed reinsurance agreement was 
made publicly available at that time. Based on the advice of the 
Department of Justice, RMA established a process by which we 
renegotiate the agreement individually with each company and meet with 
each company in detailed negotiating sessions. Interested parties had 
until February 11, 2004 to provide written comments about the proposed 
agreement. RMA reviewed comments from insurance companies and 
interested parties to revise the first draft. On Tuesday, March 30, RMA 
announced the release of the second SRA proposal. RMA believes that the 
second draft demonstrates responsiveness to concerns raised by 
companies and interested parties. The proposed SRA will enhance the 
Federal crop insurance program by: encouraging greater availability and 
access to crop insurance for our nation's farmers; providing a safe and 
reliable delivery system; and reducing fraud, waste, and abuse, while 
achieving a better balance of risk sharing and cost efficiencies for 
taxpayers.
    As part of the process, RMA will meet with the insurance providers 
in individual negotiating sessions the last 2 weeks of April and will 
receive public comments until April 29. At that point RMA will evaluate 
the comments and negotiating session materials and develop another 
draft for discussion with the companies. There are several remaining 
issues of substance to resolve before a final draft may be completed. 
While it is the agency's desire to resolve them and complete the 
process before July 2004, given that this is a negotiation, RMA is not 
able to determine how long it will take to resolve issues to all 
parties' satisfaction. Prior SRA negotiations have taken well past July 
to conclude, but have not affected the continuing delivery of the 
program.
    Question. The Administration's Budget request for the RMA includes 
an increase of over $20 million to improve information technology. 
Within the increase, the Budget requests funding to monitor companies 
and improve current procedures to detect fraud and abuse. Can you 
explain how the department will monitor companies and improve detection 
of fraud and abuse?
    Answer. The current systems are based on technology that is more 
than 20 years old. The information that is collected from the Insurance 
Companies is distributed to a collection of 100+ databases. Any 
subsequent updates or changes, received from the Insurance Companies, 
to this information overlays the original information. This 
architecture does not allow RMA to track changes in the submissions 
from the external entities.
    As the data requirements of the current data structures change from 
year to year, new databases are created for each crop year. The prior 
years databases are problematic due to the intense effort needed to 
convert the historical information to formats that are consistent with 
the more recent years. This creates problems in data analyses when 
trying to use data from multiple crop years.
    The requested increase in funds is directed at the establishment of 
a consistent enterprise architecture and enterprise data model. This 
would replace the 100+ databases with a single enterprise data model 
that would be consistent across the organization. This enterprise data 
model would allow data mining operations to be conducted without first 
converting the data to a consistent useable format.
    By moving the data to a modern relational database system RMA will 
be able to track detailed changes that are made to the data that is 
received from the Insurance Companies. This will allow RMA to monitor 
the timing of the changes as they occur and identify those changes that 
could potentially be related to fraud and abuse.
                         adventitious presence
    Question. The U.S. government's intent to implement a science-based 
policy with respect to adventitious presence (AP) was announced by the 
Office of Science and Technology Policy (OSTP) in August 2002 (Federal 
Register Notice 67 FR 50578). The seed, grain, and food industry 
continue to face the possibility of disruptions in trade due to 
uncertainty around low levels of biotech events in conventional and 
biotech products. Can you update the Committee on this situation and 
what actions USDA may take this year?
    Answer. The biotechnology, food, and grain industries have all 
identified adventitious presence (AP) as a priority issue and 
development of an AP policy is a priority for APHIS as well. AP refers 
to the intermittent low-levels of biotechnology derived genes and gene 
products occurring in commerce as a result of the field testing of 
biotechnology crops. In August 2002, OSTP began coordinating a 
government-wide approach to AP, which involves updating APHIS field 
testing requirements and establishing early food safety assessments at 
the Environmental Protection Agency and the Food and Drug 
Administration. APHIS has participated in the Agricultural 
Biotechnology Working Group (ABWG) to develop an AP policy under the 
auspices of the White House and OSTP. APHIS is working as quickly as 
possible to establish an AP policy as part of its upcoming regulatory 
revisions.
                           rental assistance
    Question. Mr. Gonzalez, GAO has recently assessed the Rural Housing 
Service's rental assistance program. I understand that USDA does not 
generally agree with GAO's conclusions. Does USDA agree with the idea 
that rental assistance contracts should last only as long as the life 
of the contract, that is, in our current situation, for 4 years?
    Answer. RHS has worked diligently over the last 6-7 years to 
estimate rental assistance (RA) needs as closely as possible to the 
contract term. However, it is impossible to estimate the contracts 
exactly due to tenant turnover and market conditions in the last 2 
years of the contract. Therefore, requiring a set term provides an 
additional burden to both the borrower and the Agency in the monitoring 
of these contracts. Within the last year, automated technology has made 
it possible for the Agency to drill down to a per-property basis to 
determine the most current usage rate of rental assistance. Development 
of an automated rental assistance forecasting tool, now completing the 
testing phase, will enable RHS to establish a more accurate per 
property cost of RA over the life of the contract.
    Question. Do you believe that the fiscal 2005 request will be 
completely spent within 4 years (If not, why not?)
    Answer. RHS believes that the fiscal 2005 request will be 
completely spent within 4 years.
                       management control review
    Question. Mr. Gonzalez, I understand that the rental assistance 
program will undergo a ``Management Control Review'' this month. Who 
will conduct this review?
    Answer. The Financial Management Division of the Rural Development 
mission area oversees the conduct of all Management Control Reviews 
(MCRs) within RD done on all programs deemed assessable. This includes 
most loan and grant programs, including the Section 521 Rental 
Assistance Program. The review is performed by subject matter experts, 
generally 8-10 field staff who work in the particular program area, as 
well as Civil Rights personnel, who conduct their review from a 
perspective of fair housing regulations and civil rights compliance.
    Question. Why did you choose to begin this review?
    Answer. MCRs are generally done on a 5-year cycle. In this case, 
the last MCR done on the Section 521 program was in 1999 and is due 
again in 2004.
    Question. What are the goals of this review?
    Answer. The general goals of a MCR are to improve the 
accountability and effectiveness of USDA's programs and operations 
through the use of sound systems of internal and management controls. 
The specific objectives of the MCR on Section 521 assistance are to 
ensure:
  --Priority of Rental Assistance (RA) applications properly processed 
        in accordance with RD Instruction 1930-C Ex. E IV;
  --That any denial of RA requested is in accordance with RD 
        Instruction 1930-C Ex. E V C 4;
  --Recordkeeping responsibilities are in accordance with RD 
        Instruction 1930-C Ex. E VII & X;
  --That borrower's administration of the RA program is in accordance 
        with RD Instruction 1930-C Ex. E VIII;
  --That assigning RA to tenants is in accordance with RD Instruction 
        1930-C Ex. E XI;
  --Suspending or transferring existing RA is in accordance with RD 
        Instruction 1930-C Ex. E. XV;
  --That unused RA units are reviewed and transferred in accordance 
        with RD Instruction 1930-C Ex. E XV B 5;
  --That AMAS (the automated multifamily accounting system) is 
        maintained to support the Rental Assistance program.
    Question. Will you please share the results of the review with this 
subcommittee?
    Answer. The MCR is expected to be completed this summer, and the 
report should be available by August 2004. RHS will provide the 
subcommittee with a copy of the report at that time.
                    comprehensive program assessment
    Question. Mr. Gonzalez, the Section 515 housing program is 
currently undergoing a ``Comprehensive Program Assessment''. When will 
the Comprehensive Program Assessment be complete?
    Answer. Our target date for completion of the physical inspections 
and market analysis portions of the study is the summer of 2004.
    Question. How much did this assessment cost?
    Answer. The assessment cost is $1.8 million
                          multifamily housing
    Question. As part of this review, why did USDA choose to evaluate 
the organizational structure of the Multifamily Housing division?
    Answer. The Section 515 Rural Rental Housing program has 17,314 
properties in its portfolio as of April 2003. We have undertaken an 
effort to develop a comprehensive assessment of these properties. 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:
  --Assessment of property's physical condition,
  --Assessment of property's financial health,
  --Assessment of property's position in the real estate rental market,
  --Determination of continuing need for this rental housing,
  --Assessment of needed capital improvements and cost,
  --Assessment of future capital reserve needs,
  --Analysis of prepayment potential, and
  --Analysis of prepayment incentive costs to retain properties/use 
        restrictions.
    The Department convened a Multifamily Advisory Group to oversee 
completion of the study, and ICF Consulting, Inc. was hired in 
September 2003 to undertake the study. At the completion of this study, 
we will be able to determine the long-term capital needs of the 
portfolio for budget purposes.
    The study will make recommendations on needed modifications to the 
program delivery system to meet the long-term capital needs of the 
portfolio.
                               broadband
    Question. The Rural Broadband Program has received a great deal of 
interest from Congress, rural communities, and the broadband industry. 
Of particular interest is the status of many of the loan applications. 
Could you please provide us with an update on the loan program and some 
of the issues you are dealing with?
    Answer. There are 40 loan applications pending totaling $438.8 
million; 14 loans have been approved totaling $201.8 million; 20 loan 
applications totaling $300.3 million have been returned as ineligible; 
and 17 loan applications totaling $195.4 million have been returned as 
incomplete.
    The Broadband loan program is distinctive from all other lending 
programs within the RUS portfolio. Broadband is currently viewed as a 
commodity that must be properly marketed and potential customers must 
be made aware of the benefits of broadband service if they are to spend 
their discretionary dollars on it. As such, it is difficult to predict 
what penetration rates will be today and in the future.
    Nearly half of the applicants are ``start-up'' companies with 
little, if any, history of doing business in this industry. There are 
two distinctly different characteristics at play-competition (rather 
than a monopolistic environment) and multi-state businesses (rather 
than a single cooperative serving a single rural community).
    Applications for the Broadband Program are different from those in 
the other RUS infrastructure programs. Very few of these applications 
are designed to serve a single rural community or even a small grouping 
of geographically close rural communities. Most are applications 
requesting to serve 50, 75, or in excess of 100 rural communities in 
multiple states.
    Furthermore, the vast majority of the communities already have 
broadband service available in some of the proposed service area; in 
some instances, from more than one provider. To determine financial 
feasibility, RUS must determine what portion, if any, of a competitive 
market the applicant will be able to penetrate. As a result, working 
with each applicant is also uniquely time consuming.
    Finally, many of the first applications submitted were assembled 
hastily to secure positions due to our first-in first-out review 
procedures. Valuable time was used helping applicants assemble complete 
loan application packages.
    Based on this experience, RUS changed its review procedures to 
expedite reviews and has instituted new techniques to determine whether 
an application is complete and can be processed; is incomplete but can 
be completed with the submission of additional information; is 
incomplete and will require a significant amount of additional work and 
must, therefore, be returned; or is ineligible and must be returned.
                                 ______
                                 

                Questions Submitted by Senator Herb Kohl

                       dairy forward contracting
    Question. Dr. Collins, in 1999, Congress passed legislation to set 
up a dairy forward contracting pilot program, which is set to expire at 
the end of this year. Dairy forward contracting allows buyers and 
sellers of milk to voluntarily agree upon delivery of a specific amount 
of milk for a set price over a specified period of time. About 655 of 
Wisconsin's 16,000 dairy farmers have participated in this pilot 
program. Many of them recommend making this voluntary program permanent 
because it gives them a new way to manage risk. What is the 
Administration's position on this program? Does the Administration 
support legislation that would make the dairy forward contracting 
program a permanent program?
    Answer. The Consolidated Appropriations Act of 2000 required USDA 
to conduct a study to determine the impact of the Dairy Forward Pricing 
Pilot Program on milk prices paid to producers. Data from the mandated 
study indicates that the program can help stabilize the price dairy 
producers receive for their milk and thereby be a valuable risk 
management tool. For this reason, USDA does not oppose extending or 
making permanent the current Dairy Forward Pricing Pilot Program.
                         export market problems
    Question. Following the BSE discovery in Washington State last 
December, our beef export markets were badly shaken. Similarly, we have 
seen problems with certain poultry export markets due to avian 
influenza. In both of these cases, the problem originated in another 
country and was imported to the U.S. Open markets are a two way street, 
they allow our products to move in foreign commerce, but they also 
raise the possibility that we are importing serious problems.
    Please update us on what USDA is doing to reopen export markets for 
our beef and poultry products. Also, can you please comment on how we 
protect our export markets from problems which are, themselves, foreign 
in origin?
    Answer. Re-opening foreign markets for U.S. beef and beef products 
is a top priority for USDA. As a result of USDA's efforts, Mexico and 
Canada, which are the second and fourth largest U.S. beef export 
markets, have opened their markets to selected U.S. beef, beef 
products, and ruminant by-products exports. Further, USDA is working 
very closely with NAFTA trading partners to harmonize animal health 
standards and regulations with regard to Bovine Spongiform 
Encephalopathy (BSE).
    USDA continues to work closely with foreign trading partners to re-
establish U.S. beef and beef product exports as quickly as possible. We 
are working with foreign officials at all levels to personally assure 
them of our robust safeguards and to indicate that trade can safely 
resume. The Animal and Plant Health Inspection Service (APHIS) was in 
constant contact with its counterparts providing them with updates on 
the BSE investigation, as well as new USDA regulatory policies imposed 
on BSE testing and specified risk material (SRM) removal. USDA 
continues to be engaged with foreign governments at the technical level 
responding to all of their questions and encouraging them to make trade 
decisions based on sound science.
    With respect to poultry exports, USDA responded quickly and 
effectively to control the spread of Avian Influenza (AI) in the AI-
affected states. Throughout this process, USDA officials were in 
constant contact with their foreign counterparts to provide timely 
information about the outbreaks and quarantine control measures. U.S. 
export markets accounting for 66 percent of total U.S. poultry meat 
export value continue to import U.S. poultry meat. In 2003, the export 
value of poultry meat to these markets was $1.31 billion.
    On April 1, the USDA Chief Veterinary Officer (CVO) announced the 
completion of the required surveillance and testing protocols per the 
World Animal Health Organization (OIE) guidelines. An official request 
from the CVO has been sent to major U.S. poultry export markets 
requesting the removal of all import bans on U.S. poultry and poultry 
product imports. The Department, at all levels, is diligently pursuing 
with its trading partners the lifting of all AI trade restrictions on 
products from the United States. By the summer of 2004 or earlier, the 
remaining countries imposing nationwide bans on U.S. poultry meat are 
expected to at least regionalize their import bans to those states 
affected by Low Pathogenic Avian Influenza (LPAI).
    The U.S. Department of Agriculture takes protecting U.S. 
agriculture from animal and plant diseases very seriously. APHIS makes 
its regulatory decisions using a science-based evaluation. Before 
approving a product for import from a given country, a rigorous risk 
assessment is conducted to determine the risk associated with 
introducing a particular disease. Once approved, APHIS continues to 
monitor that country's animal health standards to ensure implementation 
is enforced. Because of these standards and controls, USDA can assure 
countries that imports of agricultural and food products from the 
United States are wholesome and fit for human consumption.
                       genetically modified crops
    Question. USDA has pointed out the ever-increasing importance of 
biotechnology and its implications for U.S. agricultural trade. The 
more U.S. agricultural production includes elements of genetically 
modified (GM) materials, the more at risk our foreign markets become as 
long as there is a general reluctance throughout the world to accept 
such products.
    Over the past several weeks, items appeared in the Washington Post 
and the New York Times reporting that genetically modified traits are 
appearing in traditional seed supplies with unknown consequences.
    Secretary Penn, given the fact that there has been a tremendous 
increase in U.S. production of GM crops, and given the trade 
implications, do you think that we have allowed for too much production 
of biotech crops before we knew we had the knowledge and tools in hand 
to make sure contamination would not occur? In other words, have we 
moved so quickly on biotech crops that we have placed our exports 
markets at risk?
    Answer. USDA's Prospective Plantings report, released on March 31, 
2004, indicates that U.S. production of crops produced using modern 
biotechnology will continue to increase in 2004. However, U.S. farmers 
are not alone in their rapid adoption of this technology. According to 
the International Service for the Acquisition of Agri-biotech 
Applications, 2003 saw the 7th year of double-digit global growth in 
the production of biotech crops. Over 7 million farmers in 18 countries 
produce 167 million acres of crops enhanced though modern 
biotechnology. Farmers are increasingly using biotechnology for 
improved control of pests and weeds. In addition to these economic 
benefits, in some instances, farmers are realizing environmental 
benefits through increased use of no-till' and reduced use of chemicals 
and fuel.
    USDA will continue to work very hard to promote U.S. crops in 
overseas markets and is engaged on many levels to provide trading 
partners with accurate information regarding the benefits and risks 
associated with agricultural biotechnology.
    Question. What steps are you taking to meet concerns of some 
countries that won't even accept GM crops as food aid?
    Answer. FAS is actively engaged in the interagency process to 
provide accurate information on the benefits and risks of agricultural 
biotechnology to food aid recipient countries. In the wake of the food 
crisis in southern Africa in the summer of 2002, USDA, the State 
Department and the U.S. Agency for International Development committed 
to identifying food aid recipient countries where the issue of 
biotechnology could hamper relief efforts. Since being formed in the 
fall of 2002, this interagency group has also addressed new challenges 
to the delivery of food aid, including the entry into effect of the 
Cartagena Protocol on Biosafety. This group has and will continue to 
work with foreign countries, international organizations, and the 
private voluntary community to ensure that safe and wholesome U.S. food 
aid reaches those in need.
    Issues related to biotechnology are both varied and complex, 
affecting every country to differing degrees. USDA's Foreign 
Agricultural Service (FAS) attaches are often relied upon in their host 
countries to provide answers to questions regarding the benefits and 
risks of agricultural biotechnology. A high premium is thus placed on 
ensuring that FAS attaches are properly trained in all facets of 
agricultural biotechnology and that they receive updated information 
regarding political, scientific, and trade developments affecting 
biotechnology.
    One of the most effective ways to encourage the acceptance and 
adoption of agricultural biotechnology around the world is to provide 
foreign regulators, policy makers, farmers, consumers, and members of 
the media with accurate information on agricultural biotechnology. FAS 
understands this and is heavily involved in developing exchange 
projects that showcase the U.S. regulatory system for agricultural 
biotechnology and allow officials from other countries to see firsthand 
how the technology is being used to benefit Americans. These programs 
are extremely effective in creating advocates for the technology at all 
levels of society, from farmers to high-ranking government officials.
    International standards play an integral role in the movement in 
international trade of agricultural products of all types, including 
those containing the products of biotechnology. FAS plays the critical 
role of representing U.S. interests in a number of international fora 
that promulgate standards affecting agricultural biotechnology. FAS 
works with interested stakeholders to develop and advance U.S. 
positions within CODEX, the Cartgena Protocol on Biosafety, the World 
Trade Organization, the Organization for Economic Cooperation and 
Development, and the Food & Agriculture Organization, among others. 
Playing a prominent role in these international standards setting 
bodies is one of the many ways FAS encourages other countries to adopt 
science-based, transparent approaches to the regulation of agricultural 
biotechnology.
                             sound science
    Question. I agree that these crops provide the opportunity for much 
improved food security throughout the world, and possibly, reduced 
pesticide use. But world-wide acceptance of these products will depend 
on world-wide acceptance of the science used to establish their safety. 
This is true for plant science, this is true for animal science, this 
is true for all science.
    Dr. Jen, would you please respond to the questions that have been 
raised regarding the use, or abuse, of science in the pursuit of 
certain policy objectives? What are you doing at USDA to ensure that 
the term ``sound science'' is a truly scientific term and not a 
political term?
    Response. USDA is committed to an open and transparent regulatory 
process that reflects the latest science to protect America's 
agricultural and natural resources. One of the purposes of our Office 
of Risk Assessment and Cost Benefit Analysis is to review risk 
assessments for certain regulatory actions. As part of the regulatory 
process, risk assessments are also made available for comment and input 
from stakeholders, industry, and the general public. Further, in the 
area of biotechnology policy and regulations, we have requested input 
from the National Research Council of the National Academy of Sciences. 
On the question of BSE risks, we have requested analyses by Harvard 
Center for Risk Analysis. These examples illustrate that we attempt to 
find and use the best science based information available in a 
transparent process to help guide our decisions.
                  downed animal risk management tools
    Question. Dr. Penn, it was recently announced that downed cattle 
will no longer be accepted for slaughter at plants destined for the 
food chain. Since that announcement, producers have pointed to their 
potential lost income as a result of this policy. Would you recommend 
that RMA develop a risk management tool to help these producers seek 
compensation for lost income resulting from this new policy, as crop 
producers have tools for similar losses?
    Answer. Section 523(a)(2) of the Federal Crop Insurance Act (Act), 
states the Corporation shall not conduct any pilot program that 
provides insurance protection against a risk if insurance protection 
against the risk is generally available from private companies. It is 
my understanding there are a number of private insurance products in 
the market that cover livestock from injury or disease loss, which 
would prohibit the Federal Crop Insurance Corporation Board of 
Directors from approving such a product. However, if it is determined 
that insurance protection for downed cattle is not generally available, 
the Risk Management Agency could contract for a feasibility study to 
determine if an appropriate insurance product may be developed to 
protect against the risk of loss due to downed cattle.
                           farm loan staffing
    Question. Dr. Penn, you have requested an increase of $7,395,000 
for 100 new Federal permanent employees. Your justification indicated 
these new employees will prevent direct loan delinquency and loss rates 
from increasing and assist in loan processing and servicing. We also 
understand that FSA faces tremendous problems in the future related to 
large numbers of senior loan officers eligible for retirement. How will 
you allocate these resources, will it be used primarily to backfill 
senior loan officers in the field that retire?
    Answer. The staff years would be deployed first to States with the 
highest attrition rates of loan officers and secondly to high loan 
volume offices.
    Question. Will other factors, for example loan processing delays, 
servicing of large loan portfolios be considered?
    Answer. Offices with larger portfolios and those that are 
experiencing difficulty in delivering farm loan programs due to lack of 
trained staff will be considered. It should be noted that new hires 
must complete a training program that can last up to 2 years, so the 
workload in these offices will not be immediately affected.
    Question. Will racial, ethnic and gender diversity be considered 
when filling these positions in the field?
    Answer. Certainly, there will be discussion about hiring employees 
who represent the States' underserved constituencies. The States are 
being encouraged to use outreach efforts to ensure that qualified 
diverse individuals are hired for these positions.
    Question. The farm credit programs have remained relatively flat in 
the past few years. Isn't there a need to address retirement or work 
flow needs in other areas of FSA that are outside of the positions 
devoted to farm credit programs?
    Answer. There are definitely attrition and workflow issues in other 
programs within FSA. However, the farm loan program area is unique in 
that adequate training for loan officers can take up to 2 years. Many 
of the other jobs in FSA have training programs that would allow the 
employee to be fully functional in their jobs much sooner. In the farm 
loan program area, retirees cannot be replaced with untrained new 
hires.
                           digital data maps
    Question. In the Common Computing Environment account, there is a 
request for $9,000,000 for FSA to complete digital data maps. In my 
home State of Wisconsin, not a single county has been certified and it 
is my understanding the only State that has every county certified is 
Minnesota. This has been an ongoing effort for several administrations. 
How many counties are certified, when do you expect to finish this 
work, and what has been spent to date by FSA to complete this effort?
    Answer. As of April 7, 2004, 1,767 counties have digitized common 
land units (CLU's) and 381 of these counties have been certified. Of 
the 72 counties in Wisconsin, 20 counties have digitized CLU's. While 
only one county in Wisconsin is currently certified, certification is 
planned for about 10 counties by the end of fiscal year 2004.
    Within current funding constraints, approximately 2,200 counties 
should be digitized by the end of the fiscal year. At the current rate, 
we would expect to have as many as 600 to 800 counties certified by the 
end of the fiscal year. Minnesota, Nebraska, Oregon, and Massachusetts 
are fully certified, and Kansas has 102 of 105 counties certified.
    To date, USDA has spent about $16,000,000 on contracts to digitize 
the Common Land Unit. The expectation is that all of the CLU will be 
completed except for some areas in Alaska and the territories by the 
end of fiscal year 2005. Not all of the $9,000,000 in the current 
request is for the CLU. Most of this request is for annual expenses for 
obtaining compliance imagery (National Agricultural Imagery Program).
    Question. What other Federal agencies have this capability, and can 
you use their information for your purposes?
    Answer. Many other Federal agencies have GIS capability and the 
ability to digitize information, either directly or through contract 
support. However, the Common Land Unit is information collected and 
managed only by USDA. No other Federal Agency tracks this kind of 
information for private (non-Federal) land nationwide. U.S. Department 
of Interior, Bureau of Reclamation tracks similar information for 
watersheds in the Western United States and USDA has worked with them 
to share information. There are similarities between this information 
and information tracked by some State and local agencies, but there is 
no consistency across States and local areas and no single 
authoritative source for this information outside of the Farm Service 
Agency.
                         broadband loan program
    Question. Secretary Gonzalez, please elaborate upon the RUS 
broadband loan program internal review process. Your response should 
detail the average timeframe for: (a) acknowledgement of an application 
by RUS; (b) the actual review of an application including review by the 
RUS senior loan review committee; (c) the preparation of 
recommendations to the Administrator; (d) the consideration of the 
recommendations by the Administrator; and (e) notification to the 
applicant regarding the final ruling upon an application including 
instances when any further action is requested of the applicant.
    Answer. When an application is received, RUS performs an initial 
review for eligibility and completeness within 20 working days. When 
that review is complete, a letter is sent to the applicant detailing 
the results of the review: (1) the application is complete and will be 
processed; (2) the application is incomplete, including details needed 
for making the application complete; or (3) the application has been 
determined ineligible in accordance with program regulations. If the 
application is determined to be complete, upon assignment, the 
application should be processed within 60 days, including the following 
committee reviews. If the application is feasible and adequately 
secured, the loan is presented to the Assistant Administrator's Loan 
Committee (AALC) for recommendation. At a minimum, this committee meets 
twice a week or as necessary to review loans. Upon approval from the 
AALC, the loan is forwarded to the Senior Loan Committee (SLC) for 
review and recommendation. Again, at a minimum, this committee meets 
twice a week or as necessary to review loans. The Administrator 
participates as chair of the Senior Loan Committee. Upon final action 
from the SLC, applicants are immediately notified of the status of 
their application. If the SLC approval is conditional upon the 
applicant agreeing to complete further action, then the action is 
stated in the letter notifying the applicant of the status of the 
application.
    Question. Please provide an accounting of the total number of 
applications that have been received, approved, returned, currently 
under review and not yet reviewed under the RUS broadband program. 
Please include detailed information about the corresponding loan levels 
for each category.
    Answer.

                          [Dollars in millions]
------------------------------------------------------------------------
              Applications                    Number          Amount
------------------------------------------------------------------------
Received................................              93          $1,157
Approved................................              18             216
Returned................................              40             538
Under review............................              34             386
Not yet reviewed........................               1              17
------------------------------------------------------------------------

    Question. When will the RUS announce the opening of the application 
process for funds appropriated in fiscal year 2004? What will be the 
deadline for submitting applications for fiscal year 2004 loans? What 
actions have been taken by RUS to ensure that potential RUS applicants 
submit complete and thorough applications?
    Answer. The ``application window'' for fiscal year 2004 has been 
open since the beginning of the year, since mandatory funding from the 
previous year was carried forward to fiscal year 2004. There is no 
``deadline'' for the submission of applications--applications are 
accepted year-round. On March 24, 2004, RUS published a Notice of Funds 
Availability that detailed the amount of funding available, including 
the mandatory funding and the fiscal year 2004 appropriation. The 
notice also detailed the amount of funding available by category (4 
percent direct, direct cost-of-money, and guaranteed). The notice also 
sets forth the maximum and minimum loan levels as well as the 
definition of broadband service to be used for loans made this fiscal 
year.
    To ensure timely loan processing, RUS has been diligent in 
reviewing and re-engineering its Broadband Program loan processing 
procedures in an effort to expedite loan processing. The agency has 
instituted new triaging techniques to more rapidly review applications 
upon submission to determine whether the application is complete and 
can be processed; is incomplete but can be completed with the 
submission of additional information; is incomplete and will require a 
significant amount of additional work and must, therefore, be returned; 
or is ineligible and must be returned. In addition, field personnel 
have been trained and instructed in working with potential applicant 
borrowers to facilitate the submission of completed applications.
    Question. Please detail the overall number of applications that 
have been received by RUS under each of the various RUS Rural Broadband 
Access Loan and Loan Guarantee Programs loans: (1) direct cost of money 
loans; (2) direct 4 percent loans; (3) private lender guaranteed loans. 
How many applications have been approved under each category of loans?
    Answer. The overall number of applications received by RUS under 
the requested categories follows: (1) Under the direct cost of money 
category, 92 applications totaling $1,153 million. Of those, 18 
totaling $216 million have been approved. (2) Only one application has 
been received under the 4 percent direct program totaling $4.2 million. 
This application has been approved. (3) No applications for private 
lender loan guarantees have been received.
    Question. Please detail the current and planned allocation of your 
staffing resources among the various RUS administered programs 
including how many FTE's are solely devoted to loan processing and 
servicing for the broadband loan program.
    Answer. The RUS telecommunications program currently has a total of 
128 assigned FTEs (including the broadband program), of which 113 
positions are filled. This office is responsible for the 
telecommunication loan program, DLT, Broadband loans and grants and 
other programs like the weather radio grant program. No new FTEs have 
been added since receiving the broadband program and the Local to Local 
TV loan guarantee program.
    A team of 14 headquarters individuals were initially assigned to 
the Broadband program. Under a recently approved reorganization plan, 
approximately 25 individuals will be assigned to it, pending filling 
vacancies which currently exist.
    Question. Secretary Gonzalez, please provide the private contracts 
for services including the dollar amount and purpose that were provided 
in fiscal year 2003 and fiscal year 2004 to date. Please include carry-
over funds from previous appropriations that have been placed in the 
FISERV and GOVWORKS accounts.
    Answer. The information is provided for the record.
    [The information follows:]

                                             RBS--BUSINESS PROGRAMS
----------------------------------------------------------------------------------------------------------------
               FISCAL YEAR                     PERFORMING AGENCY          AMOUNT                PROJECT
----------------------------------------------------------------------------------------------------------------
2003....................................  Mineral Management Service         $60,000  Enhancement to RBS Data
                                           (GovWorks).                                 Project.
2003....................................  GSA/FEDSIM................          97,000  Web-delivery of Moody's
                                                                                       Financial Analyst
                                                                                       software training.
2003....................................  Farm Credit Administration         542,600  Assist redevelopment of
                                                                                       the Business Programs
                                                                                       Assessment Review
                                                                                       process.
2003....................................  GovWorks..................          30,000  Assist in development of
                                                                                       regulations for Section
                                                                                       9006 of the Farm Bill.
2004....................................  MACTEC (GovWorks).........          25,712  Assist in development of
                                                                                       regulations for special
                                                                                       project for Under
                                                                                       Secretary.
                                                                     ----------------
      Total.............................                                     755,312
----------------------------------------------------------------------------------------------------------------

                guaranteed single-family housing program
    Question. Secretary Gonzales, the President's budget request for 
the Section 502 Guaranteed Single-Family housing program for fiscal 
year 2003 was below what your agency really needed. I have been told 
you face similar problems for fiscal year 2004. In fiscal year 2003, 
this Committee, at USDA's informal request, provided an additional $900 
million in loan authority. Now, we are told by concerned housing 
lenders that the President's request for fiscal year 2005 will once 
again fall short and you will be forced to shut this program down prior 
to the end of the fiscal year.
    Since this program is highlighted as part of the President's 
Homeownership Initiative, why haven't you asked for a reasonable 
program level to carry you through this year? Will this program run out 
of money before the end of the year? If so, when?
    Answer. The Agency is considering administrative measures to 
supplement its program level this fiscal year. Early this year, we 
discussed funding management options with the Office of Management and 
Budget and Senate and House staffs. We are in the process of approving 
and implementing some of the options we discussed, including a 25 basis 
point increase in the fee on guaranteed loans. Certain administrative 
transfers of funds are also being considered. These should alleviate 
any problems that might have arisen due to the demand for funds 
exceeding the amount of funds available in 2004.
    Question. Will you ask this Committee again to increase this 
program during this current fiscal year or in fiscal year 2005 prior to 
the depletion of funds?
    Answer. There are no plans to request an increase in the Guaranteed 
Loan Program funding during the current fiscal year and we do not 
anticipate requesting an increase to GLP funding during fiscal year 
2005.
    Question. The President's fiscal year 2005 budget request increases 
the origination fee from 1.5 percent to 1.75 percent. Additionally, I 
understand that you may consider raising this fee administratively to 2 
percent during the current fiscal year to stretch your funding. In 
fiscal year 2003, the President's Housing Initiative at RHS entitled 
``Lowering Fees to Reduce Barriers to Minority Homeownership'' reduced 
the fee for this program from 2 percent to 1.5 percent. What impact 
will reinstating what you previously considered a ``barrier'' have on 
borrowers?
    Answer. The 25 basis point increase in the fee will be negligible 
for homebuyers. The increase of less than $250 per loan will not be a 
barrier to homeownership. The resultant monthly payment increase will 
be about $2, on average. Raising the fee will allow about 1,000 more 
families to be served this year than would have been possible 
otherwise.
    Question. When you run out of funding before the end of the year, 
do you lose many rural lenders you have worked so hard to bring into 
the program? What will you do to keep these lenders in the program?
    Answer. We are currently exploring the potential of transferring 
unused budget authority to the program.
                section 515 multi-family housing program
    Question. Transfers of Sec. 515 properties typically require new 
financing from sources other than USDA--from banks, Low Income Housing 
Tax Credit equity investors and public agencies. RD typically does not 
give any indication prior to the transfer itself that it will approve 
the resources and other items it must provide required for the transfer 
to work. Would the Department be able to provide formal binding 
commitments (with reasonable conditions for final approval and closing, 
as other lenders do) at a stage earlier in the transfer process in 
order to facilitate the approvals of other parties to transfer 
transactions?
    Answer. The Department has tried to be sensitive to the timing 
requirements of our lending partners, while at the same time, 
performing the required due diligence for underwriting transfers and 
maintaining as much flexibility as possible. We have modified our 
proposed regulations and will soon issue an Administrative Notice (AN) 
designed to improve and streamline transfer processing. In addition, 
the Department has been actively working to develop methods to ease the 
transfer process. We are currently working with Fannie Mae and the 
Federal Home Loan Mortgage Corporation (FHLMC) to create a standardized 
process to accommodate transfers that involve multiple parties. This 
process, once completed, will remove duplication of effort for each 
agency and allow for work done by either Fannie Mae or FHLMC to be 
accepted by Rural Development and vice versa. Another step that has 
been taken by the Agency is the proposed transfer that will replace RD 
AN 3767 (1965-B). The new AN outlines standardized processing 
guidelines and a checklist for the transfer process. This will ensure 
that all transfers completed by Rural Development are consistent across 
the country. The Agency is attempting to utilize more creative and 
innovative approaches and is developing alternative tools to leverage 
other financing in our multifamily properties. Through these steps, we 
hope to expedite the transfer process.
    Question. Under what conditions will Rural Development approve 
forgiveness of Section 515 debt? What has been RD's historical 
experience--under what circumstances and for what amounts has RD 
approved debt forgiveness and when has the Department not approved 
this? Is there national policy (regs, ANs) providing guidance? What are 
the constraints? Is debt forgiveness viewed as a tool to facilitate 
transfers of Sec. 515 properties?
    Answer. Rural Development has approved forgiveness of debt in 
circumstances where the appraised value of the property no longer 
supports the debt and the borrower intends to make substantial 
improvements to the property to prevent loss of affordable housing. 
This has occurred when the property is being rehabilitated or when 
transfers are required due to administrative or legal actions. In these 
instances, no equity exchange is made. Historically, Rural Development 
has written off $171,800,000 since inception of the housing loan 
programs. This represents 1,013 loans. This is 1.45 percent of the 
$11.8 billion multifamily portfolio. Most recently, RD has received 5 
debt forgiveness requests in the last 3 years: three of those were 
disapproved and two were approved. The National policy governing debt 
forgiveness is in regulation 7 CFR Ch. XVIII  1956 Subpart B, which is 
provided for the record. Debt forgiveness is not viewed as a tool to 
facilitate transfers of Section 515 properties but rather a method by 
which to retain properties that would otherwise no longer be available 
because of severe deterioration, bankruptcy or foreclosure, or legal 
action against the borrower. [The information follows:]  1956.54 Debt 
forgiveness. For the purposes of servicing Farm Loan Programs 
(FPL)loans, debt forgiveness is defined as a reduction or termination 
of a direct FLP loan in a manner that results in a loss to the 
Government. Included, but not limited to, are losses from a writedown 
or writeoff under subpart S of part 1951 of this chapter, debt 
settlement, after discharge under the provisions of the bankruptcy 
code, and associated with release of liability. Debt cancellation 
through conservation easements or contracts is not considered debt 
forgiveness for loan servicing purposes.
    Question. Nonprofit owners of Sec. 515 properties are not permitted 
any distributions of project surplus cash as are for profit owners. 
What would be the Department's position on establishing a national 
policy allowing non profit owners a fee from surplus cash in order to 
cover the costs of asset management, accounting, compliance reporting 
and other obligations to government, lenders and investors which 
participate in the financing of transfer and rehabilitation of older 
properties? Currently, there is a mixture of state RD guidance in this 
area.
    Answer. The proposed regulation 3560 included a provision for 
nonprofit borrowers to earn an asset management fee in lieu of a return 
to owner. This fee is intended to pay expenses directly attributable to 
ownership responsibilities. Many nonprofit borrowers also serve as the 
property management agent and, as such, are entitled to a management 
fee. In these identity of interest situations, we must ensure that 
duties as outlined in the management plan are appropriate to earn a 
management fee but are not also charged as an asset management fee. A 
final rule on the regulation is being developed.
                           rental assistance
    Question. What do you do with rental assistance in projects that 
prepay? How is it distributed?
    Answer. Rental assistance in properties that prepay their mortgage 
is returned to the State for distribution in accordance with Regulation 
1930 Subpart C, Exhibit E, paragraph XV A 2.
    Question. I understand that you have indicated there is not enough 
rental assistance for preservation efforts. Have you or will you 
consider unobligated transfers to this account similar to your activity 
in the last 2 years with the Section 502 guaranteed program? Isn't 
preservation a priority with this administration?
    Answer. Preservation of the multifamily portfolio has been and 
continues to be a priority with this Administration; however, the 
Agency does not have the authority to convert other appropriated funds 
to rental assistance.
               section 502 single-family housing programs
    Question. It has come to the Committee's attention that RHS has 
different policies for making section 502 direct and guarantee loans 
available under continuing resolutions. We understand that, in general, 
less money is made available for direct loans under continuing 
resolutions and that this policy has made it more difficult for 
builders to plan for and deliver houses for construction under the 
direct program. We understand that this is particularly a problem for 
self help housing.
    Please describe for the Committee the differences between the 
policy for direct loans and guarantee loans, and the spending for the 
two programs under the fiscal year 2004 continuing resolutions. Also, 
please explain why RHS has different policies. Finally, please make 
recommendations to the Committee on ways in which section 502 direct 
loans could be administered during continuing resolutions so that 
delays in obligation of funds and construction may be minimized.
    Answer. Priority is given to all Rural Development housing programs 
during periods covered during continuing resolutions (CR). However, 
there is a difference between our direct and guaranteed programs. In 
the direct program, since Rural Development controls the application 
process, we can notify applicants to not be actively signing contracts 
to purchase a home. In the guarantee program, Rural Development does 
not work directly with the homebuyer. These homebuyers work with real 
estate agents, builders, and over 2,000 private sector lending 
institutions that are unfamiliar with a lender not having available 
funding. When 502 guaranteed funds are not available, it is not just 
the consumer who is affected but also private sector lenders and the 
financial markets that are vital to the economy. Thus, while 502 direct 
loan customers are a priority, a higher priority during continuing 
resolutions is given to section 502 guaranteed customers, private 
sector lenders, and the secondary markets.
    Realizing the realities of the annual appropriations process, the 
Agency does its best to manage its programs within the authorities 
available. We would be happy to work with the committee to come up with 
solutions to keep both programs operating through the CR process.
    Question. 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).
    How many units of housing will the Rural Housing Service finance 
with the budget authority requested in the fiscal year 2005 budget? How 
does this relate to the need?
    Answer. USDA expects to finance approximately 11,900 units of 
Section 502 Single Family Housing through the Direct loan program and 
approximately 27,000 units through the Guaranteed program in fiscal 
year 2005.
    Question. What is the dollar value of Section 502 direct loan 
applications on hand?
    Answer. As of May 24, 2004, there is a backlog of demand totaling 
approximately $3.3 billion.
    Question. Last year, the Administration made much of the increase 
in homeownership spending and its priority for home ownership. Now, a 
year later, RHS proposes to reduce section 502 loans by more than $200 
million. Is homeownership less important than last year?
    Answer. For fiscal year 2005, an expectation of increasing interest 
rates causes the subsidy rate for the Direct Section 502 program to 
increase. Therefore, while we are dedicating slightly higher budget 
resources to the Direct program, the supportable program level is down. 
For fiscal year 2004, we were able to support a dramatic increase in 
the Direct loan program and we proposed a 30 percent increase in the 
program level. For fiscal year 2005, the proposed program level of $1.1 
billion is still higher than the fiscal year 2003 program level. 
Despite the budget constraints, we were also able to keep the Section 
523 Mutual and Self-Help Technical Assistance program at level funding. 
The Administration is committed to increasing rural homeownership and 
in particular, meeting our minority homeownership goals. We plan to 
manage our resources responsibly and to maximize the results in order 
to meet our program goals.
                             subsidy rates
    Question. I understand that the subsidy rate for rural housing 
loans has increased. What is the basis for the increase in subsidy 
costs? What are the elements of the subsidy cost calculations?
    Answer. The subsidy rates for Federal loan programs are affected 
annually by changes in technical assumptions such as default rates, 
prepayments, or fees and also by the economic assumption of interest 
for the term of the loan. The technical assumptions for every program 
are updated annually to reflect the most recent year's performance. 
Additionally, new interest rates are set by OMB annually. The change in 
interest rates affects all Federal credit programs and is not unique to 
USDA. These changes are routine upward or downward changes that reflect 
the cost of borrowing by the Federal Government to finance its credit 
programs. I will provide for the record a more detailed summary of the 
changes by program.
    [The information follows:]
    The change in the subsidy rates for the following Rural Housing 
Service (RHS) programs is due primarily to the change in interest 
costs. Changes were also due to technical changes, but those changes 
were minimal.
    Increased Subsidy Rate from 2004 to 2005:
  --Section 504 Very Low-Income Housing Repair Loans;
  --Section 515 Multi-Family Housing Loans; and
  --Multi-Family Housing Credit Sales.
    Decreased Subsidy Rate from 2004 to 2005:
  --Section 502 Guaranteed Refinance Single Family Housing Loans
    The change in the subsidy rate for the following RHS programs is 
due primarily to changes in technical assumptions such as defaults, 
fees, and prepayments. Changes were also due to the interest rate 
change, but that change did not account for the primary shift in cost.
    Increased Subsidy Rate from 2004 to 2005:
  --Direct Section 502 Single Family Housing Loans;
  --Direct Section 514 Farm Labor Housing Loans; and
  --Single Family Credit Sales of Acquired Property Loans.
    Decreased Subsidy Rate from 2004 to 2005:
  --Section 502 Guaranteed Single-Family Housing Purchase Loans;
  --Section 538 Guaranteed Multi-Family Housing Loans;
  --Section 524 Housing Site Development Loans; and
  --Section 523 Self-Help Land Development Loans.
    The Direct Section 502 Single Family Housing Loan program has a 
higher subsidy rate due to the increase in payment assistance.
    The Direct Section 514 Farm Housing Loan program has a higher 
subsidy rate due to the increase in the net default component.
    The Single Family Housing Credit Sales program has a higher subsidy 
rate due to the change in prepayments and the subsequent change in the 
unpaid principal balance.
    The Section 502 Guaranteed Single Family Housing Purchase Loans 
program has a lower subsidy due to the increase in the upfront fee 
percentage from 1.50 percent in 2004 to 1.75 percent in 2005.
    The decrease in the subsidy rate for the Guaranteed Section 538 
Multi-Family Housing Loan program was the result of an increase in the 
annual fee percentage to 0.50 percent in 2005 and a slight increase in 
the percentage of program level receiving interest assistance.
    Methodologies used for calculating defaults, recoveries, and 
scheduled collections changed for both the Section 524 Site Development 
and Section 523 Self-Help Development programs. Program performance 
assumptions are based on historical program performance on a loan-by-
loan basis. Prior to this, program assumptions were based on the 
historical trend of the total portfolio.
                       repair and rehabilitation
    Question. The budget requests $60 million for rural rental housing. 
This amount does not include any funding for new construction. This is 
the third consecutive year that the Administration has not requested 
funds to finance new rental housing units. Does the Administration plan 
to seek new construction any time in the future?
    Answer. Over 45 percent of the Section 515 portfolio is 20 years 
old. Many of our apartment complexes are in need of repair and 
rehabilitation. The average apartment complex has reached the age where 
major components such as roofs, cabinets, siding, and heating and 
cooling systems need to be replaced. Ensuring that our residents 
continue to be housed in decent, safe, and sanitary rental housing 
continues to be one of the Agency's top priorities and will be our 
focus in fiscal year 2005. We believe it is appropriate for the Agency 
to focus its efforts on maintaining the existing stock of housing.
    Question. I understand that the Sec. 515 portfolio is aging and 
that close to 10,000 of the 17,000 developments across the country are 
more than 20 years old. Does RHS have an estimate of the overall dollar 
need for restoration of existing Section 515 developments?
    Answer. We estimate that approximately 45 percent of the portfolio 
has been in operation for 20 years or more. We do not have an estimate 
of the overall dollar need for restoration of existing section 515 
developments. However, below is the recent history and projections of 
requests and funding for rehabilitation loans.

                                         REPAIR AND REHABILITATION LOANS
                                            [In thousands of dollars]
----------------------------------------------------------------------------------------------------------------
                           Fiscal year                               Requests         Funded        Not Funded
----------------------------------------------------------------------------------------------------------------
2000............................................................         128,900          54,900          74,000
2001............................................................         128,900          50,900          78,000
2002............................................................         139,500          49,000          90,500
2003............................................................         139,000          60,000          79,000
2004 (est.).....................................................         167,100          55,800         111,300
2005 (est.).....................................................         160,000          60,000         100,000
                                                                 -----------------------------------------------
      Total.....................................................         863,400         330,600         532,800
----------------------------------------------------------------------------------------------------------------

    Question. The Department has recently hired a consulting firm to 
assess the Section 515 portfolio. What is the status of that report? 
Can you share with the Committee any preliminary findings?
    Answer. The fieldwork has been completed. The report will not be 
available until late this summer. At that time we would be more than 
willing to share the report and its recommendations with the Committee.
    Question. In recent years, due to budget cuts RHS has offered 
little in the way of incentives for section 515 owners to maintain 
long-term use. This lack of funding has prompted both the courts and 
the Congress to consider the provision of the law that regulates 
section 515 and provides incentives. All section 515 tenants are low 
income--with an average annual income of approximately $9,000--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 Agency is working with Fannie Mae, Freddie Mac, 
nonprofit organizations and public housing authorities to alleviate 
some of the demand for preservation incentives. These efforts are slow 
in providing relief because due diligence must be done to ensure that 
each participant maintains integrity to its authorizing statute, 
charter and/or by-laws. The Agency is working very closely with 
partners such as Fannie Mae and Freddie Mac to realize some 
preservation and rehabilitation deals yet this year.
                   prepayments in section 515 program
    Question. If Congress, or the courts, lifted the restrictions in 
the 1987 Housing Act, what is your estimate of the number of units that 
would be lost and the number of households that are likely to be 
displaced?
    Answer. It is difficult to project the number of borrowers who will 
prepay their mortgage. Considerations such as motivation, real estate 
market, and economic conditions all play a role in determining the 
likelihood of prepayment. While approximately 11,000 properties are 
eligible to prepay (mortgages made prior to 1989), our most recent 
prepayment history has been averaging about 100 properties a year or 
less than 1 percent of those eligible.
                       rental assistance program
    Question. The fiscal year 2004 Appropriations Conference Agreement 
and the fiscal year 2005 budget request reduce the total for rural 
rental assistance, by reducing term of contracts from 5 years to 4 
years. What are the implications of this change for future budgets? 
What are the annual estimates of costs for the contracts expiring 
fiscal year 2004? Is the appropriation adequate to cover more than the 
4-year period?
    Answer. The objective of RD's estimation of rental assistance needs 
is to predict as closely as possible the exact amount of rental 
assistance needed at each property. However, predicting these costs is 
not an exact science, especially in recent years as property and health 
insurance, and benefits and utility costs have driven up property 
expenses and increased the rate of rental assistance usage. In theory, 
the 4-year contracts written in fiscal year 2004 should last 4 years, 
until fiscal year 2008. In reality, the rate at which contracts use 
rental assistance changes every month and their funds'exhaustion date 
changes as well. However, the impact of fixed terms on these contracts 
is that all fiscal year 2004 contracts, except those which exhaust 
funds prior to fiscal year 2008, will be renewed in fiscal year 2008. 
These fiscal year 2004 renewal contracts will be added to the expected 
number of renewals needed for contracts written prior to fiscal year 
2004 and expected to expire in fiscal year 2008. Our estimate at this 
time is that all 40,754 fiscal year 2004 contracts will need renewals 
in fiscal year 2008 and 33,435 contracts written prior to fiscal year 
2004 will need renewals in fiscal year 2008 for a total number of 
contracts requesting renewals in fiscal year 2008 of 74,189.
    Question. The recent GAO Study ``Standardization of Budget 
Estimation processes Needed for Rental Assistance Program'' and 
testimony before the House of Representatives last year indicated that 
there is a large sum of unspent rental assistance funds in existing 
contracts. What is the status of these funds, how much is unspent? Have 
you or will you work with owners that have large unobligated rental 
assistance funds to voluntarily change existing contracts for 
preservation and other purposes?
    Answer. The amount of unliquidated obligations on rental assistance 
contracts entered into between 1978 and 1999 was $597,000,000 as of 
December 30, 2003. RHS does not have the authority to amend the current 
RA Agreements to allow rental assistance funds obligated for a project 
to be used for other purposes. Such a use of funds would be a violation 
of the legislation that appropriated the funds. To allow RHS to enter 
into such amendments, Congress would have to specifically authorize the 
expenditure of such funds for other purposes as the Congress would like 
to authorize.
    Question. Secretary Gonzalez, in fiscal year 2003, my State of 
Wisconsin had four applications for funding through the Section 525 
Technical Assistance Account to provide homeownership education for our 
rural residents. Wisconsin has historically received funding for our 
good work in this area. In the fiscal year 2003 selection process, I 
understand the Administration selected priority states primarily within 
one region of the country with the justification that there was not 
enough funding to reach more applicants for other regions of the 
nation. I included language in the fiscal year 2004 bill that doubled 
the account and provided limits any one state could receive under this 
account.
    How will you ensure that states like Wisconsin will receive a fair 
playing field for consideration for the funds available this fiscal 
year?
    Answer. A Notice of Funding Availability (NOFA) for the fiscal year 
2004 funding will be published soon in the Federal Register, outlining 
the competitive application process. In accordance with our published 
regulations, priority must be given for funding to targeted states. To 
meet the requirements of our regulations, we intend to target up to 
half of the funds to 10 states, based on the 2000 Census, including: 
Texas, California, North Carolina, Georgia, Mississippi, Louisiana, 
Kentucky, Alabama, Florida and Pennsylvania. States may receive no more 
than one grant from target funds.
    For remaining funds, a scoring system will favor programs serving 
rural counties with high rates of poverty and deficient housing, as 
well as those operating most efficiently. No grant may exceed $100,000 
(except multi-state or group programs, to $200,000). Funding to any 
state or territory will be limited to 10 percent of available funds.
    We believe the proposed award method will meet the objectives of 
the TSA program by funding projects in the most needy areas and 
supporting the most effective programs throughout the nation. The 
language you suggested in the fiscal year 2004 Appropriations Bill will 
help further ensure that all states, including Wisconsin, have better 
access to funding.
                          cooperative services
    Question. What is the number of full-time permanent positions in 
the field devoted to providing cooperative technical assistance for 
fiscal year 2002 through fiscal year 2005?
    Answer. While only a couple of States currently have full-time 
staff providing technical assistance for cooperatives, 12 States have a 
staffer who works at least 50 percent of their time in Cooperative 
Services (CS) activities. The remaining States have individuals who 
perform a range of technical assistance, outreach, and CS administered 
grant program activities as a collateral duty.
    Question. I understand you have a current analysis ongoing to 
review the cooperative service mission. Can you share your results to 
date?
    Answer. We are in the early stages of a review of our Cooperative 
Services Program. We have assembled a review team, representing a 
diverse range of cooperative and rural perspectives, to take a 
comprehensive look at the role of CS, review of present activities and 
priority areas, resource history and allocation, and recommendations 
for pursuing cooperative strategies within the Rural Development 
portfolio. Scheduling for review activities is underway and we expect 
the review process and completion of the final report to take 
approximately 3 months. We will be happy to share results as they are 
completed by the review team.
                                 ______
                                 

               Questions Submitted by Senator Tom Harkin

                     conservation security program
    Question. Mr. Rey, the press has recently reported that USDA plans 
to spend $13.4 billion on the Conservation Security Program (CSP) over 
the next ten years. I have also been told that other numbers attributed 
to USDA are out there. Most recently, you testified that USDA will 
spend $13.4 billion on CSP for the life of the program, from fiscal 
2004-fiscal 2007. I have looked at the cost information NRCS is 
distributing on CSP. According to the NRCS charts, USDA plans to spend 
only $1.372 billion during the farm bill, not $13.4 billion.
    While I recognize the difference between obligations and actual 
spending, this question is strictly about how much USDA plans to spend.
    Can you please confirm that the total spending for CSP during the 
farm bill time period are actually estimated by USDA to be $1.372 
billion, or approximately that amount?
    Answer. The Administration's proposed funding approach for the 
Conservation Security Program is to fund only the annual payment for an 
active CSP contract plus the technical assistance out of each 
respective year's budget authority. This approach is similar to the 
funding approach for the Conservation Reserve Program, unlike all other 
USDA conservation programs where the total financial assistance for the 
life of a contract is obligated to the Federal budget in the first 
year. This approach will allow greater participation by farmers and 
ranchers in CSP at the proposed budget levels and represents a 
significant commitment and investment over the life of the contracts by 
USDA. The $1.374 billion in budget authority through fiscal year 2007 
will result in $6.92 billion in estimated payments to farmers and 
ranchers over the life of their individual CSP contracts. The $4.411 
billion in baseline projections through 2010 will result in $13.32 
billion in estimated payments to farmers and ranchers over the life of 
their contracts. Keep in mind that this represents a theoretical 
estimate at this point in time based on certain program design 
assumptions that could change in the final rule. The current USDA 
baseline budget projections for CSP is submitted for the record.
    [The information follows:]

                          [Dollars in millions]
------------------------------------------------------------------------
                                                           Estimated
                                                         Commitment for
                                                        the CSP Contract
            Fiscal year              Budget Authority  Life to Farmers &
                                                            Ranchers
                                                           (Financial
                                                        Assistance Only)
------------------------------------------------------------------------
2004..............................               41.4              430.6
2005..............................              209.4            1,742.2
2006..............................              457.4            2,579.2
2007..............................              665.4            2,163.2
2008..............................              873.4            2,163.2
2009..............................            1,045.6            2,070.8
2010..............................            1,118.5            2,173.7
                                   -------------------------------------
      Total fiscal year 2004-2007.            1,373.6            6,915.2
                                   -------------------------------------
      Total fiscal year 2004-2010.            4,411.1           13,322.9
------------------------------------------------------------------------

                    forest service management plans
    Question. The Administration's proposed rule for National Forest 
System Land and Resource Management Planning would make substantial 
changes to the extent in which the public is involved in Forest Service 
management plans. Most importantly, the proposed rule would allow 
forest supervisors to categorically exclude new forest plans as well as 
plan amendments and changes from environmental analysis under NEPA.
    The proposed rule would also make a significant change to existing 
rules by explicitly stating that agency-wide management policy and 
procedure relevant to planning and resource management should be issued 
through the Forest Service Directive system. This means that major 
management policy would be issued in Forest Service manuals, handbooks, 
or white papers which are subject to only very limited public review or 
comment and would not be subject to NEPA. I am aware that the Forest 
Service is currently looking at comments to the proposed rule and is in 
the process of drafting a new final rule.
    Given that the overall goal of managing the National Forest System 
as stated in the proposed rule is ``to sustain in perpetuity the 
productivity of the land and the multiple use of its renewable 
resources,'' and that multiple uses may involve many different types of 
public users, why has the Administration chose to limit public input 
for long term forest management plans?
    Answer. The Forest Service has completed review of public comments 
on the December 6, 2002 proposed planning rule. The Agency is in the 
process of drafting the final rule. The proposed rule included National 
Forest Management Act (NFMA) requirements for public involvement, which 
were the same as for previous rules. The Department strongly supports 
active public participation and collaboration in planning.
    Question. Since sustainable management is by definition a long-term 
goal, how do you expect members of the public to have input into the 
Forest Service's plans for sustainable management if entire forest 
plans can be categorically excluded from NEPA?
    Answer. The Forest Service has completed review of public comments 
on the December 6, 2002 proposed planning rule. The Agency is in the 
process of drafting the final rule. The proposed rule included National 
Forest Management Act (NFMA) requirements for public involvement, which 
were the same as for previous rules. The Department strongly supports 
active public participation and collaboration in planning.
    Question. Furthermore, by limiting public input into the 
establishment and revision of long-term management goals and 
objectives, won't this simply encourage members of the public to object 
to every project that appears to go against their particular interests, 
thus decreasing the efficiency of the Forest Service planning and 
increasing costs?
    Answer. The Department strongly supports public involvement in 
planning. For the proposed 2002 rule, the Department used the input 
provided by the Committee of Scientists for the 2000 rule. The current 
rulemaking process has retained this Committee's recommendation for 
emphasis on public involvement, adaptive management, monitoring and 
evaluation, use of science, and sustainability. There are requirements 
for use of science in the proposed rule, and the final rule will also 
include science requirements.
    Question. In addition, your proposed regulations were developed 
without the formal input of an independent Committee of Scientists, in 
contrast to the development of all previous versions of these 
regulations. You also proposed eliminating most requirements for 
independent scientific input into forest plans themselves, making the 
involvement of independent scientists optional on the part of the local 
forest manager.
    Won't this approach lead to less scientifically based forest 
management and less credibility with the scientific community and the 
public in general? And won't it therefore lead to more controversy and 
difficulty in implementing forest plans? Most importantly, won't 
limiting scientific input increase the chance that poor management 
decisions will harm the forest resources we seek to maintain?
    Answer. The Department strongly supports public involvement in 
planning. For the proposed 2002 rule, the Department used the input 
provided by the Committee of Scientists for the 2000 rule. The current 
rulemaking process has retained this Committee's recommendation for 
emphasis on public involvement, adaptive management, monitoring and 
evaluation, use of science, and sustainability. There are requirements 
for use of science in the proposed rule, and the final rule will also 
include science requirements. The planning rule will result in 
management based on science.
                        high fructose corn syrup
    Question. Last month, the Office of the Trade Representative 
announced that they would pursue a WTO case against the government of 
Mexico for its blatantly unfair imposition of a 20 percent tax on 
beverages using high fructose corn syrup (HFCS) that has kept U.S. HFCS 
exports out of its previously largest market for more than 2 years. 
Under WTO rules, parties to the dispute are supposed to undertake 
bilateral discussions to see if a formal dispute panel can be avoided.
    I understand that representatives of the sweeteners sectors in both 
countries have also been engaged in negotiations to try to reach a 
resolution of this issue and also the issue of Mexican sugar exports to 
the United States. Do you think either of these sets of discussions 
will be successful in the next few months, and if they are not, will 
the U.S. government go ahead and request the formation of a WTO dispute 
resolution panel later this spring?
    Answer. We are not optimistic about the bilateral discussions, 
since prior efforts to resolve the disagreements between Mexico and the 
United States involving trade in sugar, high fructose corn syrup, and 
corn have not been fruitful. We will only be able to evaluate the 
results of the private sector discussions once they are concluded. The 
U.S. government will request the formation of a WTO dispute resolution 
panel if that appears to be the best course of action once 
consultations have been exhausted.
                           payment limitation
    Question. The Commission on the Application of Payment Limitations 
for Agriculture recommended that more resources should be allocated for 
payment limit administration in USDA's Farm Service Agency (FSA) and 
Office of the Inspector General (OIG). The commission recognized the 
integrity and determination of FSA county office staff, but noted that 
more resources could augment current efforts to train staff on payment 
limits and monitor compliance. What efforts, if any, have you taken to 
implement this recommendation?
    Answer. As part of FSA's initiative to improve the delivery of 
programs with the available county office staffing, the agency is re-
engineering its business processes dealing with program eligibility and 
payment limitations. An important component of the re-engineering is 
the development of software to improve the efficiency and 
implementation of payment limitations and other related payment 
eligibility provisions. The first phase of the re-engineering, payment 
eligibility, will be piloted in the next few months and is anticipated 
to be deployed nationally in late fall 2004. This deployment will be 
followed next year with the rollout of the re-engineered payment 
limitation system, which includes many automated validations and 
decision points that will assist the County Committees in their person 
determinations. Training on the software and payment limitations will 
be held for the pilot counties in August. If piloting goes well, the 
national training will be held shortly thereafter.
    Question. The Commission also recommended that FSA track all 
benefits through entities to individuals as required in section 1614 of 
the 2002 farm bill. Often program benefits are delivered indirectly 
through complex business arrangements or through marketing 
associations. To enable Congress to better understand the complexity of 
payment limitations, the 2002 farm bill included a requirement to track 
benefits--both direct and indirect--to individuals and entities:

``SEC. 1614. TRACKING OF BENEFITS.

    ``As soon as practicable after the date of enactment of this Act, 
the Secretary shall establish procedures to track the benefits 
provided, directly or indirectly, to individuals and entities under 
titles I and II and the amendments made by those titles.''

    What steps have you taken to begin tracking commodity and 
conservation benefits as required by law?
    Answer. The payment database is currently being revised to enable 
the tracking. The reporting capability will be completed no later than 
September 30, 2004.
                              soybean rust
    Question. Although Asian soybean rust has not yet arrived in the 
United States, its recent arrival in major soybean producing countries 
in South America has caught the attention of American soybean framers. 
Given the ability of the soybean rust spores to move on air currents, 
we know it is only a matter of time until the disease arrives on U.S. 
fields. One of the research activities that will be key to combating 
soybean rust over the long run will be the identification or 
development of soybean varieties that are resistant or tolerant to 
soybean rust, and incorporation of such traits into commercially 
available varieties.
    Since there are restrictions from the Bioterrorism Act limiting 
work on viable rust spores to the Fort Detrick facility, will those 
hinder USDA's research effort, and what steps are you taking to relieve 
that constraint?
    Answer. Soybean rust has been reported in numerous countries 
throughout the world including Australia, China, India, Taiwan, 
Philippines, and Thailand in the Eastern Hemisphere; Brazil, Argentina, 
Paraguay, Uruguay, Costa Rica, Columbia, and Puerto Rico in the Western 
Hemisphere; and in Zimbabwe and South Africa on the African continent.
    ARS researchers at Fort Detrick are screening approximately 18,000 
accessions of soybean varieties for soybean rust resistance. This 
material represents a worldwide collection of ancestral soybean that is 
maintained in the USDA Soybean Germplasm collection in Urbana, 
Illinois. In addition to these soybean lines, ARS scientists at Fort 
Detrick are screening 1,000 commercial soybean lines for broad spectrum 
soybean rust resistance using a mixture of four soybean rust strains 
with varying levels of virulence.
    To relieve the constraints at Fort Detrick, international 
agreements are in place with cooperators in Brazil, China, Thailand, 
South Africa and Paraguay to evaluate soybean varieties currently grown 
in the United States for tolerance to soybean rust and to screen exotic 
soybean germplasm for resistance to soybean rust under field 
conditions. The international cooperations, now in their second year, 
will identify varieties that exhibit broad spectrum resistance.
    ARS is also working with cooperators in South America to monitor 
and map the incidence of soybean rust outbreaks in South America. This 
information will be used to develop models to predict possible routes 
of entry into the United States.
                      national research initiative
    Question. I am pleased to hear that the CSREES National Research 
Initiative, in response to language in the fiscal year 2004 
appropriations bill, will soon be issuing a supplemental Request for 
Applications to solicit integrated research, education, and extension 
proposals that respond to the goals of the Initiative for Future 
Agriculture and Food Systems to enhance farm profitability, small and 
medium-size farm viability, and rural economic development. I commend 
you for this effort and would like to have two questions answered. It 
is my understanding that this will be more than a token effort, and 
will be at least in the range of $5 million or more. First, I would 
like to know the projected funding level for this supplemental RFA?
    Answer. The projected funding level for the supplemental RFA is $5 
million. These funds will primarily come from the fiscal year 2004 
budget; however, part of the RFA may be funded by fiscal year 2005 
funds, if necessary. All funds will be made available within calendar 
year 2004.
    Question. Second, as we are already now half way through the fiscal 
year, I am wondering what the timeline is for the issuance of the RFA, 
the proposal deadline, the review process, and the ultimate grant 
awards?
    Answer. Since passage of the Agriculture appropriation in February, 
we have been actively engaged in consulting with stakeholders and 
expert groups through a series of workshops to help shape the ideas in 
the RFA. The RFA is planned to be released in June 2004 with a 
September 2004 deadline. Following peer review of the applications in 
the Fall of 2004, it is anticipated that awards will be made no later 
than December 2004.
    Question. Is the RFA imminent and what can you tell me about the 
timeline for the full grantmaking process?
    Answer. The RFA is currently being prepared, having benefited from 
stakeholder input and internal discussions concerning this complex area 
of research. The RFA is planned for release in June 2004 with a 
September 2004 deadline for applications. Peer review of all 
applications will occur in the Fall of 2004, with awards being made by 
the end of calendar year 2004.
         organic agriculture research and extension initiative
    Question. As you know, the 2002 farm bill contains modest mandatory 
funding for a new Organic Agriculture Research and Extension 
Initiative. I am anxious to see this program get started, and I know 
many of my colleagues are also quite interested in this initiative. Can 
you tell me when the Request for Applications will be issued?
    Answer. The Cooperative State Research, Education, and Extension 
Service-CSREES--published the Request for Applications for the 
Integrated Organic Program on our website on April 15, 2004, at http://
www.csrees.usda.gov/fo/fundview.cfm?fonum=1141. The Request for 
Applications offers two program areas: the Organic Transitions Program 
and the Organic Agriculture Research and Extension Initiative. 
Together, the two programs will fund integrated research, education, 
and extension projects that address critical organic agriculture 
issues, priorities or problems. The deadline for applications for both 
program areas is June 10, 2004.
    Question. Also, more broadly, can you tell me what plans ARS or 
CSREES has for expanding its research effort on organic production and 
marketing?
    Answer. Since 2001, the Organic Transition Program has provided 
approximately $3.9 million for competitive grants to fund the 
development and implementation of organic production practices and 
improve the competitiveness of organic producers.
    In 2004, approximately $1.9 million of funding for the Organic 
Transition Program will be combined with an additional $3 million of 
mandatory funding provided by the 2002 Farm Bill for the Organic 
Agriculture Research and Extension Initiative (OAREI). The 2004 funding 
level for organic research, education and extension programs is $4.9 
million. As authorized by the 2002 Farm Bill, OAREI will provide a 
total of $15 million through fiscal year 2008, $3 million per year for 
4 years, to fund studies that will help producers and processors grow 
and market certified organic food, feed, and fiber products.
    ARS has been actively increasing its efforts to better serve 
organic producers over the last several years. Much of this research 
has been in cooperation with organic producers and organizations, 
particularly the Organic Farming Research Foundation (OFRF). In many 
instances research is conducted jointly with scientists at land grant 
universities including 1890 institutions. In addition, National Program 
Leaders from ARS and CSREES regularly discuss research on organic 
farming and sustainable agriculture at joint meetings such as those 
held by the USDA Sustainable Development Council, the Sustainable 
Agriculture Research and Education (SARE) Program and the informal USDA 
organic agriculture interest group. ARS and CSREES scientists and 
National Program Leaders also continue to participate with OFRF and 
organic producers in the Scientific Congress for Organic Agricultural 
Research (SCOAR) meetings and related activities to identify research 
priorities for organic agricultural.
    ARS has assembled a database of its researchers that are doing or 
are interested in doing research on organic agriculture. More than 140 
ARS scientists are doing research that could benefit organic producers. 
In addition ARS is doing research on many topics such as biological 
control, integrated pest management (IPM), weed control, and soil 
management that may fit well with organic farming practices. Organic 
growers, therefore, could reap benefits even though the research may 
not have originally been specifically directed towards organic systems. 
ARS is planning on holding a workshop later this year to improve its 
focus, interactions and coordination of its research on organic 
farming. Representatives from CSREES and OFRF will be invited.
    A few examples of ARS research on organic production include the 
following. All of these examples are on systems that are certifiably 
organic under the new USDA organic standards.
  --In Salinas, California ARS has a scientist dedicated solely to 
        organic agriculture. Some of his research is studying how to 
        best incorporate cover crops in organic systems for fertility 
        and weed management. University of California researchers, 
        extension agents and producers are all cooperating in this 
        research.
  --ARS scientists in Weslaco, Texas in cooperation with producers, 
        organic organizations and university colleagues are researching 
        a broad number of organic systems including olive, melon, 
        citrus and grain crop production systems. One unique aspect of 
        this research is to determine if organically produced crops 
        have higher levels of beneficial compounds.
  --ARS researchers from Beltsville, Maryland and Wyndmoor, 
        Pennsylvania are cooperating with the Rodale Institute in 
        Pennsylvania to develop improved weed management and fertility 
        using for example, mycorrhizae inoculation. Three of the five 
        systems of the Beltsville Farming System Project are 
        certifiably organic. This research receives input from a group 
        of farmers, extension agents and university cooperators.
  --Other Beltsville scientists are cooperating with farmers and others 
        across the United States on organic practices. The system they 
        have developed based on cover crops has been shown to be 
        successful for a variety of crops from Maryland to Florida to 
        California. Furthermore, it can eliminate the need for methyl 
        bromide and plastic for those producers interested in 
        transitioning into organic agriculture.
  --ARS led research in Georgia in cooperation with university 
        scientists and organic farmers is investigating insect and 
        fertility management. Other significant research on organic 
        systems is occurring in Iowa, Minnesota, Washington and 
        Florida.
    All these are examples of an expanded ARS effort to address the 
needs of organic producers and almost all have CSREES partners.
    A proposed new effort involves ARS in cooperation with sustainable 
and organic organizations (e.g., Michael Fields Agriculture Institute, 
Practical Farmers of Iowa, Land Stewardship of Minnesota). We are 
organizing a cooperative project on how to better integrate forage and 
animal production in grain crop systems in the cornbelt. This planned 
project involves ARS units and sustainable and organic NGOs in Iowa, 
Wisconsin, Minnesota, North Dakota, South Dakota and Illinois and will 
include university researchers as well. The extent of this effort is 
dependent on obtaining increased funding.
                   rural business investment program
    Question. The 2002 Farm Bill established the Rural Business 
Investment Program in order to attract venture capital financing to 
businesses located in rural areas. It is the only Federal program of 
its kind to target rural areas for venture capital investments.
    For decades, venture capital has helped develop industries of the 
new economy and is responsible for creating or maintaining as many as 
12.5 million jobs and generating business revenues of as much as $1.1 
trillion. Most of these jobs, however, have been established in cities 
and states along the two coasts and not in the rural communities of 
America's heartland.
    Congress authorized $280 million of investment capital debentures 
for the Rural Business Investment Program however the Administration's 
proposal would sharply cut this program to $60 million for fiscal year 
2005.
    I understand that USDA may release a program design in May so 
comments can be received. I think a stakeholder meeting would be highly 
advantageous if it can occur soon thereafter.
    I believe the RBIP program should clearly use the New Markets 
Venture Capital Program debenture model. That is the type of debenture 
that Congress used in developing the program. That is how the cost was 
estimated. There are some rumors that the Department may act otherwise. 
Is the New Markets model type of debentures your plan for the program?
    Answer. USDA is working with the Small Business Administration in 
developing regulations for this program, consistent with the statutory 
requirements. It is anticipated that a proposed rule will be published 
for public comment before the end of fiscal year 2004.
    Sec. 384E of the statute authorizes the Secretary to guarantee 
debentures issued by a rural business investment company, including a 
provision for the use of discounted debentures.
    As stated in the related Conference Report, Congress modeled RBIP 
after the Small Business Administration's Small Business Investment 
Company program, where considerable expertise in operating the program 
that provides capital for equity investments has been developed. The 
Managers noted that the RBIP grant provisions are similar to the New 
Markets Venture Capital program.
    For the RBIP, the Small Business Administration has recommended the 
guarantee of either standard debentures or discounted debentures, 
pursuant to Sec. 384E.
    Question. The President's budget limits the program to $60 million 
in debentures for fiscal year 2005, equivalent to $12 million in Budget 
Authority. And, the President's budget Appendix calls for an 
elimination of $65 million in BA in fiscal year 2005. Is this 
elimination a proposal to end the program after 2005 or is it simply an 
accounting item? Does the Department believe that the RBIP program 
should continue for the long term?
    Answer. The President's fiscal year 2005 budget proposal for this 
program does not discuss subsequent program years. However, Rural 
Development, in association with our program partner, the Small 
Business Administration, intends to design and implement a program that 
will produce measurable results, on behalf of America's rural 
entrepreneurs, for the long-term.
                               broadband
    Question. I appreciate your letter to mine concerning Broadband. As 
your statement indicated, this is a very important need, crucial for 
rural America.
    I wanted to briefly raise a few points: (1) I think the next time 
the Department sends out a NOFA that it would be very useful to adopt a 
two-step process: preliminary applications that could be reviewed by 
RUS staff and for those applications that appeared to have viability, a 
second stage application that would be complete. I think a lot of small 
entities are putting a lot of funds into a complete application and 
that is limiting applications. (2) That the Department adjust its 20 
percent cash rule to count ongoing receipts within this sum. I 
understand that the Department wants equity in place by applicants. But 
I think ongoing recurring revenue streams should be counted. I am not 
talking about speculative possible receipts, but mainly the monthly 
billings from existing customers. (3) We need to be careful to manage 
risk in this program. But, we should not become excessively risk 
adverse.
    If these things are done, I believe we could see a considerable 
improvement and increase in applications. And, I would like to work 
with you on this important need. What will you do to address the points 
that I have outlined above?
    Answer. The required components of a completed application, taken 
as a whole, form the basis for determining the viability of a project. 
Each is dependent upon the other to evaluate the technical and 
financial feasibility of a project. Before a project is undertaken, it 
is critical to determine if a market exists for the product and, if so, 
to what extent and what are potential customers willing to pay for that 
product. This market study provides the basis for a determination of 
potential revenue streams and the size and capability requirements of 
the system. To properly estimate the cost of the system, and, 
ultimately, the amount of the loan request, the system must be designed 
and quotes gotten from venders. Operational expenses must be estimated 
to determine whether the project is sustainable from a financial 
perspective. Each of these aspects of a business plan is critical in 
the determination of viability. Therefore, it would be difficult to 
provide a potential applicant with a meaningful determination without 
each of these components.
    It is important to note that RUS' field and headquarters staffs are 
available to assist potential applicants in developing a loan package. 
RUS has general field representatives (GFR) located throughout the 
country who will visit potential applicants, review their business 
plans, and assist them in developing a completed application. During 
this process, if a business plan does not appear viable, the GFR will 
be able to inform the applicant.
    RUS' 20 percent credit support requirement is intended to improve 
the sustainability of a project by ensuring that it is not 100 percent 
debt financed. The credit support requirement may be satisfied with 
cash, cash equivalents, undepreciated assets that would otherwise be 
eligible for financing, licenses, and an unconditional letter of 
credit. An applicant must have, as part of the 20 percent requirement, 
cash equal to the first full year's operating expenses. RUS will waive 
this requirement for entities with 2 years of positive cash flow. RUS 
is a facilities-based lender and does not, therefore, lend for 
operating costs. As such, the applicant must have the ability to fund 
its operating expenses without RUS assistance. If an applicant is a 
start-up entity or is experiencing negative cash flow, the 1-year cash 
requirement ensures the entity's ability to sustain operations and to 
make principle and interest payments.
    We agree that risk must be properly managed which entails assuming 
the appropriate amount of risk. RUS works very diligently to 
appropriately manage risk and its fiduciary responsibility to the 
American taxpayers with its mission of extending broadband service into 
the most remote, highest cost rural areas of our country. RUS 
recognizes that an appropriate amount of risk must be taken if we are 
to succeed in our mission. However, the meaningful deployment of 
broadband services can only be met by making quality loans that produce 
exponential benefits through reduced subsidy rates and greater lending 
levels. A failed business plan translates not only into the loss of 
taxpayer investments, but deprives millions of citizens living in rural 
communities of the technology needed to attract new businesses, create 
jobs, and deliver quality education and health care services.

                        CONCLUSIONS OF HEARINGS

    Senator Bennett. I know a politician who used that phrase 
and maybe regretted it, but I will be appropriately admonished.
    Thank you all for your testimony and your attendance here 
today. And, again, than you for your service to the country in 
the various positions that you hold.
    The hearing is recessed.
    [Whereupon, at 5:03 p.m., Tuesday, April 7, 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 2005

                              ----------                              

                                       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 2005 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 the concessional sales program under Title I of Public Law 
480 at a baseline level that will ensure the continued viability of the 
program.
---------------------------------------------------------------------------
    \1\ The ad hoc coalition is composed of American Maritime Congress, 
American Soybean Association, International Organization of Masters, 
Mates & Pilots, Liberty Maritime Corporation, Marine Engineers' 
Beneficial Association, Maritime Institute for Research and Industrial 
Development, National Association of Wheat Growers, National Corn 
Growers Association, National Council of Farmer Cooperatives, Sealift, 
Inc., TECO Transport Corporation, Transportation Institute, USA Dry Pea 
& Lentil Council, USA Rice Federation, U.S. Wheat Associates, Inc., and 
Wheat Export Trade Education Committee.
---------------------------------------------------------------------------
    In recent years, funding appropriated for Title I has declined 
sharply. The direct appropriation to the Title I account in fiscal year 
2003 was $118 million. In fiscal year 2004, it declined to $106 
million. In the administration's fiscal year 2005 budget, the requested 
funding is just under $90 million. According to the fiscal year 2005 
USDA Budget Summary, these appropriated amounts supported a fiscal year 
2003 program level of $163 million in commodity and (separately funded) 
freight costs, and are expected to support a Title I program level 
(with an additional $38 million in carryover funding) of $197 million 
in fiscal year 2004. The administration's request for fiscal year 2005 
establishes a program level of only $123 million.
    Mr. Chairman, our coalition has noted that funding for the Title I 
account in recent years increasingly has been used to support Food for 
Progress (FFP) grants. In fiscal year 2003, for example, Title I 
funding was used under FFP authority to ship 321,000 metric tons of 
commodities, with a value of $62.4 million, to some 13 countries. While 
FFP is an essential component of our overall food aid system, the 
coalition nonetheless believes that the Foreign Agricultural Service 
(FAS) should make a determined effort to increase participation in the 
traditional Title I concessional sales program. As discussed more fully 
below, Title I has important policy objectives that are unique and 
deserving of sustained support.
    In the statement that follows, our coalition recommends aggressive 
marketing of the Title I concessional sales program, higher funding 
levels for Title I, and sustained funding for other food aid programs 
that fulfill our humanitarian obligations and promote the long-term 
interests of recipient countries in becoming commercial customers.
                 guiding principles of food aid policy
    Mr. Chairman, the coalition recognizes 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 as stepping stones for economic 
        growth and development.
  --Employing food assistance programs to promote respect worldwide for 
        American values and our economic system, thereby enhancing 
        goodwill toward America among disadvantaged populations that 
        may be breeding grounds for terrorism.
          the sharp decline in overall food aid program levels
    Mr. Chairman, the programs needed to implement these principles 
have enjoyed broad, bipartisan support for many decades. The strength 
of our commitment has made the United States the world's leading food 
aid supplier. In the process, American agriculture is bolstered as food 
aid recipients strengthen and stabilize their economies, ultimately 
proving to be valuable long term customers for U.S. products.
    In recent years, however, food aid shipments have declined sharply. 
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 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. In fiscal year 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 $1.091 billion. In fiscal year 2003, FAS reports 
that 4.56 million tons were programmed for shipment, with a commodity 
value of $1.288 billion.
    While data for fiscal year 2004 are necessarily incomplete, the 
administration's budget estimates that food aid shipments under Public 
Law 480, Titles I and II, will decline to 3.4 million metric tons of 
grain equivalent, down from 4.3 million metric tons in fiscal year 
2003. Unfortunately, as discussed below, the administration recommends 
further overall reductions in food assistance in fiscal year 2005.
            the administration's budget for fiscal year 2005
    The administration proposes Title I funding that would support a 
program level of only $123 million. This is well below the 
appropriation for fiscal year 2003, which supported a program level of 
$154.7 million and is even below the fiscal year 2004 appropriation, 
designed to support a program level of $132 million. Our coalition 
regrets the continued erosion of the Title I program, and believes that 
funding should be restored to levels which will ensure the program's 
viability as a flexible and significant policy initiative.
    The baseline for the Food for Peace Title II program has been 
increased from $850 million in fiscal year 2002 (and prior years) to 
$1.185 billion. The coalition supports this increase as an essential 
component of our donated food assistance to the most needy countries 
and regions in the world. 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 grant program carried out with CCC funding.
    Under authority provided by Section 416(b) of the Agricultural Act 
of 1949, the administration states that surplus nonfat dry milk will be 
made available for donation in fiscal year 2005, with a commodity value 
and associated costs estimated at $147 million. This represents another 
year of diminished reliance on the 416(b) program, which is CCC-funded. 
Finally, the administration has requested $75 million for the McGovern-
Dole International Food for Education and Child Nutrition Program 
(IFEP), an increase of 50 percent over the fiscal year 2004 level, but 
less than the $100 million requested by a broad-based commodities 
coalition.
    The administration's recommendations, taken together, would lead to 
further reductions in food aid. Because of the availability of 
supplemental and carryover funding in prior years, the food aid 
programmed under Public Law 480 reached 4.3 million metric tons in 
fiscal year 2003; it is estimated to decline to 3.4 million metric tons 
in the current fiscal year; and the fiscal year 2005 budget provides 
for only 3.2 million metric tons. Increases in IFEP and FFP will not 
offset the declines in the Public Law 480 and Section 416(b) programs.
         restoration of overall food assistance program levels
    Mr. Chairman, the coalition recommends that food aid be restored 
over time to sustainable levels in the range of 4.0 million to 6.0 
million metric tons of grain equivalent in each fiscal year. In fiscal 
year 2005, this would require an incremental increase in Title I 
baseline funding, enactment of the administration's request for Title 
II, an increase to $100 million for the IFEP, and greater use of 
existing authorities of the Commodity Credit Corporation. The Title I 
program must be restored if the United States is to take full advantage 
of the unique potential of this historic initiative. The special 
features of Title I remain significant elements 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 sales 
        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 2005, the subsidy cost of 
        the Title I program is established for the fiscal year at 86.42 
        percent. Thus, under the Title I program, Congress ensures the 
        shipment of $1.00 worth of U.S. agricultural products at an 
        appropriated cost of about 86 cents. Moreover, Title I 
        currently recovers more dollars for the U.S. Treasury in loan 
        repayments than it expends in annual outlays.
  --Bridge to Economic Independence.--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. Of the top 50 consumer nations of American agricultural 
        products, 43 were once recipients of U.S. foreign aid in some 
        form. The Title I program historically has been an essential 
        component of our humanitarian food assistance program, and 
        should be retained.
    Unfortunately, Mr. Chairman, Title I concessional sales have been 
reduced to their lowest levels in half a century. According to the 
administration's budget, Title I loans in fiscal year 2003 generated 
only $81 million in commodity sales; this amount will decline to an 
estimated $38 million in fiscal year 2004. The fiscal year 2005 budget 
proposes only $30 million in concessional commodity sales. The balance 
of Title I funding supports FFP grants. Our analysis of the fiscal year 
2003 program shows that Title I-funded FFP shipments were made to 
Cambodia, Togo, Pakistan, Afghanistan, Bolivia, Eritrea, Ethiopia, 
Honduras, Kenya, Mongolia, Peru, Sri Lanka and Yemen. The total 
commodity value of these FFP grants, as stated above, was $62.4 
million. According to the administration's budget, the FAS plans to 
obligate $93 million for Title I-funded FFP grants in fiscal year 2004, 
and another $60 million from the account for FFP grants in fiscal year 
2005.
    Mr. Chairman, the potential demand for donated food will always 
exceed the supply. The coalition recognizes that recipient countries 
would prefer grants over concessional sales--even sales at extremely 
favorable terms. In order to ensure that the most desperate countries 
have sufficient donated food aid, the coalition recommends that FAS 
aggressively market the Title I concessional sales program to other 
countries that can afford the terms. Among the countries receiving 
Title I-funded FFP grants in fiscal year 2003, there are surely some 
who reasonably could afford to make the transition from grant 
assistance to concessional sales, using the direct loan authority of 
Title I.
                    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 enhance the potential for economic growth in recipient 
countries. Our recommendation is to increase over time annual food 
assistance at combined program levels of between 4.0 million and 6.0 
million metric tons of grain equivalent. This can be accomplished, as 
in the past, with a blend of programs supported by direct 
appropriations and CCC program authorities.
    The coalition recommends the following:
  --Title I program levels should be increased in fiscal year 2005, and 
        responsibly increased again in succeeding years, so that the 
        unique advantages of the program, highlighted above, are not 
        lost. The Senate Appropriations Committee should accompany such 
        increased funding with strongly-worded report language 
        directing FAS to market the Title I program aggressively to 
        those countries that reasonably can afford the terms.
  --IFEP should be increased in fiscal year 2005 to the $100 million 
        level established by Congress for the fiscal year 2003 program. 
        This action, together with full funding of the administration's 
        Title II request, will help ensure that the United States 
        fulfills its moral obligation to provide not less than one-half 
        of the world's donated food aid.
  --In committee report language, the Senate Appropriations Committee 
        should direct the FAS to make greater use of existing CCC 
        authorities to expand food aid to regions in critical need.
    Mr. Chairman, the Title I program has been a bulwark of American 
food aid policy since the days of the Marshall Plan. It 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 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 American Farm Bureau Federation

    The American Farm Bureau Federation supports full funding for the 
Farm Security and Rural Investment Act of 2002 (FSRIA).
    Unpredictable weather conditions and markets, uncertainties 
involved with international trade, and variable input costs can produce 
turbulent and difficult times for agriculture. The FSRIA helps American 
farmers and ranchers weather financial storms and it provides 
unprecedented funds for our nation's conservation needs. Changes in 
programs would be devastating not only to farmers and ranchers, but to 
the rural economy as well.
    Full funding of 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.
    Farm Bureau has selected the following four items as our priorities 
for funding in fiscal year 2005: (1) Programs key to protecting animal 
and plant health; (2) full funding and implementation of the 
Conservation Security Program; (3) programs key to the proper 
regulation of the Food Quality Protection Act and crop protection 
regulations; and (4) programs key to expanding and protecting markets 
for agricultural products.
           programs key to protecting animal and plant health
    The threat of bioterroism and the discovery of Bovine Spongiform 
Encephalopathy (BSE) in the United States has prompted increased action 
by USDA and others to step up animal and pest disease surveillance and 
funding for critical programs such as animal identification. Farm 
Bureau places great priority on efforts to safeguard our food supply 
and requests increased resources be appropriated to APHIS and FSIS for 
these activities.
    Farm Bureau supports the Administration's Food and Agriculture 
Defense Initiative of $381 million. These funds will enhance food and 
agriculture defense by:
  --Providing funds for completing the consolidated BSL-3 animal 
        research and diagnostic laboratory at Ames, Iowa;
  --Establishing a National Plant Disease Recovery System that will 
        quickly coordinate with the seed industry to provide producers 
        with resistant stock before the next planting season in the 
        event of a natural or intentional catastrophic disease or pest 
        outbreak; and
  --Substantially enhancing the monitoring and surveillance of pests 
        and diseases in plants and animals, including targeted national 
        wildlife surveillance.
    BSE.--Farm Bureau supports BSE-related funding proposed by USDA 
that calls for $5 million for the Agricultural Research Service (ARS) 
to conduct advanced research and development of BSE testing 
technologies; $17 million for the Animal and Plant Health Inspection 
Service (APHIS) to continue collecting 40,000 samples, including 
sampling at rendering plants and on farms; $4 million for the Food 
Safety and Inspection Service (FSIS) to conduct monitoring and 
surveillance of compliance with the regulations regarding specified 
risk materials and advanced meat recovery; and $1 million for Grain 
Inspection, Packers and Stockyards Administration (GIPSA) to enable 
them to dispatch rapid response teams to markets experiencing BSE-
related complaints regarding contracts or lack of prompt payment.
    We do, however, have serious concerns about the Administration's 
proposal for $33 million to help implement an animal identification 
system. For over 2 years, the industry has been working to develop the 
U.S. Animal Identification Plan (USAIP). USIAP estimates an ongoing 
cost of $122 million per year to implement such a system. This is a far 
cry from a one-time $33 million appropriation. Farmers and ranchers 
simply cannot afford to bear the brunt of the cost of this program, 
especially when most of the benefit will accrue to consumers. We 
strongly encourage the Committee to significantly increase funding for 
this critical program. Implementation of the program will not only add 
to our ability to trace a diseased animal back to the source but will 
also reassure the public and our trading partners of a safe food 
supply.
    Soybean Rust (Phakopsora pachyrhizi).--Soybean Rust (SBR), a fungal 
disease that attacks the foliage of a soybean plant, is a potential 
threat to the United States. Only two fungicides are currently approved 
for use on soybean rust and manufacturers have indicated that there 
would not be enough chemical available to treat a nationwide outbreak. 
Soybean check-off and government-funded research activities are 
underway, however, approximately $2.8 million additional funds are 
urgently needed.
    Avian Influenza.--Avian flu is a respiratory virus spread among 
chickens by nasal and eye secretions and manure. Adequate funding for 
detection, control and eradication of low and high pathogen Avian 
Influenza is critical. Farm Bureau supports an additional $12 million 
above the Administration's request for $13 million ($25 million total) 
to combat this deadly poultry disease. We support USDA's development of 
a high-containment facility to study this disease.
    National Animal Health Emergency Management System.--Farm Bureau 
supports full funding for the National Animal Health Emergency 
Management System that was developed in cooperation with the states, 
industry and the veterinary profession. These funds will enhance 
APHIS's emergency preparedness and response capabilities to address 
emergency animal disease issues that threaten the U.S. food supply.
    Food Animal Residue Avoidance Databank (FARAD).--Farm Bureau 
supports funding for FARAD. Adequate funding for FARAD will allow for 
continued, fair, immediate expert consultation to livestock owners and 
veterinarians in the event of accidental drug or toxin exposure to 
livestock or poultry.
    Plant and Animal Health Monitoring, Pest Detection and Control.--
Plant and animal health monitoring and surveillance are important 
programs. We support a $48 million increase for improved plant pest 
detection, management of animal health emergencies and to increase the 
availability of animal vaccines. Expansion of Plant Protection and 
Quarantine (PPQ) personnel and facilities is necessary to protect U.S. 
agriculture from new and often-times virulent pest problems.
 full funding and implementation of the conservation security program 
                                 (csp)
    Prompt implementation of the Conservation Security Program (CSP) is 
critical. This program recognizes the costs associated with sound 
conservation practices and provides assistance to producers who have 
historically practiced good stewardship as well as provide incentives 
to those that who want to do more. The CSP must be implemented as 
authorized by FSRIA in order to achieve the program's full potential. 
All farmers and ranchers should have the opportunity to participate is 
CSP as intended by FSRIA. No restrictions or limitations should be 
placed on this important new conservation program.
    Ongoing USDA conservation programs should be fully funded. No 
limitations should be placed on funding for the Environmental Quality 
Incentive Program (EQIP). EQIP is key to assisting agricultural 
producers in complying with environmental regulations and addressing 
important conservation issues. Maximum conservation technical 
assistance should be provided for both FSRIA conservation programs and 
for Conservation Operations to help landowners in planning for and the 
application of conservation treatments to control erosion and improve 
natural resources.
 programs key to the proper regulation of the food quality protection 
                  act and crop protection regulations
    USDA must continue to work with EPA, agricultural producers, food 
processors and registrants to provide farm data required to ensure that 
agricultural interests are properly considered and fully represented in 
all pesticide registration, tolerance reassessment re-registration, and 
registration review processes. In order to participate effectively in 
the process of ensuring that crop protection tools are safe and remain 
available to agriculture, USDA must have all the resources necessary to 
provide economic benefit, scientific analysis and usage information to 
EPA. To this end, funding should be maintained or increased to the 
following offices and programs:
    Office of Pest Management Policy (OPMP).--OPMP has the primary 
responsibility for coordination of USDA's FQPA and crop protection 
obligations and interaction with EPA. Proper funding is vital for the 
review 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. The funding to OPMP should be 
designated under the Secretary of Agriculture's office, rather than as 
an add-on to the Agricultural Research Service 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 Integrated Pest 
Management (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 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 and Crop Protection Regulation.--Additional funding for proper 
regulation of pesticides 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).
   programs key to expanding and protecting markets for agricultural 
                                products
    Creating new overseas markets and expanding existing markets is 
essential for a healthy agricultural economy. Continued funding of 
export development programs is fundamental to improving farm income. 
Farm Bureau recommends maximum funding of all export development 
programs consistent with our commitments under World Trade Organization 
(WTO) rules. USDA programs that protect U.S. agricultural exports from 
unfair trade barriers are also critical and should receive priority 
funding.
    CODEX.--The U.S. CODEX office must have sufficient funding to 
adequately represent American interests in this important body that 
develops the international food safety standards used as guidance by 
the WTO. Increasingly CODEX focuses on issues such as biotechnology, 
traceability/product tracing, and acceptable farm practices. An ongoing 
international effort is being led by the European Union to place limits 
on our ability to produce food and fiber.
    APHIS Biotech Regulatory Service (BRS).--Agricultural biotechnology 
is an extremely promising development and all reasonable efforts must 
be made to allow it to be realized. BRS plays an important role in 
overseeing the permit process for products of biotechnology. Funding 
and personnel are essential for ensuring public confidence and 
international acceptance of biotechnology products.
    APHIS Trade Issues Resolution and Management. Full funding is 
needed for APHIS trade issues resolution and management. As Federal 
negotiators and U.S. industry try to open 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. Officials from other countries often attempt to 
refuse entry to American products under the guise of a technicality or 
flimsy suspicion. Only APHIS can respond effectively to 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 imports. It is essential that APHIS be positioned to 
swiftly and forcefully respond to such issues when and where they 
arise.
    Export Development Programs.--We recommend fully funding all export 
development programs consistent with our commitments under the WTO. 
Farm Bureau supports General Sales Manager (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. The Market Access 
Program (MAP) and Foreign Market Development Program (FMD) are also 
worthwhile programs. The Foreign Agricultural Service (FAS) will 
require sufficient funding to expanded services to cover all existing 
and potential market posts.
    Direct export subsidies of U.S. agricultural products are 
authorized through the Export Enhancement Program (EEP) to counter 
unfair trading practices of foreign countries. Farm Bureau supports the 
funding and use of this program in all countries, and for all 
commodities, where the United States faces unfair competition. The 
Dairy Export Incentive Programs (DEIP) allows U.S. dairy producers to 
compete with foreign nations that subsidize their commodity exports. 
The International Food for Education Program (IFEP) will be an 
effective platform for delivering severely needed food aid and 
educational assistance. Finally, the Public Law 480 programs serves as 
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.
                                 ______
                                 

  Prepared Statement of the American Honey Producers Association, Inc.

    I am Lyle Johnston of Rocky Ford, Colorado, President of the 
American Honey Producers Association. The American Honey Producers 
Association (``AHPA'') is a national organization of commercial 
beekeepers actively engaged in honey production throughout the country. 
I am here today to request your assistance in continuing to support 
full funding for honey bee research.
    First, we wish to thank the Subcommittee for the strong support it 
has provided in the past for agricultural research activities on behalf 
of the beekeeping industry. For example, in the fiscal year 2003 cycle, 
the Subcommittee fully restored proposed cuts in honey bee research 
that would have resulted in the elimination of three Agricultural 
Research Service (``ARS'') laboratories that are indispensable to the 
survival of our industry. Such support has enabled the ARS to meet the 
critical needs of the industry. To continue this valuable research, the 
AHPA requests that for the fiscal year 2005 cycle Congress not only 
restore proposed rescissions of add-on funding from previous years for 
the two ARS Honey Bee Research Laboratories at Baton Rouge, Louisiana 
and Weslaco, Texas, but also approve specific funding increases 
proposed in the Administration's budget both for honey bee genome 
research at the ARS laboratory in Baton Rouge (under the category of 
invasive species affecting plants), and for invasive honey bee pest 
control research at the ARS laboratory in Beltsville, Maryland. We also 
urge the Congress to maintain honey bee research funding at fiscal year 
2004 levels for the ARS laboratory in Tucson, Arizona.
                    the president's budget proposal
    The American Honey Producers Association applauds the President's 
fiscal year 2005 budget proposal for recommending funding increases for 
the Honey Bee Research Laboratories located at Baton Rouge, Louisiana, 
and Beltsville, Maryland, and also for proposing a continuation of 
funding at fiscal year 2004 levels for the Honey Bee Research 
Laboratory in Tucson, Arizona. However, we are concerned that the 
President's budget also calls for significant funding decreases for the 
two Honey Bee Research Laboratories at Baton Rouge and at Weslaco. 
These cuts are proposed rescissions of funding increases included by 
Congress in previous appropriation cycles. Specifically, the 
Administration is suggesting $397,000 in cuts for the Baton Rouge 
facility and $249,000 in cuts for the Weslaco facility. These cuts to 
the ARS Honey Bee Research Laboratories would have a severe effect on 
the honey industry as well as on all pollination-dependent agriculture 
and many native plants. This seems particularly inappropriate 
considering the substantial benefits that flow from this program, which 
helps assure the vitality of the American honey bee industry and U.S. 
agriculture.
    These four ARS laboratories provide the first line of defense 
against exotic parasite mites, Africanized bees, brood diseases and 
other new pests and pathogens that pose serious threats to the 
viability and productivity of honey bees and the plants they pollinate. 
If the rescissions proposed this year by the President were to be 
enacted, scientists at the Baton Rouge and Weslaco laboratories will be 
overburdened and forced to discontinue essential research, thereby 
jeopardizing the U.S. honey bee industry and the production of 
agricultural crops that require pollination by honey bees.
            the importance of honey bees to u.s. agriculture
    Honey bees fill a unique position in contemporary U.S. agriculture. 
They pollinate more than 90 food, fiber, and seed crops. Honey bees are 
necessary for the production of such diverse crops as almonds, apples, 
oranges, melons, vegetables, alfalfa, soybeans, sunflower, and cotton, 
among others. A Cornell University study, published in 2000, estimated 
that the annual value of agriculture production attributable to honey 
bee pollination exceeds $14.6 billion. The increased value of such 
crops comes in the form of both better yields and improved quality. In 
addition, honey bees are responsible for the production of an average 
of 200 million pounds of honey annually in the United States, the sales 
of which helps sustain this nation's beekeepers.
    Since 1984, the survival of the honey bee has been threatened by 
continuing infestations of mites and pests for which appropriate 
controls are being developed by scientists at the four ARS 
laboratories. The industry is also plagued by a honey bee bacterial 
disease that has become resistant to antibiotics designed to control it 
and a honey bee fungal disease that has no known medication to control 
it. These pests and diseases, especially Varroa mites and the bacterium 
causing American foulbrood, are now resistant to chemical controls in 
many regions of the country. Such resistance is increasingly becoming a 
problem, as most of the major chemical controls are ineffective in 
treating such pests and diseases. Further, we have seen that honey bees 
are building resistance to newly-developed chemicals more quickly than 
in the past, thereby limiting the longevity of chemical controls.
    Unfortunately, there is no simple solution to these problems, and 
the honey bee industry is too small to support the cost of the needed 
research, particularly given the depressed state of the industry in 
recent years. Further, there are no funds, facilities, or personnel 
elsewhere available in the private sector for this purpose. 
Accordingly, the beekeeping industry is dependent on research from 
public sources for the scientific answers to these threats. Since the 
honey bee industry is completely comprised of small family-owned 
businesses, it relies heavily on the ARS for needed research and 
development. The key to the survival of the honey industry lies with 
the honey bee research programs conducted by ARS.
    The sequencing of the honey bee genome at Baylor University has 
opened the door to creating highly effective solutions to these 
problems via marker assisted breeding. Marker assisted breeding would 
permit the rapid screening of potential breeders for specific DNA 
sequences that underlie specific desirable honey bee traits. The 
sequenced honey bee genome is the necessary key which will allow 
scientists to discover the important DNA sequences. Because of the 
sequenced honey bee genome, it is now possible to apply molecular 
biological studies to the development of marker assisted breeding of 
honey bees. Good success can be expected in several areas: honey bee 
tracheal mite resistance, certain aspects of Varroa mite resistance 
such as grooming behavior (mite removal from the hive), bacterial and 
fungal disease resistance, and the optimization of pollination 
behavior.
    Furthermore, research on honey bees, one of five animals chosen by 
the National Institutes of Health for genome sequencing, may provide 
important insight into other areas of science. The honey bee is the 
first agricultural species to be sequenced, and such work may provide 
breakthrough advances in many areas of science. In fact, honey bees are 
being studied by the U.S. Department of Defense as sentinel species 
that could detect and locate agents of harm, such as chemical or 
biological threats. According to one researcher, it appears that honey 
bees' olfactory capabilities are at least on par with a dog, if not 
more sensitive. Thus, the scientific advances achieved by ARS will 
provide an array of benefits across many disciplines.
          the work of the ars honey bee research laboratories
    The ARS Honey Bee Research Laboratories work together to provide 
research solutions to problems facing businesses dependent on the 
health and vitality of honey bees. The findings of these laboratories 
are used by honey producers to protect their producing colonies and by 
farmers and agribusinesses to ensure the efficient pollination of 
crops. Each of the four ARS Honey Bee Research Laboratories (which are 
different in function from the ARS Wild Bee Research Laboratory at 
Logan, Utah) focuses on different problems facing the U.S. honey 
industry and undertakes research that is vital to sustaining honey 
production in this country. Furthermore, each honey bee research 
laboratory has unique strengths and each is situated and equipped to 
support independent research programs which would be difficult, and in 
many cases impossible, to conduct elsewhere.
Research at the ARS Weslaco Laboratory
    Because the AHPA recommends that the appropriation for the Weslaco 
laboratory be approved at not less than current levels, we respectfully 
request Congress to reject the President's proposal to eliminate 
$249,000 in funding added by Congress for the ARS Honey Bee Laboratory 
at Weslaco, Texas. Retaining the current (fiscal year 2004) level of 
funding for the Weslaco laboratory will enable it to continue its work 
in finding a chemical solution to parasitic mites that are causing a 
crisis for the U.S. beekeeping and pollination industries. Varroa mites 
are causing the loss of hundreds of thousands of domestic honey bee 
colonies annually as well as devastating wild bee colonies. The only 
chemical which has received a general registration for Varroa mite 
control, fluvalinate, is being rendered ineffective by the development 
of resistant mite populations. The ARS laboratory at Weslaco has been 
developing alternative chemicals to control the Varroa mite. The 
laboratory has found a chemical, coumaphos, with the potential of being 
equally effective as fluvalinate. Unfortunately, the mites are also 
rapidly developing a resistance to this latest chemical product, 
coumaphos. Presently, there are no other chemicals available for 
controlling the Varroa mite, and the laboratory is working frantically 
to develop other means of control.
    Additionally, the laboratory is researching methods that may 
control the small hive beetle. Since its discovery in Florida in 1998, 
this pest has caused severe bee colony losses in California, Florida, 
Georgia, South Carolina, North Carolina, Pennsylvania, Ohio, and 
Minnesota. Estimates put these losses in just one season at over 30,000 
colonies. The beetles are now spreading all across the United States. 
Although it seems that coumaphos may help control this insect as well 
as the Varroa mite, it has not yet received a Section 3 registration 
for general use. The ARS honey bee research scientists at the Weslaco 
laboratory have been working overtime to find chemicals, techniques, 
pheromones, or other methods of controlling the beetle. Time is of the 
essence and a control must be found immediately, because all the bee 
colonies in the Western Hemisphere are at risk.
    This facility also focuses its research efforts on developing 
technologies to manage honey bees in the presence of Africanized honey 
bees, parasitic mites, and other pests. In order to ensure that further 
pests are not introduced into the United States, scientists at the 
Weslaco facility provide technical assistance to agriculture 
departments in foreign countries on the control of parasitic mites. The 
laboratory has worked with officials in Guatemala, Costa Rica, Mexico, 
and South Africa to protect the U.S. honey bee population from further 
devastation by infestation of foreign parasites, diseases, and other 
pests. This inter-governmental cooperation is necessary to ensure the 
continued viability of the U.S. honey bee industry.
Research at the ARS Baton Rouge Laboratory
    While we are pleased that the President has requested an increased 
funding in the amount of $250,000 for honey bee genome research at the 
ARS Baton Rouge Laboratory, we are dismayed by and opposed to the 
Administration's simultaneous request for $397,000 in cuts for this 
facility, eliminating previous Congressional increases in funding. In 
light of the importance of genome research, we hope that Congress will 
support the President's recommended increase for the ARS laboratory at 
Baton Rouge, Louisiana, while opposing the rescission proposed by the 
Administration. An increase in funding will allow the vital genome 
research conducted in Baton Rouge to achieve more quickly the 
breakthrough successes that are closer than ever to realization. The 
Baton Rouge facility is the only laboratory in the United States 
developing long-term, genetic-based solutions to the Varroa mite. 
Existing stocks of U.S. honey bees are being tested to find stocks 
which exhibit resistance to the parasitic mites.
    Research scientists with the laboratory have also been to the far 
corners of the world looking for mite resistant bees. For example, in 
eastern Russia, they found bees that have co-existed for decades with 
the mites and survived. Using these bees, the laboratory develops 
stocks of honey bees resistant to the parasites. Before these new 
stocks are distributed to American beekeepers, the laboratory ensures 
that the resistance holds up under a wide range of environmental and 
beekeeping conditions, testing attributes such as vigor, pollination, 
and honey production. We believe recent scientific breakthroughs with 
this genomic research will allow scientists in the near future to breed 
honey bees that are resistance to the Varroa mite and other parasites.
    The Baton Rouge facility also operates the only honey bee 
quarantine and mating station approved by the Animal and Plant 
Inspection Service. These stations are necessary to ensure that new 
lines of bees brought into the United States for research and 
development are free of diseases unknown in the United States. In 
addition, Baton Rouge research scientists are focused on the 
applications of new technologies of genomics. This work has the 
potential to enhance the proven value of honey bee breeding for 
producing solutions to the multiple biological problems that diminish 
the profitability of beekeeping.
Research at the ARS Tucson Laboratory
    The American Honey Producers Association supports the 
Administration's request that funding for the ARS Honey Bee Research 
Laboratory in Tucson be kept at the current level for fiscal year 2005. 
This research center is the only ARS honey bee laboratory serving the 
needs of beekeepers and farmers in the western United States. The 
facility works to improve crop pollination and honey bee colony 
productivity through quantitative ecological studies of honey bee 
behavior, physiology, pest and diseases, and feral honey bee bionomics.
    Because more than one million colonies are transported from across 
the country for pollination into crops grown in the western United 
States (primarily California), the Tucson research center addresses 
problems that arise from transporting and introducing colonies for 
pollination of crops such as almonds, plums, apricots, apples, 
cherries, citrus, alfalfa, vegetable seed, melons, and berries. This 
research center has been instrumental in disseminating information on 
technical issues associated with the transport of bee colonies across 
state lines. Additionally, in order to ensure that transported colony 
populations remain stable during transport and also during periods 
before the crop to be pollinated comes into bloom, scientists at the 
laboratory have developed an artificial diet that stimulates brood 
production in colonies. A large bee population is necessary to ensure 
that efficient pollination occurs, creating superior quality crops.
Research at the ARS Beltsville Laboratory
    Again, we support the President's proposal to increase funding at 
the ARS Honey Bee Research Laboratory in Beltsville by $100,000 to 
boost current research efforts aimed at eliminating invasive honey bee 
pests. This facility, the oldest of the federal bee research centers, 
conducts research on the biology and control of honey bee parasites, 
diseases, and pests to ensure an adequate supply of bees for 
pollination and honey production. Using biological, molecular, 
chemical, and non-chemical approaches, scientists in Beltsville are 
developing new, cost-effective strategies for controlling parasitic 
mites, bacterial diseases, and emergent pests that threaten honey bees 
and the production of honey.
    The laboratory also develops preservation techniques for honey bee 
germplasm in order to maintain genetic diversity and superior honey bee 
stock. Scientists at the facility also provide authoritative 
identification of Africanized honey bees and diagnosis of bee diseases 
and pests for Federal and State regulatory agencies and beekeepers on a 
worldwide basis. In operating this bee disease diagnosis service, the 
Beltsville facility receives over 2,000 samples annually from across 
the United States.
                               conclusion
    In conclusion, we wish to thank you again for your support of honey 
bee research in the past and for your Committee's understanding of the 
importance of these laboratories. The American Honey Producers 
Association would appreciate your continued support by (1) increasing 
the level of funding for the ARS Honey Bee Research Laboratory in Baton 
Rouge, Louisiana, by $250,000, as proposed by the Administration in its 
fiscal year 2005 budget; (2) increasing the level of funding for the 
ARS Honey Bee Research Laboratory in Beltsville, Maryland, by $100,000, 
as proposed by the Administration in its fiscal year 2005 budget; (3) 
restoring the proposed rescissions from previous years of $397,000 for 
the Baton Rouge facility and $249,000 for the Weslaco, Texas, facility; 
and (4) maintaining the current level of funding for the ARS Honey Bee 
Research Laboratory in Tucson, Arizona. Only through research can we 
have a viable U.S. beekeeping industry and continue to provide stable 
and affordable supplies of bee pollinated crops which make up fully 
one-third of the U.S. diet.
    Furthermore, we urge you to reject any effort to cut the operating 
budgets of these vitally important research laboratories by 
consolidating their functions. Any proposed cuts and their resulting 
budget and staff reductions would significantly diminish the quality of 
research conducted by these laboratories, harming bee keepers as well 
as farmers who harvest pollination-dependent agriculture. Congress 
cannot allow these cuts to occur and must continue to provide 
sufficient funding for the ARS Honey Bee Research Laboratories to 
perform their vital role.
    I would be pleased to respond to any questions that you or your 
colleagues may have.
                                 ______
                                 

 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 32 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 2005.
    This statement is presented in three parts: (a) a summary of our 
fiscal year 2005 funding request, (b) a brief background on Tribal 
Colleges and Universities, and (c) an outline of the 1994 Tribal 
College Land Grant Institutions' plan for 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 their resources.
                          summary of requests
    We respectfully request the following funding levels for fiscal 
year 2005 for our land grant programs established within the USDA 
Cooperative State Research, Education, and Extension Service (CSREES) 
and Rural Development mission areas. In CSREES, we specifically 
request: $12 million payment into the Native American endowment fund; 
$3.1 million for the higher education equity grants; $5 million for the 
1994 institutions' competitive extension grants program; $3 million for 
the 1994 Institutions' competitive research grants program; and in the 
Rural Development-Rural Community Advancement Program (RCAP), that $5 
million for each of the next five fiscal years be targeted for the 
tribal college community facilities grants. RCAP grants help to address 
the critical facilities and infrastructure needs at the colleges that 
impede our ability to participate fully as land grant partners. Since 
fiscal year 2001, the RCAP tribal college competitive program has 
received an annual appropriation of $4 million.
             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, as much as any other higher education 
institutions, 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. Rapid growth 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--32 of which now comprise the list of 1994 Land Grant 
Institutions--located in 12 states created specifically to serve the 
higher education needs of American Indian students. Annually, they 
serve approximately 30,000 full- and part-time students from over 250 
Federally recognized tribes.
    Thirty-one \1\ of the 1994 Land Grant Institutions are accredited 
by independent, regional accreditation agencies and like all 
institutions, must undergo stringent performance reviews on a periodic 
basis to retain their accreditation status. Tribal colleges serve as 
community centers by providing libraries, tribal archives, career 
centers, economic development and business centers, public meeting 
places, and child care centers. Despite their 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 
operational costs for non-Indian students enrolled in our institutions, 
accounting for approximately 20 percent of our student population. 
Under these inequitable financing conditions and unlike our state land 
grant partners, our institutions do not benefit from economies of 
scale--where the cost per student to operate an institution is 
diminished by the increased size of the student body.
---------------------------------------------------------------------------
    \1\ White Earth Tribal & Community College is in the pre-candidacy 
stage of accreditation.
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    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 and Universities, 
American Indian communities are receiving services they need to 
reestablish themselves as responsible, productive, and self-reliant 
citizens. 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.
    Native American Endowment Fund.--Endowment installments paid into 
the 1994 Institutions' account remain with the U.S. Treasury, only the 
annual interest, less the USDA's administrative fee, is distributed to 
the colleges. The latest gross annual interest yield (fiscal year 2003) 
is $1,929,849, after the USDA's administrative fee of $77,194 is 
deducted; $1,852,655 remains to be distributed among the 31 eligible 
1994 Land Grant Institutions by statutory formula. We believe that the 
annual administration fee is excessive. Last year, the USDA's 
administrative fee of $70,863 was larger than the interest yield 
payments distributed to 74 percent of the 1994 Land Grant Institutions. 
After the distribution amounts are determined for this year's 
disbursement we fully expect similar results and therefore ask the 
Subcommittee to review the administration fee and consider reducing it. 
More critical funding can then be put to work at the 1994 Land Grant 
Institutions in order to accomplish the goals of their community based 
programs.
    Just as other land grant institutions historically received large 
grants of land or endowments in lieu of land, this endowment 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 academic 
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. Several of the colleges have indicated the 
need for immediate and substantial renovations to replace construction 
materials that have long exceeded their effective life span, and to 
upgrade existing buildings due to accessibility and safety concerns.
    An increased endowment payment would enhance the size of the corpus 
and thereby increase the annual interest yield available to the 1994 
land grant colleges. 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 continue to help address the critical and very expensive 
facilities needs at our institutions. Currently, the amount that each 
college receives from this endowment is not enough to adequately 
address curricula development and instruction delivery, as well as 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 frankly 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 2005 
endowment fund payment to the $12 million recommended in the 
President's Budget.
    1994 Institutions' Educational Equity Grant Program.--Closely 
linked with the endowment fund, this program currently provides 
approximately $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 plan activities specifically targeting 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; bison production and management; and especially 
food science and nutrition to address epidemic rates of diabetes and 
cardiovascular disease on reservations. If more funds were available 
through the Educational Equity Grant Program, tribal colleges could 
channel more of their endowment yield to supplement other facilities 
funds to address their critical infrastructure issues. Authorized at 
$100,000 per eligible 1994 Institutions, in fiscal year 2004, this 
program was appropriated at just $1,679,000, or about $54,000 per 1994 
institution. 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.
    Extension Programs.--The 1994 Institutions' extension programs 
strengthen 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 2004, $2,929,000 was appropriated for the 1994 
Institutions' competitive extension grants, a 13 percent decrease from 
fiscal year 2003, by far the largest percentage decrease of all Smith 
Lever programs, as the 1862 and 1890 programs received a reduction of 
just 0.59 percent. Reductions in already sparse funding will 
significantly limit the 1994 Institutions' ability to maintain existing 
programs and to respond to emerging issues such as food safety and 
homeland security especially on border reservations. Additional funds 
are needed to support these vital programs designed to address the 
inadequate extension services provided to Indian reservations by their 
respective 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 support this competitive program by appropriating $5 
million to sustain the growth and further success of these essential 
community based programs.
    1994 Research Program.--As the 1994 Land Grant Institutions have 
begun to enter into partnerships with 1862/1890 land grant institutions 
through collaborative 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 institutional expertise, with the overall impact 
being far greater than the sum of its parts. We recognize the budget 
constraints under which Congress is functioning. However, $1.1 million, 
the fiscal year 2004 appropriated level of funding, is clearly 
inadequate for a competitive pool of 31 institutions. This research 
program is vital to ensuring that tribal colleges may 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 
projects funded under this program:
  --Southwestern Indian Polytechnic Institute (SIPI) serves American 
        Indian/Alaska Native students from across the nation. 
        Currently, SIPI is studying the feasibility of an intensive, 
        extended production of high value crops. This research project 
        compares the economic returns from growing raspberries and 
        strawberries under high tunnels to returns from open-field 
        growing conditions, under organic management at three sites 
        that consider variations in harvest time and duration, and 
        total production.
    Other project areas include soil and water quality, 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 improvements at 
Tribal Colleges and Universities. As stated earlier, the facilities at 
many of the 1994 Land Grant Institutions are in serious 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 1994 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 aggressively address critical facilities 
needs.
                               conclusion
    The 1994 Land Grant Institutions have proven to be efficient and 
effective tools for bringing educational 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 support of the Tribal Colleges and Universities 
and we ask you to renew 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 equitable 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 2005 appropriations requests.
                                 ______
                                 

               Prepared Statement of The American Legion

National School Lunch Program
    Since 1941, The American Legion has supported programs of nutrition 
for children, including the National School Lunch Program. This 
federally-assisted meal program operates in more than 99,000 public and 
non-profit private schools and residential child care institutions, 
providing nutritionally balanced, low-cost or free lunches to more than 
25 million children each school day.
    The importance of this nutrition assistance program is underscored 
by these facts: A poor diet is a significant factor in 4 of the 10 
leading causes of death in the United States--coronary heart disease, 
cancer, hypertension, stroke and diabetes.
  --Poor nutrition and lack of physical activity account for 300,000 
        deaths per year.
  --The economic cost of poor nutrition accounts for at least $200 
        billion per year in medical costs and lost productivity.
  --Participation in school feeding programs leads to improved 
        educational outcomes.
    There continues to be expressions of concern by health authorities 
and various national organizations with an interest in the status of 
proper nutrition among young people. A USDA analysis of the 1994-1996 
Continuing Survey of Food Intakes for Individuals (CSFII) noted these 
alarming trends in children's eating patterns:
  --Only 2 percent of school-aged children meet the Food Guide Pyramid 
        serving recommendations for all five major food groups.
  --Girls, ages 14 to 18, have especially low intakes of fruits and 
        dairy products.
  --More than two-thirds of females, ages 14 to 18, exceed the 
        recommendations for intake of total fat and saturated fat, but 
        even greater percentages of children exceed these 
        recommendations among the other age/gender groups.
  --Children's diets are high in added sugars. For all children, added 
        sugars--including sugars used as ingredients in processed foods 
        or added to foods as they are consumed--contribute an average 
        of 20 percent of total food energy.
  --Children are heavy consumers of regular or diet soda. Overall, 56 
        to 85 percent of children (depending on age and gender) consume 
        soda on any given day. Teenage males are especially heavy 
        consumers of soda, with over a third consuming more than three 
        servings a day.
  --All of the age/gender groups experienced a shift from milk products 
        to soda and fruit drinks. The decrease in milk consumption 
        tended to be larger for females than for males.
  --These trends have contributed to some serious diet-related health 
        concerns.
  --The prevalence of overweight among youth ages 5-17 years in the 
        United States has more than doubled in the past 30 years; most 
        of the increase has occurred since the late 1970's.
  --Current evidence suggests that childhood overweight and obesity 
        continue into adulthood.
  --One of the most serious aspects of overweight and obesity in 
        children is Type II diabetes. Type II diabetes accounted for 2 
        to 4 percent of all childhood diabetes before 1992, but 
        skyrocketed to 16 percent by 1994. Overweight adolescents are 
        more likely to become overweight adults, with increased risk 
        for developing heart disease and stroke, gallbladder disease, 
        arthritis, and endometrial, breast, prostate and colon cancers.
  --Failure to meet calcium requirements in childhood can hinder the 
        achievement of maximal skeletal growth and bone mineralization. 
        Getting enough calcium in the diet during childhood, 
        adolescence, and young adulthood, to reduce the risk for 
        osteoporosis later in life is particularly important for 
        females.
    Nutrition clearly has a major impact on children--on their health, 
their ability to learn and on their potential for becoming healthy and 
productive adults. School meals make an important contribution to the 
nutrition of school-aged children. The School Nutrition Dietary 
Assessment Study-II indicates that reimbursable meals selected by 
students exceeds the Recommended Dietary Allowances (RDA) standards for 
key nutrients. According to the USDA analysis of the 1994-1996 CSFII 
data:
  --National School Lunch Program (NSLP) participation is associated 
        with higher average intakes of many nutrients, both at lunch 
        and over 24 hours.
  --NSLP participants have substantially lower intakes of added sugars 
        than do non-participants.
  --NSLP participants are more likely than non-participants to consume 
        vegetables, milk and milk products, and meat and other protein-
        rich foods, both at lunch and over 24 hours; they also consume 
        less soda and fruit drinks.
    Federal nutrition assistance programs have a critical role to play 
in promoting 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 and promotion to program participants. The American Legion 
urges Congress to appropriate $10.6 billion for school nutrition 
programs to reflect the increased cost of food and to provide for 
needed facilities and trained personnel for the purpose of conducting 
an adequate school lunch program.
                                 ______
                                 

      Prepared Statement of the American Public Power Association

    The American Public Power Association (APPA) is the national 
service organization representing the interests of over 2,000 municipal 
and other state and locally owned utilities throughout the United 
States (all but Hawaii). Collectively, public power utilities deliver 
electricity to one of every seven electric consumers (approximately 40 
million people), serving some of the nation's largest cities. However, 
the vast majority of APPA's members serve communities with populations 
of 10,000 people or less.
    We appreciate the opportunity to submit this statement outlining 
our fiscal year 2005 funding priorities within the jurisdiction of the 
Agriculture, Rural Development, Food and Drug Administration, and 
Related Agencies Subcommittee.
Department of Agriculture: Rural Utility Service Rural Broadband Loan 
        Program
    APPA urges the Subcommittee to fully fund the Rural Utility 
Service's (RUS) Rural Broadband Loan Program at $20 million, as 
authorized in the 2002 Farm Bill, and to take all appropriate steps to 
assist the RUS in facilitating the processing of loan funds provided in 
fiscal year 2002 through fiscal year 2004. A funding level of $20 
million would produce approximately $700 million in RUS loans for 
fiscal year 2005.
    APPA believes it is important to provide incentives for the 
deployment of broadband to rural communities, many of which lack 
broadband service. Increasingly, access to advanced communications 
services is considered vital to a community's economic and educational 
development. In addition, the availability of broadband service enables 
rural communities to provide advanced health care through telemedicine 
and to promote regional competitiveness and other benefits that 
contribute to a high quality of life. Approximately one-fourth of 
APPA's members are currently providing broadband service in their 
communities. Several APPA members are planning to apply for RUS 
broadband loans to help them finance their broadband projects, and one 
member--Grant County Public Utility District in Washington--applied for 
an RUS loan last year.
                                 ______
                                 

           Prepared Statement of the American Sheep Industry

    The American Sheep Industry Association (ASI) is a federation of 
state member associations representing over 64,000 sheep producers in 
the United States. The sheep industry views numerous agencies and 
programs of the U.S. Department of Agriculture as important to lamb and 
wool production. Sheep industry priorities include rebuilding and 
strengthening our infrastructure primarily through the National Sheep 
Industry Improvement Center, critical predator control activities, 
fully funded our national animal health efforts, and expanding research 
capabilities.
    The rapid changes that have occurred in the domestic sheep industry 
and continue to take place put further emphasis on the importance of 
adequately funding the U.S. Department of Agriculture programs 
important to lamb and wool producers.
    We appreciate this opportunity to comment on those portions of the 
USDA fiscal year 2005 budget.
                           rural development
    The National Sheep Industry Improvement Center is critical to the 
industry and we fully support appropriations for the balance of 
authorized spending of $22 million. The Sheep Center is currently 
involved with an Intermediary Low Interest Direct Loan Program, which 
became operational in 2000 and has committed $14 million for lamb, wool 
and goat projects. Loans are being used to fund a variety of large and 
small projects in every region of the country with emphasis on 
targeting different marketing challenges through value added and niche 
marketing initiatives. The second focus area is a direct grant program 
that was started in 2002. The Center has approved a grant solicitation 
process with an increased funding amount for fiscal year 2004, which 
ought to be considered again in fiscal year 2005 with additional 
appropriations.
    We understand that loan proposals currently under consideration 
will fully use the available funds. The demand for the Center's funds 
is increasing and additional appropriations will be required to meet 
the new project requests. Furthermore the authority of the Center to 
receive Federal funds allows for another $22 million during the next 2 
fiscal years. The Center is a premier vehicle of the U.S. sheep 
industry's adjustment plan and adequate funding is critical to the 
industry.
           animal and plant health inspection service (aphis)
Scrapie
    The American Sheep Industry Association is very appreciative for 
the increased appropriations approved in fiscal year 2003 and fiscal 
year 2004 of $15.47 million. USDA/APHIS, along with industry and State 
regulatory efforts, is now in the position to eradicate scrapie from 
the United States with a multi-year attack on this animal health issue. 
As the collective and aggressive efforts of Federal and State 
eradication efforts are expanding into slaughter-surveillance and other 
methods and systems, the costs are, as expected, escalating. We urge 
the subcommittee to support the President's request of $21 million for 
scrapie eradication in the 2005 budget.
    Scrapie is one of the family of transmissible spongiform 
encephalopathies (TSEs), all of which are the subject of great 
importance and interest around the globe. USDA/APHIS, along with the 
support and assistance of the livestock and allied industries, began an 
aggressive program to eradicate scrapie in sheep and goats three years 
ago. The plan USDA/APHIS is implementing will eradicate scrapie by 2010 
and with subsequent monitoring and surveillance would allow the United 
States to be declared scrapie-free by 2017. Becoming scrapie-free will 
have significant positive economic impact to the livestock, meat and 
feed industries and, of course, rid our flocks and herds of this fatal 
animal disease.
    Essential to the eradication effort being accomplished in a timely 
manner, is adequate appropriated funds. The program cannot function 
properly without additional personnel, diagnostic support and 
surveillance activities that depend upon appropriated funds. We 
strongly urge you to support the level of funding that is specified for 
scrapie in the President's budget request. Funding of $21 million will 
provide for an achievable scrapie eradication program and the eventual 
scrapie-free status for the United States. As with the other successful 
animal disease eradication programs conducted by USDA/APHIS in the 
past, strong programs at the State level are key. We therefore urge the 
subcommittee to send a clear message to USDA to budget significant 
funding toward cooperative agreements with the State animal health 
regulatory partners.
Wildlife Services
    With well over one-quarter million sheep and lambs lost to 
predators each year, the Wildlife Services (WS) program of USDA-APHIS 
is vital to the economic survival of the sheep industry. The value of 
sheep and lambs lost to predators and predator control expenses are 
second only to feed costs for sheep production. Costs associated with 
depredation currently exceed our industry's veterinary, labor and 
transportation costs.
    Wildlife Service's cooperative nature has made it the most cost 
effective and efficient program within Federal Government in the areas 
of wildlife management and public health and safety. Wildlife Services 
has more than 2,000 cooperative agreements with agriculture, forestry 
groups, private industry, state game and fish departments, departments 
of health, schools, county and local governments to mitigate the damage 
and danger that the public's wildlife can inflict on private property 
and public health and safety.
    ASI strongly supports the fiscal year 2004 appropriations for 
Wildlife Services operations and methods development programs, 
particularly as related to livestock protection. We request the 
Committee restore the funding levels that are decreased in the 
Administration's fiscal year 2005 budget. We encourage continued 
recognition in the appropriations process for fiscal year 2005 of the 
importance of aerial hunting as one of Wildlife Service's most 
efficient and cost-effective core programs and ASI supports continued 
appropriations. It is used not only to protect livestock, wildlife and 
endangered species, but is a crucial component of the Wildlife Services 
rabies control program.
    Similar to the increasing needs in the aerial hunting program we 
encourage continued emphasis in the programs to assist with management 
of wolf depredation in the states of Montana, Idaho, Wyoming, 
Minnesota, Wisconsin, Michigan, New Mexico and Arizona. Additionally, 
program expenses are expected in the states surrounding the Montana, 
Idaho and Wyoming wolf populations. It is strongly supported that 
appropriations be provided for $586,000 for additional wolf costs 
anticipated in Washington, Oregon, Nevada, Utah, Colorado and North 
Dakota. A regional helicopter proposed for use in the affected areas is 
supported at $980,000.
    The following additional appropriations are urged for consideration 
in fiscal year 2005:
  --Wildlife Services must document its operations in order to conduct 
        program analysis and comply with Federal reporting 
        requirements. The agency's current information technology 
        support system has become antiquated, which could result in 
        incomplete data collection and analysis. To update and maintain 
        the information system, an additional $700,000 is needed.
  --Research and Development is needed to improve existing techniques, 
        find new methods for capturing and/or discouraging wildlife 
        from preying on livestock or other wildlife species, and 
        explore fertility methods (i.e., sterilization and 
        immunocontraception) that are economically and socially 
        acceptable. An additional $1,150,000 is needed to meet the 
        research and personnel needs of the National Wildlife Research 
        Center Predator Research Unit.
  --Implementation of Newly Developed Methods including new 
        technologies that deal with electronic devices or 
        immunocontraception require significant funds to implement. It 
        is recommended that a fund of $2,300,000 be established to take 
        the newly developed techniques and test them in actual field 
        conditions to determine their practicability in terms of 
        effectiveness and cost.
  --Livestock protection is the major emphasis of the WS western 
        program and the agency frequently receiving requests to assist 
        other types of wildlife damage related issues. For example, 
        concerns over declining native wildlife are being expressed by 
        many state wildlife agencies. WS is being requested to provide 
        assistance to reduce impacts of predation on these species to 
        allow for recovery and to avert threatened and endangered 
        species listings. With limited resources and employees to 
        accommodate these requests, additional infrastructure and 
        equipment is needed to meet these demands. An additional 
        $6,900,000 is necessary to purchase equipment, meet personnel 
        needs to maintain and implement programs, update the data 
        collection system, develop and implement a public communication 
        plan, and meet NEPA planning requirements.
                     agricultural marketing service
Lamb Market Information and Price Discovery Systems
    The sheep industry strongly supports the fiscal year 2005 budget 
for Market News of USDA-Agricultural Marketing Service. Furthermore ASI 
supports necessary increases in appropriations for the full 
implementation of the mandatory price-reporting system for livestock. 
We expect AMS to continue efforts to fully implement the price 
reporting system this fiscal year with the inclusion of the imported 
lamb meat price report.
                   foreign agricultural service (fas)
    The sheep industry participates in FAS programs such as the Market 
Access Program (MAP), Quality Samples Program and the Foreign Market 
Development Program. ASI strongly supports appropriations at the full 
authorized level for these critical Foreign Agricultural Service 
programs. ASI is the cooperator for American wool and sheep pelts and 
has achieved solid success in increasing exports of domestic product. 
Exports of American wool have been increased dramatically with 
approximately 60 percent of U.S. production now competing overseas.
             natural resources conservation service (nrcs)
    ASI urges increased appropriations for the range programs of the 
Soil Conservation Service to benefit the private range and pasture 
lands of the United States with conservation assistance. We support the 
budget item and recommend an increased level for the Grazing Lands 
Conservation Initiative, which ASI has worked with, along with other 
livestock and range management organizations, to address this important 
effort for rangelands in the United States.
                   research, education and economics
    Our industry is striving to be profitable and sustainable as a user 
of and contributor to our natural resource base. Research, both basic 
and applied, and modern educational programming is essential if we are 
to succeed. We have been disappointed in the decline in resources USDA 
has been targeting toward sheep research and outreach programs. With 
net increases in the animal systems category of the agriculture 
research budget, for example, sheep and wool research has either 
declined or remained static for the past several years. In order for 
the sheep industry to be more globally competitive in the future, we 
must invest in the discovery and adoption of new technologies for 
producing, processing and marketing lamb and wool. We urge the 
subcommittee to send a strong message to USDA supporting sheep research 
and education funding increases.
Agricultural Research Service
    We continue to vigorously support the administration's funding of 
research concerning emerging and exotic diseases. Emerging and exotic 
diseases continue to have significant impact on our industry due to 
animal health and trade issues. The animal disease portion should be 
substantial and is urgently needed to protect the U.S. livestock 
industry. We agree that BSE is an extremely important disease issue 
globally and believe that research is needed. With this in mind, we 
remind the subcommittee that scrapie is a TSE that is endemic in the 
United States and we recommend that these monies for BSE research be 
utilized in such a manner that the resultant research assists with 
scrapie eradication needs. We also respectively remind the subcommittee 
that scientists in the Animal Disease Research Unit (ADRU), ARS, 
Pullman Washington, have made significant progress in the early 
diagnosis of TSEs, in understanding genetic resistance to TSEs and in 
understanding mechanisms of TSE transmission, which are important in 
eradication of all TSEs. The programs of these scientists at ADRU 
should be enhanced and expanded to include, for instance, the 
development of further improvements in rapid and accurate TSE detection 
methods and to provide an understanding of the role of environmental 
sources of the TSE agent in the transmission of TSEs within the United 
States and world and to further understand the basis of genetic 
resistance and susceptibility to these devastating diseases.
    We appreciate and support the President's budget request of $1 
million for Animal Genomics at ARS/ADRU. Since 2001, Congress has had 
the foresight to appropriate $775,000 each year to this unit for 
``Microbial Genomics.'' Microbial genomics is the cornerstone project 
for their genomic research infrastructure and has resulted in very 
important genome projects for infectious diseases of livestock such as 
scrapie. The $250,000 enhancement of the genomics program at ADRU over 
the fiscal year 2004 would enhance the program to include defining the 
genes involved in the immune response of sheep to important emerging 
diseases such as MCF and ovine progressive pneumonia virus.
    We also urge the subcommittee to recommend the restoration of 
$496,000 for Malignant Catarrhal Fever (MCF) at the ARS/ADRU in Pullman 
for the fiscal year 2005 budget. MCF is a viral disease of ruminants 
that is of great concern to our livestock industries. The exotic 
variant of MCF is considered a high priority select agent. This funding 
is provided for collaborative research with the U.S. Sheep Experiment 
Station, Dubois ID, for vaccine development directed at preventing 
transmission of MCF.
    Research into Johne's disease has received additional funding 
through ARS over the past several years, focusing on cattle. Johne's 
disease is also endemic in the U.S. sheep population and is not well 
understood as a sheep disease. The same food safety concerns exist in 
both sheep and cattle; other countries are also very concerned about 
Johne's in sheep. We urge the subcommittee to send a strong message to 
ARS that Johne's disease in sheep should receive more attention at the 
National Animal Disease Research Center (NADC) with an emphasis on 
diagnostics.
Economic Research Service
    ASI appreciates the subcommittees' support of USDA/ERS and the 
accomplishment of publicly available retail price data on lamb as 
initiated last year. We urge continued support of funding for mandatory 
price reporting including collection and reporting of retail lamb price 
data.
 cooperative state research, education, and extension service (csrees)
    The Minor Use Animal Drug Program is funded through a ``Special 
Research Grant'' that has had great benefit to the U.S. sheep industry. 
The research under this category and the companion ``NRSP-7'' program 
through FDA/CVM has provided research information on therapeutic drugs 
that are needed for the approval process. Without this program, 
American sheep producers would not have effective products to keep 
their sheep healthy. We appreciate the Administration's request of 
$588,000 for this program, and we urge the subcommittee to recommend 
that it be funded at least at this level to help meet the needs of our 
rapidly changing industry and increasing costs for research necessary 
to meet the requirements for approving additional therapeutics for 
sheep.
    On-going funding for the Food Animal Residue Avoidance Databank 
(FARAD) program is critically important for the livestock industry in 
general and especially for ``minor species'' industries such as sheep 
where extra-label use of therapeutic products is more the norm rather 
than the exception. FARAD provides veterinarians the ability to 
accurately prescribe products with appropriate withdrawal times 
protecting both animal and human health. We urge the subcommittee to 
restore funding for FARAD at least to the level of $800,000.
    Ongoing research in wool is critically important to the sheep and 
wool industry. ASI urges the subcommittee's support of $294,000 for 
fiscal year 2005 through the special grants program of the CSREES for 
wool research.
    Ongoing research for the Montana Sheep Institute is important to 
the sheep and wool industry. Sheep grazing is being used as an 
important tool for natural resource management to improve the 
competitiveness of lamb and wool in the marketplace. ASI encourages the 
subcommittee's support of funding at $556,360.
    The research and education programs conducted through the Joe Skeen 
Institute for Rangeland Restoration provide valuable information for 
sheep producers in the western United States. ASI urges the 
subcommittee to restore the funding to the originally proposed 
$1,000,000 in fiscal year 2003.
    The industry greatly appreciates this opportunity to discuss these 
programs and appropriations important to the sheep industry.
                                 ______
                                 

      Prepared Statement of the American Society for Microbiology

    The American Society for Microbiology (ASM), the largest single 
life science society with a membership of over 43,000, appreciates the 
opportunity to submit testimony in support of the fiscal year 2005 
budget for the Food and Drug Administration (FDA). The FDA serves as 
the science-based protector of public health by assuring the safety, 
efficacy, and security of human and veterinary drugs, biological 
products, medical devices, the food supply, consumer products and by 
responding to new challenges of bioterrorism and food defense. The FDA 
also advances health care by taking steps to improve and ensure new 
medical product development based on biomedical research. It is 
critical that FDA maintain the highest level of public trust in all of 
its activities and increased funding is vital to its success and its 
critical mission initiatives.
    The ASM supports the Administration's fiscal year 2005 budget 
request of $1.8 billion which represents an 8.8 percent increase over 
the fiscal year 2004 funding level. This increase will enhance security 
of the nation's domestic and imported food supply and support stronger 
FDA review of medical devices, better protection against bovine 
spongiform encephalopathy (BSE), and more efficient work output through 
further consolidation of FDA facilities. The increase recognizes the 
important activities of the FDA in improving patient and consumer 
safety and responding to new challenges of bioterrorism and food 
defense. The FDA is a principal partner in inter-agency homeland 
security strategies.
    Science-based decision making and a well-trained workforce make the 
FDA an effective and reliable guardian of public health. As the U.S. 
population grows and threats to public safety persist, demands on the 
FDA are multiplying in number and complexity. Changes in global trade 
and international politics affect the FDA mission as well. Last year 
for instance, the FDA conducted nearly 80,000 imported food 
examinations, up from 12,000 in 2001. The agency must remain highly 
responsive both to on-going consumer needs and to unexpected emergency 
situations. In 2003 the FDA activated its Emergency Operations Center 
to respond to the first reported United States case of BSE and to 
participate in a two-city, full-scale counterterrorism exercise of a 
simulated detonation of a nuclear device and the release of the 
pneumonic plague pathogen.
Food Defense and National Security
    Over the past three years, the FDA has worked to improve food 
security by adding more inspections of imported food, trained 
investigators, and port of entry security measures. Protecting the food 
consumed by over 290 million Americans demands major effort from the 
FDA and its staff. The agency directly oversees the safety of about 80 
percent of the nation's food supply and assists the U.S. Department of 
Agriculture (USDA) on the remainder. Nearly half of the proposed $149 
million budget increase, an amount of $65 million, would further 
broaden the FDA's capabilities to guarantee and defend the national 
food supply to an fiscal year 2005 total of $181 million.
    This allocation would support the key food defense strategies 
already being implemented by the agency: increase food security 
awareness among public and private stakeholders; develop advanced 
capacities to identify specific threats or attacks on the food supply; 
design additional protection to shield the food supply from terrorist 
attack; fine-tune rapid coordinated response capability in the event of 
a foodborne terrorist attack; and enhance the capacity for a quick 
recovery if such an attack did harm any residents of the United States.
    Of the proposed $65 million increase, $35 million would establish a 
joint FDA-USDA network of qualified investigative laboratories, the 
Food Emergency Response Network (FERN). Throughout its long history, 
the FDA has optimized consumer protection by collaborating with states, 
other Federal agencies, law enforcement, industry, academic 
institutions and others in the areas of research, information exchange, 
and emergency responses. The FERN program will continue this tradition 
by creating a nationwide network of Federal and State laboratories 
capable of testing thousands of food samples for biological, chemical, 
and radiological threat agents. It will add 15 FDA-funded state 
laboratories to the 10 labs planned for fiscal year 2004, all to 
possess advanced instrumentation and pathogen containment capabilities. 
The program also incorporates FDA research on new testing methods that 
could shorten the time needed to detect foodborne threats. The FDA will 
expand to 104 the number of state health and agricultural laboratories 
connected through its electronic network, eLEXNET, to facilitate 
exchange of lab data critical in first-alert situations.
    Basic research underlies every application applied by the FDA in 
its search for possible foodborne health hazards. Within the fiscal 
year 2005 increase, $15 million would fund intramural and extramural 
research on methods development, characteristics of specific foodborne 
pathogens, and new prevention technologies to improve food safety--
results subsequently would help shape new guidelines and performance 
standards for the food production industry. Better understanding of how 
pathogens survive in foods during processing and storage and of the 
doses of pathogens needed to cause disease will provide superior 
prevention protocols. FDA funded research also discovers new 
microbiological, chemical, and radiological methods to detect and 
identify biothreats found in food.
    Surveillance constitutes a large part of the FDA's protection of 
the food supply. In fiscal year 2005, the FDA intends to conduct nearly 
26,000 inspections of domestic food production firms, almost 11 times 
the investigations done in fiscal year 2001. FDA inspectors also will 
perform 97,000 import-food field inspections, more than 60 percent over 
last year and seven times the number in fiscal year 2001. The $7 
million within the proposed fiscal year 2005 increase earmarked for 
increased food inspections would help alleviate the burgeoning 
potential of contaminated food imports, though many thousands of 
imported food shipments would remain left unchecked. The FDA will soon 
implement its component of the Public Health Security and Bioterrorism 
Preparedness and Response Act of 2002, which among other measures will 
require the registration of food facilities and advance notice of food 
imports. In the fiscal year 2005 food defense increase, the FDA also 
would receive $5 million for its role in the new interagency 
Biosurveillance Initiative developed to improve the Federal 
Government's capability to rapidly identify and characterize 
bioterrorist attacks. When in place, the Biosurveillance Initiative 
will shorten the time needed to alert the nation to such an attack. 
Towards this goal, the FDA will coordinate existing state and Federal 
food surveillance networks to facilitate communications on outbreaks 
and other events related to foodborne illness. The remaining $3 million 
of the proposed funding increases for food defense would upgrade the 
FDA's intra-agency communication system used by personnel during 
emergencies.
    Contamination of the food supply not only threatens public health; 
the economic and political ramifications are enormous, as evidenced by 
costly export embargoes recently triggered by fear of BSE in meat 
products. More than 30 countries have banned the import of American 
beef, in response to last December's discovery of an imported BSE-
infected dairy cow. The Federal Government just announced that up to 
300,000 U.S. cattle may be tested for BSE each year, which would 
require some new, FDA-approved rapid screening test to succeed. The 
President's budget includes more than $8 million to fund new FDA 
safeguards against BSE. This would increase FDA's funding to stop BSE 
to $30 million in fiscal year 2005.
    Most of the $8 million will be used for field activities under the 
FDA's Animal Drugs and Feeds program, including an additional 920 risk-
based inspections, 600 targeted sample collections/analyses, and at 
least 2,500 state inspections of animal feed firms. Animal feed 
contaminated with the BSE agent is the only known route of BSE 
transmission. As the agency responsible for animal feeds used in food 
production, this year the FDA will inspect 100 percent of feed mills 
and renderers. The FDA's more aggressive approach to BSE also will 
involve evaluating new commercial BSE screening tests like polymerase 
chain reaction techniques and educating even more food producers on new 
and updated regulations. In January, the FDA announced additional, 
more-rigid safeguards to prevent potentially BSE-contaminated animal 
parts from entering either the food supply or health care products.
Medical Products and Public Safety
    The ASM supports the Administration's proposed fiscal year 2005 
funding levels for FDA regulation of medical-use products, including 
medical devices, human drugs, and biologics such as vaccines and gene 
therapies. The budget includes $252 million for the Medical Devices 
program, a $26 million increase over fiscal year 2004. The program 
plans to more rapidly review new products, while increasing the number 
of products reviewed in a time period. The Human Drugs program would 
receive $499 million, an increase of $23 million, and the Biologics 
program, $173 million, or $4 million more than last fiscal year. All 
medical products are evaluated by the FDA for safety and efficacy 
before entering the U.S. marketplace. In fiscal year 2003, the FDA 
approved 466 new and generic drugs and biological products, following 
extensive science-based evaluations. Agency personnel also monitor the 
10,000 drugs already on the market. FDA oversight of these products has 
both public health and national security significance, under the goal 
of more quickly reviewing new products and making them available to the 
nation's health care systems and defense agencies and to the public.
    FDA is the only government agency involved with the approval of 
products necessary to prevent or treat human exposure to terrorist 
agents. Given the unpredictability of emergencies, the FDA must be able 
to respond to product needs at any point along the product production 
pipeline. The Administration has included $5 million in the fiscal year 
2005 budget proposal to support the FDA's role in Project Bioshield, an 
inter-agency initiative to ensure medical readiness in the event of war 
or a catastrophic event. The FDA's role in Project Bioshield is the 
expedited review of specialized products and medical countermeasures 
for at-risk populations, such as the military, first responders, those 
near nuclear facilities, and others. FDA plans collaboration with the 
CDC on plague in African countries, and with the National Institute of 
Allergy and Infectious Diseases on studies to determine the lowest 
effective antibiotic dose to treat pneumonic plague. Like the other 
Federal agencies involved in Project Bioshield, the FDA must be able to 
respond quickly and correctly to emergencies, using its best science-
based capabilities.
    The ASM recommends continuing commitment and support by Congress 
for the important public health protection work of FDA. Increased 
funding will help enable FDA to perform its responsibilities to ensure 
access to safe and effective medical countermeasures against potential 
biological, chemical or radiological terrorism, consumer product 
safety, food safety, accurate product information and safe and 
effective drug and device evaluations. Additional funding will help to 
ensure that FDA can develop and maintain a highly skilled scientific 
workforce and that science based decision-making continues to be strong 
at all of FDA's research centers.
                                 ______
                                 

      Prepared Statement of the American Society for Microbiology

    The American Society for Microbiology (ASM) appreciates the 
opportunity to submit testimony on the fiscal year 2005 appropriation 
for the United States Department of Agriculture (USDA). The ASM is the 
largest single life science organization in the world, with more than 
43,000 members who work in academic, industrial, medical, and 
governmental institutions worldwide. The ASM's mission is to enhance 
the science of microbiology, to gain a better understanding of life 
processes, and to promote the application of this knowledge for 
improved health, and for economic and environmental well-being.
    The USDA sponsors research and education programs which contribute 
to solving agricultural problems of high national priority and 
sustaining safe food and a competitive agricultural economy. United 
States agriculture faces new challenges, including threats from 
emerging infectious diseases in plants and animals, climate change, and 
public concern about food safety and security. It is critical to 
increase the visibility and investment in agriculture research to 
respond to these challenges. The following testimony will focus on 
USDA's research and education programs.
    The ASM supports increases proposed for the USDA Food and 
Agriculture Defense Initiative, the Bovine Spongiform Encephalopathy 
(BSE) Initiative, and the Genomics Initiative. The ASM recommends 
greater emphasis on funding for research in these programs. 
Microbiological research in agriculture is vital to understanding and 
finding solutions to foodborne diseases, new and emerging plant and 
animal diseases, and the development of new agriculture products and 
processes. Unfortunately, Federal investment in agricultural research 
has not kept pace with the need for additional agricultural research to 
solve emerging problems. According to National Science Foundation (NSF) 
data, agriculture research makes up only 4 percent of Federal funds 
devoted to basic research. ASM urges Congress to provide increased 
funding for research programs within the USDA.
USDA National Research Initiative Competitive Grants Program
    The National Research Initiative Competitive Grants Program (NRI) 
was established in 1991 in response to recommendations outlined in 
Investing in Research: A Proposal to Strengthen the Agricultural, Food 
and Environmental System, a 1989 report by the National Research 
Council's (NRC) Board on Agriculture. This publication called for 
increased funding of high priority research, that is supported by USDA 
through a competitive peer-review process directed at:
  --Increasing the competitiveness of U.S. agriculture.
  --Improving human health and well-being through an abundant, safe, 
        and high-quality food supply.
  --Sustaining the quality and productivity of the natural resources 
        upon which agriculture depends.
    Continued interest in and support of the NRI is reflected in two 
subsequent NRC reports, Investing in the National Research Initiative: 
An Update of the Competitive Grants Program of the U.S. Department of 
Agriculture, published in 1994, and National Research Initiative: A 
Vital Competitive Grants Program in Food, Fiber, and Natural Resources 
Research, published in 2000.
    Today, the NRI, housed within USDA's Cooperative State Research, 
Education, and Extension Service (CSREES), supports research on key 
problems of national and regional importance in biological, 
environmental, physical, and social sciences relevant to agriculture, 
food, and the environment on a peer-reviewed, competitive basis. 
Additionally, NRI enables USDA to develop new partnerships with other 
Federal agencies that advance agricultural science. An example of such 
collaboration is USDA's partnership with the NSF on the Microbe 
Project.
    In fiscal year 2004, funding for NRI suffered a decrease of $2 
million from fiscal year 2003, providing just $164 million. 
Comparatively, the USDA requested $180 million for NRI in fiscal year 
2005, a decrease of $20 million from the request for fiscal year 2004, 
and a decrease of $60 million from the request for fiscal year 2003. 
NRI can fund only between 14-15 percent of the high quality research 
proposals received, while agencies such as the National Institutes of 
Health (NIH) and the NSF fund between 20-30 percent of the research 
proposals. ASM urges Congress to fund NRI at the President's requested 
level for fiscal year 2003 of $240 million in fiscal year 2005. 
Increased funding for competitive, peer reviewed grants is needed to 
increase the size and number of awards and to pursue more research 
opportunities. Additional funding for the NRI is needed to expand 
research in microbial genomics and to provide more funding for merit 
reviewed basic research with long-term potential for new discoveries. 
Without an increase in funding for NRI, the following critical research 
will be severely limited:
  --Research showing linkages between food and human diseases;
  --Research showing new ways to combat insects, weeds, plant and 
        animal disease in fields and ranches;
  --Research that helps keep pathogens and other dangers out of our 
        air, water, soil, plants, and animals;
  --Research establishing new crops, improved livestock and economic 
        opportunities;
  --Research that creates new food and processing techniques, producing 
        greater value and profitability;
  --Research on air culture to adapt to and mitigate climate change.
USDA Food and Agriculture Defense Initiative
    The Food and Agriculture Defense Initiative is an interagency 
initiative to improve the Federal Government's capability to rapidly 
identify and characterize a bioterrorist attack, by improving the 
national surveillance capabilities in human health, food, agriculture, 
and environmental monitoring. The President's request for this 
initiative within the USDA budget is $381 million for fiscal year 2005, 
an increase of $79 million over fiscal year 2004. This funding will go 
towards:
    Enhancing food defense by:
  --Increasing surveillance and monitoring of pathogens and other 
        hazards in meat, poultry and eggs and establishing connectivity 
        with the integration and analysis function at the Department of 
        Homeland Security (DHS);
  --Establishing a Food Emergency Response Network (FERN) with 
        participating laboratories including implementation of the 
        Electronic Laboratory Exchange Network (eLEXNET) and an 
        electronic methods repository; and strengthening research to 
        develop diagnostic methods for quickly identifying various 
        pathogens and contaminated foods; and
  --Developing diagnostic methods to quickly identify pathogens and 
        contaminated foods.
    Enhancing agriculture defense by:
  --Providing funds for completing the consolidated state-of-the-art 
        BSL-3 animal research and diagnostic laboratory at Ames, Iowa;
  --Establishing a National Plant Disease Recovery System that will 
        quickly coordinate with the seed industry to provide producers 
        with resistant stock before the next planting season in the 
        event of a natural or intentional catastrophic disease or pest 
        outbreak;
  --Expanding the Regional Diagnostic Network with links to the 
        National Agricultural Pest Information System;
  --Establishing a Higher Education Agrosecurity Program that will 
        provide capacity building grants to universities for 
        interdisciplinary degree programs to prepare food defense 
        professionals;
  --Substantially enhancing the monitoring and surveillance of pests 
        and diseases in plants and animals, including targeted National 
        wildlife surveillance;
  --Increasing State Cooperative Agreements to better select and 
        identify plant and animal health threats;
  --Increasing biosurveillance of pests and diseases in plants and 
        animals and establishing connectivity with the integration and 
        analysis function at DHS;
  --Establishing a system to track select disease agents of plants; and
  --Increasing the availability of vaccines through the National 
        veterinary vaccine bank.
    ASM believes there should be greater emphasis on research in the 
Food and Agriculture Defense Initiative, which provides just a small 
portion of funding, $31 million, for research of the overall $381 
million requested for this initiative. ASM recommends an increase in 
funding, both extramurally and intramurally, for research on pathogenic 
microorganisms as part of the Food and Agriculture Defense Initiative.
USDA BSE Initiative
    In the wake of the discovery of the first incident of BSE in a 
Holstein cow from Washington State, the USDA has requested an increase 
for BSE related activities of $47 million in fiscal year 2005 over 
fiscal year 2004, for a total of $60 million. USDA has allocated only 
$5 million of the total request for BSE activities related to research. 
This level of funding for research is inappropriately low. ASM urges 
Congress to increase the funding level for BSE research above the $5 
million requested. Basic research is essential in this area for the 
development of scientifically sound prevention strategies.
Food Safety
    The USDA plays a key role in the government's effort to reduce the 
incidence of foodborne illness. Continued and sustained research is 
important to safeguarding the nation's food supply and focusing on 
methods and technologies to prevent microbial foodborne disease and 
emerging pathogens. Although increases are provided for the Food and 
Agriculture Defense Initiative, for the Food Safety and Inspection 
Service, and for BSE activities, we note that funding for food safety 
is level within ARS and only a small increase is provided within 
CSREES.
Genomics Initiative
    The NRI and the ARS fund USDA collaborative efforts in the field of 
genomics. There are opportunities to leverage USDA investments with 
those of the NIH, the Department of Energy, and the NSF in projects to 
map and sequence the genomes of agriculturally important species of 
plants, animals, and microbes. USDA plays an important role in 
coordinating and participating in interagency workgroups on domestic 
animal, microbial, and plant genomics. Access to genomic information 
and the new tools to exploit it have implications for virtually all 
aspects of agriculture. In 2005, the NRI will support investments in 
functional genomics and databases. The USDA budget requests a $12 
million increase in animal and plant genomics research within the ARS, 
although the current funding levels are not specified in the budget 
request. There is no specific increase in the NRI for this initiative 
which suggests the program may have to reallocate from other under-
funded programs to support this initiative.
Emerging Infectious Diseases in Plants and Animals
    The food production and distribution system in the United States is 
vulnerable to the introduction of pathogens and toxins through natural 
processes, global commerce, and intentional means. The ASM supports 
increases in the USDA research budget for emerging diseases and 
invasive species. Nearly 200 zoonotic diseases can be naturally 
transmitted from animals to man. For emerging diseases to be 
effectively detected and controlled, the biology and ecology of the 
causal pathogens must be understood and weaknesses exploited to limit 
their spread. This research will help address the risk to humans from 
zoonotic diseases and the safety of animal products. Additionally, 
expanded research is needed to accelerate the development of 
information and technologies for the protection of United States 
livestock, poultry, wildlife and human health against zoonotic 
diseases.
Antimicrobial Resistance Research
    The USDA plays a key role in addressing the national and global 
increase in antimicrobial resistance and the complex issues surrounding 
this public health threat. The ARS Strategic Plan for 2003-2007 states 
the need to ``determine how antimicrobial resistance is acquired, 
transmitted, maintained, in food-producing animals, and develop 
technologies or altered management strategies to control its 
occurrence.'' In 1996, the Department of Health and Human Services 
(HHS) and the USDA established the National Antimicrobial Resistance 
Monitoring System (NARMS) to monitor trends in antimicrobial resistance 
in foodborne pathogens. USDA support for this project should continue. 
USDA research also has a vital role to play in controlling the 
emergence of resistance in pathogens associated with food through NRI 
funded grants. ASM urges Congress to increase support for antimicrobial 
resistance surveillance, research, prevention, and control programs.
Conclusion
    The USDA's mission and goals include leadership on food, 
agriculture, and natural resources, based on sound public policy, the 
best available science, and efficient management. With a significant 
investment in research, USDA will be better able to meet its goals. ASM 
urges Congress to provide sufficient funding for research at USDA 
increasing funding for agricultural research programs, including 
providing $240 million for NRI.
    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 appropriations process.
                                 ______
                                 

  Prepared Statement of the American Society for Nutritional Sciences 
                                 (ASNS)

    The American Society for Nutritional Sciences (ASNS) is the 
principal professional organization of nutrition research scientists in 
the United States representing 3,000 members whose purpose is to 
develop and extend the knowledge and application of nutrition science. 
Our members include scientists involved in human as well as animal 
nutrition research. ASNS members hold positions in virtually every land 
grant, private institution, and medical school engaged in nutrition-
related research in the United States as well as industrial enterprises 
conducting nutrition and food-related research.
                 research funding mechanisms and issues
Competitive Grants
    The NRC report, National Research Initiative (NRI), suggests that 
inadequate funding for competitive research has ``limited its potential 
and placed the NRI program at risk.'' \1\ A competitive system for 
allocating government research funds is the most effective and 
efficient mechanism for focusing efforts on cutting edge research aimed 
at improving the health of the American people. Competitive grants 
provide the highest economic return to the public. ASNS strongly 
supports the competitive grants process as reflected in the NRI and 
believes that an open, merit and peer review process, applied as 
extensively as possible throughout the research system, is the 
preferred way to distribute research funds among qualified scientists 
and to support the most meritorious new concepts. ASNS also supports 
the finding in the 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 portfolio. For 
these reasons, we strongly urge this subcommittee to consider an 
appropriation of $200 million for the NRI competitive grants program as 
an important step toward the original authorized level of $500 million.
---------------------------------------------------------------------------
    \1\ National Research Initiative: A Vital Competitive Grants 
Program in Food, Fiber, and Natural Resources Research. National 
Research Council, National Academy Press, Washington, D.C. 2000.
---------------------------------------------------------------------------
    Indirect Costs Cutting-edge research requires substantial 
investment in buildings and instrumentation. The USDA provides partial 
reimbursements for these indirect, but necessary, costs of research as 
part of grant funding. While we appreciate the efforts to raise the 
Congressionally mandated cap to 20 percent, the partial reimbursement 
for buildings and instrumentation still remains a significant 
disincentive for many university faculty to seek USDA funding. 
Furthermore, a diminutive facilities reimbursement significantly 
impairs the ability of universities to meet their fixed obligations 
such as, building and facility maintenance, and prevents them from 
further investing in needed facilities in the future. ASNS strongly 
urges that the USDA indirect costs rate be raised and made commensurate 
with the rate of other federal agencies. The best and brightest 
scientists in the United States are being deterred from agricultural 
research to the detriment of U.S. agriculture and the consumers of its 
commodities because universities discourage their researchers to apply 
for grants that when full indirect costs cannot be recovered. 
Furthermore, increasing the cap on fixed costs from 20 percent should 
not come at the expense of the overall agricultural research budget and 
its competitive grant programs.
Nutrition Monitoring
    Under an agreement between the Department of Health and Human 
Services (DHHS), the Center for Disease Control and Prevention (CDC), 
the National Center for Health Statistics (NCHS), and the USDA 
Agricultural Research Service (ARS/USDA), the ARS and NCHS has agreed 
to collaborate on a program of nutrition monitoring. This agreement 
establishes a cooperative diet and nutrition monitoring program 
integrating previously conducted Continuing Survey of Food Intakes by 
Individuals (CFSII) and the National Health and Nutrition Examination 
Survey (NHANES), which was designed to assess food consumption and 
related behavior in the U.S. population using personal interviews. The 
most recent survey was conducted in 1998. This appropriations sub-
committee has long supported USDA's role in food security, progress on 
foot and mouth disease, WIC, and prevention of diseases such as 
diabetes, cancer, and heart disease. ASNS requests your support for 
data collection via nutrition monitoring which is essential to policy 
making in all of these areas.
    The Human Nutrition section of the 2005 budget proposal includes an 
increase of $5 million for research in support of the Administration's 
Healthier U.S. Initiative. This research ``will be pursued to define 
the role of nutrients and other food components in promoting health and 
preventing obesity and related diseases.'' Additionally, we support the 
$3 million slated for the Economic Research Service (ERS) to carry out 
a Flexible Consumer Behavior Module to assess the relationship between 
individuals' knowledge and attitudes about dietary guidance and food 
safety and their food-choices. Data for this survey will be collected 
in conjunction with the National Health and Nutrition Examination 
Survey. Finally, we request $8.7 million for the Consumer Date and 
Information Initiative proposed for USDA's Economic Research Service 
(ERS). This data and analysis framework will provide information on 
diets, knowledge and information levels, and health status. Such 
information will help policymakers respond to current events, such as 
the rise in obesity which is especially troublesome in minority 
populations.
        the need for federally funded nutrition-related research
    The need for increased nutrition science and research is critical 
within the USDA. As stated in the recent report of the National 
Academies, ``despite food and nutrition assistance programs, hunger and 
food insecurity persist in the United States . . . in addition, 
prevalence of overweight and obesity among U.S. adults has increased 
over the last three decades . . . and the percentage of overweight 
children and adolescents has also increased.'' We already know that 
many chronic diseases are weight-related, including diabetes, cancer, 
heart disease, stroke, and hypertension. There is an urgent need for 
increased research to ``guide and evaluate food and nutrition policies 
and interventions at multiple levels and settings, including 
individual, family, school, worksite, retail, marketing, and 
production.'' \2\
---------------------------------------------------------------------------
    \2\ Frontiers in Agricultural Research: Food, Health, Environment, 
and Communities, National Research Council of the National Academies, 
2002.
---------------------------------------------------------------------------
    Increasing populations, international economic competitiveness, 
improving the environment and minimizing healthcare costs through 
disease prevention are all areas that will continue to demand solutions 
for the future. These solutions will include advances in the 
understanding of the genetic basis of disease and the genetic basis of 
nutrient requirements for optimal health, which will require greater 
understanding of how nutrition and dietary information can be used for 
disease prevention in at-risk populations.
    The economic impact on society in healthcare costs produced by 
advances in nutrition research is significant in the number of dollars 
saved by the American taxpayer. As health costs continue to rise, it is 
imperative that our medical practices take a preventive approach. This 
requires a thorough understanding of the role of nutrients in foods in 
preventing chronic illnesses such as heart disease, cancer and 
diabetes. Most of the recent work on nutrient content and availability 
in various foods has come from USDA-National Research Initiative 
Competitive Grants Program (NRICGP) supported research.
      nutrition-related research opportunities and accomplishments
Obesity
    Nutrition and physical activity are the two most important factors 
in the prevention of many chronic diseases such as diabetes, heart 
disease, stroke, and cancer. The United States Center for Disease 
Control (CDC) calls obesity the number one health problem in America. 
Current estimates show that half the American population will be 
clinically obese by the year 2030. The direct costs of treating 
complications of obesity, plus the indirect costs from lost 
productivity, represent a $100 billion annual burden on the U.S. 
economy. For these reasons the Federal Government needs to play a 
larger role in finding more effective treatments and ways to prevent 
this disease that is linked to so many other chronic diseases.
    NRICGP--funded obesity research that has made significant advances 
in nutrition and human health include:
  --Using mice as research models to study mechanisms of obesity; USDA 
        NRI-funded researchers are studying the compromised hormone 
        recognition in diet-induced obesity (http://www.reeusda.gov/
        nri/pubs/highlights/2001PDFs/No6.pdf).
  --NRI researchers have observed that prepregnant 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.
  --Food, Phytonutrients and Health
    Research in areas of bioactive food components will lead to a 
better understanding of the most promising food compounds that can 
address major health threats. Other areas offering great promise 
include improving the nutrient content of foods by modifying fats in 
plant and animal products to reduce cardiovascular disease, cancer and 
diabetes risk as well as research on how consumers select and use food 
and how food intake is linked to health.
  --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)).
  --USDA-NRI supported studies in recent years have led to a new 
        understanding of folate requirements and health effects. 
        Dietary studies of nonpregnant women provided strong evidence 
        that folate intakes similar to the previously-held RDA were not 
        adequate to support metabolic needs. Other studies have shown 
        that an adequate folate intake in women of child-bearing age 
        minimizes the risk of certain birth defects should they become 
        pregnant. Ongoing studies are examining the role of an adequate 
        folate intake in maintaining health by reducing the risk of 
        cardiovascular disease and certain cancers.
  --Flavonoids are non-essential nutrients found in all plant foods and 
        plant-derived beverages. Epidemiological studies have shown 
        that these compounds are protective against various cancers. 
        USDA-funded researchers have found that a flavonoid-inducible 
        enzyme is important in inactivation of the major cooked-food 
        mutagen and colon carcinogen in cell cultures. Studies to 
        determine the bioavailability of the active flavonoids in rats 
        and humans are ongoing.
  --Soy isoflavones and vitamin E may reduce the risk of fractures in 
        osteoporotic women. Osteoporosis-related fractures are an 
        enormous public health problem. Scientists are studying the 
        effects of soy isoflavones and vitamin E on fracture healing 
        and bone quality in a rat model that mimics osteoporotic 
        fracture in postmenopausal women. They found that the 
        combination of soy isoflavones and vitamin E at 1,000 and 525 
        mg/kg diet, respectively, was effective in bringing bone 
        mineral content of the femur to levels similar to those of 
        intact, non-ovarian hormone deficient rats.
  --Dietary omega-3 fatty acids affect immune function. Omega-3 fatty 
        acids are essential for the normal development and function of 
        the neonatal brain and retina. However, the consumption of a 
        diet rich in omega-3 fatty acids may impair infectious disease 
        resistance against certain pathogens. Results can be used to 
        formulate future recommendations for dietary omega-3 fatty acid 
        intakes for human.
  --Cows that eat fish oil as part of their feed produce milk with 
        higher concentrations of conjugated linoleic acid, a compound 
        shown to help prevent cancer. USDA-funded research shows that 
        butter, yogurt, and ice cream produced from this milk also 
        contains healthful compounds and that consumers like the taste.
  --Efforts are under way to develop a corn hybrid that will synthesize 
        genistein, an isoflavone in soybeans that protects against 
        breast, prostate, and colon cancers.
Conclusion
    ASNS appreciates the proactive approach to the Subcommittee in 
supporting research at the USDA in the past and looks forward to the 
continued growth of research at and through the USDA in the critical 
areas of nutrition and disease prevention issues. Thank you for 
considering our request for the NRI and other important research 
programs within the USDA. We hope that you will call upon the expertise 
of our members as the Committee continues to deliberate these very 
important research areas.
                                 ______
                                 

 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 2005 
appropriations for research sponsored by the Department of Agriculture.
    ASPB supports the fiscal year 2005 budget request of the Department 
of Agriculture of $180 million for the National Research Initiative 
Competitive Grants Program (NRI). The NRI supports research into 
fundamental questions that lead to new enhanced crops, technologies and 
practices in agriculture. These research findings help address critical 
needs of the nation's farmers. NRI-sponsored plant research is needed 
to help prevent future losses of crops to pests, diseases and adverse 
weather conditions, such as drought and freezing.
    Advances in science made possible through the NRI will enable 
farmers to reduce their dependency on pesticides and antibiotics and to 
protect the water supply, soils and fragile ecosystems.
    Research sponsored by the NRI contributes to higher yields and 
safer foods. The NRI contributes to the talent pool of agricultural 
scientists in the states and nation to better serve the needs of 
producers and consumers. Without grant support from the NRI, the 
agricultural research community in our nation would be severely 
weakened.
    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 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. The Department of Agriculture's Agricultural Research 
Service (ARS) continues to address very effectively many important 
research questions for American agriculture.
    Helping America's farmers meet the food production needs of the 
nation's people and millions more overseas places huge demands on the 
research community. Researchers supported by the NRI and ARS are called 
upon to help farmers produce higher yields while farming the same or 
less acres of land. At the same time, the research community is asked 
to help make farming friendlier to the environment.
    Scientists supported by the NRI and ARS are responding to these 
needs. 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 beneficial to growers, consumers, and the environment.
    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.
    Human nutrition depends upon plants. Vitamins, minerals, and other 
important compounds such as essential amino acids come from plants 
directly or indirectly. There remain substantial questions about how 
minerals are taken up and essential compounds are made. As these 
questions are answered by basic plant research it will be possible to 
determine how plants can be used to assist in providing a healthier mix 
of nutrients in the diet both in developed and developing countries. 
Substantial progress can be made in understanding the role of plant 
products in human nutrition with additional funding for the NRI and 
ARS.
    We urge the Subcommittee to increase support for the NRI and ARS in 
fiscal year 2005. As requested by the President, ASPB urges 
appropriating $180 million to the NRI in fiscal year 2005. We urge a 
significant increase for ARS over the fiscal year 2004 appropriation.
    We deeply appreciate the Subcommittee's support for research 
sponsored by the Department of Agriculture. The Subcommittee's support 
has been essential to producing and securing the nation's food supply.
                                 ______
                                 

   Prepared Statement of the American Veterinary Medical Association

    Dear Mr. Chairman: On behalf of the 70,000 members of the American 
Veterinary Medical Association (AVMA) we thank you and the committee 
for the past support of issues and programs of importance to our 
nation's veterinarians. AVMA membership is comprised of 86 percent of 
the veterinarians in the United States. These members direct the 
activities and policies of the AVMA. These Doctors of Veterinary 
Medicine are trained scientific experts in the fields of agriculture, 
animal health, public health, food safety, medical and veterinary 
research, epidemiology, toxicology, microbiology, and a host of other 
activities necessary for the continued safety and prosperity of our 
nation.
    Policy item 8c of the Homeland Security Presidential Directive 
HSPD-9 states, ``(8) The Secretaries of the Interior, Agriculture, 
Health and Human Services, the Administrator of the Environmental 
Protection Agency, and the heads of other appropriate Federal 
departments and agencies shall build upon and expand current monitoring 
and surveillance programs to: . . . (c) develop nationwide laboratory 
networks for food, veterinary, plant health, and water quality that 
integrate existing Federal and State laboratory resources, are 
interconnected, and utilize standardized diagnostic protocols and 
procedures.'' In order for American veterinarians to successfully 
continue in their traditional roles, as well as to aid in the 
fulfillment of the HSPD-9 policy we respectfully request the following 
appropriations in fiscal year 2005 for the U.S. Department of 
Agriculture (not ranked by priority).
The National Veterinary Medical Service Act (NVMSA)
    $20 million for the funding of the NVMSA. NVMSA (Public Law 108-
161) was enacted on December 6, 2003 to correct the serious shortage of 
veterinarians in rural agricultural areas, agencies of the Federal 
Government, and certain disciplines such as public health, food safety 
and research. High student loan debt precludes veterinarians from 
accepting lower-paying positions in these areas. NVMSA authorizes the 
Secretary of Agriculture to conduct a student loan repayment program 
for veterinarians who agree to work in these shortage situations. This 
law will also repay student loan debt for those veterinarians who 
volunteer to provide services to the Federal Government in emergency 
situations as determined by the Secretary of Agriculture. NVMSA will 
improve national preparedness by placing veterinarians at locations 
where agricultural emergencies occur. $60 million is needed over a 3-
year period to allow 400 veterinarians to participate in this program. 
This would provide a net of $25,000 per year for 3 years for service in 
a shortage situation plus an additional $10,000 per year for volunteer 
service in emergency situations.
Food Animal Residue Avoidance Databank
    $1.5 million for the Food Animal Residue Avoidance Bank (FARAD). 
FARAD is a highly cost-effective, federal/multi-university extension 
program that provides assistance to veterinarians, extension agents, 
and regulatory personnel throughout the country in preventing 
contaminated milk, meat, and eggs from reaching the consumer through 
publications, continuing education, a web-site, and a toll free hot-
line. Staffed by highly trained veterinary pharmacologists/
toxicologists, FARAD provides assistance ranging from explaining which 
drugs can legally be used in food animals to creating computer models 
for cases of herds or flocks exposed to toxins such as pesticides or 
dioxins.
National Animal Health Laboratory Network
    $107 million for the National Health Laboratory Network (NAHLN). In 
June 2002, President Bush signed HR 3448 into law as the Public Health 
Security and Bioterrorism Preparedness and Response Act of 2002 (Public 
Law 107-188). This law authorized the Secretary of Agriculture to 
develop an agriculture early warning surveillance system, enhancing the 
capacity and coordination between state veterinary diagnostic 
laboratories, Federal and State facilities, and public health agencies. 
It also provided authorization for Congress to appropriate funding to 
the NAHLN. A pilot NAHLN, involving 12 state/university diagnostic 
laboratories was funded through USDA in May 2002 for a 2-year period to 
develop capacity and surveillance programs for eight high priority 
foreign animal diseases considered to be bioterrorist threats. However, 
these funds fell short of developing a true national network that will 
effectively provide surveillance for zoonotic and foreign disease, 
bioterrorist agents, and newly emergent diseases.
USDA  1433 Formula Funds for Animal Health
    $100 million for USDA  1433 Formula Funds for Animal Health. 
Animal health protection requires an effective veterinary response at 
the local level. In the event of a disease outbreak, veterinarians are 
responsible for diagnosis and risk management leading to disease 
control or elimination. The failure to accurately and rapidly diagnose 
foreign animal diseases, emerging infectious diseases and zoonotic 
agents, whether intentionally introduced or naturally occurring, can 
lead to catastrophic economic losses and loss of human and animal 
lives. Thus, new methods for rapid diagnosis, prevention and 
eradication of these diseases must be developed. The nation's 
veterinary medical colleges can develop new diagnostic methods with 
increased funding.
Foreign Animal Disease Laboratory
    $400 million for the Foreign Animal Disease Laboratory (FADL). The 
Foreign FADL was transferred to the Department of Homeland Security in 
June 2003 as directed by the Homeland Security Act of 2002 (Public Law 
107-296). The United Department of Agriculture (USDA) continues to 
perform its functions of research and diagnostics within the FADL. 
Currently, 180 employees at the FADL are helping to lead a research and 
development program to protect America's food supply against the 
intentional or natural introduction of foreign animal diseases and to 
develop improved methods to diagnose foreign animal diseases. FADL is 
in critical need of renovation and upgrades to be able to maintain its 
capabilities in foreign animal disease detection and research.
    Once again thank you for the support you and your staff have 
extended in the past.
                                 ______
                                 

                     Letter From D. Larry Anderson

                                     State of Utah,
                           Department of Natural Resources,
                                Salt Lake City, UT, March 26, 2004.
Hon. Robert Bennett,
Chairman, Subcommittee on Agriculture, Committee on Appropriations, 
        U.S. Senate,
Washington, DC.
    Chairman Bennett: As the Governor of Utah's representative on 
Colorado River Issues and the senior Utah member of the Colorado River 
Salinity Control Forum, I wish to convey Utah's support for funding the 
Salinity Title II Program, authorized in 1995 (Public Law 104-20) at 
the level of 2.5 percent of the Environmental Quality Incentives 
Program (EQIP) of the United States Department of Agriculture with EQIP 
being funded at the amount sought in the President's 2005 budget. In 
addition, Utah requests funds be provided to the Natural Resources 
Conservation Service at sufficient levels to provide the technical 
assistance necessary to efficiently spend these funds.
    This vital program has been a mainstay in improving water use 
efficiency in the Colorado River Basin of Utah. During the past 5 years 
of drought, the facilities funded by the salinity earmark of the EQIP 
program have been a significant reason for agriculture in the Uinta and 
Price/San Raphael basins maintaining productivity and stimulating these 
rural economies.
    In addition, the Salinity Control Program helped to meet the 
salinity related water quality standards for the Colorado River and 
U.S. treaty obligation with Mexico. This important program helps meet 
national and international obligations and needs to be funded at the 
aforementioned level.
            Thank you,
                                   D. Larry Anderson, P.E.,
                                                          Director.
                                 ______
                                 

  Prepared Statement of the Association of State Dam Safety Officials

    The Association of State Dam Safety Officials is pleased to offer 
this testimony on the President's proposed budget for the Department of 
Agriculture Natural Resource Conservation Service (NRCS) for fiscal 
year 2005, specifically in support of the Watershed Rehabilitation 
Program.
    The Association of State Dam Safety Officials is a national non-
profit organization of more than 2000 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 federally-
owned 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 increase the 
Administration's proposed appropriation to $65 million of the total 
$120 million authorized in the 2002 Farm Bill which includes 
discretionary funds and 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 the 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 filled 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. Nearly 450 small watershed dams will reach the end of 
their expected design life by 2005; and this number will increase to 
over 1,800 by year 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.
    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 they 
identify 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.
    Often, development, attracted by the benefits provided by the dam, 
has 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 dramatically changes the consequences of 
a potential failure to now include loss of life. This significantly 
alters the minimum safety requirements and causes dam safety officials 
great concern. These development consequences are typically beyond the 
control of the local sponsoring organizations, yet they are responsible 
for compliance with the state dam safety standards.
    Table 1, attached to this testimony lists by state the number of 
USDA Watershed dams, the estimated number of people as risk below the 
dams, the infrastructure at risk, as well as an estimate of the number 
of watershed dam rehabilitation projects and their projected costs over 
the period fiscal year 2004 through fiscal year 2009. There have been 
118 watershed rehabilitation projects initiated in 20 states which 
include 18 completed rehabilitation projects and 100 projects either in 
the planning or design phase. It is clear from these 118 projects as 
well as the 54 projects which requested assistance but were unable to 
be funded in fiscal year 2004, just how much demand exists; and how 
successful this USDA program is. It is essential to continue this 
program funding at a level that recognizes this demand, the size of the 
problem and the importance of maintaining the Federal Government's 
leadership role.
    Mr. Chairman, in your home state of Utah, there are 25 USDA 
Watershed Dams that provide important irrigation water, critical flood 
protection and many other benefits. Ten of these watershed dams are 
expected to request assistance during the period fiscal year 2004 
through fiscal year 2009 and totaling an estimated $17,000,000 in 
rehabilitation costs.
    In Wisconsin there are 86 watershed dams built between 1956 and 
1970, with many reaching the end of their design life over the next 10 
years. Wisconsin has had several watershed rehabilitation success 
stories with 11 of the initial 118 projects. Of these 11 projects 6 are 
completed and 5 have been authorized and are in design or construction 
phases. Over the period fiscal year 2004 through fiscal year 2009 
Wisconsin expects to receive another 10 requests for rehabilitation 
assistance costing an estimated $1.5 million.
Example of Success
    Pilot rehabilitation projects in Wisconsin on Plum Creek, Alma-Mill 
Creek, Glen Hills Creek and Bad Axe Watershed repaired unsafe 
conditions, restored flood control benefits, extended the service life 
another 50 years and enhanced water quality. The Glen Hills Creek 
project highlights a very frequent problem as a home was constructed 
below the dam, threatening the home should the dam fail and requiring 
significant design modifications due to increased safety standards. The 
funding was used to relocate the home from below the dam to reduce the 
consequences of a failure and substantially lowering the repair costs 
should the home have remained.
Request
    Mr. Chairman and Members of this subcommittee, the Association of 
State Dam Safety Officials is convinced that 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 to 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 $65 
million for fiscal year 2005.
    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.--USDA WATERSHED DAMS DATA
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Data from limited 2001 survey of 1500 dams \1\       Estimated rehab   Estimated project
                                           Total no. of   ---------------------------------------------------------  projects fiscal   costs fiscal year
                 STATE                    watershed dams     Population at    Infrastructure at   Annual benefits    year 2004-fiscal   2004-fiscal year
                                                                  risk         risk in dollars     in dollars \2\       year 2009             2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
AK....................................                  0  .................  .................  .................                  0                 $0
AL....................................                105              3,805        $19,380,000         $5,634,000                  6          3,425,000
AR....................................                170                245          8,655,000          2,131,743                 25         43,541,000
AZ....................................                 25             75,560        178,330,000         28,440,000                  8         31,773,000
CA....................................                  3             10,000         25,000,000          3,000,000                  1          7,070,000
CO....................................                144             55,580         70,000,000          3,743,000                  6          3,800,000
CT....................................                 31              1,000          3,000,000            150,000                  0                  0
DE....................................                  0  .................  .................  .................                  0                  0
FL....................................                 10  .................  .................  .................                  0                  0
GA....................................                357              5,931      1,583,258,241         17,465,239                107        158,200,000
HI....................................                  4  .................  .................  .................                  0                  0
IA....................................              1,325                180          3,311,000            551,000                 11          8,239,000
ID....................................                  3              5,000         10,000,000            675,000                  0                  0
IL....................................                 64                840          2,050,000            106,900                  0             80,000
IN....................................                110              1,101         38,150,000          1,344,460                  0                  0
KS....................................                809                 39          4,051,700          1,820,100                 20          9,848,000
KY....................................                200             12,100         16,700,000          2,902,800                 16          8,808,880
LA....................................                 35  .................  .................  .................                 20          3,525,000
MA....................................                 29             61,108          3,300,000         12,175,000                  8          3,160,000
MD....................................                 16  .................  .................  .................                  0                  0
ME....................................                 16  .................  .................              6,000                  0            100,000
MI....................................                 13  .................  .................  .................                  1            540,000
MN....................................                 44                 18            380,000             29,000                  3            575,000
MO....................................                770  .................          2,829,825          1,299,810                 11          1,750,000
MS....................................                578              1,953         18,355,000          3,764,600                 30         10,694,000
MT....................................                 16                365         21,000,000          2,465,900                  7          4,615,000
NC....................................                 98                688          1,337,520            717,300                  0                  0
ND....................................                 48                250          5,500,000          1,200,000                 15         14,650,000
NE....................................                723              1,401         15,937,000         10,327,691                 63         12,600,000
NH....................................                 24  .................  .................  .................                  0                  0
NJ....................................                 20                 25             60,000             21,500                  2            825,000
NM....................................                 78              2,256        154,900,000          1,333,000                 30         15,752,000
NV....................................                  8  .................  .................  .................                  0                  0
NY....................................                 55             76,428          1,747,949          2,240,455                 15          1,638,000
OH....................................                 61                720         13,250,000          2,355,000                 27          7,120,000
OK....................................              2,087              5,245         27,625,000          2,823,706                257         69,762,779
OR....................................                  5                125          1,100,000          1,400,000                  0                  0
PA....................................                 87             14,640        414,000,000         10,735,000                  6          1,143,000
PR....................................                  2  .................  .................  .................                  0             90,000
RI....................................                  0  .................  .................  .................                  0                  0
SC....................................                 86             69,335         62,868,000          1,532,700                  7          2,918,500
SD....................................                 55                  0            140,000            125,000                  0                  0
TN....................................                140  .................  .................  .................                  6            250,000
TX....................................              2,038             19,677         87,104,000         13,315,700                 40         74,711,900
UT....................................                 25  .................  .................  .................                 10         17,000,000
VA....................................                145              1,183         17,906,216            355,201                 16         11,286,000
VT....................................                  4                960         25,000,000            292,000                  4                  0
WA....................................                  3  .................  .................  .................                  0                  0
WI....................................                 86                292          1,623,100            444,500                 10          1,462,000
WV....................................                167             13,969         76,587,670          7,658,767                 80         19,800,000
WY....................................                 13  .................  .................  .................                 12         14,195,769
                                       -----------------------------------------------------------------------------------------------------------------
      TOTALS..........................             10,935            442,019      2,914,437,221        144,582,072                880        564,948,828
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ This data was collected from 1,500 watershed dams in 2001.
\2\ The total annual benefits from all of the Watershed Dams in $1.7 billion.

                                 ______
                                 

           Prepared Statement of Bernard H. Berne, M.D., Ph.D

    I am a resident of Arlington, Virginia. I serve the Food and Drug 
Administration (FDA) as a Medical Officer and as a reviewer medical 
device approval applications. I am testifying as a private individual.
    I ask your Subcommittee to deny the Administration's request to 
provide funds for costs related to the occupancy of a new FDA Human 
Drugs facility in White Oak, Maryland. These funds are included within 
the $1,820,849,000 that the President's Budget for fiscal year 2005 
requests on page 421 under the heading ``Department of Health and Human 
Services'', ``Food and Drug Administration'', ``Federal Funds, General 
and special funds'', ``Salaries and Expenses''. The Budget states on 
page 422 under this heading that ``the budget requests increased 
funding for . . . moving expenses for a new Human Drugs facility in 
White Oak, Maryland''.
    The General Services Administration (GSA) is now constructing this 
facility. Please deny these funds for the following reasons:
Economic Considerations
    FDA will need to pay rent to GSA if FDA occupies this facility. 
FDA's future budgets, which your Subcommittee would fund, would pay 
these rents. The rents would likely be higher than rents that GSA and 
FDA pay to private property owners, since GSA would not need to enter 
into competitive bidding processes.
    Congressional authorizing committees need to evaluate the current 
costs of the consolidation and compare them to the costs of maintaining 
FDA's current facilities. No Congressional committee has done this 
during the past 15 years.
Lack of Need for Relocating FDA to White Oak Facility
    All or nearly all of FDA's offices are presently located in 
satisfactory leased facilities. Some, such as my own, are in excellent 
buildings. There is no urgent need or economic reason to relocate these 
offices to White Oak.
    Despite this, the requested funds would support the relocation of a 
large number of offices in FDA's Center for Drug Evaluation and 
Research (CDER) to White Oak. There is no clear need for this 
relocation, since it would put 20 miles between this office and all 
other FDA offices, including the Office of the Commissioner. The 
relocation would clearly decrease FDA's efficiency by decreasing 
interactions between this office and related ones.
    White Oak is an unsatisfactory location for FDA's headquarters 
consolidation. The project would promote urban sprawl.
    FDA's White Oak facility would occupy 125 acres next to a golf 
course in a suburban residential neighborhood in Montgomery County, 
Maryland. The FDA site is outside of the Capital Beltway on a largely 
forested 750-acre property surrounded by heavily congested roads and 
highways. The site is three miles from the nearest Metro station, and 
has only infrequent bus service.
    An FDA consolidation at White Oak would bring 6,000 FDA employees 
to this Washington area suburb. Most would need to commute for much 
longer times and distances than they presently do. White Oak is more 
than 20 miles from most present FDA facilities.
    I and thousands of other FDA employees presently commute to work by 
Metrorail, as our workplaces are near Metro stations. This will be 
impossible at White Oak.
    FDA employees driving to White Oak will add traffic congestion and 
air pollution to the Washington Metropolitan Area. This is especially 
unfortunate because the Washington Metropolitan Area already has the 
second worst traffic congestion of all urban areas in the United 
States.
    FDA employee surveys have revealed widespread opposition to this 
relocation. Three years ago, a survey of those employees who would 
relocate first to White Oak showed that 70 percent opposed the move. 
Many stated that the relocation would impair FDA's ability to regulate 
drugs and medical devices.
    It is clear that the location of the facility will have long-
lasting adverse effects on FDA's ability to recruit and retain 
qualified employees. Further, many more FDA employees will telecommute 
than presently do. They will rarely work at the new facility. This will 
greatly diminish FDA's efficiency and will contradict a major goal of 
the FDA consolidation at White Oak.
    The Washington Metropolitan area has a number of better sites at 
which FDA can consolidate. Among these is the Southeast Federal Center 
in downtown Washington, D.C. This underutilized 50-acre federally-owned 
property is adjacent to the Navy Yard Metro Station. It is only one 
mile from the U.S. Capitol and the headquarters of the U.S. Department 
of Health and Human Services.
Legal Issues
    On February 23, 2001, I and a number of other FDA employees joined 
the Sierra Club and the Forest Conservation Council in a law suit that 
is intended to stop the White Oak project. For a number of reasons, 
FDA's occupancy of any buildings at White Oak would be illegal. The 
Federal district court for the District of Columbia is presently 
considering this suit.
    The White Oak facility would house the Office of the Commissioner 
of Food and Drugs, as well as most other FDA headquarters offices. This 
would violate 4 U.S.C  72, which states: ``All offices attached to the 
seat of government shall be exercised in the District of Columbia, and 
not elsewhere, except as otherwise expressly provided in law.'' 4 
U.S.C.  72 is derived from the 1790 Act that established the District 
of Columbia as the Nation's capital. The first Congress enacted this 
law, which President George Washington signed.
    There is no law that expressly provides that FDA's headquarters 
offices shall be exercised outside of the District of Columbia.
    The FDA Revitalization Act (Public Law 101-635; 21 U.S.C.  369b), 
authorizes the Secretary of HHS to award contracts to acquire property 
and to construct an operate a consolidated FDA headquarters facility. 
This Act does not provide the location of the consolidated facility.
    I ask Congress not to appropriate funds to support an illegal 
activity. The 1790 Act had the worthy purpose of ensuring that all 
central offices of the Federal Government would consolidate in the 
Federal capital District, and not elsewhere. The consolidated FDA 
facility would be one such office that is ``attached to the seat of 
government''.
    Article 1, Section 8, of the Constitution gives Congress exclusive 
jurisdiction over the District of Columbia. Your Committee should take 
no action to support the location of FDA's headquarters at a location 
that is outside of the District. Any such action would tend to vitiate 
this section of the Constitution, which 4 U.S.C.  72 is intended to 
support.
    Executive Order 12072, August 16, 1978, states in Section 1-1, 
Subsection 101: ``Federal facilities and Federal use of space in urban 
areas shall serve to strengthen the Nation's cities and to make them 
attractive places to live and work. Such Federal space shall conserve 
existing urban resources and encourage the development and 
redevelopment of cities.''
    White Oak is not in or near any city. An FDA consolidation at White 
Oak (which is in an ``urban area'', the Washington Metropolitan Area) 
would not strengthen any cities. The FDA facility would not encourage 
the development or redevelopment of any cities.
    Executive Order 12072, Section 1-1, Subsection 101, contains the 
word ``shall'' in several locations. FDA therefore can not legally 
locate its headquarters in suburban White Oak.
    Executive Order 12072 and several Federal statutes require that 
heads of Federal agencies consult with local city officials to obtain 
their recommendations for and objections to all proposed new Federal 
facilities. Neither GSA nor FDA officials ever consulted with officials 
of the District of Columbia or of the City of Rockville in Montgomery 
County, Maryland, concerning the White Oak facility.
    This lack of consultation violated Executive Order 12072 and 
several laws. It prevented District and Rockville officials from 
recommending alternative sites for the consolidated facility within 
their own jurisdictions and from objecting to the selection of the 
White Oak site.
    The Public Buildings Act of 1959 requires that the Committee on 
Environment and Public Works of the U.S. Senate approve prospectuses 
that describe the location and maximum costs of any large buildings 
that GSA may wish to construct before Congress can appropriate funds to 
design and construct such buildings. That Committee has never approved 
a prospectus that describes FDA's White Oak facility.
    The Consolidated Appropriations Act, 2001 (Public Law 106-544) 
appropriated funds that GSA is presently using to construct the new FDA 
Human Drugs facility at White Oak. However, Public Law 106-544 contains 
the following restrictive provision at 114 Stat. 2763A-143: ``Provided 
further, That funds available to the General Services Administration 
shall not be available for expenses of any construction, repair, 
alteration, or acquisition project for which a prospectus, if required 
by the Public Buildings Act of 1959, as amended, has not been approved, 
except that necessary funds may be expended for each project for 
required expenses for the development of a proposed prospectus.''
    The Public Buildings Act of 1959 requires a prospectus that 
describes FDA's White Oak facility. No prospectus that described this 
facility had been approved before Public Law 101-58 was enacted into 
law. Therefore, GSA may only legally use the funds appropriated in 
these Acts for ``required expenses for the development of a proposed 
prospectus''. GSA cannot legally use the funds to design and construct 
any buildings.
    Despite this prohibition, GSA is presently designing and starting 
to construct the new FDA Human Drugs facility in White Oak without an 
approved prospectus. This is illegal.
    The President's Budget is therefore asking Congress to appropriate 
funds in the Agriculture, Rural Development, and Food and Drug 
Administration Appropriations Act, 2005, that would enable FDA to 
occupy new facilities at White Oak that GSA is now constructing 
illegally. Your Committee should not initiate the appropriation of any 
such funds.
    The prospectus approval process is designed to assure that Congress 
evaluates the need, location, and maximum cost for all GSA building 
projects. Congress has never done this for any of the facilities that 
FDA would occupy at White Oak.
    The National Environmental Policy Act (NEPA) of 1969 requires that 
Federal agencies compare in an Environmental Impact Statement (EIS) 
alternative locations for any large new Federal facility. However, the 
EIS for the White Oak FDA facility did not make any such comparisons.
    The EIS only compared the environmental impacts of an FDA 
consolidation at White Oak with the ``no action'' alternative. 
Following this legally inadequate comparison, GSA and FDA officials 
selected White Oak as the location for the facility.
    GSA and FDA officials therefore violated NEPA when they selected 
the White Oak site. Congress should not appropriate funds to support 
this illegal selection.
    A Federal court may prevent FDA from consolidating its facilities 
at White Oak for one or more of the above reasons. Congress should not 
provide funds for FDA to occupy the White Oak facility until the 
Federal courts decide whether the project can proceed.
    I therefore ask that your Committee not provide the requested to 
FDA in this legislation. Thank you.
                                 ______
                                 

       Prepared Statement of the Calaveras County Water District

    Calaveras County is located on the eastside of the Central Valley 
of California and encompasses approximately 1,028 square miles of land, 
stretching across more than 50 miles of valleys, foothills, and 
mountain peaks. The topography ranges from approximately 200 feet above 
mean sea level (ft-msl) in the northwestern region of the County, to a 
peak height of 8,170 ft-msl near Alpine County.
    The communities of West Point, Wilseyville and Bummerville are 
located in the northeastern portion of the county in the sparsely 
populated higher foothills. The topography ranges from approximately 
2,500 feet in Wilseyville to 3,200 feet in Bummerville. Mild summers 
and cold winters characterize the region, with temperatures ranging 
from the low 20's to the middle 80's. Snow accounts for a large 
percentage of the precipitation in the watersheds supplying the study 
area.
    In the fall of 1946, the Calaveras County Water District (CCWD) was 
organized under the laws of the State of California as a public agency 
for the purpose of developing and administering the water resources in 
Calaveras County. Therefore, CCWD is a California Special District and 
is governed by the California Constitution and the California 
Government and Water Codes. CCWD is not a part of or under the control 
of the County of Calaveras. CCWD was formed to preserve and develop 
water resources and to provide water and wastewater service to the 
citizens of Calaveras County.
    Under state law, CCWD, through its Board of Directors, has general 
powers over the use of water within its boundaries. These powers 
include but are not limited to: the right of eminent domain, authority 
to acquire, control, distribute, store, spread, sink, treat, purify, 
reclaim, process and salvage any water for beneficial use, to provide 
sewer service, to sell treated or untreated water, to acquire or 
construct hydroelectric facilities and sell the power and energy 
produced to public agencies or public utilities engaged in the 
distribution of power, to contract with the United States, other 
political subdivisions, public utilities, or other persons, and subject 
to the California State Constitution, levy taxes and improvements.
    CCWD provides water service to over 10,000 connections throughout 
Calaveras County. CCWD operates five independent treatment facilities 
with a combined treatment capacity of over 13 million gallons per day. 
The water facilities include approximately 290 total miles of 
transmission and distribution pipelines ranging from 4 to 20 inches in 
diameter and 31 storage tanks with capacity of over 14.5 million 
gallons. CCWD provides water and/or wastewater service to 65 percent of 
the residents of Calaveras County.
         west point, wilseyville and bummerville system history
    CCWD owns and operates the domestic water system in the rural 
communities of West Point, Wilseyville, Bummerville and part of Sandy 
Gulch. This water system is located in the District's West Point 
Service area, located in the Mokelumne River Watershed, Calaveras 
County, Central California, in the foothills of the Sierra Nevada 
Mountains. Population growth in the service area has generally averaged 
less than one percent annually over the last 15 years. This low growth 
rate may be attributed in part to the reduction in industry within the 
service area. Presently, the economic base of the community is 
principally related to retirement living with some of the population 
commuting to larger nearby communities for employment opportunities.
    The communities of West Point and Wilseyville developed over the 
last 150 years, initially as mining companies and later as logging 
communities. Originally, these areas were served water through a series 
of mining ditches associated with these activities. The decline of 
these industries, which were critical to the area economy, brought 
about CCWD's purchase of the water and conveyance systems.
    The West Point water system was purchased in 1954 by CCWD from the 
West Point Ditch Company. The predecessor to Sierra Pacific Logging 
Company owned and built the Wilseyville system and sold it to CCWD in 
1964. The Bummerville system was connected to the West Point system in 
1959. Between 1964 and 1974 the system was brought into compliance with 
state and Federal regulations for operation by CCWD.
    The existing water system serves 520 connections, a total 
population of 1,298, including a local Native American Reservation. The 
current facilities include two raw water reservoirs (Wilson Lake and 
the Regulating Reservoir); two raw water diversion facilities (Bear 
Creek gravity and Middle Fork Mokelumne pumped); one water treatment 
plant (West Point); two treated water pump stations (Bummerville and 
Upper Wilseyville); and the associated distribution and storage 
systems.
    The two main sources for water supply for the West Point water 
treatment plant are the Bear Creek diversion, which is a gravity 
source, and the pumped source from the Mokelumne River. Both raw 
sources are generally of good quality and are very easily treated to 
potable standards. Water rights for the West Point/Wilseyville water 
system are derived from existing water rights for diversion of flow 
from Bear Creek and from an agreement for diversion from the Middle 
Fork of the Mokelumne River. These provisions allow for adequate water 
to serve the present water customers, as well as future full buildout 
of the adjacent areas. In the case of drought, the Bear Creek supply 
can be supplemented with water from the Middle Fork of the Mokelumne 
River. In addition, the District maintains the 50 acre-foot Regulating 
Reservoir (also referred to as the West Point Reservoir), which may be 
called upon to supplement and augment supply during dry periods.
    The West Point/Wilseyville water system and related facilities were 
primarily constructed before 1960 and many system components are either 
inadequate or in need of replacement. Several changes have been made to 
the systems in response to more stringent regulations, which allowed 
the abandonment of the Wilseyville plant. In addition, the West Point 
water treatment plant and pump stations have been upgraded and an 
intertie has been installed between West Point and Wilseyville.
    Distribution system deficiencies are evident when evaluated against 
current water industry standards for publicly owned and operated 
systems. The 1996 Master Plan was completed to address these 
deficiencies. Specific recommendations were presented to bring the 
system into compliance with current and anticipated water industry 
standards. In 1998, a Master Plan Supplement provided additional 
analysis for improvements to the West Point Wilseyville, and 
Bummerville systems.
    West Point, Wilseyville and Bummerville have infrastructure 
requirements that far exceed their financial capabilities. However, the 
infrastructure is crucial to the health, safety, and existence of these 
small, rural communities. In addition, rising water and wastewater 
rates have been necessary due to new regulatory requirements and these 
rising rates have been difficult for the community to face. The closing 
of lumber mills in Calaveras and neighboring Amador County (over the 
last 10 years) has also made a difficult situation worse for those 
dependent on that industry for employment, especially in this current 
climate of high unemployment rates. In an effort to begin addressing 
these needs at the state and local level, a $500,000 feasibility study 
state grant and a $1.9 million Bear Creek state construction grant have 
recently been provided. In order to build on these state and local 
efforts and to meet the critical infrastructure needs and the needs of 
the community, we respectfully request assistance for the following 
project components:
       water supply infrastructure rehabilitation project request
    The small rural communities of West Point, Wilseyville, and 
Bummerville are faced with unaffordable water system replacement costs 
for aging supply and distribution systems. Water pressure and fire flow 
are inadequate in much of the service area. The raw water storage and 
transmission facilities are in need of immediate repairs.
    Seven projects have been identified to provide the West Point water 
system with a safer and more reliable level of service. These projects 
include:
  --West Point Clearwell Replacement.--The upgraded West Point Water 
        Treatment Plant is operational; however, the current clearwell 
        will not provide sufficient contact time for compliance with 
        disinfection regulations. This project will demolish and 
        replace the old 500,000 gallon tank with a new 600,000 gallon 
        steel tank.
  --Bummerville Treated Water Storage Tank Replacement.--Replacement of 
        small redwood tank with a single 150,000 gallon steel tank.
  --Wilson Lake Embankment.--Assessment and reconstruction of a primary 
        storage reservoir that is no longer functional.
  --West Point-Wilseyville Distribution System.--Replace the aging 
        ``backbone'' transmission and distribution piping and provide a 
        second intertie between West Point and Wilseyville service 
        areas to improve fire flow and system reliability.
  --Bummerville Treated Water Distribution System.--Replacement of old, 
        leaking, small-diameter piping to improve flow and fire 
        protection.
  --Mokelumne River Intake and Pump Station.--Relocation of the pump 
        station out of the flood plain, replacement of the raw water 
        line to the treatment plant, and modification of the existing 
        river diversion structure.
  --Regulating Reservoir.--Remediation projects to improve water 
        quality problems at a primary storage reservoir.
    The funding we are requesting here is necessary to assist in the 
upgrade, reconstruction, and repair of water system infrastructure 
critical for basic water pressure and fire flow. The District, 
therefore, respectfully requests the Committee's support for a 
$2,000,000 appropriation in fiscal year 2005 under the U.S. Department 
of Agriculture's Rural Development Program (Rural Utility Service), so 
that efforts to initiate construction for the much-needed Downtown West 
Point Distribution System Improvements may move forward.
                                 ______
                                 

Prepared Statement of Wine America, the Wine Institute, the California 
   Association of Winegrape Growers, and Winegrape Growers of America

    Dear Chairman Bennett and Senator Kohl: Our organizations are 
pleased to provide recommendations for the funding of important 
programs that greatly impact the wine and winegrape industry in the 
United States. We are attaching a description of the contributions made 
by this great industry.
Recommendations: Funding for Winegrape Research
            The Viticulture Consortium
    Our organizations strongly support increasing the funding for the 
very successful Viticulture Consortium to $2.5 million.
    Due to budgetary constraints last year the funding of the 
Viticulture Consortium by the Cooperative State Research Education 
Extension Service (CSREES) was reduced to $1.6 million from the 
previous level of $1.78 million. The Consortium was initiated in fiscal 
year 1996 and is administered by Cornell University, Pennsylvania State 
University and the University of California (Davis). The consortium 
funds grants for state researchers in about twenty states through a 
competitive process. It is a keystone of grape related research in the 
United States.
    The consortium addresses unmet national research needs important to 
our industry. As an active partnership of Federal, State, and industry 
resources, the consortium enhances research coordination, 
collaboration, improves efficiency and eliminates duplication of 
effort. Explicit matching funds from both industry and state sources 
have increased dramatically in response to growing Federal support. 
Research proposals have been received from nearly 20 states, including 
California, Pennsylvania, Michigan, Missouri, Virginia, New York, Ohio, 
Michigan, Oregon, and Washington and are funded on a competitive basis. 
Research priorities are developed by a national network of key 
industry, research and extension representatives known as AVERN 
(American Viticulture and Enology Research Network). Because the 
consortium integrates and coordinates grape research throughout the 
nation it is recognized as the most important mechanism for advancing 
knowledge and providing the capability for American grape growers to 
remain competitive in a world marketplace.
Sustainable Viticulture Scientist and Grape Genetics Research Leader
    For fiscal year 2005, we are requesting that Congress increase 
funding by $300,000 for an ARS scientist entomologist to be part of the 
sustainable viticulture group at (Davis, California). We also request 
$325,000 for an ARS grape genetics research leader at Geneva, New York.
    ARS sponsored grape research must keep pace with the needs of a 
research intensive, high value crop facing global competition based on 
product quality. Congress has been building important grape research 
capabilities for sustainable vineyard practices (Davis, California) and 
grape genetics (Geneva, New York).
            ARS Sustainable Viticulture Center
    We are requesting $10 million to begin the first phase of this 
center
    Sustainable viticulture and other work at Davis, California has 
been a major new initiative for the ARS with several new positions that 
have been added over the last decade. In order to provide laboratory 
and green house space for these personnel and to properly develop an 
appropriate interdisciplinary team approach to sustainability a new 
building is required. Engineering and architectural funds were provided 
in the fiscal year 2004 appropriation.
            ARS Center for Grape Genetics
    We respectfully request that $10 million be provided in fiscal year 
2005 to begin construction of the ARS Center for Grape Genetics in 
Geneva.
    There is a serious need to add laboratory and office space for ARS 
grape genetics research at Geneva, New York This will represent a 
critical investment to enable ARS to assume a proper role of national 
and world leadership in grape research. Engineering and architectural 
funds were provided in the fiscal year 2004 appropriation.
Recommendation: Pierce's Disease Control, Containment, and Research
    Our organizations support an increase in funding from the Animal 
and Plant Health Inspection Service for the containment and control 
program to $28.5 million--an increase of $6.25 million over funding for 
fiscal year 2004.
    We also support a continuation of CSREES funding of work on 
Pierce's disease at the University of California in the amount of 
$2.235 million (the fiscal year 2003 funding level).
    We also recommend that Congress increase Agricultural Research 
Service (ARS) funding of research on Pierce's Disease and the GWSS by 
$600,000.
    Pierce's disease, a fatal infection of grape vines by the bacterium 
Xyella fastidiosa (Xf), is being spread throughout California by the 
glassy winged sharpshooter (GWSS). GWSS was first detected in 
California in 1989. It has invaded much of Southern California and is 
established in the southern San Joaquin Valley.
    This vigorous and difficult-to-control insect vector, indigenous to 
the southeastern United States and northern Mexico, threatens 
California's entire grape and wine-producing community. Commercial 
grape varieties grown in California cannot tolerate infection by the Xf 
bacterium and are quickly killed or rendered uneconomical. There is no 
cure for Pierce's disease.
    The onslaught of the GWSS and its spread of Pierce's disease has 
triggered a massive and expensive cooperative response by Federal and 
State agencies, California nurseries, citrus and winegrape growers to 
contain, control and eventually eradicate the GWSS in California. The 
risks to California agriculture presented by the GWSS were recognized 
by a USDA declaration of emergency June 23, 2000 and subsequent 
allocation of CCC funds to conduct research, manage and fight the 
disease.
    There are many crops and commodities threatened by the agents that 
cause Pierce's disease, including almonds, citrus, stone fruits, 
alfalfa and oleander.
    Congress has appropriated money to fund GWSS and Pierce's disease 
research beginning in fiscal year 2001 and every year thereafter. To 
date in California, winegrape growers have assessed themselves 
approximately $15 million to fund research programs to combat this 
deadly disease.
Recommendation: Market Access Program
    We respectfully request that the full amount of authorized funding, 
$140 million, be provided for this program in fiscal year 2005.
    The Market Access Program (MAP) provides export assistance to over 
70 different agricultural industries, most producing specialty crops. 
This assistance is frequently the only kind of government export 
assistance given these producers to allow them to compete in world 
markets against highly subsidized European producers. The wine industry 
has made excellent use of the MAP program, increasing its exports by 
over 225 percent in the past 10 years. Yet, our industry has less than 
6 percent of the world's export market. There is still considerable 
potential to increase our share.
    Current funding for the MAP pales in comparison to the support 
given other major world producers. The Farm Bill recognized the need to 
increase MAP funding consistent with the growing exports of these 
specialty crop producers. The authorized funding of $140 million needs 
to be restored in order for momentum to be maintained.
Recommendation: Cooperative Bio-Control Program for Vine Mealy Bug
    We respectfully request that $1.2 million be provided to address 
this dangerous invasive pest before it gets more established and 
spreads widely.
    The vine mealy bug, Planococcus ficus, is an exotic pest first 
found in the Coachella Valley, Riverside County in 1994. Since then, it 
has spread to an additional 15 counties. The pest feeds on grape 
(winegrapes, table grapes, and raisins), fig, pomegranate, avocado, 
date palm, apple, quince, and certain ornamental plants. Not only does 
the pest feed on sap, it also excretes large amounts of honeydew as it 
feeds, fouling the plant. The pest's activities provide a food source 
for sooty mold, attracts ants and reduces the quality of harvested 
grapes.
    The vine mealy bug threatens over 900,000 acres of grapes and over 
$3 billion in derivative annual income in California. To meet this 
threat, a cooperative work group has been formed, including 
representatives of the grape industry, the Animal and Plant Health 
Inspection Service, the University of California, the California 
Department of Food and Agriculture, and California County Agricultural 
Commissioners. This group has developed a program that includes public 
education; detection, monitoring and mapping surveys; research; and a 
control program implementation plan.
    The California Association of Winegrape Growers was created in 1974 
to be an advocate for California winegrape growers on state, national 
and international issues. CAWG represents the growers of more than 60 
percent of the state's annual tonnage of grapes crushed for wine and 
concentrate. WineAmerica is the national trade association of American 
wine producers representing more than 750 American wineries in 48 
states. Wine Institute is the voluntary association of more than 700 
California wineries and affiliated businesses that represent 92 percent 
of California wine shipments and 80 percent of all U.S. wine shipments. 
Winegrape Growers of America is a federation of state winegrape grower 
organizations representing America's production of grapes for wine.
                               wine facts
    Winegrape growing contributes to the U.S. economy in diverse ways. 
It generates jobs, exports, tax revenues, tourism and, of course, 
outstanding wines. Wine is also the center of intense global 
competition that may seriously affect the ability of American vintners 
to compete in this very global marketplace. The industry's future 
success will hinge on public and private policies that facilitate 
rather than impede responses to new competitive conditions.
    The U.S. grape crop, now grown in over 40 states, has more than 
tripled in 15 years from $955 million in 1985 to almost $3 billion in 
2000. Winegrapes have increased far faster than the overall grape crop 
and now represent almost two-thirds of the total crop. Grapes are the 
highest value fruit crop in the nation and the seventh largest crop 
overall.
    As vineyards continue to expand, so do the number of producing 
wineries. There are nearly 3,000 wineries in all fifty states. Wine 
production, which typically adds value of approximately $2-$4 for each 
$1 of farm gate value, is closely integrated with grape growing 
operations. Wineries with tasting rooms contribute another $4-$10 per 
$1 of farm gate value to the rural economy by selling their wine 
directly to consumers.
    The nation's top wine producing states are (in production order): 
California, New York, Washington, and Oregon. California produces more 
than 90 percent of the volume.
    Wineries are almost always located in rural areas, near the source 
of the grapes. The combination of vineyards and wineries provides a 
stable, year-round, and flexible base of rural employment. Winery 
tourism is very popular and contributes significantly to the rural 
economy; in many cases state tourism departments feature their wineries 
as a major tourist attraction.
    The economic activity directly generated by the wine industry in 
turn creates additional jobs, wages and economic activity as services 
are purchased and wages are spent. In aggregate, wine contributes more 
than $45 billion to the U.S. economy, along with 556,000 jobs, which 
account for $12.8 billion in wages and $3.3 billion in state and local 
tax revenues.
    Wineries and grape growers have made a major commitment to 
implement sustainable practices, which are environmentally sound, 
economically viable and socially responsible. Formal programs are being 
implemented in New York (agriculture environmental management program), 
California's Central Coast Vineyard Team and Lodi-Woodbridge Winegrape 
Commission, Oregon LIVE (Low Input Viticulture and Enology) and 
Washington's Walla Walla Valley Wine Alliance. Wine Institute and the 
California Association of Winegrape Growers have developed a California 
Code of Sustainable Winegrowing Practices with an accompanying 490-page 
self-assessment workbook of best management practices that is being 
embraced by growers and vintners throughout the state.
    Foreign competition is formidable. The U.S. accounts for 9.7 
percent of the world grape production (third after Italy, France) 
accomplished on only 5 percent of the world's vineyard acreage.
    The United States represents about 8 percent of world wine 
production (fourth after Italy, France, and Spain). Our 2003 exports of 
wine, at 94 million gallons, were about 5.6 percent of the world export 
market.
    Imports of wine into the United States (2003) represent about 170 
million gallons, an increase of more than 6 percent from 2002. Imports 
now account for 25 percent of the U.S. wine market.
                                 ______
                                 

 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 2005 funding 
request of $500,000 through the U.S. Department of Agriculture (USDA) 
Cooperative State Research, Education, and Extension Service (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 has 
recently requested redesignation to extreme and is committed to 
updating their 1-hour ozone State Implementation Plan (SIP) in 2004, 
based on new technical data. In addition, the San Joaquin Valley, 
Sacramento Valley, and San Francisco Bay Area exceed 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. This enabled leveraging of the efforts of the 
particulate matter study in that 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.
    CCOS includes an ozone field study, data analysis, modeling 
performance evaluations, 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 five main components:
  --Developing the field study;
  --Conducting 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; and
  --Evaluating emission control strategies for upcoming 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 are currently managing 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 $9.4 million for the field study. The 
Federal Government has contributed $4,874,000 to support 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 $2.5 million to complete the remaining data 
analysis and modeling. California is an ideal natural laboratory for 
studies that address agriculture-related issues, given the significant 
agriculture industry in the state.
    For fiscal year 2005, 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. With 
the current SJV PM10 SIP and the upcoming ozone and 
PM2.5 SIPs, the agricultural industry within the study area 
is facing many new requirements to manage and reduce their air quality 
impacts. The identification of scientifically validated, cost-effective 
options for reducing the environmental impacts of tilling, discing, 
cultivation, and livestock related air emissions will contribute 
significantly to the long-term health and economic stability of local 
agriculture. Funding will support livestock and crop-related research 
that will help maintain a vital agricultural industry within the state. 
Research will be focused to measure baseline emissions, and to study 
the most economical and effective approaches for reducing the impacts 
of agriculture on air quality. These studies also have nationwide 
benefits.
    The San Joaquin Valley of California is one of the few areas of the 
country to be classified as extreme in failing to meet the federal 
Clean Air Act's attainment standards. Agricultural production practices 
are considered to be a contributor to the air quality problem. Farmers 
in the San Joaquin Valley are facing, for the first time, obligations 
to obtain permits to farm from government agencies. Ongoing research is 
essential to identify scientifically validated and cost-effective 
options for reducing the environmental impacts of tilling, discing, 
cultivation, and livestock related air emissions. Research will measure 
baseline emissions and study the most economical and effective 
approaches to reducing the impacts of agriculture on air quality. While 
such research is critical to the long-term health and economic 
stability of local agriculture, it will yield state-of-the-art benefits 
derived from a unique agricultural study site that will have national 
application and benefit.
    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. 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 California Table Grape Commission

    Mr. Chairman and Members of the Subcommittee: The California Table 
Grape Commission respectfully urges this subcommittee to fund the 
Market Access Program (MAP) at the $140 million level for fiscal year 
2005 as approved in the 2002 Farm Security and Rural Investment Act 
(FSRIA).
The Importance of Agricultural Exports
    By passing the FSRIA, Congress-recognized the importance of 
agriculture to the U.S. economy. With increased funding for the Market 
Access Program, the FSRIA also acknowledged the vital role of exports 
in the long-term growth and overall well-being of the country's 
agricultural sector. Agriculture is the only sector of the U.S. economy 
that consistently runs a trade surplus. Moreover, exports account for 
25 percent of U.S. farm cash receipts and for over $1 billion per week 
in sales to more than 100 countries. The benefit to rural U.S. 
economies across the country, in employment and revenue, is immense.
California Within the Broader Picture
    California, perhaps more than any other state, has benefited from 
the MAP program, among other Federal export assistance programs. 
California is the leading state in agricultural exports, with export 
shipments totaling over $6.5 billion annually. Exports represent 
roughly 14 percent of California's agricultural production, though for 
many commodities, including grapes, this figure is much higher. The 
importance of exports to many California commodities are growing. Last 
year alone, export shipments for California walnuts, pistachios, 
prunes, peaches, nectarines, almonds and grapes increased considerably. 
This is not to mention the long-term increases accrued over the last 10 
years. Federal export assistance programs such as MAP made these 
exports successes possible.
California Table Grapes
    The California table grape industry is just one of the 
aforementioned industries that has benefited considerably from export 
development. Over the past 10 years, California table grape exports 
increased 58 percent by volume and nearly 70 percent by value. Record 
export shipments were achieved in each of the last 4 years. These 
records coincided with the opening of new markets such as China, 
Australia, Vietnam, and India. The MAP program enabled the commission 
to pursue export development activities in each of those markets, 
thereby helping the California industry take full advantage of these 
opportunities.
    MAP funds also allow the commission to support export development 
efforts in other emerging and developing markets. As a result, the 
California table grape industry now exports significantly larger 
volumes to Mexico, Malaysia, Central America, Thailand, Indonesia, 
Vietnam and the Middle East among others. At the same time, programs 
funded in more developed export markets such as Japan, Korea, and the 
United Kingdom enable the commission to preserve California's position 
as the leading supplier of fresh grapes despite increased competition. 
The significance of exports to the California table grape industry 
cannot be overstated. Exports now account for 40 percent of production.
The Changing Export Environment
    Based on the growth figures cited above, the California table grape 
industry has clearly benefited from the MAP program, and similar export 
assistance programs. However, global developments are creating a myriad 
of new challenges and opportunities for U.S. agricultural producers. 
Bilateral and multilateral trade agreements are opening markets that 
once prohibited the import of California table grapes and other U.S. 
agricultural products. While California benefits from access to these 
new markets, the same is true for competing grape producers in Chile, 
South Africa, Israel, and China. However, growers in many of these 
countries receive government subsidies and other supports that place 
California grapes at a disadvantage. Increased competition from global 
table grape suppliers therefore threatens the export gains previously 
made by the California table grape industry and could limit new 
opportunities in emerging markets.
Conclusion
    Congress recognized the dynamic nature of global agricultural 
trade, and the growing challenges faced by U.S. agricultural producers, 
when passing the FSRIA in 2002. To meet the long-term needs of U.S. 
agricultural producers, Congress approved incremental increases in 
funding for the MAP program. Those long-term needs have not changed. If 
anything, the challenges and opportunities have intensified. For this 
reason, the commission asks Congress to again recognize the importance 
of U.S. agriculture and address its resource needs by allocating the 
full $140 million to fund the MAP program in 2004.
                                 ______
                                 

 Prepared Statement of the Coalition on Funding Agricultural Research 
                                Missions

    Dear Chairman Bennett: The Coalition on Funding Agricultural 
Research Missions (CoFARM), representing 130,000 members from 
professional scientific organizations, dedicated to assuring the safe 
and secure availability of food, feed, and fiber, is united by a 
commitment to advance and sustain investment in our nation's research 
portfolio.
    Recommendation 1.--We understand that the Agriculture 
Appropriations bill has many valuable and necessary components, and 
urge you to continue to support the National Research Initiative 
Competitive Grants Program (NRI), USDA's premier, peer-reviewed, 
competitive grants program. We request that you build on the 
President's $180 million funding request for the NRI in the fiscal year 
2005 budget cycle. A study conducted by USDA's Economic Research 
Service (http://www.ers.usda.gov/publications/aer735/) to study) 
highlights the annual rate of return to publicly fund agricultural 
research at 35 percent.
    Recommendation 2.--CoFARM requests that any new monies appropriated 
for the NRI, as in fiscal year 2004, allow the Secretary the discretion 
to apply up to 20 percent towards carrying out integrated research, 
extension and education competitive grants program as requested by the 
Administration in fiscal year 2005.
    As you lead the Congress in deliberation on funding levels for 
agricultural research, we urge you to build on the President's proposal 
of $180 million for the NRI. Please consider CoFARM as a resource for 
information in your efforts to improve the agricultural research 
capacity of our nation. The expertise of our collective membership is 
available to help in your efforts.
                        cofarm member societies
American Dairy Science Association
American Institute For Biological Sciences
American Phytopathological Society
American Society of Agricultural Engineers
American Society of Agronomy
American Society of Animal Science
American Society for Horticultural Science
American Society for Microbiology
American Society for Nutritional Sciences
American Society of Plant Biologists
Council on Food, Agricultural and Resource Economics
Crop Science Society of America
Council of Entomology Department Administrators
Federation of Animal Science Societies
Genetics Society of America
Institute of Food Technologists
Poultry Science Association
Rural Sociological Society
Society of Nematologists
Soil Science Society of America
Weed Science Society of America
                                 ______
                                 

   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. 
We believe the United States 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.
    During consideration of the 2002 Farm Bill, Congress sought to 
bolster U.S. trade expansion efforts by approving an increase in 
funding for the Market Access Program (MAP) and the Foreign Market 
Development (FMD) Program, which will begin to reverse the decline in 
funding for these important export programs that occurred over the last 
decade. For fiscal year 2005, the Farm Bill authorizes funding for MAP 
at $140 million, and FMD is authorized at $34.5 million. The Coalition 
strongly urges that both programs be funded at the full authorized 
levels in order to carry out important market development activities.
    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 fiscal year 
2004, U.S. agriculture exports are projected to reach $59 billion, 
which is still below the high of roughly $60 billion that was achieved 
in fiscal year 1996. Exports could be significantly higher if it were 
not for 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 $9.5 billion, 
down approximately 66 percent from fiscal year 1996, with imports 
continuing at record levels. In fiscal year 1999, the United States 
recorded its first agricultural trade deficit with the EU of $1 
billion. In fiscal year 2004, USDA forecasts that the trade deficit 
with the EU will grow to $4.3 billion, the largest agriculture deficit 
the United States runs with any market.
    According to recent information from USDA, the European Union (EU) 
spends more than $2 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 more than 20 to 1 or more 
by the EU alone with regard to the use of export subsidies.
    In recent years, 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. 
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 USDA 
budgets ($125 million in fiscal year 2004) through MAP to promote 
American-grown and produced products worldwide!
    Because market promotion is permitted 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 budgeted significant investments in export promotion 
expenditures worldwide 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.
    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 WTO rules 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 use of USDA funds has actually 
dropped. Since 1992, MAP participants have increased their 
contributions from 30 percent (30 cents for every dollar contributed by 
USDA) to almost 175 percent ($1.75 in industry funds for every USDA 
dollar). For FMD, the contribution rate has risen from 76 percent to 
the current level of 146 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.
    Competing in the agricultural export market carries new challenges 
and opportunities for U.S. agriculture. Not only is the competition 
becoming more intense with increased funding being brought to bear, but 
we also face a world where new trade agreements are being developed 
almost daily. The United States is also negotiating trade agreements 
with the goal of opening new market opportunities for U.S. agriculture. 
In addition, the opening of the Iraq market and the markets of other 
previously sanctioned countries will offer further opportunities and 
challenges.
    For all these reasons, we want to emphasize again the need to 
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.
                                 ______
                                 

 Prepared Statement of the Colorado River Basin Salinity Control Forum

        colorado river basin salinity control program, title ii
    Forum's Recommendation Concerning: Funding for Environmental 
Quality Incentives Program
    Support funding of this nationwide program at the President(s 
requested amount of $985 million for fiscal year 2005.
    Request there be designated to the Colorado River Basin Salinity 
Control Program 2.5 percent of the EQIP Funding.
    The Congress concluded that the Colorado River Basin Salinity 
Control Program (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 (Department) within the Colorado River 
Basin Salinity Control Act (Act). With the enactment of the Federal 
Agriculture Improvement and Reform Act of 1996 (FAIRA), the Congress 
directed that the 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 Program within the EQIP.
    The Program, as set forth in the 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 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. 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, in fiscal year 2003, earmarked $13.6 million and in 
fiscal year 2004 there was earmarked $19.8 million to be used for the 
Program. The Forum appreciates the efforts of the subcommittee in this 
regard. The plan for water quality control of the Colorado River was 
prepared by the Colorado River Basin Salinity Control Forum (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. In fiscal year 2004, for 
the first time, funding reached this level. State and local cost-
sharing is triggered by the Federal appropriation. In fiscal year 2004, 
it is anticipated that the states will cost share with about $8.4 
million and local agriculture producers will add another $7.6 million.
    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.
                                overview
    The Program was authorized by Congress in 1974. The Title I portion 
of the 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 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 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 3 
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 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.
    Although the Program thus far has been able to implement salinity 
control measures that comply with the approved plan, recent drought 
years have caused salinity levels to rise in the river. Predictions are 
that this will be the trend for the next several years. This places an 
added urgency for the acceleration of the implementation of the 
Program.
              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 the 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 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.
                                 ______
                                 

                   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 
2005.
    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 2004 appropriation of $4.147 
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 2004, USDA received an allocation from Congress of $4.147 
million. These funds are supporting 24 state projects serving 27 states 
(due to several projects serving multiple states), the national 
project, and USDA-CSREES administration of the Program. The state 
projects funded with fiscal 2004 money are California, Colorado, 
Delaware, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, 
Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Hampshire, 
New York, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Utah, 
Vermont, 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.
                    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 2005 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 2005 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 American Societies for 
                          Experimental Biology

    The Federation of American Societies for Experimental Biology 
(FASEB) is a coalition of 22 scientific societies who together 
represent more than 66,000 biomedical research scientists. The mission 
of FASEB is to enhance the ability of biomedical and life scientists to 
improve, through their research, the health, well-being and 
productivity of all people. We appreciate the opportunity to submit 
testimony on the critical research and scientific training being 
conducted at the United Stated Department of Agriculture (USDA) and 
will primarily focus our remarks on the National Research Initiative 
Competitive Grants Program (NRICGP), an extramural, peer-reviewed 
program, ensuring that funds are invested in the highest quality 
research projects at universities throughout the nation.
    Basic and applied research in agriculture establishes the 
scientific foundation required to provide a safe, nutritious food 
supply in a manner that reduces environmental pollution, promotes 
sustainable yields, improves human health and promotes the competitive 
position of U.S. agriculture in the global marketplace. Agricultural 
research also plays a critical role in homeland security, providing the 
essential knowledge needed to strengthen the protections of our food 
supply from natural or bioterrorist threats. NRICGP funding levels have 
remained far below the authorized level of $500 million. This level of 
funding limits fundamental and applied research, thereby threatening 
the progress of the U.S. agricultural sector and the associated 
economic, health and security benefits to Americans.
    NRICGP peer-reviewed research focuses on increasing productivity of 
crops and livestock, enhancing human and animal health and nutrition 
and ensuring food safety. The recent discovery of a cow with Bovine 
Spongiform Encephalopathy (BSE, or ``mad cow disease'') highlights the 
importance of increased investment in agricultural research. The 
ability to rapidly identify infected animals, a better understanding of 
how BSE and related diseases affect the food supply, discovering how 
prions function in healthy animals, perhaps leading to comprehension 
and treatment of equivalent human diseases--these are all areas that 
could benefit from NRICGP funding. Basic research into plant and animal 
pathogens not only prepare us to combat naturally occurring epidemics, 
such as BSE, chronic wasting disease (CWD) and West Nile virus, but 
lead us towards powerful tools to battle bioterror agents, as well. 
Guarding the U.S. food supply against the threats of bioterrorism is 
absolutely critical to the security of the nation.
    Mad cow disease is only one of numerous areas of scientific 
opportunity and pressing public need that justify an increase in peer-
reviewed research funding at the USDA. According to the Centers for 
Disease Control and Prevention, obesity will soon become the leading 
cause of preventable death in the United States. Through its research 
programs, the USDA has historically supported human nutrition studies 
emphasizing the maintenance of good health. They have taken the lead 
as, during the past two decades, the incidence of obesity--especially 
among children and adolescents--has become a rapidly accelerating 
public health problem. This problem has been particularly striking 
among certain minority populations. The obesity epidemic has been 
directly responsible for the dramatic increase in diabetes in both 
children and adults which, if unchecked, will overwhelm our heath care 
system. Prevention of obesity is the key strategy, and requires both 
basic and applied knowledge to advance our understanding of potentially 
successful interventions. Projects funded by the NRICGP are using 
animal models to study the basic mechanisms of obesity, as well as 
investigating how school lunches and childhood eating patterns 
contribute to the prevalence of overweight children and adolescents.
    NRICGP funded research is breaking new ground in genomic and 
molecular biology. This basic research allows us to understand disease 
resistance in plants, antibiotic resistance in bacteria and to decipher 
genetic methods to augment the nutritional value of crops, thereby 
contributing to agricultural advancement and human health. Functional 
genomic initiatives directed toward agriculturally important organisms, 
including animals, plants and microbes, represent major opportunities 
as well. The International Rice Genome Sequencing Project, in which the 
USDA was the lead U.S. agency, is being completed and will soon enhance 
global human nutrition and health. Funding to link the NRICGP and the 
National Institute of Health's National Human Genome Research Institute 
is essential to a paradigm shift from gene cloning to genome scale 
biology. The challenge is to understand the genetic bases for 
biological variation responsible for desirable health and production 
traits in plant and animal agriculture. Genomic biology is the magnet 
that will attract outstanding students to the agricultural sciences 
that are the foundation of ensuring a safe and stable food supply.
    Molecular and genomic discoveries made though projects funded by 
the NRICGP stand to have major impacts on U.S. agriculture. USDA-funded 
researchers have identified genes in wheat that may significantly boost 
production yields. Key factors that promote bacterial resistance in 
cattle have been identified and can be used to develop new agents to 
control infectious diseases. Scientists have elucidated the genetics of 
wood, which will lead to substantial improvements in quality and 
quantity produced. Genetically modified soybeans have been created that 
produce more oleic acid, a critic dietary fat for improving the human 
diet. These soybeans are also resistant to bean pod mottle virus, a 
devastating crop disease. NRICGP researchers have developed viruses 
that can deliver disease resistant genes to catfish, which reduces 
dependence on medicated feeds while enhancing animal health. In a 
similar but potentially higher impact discovery, antimicrobial peptides 
have been found in pigs that may kill swine pathogens without the need 
for conventional antibiotics. This may decrease the risk of antibiotic-
resistance infections in human acquired through exposure to live 
animals or meat.
    In addition to research, the USDA plays a vital role in development 
of future researchers. Training students in the agricultural sciences 
is critical if the United States is to maintain its leadership position 
in an increasingly competitive, global food and agriculture industry. 
Unfortunately, the number of doctorates awarded in agricultural 
sciences has decreased significantly in recent years. The National 
Needs Graduate Fellowships Program trains excellent researchers who can 
interact effectively with both agricultural producers and consumers. 
This program allows institutions to recruit outstanding graduate 
students in targeted areas of research, including plant and animal 
biotechnology, agricultural engineering and food science or human 
nutrition. Despite its importance, this program is funded at low 
levels, allowing only a fraction of the qualified Ph.D. applicants to 
be supported. Additionally, the USDA supports innovation in teaching 
methods and materials through the Higher Education Challenge Grants 
program. The decreasing pool of young scientists with backgrounds in 
agriculture, and the critical need to recruit and train the next 
generation of agricultural researchers, make it imperative that these 
two programs be supported at levels sufficient to accomplish their 
goals effectively.
    The best and brightest scientists in the United States are also 
being deterred from agricultural research by the current cap on 
indirect costs, to the detriment of both producers and consumers. FASEB 
urges that the USDA indirect costs rate be raised and made commensurate 
with the rate used by other Federal agencies. Cutting-edge research 
requires substantial investment in buildings and instrumentation. The 
USDA provides partial reimbursements for these indirect, but necessary, 
costs of research as part of grant funding. Currently the 
Congressionally mandated 19 percent facilities and administrative (F&A) 
costs cap results in a significant disincentive for many university 
faculty to seek USDA funding. Additionally, an insufficient facilities 
reimbursement significantly impairs the ability of universities to meet 
their fixed obligations and prevents them from further investing in 
needed facilities in the future. However, increasing the cap on F&A 
costs from 19 percent should not come at the expense of the overall 
agricultural research budget and its competitive grant programs.
    FASEB strongly supports funding the NRICGP at the $200 million 
level recommended in the President's fiscal year 2004 budget.\1\ 
Furthermore, we are concerned that the President's fiscal year 2005 
budget requests funding below this level. The NRICGP has been 
underfunded since it was created by the 1990 Food, Agriculture, 
Conservation and Trade Act with an authorized annual expenditure of 
$500 million. This limitation in funding constrains the size and 
duration of essential research projects. As a consequence of the 
NRICGP's limited funding and constrictive indirect cost policies, FASEB 
is concerned that researchers are directing their efforts away from 
agricultural needs towards the goals of other funding programs, because 
the number of applications in several NRI areas has decreased in recent 
years. In order to achieve scientific progress in agriculture, it is 
crucial that young investigators are not discouraged from these 
critical areas of research. Greater investment in basic and applied 
agricultural research is critical, as the demand for a safe and 
nutritious food supply continues to increase.
---------------------------------------------------------------------------
    \1\ Federation of American Societies for Experimental Biology. 
2004. Federal Funding for Biological Sciences and Related Life Sciences 
Research--Fiscal Year 2005. http://www.faseb.org/opa/fund2005/
fedfund05.pdf.
---------------------------------------------------------------------------
                                 ______
                                 

             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 before this 
Committee. I would like to take a moment to briefly acquaint you with 
Florida State University.
    Located in Tallahassee, Florida's capitol, FSU is a comprehensive 
Research I university with a rapidly growing research base. 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 and have a 
strong commitment to public service. Among the current or former 
faculty are numerous recipients of national and international honors 
including Nobel laureates, Pulitzer Prize winners, and several members 
of the National Academy of Sciences. 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. Florida State University had over $162 
million this past year in research awards.
    FSU recently initiated a new medical school, the first in the 
United States in over two decades. Our emphasis is on training students 
to become primary care physicians, with a particular focus on geriatric 
medicine--consistent with the demographics of our state.
    Florida State University attracts 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 in its student body, which currently includes some 345 
National Merit and National Achievement Scholars, as well as students 
with superior creative talent. We consistently rank in the top 25 among 
U.S. colleges and universities in attracting National Merit Scholars to 
our campus. At Florida State University, we are very proud of our 
successes as well as our emerging reputation as one of the nation's top 
public research universities.
    Mr. Chairman, let me tell you about a two projects we are pursuing 
this year through the U.S. Department of Agriculture.
    The first project involves the reduction of agricultural crop risk.
    The Federal Government, the entity which sets crop insurance rates, 
needs access to new cost-effective ways to reduce crop risk. In the 
S.E. United States, El Nino and La Nina climate variability are major 
factors of crop risk. By using new methods of predicting, more 
appropriate and fair pricing of premiums for crop insurance can be set. 
The Southeast Climate Research Consortium, which consists of Florida 
State University, the University of Florida, the University of Miami, 
the Universities of Georgia, Auburn University and University of 
Alabama at Huntsville has been at the forefront of this climate 
prediction work. The Consortium has worked in Florida and throughout 
the Southeastern United States, with support from NOAA, to develop new 
methods to predict the consequences of climate variability.
    In this consortium, Florida State University provides the climate 
forecasts and risk reduction methodology. The University of Florida, 
the University of Georgia, and Auburn University translate this climate 
information into risks associated with production and environmental 
impacts and work with Extension Services in each state to provide 
information to the agricultural community. The University of Miami 
provides the economic modeling of the agricultural system and evaluate 
use and impacts of the products. Each university works with farmers to 
communicate outcomes. New tasks for fiscal year 2005 include: Assessing 
climate forecasts to reduce risks of ground water contamination from 
agricultural practices in the S.E. United States; investigating how to 
better manage crops to maintain or increase profitability and 
simultaneously reduce risks of environmental damage; and evaluating 
agricultural risks associated with water policy changes.
    FSU, on behalf of the FL Climate Consortium, is seeking $4 million 
in fiscal year 2005 for this activity through the U.S. Department of 
Agriculture.
    Our second project involves the utilization of sugarcane by-
products, also know as bagasse.
    Sugarcane has been identified as an essential world food source and 
is mainly used for sugar production. The United States produces over 
seven million metric tons sugar annually--85 percent of which is grown 
in Florida and Louisiana. Bagasse, a fibrous agricultural residue that 
is a by-product of sugarcane processing, is for the most part 
overlooked at this time. Thousands of tons of sugar industry waste by-
products are generated annually in the form of bagasse. Florida State 
University, in conjunction with Louisiana State University and the 
University of Tennessee, are furthering development and production of 
industrial textile products from bagasse that will enhance the value 
and use of this potentially important agricultural commodity. Working 
with cane producers and cooperatives, this project will demonstrate 
mill-to-market bio-based value-added products. Previous work has 
demonstrated that fibers can be extracted from bagasse and formed into 
non-woven mats for significant and successful erosion control. This 
multi-state research project will scale up the previous pilot process 
to extract larger volumes of sugarcane fibers from bagasse for the 
production and evaluation of industrial textile products from the 
extracted fibers.
    Two prototype continuous reactors--one at Florida State University 
and one at Louisiana State University--will be used to process bagasse 
fibers that will be characterized and made into carded webs for 
spinning fibers. Processing parameters for carding and spinning the 
fibers will be optimized and dyeability of the fibers, yarns and mats 
will be investigated. The carded webs will also be subjected to a 
process that results in non-woven mats with enhanced strength. 
Operating conditions will be established and costs assessed. These 
products from renewable resources have industrial applications based on 
their biodegradability for environmental purposes. Additional efforts 
will focus on developing value-added products from sugarcane bagasse 
with production methods that ensure environmental compatibility. 
Results of this research and development will increase the economic 
value and potential applications for sugarcane fiber products.
    The development of new products from sugar cane bi-products can be 
a tremendous economic benefit for the farmers and the region. 
Historically, this segment of the agricultural economy has had a 
limited variety of products from the cane. This research will hopefully 
increase the marketability of cane and its enhanced bi-products in a 
wider range of commercial areas and applications.
    Florida State University, as project coordinator, is seeking $1.5 
million in fiscal year 2005 for this activity through the U.S. 
Department of Agriculture.
    Mr. Chairman, these are just of couple 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 the Forest Landowners Association

    The Forest Landowners Association (3776 Lavista Road, Suite 250, 
Tucker, Georgia, 30084; telephone 404-325-2954), an association of over 
10,000 private forest landowners throughout eighteen southern and 
eastern states, appreciates this opportunity to submit written 
testimony to the Senate Committee on Appropriations, Subcommittee for 
Agriculture, regarding appropriations for the Cooperative State 
Research, Education, and Extension Service (Department of Agriculture), 
and in particular funding for the following programs.
  --Formula Programs.--McIntire-Stennis Cooperative Forestry (proposed 
        funding by administration in fiscal year 2005 Budget: 
        $21,884,000).
  --Extension Programs.--Renewable Resources Extension Act (proposed 
        funding by administration in fiscal year 2005 Budget: 
        $4,093,000).
Formula Programs: McIntire-Stennis Cooperative Forestry
    The Cooperative Forestry Research Program (McIntire-Stennis Act) 
supports long-term research and scientist training efforts at the 
nation's public land-grant universities and colleges.\1\ The McIntire-
Stennis program increases the efficiency and productivity of private 
forestland by providing ``for cutting-edge research on productivity, 
technologies for monitoring and extending the resource base, and 
environmental quality.'' \2\ In addition, the program has assisted in 
the completion of over 7,500 masters degrees and 2,200 doctoral degrees 
in forest resources fields.\3\
---------------------------------------------------------------------------
    \1\ National Council on Private Forests (NCPF). (2001). Working 
Paper on Farm Bill Forestry Title Priorities. Unpublished manuscript, 
p. 6. See also National Coalition for Sustaining America's Nonfederal 
Forests (NCSANF). (2000). A National Investment in Sustainble Forestry: 
Addressing the Stewardship of Nonfederal Forestlands through Research, 
Education, and Extension/Outreach, p. 7.
    \2\ Brown, Dr. Perry J. (2001). Testimony submitted to the 
Subcommittee on Agriculture, Rural Development, FDA, and Related 
Agencies of the House Appropriations Committee, fiscal year 2001 CSREES 
Budget. Online: www.napfsc.org/creestest02.htm, p. 2.
    \3\ National Coalition for Sustaining America's Nonfederal Forests 
(NCSANF). (2000). A National Investment in Sustainble Forestry: 
Addressing the Stewardship of Nonfederal Forestlands through Research, 
Education, and Extension/Outreach, p. 7.
---------------------------------------------------------------------------
    The program's objectives fulfill several areas of need within the 
forestry community. The McIntire-Stennis Cooperative Forestry Research 
program:
  --``Significantly enhance[s] sustainability and productivity of 
        nonfederal forests;
  --``Increase[s] the financial contributions of nonfederal forests to 
        benefit landowners, the rural community, state and national 
        economies, and environmental values; and
  --``[Helps] conserve and sustain the nonfederal forests and other 
        natural resources for future generations.'' \4\
---------------------------------------------------------------------------
    \4\ Brown (2001), p. 2.
---------------------------------------------------------------------------
    The McIntire-Stennis program has a funding authorization of $105.0 
million per year.\5\ However, the program has never been funded at its 
authorized level; the enacted fiscal year 2004 budget only allocated 
$21,755,000 for the program (approximately one-fifth of its authorized 
level),\6\ and below the fiscal year 2001 budget of $21,932,000. This 
reduced funding is even more disturbing when viewed through the 
knowledge that McIntire-Stennis funds are matched by three dollars from 
states and universities for every Federally supplied dollar provided by 
Congress.\7\
---------------------------------------------------------------------------
    \5\ NCSANF, p. 16.
    \6\ Brown (2001), p. 1.
    \7\ Ibid., p. 2; NCPF, p. 6.
---------------------------------------------------------------------------
    FLA recommends that Congress fully fund the McIntire-Stennis 
Cooperative Forestry Research program at its authorized level of $105.0 
million per year. We believe that this funding is vital to the eventual 
sustainability of America's forests. As stated in a National Coalition 
for Sustaining America's Nonfederal Forests report, ``[These] funds 
would be used to create about 500 new campus-based faculty positions 
addressing forest resources needs.'' \8\ The needs addressed in the 
report are just as critical 4 years later. FLA is cognizant of the 
enormity of such a request; therefore, we would request a ten percent 
increase over fiscal year 2004 levels, to a fiscal year 2005 
appropriations level of $23,930,500.
---------------------------------------------------------------------------
    \8\ NCSANF, p. 16.
---------------------------------------------------------------------------
Extension Programs: Renewable Resources Extension Act
    The Renewable Resources Extension Act (RREA) is the nation's 
leading forestry extension program, tackling critical forestry and 
related natural resources extension and stewardship needs in states, 
while also addressing critical issues of forest management for 
productivity and environmental quality on non-Federal private 
forestlands.\9\ The program, administered by CREES,\10\ is the 
foundation of university outreach and extension efforts.\11\ RREA 
programs help to ``(1) solve immediate problems; (2) transfer research 
technologies and new knowledge; and (3) increase [forest landowner] 
awareness of the benefits of active [forest] management.'' \12\
---------------------------------------------------------------------------
    \9\ Ibid., p. 4.
    \10\ Brown (2001), p. 3.
    \11\ ``[RREA] funds extension efforts that are a model of 
partnership between the U.S.D.A. and State Universities and Land Grant 
Colleges.'' NCPF, p. 4.
    \12\ Brown (2001), p. 3.
---------------------------------------------------------------------------
    RREA has received consistent support from forestry organizations, 
including the National Council on Private Forests (NCPF) and the 
National Association of Professional Forestry Schools and Colleges 
(NAPFSC). However, the program is consistently funded below its 
congressional authorized level of $30.0 million per year; the enacted 
fiscal year 2004 budget only allocated $4,040,000 for the program. It 
is apparent that funding levels must be increased to fulfill the 
extension and outreach objectives of RREA. Once again, FLA is cognizant 
of the enormity of such a request; therefore, we would request a ten 
percent increase over fiscal year 2004 levels, to a fiscal year 2005 
appropriations level of $4,444,000.
    The Forest Landowners Association thanks the Appropriations 
Subcommittee for Agriculture for the opportunity to submit written 
testimony regarding fiscal year 2005 appropriations for the Cooperative 
State Research, Education, and Extension Service (Department of 
Agriculture). If the subcommittee has any questions or comments 
regarding this written testimony, it should contact Dr. Vernon R. 
Hayes, Jr., FLA's government affairs director, at his office (8204 
Foxhall Road, Clinton, Maryland, 20735; telephone 301-877-6898; fax 
301-877-6899).
                                 ______
                                 

  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.
    Our testimony addresses four central themes.
    First, we begin with our highest recommendation for an item within 
the President's budget--Identification, Prevention, and Control of 
Invasive Species.
    Second, we turn to the urgent need to continue support for specific 
research areas mandated by the Congress in fiscal years 2001, 2002, 
2003, and 2004. These projects address critical research needs that 
have enormous impact. They have been strongly endorsed and supported by 
this Subcommittee and many others. We list them below with brief 
descriptions and our recommendations for continued funding.
    Third, we briefly discuss the BARC and the Maryland Technology 
Development Corporation (TEDCO) partnership for transferring technology 
from the laboratory to the marketplace. We fully support the goals and 
accomplishments of this special relationship.
    Last, we will address our recommendation for construction funds to 
complete Phase III of the Beltsville Human Nutrition Research Center
                            invasive species
    The President's budget proposes a $2 million increase for invasive 
species research at BARC. In our view, the urgency for supporting 
invasive species research could hardly be overstated. Invasive 
species--insects, fungi, nematodes, and animal parasites--have never 
posed a greater threat to American agricultural security than they do 
today.
    What's more, the threat is growing, accelerated by rising 
international travel and immigration, expanding globalization and 
trade, and the ominous threat of international bioterrorism. 
Ironically, our nation faces this growing challenge when Federal 
support for invasive species research has reached dangerously low 
levels after decades of decline. Resources are barely adequate to keep 
up current programs, much less adequate to cover skyrocketing demands 
for new research and services. To make matters worse, universities and 
others have cut back sharply also. The net effect is to leave America 
weak and vulnerable in an area that urgently needs strengthening.
    In November 2002, BARC convened a distinguished panel of scientists 
and stakeholders, headed by Dr. Peter H. Raven, Director of the 
Missouri Botanical Garden, to address these issues. They focused 
basically on the threat of invasive species to agricultural 
biosecurity, pest management and control, and regulation/quarantine.
    The panel noted that BARC houses personnel, collections, and 
information systems that are unduplicated anywhere in the world. BARC's 
internationally recognized experts and collections underwrite the 
scientific basis for the action programs of the Animal and Plant Health 
Inspection Service, the Forest Service, and state departments of 
agriculture. BARC experts spend substantial parts of their time 
identifying alien species that action agencies have intercepted at our 
ports and borders.
    In the concluding remarks of its report, the panel foresees BARC as 
a national and global leader for protecting the security and 
productivity of American agriculture against the threat of invasive 
species. The panel sees BARC as a future center of unparalleled 
excellence providing the cohesive and responsive knowledge base for 
protecting United States and global agriculture.
    The funding increase proposed in the President's budget is a 
necessary step in the right direction.
               congressionally mandated programs at barc
    For fiscal years 2001 though 2004, Congress designated funding for 
the 14 BARC projects that we briefly describe below. Total funding for 
these projects was $7,772,585. We understand that the President's 
budget for fiscal year 2005 proposes to eliminate all 14 projects and 
replace them with new projects that would receive $7,575,000 of total 
funding. Though the net difference of total proposed funding is 
relatively small, the impact on vital research would be dramatic.
    In our view, the 14 on-going projects should be funded to 
completion before new projects are added to the BARC portfolio. We 
would also point out that there is no simple way to re-assign 
scientists from the on-going projects to the proposed new projects, 
which are considerably different in emphasis and required scientific 
skills. We strongly recommend continued funding for the projects listed 
below.
    Animal Improvement Programs Laboratory.--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 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 because inflation and salary increases have 
consumed 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, obesity, and diabetes. 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. We recommend 
continuation of this funding.
    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 30 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 amendments 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. 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 chicken meat industry from disease. But 
traditional chemical controls are becoming ineffective. New non-
chemical control methods are needed. 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 agents 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 costly 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. Funding will 
support collaborative research by the Gene Evaluation and Mapping 
Laboratory, the University of Illinois, and the University of 
Connecticut aimed at improving cloning efficiency. 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.
    Nutrition monitoring system.--BARC's Food Survey Research Group 
monitors food and nutrient intake for the nation in collaboration with 
HHS and the NHANES study (National Health and Nutrition Examination 
Survey). We recommend continuation of this funding.
    The approximate $500,000 of new money will enable the collection of 
a second day of dietary intake data from human subjects. This 
information is critical for increasing the statistical reliability of 
the food intake survey data. These data are important for supporting 
such public policy programs as school lunch, food stamps, WIC, senior 
meals programs, etc. They are also important when the Institute of 
Medicine's Food and Nutrition Board (part of NAS) sets recommended 
intakes for essential nutrients. We recommend continuation of this 
funding.
    Coffee and Cocoa.--These funds support research to control a range 
of fungal diseases and pests that attack coffee and cacao (chocolate). 
More profitable production systems for these crops will make them more 
attractive alternatives to some producers of coca (cocaine). We 
recommend continuation of this funding.
    Johne's Disease.--This disease is also called bovine 
paratuberculosis. It is a contagious disease that causes chronic 
wasting or debilitating enteritis and eventual death in cattle, sheep, 
goats, deer, and other wild and domestic ruminants. Infected animals 
intermittently shed the microorganism into milk and feces. The research 
at BARC will provide a better understanding of the pathogenicity of the 
organism so that better diagnostic tests and vaccines can be developed. 
We recommend continuation of this funding.
    Food Safety.--This is funding for studying transmission of 
Listeria, a human pathogen and food safety contaminant. Certain 
cheeses, including some popular French imports, are made from fresh 
unpasteurized milk, and can carry Listeria. Listeria can make anybody 
sick, but it's a particular risk for pregnant women because it can 
cause miscarriage or other problems. We recommend continuation of this 
funding.
    Weed Management.--These funds support a cooperative project with 
Rodale Institute on weed management in organic farming. Organic farming 
is a very rapidly growing sector of agriculture, and organic foods 
often command a price premium. Organic farming makes it possible for 
small farmers to make a living with high-value products from a small 
piece of land. Weeds are one of the biggest problems encountered by 
organic farmers, and a serious threat to their economic viability. 
These research funds will improve non-chemical weed control.
                         barc-tedco partnership
    The Maryland Technology Development Corporation (TEDCO) and BARC 
have created a partnership to speed the transfer and commercialization 
of technologies from BARC laboratories to the private sector. Goals 
include fostering new industries, creating or re-vitalizing businesses, 
stimulating economic growth, and creating new, stable jobs.
    We understand that TEDCO has approached the Congress regarding a $1 
million appropriation to support technology transfer. The funds are 
needed to continue on-going BARC-TEDCO technology transfer activities. 
Approximately one half of the appropriation would be made available to 
BARC laboratories to complete research needed to commercialize new, 
valued-added products made from poultry feathers.
    Potential economic and environmental benefits from the successful 
commercialization of products made from poultry feathers are 
substantial, not only for Maryland but well beyond. Environmentally, 
finding an economic outlet for waste poultry feathers would relieve the 
tremendous burden of disposing an unusable material. Economically, 
estimates predict that as many as 80 new poultry-feather plants, each 
generating 80-100 new jobs, could be created across the nation. The 
first such plant may appear on Maryland's Eastern Shore, where there is 
substantial commercial interest.
    FAR-B heartily endorses support for this innovative approach to 
technology transfer and commercialization.
                        buildings and facilities
    Phases I and II of the three-planned phases of construction and 
modernization for the Beltsville Human Nutrition Research Center have 
been completed. Phases I and II provided for constructing two new 
buildings for human nutrition research. The new buildings are now fully 
functional and are contributing to the research mission of the 
Beltsville Human Nutrition Research Center. They were officially opened 
last August in a dedication ceremony at BARC. With the opening of these 
buildings, BARC now has the largest capacity for free-living volunteer 
studies in the United States.
    Phase III is for renovating the original human nutrition building, 
which after almost seven decades of heavy use is in poor condition. Its 
interior badly needs modernization. Externally, the building remains 
generally sound. BARC is committed to preserving the building's 
historical exterior and appearance. Once renovated, the building will 
house the Food Composition Lab, the Nutrient Data Lab, the Food Surveys 
Research Group, and the Community Nutrition Research Group--all 
research. BARC then will have all of the BHRNC staff in one complex of 
buildings, all modern and meeting current needs and building standards.
    In fiscal year 2001, Congress provided $1.9 million to design the 
building's interior renovation. Though the design work is about 35 
percent complete, the process is on hold pending approval of $26 
million needed for construction. BARC may not begin construction before 
all of the construction funding has been approved. Should Congress 
approve partial construction funding for fiscal year 2005, BARC will 
hold the partial funding until full funding may be approved in a later 
appropriation. We commend BARC's flexibility regarding the renovation 
project, and we encourage Congress to approve funding for Phase III.
    Mr. Chairman, that concludes our statement. We again thank you for 
the opportunity to present our testimony and for your generous support.
                                 ______
                                 

    Prepared Statement of the Great Lakes Indian Fish and Wildlife 
                               Commission

    Agency Involved.--Natural Resource Conservation Service
    Summary of fiscal year 2005 Testimony.--The Commission requests 
Congress support funding for conservation programs as authorized under 
the Farm Security and Rural Investment Act of 2002 including:
  --$1 billion in for the Environmental Quality Incentives Program 
        (EQIP), and
  --$60 million for the Wildlife Habitat Incentives Program (WHIP).
    The Commission also requests Congress restore $275,000 in funding 
for the Wisconsin Tribal Conservation Advisory Council (WTCAC) 
eliminated by the Administration in fiscal year 2005.
    Disclosure of USDA Grants Contracted.--The Commission is an 
intertribal organization which, under the direction of its member 
tribes, implements federal court orders governing tribal harvests of 
off-reservation natural resources and the formation of conservation 
partnerships to protect and enhance natural resources within the 1836, 
1837, and 1842 ceded territories. Under the USDA's Environmental 
Quality Incentives Program, the Commission contracted $10,000 in fiscal 
year 1998 and an additional $40,000 in fiscal year 1999. In addition, 
the Commission also contracted EQIP Education Grants funded by USDA and 
the University of Wisconsin Extension Service for $29,940 in fiscal 
year 1998 and $20,000 in fiscal year 2001. Under the WHIP program, 
GLIFWC contracted $2,400 in fiscal year 2003.
    Mr. Chairman, Members of the Committee, my name is James H. 
Schlender. I am the Executive Administrator of the Great Lakes Indian 
Fish and Wildlife Commission (Commission). Our eleven member tribal 
governments thank you for considering our testimony regarding programs 
funded by USDA's Natural Resource Conservation Service. The 
Commission's testimony stresses three major objectives:
  --provide funding for the Environmental Quality Incentives Program 
        (EQIP) at $1 billion nationally and support intertribal and 
        tribal efforts to participate in conservation partnerships;
  --provide funding for the Wildlife Habitat Incentives Program at $60 
        million nationally to support efforts to protect and enhance 
        wildlife and fish habitats; and
  --restore funding for the Wisconsin Tribal Conservation Advisory 
        Council (WTCAC) at $275,000 annually.
    Background.--The Commission is comprised of eleven sovereign tribal 
governments located throughout Minnesota, Wisconsin, and Michigan. The 
Commission's purpose is to protect and enhance treaty-guaranteed rights 
to hunt, fish, and gather on inland territories ceded under the 
Chippewa treaties of 1836, 1837, and 1842; to protect and enhance 
treaty guaranteed fishing on the Great Lakes; and to provide 
cooperative management and protection of these resources. The 
Commission participates in a wide range of cooperative management 
activities with local, state, federal, and foreign governments. Some of 
these activities arise from court orders, while others are developed in 
general government-to-government dealings between tribes and other 
governments.
    EQIP Supports Tribal Partnerships to Control Purple Loosestrife in 
the Bad River and Chequamegon Bay watersheds.--Purple loosestrife 
(Lythrum salicaria L.) is an exotic perennial plant first recorded in 
Wisconsin in 1940. As purple loosestrife spread throughout wetland 
ecosystems, it reduced carrying capacities for muskrats, water birds, 
and mink and degraded the quality of migratory waterfowl production 
sites.
    In 1998, the Commission began a 5-year project under USDA's 
Environmental Quality Incentives Program (EQIP) to control purple 
loosestrife in the Bad River and Chequamegon Bay watersheds. Under this 
project, the Commission utilized funding from the BIA's Noxious Weed 
Program to control loosestrife on public lands located in the Chippewa 
ceded territories and utilize funding from EQIP to control loosestrife 
on private lands with land owner consent--orchards, dairy farms, etc. 
This program integration promotes conservation partnerships to protect 
critical habitat on a watershed basis including:
  --Kakagon and Bad River Sloughs--the largest, healthiest, fully 
        functioning estuarine system in the upper Great Lakes Basin and 
        is listed as a National Natural Areas Conservancy Landmark 
        (National Registry 1983)--Bad River Tribe;
  --Fish Creek Sloughs Refuge--an important area for waterfowl nesting/
        staging, and northern pike spawning; and Sioux River Refuge--
        important wetland, waterfowl staging area, and critical steel 
        head trout spawning habitat--WI DNR;
  --Whittlesey Creek--this newly established refuge possesses critical 
        habitat for salmon spawning and reintroduction of rare native 
        brook trout strains--USFWS, and
  --Apostle Islands National Park--National Park Service.
    In addition to its EQIP Purple Loosestrife Control program, the 
Commission has also completed two EQIP education grants. Under these 
grants, the Commission: (1) prepared and published educational 
materials to prevent the spread of purple loosestrife, leafy spurge, 
and other invasive plants; (2) established an Internet GIS web site 
(i.e. see www.glifwc-maps.org) to assist landowners, state and federal 
agencies, non-profit conservation organizations, and tribes in 
developing and implementing invasive plant control strategies within 
watersheds; and (3) promoted cooperative control projects through 
technical assistance and educational materials/presentations.
    The Establishment of the Wisconsin Tribal Conservation Advisory 
Council and EQIP Funding Set-asides have Increased Program 
Participation by Indian Nations in Wisconsin.--The Wisconsin Tribal 
Conservation Advisory Council (WTCAC) was established for the purposes 
of: (1) identifying tribal conservation issues, (2) advising the USDA 
Natural Resources Conservation Service on more effective ways to 
deliver USDA programs, and (3) assisting the Indian Nations of 
Wisconsin in accessing USDA resources. This Tribal Conservation 
Advisory Council was organized in March 2001 and is the first such 
council formed in the country as authorized under the 1995 Farm Bill.
    One of the responsibilities of the WTCAC, at the request of the 
NRCS State Conservationist, is to review and recommend funding for 
conservation proposals from the 11 federally recognized tribes in 
Wisconsin. In fiscal year 2003, the WTCAC was allocated $440,000 for 
this effort and recommended numerous tribal EQIP contracts including:
    Supporting Tribal Aquaculture Development.--The St. Croix Tribe 
contracted $43,162 in EQIP funding to assist the tribe in installing an 
aquaculture effluent treatment system at its St. Croix Waters 
Aquaculture facility. St. Croix also contracted $19,918 in EQIP funding 
to improve water volume and quality for the rearing of food fish and 
walleye and perch fingerlings for restocking efforts on local lakes.
    Decommissioning Abandoned Wells.--The Bad River Tribe contracted 
$5,550 and Lac du Flambeau contracted $10,026 in EQIP funding to 
decommission abandoned wells on their Reservations that are a potential 
source of groundwater contamination.
    Controlling Shoreline Erosion.--The Lac du Flambeau Tribe 
contracted $40,000 in EQIP funding to provide stream bank and shoreline 
stabilization, critical area planting, tree and shrub establishment, 
grade stabilization structure, and heavy use area protection on 
Flambeau and Pokegama Lakes. The erosion is causing sedimentation, 
adverse effects on water quality, as well as aquatic and riparian 
habitat damage.
    The St. Croix Chippewa Tribe contracted $18,750 in EQIP funding to 
install a grade stabilization structure to control soil erosion 
upstream of the confluence of the Yellow River and the St. Croix River. 
This erosion is impairing wild rice beds downstream on the St. Croix 
River.
    Stream Corridor, Wetland, and Wild Rice Restoration Project.--The 
Sokaogon Chippewa Community contracted $47,780 in EQIP funding to 
restore the natural flow that was altered in Swamp Creek, remove 
nuisance plant species, reseed wild rice, remove debris from stream 
banks and beds, and control erosion on a tribal access road.
    Forest Restoration Project.--The Bad River Tribe contracted $40,000 
in EQIP funding to plant white pine, red pine, balsam fir, and white 
spruce on 1,120 acres of tribal lands that, left untreated, would 
regenerate to aspen and increase erosion problems. This is the first 
step in promoting and restoring forest biodiversity on lands cut-over 
in the 1920's.
    Wildlife Habitat Incentives Program (WHIP).--NRCS's WHIP program 
provides a flexible funding resource to Wisconsin that enables local 
communities to form conservation partnerships between private 
landowners, local conservation districts, counties, and tribal 
governments. Again the WTCAC combined with a WHIP program set-aside of 
$33,000 in Wisconsin resulted in numerous tribal WHIP contracts in 
fiscal year 2003. Through this process NRCS was able to establish 
Tribal WHIP contracts for such diverse projects as wild rice seeding, 
walleye spawning habitat restoration, stream bank protection, and 
native grass seeding.
    Unfortunately, the success of Wisconsin Tribes in contracting 
fiscal year 2003 EQIP and WHIP funding from NRCS is not found among 
GLIFWC's member tribes in Michigan as documented by the table below.

------------------------------------------------------------------------
                                     EQIP Funding        WHIP Funding
      GLIFWC/Member Tribes         Contracted fiscal   Contracted fiscal
                                       year 2003           year 2003
------------------------------------------------------------------------
Michigan:
    Lac Vieux Desert............  None..............  None
    Keweenaw Bay................  None..............  None
    Bay Mills...................  None..............  None
                                 ---------------------------------------
      Michigan Total............  $0--contracted by   $0--contracted by
                                   3 MI GLIFWC         3 MI GLIFWC
                                   tribes              tribes
                                  $0--contracted all  $0--contracted all
                                   MI tribes           MI tribes
                                 =======================================
Wisconsin:
    Bad River...................  $40,000 forest      None
                                   restoration/
                                   erosion control
                                  $5,550
                                   decommission
                                   abandoned wells
    Red Cliff...................  Did not apply for   $1,350 stream bank
                                   fiscal year 2003    protection
                                   projects            project
    St. Croix...................  $43,162             $10,000 walleye
                                   aquaculture waste   spawning habitat
                                   storage facility    restoration
                                  $2,000 aquaculture
                                   hatchery well
                                   project
                                  $18,750 erosion
                                   control project
    Sokaogon....................  $47,780 stream      $3,000 Rice Lake
                                   corridor &          wild rice seeding
                                   wetland
                                   restoration
                                   project
    Lac Courte Oreilles.........  Did not apply for   $3,000 wild rice
                                   fiscal year 2003    seeding
                                   projects
    Lac du Flambeau.............  $40,000 to address  $3,000 Powell
                                   shoreline erosion   Marsh native
                                   concerns            grass seeding
                                  $10,026
                                   decommission
                                   abandoned wells
    GLIFWC......................  Did not apply for   $1,200 Jackson Box
                                   fiscal year 2003    Flowage wild rice
                                   projects            seeding;
                                                      $1,200 Manitowish
                                                       River wild rice
                                                       seeding
                                 ---------------------------------------
      Wisconsin Total...........  $207,268--contract  $22,750--contracte
                                   ed by GLIFWC        d by GLIFWC and 5
                                   member tribes in    member tribes
                                   Wisconsin          $33,000--allocated
                                  $440,000--allocate   for 11 tribes
                                   d to 11 Tribes      statewide
                                   statewide
------------------------------------------------------------------------

    GLIFWC takes the following lessons from these circumstances:
  --Funding for tribal projects in Wisconsin is directly attributable 
        to active outreach toward and integration of tribes into the 
        budgeting process of NRCS state offices.
  --A tribal advisory council consisting of the tribal representatives 
        and funded by NRCS can effectively link tribes with the NRCS 
        and result in more funding directed toward tribal projects.
  --Set asides for tribal projects from NRCS state office funding 
        allocations is critical to ensure that tribes are able to 
        access their fair share of those allocations.
    GLIFWC requests Congress restore funding for WTCAC at $275,000 in 
fiscal year 2005 thereby ensuring tribal communities in Wisconsin have 
the technical resources needed to address their conservation needs.
                                 ______
                                 

     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 and Related Agencies Subcommittee on fiscal year 2005 
funding items of great importance to The Humane Society of the United 
States and its more than 8 million supporters nationwide.
    We are grateful for the Committee's outstanding support during the 
past few years for improved enforcement by the U.S. Department of 
Agriculture of key animal welfare laws, and we urge you to sustain this 
effort in fiscal year 2005. 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) orchestrated dogfights and cockfights that often involve 
illegal gambling, drug traffic, and human violence, and can contribute 
to the spread of costly illnesses such as Exotic Newcastle Disease and 
bird flu; (2) injuries to slaughterhouse workers from animals 
struggling in pain; (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; (6) 
injuries and deaths of pets on commercial airline flights due to 
mishandling and exposure to adverse environmental conditions; and (7) 
the spread of ``mad cow'' disease and bacterial infections that people 
can get from eating contaminated meat.
    For fiscal year 2005, we want to ensure that the important work 
made possible by the fiscal year 2004 budget is continued 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/$1.2 million for Animal Fighting 
        Enforcement
    We very much appreciate the inclusion of $800,000 in fiscal year 
2004 for USDA's Office of Inspector General to focus on animal fighting 
cases. Congress enacted provisions in 2002 (as part of the Farm Bill) 
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 only a handful of 
dogfighting and cockfighting cases, despite rampant activity across the 
country. USDA continues to receive frequent tips from informants and 
requests to assist with state and local prosecutions, and is beginning 
to take seriously its responsibility to enforce the portion of the AWA 
dealing with animal fighting ventures. Dogfighting and cockfighting are 
barbaric practices in which animals are drugged to heighten their 
aggression and forced to keep fighting even after they've suffered 
grievous injuries. Animal fighting is almost always associated with 
illegal gambling, and also often involves illegal drug trafficking and 
violence toward people. Dogs bred and trained to fight endanger public 
safety, and some dogfighters steal pets to use as bait for training 
their dogs. Cockfighting has been linked with the outbreak of Exotic 
Newcastle Disease in 2002-2003 that cost taxpayers more than $200 
million for containment and compensation, and with the death of at 
least two children in Asia this year who were exposed through 
cockfighting activity to avian influenza.
    Given the potential for further costly disease transmission, as 
well as the animal cruelty involved, we believe it would be a sound 
investment for the federal government to increase its efforts to combat 
illegal cockfighting and dogfighting activity, working closely with 
state and local law enforcement personnel to complement their efforts. 
We therefore respectfully request that $1.2 million be designated for 
the OIG to focus on animal fighting cases in fiscal year 2005.
Food Safety and Inspection Service/$5 million for Humane Methods of 
        Slaughter Act (HMSA) Inspectors
    We are grateful that Congress provided $5 million in fiscal year 
2003, and bill language to sustain the initiative in fiscal year 2004, 
for USDA to hire at least 50 inspectors whose sole responsibility is to 
ensure that livestock are treated humanely and rendered unconscious 
before they are killed. This initiative was undertaken following 
reports of lax enforcement of the HMSA and animals being skinned, 
dismembered, and scalded while still alive and conscious. We are 
pleased that the President's budget recommends $5 million in fiscal 
year 2005 for enforcement of this law. We are quite concerned, however, 
that these funds are not being used by USDA as Congress intended. 
Rather than hiring new inspectors, the department has apparently opted 
to apply these resources broadly across its existing personnel, 
indicating in the explanatory notes accompanying the President's fiscal 
year 2005 budget that the $5 million will cover ``an estimated 63 staff 
years annually, distributed over hundreds of employees in hundreds of 
inspected establishments.'' When Congress provided this funding, the 
goal was to establish a separate cadre of humane slaughter inspectors 
because we recognized that it was not working to have the regular food 
safety inspectors--those responsible for the important job of checking 
body parts and carcasses in order to protect consumer health--also 
responsible for compliance with humane slaughter requirements. We were 
concerned that food safety inspectors were often stationed far down the 
production line, well past where the animals were killed. In some 
cases, slaughter plants had even built barriers that made it impossible 
for food safety inspectors to see the animals while they were still 
alive.
    While we welcome any USDA efforts to ensure that every inspector 
maintains a watchful eye for humane slaughter violations, including 
this task as part of each existing inspector's routine should not 
require additional funds. We therefore respectfully request that $5 
million be designated in fiscal year 2005 bill language for USDA to 
hire an additional 50 inspectors who will work solely on enforcement of 
the Humane Methods of Slaughter Act through full-time ante-mortem 
inspection, particularly unloading, handling, stunning, and killing of 
animals at slaughter plants. We also request language re-stating that 
the mission 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.
APHIS/Animal Welfare Act (AWA) Enforcement
    We commend the Committee for responding over the past few years to 
the urgent need for increased funding for the Animal Care division to 
improve its inspections of approximately 10,000 sites, including 
laboratories, commercial breeding facilities, zoos, circuses, and 
airlines, to ensure compliance with AWA standards. Thanks to the 
Committee's strong support, Animal Care now has 106 inspectors, 
compared to 66 at the end of the 1990s. While there is certainly room 
for continued improvement, the Committee's actions have made a major 
difference. We are pleased that the President's budget contains a 
sustained level of support for this program in fiscal year 2005, 
including allowance for pay costs. We urge you to provide $16.818 
million, as recommended by the President, for Animal Welfare in fiscal 
year 2005.
APHIS/Horse Protection Act 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. We hope you will provide the $497,000 requested by the 
President for fiscal year 2005. We also urge the Committee to oppose 
any effort to restrict USDA from enforcing this law to the maximum 
extent possible.
Downed Animals and BSE
    We are pleased that the Bush Administration proposed an interim 
final rule to ban the use of downed cattle for human food, in the wake 
of the discovery of a cow in Washington State that was infected with 
Bovine Spongiform Encephalopathy (BSE or ``mad cow'' disease). We 
greatly appreciated the Committee's help last year agreeing to 
incorporate Senator Akaka's downer ban during floor debate on the 
fiscal year 2004 bill. We hope the Committee will codify the 
Administration's ban--and extend it to other livestock besides cattle--
with language barring the Food Safety and Inspection Service from 
spending funds to certify meat from downed livestock for human 
consumption. While the science to date has only clearly indicated BSE 
transmission from infected cows to people, downer pigs and other downer 
livestock are at a significantly higher risk of transmitting other 
serious and sometimes fatal illnesses, such as E. coli and Salmonella. 
It is very difficult to determine the reason an animal is non-
ambulatory, whether illness, injury, or a combination of the two. 
Hence, it would not adequately protect public health if inspectors were 
required to distinguish downers who are injured vs. sick. As Secretary 
Veneman has testified several times before various congressional 
committees, USDA need not rely on slaughter plant testing for disease 
surveillance purposes. They can conduct a viable surveillance program 
at rendering plants and farms to track the potential progression of BSE 
in this country.
    Furthermore, a ban on use of all downers for human food provides an 
incentive for producers to treat animals humanely and prevent livestock 
from going down. Even before the administrative ban, USDA estimated 
that less than 1 percent of all cows processed annually were non-
ambulatory. The downer ban encourages producers and transporters to 
engage in responsible husbandry and handling practices, so that this 
percentage may be reduced to levels approaching zero. As Temple 
Grandin--advisor to the American Meat Institute and others in the meat 
industry--long ago explained in Meat & Poultry Magazine, ``Ninety 
percent of all downers are preventable.''
    In addition to the downer issue, we urge the Committee to provide 
adequate funding to ensure meaningful enforcement by the Food and Drug 
Administration of its ``feed ban,'' designed to prevent BSE-
contaminated animal products from being fed to other animals. We are 
concerned that inspectors visit facilities infrequently and rely on 
self-reporting by those facilities and paperwork checking rather than 
first-hand evaluation of feed content and dedicated production lines. 
We are also concerned that FDA relies a great deal on state agencies to 
conduct this oversight, when most states face severe budget constraints 
that may compromise their ability to handle this job. Preventing the 
spread of BSE is vital to the nation as a whole, for public health, the 
agricultural industry, and animal welfare. Vigorous enforcement of the 
feed ban is an essential component of this effort. We hope adequate 
federal funds will be provided in fiscal year 2005 to meet this 
challenge.
    Again, we appreciate the opportunity to share our views and 
priorities for the Agriculture, Rural Development and Related Agencies 
Appropriation Act of fiscal year 2005. 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-COOPERATIVE STATE RESEARCH, EDUCATION, AND EXTENSION SERVICE
                                            [In thousands of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                   Fiscal Year--
                                                                 -----------------------------------------------
                        Program/Division                                               2005
                                                                   2004 Enacted     President's     2005 IAFWA
                                                                                      Budget        Recommended
----------------------------------------------------------------------------------------------------------------
Research and Education:
    Formula Programs:
        McIntire-Stennis Cooperative Forestry...................          21,755          21,844      \1\ 25,000
Special Research Grants:
    Global Change UV-B Monitoring...............................           2,000           2,500       \2\ 2,500
    National Research Initiative Competitive Grants.............         164,027         180,000     \3\ 240,000
Extension Activities:
    Formula Programs:
        Smith-Lever Formula 3(b) and (c)........................         277,742         275,940     \4\ 277,742
Other Extension Programs:
    Renewable Resources Extension Act...........................           4,040           4,093      \5\ 30,000
Section 406 Legislative Authority:
    Water Quality...............................................          11,530          12,971      \6\ 20,000
----------------------------------------------------------------------------------------------------------------
\1\ The Association strongly encourages that McIntire-Stennis Forestry Research funds be increased from the
  $21.755 million appropriated in the fiscal year 2004 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 brings 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.
\2\ We support the $2.5 million appropriation for global change and urge that special effort to combat
  greenhouse gases through carbon sequestration be conducted in such a way as to not adversely impact fish and
  wildlife habitat. Carbon sequestration that also results in soil, water and wildlife conservation will
  maximize public benefits and minimize the need to spend separately and additionally to achieve other
  conservation needs.
\3\ 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.
\4\ We are concerned that there is no budget line item specifically for education programs addressing water
  quality concerns targeted at agricultural producers. We recommend a minimum of $3.5 million be allocated for
  this purpose.
\5\ The Association strongly recommends that for fiscal year 2005 the Renewable Resources Extension Act be
  funded at $30 million as authorized in the 2002 Farm Bill. 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 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. Even though the RREA has been proven
  to be effective in leveraging cooperative state and local funding, it has never been fully funded.
\6\ The Association appreciates the proposed increase in funding to $12.97 million in the budget for Water
  Quality Integrated Activities, but believes that this amount remains insufficient considering the growing
  public concern over water quality, particularly on agricultural landscapes. Therefore, the Association
  recommends the appropriation be increased to $20 million.


                                   USDA-NATURAL RESOURCES CONSERVATION SERVICE
                                            [In thousands of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                Fiscal year--
                                                           -----------------------------------------------------
                  Appropriation/Activity                                        2005 President's    2005 IAFWA
                                                               2004 enacted          Budget         Recommended
----------------------------------------------------------------------------------------------------------------
Technical Assistance for CRP and WRP......................            ( \1\ )             92,000      \2\ 92,000
Environmental Quality Incentives Program (EQIP)...........            975,000          1,000,000   \3\ 1,200,000
Ground and Surface Water Conservation.....................             51,000             60,000          60,000
Klamath Basin.............................................             10,000              8,000           8,000
Wetlands Reserve Program (WRP)............................        \4\ 280,000        \5\ 295,000         ( \6\ )
Wildlife Habitat Incentives Program (WHIP)................             42,000             60,000      \3\ 85,000
Farm and Ranch Lands Protection Program (FRPP)............            112,000            125,000     \3\ 125,000
Grassland Reserve Program (GRP)...........................            115,000             84,000      \7\ 84,000
Conservation Security Program (CSP).......................             41,000            209,000  ..............
Technical Assistance Cost Adjustments.....................  .................  .................         ( \8\ )
EQIP......................................................            -76,000            -15,000     \9\ -23,000
G&SW......................................................             15,000             20,000           \9\ 0
Klamath Basin.............................................              2,000              3,000           \9\ 0
WRP.......................................................             18,000           ( \10\ )           \9\ 0
WHIP......................................................             -7,000             -1,000           \9\ 0
FRPP......................................................            -24,000             -5,000           \9\ 0
GRP.......................................................            -13,000             -2,000           \9\ 0
CRP.......................................................             83,000           ( \10\ )  ..............
----------------------------------------------------------------------------------------------------------------
\1\ Funding for WRP and CRP technical assistance provided from EQIP, WHIP, FRPP and GRP--see technical
  assistance cost adjustments
Specific Comments
\2\ The Association appreciates the efforts of the administration to address the problem of technical assistance
  funding for CRP and WRP by establishing a technical assistance account for these two programs.
\3\ The Association supports program funding at levels authorized by the 2002 Farm Bill.
\4\ Enrollment of 189,144 acres.
\5\ Enrollment of 200,000 acres.
\6\ The Association appreciates the continued targeting of 200,000 acres annually for enrollment in WRP.
  However, we recognize that if 200,000 acres are not enrolled every year (fiscal year 2004 limited to 189,000
  acres), enrollment must increase in future years to reach the authorized level of 2,275,000 acres. Full WRP
  enrollment is needed if the Administration intends to achieve no-net-loss of wetlands by building on the WRP
  successes of the 1990's that reduced wetland losses to 32,600 acres/year as reported in the USDA National
  Resource Inventory (NRI).
\7\ With the estimated expenditure of $115 million in fiscal year 2004, the proposed funding level of $84
  million in fiscal year 2005 will meet the authorized cap of $254 million for the GRP. GRP should focus on
  grasslands of high biodiversity that are at risk of conversion and that support grazing operations as directed
  by Congress in the Farm Bill. In addition, enrollment should increasingly focus on long-term enrollment since
  no more than 40 percent of authorized funding can be used for short-duration rental agreements and short-
  duration agreements have been emphasized to date.
\8\ CSP should not receive expanded funding at the expense of other conservation programs.
\9\ Klamath Basin and G&SW are subsets of EQIP and we recommend that all technical assistance funding for these
  two programs should come from EQIP, rather than from FRPP, WHIP and GRP.
\10\ WRP and CRP technical assistance funded from a technical assistance account on discretionary side.
General Comments
The Association recommends funding of Farm Bill conservation programs at levels authorized by the 2002 Farm
  Bill.

                       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. 
Although non-Federal temporary staffing levels have been reduced due to 
completion of some Farm Bill implementation workloads, the Association 
is concerned that the staffing level of (16,301 FTE) proposed by the 
Administration is far too low to adequately address the need.
    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 
planning another CRP general sign up for 2004 and for the continuous 
CRP sign-up of high value environmental practices including the bottom 
land hardwood tree initiative. The Association recommends that FSA 
adopt additional program options such as wildlife field borders as part 
of continuous CRP to benefit bobwhite quail and other early 
successional species and incentives to ensure enrolled acres deliver 
optimum soil, water, wildlife and other natural resource benefits 
through the use of more wildlife friendly cover mixes. The required 
management for CRP should also be applied to CCRP.
    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 
for placing 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 as 
provided in the 2002 Farm Bill, with cost share is essential to ensure 
continuation of soil, water and wildlife benefits throughout the life 
of the CRP contract. The Association encourages FSA to quickly develop 
necessary programmatic mechanisms as well as reimbursement for the cost 
of recurring management performed when needed to manage plant 
succession that continues wildlife benefits throughout the contract 
period.
    The new managed haying and grazing aspect of CRP is a permissive 
use that could provide an added benefit to participants while still 
achieving the natural resource purposes of the program. However, one 
size will not fit all when it comes to the wildlife purpose of CRP and 
it is important that FSA tailor managed haying and grazing to each 
state to ensure that the frequency (among years) and timing of haying 
and grazing is compatible with the wildlife needs in each state.

                                         USDA-APHIS VETERINARY SERVICES
                                            [In thousands of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                   Fiscal year--
                                                                 -----------------------------------------------
                     Appropriation/Activity                                            2005            IAFWA
                                                                   2004 Enacted     President's     Recommended
                                                                                      Budget      Funding Levels
----------------------------------------------------------------------------------------------------------------
Aquaculture.....................................................             178             871             871
Brucellosis.....................................................          10,244           8,861          11,000
Chronic Wasting Disease.........................................          18,522          20,067          30,067
Import/export Invasive Species..................................          11,074          15,792          15,792
----------------------------------------------------------------------------------------------------------------

Aquaculture
    The Association supports the increased funding of Veterinary 
Services to a level of $871,000 for surveillance and eradication of 
farmed fish diseases, such as infectious salmon anemia and spring 
viremia of carp, that may threaten valuable natural resources.
Brucellosis
    The Association recommends Congress restore Brucellosis funding by 
$2,000,000 to a level of $11,000,000 in order to continue working 
collaboratively with the Greater Yellowstone Interagency Brucellosis 
Committee, including the states of Idaho, Montana, and Wyoming, as well 
as with other Federal agencies to eliminate brucellosis in bison and 
elk in the Greater Yellowstone Area.
Chronic Wasting Disease
    The Association commends APHIS-Veterinary Services' cooperation and 
funding for state wildlife management agencies for CWD surveillance and 
management in free-ranging deer and elk. Additionally, the Association 
strongly supports APHIS efforts to eliminate CWD from captive cervids 
in order to eliminate the risk of spread of the disease from these 
animals to free-ranging deer and elk. The Association supports 
increased CWD funding to a total of $20,067,000 in fiscal year 2005. 
However, this $20 Million is inadequate to effectively address 
management of CWD, 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 CWD in free-ranging deer 
and elk.
Import/Export Invasive Species
    The Association supports increased funding to prevent the potential 
introduction and for surveillance of exotic ticks, including the 
tropical bont tick, in the United States because these ticks and the 
microbes they carry represent a disease threat to free-ranging 
wildlife.

                                          USDA-APHIS WILDLIFE SERVICES
                                            [In thousands of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                   Fiscal year--
                                                                 -----------------------------------------------
                     Appropriation/Activity                                            2005            IAFWA
                                                                   2004 Enacted     President's     Recommended
                                                                                      Budget      Funding Levels
----------------------------------------------------------------------------------------------------------------
Operations......................................................          71,313          71,684          89,284
Methods Development.............................................          16,999          13,876          16,999
Aquaculture.....................................................           1,042             776           1,042
----------------------------------------------------------------------------------------------------------------

General Comments
    The Association is concerned with the Administration's proposal to 
decrease overall funding for Wildlife Services (WS) activities. The 
Association was pleased that Congress provided a $200,000 increase in 
fiscal year 2004 to expand the Berryman Institute for Wildlife Damage 
Management at Mississippi State University, and recommends that 
Congress continue this support by maintaining adequate future funding 
levels.
Operations
    The Administration's proposes a program reduction of $5.5 million 
from fiscal year 2004 levels. This reduction is proposed to offset a 
$5.0 million increase in fiscal year 2005 for a wildlife disease 
surveillance system. The Association strongly recommends that Congress 
restore the $5.5 million reduction in order to maintain existing 
operations and cautiously provide an additional $5.0 million to 
initiate the new surveillance system. The new wildlife disease 
surveillance system must be accompanied by close coordination and 
respect for the State's management authority over resident wildlife, 
and Congress should direct that this relationship be institutionalized 
in a cooperative agreement between each state fish and wildlife agency 
and APHIS-WS. The Association also recommends that Congress provide an 
additional $4.6 million 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 $1.2 million in 
fiscal year 2004 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 damage 
complaints across the country. The Association also supports the 
continuing request in the President's Budget ($1.3 million) for wolf 
issues in Montana, Idaho, and Wyoming.
WS Methods Development
    In 1997, the United States and European Union entered into an 
Understanding (Agreed Minute and Annex) that identified a process for 
developing and evaluating more effective and humane trapping devices 
used to manage certain wildlife populations (e.g. for research, for 
mitigating wildlife damage, to reestablish species extirpated from 
prior habitats, and to protect endangered species). An active research 
program is being developed at the USDA's National Wildlife Research 
Center in Fort Collins, Colorado. The Association strongly objects to 
the proposed elimination of $3.35 million for the Methods Development 
program, and urges Congress to restore this funding.
    The Association recommends the Congress restore funding for 
research of non-lethal methods to mitigate wildlife damage and that 
Congress provide additional funding to WS to conduct research in order 
to better manage invasive species such as the brown tree snake and the 
Coqui frog that threaten local agriculture, fragile electrical systems, 
and threatened and endangered species in Guam and Hawaii.
Aquaculture
    The Association recommends that Congress restore WS funding for 
aquaculture by increasing the budget request by $275,000 in order to 
continue telemetry and population dynamics studies on depredating 
wildlife species in the Southeast without placing undue strains on WS 
Cooperators.
                                 ______
                                 

        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 fifty-four federally recognized Indian 
Tribes located within 16 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 amend 
the earmark language for purchase of buffalo from ``Native American 
producers or producer owned cooperatives'' to ``exclusively from Native 
American producers'' in the current fiscal year 2004 amount of 
$4,000,000. 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)), 
$4,000,000 shall be used to purchase bison and/or bison meat for the 
FDPIR and other food programs on the reservations, exclusively from 
Native American bison producers: 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. ITBC's technical 
assistance is critical to ensure that the current Tribal buffalo 
projects are sustainable within their Tribal communities. 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 a U.S.D.A. 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 actively 
developing strategies for sustainable Tribal buffalo operations. 
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 
$4,000,000 for the purchase of Native American produced buffalo and 
buffalo meat, to improve the diet of Tribal members.
                                 ______
                                 

            Prepared Statement of the Oklahoma Farmers Union

  invasive species affecting animals and plants imported red fire ant 
                              ars-research
    Mr. Chairman and members of the Subcommittee, I appreciate the 
opportunity to submit testimony with respect to the increasing invasive 
species of the red imported fire ant. I am an agriculture producer in 
southern Oklahoma, employed with the Oklahoma Farmers Union and a 19-
year advocate for research initiatives to combat this growing problem 
impacting both agriculture and the daily lives of citizens in impacted 
states and counties. Oklahoma Farmers Union is a general farm 
organization representing over 100,000 families in the State of 
Oklahoma.
    My work on the issues goes back to the 1980's as the red imported 
fire ant as a House Agriculture Appropriations Subcommittee associate 
staff member, later as an agriculture producer/research cooperator and 
now as an association representative and participant in numerous 
committees and fire ant conferences and meetings.
The Red Imported Fire Ant Problem
    The imported fire ants now inhabit more than 320 million acres in 
the southern United States and Puerto Rico. The average densities of 
fire ant populations in the United States are more than 5 times higher 
than in their native South America, where natural enemies keep the fire 
ant population under control. Imported fire ants destroy many other 
ground-inhabiting arthropods and other small animals, reducing the 
biological diversity in many areas. Fire ants cause a multitude of 
problems for humans, domestic animals, and agriculture. Between 30 
percent and 60 percent of the people in the infested areas are stung 
each year. More than 200,000 persons per year may require a physician's 
aid for fire ant stings. Anaphylaxis occurs in 1 percent or more of 
those people as a result of bites.
    The fire ant impact on the American economy is approximately $5.5 
billion dollars per year. Agriculture producers are economically hurt 
with the loss of animals due to stings, shorting of electrical 
equipment due to ant buildup in switch boxes, damage to farm equipment 
from ant mounds in pastures and fields and personal discomfort and risk 
to life from frequent exposure and contact with the ants in the normal 
course of working on the farm or ranch. According to data from Dr. Curt 
Lard with Texas A&M University, the estimated impact of fire ants on 
different states is: $1.3 billion in Florida, $1.2 billion in Texas, 
$210 million in South Carolina, $164 million in Mississippi and $18 
million in Oklahoma.
    This past year in the State of Oklahoma we saw the spread of fire 
ants during research surveys in counties where citizens had reported 
possible fire ant mounds. Surveys and sampling was done and fire ants 
were found for the first time in five additional counties for a total 
of 13 counties of which 8 counties are completely infested. Future 
surveys to determine expansion will be hampered this year given the 
fiscal year 2004 APHIS budget reduced funding to the states for this 
purpose. The focus will now shift to educational outreach only on a 
requested basis.
The Research Solution
    The lead research agency on the national level for this issue is 
the USDA-Agricultural Research Service with most work centered at the 
Center for Medical, Agricultural and Veterinary Entomology in 
Gainesville, Florida. I have the highest respect and admiration for the 
scientists, the administration and the methods of basic and applied 
research utilized by this agency and this research location.
    I and others have advocated for many years the need to increase 
funding for the site where key research for red imported fire ants is 
conducted and from where field activities across the United States is 
directed. We are delighted to see that the President's fiscal year 2005 
budget request includes $5 million for Invasive Species Affecting 
Animals and Plants. As ARS Acting Administrator Dr. Edward B. Knipling 
indicated in his testimony to the committee, the red imported fire ant 
is a growing problem that ``has steadily spread through all the Gulf 
States and is now reported in Southern California and New Mexico.
    The proposed increase will allow ARS to target its research with 
respect to the fire ant by studying its genomics and developing more 
effective pesticides and biological control agents. Additionally, this 
will allow ARS to continue in concert with the aforementioned to 
continue to develop biologically-based integrated pest management 
components. The latter has shown a marked impact on fire ant research 
locations but more work must be continued in this area to identify more 
cold-hardy species that can be utilized in more northern environments 
where the advancing fire ant line continues to spread.
    To date, the researchers in the USDA-ARS Imported Fire Ant Research 
Unit in Gainesville, FL, have continued to search for new biological 
control agents that could be used as self-sustaining bio-control agents 
against the imported fire ants. Biological control agents are the only 
long-term and self-sustaining solution for the fire ant problem in the 
United States.
    Self-sustaining biological control agents cause direct mortality 
and/or stress, reducing the ecological dominance of fire ants and can 
be useful in natural habitats where pesticide use is not tolerated. The 
successful establishment of biological control agents of fire ants 
would be a major benefit throughout the southern United States. 
Biological control has the potential to offer long-term suppression of 
fire ants over large areas in the United States and save millions of 
dollars annually by reducing the use of pesticides.
    Biological control agents could also help slow the spread of these 
pests into other susceptible states, such as Kentucky, Maryland, 
Virginia, Delaware, New Mexico, Arizona, Nevada, other parts of 
California, and up the Pacific Coast.
    For long-term success, investment in genomics research to develop 
more effective pesticides and pathogens is crucial if biological 
controls are to be fully effective.
New developments in fire ant biological control
    I'm excited about new developments In fire ant biological control. 
The protozoan Vairimorpha invictae, a specific pathogen of fire ants in 
South America, is being tested in quarantine in Gainesville, FL. This 
disease should be released in the field in the coming years.
    A new isolate of the fire ant pathogen Thelohania solenopsae is 
being tested in quarantine in Gainesville, FL. This isolate may be 
better adapted to black and hybrid fire ants, than the present isolate 
found in the United States. It may also have a more detrimental effect 
on the ants than the United States isolate. Scientists hope to have 
this new isolate released in the field in the coming years.
    Viruses have been identified from fire ant populations in Florida. 
Molecular biology studies may reveal opportunities for the use of these 
viruses as biological agents against fire ants. Besides the viruses, 
during the past 3 years, three other new diseases of fire ants have 
been identified from ants in Florida. These discoveries serve as 
indications that new diseases can be identified in the South American 
range of the fire ants, and developed for use in the biological control 
of U.S. fire ants.
    Three different species of the fire ant decapitating flies have 
been released so far in the United States. Two species are established 
in Florida and South Carolina. One species is established in other 
southeastern states. New decapitating fly species are being tested in 
quarantine in Gainesville, FL, and should be ready for field release in 
the coming months. Other species will be collected in South America, 
tested in quarantine.
    Area-wide suppression of fire ants research programs are being 
conducted at locations In Florida, Texas, Mississippi, Oklahoma, and 
South Carolina. These research efforts combine both biological and 
chemical methods to achieve an integrated pest management approach.
Conclusion and Request for Funding
    Much progress has been made but to continue this aggressive, 
results-oriented research at the same or perhaps excelled pace, it is 
imperative that additional funding be directed--preferably in permanent 
base funding to the Gainesville, FL location. On behalf of the 
producers and consumers who make up the membership of the Oklahoma 
Farmers Union, we support the Administration's $5 million research 
initiative contained in the ARS budget for further targeted research 
for Invasive Species Affecting Animals and Plants.
    Thank you for this opportunity. I would appreciate the 
Subcommittee's consideration of this most important issue.
                                 ______
                                 

Prepared Statement of the Mid-America International Agri-Trade Council 
                (MIATCO) and Food Export USA--Northeast

    As Executive Director of MIATCO (Mid-America International Agri-
Trade Council) and Food Export USA--Northeast, I am pleased to offer 
this written testimony as to how Market Access Program funds are being 
optimized to help Midwest and Northeast U.S. food and agricultural 
exporters extend their reach and penetration of foreign markets 
resulting in incremental business, enhanced export sales, and new jobs 
here in the United States.
    Secretary Veneman has outlined that expanding trade is the 
Administration's top priority for U.S. agriculture. Continued support 
for the trade promotion through the Market Access Program is critical 
part of that effort.
    The MAP is designed to focus on these high-value products. There 
are approximately 70 non-profit industry groups across this country 
representing all sectors of agriculture that participate in this 
program.
    The 50 state departments of agriculture participate in MAP through 
four State Regional Trade Groups (MIATCO, Food Export USA--Northeast, 
SUSTA and WUSATA). These groups coordinate the export promotion efforts 
of the states, and focus on assisting smaller food and agricultural 
processor.
    While remaining separate trade non-profit trade associations, 
MIATCO and Food Export USA--Northeast are strategically and 
operationally aligned in order optimize cost efficiencies while 
leveraging cross-regional opportunities abroad.
    MIATCO and Food Export USA--Northeast contract with 14 overseas in-
market representatives to provide promotional support and to help local 
importers and buyers more fully leverage all of our resources
    In combination with significant state and private investment, MAP 
funding allows MIATCO and Food Export USA--Northeast to focus on three 
key areas of exporter assistance:
  --Education & Outreach
  --Market Entry
  --In-Market Promotion
Education & Outreach
    MIATCO and Food Export USA reach out to both existing and potential 
exporters of food and agriculture products through numerous 
communications vehicles including a bi-monthly newsletter, The Global 
Food Marketertm, monthly email updates and periodic broadcast faxes. 
Our current combined database includes 12,000 U.S. food and 
agricultural suppliers.
    Another key Education & Outreach initiative is our Food Export 
Helplinetm, a free service that helps companies in secondary market 
research and in achieving export readiness by addressing regulations 
and pricing challenges inherent in selling to foreign buyers.
Market Entry
    Once an export company has decided to pursue a specific foreign 
market, MIATCO and Food Export USA--Northeast provide assistance in a 
number of ways, including:
  --Distributor Development Service.--Providing assistance with primary 
        market research specific to a market (country) and a United 
        States supplier particular product's.
  --Food Show PLUS!TM.--Enhancing specific tradeshow 
        participation with translation of their promotional material, 
        interpreters, publicity, buyer introductions, guided retail 
        tours, etc.
  --Buyers Missions.--Bringing foreign buyers to the United States to 
        meet with suppliers in the Midwest and Northeast.
  --Trade Missions.--Facilitating export company visits with potential 
        foreign market buyers through organized trips, tours etc.
  --Trade Lead Service.--A new initiative which provides to U.S. 
        suppliers pre-qualified, product-specific leads in foreign 
        markets.
In-Market Promotion
    Helping exporters successfully promote and sell their agricultural 
products once they've penetrated a foreign market is a key component to 
our overall support. Through participation in our Branded Program, 
qualified small companies can receive reimbursements of up to 50 
percent of eligible international marketing expenses such as trade show 
participation, advertising, public relations, promotions, marketing and 
point-of-sale material and label modifications (as necessary by local 
regulations).
    The MAP focuses on value-added agricultural products, including 
branded foods. Overseas consumers, like those here in the United States 
tend to buy product based on brand names. By promoting brand names that 
contain American agricultural ingredients, we build long-term demand 
for our products. These value-added product support jobs and encourage 
investment in our own processing industries.
    Following are examples of testimonials of our current participants:
  --``Our ability to build solid foundations for long-term export 
        growth is greatly dependent on the funding we receive from 
        MIATCO's Branded Program. It goes a long way towards helping us 
        set up effective marketing campaigns in many of our overseas 
        markets''. Garrett Smith, Vice President of Sales, American 
        Popcorn Company.
  --``Food Export USA--Northeast has done a great job helping us export 
        and exposing us to international markets. We used funds from 
        the Branded Program to hold products demos in other countries 
        and to attend food shows. The product sampling has helped us 
        facilitate a great deal of business in Singapore.'' Marty 
        Margherio, President, M&V Global Foods.
    The MAP also stimulates private investment. While the MAP requires 
that companies match all federal dollars on a one-for-one basis, in 
fact most companies spend much more than that. Last year, participants 
in our programs contributed an additional $2.58 for each MAP dollar 
invested in our programs.
    As foreign market opportunities shift and change, MIATCO and Food 
Export USA's programs and services have never been more important to 
midwestern and northeastern food, agricultural, and wood exporters.
    American products are seen worldwide as high quality and safe 
products. Selling higher quality products requires promotion. The MAP 
is an investment in promotion that pays off. It is for this reason that 
we support funding for MAP in fiscal year 2005 at the $140 million 
level legislated in the Farm Security and Rural Investment Act (FSRIA) 
of 2002. We also urge the subcommittee to support a strong USDA Foreign 
Agricultural Service (FAS), our partner in promoting increased U.S. 
agricultural exports.
    Following are our results for the fiscal year from October 2002 
through the end of September 2003.
    Thank you.

------------------------------------------------------------------------
                                                            Food Export
                                              MIATCO      USA--Northeast
------------------------------------------------------------------------
Total Number of U.S. Export Companies                632             360
 Participating in Programs..............
Number of New Distributor Relationships            1,000             274
 Established............................
Number of Companies with Resulting                   153              85
 ``First-Time'' Export Sales in a Market
Actual Reported Increases in Export          $84,630,356     $41,394,170
 Sales As Result of Program
 Participation..........................
Total Private Investment Generated           $19,754,462      $8,482,566
 Through Program Participation..........
------------------------------------------------------------------------

                                 ______
                                 

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

The Growing Importance of NonFederal Forest Lands
    Society continues to place diverse and increasing demands on the 
nation's 740 million acres of forest (nearly one-third of the U.S. land 
base). This acreage includes the public lands and the more than 400 
million acres of private forest lands now providing most of the 
nation's forest-based products. However, forest ownerships face many 
pressures including fires, floods, insect and disease losses, 
urbanization, fragmentation, and missed employment and economic 
opportunities. Countering the threats and achieving the full promise of 
these forests will require an enhanced effort from the combined 
research and outreach activities of the USDA Forest Service and our 
nation's public universities. Ten million landowners, their families, 
their communities, forest based industries, more than a million primary 
forest products industry employees, and many millions of resource users 
and consumers have a major stake in the promise of these lands. 
Fortunately, the full promise CAN be achieved with well-planned and 
carefully executed investments in research and education. This message 
from the National Association of Professional Forestry Schools and 
Colleges (NAPFSC) describes key parts of such a plan including 
recommendations for the fiscal year 2005 budget.
Investing in USDA Cooperative State Research, Education, and Extension 
        Service (CSREES) Programs
    Priority 1: The Cooperative Forestry Research (McIntire-Stennis) 
Program.--Is the foundation of forest resources research and scientist 
education 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. Program funding is currently at $21.755 million and matched 
more than three times by universities with state and nonFederal funds. 
NAPFSC recommends $25 million for fiscal year 2005 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;
  --Forest health and risk.--To address fire, pest species, and other 
        disturbances affecting domestic resource security, downstream 
        impacts, and restoration of complex systems;
  --Assessing social values and tradeoffs.--To identify realistic 
        policy options, economic impacts, and to inform decisions, at 
        all levels of government, with effective science; and
  --New biobased products, improved processing technologies, and 
        utilization of small trees.--To extend the forest resource and 
        enhance environmental quality;
    In the long run, it is important to advance this program to its 
full authorization--50 percent of the funding for USDA Forest Service 
R&D. NAPFSC requests 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. 
Portions of this funding will also be used to educate critically needed 
new scientists.
    Priority 2: The National Research Initiative Competitive Grants 
Program (NRI).--Is a significant source of funding for basic and 
applied research on forest resources including their management and 
utilization. This program is currently funded at $164 million of which 
approximately 10 percent goes to successful forestry research 
proposals. NAPFSC supports the Administration's efforts to increase the 
funding for the NRI to $180 million providing at least an additional 
$10 million is directed to research on:
  --Woody plant systems.--Including genetic improvement and increased 
        tree growth rates and yields, and improved utilization;
  --Managed forest ecosystems.--Including issues of forest health, 
        productivity, economic sustainability, and restoration; and
  --Assessing alternative management systems.--With emphasis on risk 
        analysis, geospatial analysis including landscape implications, 
        and associated decision support systems.
    Priority 3: The Renewable Resources Extension Program (RREA).--Is 
the foundation of outreach and extension efforts at universities. This 
program is critically important today since universities provide a 
large share of the nations outreach and extension. Audiences for the 
products of outreach and extension are as diverse as the stakeholders. 
The highest priority are the owners of nonFederal forest lands and 
those involved in implementing forest management. After cuts in 2004, 
the program is currently funded at $4.04 million. We urge restoration 
of funding to the fiscal year 2003 level of $4.516 million. NAPFSC 
further recommends focusing this program on:
  --Best management practices.--Together with information on programs, 
        services, and benefits of natural resources management and 
        planning to integrate water, wildlife, timber, fish, 
        recreation, and other products and services;
  --Risk management/forest health.--Approaches addressing management of 
        fire, insects and diseases, invasive species, fragmentation, 
        and other disturbances at local to larger scales for working 
        forests and landscapes;
  --Opportunities for economic development.--For individuals and 
        communities including 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.
    In the long run, it is important to advance this program to its 
full $30 authorization. NAPFSC further recommends focusing this funding 
to achieve rapid progress on one or more of these extension targets in 
each school's state, region, or nationally.
Partner Programs
    USDA Forest Service R&D.--NAPFSC recommends strengthening Forest 
Service research to address the full complexity of forest systems and 
their importance to society including issues of global change and the 
domestic security. At the same time, we see the most direct routes to 
this strengthening being through increased ties to university forestry 
research programs, for example through the funding of cooperative 
agreements and competitive grant programs. Forest Service R&D funding 
of Cooperative agreements with universities has become a very effective 
way to engage university science capability. Additionally, this vehicle 
is critically important to the training 3 of eventual agency scientists 
and in achieving the necessary critical mass for major research 
problems. Funding to schools through such mechanisms also improves 
agency linkages to stakeholders and the technology transfer capability 
within universities. Competitive grants are a means of improving 
targeted basic and multidisciplinary research. However, cooperative 
agreement funding has fallen from near 20 percent of the R&D budget to 
less than 10 percent today. Consequently, NAPFSC urges Forest Service 
R&D to:
  --Increase cooperative agreement opportunities, incrementally over 
        the next 5 years, to attain a percentage of the total research 
        budget that returns to historic levels of approximately 20 
        percent. In the fiscal year 2005 budget we recommend an 
        increase of $5 million in the share of Forest Service research 
        dollars committed by the Forest Service for cooperative 
        agreements. This increase would reverse the downward trend in 
        the percentage of funds utilized for cooperative agreements and 
        would move toward a better balance between internal Forest 
        Service research and external collaboration with research 
        universities.
  --Establish a major external competitive grant program in forest and 
        natural resources research to engage the broader research 
        community in addressing critical research and outreach needs. 
        In the fiscal year 2005 budget we recommend designation of $10 
        million for this purpose, eventually building to $40 million. 
        Recommended target areas of research are those noted above for 
        the NRI in the USDA CSREES.
  --Additionally, we see it important to elevate research university 
        linkages by assigning staff responsibility for advocacy and 
        oversight of this key partnership and associated funding.
    USDA Forest Service State & Private Forestry (S&PF).--Has strong 
formal linkages to state forestry agencies. However, there is no formal 
link between S&PF and the forestry school based research, extension, 
and technology transfer capabilities in states. NAPFSC believes such a 
link would greatly strengthen cooperation among S&PF, state forestry 
agencies, forestry schools, industry, and landowners in states. Also, 
such a link would greatly improve the targeting, timeliness, and 
effectiveness of technology transfer focused on state needs relating to 
stewardship. Consequently, NAPFSC proposes the creation of a technology 
transfer line under Cooperative Forestry Programs in the agency's 
budget. We further urge this line be funded at $5 million and suggest 
staff be directed to establish criteria for grant and cooperative 
programs by consulting with university forestry and related natural 
resources schools and other educational or technology transfer 
entities. Criteria may include linkage to state forestry agency 
efforts, ties to basic and applied research, addressing critical state 
needs, and multi-school or multi-state cooperation. Suggested themes 
for this new line include productivity improvement, critical forest 
management information and analysis, and forest fire.
    The National Fire Plan (USDA and USDI).--Has become a major area of 
activity for Federal agencies and partners. This billion-dollar program 
also has significant research and technology transfer needs. NAPFSC 
believes important elements of these needs can best be accomplished 
through the existing research, extension and technology transfer 
capabilities of forestry schools. Consequently NAPFSC urges the 
addition of a science, education, and technology transfer line under 
Wildland Fire Management to effect this role.
    USDI Cooperative Ecosystem Studies Units (CESUs).--The seventeen 
new CESUs are proving to be a cost-effective means of engaging 
university science and training capabilities regionally to achieve 
Federal agency goals. However, schools cannot carry the cost of 
partnering and information sharing activities themselves. Consequently, 
NAPFSC recommends $1.275 million in support of the CESU program in the 
U.S. Department of Interior. We suggest this funding under the 
Department's CESU cooperative/joint venture agreements with CESU host 
universities to provide research, technical assistance, and education 
consistent with the mission of these units. This would provide $75,000 
annually to each host institution and $75,000 for the national office 
for the purposes of partnering activities to support essential 
conservation and information sharing through websites and other 
technologies. This funding could be placed within the National Park 
Service under external programs on behalf of all the Federal agencies 
involved with the CESU program. Annual work plans would be developed by 
the host universities and participating Federal agencies per guidelines 
established by the CESU Council.
    Other Competitive Grant Programs (NASA, NSF, DOE, & EPA).--
Competitive grant programs in non-USDA science agencies have been very 
important to the progress of forest resources research efforts in 
universities. We urge the Administration and Congress to recognize the 
importance and effectiveness of these programs in efforts to address 
the issues of nonFederal forests. Specifically we urge programs, 
subprograms, and funding that can compliment and supplement USDA 
research programs, notably in the areas of remote sensing and 
information technologies, basic tree biology, ecosystem structure and 
function, climate change, water resources management, and the social 
sciences underpinning natural resources and environmental management.
    Agenda 2020.--The American Forest and Paper Association has 
proposed a program of research to address our nation's needs for wood 
and fiber products and issues of industry and national competitiveness. 
Scientists from NAPFSC schools have played a key role in research 
addressing this agenda. We seek support for the base programs, 
cooperative agreements and competitive grants noted above to make this 
agenda a continued success story.
    Workforce Needs.--The changing makeup of our society and a looming 
shortage in forest science research capacity also argue for including 
the full range of partners as stakeholders, and notably including 1890 
and 1994 institutions and others serving minorities.
    Summary.--The plan and investments outlined here are substantial, 
but the potential savings and returns are far greater. NAPFSC urges 
cooperation at Federal, State, and university levels to make this 
investment and its promise a reality.
                                 ______
                                 

Prepared Statement of the National Association of State Departments of 
                              Agriculture

    My name is Gene Hugoson, Commissioner of the Minnesota Department 
of Agriculture and President of the National Association of State 
Departments of Agriculture (NASDA). I present my statement on behalf of 
my fellow commissioners, secretaries and directors from the 50 states 
and four U.S. territories.
Fund Specialty Crop Block Grant Program
    We respectfully ask that the Senate provide funding for a block 
grant program in the fiscal year 2005 Agricultural Appropriations Bill. 
Congress first approved a specialty crop block grant program in 2001 
(H.R. 2213, Public Law 107-25). Congress chose States to administer the 
$159.4 million block grant program which was directed at the specialty 
crop industry to address difficult circumstances caused by disease, low 
prices, and lack of funding in several areas including: research, 
promotion, and inspection. NASDA members believe that this block grant 
program has improved the specialty crop industry's ability to sustain, 
expand and enhance their production systems.
    The program provided state block grants to assist the specialty 
crop industry, not in the traditional manner of farm assistance 
programs, but through a focus on projects to improve the industry's 
competitiveness. The demands for the grant funds were overwhelming; 
more than 3,900 requests for grant funding were made totaling $1.52 
billion.
    State Departments of Agriculture took advice from their local 
constituency groups and ultimately made investments in more than 1,400 
projects in significant issue areas including marketing, nutrition, 
education, research, pest and disease programs, and food safety. We 
would like to point out that an important factor in many states' grant 
funding criteria was commitment to matching funds. Together, states and 
grant recipients contributed more than $45 million in matching funds.
    Knowing that Congress would have a keen interest in the success of 
the 2001 block grant program, we surveyed the states and compiled a 
progress report. It is available on NASDA's website at www.nasda.org or 
copies can be requested from NASDA's office. Each member of the 
subcommittee will be provided their own copy of the report.
    We would like to bring to your attention that current legislation 
in the U.S. House of Representatives, H.R. 3242, ``The Specialty Crop 
Competitiveness Act of 2003,'' provides $470 million for a specialty 
crop block grant program. NASDA supports the passage of this 
legislation.
Changing Times
    As you know, times are changing in the agriculture industry. No 
longer are bulk commodities the only crops that come to mind when 
people think about American agriculture. In the early 1900's, bulk 
commodities like wheat, corn, and cotton were the dominant crops grown 
on the majority of America's farms. While bulk commodities will always 
remain essential components of America's agricultural industry, today 
specialty crops have grown significantly in economic importance. During 
the last century, farmers and ranchers have become much more 
diversified and more involved with marketing their products from the 
farmgate to the consumer.
Specialty Crops--A Strong Economic Engine
    The contribution of the specialty crop industry to the economic 
health of the United States and to our agricultural economy becomes 
clear when you consider the cash receipts the industry generates. For 
the year 2002, the United States Department of Agriculture's Economic 
Research Service (ERS) reported that, ``Vegetables, Fruit and Nuts, All 
other Crops, and Hay'' generated $57.7 billion in cash receipts. This 
figure is important as it outpaces the cash receipts generated by the 
remaining plant crops. In 2002, ``Oil Crops, Tobacco, Cotton, Feed 
Crops, and Food Grains'' generated $45.7 billion in cash receipts.
The Challenges--Low Income & Trade Deficit
    As times have changed, so have the needs of farmers and ranchers in 
our country. Specialty crop growers are faced with a variety of 
challenges--many of them brought about by the diversity of the 
specialty crop industry. Just like any farmer or rancher, specialty 
crop growers face the risk of their crop being destroyed by a pest, 
disease or natural disaster. But they also carry additional risk due to 
compliance with ever changing regulatory requirements, high labor 
costs, high fuel costs and exotic pest pressures while competing on a 
non-level playing field against imports from outside the United States.
    The USDA ERS reported in ``Agriculture Economy Improves in 2003'' 
that specialty crop producers should expect lower than average income: 
``Producers of specialty crops (vegetables, fruits, nursery products) 
are especially susceptible to higher energy and labor costs (the 
fastest rising expense categories in 2003). Lower average income is 
expected for these farms, since modest gains in receipts will not be 
enough to compensate for higher expenses.''
    However, not all growers in other sectors are experiencing the same 
challenges. The report stated, ``The financial condition of U.S. 
farmers and other agricultural stakeholders is expected to improve in 
2003. Net farm income, a measure of the sector's profitability, is 
forecast to be up $17 billion (49 percent) from the $35.6 billion 
earned in 2002 and about 10 percent above the 10-year average.''
    While we recognize the importance of global trade in agricultural 
commodities and recognize the complexity of the global economy, we are 
alarmed at the disparity between the explosive growth in importation of 
specialty crops into the United States versus the relatively flat 
growth in the exportation of our products to other countries. The 
USDA's Foreign Agricultural Service's ``Foreign Agricultural Trade of 
the United States'' reports that for the period 1997-2002 that:
  --Imports--increased 39 percent to a total of $14.7 billion in 2002; 
        while,
  --Exports--increased 6.5 percent to a total of $11.7 billion in 2002.
    While these trends certainly raise questions regarding ``fair 
trade'', it's also important to emphasize the issue of ``safe trade.'' 
Can our industry remain competitive when they are asked to absorb the 
cumulative risk of introduction of unwanted foreign pests and diseases 
imported on foreign commodities that are deemed to be ``safe?''
Block Grants--An Investment in Critical Infrastructure
    It's time for the public sector to realize the value of specialty 
crops and make long term investments in the competitiveness of the 
industry. Public investment in critical infrastructure will benefit not 
only the economy but public health and the environment. This investment 
can be used to support on-going research that is furthering the 
development of new varieties of specialty crops and contributing to 
advances in fighting foreign pests and diseases brought in by imports. 
It will help continue statewide marketing and promotion campaigns that 
are increasing the consumption of fruits and vegetables across the 
nation. It will help maintain competitive prices, both domestically and 
internationally. And more importantly, Federal resources will support 
nutritional education programs in our schools which will give our 
children the tools to make healthy eating choices ? helping us all 
battle the obesity epidemic that is affecting each and every one of our 
states.
    Farmers and ranchers need government policies that make it possible 
for them to remain competitive. When farmers earn a profit, they are 
better equipped to adapt to change. These changes bring better results 
for the environment, for workers, for consumers and for the economy. 
Everyone benefits from the support of specialty crops. I ask you to 
please take a minute to think about what you want agriculture to look 
like in the next 5, 10 or even 25 years. We can shape that vision today 
by committing to a long-term investment in our specialty crop producers 
and ensuring they continue to feed the nation and the world.
    The State Departments of Agriculture are ready to continue this 
important dialog and be a part of the solution in keeping specialty 
crops producers competitive and viable. Thank you for the opportunity 
to express NASDA's strong support for the Specialty Crop Block Grant 
Program.
                                 ______
                                 

   Prepared Statement of the National Association of State Foresters

                              introduction
    The National Association of State Foresters (NASF) is pleased to 
provide testimony on the U.S. Department of Agriculture (USDA) budget 
request for fiscal year 2005. Representing the directors of state 
forestry agencies from all fifty states, eight U.S. territories, and 
the District of Columbia, our testimony centers around those Deputy 
Areas most relevant to the long term forestry operations of our 
constituents: Natural Resources and Environment and Research, 
Education, and Economics. We believe the USDA budget for fiscal year 
2005, which offers opportunities for advancing the sustainable 
management of private forestland nationwide, can be strengthened 
through our recommendations.
                    farm bill conservation programs
    NASF believes that the conservation programs enacted in the 2002 
Farm Bill are integral for protecting water quality, erodible soils, 
wildlife habitat, and wetlands associated with agricultural and 
forestry operations. Trees and forestry practices are often the best 
solution to many of the conservation challenges arising from these 
operations. We support the continued funding and development of the 
Environmental Quality Incentives Program (EQIP) by providing $1.2 
billion for fiscal year 2005, full funding for the Conservation Reserve 
Program (CRP), $85 million for the Wildlife Habitat Improvement Program 
(WHIP), targeting of 250,000 acres under the Wetlands Reserve Program 
(WRP), $150 million for the Emergency Watershed Program (EWP), and $26 
million for the Conservation Security Program (CSP). These programs are 
important for landowners with both forest and agricultural land, as 
well as farmers who wish to plant trees for conservation purposes on 
their agricultural lands. Nearly two-thirds of the land in the United 
States is forested, the majority of which is privately owned. NASF 
recommends that the Subcommittee encourage the Secretary of Agriculture 
and the NRCS to reinforce the importance of including and expanding 
forestry practices in EQIP and the other Farm Bill Conservation 
Programs.
                  usda research and extension programs
    NASF recommends funding the Cooperative Forestry Research 
(McIntire-Stennis) Program (CFR) at $25 million, the National Research 
Initiative Competitive Grants Program (NRI) at $180 million, and the 
Renewable Resources Extension Program (RREA) at $4.5 million. The 
proposed increase in CFR will help the program continue to serve as the 
cornerstone of forest research in universities, providing knowledge 
central to sound management from environmental, economic, and social 
perspectives. NASF supports the funding provided in the 
Administration's fiscal year 2005 budget for NRI and encourages more 
funds be targeted to forestry research. A small increase in RREA 
funding will improve the program's ability to address critical 
extension and stewardship needs.
                               conclusion
    The National Association of State Foresters seeks the 
Subcommittee's support for a USDA fiscal year 2005 budget that will 
make sure the conservation needs of private landowners--both forest and 
agriculture--are met. Thank you for the opportunity to provide our 
testimony.
                                 ______
                                 

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 2005 budgets for the U.S. Department of 
Agriculture. 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.
    The following table summarizes NAUFWP's recommendations:

                                            [In thousands of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                   Fiscal year--
                                                                 -----------------------------------------------
                       USDA Agency/Program                                             2005
                                                                   2004 Enacted     President's     2005 NAUFWP
                                                                                      Budget        Recommended
----------------------------------------------------------------------------------------------------------------
Coop. St. Research, Education, and Extension Serv.:
    Hatch Act...................................................         179,085         180,148         180,148
    Renewable Resources Extension Act...........................           4,040           4,093          15,000
    McIntire-Stennis Cooperative Forestry.......................          21,755          21,844          30,000
    Natural Resources Inventory.................................         164,027         180,000         180,000
Natural Resources Conservation Service:
    Forest Land Enhancement Program.............................          10,000  ..............          80,000
    Technical Service Provider training.........................  ..............  ..............             100
    Conservation Program Monitoring and Evaluation..............  ..............  ..............           1,000
----------------------------------------------------------------------------------------------------------------

Cooperative State Research, Education and Extension Services
    Hatch Act.--The Hatch Act supports agricultural research in the 
states at college and university agriculture experiment stations. 
Experiment stations conduct research, investigations, and experiments 
that relate directly to the establishment and maintenance of an 
effective agricultural industry and promote a sound and prosperous 
agricultural and rural life. These stations are essential for their 
work on food and fiber systems, environmental impacts of these systems, 
and resource issues relating to the future of agriculture in each state 
and the nation. We support the administration's request for this base 
program in fiscal year 2005.
    Renewable Resources Extension Act.--We strongly recommend that the 
Renewable Resources Extension Act be funded at $15 million in fiscal 
year 2005. RREA funds, which are apportioned to State Extension 
Services, leverage (at an average of 4:1) cooperative partnerships with 
a focus on development and dissemination of information needed by 
private landowners. The need for RREA educational programs is greater 
than ever today due to fragmentation of ownerships, urbanization, and 
increasing societal concerns about land use and its impact on soil, 
water, air, and wildlife. Though RREA has been proven to be effective 
in leveraging cooperative state and local funding, it has never been 
fully funded.
    McIntire-Stennis.--We encourage Congress to increase McIntire-
Stennis Cooperative Forestry funds to $30 million. These funds are 
essential to the future of resource management on non-industrial 
private forestlands, supporting 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.
    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. We 
request $180 million for National Research Initiative Competitive 
Grants in fiscal year 2005.
Natural Resources Conservation Service
    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. We request restoration of the full 
funding balance, $80 million, for this program in fiscal year 2005.
    Technical Service Provider Training.--NRCS is building a Technical 
Service Provider program of certified professionals who can assist the 
agency in delivering conservation services to agricultural producers. 
Training will be needed to effectively prepare Technical Service 
Providers to assist these producers. NAUFWP recommends that Congress 
direct NRCS to appropriate $100,000 for a pilot training program at a 
university in cooperation with professional societies (Society for 
Range Management, The Wildlife Society, American Fisheries Society) and 
the USDA Cooperative State Research, Education, and Extension Service 
that subsequently can be used at land grant universities and colleges 
across the country to train Technical Service Providers. This program 
is critical to the effective delivery of Farm Bill Conservation 
Programs.
    Conservation Program 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 
and effective use of appropriated funds. Thus far, limited monitoring 
efforts have been focused on soil and water achievements, and NRCS and 
the Agricultural Research Service have done all the evaluations. It is 
important for assessments to address wildlife and habitat impacts, and 
for external parties to be included to ensure credibility and 
objectivity. We recommend Congress direct $1 million toward a pilot 
watershed-based monitoring and evaluation project that can serve as a 
model for conservation program assessment nationwide.
    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 Coalition for Food and Agricultural 
                                Research

    Dear Chairman Bennett, Ranking Member Kohl and Members of the 
Subcommittee: On behalf of the National Coalition for Food and 
Agricultural Research (National C-FAR), we are pleased to submit 
comments in strong support of enhanced public investment in food and 
agricultural research, extension and education as a critical component 
of Federal appropriations for fiscal year 2005 and beyond.
                       interest of national c-far
    National C-FAR serves as a forum and a unified voice in support of 
sustaining and increasing public investment at the national level in 
food and agricultural research, extension and education. National C-FAR 
is a nonprofit, nonpartisan, consensus-based and customer-led coalition 
established in 2001 that brings food, agriculture, nutrition, 
conservation and natural resource organizations together with the food 
and agriculture research community. A list of current members is 
provided as Exhibit 1. More information about National C-FAR is 
available at http://www.ncfar.org.\1\
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    \1\ National C-FAR seeks to increase awareness about the value of, 
and support for, food and agricultural research. For example, National 
C-FAR circulates a series of one-page Research Success Profiles 
highlighting some of the many benefits already provided by public 
investment in food and agricultural research. Each provides a contact 
for more information. Profiles released to date are titled ``Anthrax,'' 
``Mastitis,'' ``Penicillin,'' ``Witchweed,'' and ``Making Wine.'' The 
Profiles can be accessed at http://www.ncfar.org/research.asp.
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   demonstrated value of public investments in food and agricultural 
                   research, extension and education
    Public and private investments in U.S. agricultural research have 
paid huge dividends to the United States and the world, especially in 
the latter part of the 20th century. However, these dividends are the 
result of past investments in agricultural research.
    If similar research dividends are to be realized in the future, 
then the nation must commit to a continuing investment that reflects 
the long-term benefits of food and agricultural research.
    Food and agricultural research to date has helped provide the 
United States with an agricultural system that consistently produces 
high quality, affordable food and natural fiber, while at the same 
time:
  --Creating Jobs and Income.--The food and agricultural sector and 
        related industries provide over 20 million jobs, about 17 
        percent of U.S. jobs, and account for nearly $1 trillion or 13 
        percent of GDP.
  --Helping Reduce the Trade Deficit.--Agricultural exports average 
        more than $50 billion annually compared to $38 billion of 
        imports, contributing some $12 billion to reducing the $350 
        billion trade deficit in the nonagricultural sector.
  --Providing many Valuable Aesthetic and Environmental Amenities to 
        the Public.--The proximity to open space enhances the value of 
        nearby residential property. Farmland is a natural wastewater 
        treatment system. Unpaved land allows the recharge of the 
        ground water that urban residents need. Farms are stopovers for 
        migratory birds. Farmers are stewards for 65 percent of non-
        Federal lands and provide habitat for 75 percent of wildlife.
  --Sustaining Important Strategic Resources.--This nation's abundant 
        food supply bolsters national security and eases world tension 
        and turmoil. Science-based improvements in agriculture have 
        saved over a billion people from starvation and countless 
        millions more from the ravages of disease and malnutrition.
    Publicly financed research is a necessary complement to private 
sector research, focusing in areas where the private sector does not 
have an incentive to invest, when (1) the pay-off is over a long term, 
(2) the potential market is more speculative, (3) the effort is during 
the pre-technology stage; and (4) where the benefits are widely 
diffused. Public research also helps provide oversight and measure 
long-term progress. Public research also acts as a means to detect and 
resolve problems in an early stage, thus saving American taxpayer 
dollars in remedial and corrective actions.
    By any standard, the contribution of publicly supported 
agricultural research to advances in food production and productivity 
and the resulting public benefits are well documented. For example, an 
analysis by the International Food Policy Research Institute of 292 
studies of the impacts of agricultural research and extension published 
since 1953 (Julian M. Austin, et al, A Meta-Analysis of Rates of Return 
to Agricultural Research, 2000) showed an average annual rate of return 
on public investments in agricultural research and extension of 81 
percent!
national c-far urges enhanced federal funding for food and agricultural 
                   research, extension and education
    National C-FAR appreciates the longstanding support this 
Subcommittee and the full Committee have demonstrated through funding 
food and agricultural research, extension and education programs over 
the years that have helped the U.S. food and agricultural sector be a 
world leader and provide unprecedented value to U.S. citizens, and 
indeed the world community.
    National C-FAR is deeply concerned that shortfalls in food and 
agricultural research funding in recent years jeopardize the food and 
agricultural community's continued ability to maintain its leadership 
role and more importantly respond to the multiple, demanding challenges 
that lie ahead. Federal funding of food and agricultural research, 
extension and education has been flat for over 20 years, while support 
for other Federal research has increased substantially. At the same 
time, public funding of agricultural research in the rest of the world 
during the same time period has reportedly increased at a nearly 30 
percent faster pace. This reduced public investment in food and 
agricultural research may be the result of the U.S. food and 
agricultural system working so well that the sector is a victim of its 
own success. However, societal demands and expectations placed upon the 
food and agricultural system are ever-changing and growing. Simply 
stated, Federal funding has not kept pace with identified priority 
needs.
    National C-FAR is deeply concerned that shortfalls in food and 
agricultural research funding in recent years jeopardize the food and 
agricultural community's continued ability to maintain its leadership 
role and more importantly respond to the multiple, demanding challenges 
that lie ahead.
    National C-FAR believes it is imperative to lay the groundwork now 
to respond to the many challenges and promising opportunities ahead 
through Federal policies and programs needed to promote the long-term 
health and vitality of food and agriculture for the benefit of both 
consumers and producers. Stronger public investment in food and 
agricultural research, extension and education is essential in 
producing research outcomes needed to help bring about beneficial and 
timely solutions to multiple challenges. Multiple examples, such as 
those listed below, serve to illustrate current and future needs that 
arguably merit enhanced public investment in research:
  --Strengthened bio-security is a pressing national priority. There is 
        a compelling need for improved bio-security and bio-safety 
        tools and policies to protect against bio-terrorism and dreaded 
        problems such as foot-and-mouth and ``mad cow'' diseases and 
        other exotic plant and animal pests, and protection of range 
        lands from invasive species.
  --Food-linked health costs are high. Some $100 billion of annual U.S. 
        health costs are linked to poor diets, obesity, food borne 
        pathogens and allergens. Opportunities exist to create 
        healthier diets through fortification and enrichment.
  --Research holds the key to solutions to environmental issues related 
        to global warming, limited water resources, enhanced wildlife 
        habitat, and competing demands for land and other agricultural 
        resources.
  --There was considerable debate during the last farm bill 
        reauthorization about how expanded food and agricultural 
        research could enhance farm income and rural revitalization by 
        improving competitiveness and value-added opportunities.
  --Energy costs are escalating, dependence on petroleum imports is 
        growing and concerns about greenhouse gases are rising. 
        Research can enhance agriculture's ability to provide renewable 
        sources of energy and cleaner burning fuels, sequester carbon, 
        and provide other environmental benefits to help address these 
        challenges, and indeed generate value-added income for 
        producers and stimulate rural economic development.
  --Population and income growth are expanding the world demand for 
        food and improved diets. World food demand is projected to 
        double in 25 years. Most of this growth will occur in the 
        developing nations where yields are low, land is scarce, and 
        diets are inadequate. Without a vigorous response demand will 
        only be met at a great global ecological cost.
  --Regardless of one's views about biotechnology and genetic 
        resources, an effective publicly funded research role is needed 
        for oversight and to ensure public benefits.
    Finally, there is a continuing need to build the human capacity of 
expertise to conduct quality food and agricultural research and 
education, and to implement research outcomes in the field and 
laboratory where such outcomes benefit consumers and others who need 
the research results. The food and agricultural sciences face the same 
daunting task of supplying the nation with the next generation of 
scientists and educators that many of the scientific disciplines face 
today. If these basic needs are not met, then the nation will face a 
shortage of trained and qualified individuals.
    Public investment in food and agricultural research, extension and 
education of today and the future must simultaneously satisfies needs 
for food quality and quantity, resource preservation, producer 
profitability and social acceptability. National C-FAR supports the 
public funding needed to help assure that these needs are met.
    A Sense of the Congress resolution endorsed by National C-FAR to 
double research funding within 5 years was incorporated into the 2002 
Farm Bill that was enacted into law. However, the major commitment to 
expanded research has not yet materialized. National C-FAR urges the 
Subcommittee and Committee to fund the Administration's request for 
food and agricultural research for fiscal year 2005, and to augment 
this funding level to the maximum extent practicable, as an important 
first step toward building the funding levels needed to meet identified 
food and agricultural research needs.
                               conclusion
    In conclusion, National C-FAR restfully submits that--
  --The food and agricultural sector merits Federal attention and 
        support;
  --Food and agricultural research, extension and education have paid 
        huge dividends in the past, not only to farmers, but to the 
        entire nation and the world;
  --There is an appropriate and recognized role for Federal support of 
        research and education;
  --Recent funding levels for food and agricultural research, extension 
        and education have been inadequate to meet pressing needs; and
  --Federal investments in food and agricultural research should be 
        enhanced in fiscal year 2005 and beyond.
    National C-FAR appreciates the opportunity to share its views and 
stands ready to work with the Chair and members of this Committee in 
support of these important funding objectives.
                                 ______
                                 

Prepared Statement of the National Commodity Supplemental Food Program 
                           (CSFP) Association

    Mr. Chairman and subcommittee members, I am Kathleen Devlin, 
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 provide a quality nutritionally balanced commodity 
food package to low income persons aged sixty and older, and low income 
mothers, infants, and children. The program, which was authorized in 
1969, serves approximately 536,000 individuals every month in 32 
states, 2 Tribal Organizations and the District of Columbia.
  --Within the last 5 years, CSFP has added 10 new States to the 
        Program serving 113,792 new program participants, the vast 
        majority being low-income seniors.
  --Of special note is the unprecedented growth of this program in 
        fiscal year 2003, during which an additional 84,160 people were 
        served.
  --This unprecedented growth was the direct result of the fiscal year 
        2003 Conference Report that said: ``The conferees expect the 
        Department to make the full amount of these budgetary resources 
        available to support participation and caseload. The intention 
        of the conferees is to ensure at a minimum that the final 
        caseload in September 2003 can be maintained in 2004, while 
        meeting the requirements to protect the states that joined the 
        program in 2003.''
  --The fiscal year 2005 President's Budget has proposed $98 million 
        for the CSFP. This is a 13 percent cut to the program and will 
        require 69,941 low-income seniors be removed from receiving 
        much needed nutritious commodities. This follows a 19 percent 
        increase in participation among existing CSFP states provided 
        last year as a direct result of Congressional Directives set 
        forth by Conferees in the Conference Report.
    The CSFP's 35 years of service 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 nutritionally 
        vulnerable populations: the young children and the low-income 
        seniors.
  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 in 
        addition to life-changing nutrition education.
  The CSFP purchases foods at wholesale prices, which directly supports 
        the farming community. The average food package for fiscal year 
        2004 is $13.20, and the retail cost would be approximately 
        $50.00.
  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.
    The Senate Agriculture Appropriations Sub-Committee has 
consistently been supportive of CSFP, acknowledging it as a cost-
effective way of providing nutritional supplemental food packages to 
low income eligible seniors, mothers and children. This year, your 
support is needed urgently to prevent unprecedented 69,941 low-income 
participants from being removed from this vital nutrition program.
                  commodity supplemental food program
  national csfp association caseload & budget request for fiscal year 
                                  2005
                         $134 million requested
    Fiscal year 2005 Caseload Slots, Including Seven New States.--
660,599 Slots
    Fiscal year 2005 Funding Request.--$134.0 million
    Base Caseload Requirements Existing States.--535,756 Slots
    Total Cost Per Caseload Slot.--$158.40 ($13.20 blended monthly food 
            package cost  12 months) + $53.53 = $211.93 per 
            slot = $113.5 million
    Expansion in Current States.--100,343 Slots
     $118.80 ($13.20 blended monthly food package cost  9 
            months) + $40.14 ($158.40 prorated for 9 months) = $158.94 
            per slot = $15.9 million
    New States.--24,500 Slots
    Arkansas--5000; Delaware--2500; Oklahoma--5000; Maine--3000; 
            Virginia--3000; Utah--3000; Wyoming--3000 and this would 
            equal an additional $118.80 ($13.20 blended monthly food 
            package cost  9 months) + $40.14 ($158.40 prorated 
            for 9 months) = $158.94 per slot = $3.9 million
    Estimated USDA Costs for Procuring Commodities.--$.8 million
    Note: The National CSFP Association would like to bring to your 
attention a comparison between the CSFP FFY 2004 Appropriation & FFY 
2005 Proposed Appropriation.
  --FFY 2004.--$98.9 million Appropriation + (approximately) $11.295 
        million cash carryover + (estimated) $6 million Commodity 
        Inventory = Total Program Resources fiscal year 2004 of $116 
        Million
  --FFY 2005.--President's Proposed $98 Million (loss of 85,728 or 16 
        percent of the national caseload)
  --Total Program Resources in fiscal year 2005 of $104.8 million (loss 
        of 69,941 senior slots or 13 percent national caseload)
       restore senior income guidelines to 185 percent of poverty
    Current income eligibility for senior clients is 130 percent of the 
poverty income guidelines, as opposed to 185 percent of poverty as 
originally established in 1981. We proposed that they be re-established 
to 185 percent of poverty to be consistent with CSFP women, infants and 
children and other Federal nutrition programs. Many seniors are 
struggling with high housing, medical, and utility costs, and at the 
lower poverty guideline, the slightest inflation increase in Social 
Security income renders many seniors ineligible for CSFP.


   Prepared Statement of the National Council of Farmer Cooperatives

    Thank you, Mr. Chairman, and members of the Subcommittee. The 
National Council of Farmer Cooperatives (NCFC) appreciates this 
opportunity to submit its views regarding the fiscal year 2005 
agriculture appropriations bill, and respectfully requests this 
statement be made part of the official hearing record.
                     america's farmer cooperatives
    NCFC is the national trade association representing America's 
farmer cooperatives. There are nearly 3,000 farmer cooperatives across 
the United States whose members include a majority of our Nation's more 
than 2 million farmers. They exist for the mutual benefit of their 
farmer members and provide them with increased opportunity to improve 
their income from the marketplace and compete more effectively in the 
global marketplace.
    These farmer owned businesses handle, process and market virtually 
every type of agricultural commodity grown and produced, along with 
many related products; manufacture, distribute and sell a variety of 
farm inputs; and provide credit and related financial services, 
including export financing. Earnings derived from these activities are 
returned by farmer cooperatives to their farmer members on a patronage 
basis thereby enhancing their overall income.
    America's farmer cooperatives also provide jobs for nearly 300,000 
Americans with a combined payroll over $8 billion, further contributing 
to our Nation's economic wellbeing. Many of these jobs are in rural 
areas where employment opportunities are sometimes limited.
          fiscal year 2005 budget proposal and recommendations
    The administration's fiscal year 2005 budget proposal with regard 
to USDA recommends maintaining support and funding for basic farm and 
commodity programs as contained in the 2002 Farm Bill. We commend the 
administration for its recommendation as these programs represent an 
important safety net for producers and should continue to be fully 
funded. There are also a number of other important programs within USDA 
that should be given a high priority as summarized below.
USDA Farmer Cooperative Programs
    There is a long history of congressional support for public policy 
to enhance the ability of farmers to join together in cooperative self-
help efforts to improve their overall income from the marketplace, 
capitalize on new market opportunities, and to compete more effectively 
in the global marketplace.
    USDA's Rural Business-Cooperative Service (RB-CS) mission area 
includes responsibility for carrying out a variety of programs to help 
achieve such objectives, including research, education and technical 
assistance for farmers and cooperatives. Since the elimination of a 
separate agency with responsibility for such programs, it is our 
understanding that funding for such purposes has generally been 
provided through the salary and expense budget relating to rural 
development.
    For fiscal year 2005, the administration's budget proposal provides 
$666 million in both budget authority and program level for salaries 
and expenses for the rural development mission area, compared to $627 
million for fiscal year 2004. Since there is no separate line item 
relating to programs in support of cooperative self-help efforts by 
farmers and their cooperatives, we believe Congress should include as 
it has in the past specific language directing that funding and 
resources to carry out such programs be given a high priority.
Value-Added Agricultural Product Market Development Grants
    USDA's Value-Added Agricultural Product Market Development Grants 
Program is aimed at encouraging and enhancing farmer participation in 
value-added businesses, including through farmer cooperatives, to help 
them capture a larger share of the value of their production and 
improve their overall income from the marketplace. It also helps 
promote economic development and create needed jobs in rural areas.
    The program is administered on a matching basis, thereby doubling 
the impact of such grants and helping encourage needed investment. As a 
cost-share program, it has served as an excellent example of an 
effective public-private partnership that has been extremely successful 
by any measure.
    The 2002 Farm Bill significantly expanded this important program to 
a level of $40 million. In fiscal year 2004, the program was reduced to 
$15 million. For fiscal year 2005, the administration's budget proposal 
recommends the program be maintained with a slight increase to $16 
million. While this represents a significant change from last year's 
budget proposal, which we are pleased to see, we continue to believe 
this important program should be fully funded at $40 million.
Commodity Purchase Programs
    USDA annually purchases a variety of commodities for use in 
domestic and international feeding programs, including the school lunch 
program. NCFC strongly supports such programs to: (1) meet the food and 
nutrition needs of eligible consumers and (2) help strengthen farm 
income by encouraging orderly marketing and providing farmers with an 
important market outlet, especially during periods of surplus 
production.
    In addition to providing needed funding for such programs, it is 
important to ensure that farmers who choose to cooperatively market 
their production and related products, as well as their cooperatives, 
are not limited or excluded, but remain fully eligible under such 
programs. This is consistent with USDA's historical mission in support 
of such cooperative efforts and essential to ensure the continued 
availability of high quality products on a competitive basis.
B&I Loan Guarantee Program and Farmer Cooperatives
    One of the major challenges facing farmer cooperatives in helping 
farmers capture more of the value of what they produce beyond the farm 
gate is access to equity capital. In approving the 2002 Farm Bill, 
Congress made a number of changes to USDA's Business and Industry (B&I) 
guaranteed loan program to better meet the needs of farmer cooperatives 
and their farmer members. These included changes to allow farmers to 
qualify for guaranteed loans for the purchase of stock in both new and 
existing cooperatives to provide the equity capital needed to encourage 
more involvement and participation in value-added activities.
    For fiscal year 2005, the administration's budget proposal provides 
an overall program level of $738 million, which represents a slight 
increase over fiscal year 2004. Accordingly, we recommend that funding 
be not less than this level.
Rural Business Investment Program
    The Rural Business Investment Program was authorized under the 2002 
Farm Bill to help foster rural economic development by encouraging and 
facilitating equity investments in rural business enterprises, 
including farmer cooperatives.
    In fiscal year 2004, program funding was limited to $4 million for 
the development of regulations and review of applications. We 
understand, however, that such regulations remain pending. While the 
fiscal year 2005 budget proposal would provide an increase to $11 
million, this is still well below the level authorized in the 2002 Farm 
Bill. Again, providing improved access to equity capital is essential 
if farmers are going to be able to capitalize on value-added business 
opportunities through cooperative self-help efforts. For these reasons, 
we urge that the program be fully funded as authorized and that USDA be 
encouraged to complete the rulemaking process in order for it to be 
fully implemented as Congress intended.
International and Export Programs
    USDA's export programs are vital to helping maintain and expand 
U.S. agricultural exports, counter subsidized foreign competition, meet 
humanitarian needs, protect American jobs, and strengthen farm income. 
We believe such programs should be fully funded and aggressively 
implemented to achieve these important objectives.
    The administration's fiscal year 2005 budget proposal would provide 
an overall increase in U.S. international and export programs. At the 
same time, however, it would reduce or freeze several key programs.
    In particular, we are very concerned over the proposal to freeze 
USDA's Market Access Program (MAP) at $125 million instead of allowing 
it to increase to $140 million as provided under the 2002 Farm Bill. 
The program, which is administered on a cost-share basis, continues to 
be tremendously effective in encouraging and promoting U.S. 
agricultural exports. At a time when our foreign competitors are 
spending nearly as much to promote their products in just the U.S. 
domestic market as the United States is spending world-wide, clearly 
now is not the time to engage in any unilateral reduction in our export 
programs. As a member of the Coalition to Promote U.S. Agricultural 
Exports, we urge that funding be provided at $140 million as 
authorized, together with $34.5 million for the Foreign Market 
Development program as recommended.
    Again, it is extremely important that USDA's export programs 
continue to be fully funded, including the Export Credit Guarantee 
Programs, the Export Enhancement Program, Dairy Export Incentive 
Program, Technical Assistance for Specialty Crops, Food for Progress, 
as well as Public Law 480 and other food assistance programs, including 
McGovern-Dole.
    Finally, we also want to take this opportunity to urge support to 
ensure there is adequate funding and resources for USDA's Foreign 
Agricultural Service to continue to effectively carry-out such programs 
and to provide the technical assistance and support needed to help 
maintain and expand U.S. agricultural exports.
Agricultural Research
    Another important area of emphasis when it comes to enhancing the 
global competitiveness of farmer cooperatives and American agriculture 
is research. NCFC endorses the recommendations of the National 
Coalition for Food and Agricultural Research, which has set an 
objective of doubling Federal funding over the next 5 years.
Conservation Programs
    The administration's fiscal year 2005 budget proposal includes 
funding for a variety of conservation and related programs administered 
by USDA's Natural Resources Conservation Service (NRCS). Many of these 
programs were significantly expanded under the 2002 Farm Bill and 
provide financial and technical assistance to help farmers and others 
who are eligible to develop and carry out conservation and related 
activities to achieve important environmental goals.
    NRCS is also the lead technical agency within USDA offering ``on-
farm'' technical and financial assistance. We strongly support such 
programs, including technical assistance activities that may be carried 
out in partnership with the private sector involving farmer 
cooperatives. Farmer cooperatives have invested heavily in developing 
the technical skills of their employees to help their farmer members 
address environmental concerns. It is estimated that 90 percent of all 
members of the Certified Crop Advisor (CCA) program, for example, are 
employed by the private sector and majority of those are employed by 
farmer cooperatives.
Conclusion
    Thank you again, Mr. Chairman and members of the Subcommittee, for 
the opportunity to share our views. We appreciate this statement being 
included in the official hearing record.
                                 ______
                                 

           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 is 
estimated at 437,888,000 cwt. with a farm value of $3.2 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 136.5 pounds in 2003, 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 nutritious consumer commodity and an integral, 
delicious component of the American diet.
    The NPC's fiscal year 2005 appropriations priorities are as 
follows:
    The NPC recognizes the difficult budget situation that the Congress 
is facing and has carefully targeted its fiscal year 2005 priorities.
Potato Research
            Cooperative State Research Education and Extension Service 
                    (CSREES)
    The NPC supports an appropriation of $1.75 million for the Special 
Potato Grant program for fiscal year 2005. The Congress appropriated 
$1.417 million in fiscal year 2004, a decrease from the fiscal year 
2003 level of $1.584 million. 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) Report Language
    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.
            ARS-CSREES Overall Funding
            Congressionally Mandated Potato Research
    The NPC urges that the Congress reject the Administration's budget 
request to rescind all fiscal year 2004 Congressional increases for 
research projects.
Foreign Market Development
            Market Access Program (MAP)
    The NPC also urges that the Congress maintain the spending level 
for the Market Access Program (MAP) at its authorized level of $140 
million for fiscal year 2005 and not support the Administration's 
budget request to cap this valuable export program at the fiscal year 
2004 level of $125 million.
Food Aid Programs
            McGovern Dole
    The Administration has requested $75 million for the McGovern-Dole 
Food International Food Aid Program. The Administration requested and 
the Congress provided $50 million in fiscal year 2004. The NPC supports 
an appropriation of at least $100 million in fiscal year 2005.
Pest and Disease Management
            Animal and Plant Health Inspection Service (APHIS)
    Golden Nematode Quarantine.--The NPC supports $985,000 which is the 
Administration's fiscal year 2005 budget request. The Congress 
appropriated $792,000 in fiscal year 2004.
    Pest Detection.--The NPC supports $45 million in fiscal year 2005, 
which is the Administration's budget request. The Congress appropriated 
$24 million in fiscal year 2004. Now that the Agriculture Quarantine 
Inspection (AQI) program is within the new Homeland Security Agency, 
this increase is essential for the Plant Protection and Quarantine 
Service's (PPQ) efforts against potato pests and diseases such as 
Ralstonia.
    Trade Issues Resolution and Management.--The NPC supports $16 
million for this program which is the Administration's budget request. 
The Congress appropriated $12.4 million in fiscal year 2004. However, 
language must be included that designates all or a part of such 
increase for plant protection and quarantine activities. 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.
    Funding Pest Eradication Programs.--The NPC supports having the 
Congress once again include language to prohibit the issuance of a 
final rule that shifts the costs of pest and disease eradication and 
control to the states and cooperators.
Agricultural Statistics
            National Agricultural Statistics Service (NASS)
    The NPC supports sufficient funds and guiding language to assure 
that the potato objective yield and grade and size surveys are 
continued. The fiscal year 2004 Omnibus Bill included the following 
language:--``The conferees also expect that both the potato objective 
yield survey and the potato size and grade survey will be continued.''
                                 ______
                                 

       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 am the executive secretary of the 
National Rural Housing Coalition.
    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.
    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.
    Renters in rural areas are the worst housed individuals and 
families in the country. Thirty-five 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.
                         rural housing service
Rural 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 
little more than $9,000, which is equal to only 30 percent of the 
Nation's rural median household income. Sixty percent of the tenants 
are elderly or disabled and one-quarter are minority.
    The Federal Government's current investment in rural rental housing 
is at its lowest level in more than 25 years. In fact, last year and 
this year the Administration's budget included no funding for rural 
rental housing production. Over the last 15 years, Congress and 
Administrations of both parties have engaged in unwise budget cutting 
of rural rental housing. Lending has declined from over $500 million a 
year in 1994 to $114 million in fiscal year 2003 and 2004. As a result, 
there is little production of new rental housing in rural areas.
    As Congress considers future policy for rural housing, it faces two 
challenges regarding rural rental housing. The first is to maintain the 
existing stock of Section 515 units. The second is to increase the 
production of affordable rental housing units in rural communities. The 
current portfolio of Section 515 units represents an important resource 
to low-income families in rural America. At a time of declining Federal 
resources for rental housing, it is hard to envision a time in which 
Federal policy will finance the development of a large number of rental 
housing developments. It is important to preserve the existing stock.
    RHS is facing an aging Section 515 portfolio. Of the 17,000 
developments across the country, close to 10,000 are more than 20 years 
old. To maintain those projects, it will take an investment of Federal 
funds for restoration. That appears to be the focus of the 
Administration's request for $60 million for servicing the existing 
portfolio.
    The Housing Act of 1987 regulated rural rental housing principally 
financed under Section 515. This legislation placed a low-income use 
restriction on Section 515 and also established financial incentives to 
owners to maintain their properties for low-income housing. In general, 
at the end of the initial 20-year use restriction, an owner could seek 
an incentive to extend long-term low-income use, or sell the project to 
a nonprofit organization or public body that would operate the housing 
for low-income use.
    A principal source of financing for incentives was the Section 515 
and the use of these funds for equity loans authorized under Section 
515. Roughly two-thirds of the Section 515 portfolio is regulated under 
the 1987 Act. The lack of adequate funding for incentives has raised a 
great concern among the owners. For the most part, the law limits their 
options of seeking incentives or selling to a nonprofit organization or 
public body. The demand for incentives is estimated at approximately 
$100 million for equity loans alone. But cuts in Section 515 have 
limited the ability of the USDA to implement a good preservation 
program. However, as Congress and the Administration reduced funding 
for Section 515, USDA reduced preservation funding to only about $5 
million per year.
    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.
    In the fiscal year 2004 appropriations conference report and the 
fiscal year 2005 budget Congress and the Administration have reduced 
the term on expiring rental assistance contracts from 5 years to 4 
years. One possible result of this is to pile larger appropriations for 
rental assistance to the out years.
    This policy may solve a short term budget need but does not address 
the need for rental assistance for the 90,000 low income households 
living in section 515 units paying more than 30 percent of income for 
rent. It also does not provide any assistance for the few newly 
constructed units financed under section 515.
    We urge the Committee to provide at least $250 million for section 
515 loans and allocate at least $100 million of that amount for 
preservation and rehabilitation of rural rental housing. We also urge 
the Committee to restore rental assistance contracts to 5 years and 
restore funding that is adequate to meet the needs of preservation and 
new construction commitments contained in the appropriation of $250 
million for section 515.
Section 502 Single Family Direct Loan Program
    In recent years, the major trend in rural housing has been to 
guarantee home ownership loans. The fiscal year 2005 level for 
guarantees is approximately $2.75 billion. This program serves families 
with incomes at 125 percent of median, substantially higher than that 
of direct loans.
    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 3 percent of households have annual 
incomes of less than $10,000. Since its inception, Section 502 has 
provided loans to almost 2 million families.
    Under Section 502 home ownership, the current loan level totals 
$1.367 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. There is unprecedented demand for 
section 502 direct loans in 2003; RHS closed 13,222 loans totaling 
$1.037 billion. However, at the end of the fiscal year the agency had 
on hand over 33,000 applications from qualified families totaling over 
$2.5 billion.
    The fiscal year 2004 lending level for Section 502 direct loans is 
$1.366 billion, the largest in several years. These additional funds 
are important in the Administration effort to improve minority home 
ownership. However, this higher level will only address about 50 
percent of the demand on hand in RHS offices across the country.
    The fiscal year 2005 request reduces section 502 lending to $1.1 
billion, a reduction of over $250 million. This cut is due to an 
increase in subsidy rates without a corresponding increase in section 
502 direct budget authority.
    The section 502 program is an extremely low cost program. For 
Direct 502, USDA will finance about 15,300 for a budget authority cost 
of $8,170 per unit.
    We urge the Committee to restore section 502 to loans to the 
current rate $1.367 million.
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 in each year over the past 3 
years has been approximately 1,500. The budget request is for $34 
million. We support this request.
    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. This valuable program is also at risk 
in the budget request this year--it has been eliminated. For fiscal 
year 2005, we recommend $6 million for the Rural Community Development 
Initiative to continue level funding for fiscal year 2002.
Farm Labor Housing
    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.
Rural Utility Service
    Hundreds of rural communities nationwide do not have access to 
clean drinking water and safe waste disposal systems. According to the 
2000 Census, approximately 1.9 million people lack indoor plumbing and 
basic sanitation services, including potable water and sewer. According 
to 1999 EPA Safe Drinking Water Needs Survey, $48 billion will be 
required over the next 20 years to ensure that communities under 10,000 
have safe drinking water supplies. According to EPA's 2000 Clean Water 
Needs Survey $16 billion is required over the next 20 years to provide 
wastewater treatment facilities communities under 10,000, and over 
19,000 wastewater facilities will be needed for these communities. In 
all, small communities will need to identify some $64 billion in order 
to meet their water and wastewater needs.
    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.
    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 (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. Nearly all the communities RUS served last year had median 
household income below that state non-metro median household income.
    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. RCAP provided services to 
over 2000 communities last year in 50 States, including Puerto Rico and 
leveraged over $200,000,000 in additional funding for water and 
wastewater infrastructure projects in the communities served. 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.
    We urge the Committee to restore funding to the fiscal year 2004 
rate.
Other Federal Agencies
    Other Federal agencies have not picked up the slack in providing 
assistance for rural areas. Rural households have limited access to 
mortgage credit and the secondary mortgage market. Rural households are 
less likely to receive government-assisted mortgages than their urban 
counterparts. According to the 1995 American Housing Survey, only 14.6 
percent of non-metro residents versus 24 percent of metro residents 
receive Federal assistance. Moreover, poor rural renters do not fair as 
well as poor urban renters in accessing existing programs. Only 17 
percent of very low-income rural renters receive housing subsidies, 
and, overall, only 12 percent of HUD Section 8 assistance goes to rural 
areas. Only 7 percent of Federal Housing Administration (FHA) 
assistance goes to non-metro areas. On a per-capita basis, rural 
counties fared worse with FHA, receiving only $25 per capita versus 
$264 per capita in metro areas. Programs such as HOME, CDBG and FHA may 
have the intention of serving rural areas, but fail to do so to the 
appropriate extent. One of the few programs at HUD targeted to rural 
areas is the Rural Housing and Economic Development (RHED) program. The 
budget proposes to eliminate the program.
    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 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 2005 in the amounts 
        requested in the President's budget for 5 percent direct, cost 
        of-money and guaranteed loans and the associated subsidy, if 
        required, to fund those programs at the requested levels. 
        Supporting Rural Telephone Bank loans in the same amount, as 
        contained in the fiscal year 2004 Agriculture Appropriations 
        Act. Opposing the budget recommendation to not fund new Rural 
        Telephone Bank loans in fiscal year 2005.
  --Supporting continued funding, as requested in the President's 
        budget, in the amount of $25 million in grant authority 
        designated for distance learning and medical link purposes.
  --Supporting the budget request for $331 million in direct loans for 
        broadband facilities and internet service access provided 
        through discretionary funding.
  --Supporting elimination of the restriction on retirement of Rural 
        Telephone Bank Class A stock, as requested in the President's 
        budget. Supporting an extension of the prohibition against the 
        transfer of Rural Telephone Bank excess funds to the general 
        fund as well as the requirement that Treasury pay interest on 
        all Bank funds deposited with it. 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 
6 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 longterm, 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, over $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 2 years ago, 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 2005 and the appropriation of the 
associated subsidy costs, if required, to support these levels:

------------------------------------------------------------------------

------------------------------------------------------------------------
5 percent Direct Loans..................................    $145,000,000
Cost-of-Money Loans.....................................     250,000,000
Guaranteed Loans........................................     100,000,000
Rural Telephone Bank Loans..............................     175,000,000
                                                         ---------------
      Total.............................................     670,000,000
------------------------------------------------------------------------

    These are essentially the same levels established in the fiscal 
year 2004 appropriations act for the 5 percent direct, cost-of-money 
and Rural Telephone Bank loan programs and the same amounts for 5 
percent direct, cost-of-money and guaranteed loans as requested in the 
President's budget for fiscal year 2005. The authorized levels of loans 
in each of these programs were substantially obligated in fiscal year 
2003 and the administration estimates that authorized program levels 
will be fully met in fiscal year 2004. 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 2005.
    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 over 32 percent of the government's $592 
million investment, leaving a current balance of $400 million. As 
pointed out in our testimony in previous years, 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. 
We are supporting the administration request to eliminate the 5 percent 
annual restriction on the retirement of government stock giving it 
additional flexibility to accelerate privatization of the bank. No 
additional incentives are necessary. In the meantime, while the 
administration develops a comprehensive plan for bank privatization, we 
believe the direct loan program should continue, at existing levels, 
without disruption.
    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 2005, 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 revenue 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 again this year that the 
mandatory funding of loans for the deployment of broadband technology 
in rural areas provided in the recent farm act in the amount of $20 
million (new section 601(j)(1)(A) of the Rural Electrification Act of 
1936) be rescinded in fiscal year 2005 and in its place the budget 
requests $9.9 million in new discretionary authority for these 
purposes. Given the fact that the program is operating in fiscal year 
2004 with carry over balances from mandatory authority of $38.8 million 
and discretionary authority of $13 million, providing $2.2 billion in 
loan levels in fiscal year 2004, we do not object to this reduction for 
next year. We are, therefore, supporting the administration's budget 
request of $9.9 million for this program that will provide 
approximately $331 million in loan levels for fiscal year 2005.
Specific Additional Requests
  --Eliminate the Restriction on Retirement of Class A Government Stock 
        in the Rural Telephone Bank (RTB) but Continue the Prohibition 
        Against Transfer of RTB Funds to the General Fund and Require 
        the Payment of Interest by Treasury
    The Administration has recommended in the budget that the 5 percent 
annual statutory restriction on the retirement of Class A government 
stock in the Rural Telephone Bank be eliminated. The association 
supports that proposal. However, we urge the Committee in the general 
provisions of the bill to continue the prohibition against the transfer 
of any unobligated balance in the bank's liquidating account, in excess 
of current requirements, to the general fund of the Treasury along with 
the requirement that the bank receive interest on those deposited 
funds. The private Class B and C stockholders of the Rural Telephone 
Bank have a vested ownership interest in all assets of the bank 
including its funds and Congress should assure that their rights are 
protected. Previous appropriations acts (fiscal years 1997 through 
2004) 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.
    The current statutory provision, also contained in previous years' 
appropriations acts, that requires Treasury to pay interest on bank 
funds deposited with it should be continued in fiscal year 2005 in the 
same general provision of the bill.
  --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 2005 of the $25 million 
in grant authority provided in the President's budget for medical link 
and distance learning purposes. The purpose of these grants 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.
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 2005 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 $120 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.
  --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 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.
  --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 and 
        reject efforts to sweep carryover balances.
  --Support the provision of the President's budget funding Distance 
        Learning and Telemedicine Grants.
  --Preserve RBCS Rural Development Grant and Loan Programs as well as 
        the Rural Economic Development Loan and Grant 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 a few million in Federal subsidy 
has effectively generated $690 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.
    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 2005 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:

------------------------------------------------------------------------

------------------------------------------------------------------------
Hardship Account........................................    $145,000,000
Cost of Money/Treasury Account..........................     250,000,000
Guaranteed Account......................................     120,000,000
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. In 
2003, USDA and RUS officials unveiled the regulations and were able 
make available $1.4 billion in loans (fiscal year 2002 and 2003 funds). 
An appropriate level of funding must be maintained in this program 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 2005. 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.
    NTCA remains committed to privatization and 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.
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.
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.
    While USDA has worked with the industry to ensure an RTB 
privatization that does not harm the rural telecommunications sector, 
NTCA remains concerned about the Office of Management and Budget and 
the Department of Treasury. The industry is well aware of the 
difficulties that have occurred as part of the joint USDA-OMB-Treasury 
Privatization Task Force. NTCA remains extremely skeptical of OMB and 
Treasury's good faith efforts and has worked very closely with the RTB 
Directors and the RUS Administrator through the privatization process. 
We believe that OMB and Treasury have yet to fully engage on the issue 
of privatization and work with USDA. For these reasons, we believe 
language extending the prohibition of more than 5 percent of Class A 
stock to be retired, must be included.
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.
Reject the President's Proposal to fund the Rural Broadband Access Loan 
        and Loan Guarantee Program through discretionary funding and 
        reject efforts to sweep carryover balances
    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. Since enactment, RUS has 
received over $1 billion in loan applications and has struggled to 
approve loans and meet the demand. Accordingly, we believe the 
President's proposal to sweep carryover balances do not recognize the 
current demand for funding and is 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.
    NTCA's annual member survey shows our members are offering 
broadband (200 kbps) to 70 percent of their customer base, members have 
expressed interest in using the Broadband program to augment broadband 
availability to their ``last mile'' customers. While we are concerned 
about the number of loans approved by RUS, NTCA believes that calls for 
statutory or regulatory changes are extremely premature.
Support the President's request for Distance Learning and Telemedicine 
        grants
    The DLT grant program has had tremendous success in rural America 
and NTCA believes such grants add to NTCA members long standing efforts 
to their local communities. For NTCA's 50 years, our members have 
utilized the Rural Utilities Service to provide basic telephone 
service, advanced telecommunications services, and economic development 
to rural America. Our members have also been prudent stewards of the 
taxpayer funds and are extremely concerned about the loan defaults 
within the DLT Loan program. While extremely well-intended, the DLT 
Loan program has yet to live up to the high level of expectations 
envisioned by Congress. Consistently, DLT Loan levels falling 
significantly short of authorized loan levels. NTCA believes that 
overwhelmingly those entities interested in the DLT program, lack the 
legal authority to secure loans and are dependant upon grants. NTCA 
believes such taxpayer's funds could be better spent in rural America.
Preserve RBCS Rural Development Grant and Loan Programs as well as the 
        Rural Economic Development Loan and Grant Program
    These loans and grants, which are administered at the local level 
by rural telephone and electric systems, help fund economic and 
community development--business expansion and start-up, community 
facilities, schools and hospitals, emergency vehicles, etc.--in some of 
the most rural areas of the country. Our member companies have used a 
variety of these programs to further their economic commitment to the 
community and we are extremely supportive of these programs and 
Congress to ensure adequate funding is at levels that meets the 
expandingdemand 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 Treasury Employees Union

    Mr. Chairman, Senator Byrd, and Members of the Subcommittee, I am 
pleased to present the testimony of the National Treasury Employees 
Union (NTEU) concerning the fiscal year 2005 appropriation for the Food 
and Drug Administration (FDA).
    NTEU represents more than 150,000 Federal employees across the 
Federal Government, including the employees who work at the Food and 
Drug Administration. I want to thank you for giving me the opportunity 
to present testimony on behalf of these dedicated men and women who 
work to ensure the safety of our food, drugs, cosmetics, and medical 
devices. It has been the FDA employees, day in and day out, who have 
responded to the call of the American people to ensure that our food 
supply is safe and that more effective drugs and medical products are 
brought to consumers quickly. In fact, the FDA regulates more than $1 
trillion worth of products that account for about 25 cents out of every 
dollar of American consumer spending. The FDA is staffed with experts 
in an extraordinary range of fields. Microbiologists, chemists, 
consumer safety officers, and others are working around the clock 
testing, approving, and regulating new drugs, robotics, and other 
medical devices, that will not only improve the health conditions for 
millions of Americans, but in many cases actually save lives. They are 
working to ensure that the food we eat is safe and free of disease-
causing contaminants, and working to ensure that new food products, 
food additives, and dietary supplements pose no threat to our health.
    And the FDA employees who work in the field offices and 
laboratories located throughout the country have developed valuable 
working relationships with top scientists, health officials, and local 
industries. These employees help protect consumers from mislabeled 
foods, food borne diseases, defective medical devices, or unsafe 
cosmetics or drugs. And they work very closely with Customs, USDA, and 
others at our borders and ports, to inspect and test imported foods and 
drugs.
    FDA would be one of the last parts of government where one would 
want to hire employees on the cheap. When I talk with our NTEU members 
at FDA, I am amazed not only at the professionalism and extraordinary 
talent and quality of these employees, but their commitment to public 
service. Scientists, chemists, and professionals of every sort tell me 
that they prefer working in public service. However, they also tell me 
that if forced to choose between public service or, for example, being 
able to send their children to college, they would reluctantly feel 
forced to accept a position in the private sector in order to obtain 
such legitimate desires. I know this Subcommittee has the wisdom to see 
that FDA remain the employer of choice for dedicated, trustworthy 
professionals interested in working in public service.
    Employees at the FDA, both professionals and administrative staff, 
lag behind their private sector peers in compensation. In fiscal year 
2004, the Administration proposed a 2.0 percent pay raise for Federal 
employees on the GS scale. Congress rejected this miserly pay 
adjustment and legislated a 4.1 percent increase. It would have been 
wiser fof the Administration to have included the assumption of a fair 
pay raise in their fiscal year 2004 budgeting. However, better late 
than never, they have included funding in this year's FDA budget to 
fund the fiscal year 2004 4.1 percent pay raise. Yet, once again, the 
FDA budget submitted to Congress assumes only a 1.5 percent pay 
adjustment for fiscal year 2005. NTEU has called upon Congress to 
provide Federal employees with a 3.5 percent pay raise, reflecting the 
historic parity between civilian and military pay. We will be working 
for this parity in Congress and believe that the FDA budget should 
reflect this more appropriate amount.
    The Administration's Budget proposal also provides funding for 
relocation costs to the White Oak facility. During fiscal year 2005, 
1,700 drug review personnel will be relocated to the White Oak 
facility. The Administration has asked for $20.6 in new budget 
authority and $10 million in PDUFA user fees for relocation expenses. 
NTEU strongly supports this request. Consolidation of the various FDA 
facilities in the Washington metropolitan area is sensible and will add 
obvious improvements to FDA operations. However, NTEU opposes any plans 
to consolidate certain out of region field laboratories, particularly 
the St. Louis laboratory, with the White Oak facility. As the President 
of NTEU, I can tell you that these highly skilled employees will not 
relocate to White Oak. The result of such out of region consolidation 
will be the loss of these prized professionals. This is not in the 
public interest. In past years, the Congress has included a provision 
directing FDA management not to to close these field laboratories. NTEU 
would ask that Congress again do so this year.
    I want to mention, Mr. Chairman, that while on the above matter we 
have a disagreement with management at FDA, on a host of other issues, 
labor and management at FDA have been successful in working together to 
find win-win solutions and to jointly address very real problems FDA 
faces. NTEU and FDA management have negotiated a number of innovative 
and cutting edge initiatives to make sure the agency has the best and 
brightest employees available. It would be a shame if after such 
collaboration, these initiatives suffered from inadequate funding. NTEU 
and FDA have negotiated a Student Loan Repayment Program. This has been 
designed to aid FDA's recruitment and retention. Permanent and term 
employees with at least 3 years remaining on their appointment are 
eligible. Employees must remain at FDA for 3 years to receive this 
benefit. It allows FDA to repay part or all of a federally insured 
student loan.
    NTEU has also negotiated with FDA management a program of Quality 
Step Increases (QSIs) which provide incentives and recognition for 
excellence and has reformed several other awards and special pay 
provisions so to better achieve agency goals and retain quality 
employees. All of these initiatives need sufficient and improved 
funding.
    Thank you for giving NTEU the opportunity to share our views on the 
FDA budget for fiscal year 2005. We thank this subcommittee for its 
support of FDA programs in the past, and we urge you to work with the 
Administration to provide FDA with the staffing and resources necessary 
to protect and improve the health of the American public.
                                 ______
                                 
    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 the 
opportunity to provide the Subcommittee with the turfgrass industry's 
perspective in support of the continuation of the $55,000 appropriation 
for the National Turfgrass Evaluation Program (NTEP), included in ARS's 
baseline within the President's fiscal year 2005 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 2004 
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 at ARS stations 
across the country.
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. 
NTEP provides unbiased information on turfgrass cultivar adaptations, 
disease and insect resistance and environmental stress tolerance to 
home owners, sod producers, sports turf and parks managers, golf course 
superintendents and highway vegetation managers.
    Turfgrass provides multiple benefits to society including child 
safety on athletic fields, environmental protection of groundwater, 
reduction of silt and other contaminants in runoff, and green space in 
home lawns, parks and golf courses. Therefore, by cooperating with 
NTEP, USDA has a unique opportunity to take positive action in support 
of 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. 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 75 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. 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. Therefore, it is essential that the USDA 
maintain its modest financial support of NTEP.
Justification of $490,000 Appropriation Request for the existing ARS 
        Scientist Position and related support activities
    NTEP and the turfgrass industry are requesting the Subcommittee's 
support for $490,000 to continue funding for the full-time scientist 
staff position at ARS, focusing on turfgrass research, that was 
appropriated in the fiscal year 2004 budget, and in the two previous 
budget cycles.
    A new turfgrass research scientist position within USDA/ARS was 
created by Congress in the fiscal year 2001 budget. Additional funding 
was added in fiscal year 2002 with the total at $490,000. A research 
scientist was hired, and is now working at the ARS, Beltsville, MD 
center. A research plan was developed and approved by ARS. This 
scientist has used the funding for a full-time technician, equipment 
and supplies to initiate the research plan and for collaborative 
research with universities. We have an excellent scientist in place and 
he is making good progress in establishing a solid program. At this 
point, losing the funding for the position would be devastating to the 
turf industry as significant research has begun.
Justification of $5,400,000 Appropriation Request for the first 
        installment on the National Turfgrass Research Initiative: 12 
        ARS scientist positions at ARS installations around the United 
        States
    The turfgrass industry also requests 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 twelve priority research positions at nine 
locations across the United States. These twelve positions address the 
most pressing research needs, namely water use/efficiency and 
environmental issues.
    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 U.S. Turfgrass is the number one or two 
        agricultural crop in value and acreage in many states (e.g., 
        MD, PA, FL, NJ, NC).
  --As our society becomes and more urbanized, the acreage of turfgrass 
        will increase significantly. In addition, state and local 
        municipalities are requiring the reduction of water, pesticides 
        and fertilizers on turfgrass. However, demand on recreational 
        facilities will increase while these facilities will still be 
        required to provide safe turfgrass surfaces.
  --Currently, the industry spends about $10 million annually on 
        turfgrass research. However, private and university research 
        programs do not have the time nor resources to identify 
        completely new sources of beneficial genes for stress 
        tolerance. ARS turfgrass scientists will enhance the ongoing 
        research currently underway in the public and private sectors.
  --Water management is a key component of healthy turf and has direct 
        impact on nutrient and pesticide losses into the environment. 
        Increasing demands and competition for potable water make it 
        necessary to use water more efficiently. Also, drought 
        situations in many regions have limited the water available and 
        therefore, have severely impacted the turf industry as well as 
        homeowners and young athletes. Therefore, new and improved 
        technologies are needed to monitor turf stresses and to 
        schedule irrigation to achieve the desired quality. 
        Technologies are also needed to more efficiently and uniformly 
        irrigate turfgrasses. Drought tolerant grasses need to be 
        developed. In addition, to increase water available for 
        irrigation, waste water (treated and untreated) must be 
        utilized. Some of these waste waters contain contaminants such 
        as pathogens, heavy metals, and organic compounds. The movement 
        and accumulation of these contaminants in the environment 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.
    The turfgrass industry has met on several occasions with USDA/ARS 
officials to discuss the new turfgrass scientist position, necessary 
facilities, and future research opportunities. 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 and the 
turfgrass industry have developed, the National Turfgrass Research 
Initiative. The highlights of this strategy are below:
              national strategy for ars turfgrass research
    Research Objectives.--Conduct long-term basic and applied research 
to provide knowledge, decision-support tools and plant materials to aid 
in designing, implementing, monitoring and managing economically and 
environmentally sustainable turfgrass systems including providing sound 
scientifically based information for use in the regulatory process.
    Research Focus.--To make a significant contribution in developing 
and evaluating sustainable turfgrass systems, ARS proposes developing 
research programs in six major areas:
Component I. Water Management Strategies and Practices
    Rationale.--New and improved technologies are needed to monitor 
turf stresses and to schedule irrigation to achieve desired turf 
quality but with greater efficiency or using other water sources.
Component II. Germplasm: Collection, Enhancement and Preservation
    Rationale.--Grasses that better resist diseases, insects, drought, 
traffic, etc. are desperately needed. Also, a better understanding of 
the basic biology of turfgrass species is essential.
Component III. Improvement of Pest Management Practices
    Rationale.--New tools and management practices are needed to 
adequately control weeds, diseases, insects and vertebrate pests while 
reducing input costs and pesticide use.
Component IV. The Environment: Understanding and Improvement of 
        Turfgrass' Role
    Rationale.--The need is great to quantify the contribution of turf 
systems to water quality and quantify of vital importance in addressing 
the potential role of turf systems in environmental issues.
Component V. Enhancement of Soil and Soil Management Practices
    Rationale.--Research is needed to characterize limitations to turf 
growth and development in lessthan optimum soils and to develop cost-
effective management practices to overcome these limitations.
Component VI. Integrated Turf Management
    Rationale.--To develop needed tools for turf managers to select the 
best management practices for economic sustainability as well as 
environmental protection.

    ARS, as the lead agency at USDA for this initiative, has graciously 
devoted a significant amount of time to the effort. Like the industry, 
ARS is in this research endeavor for the long-term. To ARS's credit, 
the agency has committed staff, planning and technical resources to 
this effort. However, despite ARS's effort to include a budget request 
in the overall USDA budget request, USDA--at higher levels--has not 
seen fit to include this research as a priority. Thus, the industry is 
left with no alternative but to come directly to Congress for 
assistance through the appropriations process.
    The role and leadership of the Federal Government and USDA in this 
research are justifiable and grounded in solid public policy rationale. 
ARS is poised and prepared to work with the turfgrass industry in this 
major research initiative. However, ARS needs additional resources to 
undertake this mission.
    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 2005, the 
turfgrass industry requests that the following positions be established 
within USDA/ARS:

------------------------------------------------------------------------

------------------------------------------------------------------------
Position 1: Component I: Water: Agricultural Engineer--         $450,000
 Irrigation Southwest--Phoenix, AZ......................
Position 2: Component II: Germplasm: Molecular Biologist         450,000
 Southwest--Lubbock, TX.................................
Position 3: Component IV: Environment: Agricultural              450,000
 Engineer--Fate & Transport Southwest--Phoenix, AZ......
Position 4: Component I: Water: Stress Physiologist--            450,000
 Salinity Southwest--Riverside, CA......................
Position 5: Component II: Germplasm: Geneticist--Stress          450,000
 Transition Zone--Beltsville, MD........................
Position 6: Component I: Water: Agricultural Engineer--          450,000
 Irrigation Transition Zone--Florence, SC...............
Position 7. Component IV: Environment: Agricultural              450,000
 Engineer--Fate & Transport Northeast--University Park,
 PA.....................................................
Position 8: Component III: Pest Management: Weed                 450,000
 Scientist Northeast--University Park, PA...............
Position 9: Component IV: Environment: Agricultural              450,000
 Engineer--Fate & Transport North Central--Ames,  IA....
Position 10: Component III: Pest Management: Pathologist         450,000
 Transition Zone--Beltsville, MD........................
Position 11: Component II: Germplasm: Geneticist--               450,000
 Biodiversity Upper West--Logan, UT.....................
Position 12: Component III: Pest Management:                     450,000
 Entomologist North Central--Wooster, OH................
                                                         ---------------
      TOTAL.............................................       5,400,000
------------------------------------------------------------------------

    For this research we propose an ARS-University partnership, with 
funding allocated to ARS for 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.

                        [In millions of dollars]
------------------------------------------------------------------------

------------------------------------------------------------------------
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 2004 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 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. Until last year, the salinity control program had 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. Adequate funding for the Environmental 
Quality Incentives Program (EQIP), from which the Department of 
Agriculture funds the salinity program, is needed to implement salinity 
control measures. The Farm Security and Rural Investment Act (FSRIA) of 
2002 authorized a funding level of at least $1 billion for EQIP in 
fiscal year 2005. 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 until fiscal year 2004. 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, were 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 resulted in the Forum finding that the salinity control 
program needs acceleration 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.
    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 2005 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 2005 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 Nez Perce Tribe

    The Nez Perce Tribe requests the following funding amounts for 
fiscal year 2005, which are specific to the Nez Perce Tribe:
  --$253,000 through the United States Department of the Agriculture, 
        Animal Plant, Health Inspection Service, Plant Protection and 
        Quarantine Program to support its efforts to combat noxious 
        weed infestations using biological control technologies. 
        Biological control of weeds utilizes the weeds' natural enemies 
        to reduce the target weeds' ability to compete with desired 
        vegetation. Use of biological control of weeds in the western 
        United States has been employed since the 1940s to reduce weed 
        densities on range and wildlands where cultural and chemical 
        control methods are not economically practical or feasible. 
        Although biological control has been utilized for many years, 
        there are limited agents available for widespread distribution. 
        As a result, the transfer of biological control technology to 
        the users has been slow.
    Through this appropriation, the Nez Perce Bio-Control Center will 
continue to manage and establish nurseries to increase biological 
control organisms, mainly insects, for distribution throughout the 
Pacific Northwest. In addition, this funding will assist in identifying 
weed infestations, monitor the impacts of biocontrol, and provide 
annual technology transfer workshops to our partners in Federal and 
State agencies and other private landowners/managers regionally. The 
program will continue ongoing research efforts developed through 
collaborative partnerships with USDA staffs, local universities and 
regional experts.
    The Nez Perce Tribe's strong cultural tie to natural resources 
creates a good foundation from which to build such a program. 
Biological control offers long-term management of invasive weeds that 
cannot be controlled by other means. As biological control organisms 
reduce the weeds' competitive edge over desirable and native 
vegetation, both Tribal and non-tribal users of the region's wild land 
resources will benefit. The problems created by noxious weeds cannot be 
fixed quickly. The Nez Perce Tribe is viewing solutions to this problem 
from a long-term perspective and are asking for a similar commitment 
from Congress and the Department of Agriculture.
                                 ______
                                 

    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 United States 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 Indians and non-Indians 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.
                                 ______
                                 

                   Letter From the Oceanic Institute

                         Waimanalo, Hawaii, March 24, 2004.
Hon. Robert Bennett,
Chairman, Subcommittee on Agriculture, Committee on Appropriations, 
        U.S. Senate, Washington, DC.
    Dear Mr. Chairman: We would like to bring to your attention the 
success of the U.S. Marine Shrimp Farming Consortium and the value to 
the nation in increasing the current funding level from $3.746 million 
to $6 million.
    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 Agricultural Experiment Station, 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 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 half of this deficit.
    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 foreign and viral 
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.
    While exceptional progress has been made, the emerging industry is 
immature and continually confronted with new challenges. It depends on 
the U.S. Marine Shrimp Farming Program for high-health and genetically 
improved stocks, disease diagnosis and production technologies. There 
is a growing realization that our advanced biosecure shrimp production 
systems will allow the expansion of shrimp farming away from the 
environmentally sensitive coastal zone and into near-shore, inland/
rural, and desert sites.
    As a result of these efforts, investor confidence is increasing--
notably, within the last 3 years, new shrimp farm startups have begun 
in Mississippi, Hawaii, Texas, Arizona and South Carolina, and are 
being considered in other states. 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. Allocation of $6 million per year for the next few years to 
work in cooperation with the private sector to support and build this 
new industry, with its associated jobs and economic benefits, is in the 
best interests of the nation.
            Sincerely,
                                   Thomas E. Farewell,
                          President and CEO, The Oceanic Institute.
                                   William E. Hawkins,
Executive Director, University of Southern Mississippi, Gulf Coast 
                                               Research Laboratory.
                                   Colin Kaltenbach,
Vice Dean and Director, Agricultural Experiment Station, University 
                                                        of Arizona.
                                   Bobby R. Eddleman,
 Resident Director of Research, Texas A&M University, Agricultural 
                                       Research & Extension Center.
                                   Joseph McManus,
                       Associate Dean of Finance, Tufts University.
                                   Craig L. Browdy,
      Marine Scientist, Marine Resources Research Institute, South 
                          Carolina Department of Natural Resources.
                                   Marilyn B. Kilgen,
Head, Department of Biological Sciences, Nicholls State University.
                                 ______
                                 

 Prepared Statement of the U.S. Marine Shrimp Farming Consortium, The 
 Oceanic Institute, Gulf Coast Research Laboratory, Tufts University, 
  Waddell Mariculture Center, Texas Agricultural Experiment Station, 
          University of Arizona, and Nicholls State University

    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 (USMSFP), funded under the Federal 
initiative, Shrimp Aquaculture.
    We 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: the University of Southern 
Mississippi/Gulf Coast Marine Laboratory, Mississippi; The Oceanic 
Institute, Hawaii; Tufts University, Massachusetts; Texas Agricultural 
Experiment Station, Texas A&M University, Texas; Waddell Mariculture 
Center, South Carolina; the University of Arizona, Arizona; and 
Nicholls State University, Louisiana. These institutions, which oversee 
the USMSFP, have made major advances in technology development and 
services to support the U.S. shrimp farming industry. The USDA in its 
program reviews has recognized the program's excellent scientific 
performance, output, and multi-state collaborative efforts. The 
Consortium is at the crossroads of contributing to major growth of the 
U.S. industry, consolidating its competitive advantages, and satisfying 
consumers' demands for safe and wholesome seafood products. Shrimp is 
the number one consumed seafood product in the United States, yet 
contributes to a $3.2 billion trade deficit, second only to the import 
of oil for the deficit contributed by natural resource products.
Accomplishments
    The Consortium, in cooperation with private industry, industry 
associations and government agencies, has generated new technologies 
for producing safe and 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, inland/rural 
farm, and even desert sites; (5) served a lead role in the Joint 
Subcommittee on Aquaculture's efforts to assess the threat of globally 
transported shrimp pathogens; (6) served on the Office of International 
Epizootics, recommending country-of-origin labeling of imported shrimp 
products to combat the spread of exotic disease pathogens, subsequently 
adopted by the USDA in its 2002 Farm Bill; (7) supplied the U.S. 
industry with selectively bred and disease-resistant shrimp stocks; (8) 
developed advanced technology for biosecure shrimp production systems 
to protect both cultured and native wild stocks from disease; and (9) 
developed new feed formulations to minimize waste generation and 
enhance the use of domestic grains and oilseed products. These 
substantial accomplishments advance the continued growth of the 
domestic industry, place an important emphasis on environmental 
sustainability, address concerns for the safety and quality of our 
seafood supply, and increase market competitiveness.
    Judging from the state of the industry today, USMSFP efforts 
continue to have measurable positive effect. Coastal farming continues 
to lead in the production of cultured shrimp in the United States, and 
inland farming has added new dimensions and growth to the industry. 
Improvements in farm management practices, coupled with the widespread 
use of disease-resistant stocks, have resulted in bumper crops for the 
industry over the last several years. The year 2003 resulted in the 
largest harvest ever for U.S. farmers of near 13 million pounds. This 
represents over a three-fold increase in domestic production with the 
last 5 years, averaging over 25 percent growth of the industry per 
annum.
Industry Vulnerability
    While exceptional progress has been made, this emerging industry is 
continually confronted with new challenges. The industry depends on the 
USMSFP for leadership and innovative technology development. As a 
result of development of high-health and improved stocks, disease 
diagnosis, new feeds, and new production technologies and farming 
approaches, the domestic 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 5 years have 
approached $6 billion USD. There have been no outbreaks of notifiable 
viruses in the United States over the last 4 years, with a commensurate 
increase in shrimp production over the same period. With reliable 
production in place, we have also seen a commensurate geographic 
expansion of the industry within the United States from three to seven 
states in the last 10 years. 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 in the event of disease outbreaks or natural disaster. 
Significant amounts of shrimp are now being produced in Texas, South 
Carolina, Florida, Hawaii, Arizona, Alabama, and Arkansas. Several 
other states are now beginning to explore production with the newer 
technologies being developed.
    While significant progress has been made in risk assessment and 
risk management with visible success, the industry and the USMSFP must 
remain constantly vigilant and proactive to further improve global 
competitiveness. In addition to providing significant input on the 
development of national and international regulatory standards for 
shrimp farmers, important service work for governmental agencies and 
NGOs keeps us continuously apprised of new developments pertaining to 
emerging regulations so that USMSFP research plans can be kept 
proactively responsive to dynamic shifts in industry needs.
    The overwhelming threat facing the U.S. marine shrimp farming 
industry today is in the surge of foreign imports that have severely 
lowered market prices for shrimp. Average U.S. farm gate prices have 
fallen over 25 percent within the last 2 years, constraining 
profitability and plans for industry expansion. Domestic production 
estimates for 2005 are decidedly lower, as farmers have already opted 
not to stock as many ponds and acreage as previously projected. 
Inquiries into unfair trading practices impacting the U.S. shrimp 
industry have begun. Concerns also have been heightened over food 
safety issues associated with unregulated use of antibiotics and fecal-
borne contaminants due to questionable production practices in certain 
countries. Further, due to disease outbreaks worldwide, several foreign 
countries have switched production to the dominant species in the 
United States, eroding a previous competitive advantage. While it is 
important that a level playing field be created through reexamination 
of trade and food safety issues, more technologically advanced and 
innovative approaches are now critically needed to leverage U.S. 
industry gains, create competitive advantage, and improve 
profitability. Innovative ways need to be sought to offset low prices 
and to distinguish and add value to the domestic product to provide a 
competitive edge in the marketplace and to ensure the safety of the 
domestic seafood supply.
Industry Independence
    As a result of the work of the Consortium, investor confidence is 
increasing despite recent price trends. In addition to supporting 
today's industry, our advanced biosecure shrimp production systems are 
now developed to the point for further expansion of shrimp farming into 
near-shore, inland/rural and desert sites away from the environmentally 
sensitive coastal zone. We now have in place the economic models that 
will appropriately direct research to ensure economic viability taking 
in consideration all associated biological, regional, and economic risk 
factors. Importantly, these new production technologies produce the 
highest quality and safest shrimp, utilize U.S. grain and oilseed 
products for feed production, and do not pose any threat to the 
environment. There is hidden value in the domestic industry that can be 
exploited to gain competitive edge, offset declining prices, and ensure 
the quality and safety of shrimp for the consumer. Clearly, the U.S. 
shrimp farming industry has emerged solid from near collapse in the 
early 1990s, and appears well poised for a new phase of growth provided 
the technologies and innovations are in place to support a larger, more 
diverse, and more competitive domestic industry for the new millennium.
    To support existing efforts and technology transfer and plans for 
new dimensions to the research to address recent profitability issues, 
an increase in the current funding level from $3.746 million to $6 
million is requested. The increase will support an enhanced profile 
for: application of molecular biotechnologies to maintain the United 
States lead in disease monitoring and genetic selection efforts; 
development and application of sophisticated techniques for genetic 
selection of advanced and specialized lines of shrimp for U.S. 
exploitation; expansion of work to determine the mechanisms of disease 
immunity in shrimp for protection of both farmed and wild shrimp 
stocks; demonstration, validation, and commercialization of high 
density, biosecure farming systems to provide advanced, competitive 
production technologies particularly applicable to the United States; 
and determination of market and product quality issues for food safety 
assurances, and development of U.S. label to leverage existing 
standards for high quality production. In addition to these needed 
technological innovations, increased funding will support new efforts 
to promote institutional innovations that will enable expansion and 
vertical integration of the domestic industry, including examination of 
regulatory impediments to shrimp aquaculture; the effect of farm 
insurance; development of cooperatives; and the socioeconomics of 
existing and advanced, high density production systems.
    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.
                                 ______
                                 
                                          Ceatech USA, Inc,
                                Honolulu, Hawaii, February 2, 2004.
Dr. Anthony Ostrowski,
Director, U.S. Marine Shrimp Farming Consortium, The Oceanic Institute, 
        Waimanalo, HI.
    Dear Tony: We appreciate the past provision of a broodstock line 
from OI for evaluation under commercial scale. Those animals were used 
to produce seed that were stocked into two production ponds for the 
assessment of growth performance during this year.
    The outcome of these production trials have been discussed between 
James Sweeney and Shaun Moss, manager of OI's shrimp research program. 
Both individuals see benefit from additional evaluations.
    We continue to look forward to a site visit to Ceatech's farm by 
you and your scientists to discuss further collaborative research 
activities. We strongly support such technical exchange, and look 
forward to making arrangements to accomplish it.
    Thank you for your support.
            Sincerely,
                                       Paul Bienfang, Ph.D,
                                             Senior Vice President.
                                 ______
                                 
                                        Darden Restaurants,
                               Orlando, Florida, February 23, 2004.
Dr. Anthony C. Ostrowski,
Director, U.S. Marine Shrimp Farming Program, The Oceanic Institute, 
        Waimanalo, Hawaii.
    Dear Dr. Ostrowski: I am writing this letter in support of the U.S. 
Marine Shrimp Farming Program and Oceanic Institute's continued efforts 
in the development of a United States based shrimp farming industry.
    Shrimp farming has become a large and growing global business. In 
2003, shrimp consumption in the United States hit and all time high of 
3.7 pounds per capita, surpassing Tuna as the number one seafood 
consumed in the United States. This is directly the result of 
technological advances made in shrimp aquaculture, and lays a solid 
foundation for the future of the shrimp business.
    However, there is much work to be done. It will be challenging for 
the U.S. industry to compete based on current technology with many 
foreign producers of shrimp which have land, labor and construction 
costs much lower than the United States. The opportunity in shrimp 
farming in the United States is huge, but will require further research 
to make it practical and sustainable.
    The U.S. shrimp farming industry will need to compete based on 
advanced technology which allows it to overcome some of the land and 
labor cost disadvantages. The U.S. industry can also differentiate 
itself in quality and freshness. This means that systems to grow shrimp 
year round which offer rapid delivery of fresh, never frozen shrimp are 
also key to the future of this business in the United States.
    Oceanic Institute recognizes these two needs and opportunities and 
is already working on the science to achieve them. Stock enhancement 
programs are also an area that Oceanic Institute. Is expert in 
developing and can be part of the solution faced by our Gulf and 
Atlantic shrimp fishing industry.
    We at Darden Restaurants, support the research being done by the 
U.S. Marine Shrimp Farming Program and Oceanic Institute, and believe 
that new and exciting business opportunities for United States based 
aquaculture operations will evolve from your continued research.
            Sincerely,
                                               Bill Herzig,
   Vice President Seafood, Regional & Capital Equipment Purchasing.
                                 ______
                                 
                              Harlingen Shrimp Farms, Ltd.,
                                Los Fresnos, TX, February 13, 2004.
Dr. Tony Ostrowski,
Director, U.S. Marine Shrimp Farming Program, The Oceanic Institute, 
        Waimanalo, HI.
    Dear Dr. Ostrowski: At your request I am writing a letter of 
support for the U.S. Marine Shrimp Farming Program (USMSFP) so that our 
U.S. government can renew funding for this valuable program I am proud 
to note that Texas had a record production year in 2003, with 
approximately nine million pounds of farmed shrimp produced. 
Unfortunately, our good production was offset by the lowest shrimp 
prices the United States has seen in decades, resulting in financial 
losses for some producers and marginal profits for the rest. U.S. 
shrimp farmers have had an especially tough time competing with imports 
from foreign producers. Many of the costs for labor, insurance and 
taxes as well as costs associated with permitting and compliance with 
regulations on discharge water quality are greatly reduced or not 
encountered in other countries. The U.S. shrimp farmers need innovative 
research from the USMSFP, which will allow our industry to stay 
competitive.
    I believe that the good production of farmed shrimp in Texas last 
year was, to a great extent, a direct result of benefits received over 
the years through the USMSFP. The use of domesticated, specific 
pathogen free (SPF) brood lines as well as the diagnostic services, 
required to monitor and maintain pathogen free production practices 
have been a major advantage for U.S. producers. Research on shrimp 
disease continues and information regarding the occurrence and 
characteristics of these diseases can be utilized to increase and 
maintain biosecure production practices on U.S. farms.
    It is especially important that research objectives, which directly 
benefit and bolster the profitability of existing, open pond production 
systems, which are the mainstay of U.S. marine shrimp farming must be 
prioritized at this time. I encourage the U.S. government to continue 
to support the USMSFP and am hopeful that the resulting research can 
benefit the profitability of U.S. shrimp farming, which can help to 
reduce the huge shrimp trade deficit.
            Sincerely,
                                             Fritz Jaenike,
                                                   General Manager.
                                 ______
                                 
                             High Health Aquaculture, Inc.,
                                                  February 6, 2004.
Dr. Anthony C. Ostrowski,
Director, U.S. Marine Shrimp Farming Program, The Oceanic Institute, 
        Waimanalo, HI.
    Dear Tony: I am writing to express my support for the U.S. Marine 
Shrimp Farming Program. Its efforts in shrimp science have contributed 
to the expansion of the U.S. shrimp farming industry.
    The global shrimp industry is facing difficult times. The U.S. 
industry is poised to lead the way through the Consortium's top-flight 
science.
    Let me know if you need any further information.
            Best regards,
                                          Jim Wyban, Ph.D.,
                                                         President.
                                 ______
                                 
                           Kona Bay Marine Resources, Inc.,
                                      Honolulu, HI, March 10, 2004.
Dr. Anthony C. Ostrowski,
Director, U.S. Marine Shrimp Farming Program, The Oceanic Institute, 
        Waimanalo, HI.
    Dear Dr. Ostrowski: I am writing in support of the U.S. Marine 
Shrimp Farming Program (USMSFP). The program is essential to the 
continued growth and health of a domestic shrimp industry. The USMSFP 
has been instrumental in the development of SPF shrimp, the development 
of disease control strategies and helping shrimp farmers to improve 
their farming practices.
    Continued full funding from the U.S. government is critical to 
maintaining and building upon the good work done thus far by USMSFP.
            Best regards,
                                           Brian Goldstein,
                                                         President.
                                 ______
                                 
                                  Lowcountry Seafarms, LLC,
                                      Beaufort, SC, March 10, 2004.
Dr. Anthony C. Ostrowski,
Director, U.S. Marine Shrimp Farming Program, The Oceanic Institute, 
        Waimanalo, HI.
    Dear Dr. Ostrowski: This letter is in support of the efforts of the 
U.S. Marine Shrimp Farming Program. I have followed the research work 
done by the USMSFP over the years. The results of that work, and that 
of the Waddell Mariculture Research and Development Center in Bluffton, 
SC, were instrumental in my planning our project to be located here in 
SC.
    As our project is to entail the use of super-intensive closed-loop 
raceway production systems, the development of lines of SPF shrimp and 
work in disease control methods and water management techniques by the 
USMSFP are especially valuable. We will be following new developments 
as they occur.
    We hope to see your continued support to the shrimp farming 
industry in the United States.
    Regards,
                                               Mills Rooks,
                                                               CEO.
                                 ______
                                 
                                       Southern Star, Inc.,
                                Rio Hondo, Texas, February 6, 2004.
Dr. Anthony C. Ostrowski,
Director, U.S. Marine Shrimp Farming Program, The Oceanic Institute, 
        Waimanalo, HI.
    Dear Tony: Thanks for your thinking of my opinion. Basically, I 
still think American shrimp farmers are working fine. The government 
regulation did not bother us too much. The system we used is good 
enough. American shrimp farmers only produce 0.5 percent of market 
needs. That is the reason we are affected by the market so much when 
overseas shrimps flood in with cheaper price.
    The reason overseas has lower cost is because of their facilities 
full utilized. In Texas valley, we may have chance to grow two crops. 
Anywhere else is one crop only. Under this weather condition, we are 
not compatible.
    There are three things you can help us:
  --Find another species that can grow faster and last longer which 
        will be accepted by government agents.
  --Find a new line of P. Vannamei which can tolerate the water 
        temperature colder.
  --Ask government to buy P/L from private hatcheries for releasing 
        into gulf which will help shrimpers.
    Should you have any question, please feel free to call me.
            Truly yours,
                                                  Felix Fu,
                                                    Vice President.
                                 ______
                                 
                         Swimming RockFish and Shrimp Farm,
                                       Meggett, SC, March 23, 2004.
Dr. Antony C. Ostrowski,
Waimanalo, HI.
    Dear Ostrowski: I write today in support of the U.S. Marine Shrimp 
Farming Program. I do so as a consumer, stakeholder, and surviving 
member of North American entrepreneurs still engaged in shrimp farming. 
I say surviving because the numbers of shrimp farmers, at least in 
South Carolina, has drastically declined. The decline, I believe, is 
because of the USMSFP and its past good works. I understand that 
statement, supporting the organization that has caused the decline in 
my industry, is confusing and seemingly contradictory . . . so please 
read on and allow me to explain.
    American shrimp farmers, as well as harvesters of wild stocks, are 
in financial trouble today primarily because of the low price of shrimp 
worldwide. In great measure, this is due to the advances in pond 
culture attributable to the research conducted by USMSFP partner 
organizations and to the dissemination and subsequent use of the 
information gained to the world. In other words, the USMSFP programs 
have been so extraordinarily successful that shrimp has moved from a 
high dollar luxury status to nearly a commodity staple item.
    My current support for the USMSFP stems from the fact that the 
program is now moving toward hyper-intensive production technology with 
concomitant genetics research that ultimately will enable surviving and 
new American entrepreneurs to be competitive again at home. It is my 
hope that future work will marry native species, particularly east 
coast white shrimp production, with the developing extreme density 
production systems. This seems to me to be the least environmentally 
risky and best marketing strategy for coastal production.
    With my best wishes for your continuing achievements, I offer my 
support for your continued funding.
            Sincerely,
                                                  Richard B. Eager.
                                 ______
                                 
                                       Zeigler Bros., Inc.,
                                    Gardnes, PA, February 23, 2004.
Dr. Anthony C. Ostrowski,
Director, U.S. Marine Shrimp Farming Program, The Oceanic Institute, 
        Waimanalo, HI.
    Dear Dr. Ostrowski: We are most pleased, again this year, to write 
a letter of support for the U.S. Marine Shrimp Farming Program. By this 
letter, we are asking Congress to continue expanded support for this 
important program for U.S. Aquaculture.
    In my letter last year, which is attached, we indicated many 
reasons why this program is important to U.S. aquaculture and to 
businesses like ourselves. We recommend that you attach these two 
letters.
    For the past 2 years, we have received additional benefits from the 
U.S. Marine Shrimp Farming Program through its contribution of 
technical knowledge to intensive shrimp farming. This is especially 
important to our company for as you know, we are one of four members of 
a consortium which received a very large ATP grant for the development 
of very high intensive re-cycle shrimp farming, known as the BioZest 
System. Scientific and technical information available through your 
program has allowed us to proceed with feeds development at a more 
rapid rate bringing intensive shrimp farming closer to economic 
feasibility for the United States.
    If we can provide additional support in any way for this most 
important program, please advise.
            Very truly yours,
                                  Thomas R. Zeigler, Ph.D.,
                                                   President & CEO.
                                 ______
                                 

     Prepared Statement of the Organization for the Promotion and 
      Advancement of Small Telecommunications Companies (OPASTCO)

Summary of Request
    The Organization for the Promotion and Advancement of Small 
Telecommunications Companies (OPASTCO) seeks the Subcommittee's support 
for fiscal year 2005 loan levels for the telecommunications loans 
program and Rural Telephone Bank (RTB) program administered by the 
Rural Utilities Service (RUS) in the following amounts:

                          [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; and (2) funding of the distance 
learning, telemedicine, and broadband grant and loan programs at 
sufficient levels.
General
    OPASTCO is a national trade association of more than 550 small 
telecommunications carriers serving primarily rural areas of the United 
States. Its members, which include both commercial companies and 
cooperatives, together serve over 3.5 million customers in 47 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 begun to 
deliver on the promise of a new ``information age.'' 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-to-the-home, 
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. 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 Telecommunications Act of 1996 only increases 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. RUS has an essential role to play in the 
implementation of the law, as it will compliment high-cost support 
mechanisms established by the FCC, thus enabling rural America to 
achieve the federally mandated goal of rural/urban service and rate 
comparability.
1A $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 
establish a $175 million loan level for fiscal year 2005.
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 RTB 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 2005 appropriations bill will ensure that RTB 
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 2005.
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 funds, 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 People for the Ethical Treatment of Animals 
                                 (PETA)

    Dear Chairman Bennett, Ranking Member Kohl, and Members of the 
Subcommittee: People for the Ethical Treatment of Animals (PETA) is the 
world's largest animal rights organization, with 800,000 members and 
supporters. We greatly appreciate this opportunity to submit testimony 
regarding the fiscal year 2005 appropriations for the Food and Drug 
Administration (FDA). Our testimony will focus on four 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 United States 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 the following 
report language: ``The Commissioner of the FDA is required to report to 
Congress no later than December 1, 2004, regarding the use of in vitro 
methods using skin from a variety of sources (e.g. human cadavers) for 
skin absorption studies, human volunteer clinical skin-patch tests (for 
chemicals first determined to be non-corrosive and free of other 
harmful properties) for skin irritation studies, the 3T3 Neutral Red 
Uptake Phototoxicity Test for phototoxicity studies, and the in vitro 
Human Pyrogen Test for pyrogenicity studies. The Commissioner should 
describe the reasons for which the agency has delayed accepting the 
aforementioned methods for regulatory use as total replacements for 
their animal-based counterparts, exactly what steps the agency is 
taking to overcome those delays, and a target date by which the agency 
intends to accept these methods for regulatory use.''
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. 
According to the European Centre for the Validation of Alternative 
Methods, the in vitro Human Pyrogen Test out-performs the rabbit-based 
test, and does so at one-fifth of the labor cost and less than one-
tenth of the labor cost.
    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 2005 
Agriculture, Rural Development, Food and Drug Administration and 
Related Agencies bill stating that:

    ``The Commissioner of the FDA is required to report to Congress no 
later than December 1, 2004, regarding the use of in vitro methods 
using skin from a variety of sources (e.g. human cadavers) for skin 
absorption studies, human volunteer clinical skin-patch tests (for 
chemicals first determined to be non-corrosive and free of other 
harmful properties) for skin irritation studies, the 3T3 Neutral Red 
Uptake Phototoxicity Test for phototoxicity studies, and the in vitro 
Human Pyrogen Test for pyrogenicity studies. The Commissioner should 
describe the reasons for which the agency has delayed accepting the 
aforementioned methods for regulatory use as total replacements for 
their animal-based counterparts, exactly what steps the agency is 
taking to overcome those delays, and a target date by which the agency 
intends to accept these methods for regulatory use.''
                                 ______
                                 

     Prepared Statements of the Pickle Packers International, Inc.

    The pickled vegetable industry strongly supports and encourages 
your committee in its work of maintaining and guiding the Agricultural 
Research Service. To accomplish the goal of improved health and quality 
of life for the American people, the health action agencies of this 
country continue to encourage increased consumption of fruits and 
vegetables in our diets. Accumulating evidence from the epidemiology 
and biochemistry of heart disease, cancer and diabetes supports this 
policy. Vitamins (particularly A, C, and folic acid) and a variety of 
antioxidant phytochemicals in plant foods are thought to be the basis 
for correlation's between high fruit and vegetable consumption and 
reduced incidence of these debilitating and deadly diseases. The 
problem is that many Americans choose not to consume the variety and 
quantities of fruits and vegetables that are needed for better health.
    As an association representing processors that produce over 87 
percent of the tonnage of pickled vegetables in North America, it is 
our goal to produce new products that increase the competitiveness of 
U.S. agriculture as well as meet the demands of an increasingly diverse 
U.S. population. The profit margins of growers continue to be narrowed 
by foreign competition. Likewise, the people of this country represent 
an ever-broadening array of expectations, tastes and preferences 
derived from many cultural backgrounds. Everyone, however, faces the 
common dilemma that food costs should remain stable and preparation 
time continues to be squeezed by the other demands of life. This 
industry can grow by meeting these expectations and demands with 
reasonably priced products of good texture and flavor that are high in 
nutritional value, low in negative environmental impacts, and produced 
with assured safety from pathogenic microorganisms and from those who 
would use food as a vehicle for terror. With strong research to back us 
up, we believe our industry can make a greater contribution to better 
product cost, diets and better health.
    Many small to medium sized growers and processing operations are 
involved in the pickled vegetable industry. We grow and process a group 
of vegetable crops, including cucumbers, peppers, carrots, onions, 
garlic, cauliflower, cabbage (Sauerkraut) and Brussels sprouts, that 
are referred to as minor' crops. None of these crops is in any 
``commodity program'' and as such, do not rely upon taxpayer subsidies. 
However, current farm value for just cucumbers, onions and garlic is 
$2.3 billion with an estimated processed value of $5.8 billion. These 
crops represent important sources of income to farmers, and the 
processing operations are important employers in rural communities 
around the United States. Growers, processing plant employees and 
employees of suppliers to this industry reside in all 50 states. To 
realize its potential in the rapidly changing American economy, this 
industry will rely upon a growing stream of appropriately directed 
basic and applied research from four important research programs within 
the Agricultural Research Service. With strong research to back us up, 
we believe our industry can make a greater contribution to better diets 
and better health.
        vegetable crops research laboratory, madison, wisconsin
    First, I would like to thank the Committee for $200,000 additional 
funding it provided the fiscal year 2002 budget to carry out field and 
processing research vital to the membership of PPI. However, to 
continue this important work it is necessary for the Congress restore 
this funding in fiscal year 2005, since the funds were not included in 
the budget sent to the Congress. The USDA/ARS Vegetable Crops Research 
Unit at the University of Wisconsin is the only USDA research unit 
dedicated to the genetic improvement of cucumbers, carrots, onions and 
garlic. Three scientists in this unit account for approximately half of 
the total U.S. public breeding and genetics research on these crops. 
Their past efforts have yielded cucumber, carrot and onion cultivars 
and breeding stocks that are widely used by the U.S. vegetable industry 
(i.e., growers, processors, and seed companies). These varieties 
account for over half of the farm yield produced by these crops today. 
All U.S. seed companies rely upon this program for developing new 
varieties, because ARS programs seek to introduce economically 
important traits (e.g., virus and nematode resistance) not available in 
commercial varieties using long-term high risk research efforts. The 
U.S. vegetable seed industry develops new varieties of cucumbers, 
carrots, onions, and garlic and over twenty other vegetables used by 
thousands of vegetable growers. The U.S. vegetable seed, grower, and 
processing industry, relies upon the USDA/ARS Vegetable Crops Research 
Unit for unique genetic stocks to improve varieties in the same way the 
U.S. health care and pharmaceutical industries depend on fundamental 
research from the National Institutes of Health. Their innovations meet 
long-term needs and bring innovations in these crops for the United 
States and export markets, for which the United States has successfully 
competed. Past accomplishments by this USDA group have been 
cornerstones for the U.S. vegetable industry that have resulted in 
increased profitability, and improved product nutrition and quality.
    Both consumers and the vegetable production and processing industry 
would like to see fewer pesticides applied to food and into the 
environment in a cost-effective manner. Scientists in this unit have 
developed a genetic resistance for many major vegetable diseases. 
Perhaps the most important limiting factor in the production of 
cucumbers has been its susceptibility to disease. New research progress 
initiated in the 1990s and continuing today in Madison has resulted in 
cucumbers with improved pickling quality and suitability for machine 
harvesting. Viral and fungal diseases threaten much of the U.S. 
cucumber production. New sources of genetic resistance to these 
diseases have recently been mapped on cucumber chromosomes to provide a 
ready tool for our seed industry to significantly accelerate the 
development of resistant cultivars for U.S. growers. Likewise, new 
cultivar resistances to environmental stress like cold, heat and salt 
stress discovered by these scientists will help cucumber growers 
produce a profitable crop where these stressful conditions occur. The 
development of DNA markers that are associated with traits for 
tolerance of biological stress will help public and private breeders 
more efficiently develop stress-resistant varieties because selection 
for improved varieties can be done in the laboratory as well as in the 
field saving time and the costly expenses associated with field 
testing. Nematodes in the soil deform carrot roots to reduce yield from 
10 percent to over 70 percent in major production areas. A new genetic 
resistance to nematode attack was recently discovered and found to 
almost completely protect the carrot crop from one major nematode. This 
genetic resistance assures sustainable crop production for growers and 
reduces pesticide residues in our food and environment. Value of this 
genetic resistance developed by the vegetable crops unit is estimated 
at $650 million per year in increased crop production, not to mention 
environmental benefits due to reduction in pesticide use. This group 
improved both consumer quality and processing quality of vegetables 
with a resulting increase in production efficiency and consumer appeal. 
This product was founded on carrot germplasm developed in Madison, 
Wisconsin. Carrots provide approximately 30 percent of the U.S. dietary 
vitamin A. With new carrots that have been developed, nutritional value 
of this crop has tripled, including the development of nutrient-rich 
cucumbers with increased levels of provitamin A. Using new 
biotechnological methods, a system for rapidly and simply identifying 
seed production ability in onions has been developed that reduces the 
breeding process up to 6 years. A genetic map of onion flavor and 
nutrition will be used to develop onions that are more appealing and 
healthy for consumers. Garlic is a crop familiar to all consumers, but 
it has not been possible to breed new garlic varieties until a new 
technique for garlic seed production was recently developed and is now 
being bred like other crops.
    There are still serious vegetable production problems, which need 
attention. For example, losses of cucumbers, onions, and carrots in the 
field due to attack by pathogens and pests remains high, nutritional 
quality needs to be significantly improved and U.S. production value 
and export markets could certainly be enhanced. Genetic improvement of 
all the attributes of these valuable crops are at hand through the 
unique USDA lines and populations (i.e., germplasm) that are available 
and the new biotechnological methodologies that are being developed by 
the group. The achievement of these goals will involve the utilization 
of a wide range of biological diversity available in the germplasm 
collections for these crops. Classical plant breeding methods combined 
with bio-technological tools such as DNA marker-assisted selection and 
genome maps of cucumber, carrot and onion will be the methods to 
implement these genetic improvements. With this, new high-value 
vegetable products based upon genetic improvements developed by our 
USDA laboratories can offer vegetable processors and growers expanded 
economic opportunities for United States and export markets.
       u.s. food fermentation laboratory, raleigh, north carolina
    The USDA/ARS Food Fermentation Laboratory in Raleigh, NC is the 
major public laboratory that this industry looks to as a source for new 
scientific information and development of new processing concepts 
related to fermented and acidified vegetables. This industry has a 
critical need for an increased level of food safety research do to the 
recognition that there are acid tolerant food pathogens, including E. 
coli, listeria and salmonella, that can survive and cause illness in 
acid foods like apple and orange juice. We need to determine the extent 
to which the acidified foods we produce are vulnerable to these 
pathogens. If vulnerabilities are found to exist, practical means must 
be found to assure that these pathogens are killed, while maintaining 
the quality of our products that our customers expect. The Food 
Fermentation Laboratory has unique capabilities in this area because 
the scientists are very knowledgeable with the processing operations 
used in this industry and the practical problems processors must deal 
with in making high quality products from cucumbers, peppers, cabbage 
and other vegetables. Scientists from this laboratory have been working 
cooperatively with the industry and with FDA to develop new guidelines 
for filing safe processes to assure that acid tolerant pathogens are 
killed in current products. These new guidelines are currently being 
implemented. The scientists are actively engaged in research projects 
to develop improved approaches to eliminate these food pathogens from 
fermented and acidified vegetable products. However, success will 
require sustained effort as we learn more about the ways in which these 
pathogens can enter our food supply and discover new approaches to 
eliminating them from our products. PPI thanks the Congress for 
$270,000 additional funding it provided in the fiscal year 2004 budget 
so that a microbial physiologist can be hired into this unit to carry 
out this research, which is critical for the membership of PPI. 
However, to continue this important work it is necessary for the 
Congress restore this funding in fiscal year 2005, since the funds were 
not included in the budget sent to the Congress.
    The competitive environment from world markets in which our 
processors operate today requires that research on new processing 
techniques and product quality issues must also be maintained and 
enhanced. Over the years this laboratory has been a source for 
innovations in this industry, which have helped us remain competitive 
in the current global trade environment. We expect the research done in 
this laboratory to lead to new processing and product ideas that will 
increase the economic value of this industry and provide consumers with 
high quality, more healthful vegetable products. In addition to the 
newer challenges, this industry needs better technology for waste 
minimization related to salt and organic waste generated in our 
processing plants.
    This laboratory is conducting research on cucumbers, peppers, 
cabbage, sweetpotatoes, and other produce. A restructuring technology 
has been developed that offers a potential for development of 
convenient to use sweetpotato products that are high in nutritional 
value. Minimal processing techniques for refrigerated products from 
cucumbers and sweetpotatoes are also under development. Continued 
technological advancement must occur so that U.S. farmers and 
processors can meet competition from emerging countries that often have 
less strict environmental standards and lower labor costs. To enhance 
the processing and waste minimization research of this unit we request 
creation of a new position for a Food Process Engineer to work with the 
Food Technologists and Microbiologists in the unit to design and 
improve processes and packaging systems that are used for acidified, 
fermented, and minimally processed vegetables.
        sugarbeet and bean research unit, east lansing, michigan
    USDA/ARS Cucumber Sanitation and Vegetable Post Harvest Quality and 
Food Safety Engineering Research is a component of the Sugarbeet and 
Bean Research Unit, East Lansing, Michigan. The Vegetable Post Harvest 
Quality Research Program is the only Federally funded research program 
that uses engineering principles and technology to address post harvest 
sanitation and food quality of vegetable concerns on a sustained and 
programmatic basis. The goals of this research are reflected in the 
Mission Statement of the CRIS, which is to apply engineering solutions 
to ameliorate post harvest losses of pickling cucumbers from soil borne 
plant pathogens and develop new wash water systems for ensuring the 
sanitation of cucumbers from rot type pathogens.
    The Vegetable Post Harvest Quality Research CRIS is severely under 
funded and because of the shortage of base funds no full time scientist 
(SY) is working on the critical problems facing the industry. In fiscal 
year 2000, a postdoctoral research associate worked to address the 
chlorine dioxide problem and initiated the dump tank treatment 
experiments. However, the postdoctoral resigned to take another 
position. In 2003, the Vegetable Post Harvest Quality Research CRIS 
hired another postdoctoral research associate to explore alternative 
methodologies via genetics and genomics to maintain long-term food 
safety and sustainable production of pickling cucumbers. Goals of this 
2-year project are to: (1) Develop genomic infrastructure for pickling 
and other cucumbers by developing genomic and cDNA libraries; (2) 
Determine the nucleotide sequence code for as many pickling cucumber 
genes to be represented as Expressed Sequence Tags as practical; (3) 
Examine changes in gene expression during fruit development and in 
response to attack by fruit rotting pathogens; and (4) Develop genetic 
intervention strategies to combat fruit rot caused by Phytophthora 
capsici. These goals dovetail with recent infrastructure and equipment 
investments in both breeding and genomic responsibilities of the 
Sugarbeet CRIS. Phytophthora fruit rot is the most serious threat to 
Michigan growers since symptoms are not generally evident until after 
harvest, Phytophthora fruit rot can render entire lots of pickling 
cucumbers worthless during the 3 days of transport and handling just 
before to processing. Effective disease management is currently 
unavailable, and the disease is spreading rapidly throughout Michigan 
cucumber and snap bean growing regions.
    Post harvest rotting is a major concern to the pickled vegetable 
industry. Growers and processors go to great lengths to sanitize the 
surface of vegetable produce through a variety of methods including 
washing, spraying, brushing, chemical treatments, etc. These sanitizing 
systems may be losing effectiveness, and they can also be costly to 
implement and maintain and may be environmentally hazardous. New 
equipment and systems need to be developed, tested, and evaluated in 
order to ensure produce safety for all growers, retailers, and 
consumers. New pickling cucumber germplasm that is resistant to its 
major post-harvest pathogens is urgently needed. Such germplasm is 
currently unavailable, and understanding the basic biology of the 
infection processes is needed to transfer information from model plant 
genomes for practical application in limiting post-harvest loss of 
pickling cucumbers.
    This CRIS urgently needs an additional $100,000 in Federal 
appropriations to conduct the critical research at the scope expected 
for a permanent scientist to solve basic problems and make an impact on 
the cucumber industry.
         u.s. vegetable laboratory, charleston, south carolina
    The research program at the USDA/ARS, U.S. Vegetable Laboratory in 
Charleston, SC addresses established national problems in vegetable 
crop production and protection with emphasis on the southeastern United 
States. This research program is internationally recognized for its 
accomplishments, which have resulted in development of over 150 new 
vegetable varieties and lines along with the development of many new 
and improved disease and pest management practices. This laboratory's 
program currently addresses 14 vegetable crops including those in the 
cabbage, cucumber, and pepper families, which are of major importance 
to the pickling industry. The mission of the laboratory is to (a) 
develop disease and pest resistant vegetable crops and (b) develop new, 
reliable, environmentally sound disease and pest management programs 
that do not rely on conventional pesticides.
    Continued expansion of the Charleston program is crucial. Vegetable 
growers must depend heavily on synthetic pesticides to control diseases 
and pests. Cancellation and/or restrictions on the use of many 
effective pesticide compounds are having a considerable influence on 
the future of vegetable crop production. Without the use of certain 
pesticides, growers will experience crop failures unless other 
effective, non-pesticidal control methods are found quickly. The 
research on improved, more efficient and environmentally compatible 
vegetable production practices and genetically resistant varieties at 
the U.S. Vegetable Laboratory continues to be absolutely essential. 
This gives U.S. growers the competitive edge they must have to sustain 
and keep this important industry and allow it to expand in the face of 
increasing foreign competition.
                      funding needs for the future
    It remains critical that funding continue to maintain the forward 
momentum in pickled vegetable research the United States now enjoys and 
to increase funding levels as warranted by planned expansion of 
research projects to maintain United States competitiveness. We also 
understand that discretionary funds are now used to meet the rising 
fixed costs associated with each location. Additional funding is needed 
at the Wisconsin and South Carolina programs for genetic improvement of 
crops essential to the pickled vegetable industry, and at North 
Carolina and Michigan for development of environmentally-sensitive 
technologies for improved safety and value to the consumer of our 
products. The fermented and acidified vegetable industry is receptive 
to capital investment in order to remain competitive, but only if that 
investment is economically justified. The research needed to justify 
such capital investment involves both short term (6-24 months) and long 
term (2-10 years or longer) commitments. The diverse array of companies 
making up our industry assumes responsibility for short-term research, 
but the expense and risk are too great for individual companies to 
commit to the long-term research needed to insure future 
competitiveness. The pickled vegetable industry currently supports 
research efforts at Wisconsin and North Carolina and anticipates 
funding work at South Carolina and Michigan as scientists are put in 
place. Donations of supplies and processing equipment from processors 
and affiliated industries have continued for many years.
U.S. Vegetable Laboratory, Charleston, South Carolina
    The newly constructed laboratory-office building at the U.S. 
Vegetable Laboratory was occupied in April 2003. Design of the 
accompanying greenhouse and headhouse research space is underway using 
the funds appropriated for this purpose in fiscal year 2003. In fiscal 
year 2004, construction of the headhouse component was funded, but 
$10.9 million is still needed to construct the greenhouses. This new 
facility replaces and consolidates outmoded laboratory areas that were 
housed in 1930s-era buildings and trailers. Completion of the total 
research complex will provide for the effective continuation and 
expansion of the excellent vegetable crops research program that has 
been conducted by the Agricultural Research Service at Charleston for 
over 60 years. It is most critical to the mission of the U.S. Vegetable 
Laboratory that the fiscal year 2003 and fiscal year 2004 appropriated 
funds for expansion of the Charleston research staff be maintained in 
fiscal year 2005. In addition, new funds are still needed to hire 
additional scientists to expand the research program. An Entomologist 
is needed to facilitate development of host resistance and new 
management approaches to a wider range of established insect pests of 
vegetable crops; a Molecular Biologist is needed to develop and utilize 
molecular techniques for pathogen and pest population studies necessary 
to development of new management approaches and resistant genetic 
stocks. Both of these new scientific positions will greatly contribute 
to the accomplishment of research that will provide for the effective 
protection of vegetable crops from disease and pests without the use of 
conventional pesticides. Each of these positions requires a funding 
level of $330,000 for their establishment.

------------------------------------------------------------------------
                                     Current status from     New funds
   Appropriations to restore new    fiscal year 2003 and      needed
      scientific staff needed               2004            $770,000.00
------------------------------------------------------------------------
Entomologist......................  Needed..............        $330,000
Molecular Biologist...............  Needed..............         330,000
                                                         ---------------
      Total new funds.............  ....................         660,000
------------------------------------------------------------------------

Food Fermentation Laboratory, Raleigh, North Carolina
    With the additional funds provided in the fiscal year 2004 budget, 
current base funding for four scientists at the laboratory is 
$1,183,000. However, the $270,000 increase that raised fiscal year 2004 
funds to this level are not in the fiscal year 2005 budget submitted to 
congress. Thus, restoration of the $270,000 is urgently requested. An 
additional $317,000 is needed to create a new position for a Food 
Process Engineer, and to fully fund the unit scientists, clerical and 
technical help, including graduate and post-doctorate students.

------------------------------------------------------------------------
        Scientific Staff             Current Status       Funds Needed
------------------------------------------------------------------------
Microbiologist..................  Active.............           $300,000
Chemist.........................  Active.............            300,000
Food Technologist/Biochemist....  Active.............            300,000
Microbial Physiologist..........  Hiring process                 270,000
                                   initiated.
Food Process Engineer...........  Needed.............            300,000
                                                      ------------------
      Total funding required....  ...................          1,500,000
                                                      ==================
      Current funding...........  ...................         -1,183,000
                                                      ==================
      Proposed reduction........  ...................            270,000
                                                      ------------------
      Additional funding needed.  ...................            621,000
------------------------------------------------------------------------

Vegetable Crops Research Laboratory Unit, Madison, Wisconsin
    Current base funding for three scientists is $832,400, of which 
$200,000 was added in fiscal year 2002. An additional $245,400 is 
needed to fully fund the scientists and support staff, including 
graduate students and post-doctorates.

------------------------------------------------------------------------
            Scientific                 Current status      Funds needed
------------------------------------------------------------------------
Geneticist........................  Active..............        $300,000
Horticulturist....................  Active..............         300,000
Geneticist........................  Active..............         300,000
                                                         ---------------
      Total required..............  ....................         900,000
                                                         ===============
      Current funding.............  ....................        -832,400
                                                         ===============
      Proposed reduction..........  ....................         200,000
                                                         ---------------
      Additional funding needed...  ....................         267,600
------------------------------------------------------------------------

    A temporary addition of $200,000 was provided to enhance the 
research effort of this program in fiscal year 2002, and we greatly 
appreciate that additional support, but that addition is being proposed 
for reduction in fiscal year 2004. Thus, the restoration of the funds 
proposed for reduction, is urgently requested. We request a $267,600 
permanent addition this year to sustain the long-term research of this 
group.
Sugarbeet And Bean Research Unit, East Lansing, Michigan
    A $100,000 increase in the current base funding level of the CRIS 
would permit ARS to recruit a full-time scientist (SY) to 
programmatically investigate the complex nature cucumber sanitation and 
vegetable post harvest quality.

------------------------------------------------------------------------
          Scientifc staff              Current status      Funds needed
------------------------------------------------------------------------
Post Doctorate to full SY.........  Active..............        $200,000
Total Required....................  ....................         300,000
Additional funding needed.........  ....................         100,000
------------------------------------------------------------------------

    Thank you for your consideration of these needs and your expression 
of support for the USDA/ARS.
                                 ______
                                 

         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.
    The Resolutions contained herein were adopted by the Association 
during its 79th Annual Meeting in Bossier City, Louisiana on February 
19, 2004, and represent the combined concerns of the citizens of the 
Red River Basin Area as they pertain to the goals of the Association.
    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 2005 budget for NRCS indicates a 
decrease of $216 million from what Congress appropriated in fiscal year 
2004. In reality, NRCS is taking a major decrease in program funding 
and staff years. Inadequate Technical Assistance (TA) funding for 
mandatory support to CCC Farm Bill programs compounds this reduction of 
direct funding. The fiscal year 2005 budget reflects a serious 
shortfall in services for landowner assistance that will not be 
available in fiscal year 2005. This is also reflected in the fact that 
NRCS manpower for fiscal year 2005 would have to decrease by 1,450 
staff years if the President's budget is implemented. This is 
unacceptable.
    This means that NRCS assistance to landowners will not be 
adequately funded, to the detriment of the Nation 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 $710.4 million, which is a decrease 
of $142.6 million from fiscal year 2004. This is the largest 1 year cut 
made by any administration in recent memory.
    We request a total of $930 million be appropriated for Conservation 
Operations for NRCS to meet the demands it faces today.
    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 enroll in a Federal 
program. 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 adequate 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, but they 
may be utilized ``in addition to''. We 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, not to replace NRCS staffing.
    Watershed and Flood Prevention Operations (Public Laws 566 & 
534).--We are greatly disappointed that the President's Budget provided 
only $40.2 million for watershed operations. There is no doubt that 
this is a Federal responsibility, in conjunction with a 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 $87 million 
enacted in the fiscal year 2004 appropriations bill. It is reassuring 
to know that both the House and Senate 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 
Programs, Public Law 534 ($20 million) and Public Law 566 ($180 
million).
    The Red River has proven, through studies and existing irrigation, 
to be a great water source for ``supplemental'' irrigation. The two 
projects mentioned below, 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.
  --Walnut Bayou Irrigation Project, AR.--This project received 
        $300,000 in the fiscal year 2004 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 take on the responsibility 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 2005.
  --Red Bayou Irrigation Project, LA.--The plans and specifications 
        will be completed in fiscal year 2004 making this project ready 
        for construction in fiscal year 2005. An irrigation district 
        has been formed and is prepared to collect funds to support the 
        O&M for this proposed system. We request that $2,500,000 be 
        specifically appropriated to begin construction in fiscal year 
        2005.
    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 now 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 $10.1 million for this program. 
This is drastically lower than the levels authorized in the 2002 Farm 
Bill. We request that $65 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 2004 $10.6 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 $5.1 million. We strongly disagree with this low 
level and ask Congress to fund his 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 
$35 million.
    We request that the following two studies be specifically 
identified and funded in the fiscal year 2005 appropriations bill.
  --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 $350,000 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 
$50.8 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 at the full 
cost for program delivery. This includes program administration, 
conservation planning and contracting with each applicant. Congress, in 
the 2002 Bill, wisely increased conservation programs each year. This 
increased investment with the multi-year CCC programs will increase the 
NRCS workload; therefore, NRCS must receive the TA funds to administer 
these programs.
    The mandatory CCC programs for fiscal year 2005 have been 
appropriated at a level of $3.9 billion. Only $465 million (12 percent) 
has been allocated in TA for NRCS. Historically 19 percent of total 
program cost has been required. NRCS will have to fund this TA 
requirement at a level of $741 million. The short fall will no doubt 
leave program monies unexpended because NRCS will not have enough funds 
to service the multiyear contracts written to date under this and the 
previous farm bill plus service the fiscal year 2005 program 
applicants. This makes landowners the real losers.
    We request that the CCC Program budget TA in the fiscal year 2005 
Appropriations Bill at the full cost of technical assistance, for each 
program, which must be at least $741 million (19 percent).
    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. Please direct your 
comments and questions to our Executive Director, Richard Brontoli, 
P.O. Box 709, Shreveport, LA 71162, (318) 221-5233, E-mail: 
[email protected].
    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.
                                 ______
                                 

        Prepared Statement of the Society of American Foresters

    The Society of American Foresters (SAF) represents approximately 
17,000 forestry professionals in all sectors of the profession. SAF 
members pledge to use their conservation ethic to ensure the continued 
health and use of forest ecosystems and the present and future 
availability of forest resources to benefit society. The programs of 
the Natural Resource Conservation Service (NRCS), the U.S. Department 
of Agriculture (USDA) research budget, and the Cooperative State 
Research, Education and Extension Service (CSREES) contribute to the 
achievement of these ideals by supporting education, research, and 
technology associated with the practice of forestry and the stewardship 
and sustainability of this country's forest resources. Through these 
Agencies, partnerships are built with other government entities, 
universities, and private organizations to advance forest management 
objectives on both public and private forest land to improve the 
management of these valuable resources. Federal appropriations 
facilitate these collaborative partnerships.
Renewable Resources Extension Act Program (RREA)
    Forest resource management is increasingly complex, as we place 
increasing demands on our forest resources, the number of family forest 
landowners grow while the total acreage these families own decreases, 
urban sprawl and development pressures persist, and forest health 
issues persist on both public and private forest lands. Family forest 
owners need information and assistance to be able to address these 
problems.
    Current budget deficits demand we leverage the most value from 
every dollar invested. Research funding is no exception. Outreach and 
extension, which assists in the translation of research findings to 
solve real world problems, greatly increases the value of our research 
investment. Through the RREA program, much needed outreach and 
extension is provided at universities around the country. These efforts 
utilize research findings, making investments in research increasingly 
important.
    When Congress reauthorized the RREA program in the 2002 Farm Bill, 
legislation was included to create a new Sustainable Forestry Outreach 
Initiative (SFOI). SFOI would capitalize on and coordinate private 
sector initiatives aimed at achieving sustainable forestry. The program 
will assist landowners in understanding the broad array of choices 
before them, and facilitate their use of one or more of these programs 
designed to improve forest management.
    SAF strongly supports increased funding for the Renewable Resources 
Extension Act program and the Sustainable Forestry Outreach Initiative 
for fiscal year 2005. We would like to see the program funded at the 
recently authorized level of $30 million. Though we are asking for a 
modest increase, we believe there is great potential for success with 
the RREA and SFOI programs.
The Natural Resource Conservation Service (NRCS)
    Through NRCS, family forestland owners can receive assistance for a 
variety of conservation practices, influencing the stewardship of these 
valuable resources. Several programs administered by NRCS are key to 
assisting family forest owners, including the Environmental Quality 
Incentives Program, the Wildlife Habitat Incentives Program, the 
Conservation Reserve Program, and the Wetlands Reserve Program. We 
strongly support full funding for these programs and will continue to 
work with NRCS to address family forest owner needs through these 
programs.
    With the passage of the 2002 Farm Bill, NRCS responsibilities have 
greatly increased. However, the proposed budget for fiscal year 2005 
does not reflect these increases, and instead decreases funding for 
Conservation Operations to $710 million. We recommend increasing this 
funding to at least that of the fiscal year 2004 enacted level, $848 
million. This will better enable the Agency to meet the increasing 
demands for the technical expertise and address critical resource 
concerns on private lands.
    The proposed budget creates a separate account to fund conservation 
technical assistance for two Farm Bill programs, the Conservation 
Reserve Program and the Wetlands Reserve Program. We hope this solution 
will resolve the issues associated with technical assistance and allow 
implementation of all the 2002 Farm Bill programs at authorized levels 
without compromising the delivery of these important programs to 
millions of private landowners in need of assistance.
Forestry Research
    As populations grow, the demands we place on our forest resources, 
both tangible and intangible, continue to increase. Forestry Research 
is crucial to enable forest managers to make decisions and continue to 
sustainably meet the demands on our forest resources. This research 
provides new and innovative ways to manage forests and address the 
environmental, social, and economic concerns that forest managers are 
faced with. The SAF believes forestry research should be funded through 
both public and private investments. Two programs within the USDA 
budget provide public funding for forestry research: The Cooperative 
Forestry Research (McIntire Stennis) Program and the National Research 
Initiative.
    The Cooperative Forestry (McIntire-Stennis) Research Program 
supports university-based research on critical forestry issues and is 
an important part of the collaborative forestry research effort among 
Federal, state, and private sector scientists. The SAF supports 
increasing funding for this program to $30 million. The research 
accomplished with this funding is critical to the development of new 
information and technologies that increase not only the efficiency and 
productivity of forest management on all forest ownerships for the full 
range of forest benefits, but also provide information for developing 
natural resource management policy. McIntire-Stennis research funds are 
granted directly to public colleges and universities on a matching 
basis, leveraging more than three state and university dollars for 
every Federal dollar. This program has provided funding for research 
demands that have not been met through other private and public sector 
programs. We believe at least $30 million is justified to meet these 
needs.
    The National Research Initiative (NRI), a competitive grant 
program, provides funding for research on various issues in the 
biological and environmental sciences arena. Through this program, 
grants are awarded on a matching basis to university researchers in 
biological, environmental, and engineering sciences to address critical 
problems in agriculture and forestry. The SAF strongly supports the 
increase in funding proposed in the fiscal year 2005 budget, and 
recommends this funding be allocated with an increased focus on 
renewable natural resource areas. We strongly believe this combination 
of formula-based and competitive-based research funding to be 
appropriate if we are to maintain the long-term stability and focus 
required in forestry research, and to foster new and innovative 
thinking characteristic of competitive grants.
    Thank you for your consideration.
                                 ______
                                 

 Prepared Statement of the U.S. Agricultural Export Development Council

    U.S. agricultural exporters want to compete on a level playing 
field. However, foreign governments continue to manipulate markets and 
production which means U.S. agricultural exporters need Washington's 
support to overcome this inequity. The record shows that U.S. 
agriculture takes this public-private partnership very seriously and 
contributes significant amounts of its own resources to the effort.
    Further, U.S. agriculture and the U.S. Department of Agriculture 
(USDA) are using strategic planning, program evaluation, quantifiable 
goals, and a competitive award process to ensure that taxpayer's money 
is being used in a way which generates the biggest returns for the U.S. 
economy and its 850,000 citizens who depend on a healthy agricultural 
export sector for their livelihood.
    The U.S. Agricultural Export Development Council (USAEDC) 
respectfully urges this subcommittee to fully support fiscal year 2005 
export promotional efforts at the level legislated in the Farm Security 
and Rural Investment Act (FSRIA) of 2002: the Foreign Market 
Development (FMD) Program at a level of $34.5 million and the Market 
Access Program (MAP) at a level of $140 million. We also urge the 
subcommittee to support a strong USDA Foreign Agricultural Service 
(FAS), our partner in promoting increased U.S. agricultural exports.
    First and foremost, it is important to revisit the role 
agricultural exports play in the health of our national economy and the 
well being of our citizenry. Every $1 billion in agricultural exports 
supports approximately 15,000 United States direct and indirect jobs. 
With our $56.2 billion in agricultural exports in 2003, this means a 
successful U.S. agriculture export effort was responsible for 850,000 
jobs. (These figures do not include forestry or fishery products which 
increase export sales by an additional $7.9 billion or 120,000 jobs.) 
Agricultural exports play an important role in every region of the 
country, including the South (117,000 jobs), the Pacific Northwest 
(53,000 jobs), and the Midwest (305,000 jobs). Ninety percent of 
America's agricultural operations are still run by individuals or 
families and most are still small farms.\1\
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    \1\ ``Preliminary Census Results Give First Look at Changing Face 
of Agriculture''. USDA Release No. 0063.04
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    These jobs not only ensure family incomes, but also help grow the 
national tax base, increasing revenue to the Treasury and contributing 
in no small way to the reduction of our rising national debt. At a time 
when job creation is at a minimum, everything that can be done to 
maintain this sector is vital. Without a healthy agricultural export 
sector, we all lose.
    Ensuring the long-term vitality of U.S. agricultural exports is one 
of the missions of the U.S. Agricultural Export Development Council 
(USAEDC). A national, non-profit, private sector trade association 
funded solely by its members, USAEDC's 75 members are U.S. farmer 
cooperatives, agricultural trade associations and state regional trade 
groups that in turn represent the interests of farmers, agribusinesses 
and manufacturers in every state of the Union. Our members represent 
producers of both bulk and high-value processed products, including 
grains, fruits and vegetables, cotton, livestock, dairy products, 
seeds, fish, wood products, wine, poultry, nuts, and rendered products, 
among others.
    Our members continually strive to ensure the United States remains 
one of the most active agricultural exporting countries in the world. 
We proudly produce among the world's highest quality and valued 
products as evidenced by our ability to be one of the few sectors of 
the U.S. economy to consistently run a positive balance of trade. In 
2003, U.S. agriculture racked up a record year in exports: over $1 
billion per week in sales to more than 100 countries. Put another way, 
every 60 minutes, nearly $6.5 million of U.S. agricultural products 
were consigned for export.
Why Trade is Important to U.S. Agriculture
    Demand.--96 percent of the world's food consumers live outside of 
the United States.
    Supply.--Farm production far exceeds United States demand/
consumption.
    Capacity.--United States productivity is increasing due to 
improvements in technology and science.
    Market.--Two-thirds of the world's purchasing power is outside of 
the United States.
    Sales.--Export market sales are growing at twice the rate of 
domestic sales.
    Export market sales account for over $1 billion per week to over 
100 countries.
    Jobs.--Trade supports 850,000 badly needed jobs, 60 percent of 
which are in urban areas.
    Farm Income.--Trade generates 25 percent of farm cash receipts.
    Dependency.--Trade is one of the most export-dependent industries 
in the United States as domestic consumption levels off.
    Business.--Trade supports small businesses that employ three of 
four workers.
    Local Impact.--$1 of exports creates $1.50 in economic activity
    Production.--One of every three cropland acres is grown for export.
    Economy.--Agriculture is the only sector that posts a trade surplus 
year after year.
The Potential for Future Growth
    U.S. agricultural exports reached $56.2 billion in 2003. The 
largest single markets were Canada and Japan, followed closely by 
Mexico. Trade with Canada has grown 186 percent in the past 10 years 
and with Mexico by 200 percent for the same period. While China 
represents only 3 percent of exports today, trade has grown 700 percent 
in 10 years and likely to continue apace.
    Projections show that the vast majority of world population growth 
will take place in developing countries. The middle class in key 
emerging markets is expected to grow by 600 million by 2006. This 
transition from a subsistence existence to ``middle class'' creates 
increased demand for quantity, quality and diversity of food. United 
States trade in high value products has increased sharply, another 
indicator of the growing buying power of our customers. China and India 
have been identified as the two nations that will grow the most 
exponentially and outstrip all others. The potential value to U.S. 
agricultural exports and the overall economy is clear and the means to 
access these markets with changing consumer tastes and preferences must 
be supported. As trade liberalization occurs, greater market 
development and marketing activities must be undertaken by U.S. 
agricultural groups to capture these new market opportunities and 
consumer demands. U.S. agriculture needs to be poised to take advantage 
of these opportunities.
But Some Things Stand in Our Way
    U.S. agriculture has done well in a climate where international 
conditions remain extremely competitive. Foreign governments still 
bolster agricultural production, to the competitive disadvantage of the 
United States in foreign markets. The European Union alone currently 
spends more than $2 billion annually on agricultural export subsidies 
compared to less than $100 million by the United States, outspending 
the United States by more than 20 to 1. With the accession of 
additional countries into the EU, more and more countries will turn 
their attention to support for agricultural production for both their 
domestic and export markets. Through their spending and production 
decisions, foreign governments continue to strengthen traditional, and 
create new, competitors for U.S. exports.
    United States exporters also face ongoing unreasonably high tariffs 
in those markets that have been identified as the ``growth'' markets of 
the future. Regionally, South Asia's tariffs are at 118 percent and the 
average agricultural tariff worldwide is 62 percent. The WTO and 
Regional Trade Agreements are working to break down these ``classic'' 
barriers but even when success is achieved, new non-tariff barriers are 
often substituted, impeding what could be significantly higher exports.
    Many countries have turned to sanitary and phytosanitary (S/PS) 
requirements as market entry barriers to U.S. agricultural products. 
Although said by their proponents to be based on sound science and thus 
objective, many of these S/PS barriers are in actuality an attempt to 
use practices that are not universally accepted to establish import 
regimes which effectively halt or severely restrict U.S. imports. The 
recent BSE (beef) and AI (poultry) incidents are cases in point.
    A myriad of other types of non-tariff barriers exist which prevent 
U.S. agriculture from reaching the exports levels of which it is 
capable. FAS, the ally of agricultural exports, and its overseas 
offices have compiled information on numerous cases of foreign 
assistance for agricultural production as well as barriers to trade. 
The National Trade Estimate of the Office of the U.S. Trade 
Representative catalogues this loss to U.S. agricultural exports from 
unfair foreign competition. Despite a significant commitment of their 
own resources, the United States private sector cannot overcome such 
extensive barriers alone.
A U.S. Public-Private Partnership is Necessary and Appropriate
    American agriculture is 2\1/2\ times more reliant on trade than the 
general economy; every effort should be made to insure its access to 
the world marketplace.
    Given the magnitude of the challenge, it would be unrealistic to 
expect either the United States private sector or the United States 
public sector to be able solely to overcome the barriers to foreign 
trade that U.S. agriculture faces. Since 1954, U.S. agriculture has 
worked successfully with the U.S. Government to remedy instances of 
foreign unfair competition and overcome market access barriers that 
have prevented U.S. exports from realizing their potential. To those 
who say there is no appropriate role for Washington in this fight, 
former U.S. Under Secretary of Commerce Jeffrey Garten, now dean of the 
Yale School of Management, sums up the situation quite well: ``In the 
best of worlds, governments ought to get out of this business [of 
export promotion] altogether. But the marketplace is corrupted by the 
presence of government. So do you sit on the side and pontificate about 
Adam Smith, or do you enter the fray?'' \2\ Mr. Garten argues that 
Washington must enter into the battle or risk losing more U.S. jobs.
---------------------------------------------------------------------------
    \2\ ``Don't Be Salesmen'', The Economist, Jan. 2, 1997.
---------------------------------------------------------------------------
    USDA proposes funding a number of programs for U.S. agriculture 
which help the sector overcome these foreign trade barriers and market 
distortions. USAEDC commends the actions of this subcommittee in the 
past to fund these programs. We strongly support efforts by this 
Congress, as provided for in the Food Security and Rural Investment Act 
of 2002, to again provide a dynamic arsenal of programs to boost the 
efforts of U.S. agricultural producers to maintain current, and 
establish new, markets around the world. It is essential that the full 
range of USDA's export programs be fully funded and aggressively 
implemented this coming year, including the Foreign Market Development 
(FMD) program at $34.5 million and the Market Access Program (MAP) at 
$140 million.
    Nowhere is the record of success of the public-private partnership 
more evident than in the FMD and MAP programs. USAEDC members consider 
these programs the ``heavy artillery'' in the USDA arsenal. These 
complementary programs have been instrumental in our record export 
performance. The Foreign Market Development Program is aimed at long-
term marketing efforts, i.e., making infrastructural changes to foreign 
markets through training and educational efforts among members of the 
foreign trade and developing long-standing relationships with the 
trade. Successful efforts result in a modification of the foreign 
market structure so that U.S. products become an available, attractive, 
well understood alternative to other sources of competing products. FMD 
activities help the foreign importer, processor, and retailer to 
understand not only how to properly store, handle, process, and market 
the U.S. product, but also to appreciate its unique characteristics, 
high quality, and reliability of supply.
    The Market Access Program (MAP) complements the FMD program. Where 
FMD is aimed at building market relations, MAP is aimed at building 
market access and presence. Where FMD targets the importers/processors/
retailers, MAP targets the end-user--the consumer. Through activities 
such as nutrition seminars, in-store promotions, contests, advertising, 
cooking demonstrations and the like, MAP participants create or 
capitalize on new trends in foreign consumption and increase the 
consumers' awareness and level of comfort with the imported U.S. 
product. MAP provides the small United States branded companies and the 
United States specialty crops with the necessary funds to assist them 
in their efforts to gain their fair share in the global marketplace.
    The FMD program helps create new markets for U.S. agricultural 
exports.--For example, the American Soybean Association (ASA) has 
convinced three Malaysian companies to produce full fat soybean meal 
(FFSBM) from imported U.S. soybeans for the local swine and poultry 
diets. Using FMD funds, ASA provided technical data, carried out team 
visits to other FFSBM facilities and conducted seminars on FFSBM 
benefits at feedmill and farm level, creating awareness and demand for 
FFSBM. As a result of ASA's work, the three companies purchased 20,000 
metric tons of U.S. soybeans valued at $6 million. The potential market 
for FFSBM in Malaysia is estimated at 200,000 MT, valued at $79 million 
per year. In a similar vein, the U.S. Wheat Associates (USWA) used FMD 
funds to demonstrate to Brazilian bakers potential wheat blends and 
end-use qualities of U.S. wheat. Through a special education and 
training program, USWA brought new baking techniques to a miller who 
grinds one million metric tons of wheat per year and has 15 percent of 
the flour market in Brazil. This company saw that using 40 percent of 
United States hard winter wheat in the flour blend--instead of 100 
percent Argentine--would improve the final product. An initial sale of 
25,000 MT of U.S. wheat is expected to lead to even more sales as more 
Brazilian bakers take part in the education and training sessions.
    The MAP program helps build market penetration for U.S. 
agricultural exports.--One example of this is the California Tree Fruit 
Agreement (CTFA). Faced with the required perennial renegotiations of 
the California growers' access agreement with Mexico, CTFA used grower 
assessments and MAP funds to craft an aggressive advertising and in-
store promotion campaign that was ready to launch as soon as the 
agreement was inked. This resulted in a record 2.3 million cartons 
(26,422 metric tons) of peaches, plums and nectarines, valued at $19 
million in just a 4 month period. Similarly, a Missouri-based firm has 
partnered with the Mid-America International Agri-Trade Council 
(MIATCO) to export feed additives for livestock. Through a technically-
oriented promotional campaign to educate and attract new customers, 
sales to Korea and Japan recently jumped 212 percent and 270 percent 
respectively. The company has a fermentation processing plant in Iowa, 
feed plants in Indiana and Nebraska, sources its yeast from Illinois, 
and purchases soymeal from farms throughout the Midwest, providing jobs 
to countless individuals.
    Numerous examples of other FMD and MAP program ``success stories'' 
are available on-line at www.usaedc.org. Therefore, USAEDC strongly 
supports an FSRIA 2002 funding level of $34.5 million for FMD and $140 
million for MAP for fiscal year 2005. These amounts represent the 
levels that the House and Senate Agriculture Committees believed to be 
essential to the growth and maintenance of U.S. agricultural export 
markets.
    It is important to realize that the program participants contribute 
their industry's money and manpower to participate in these programs. 
Contributions are requirements of both the FMD and MAP programs; no one 
is getting a ``free ride.'' Thus, the program participants have just as 
much, if not more, impetus to conduct responsible and effective FMD and 
MAP marketing programs. In fiscal year 2002, MAP participant 
contributions were 176 percent of total MAP dollars spent and FMD 
cooperator contributions were 146 percent of total FMD dollars spent. 
Another way to view this is that U.S. agriculture contributed $1.76 for 
every MAP program dollar spent and $1.46 for every FMD dollar expended. 
These numbers clearly illustrate the private sector's strong belief in 
and commitment to the essential nature of the FMD and MAP programs, and 
that the public-private partnership approach is effective.
    U.S. agriculture is also active on other fronts to maximize 
opportunities for export increases, working with Washington in the 
trade policy arena. U.S. trade policy efforts have met with success in 
opening new markets to U.S. agricultural products. However, trade 
policy alone is not enough. Bringing down barriers to trade is only 
truly effective at increasing U.S. agricultural exports when followed 
by intensive marketing efforts. The FMD and MAP programs help U.S. 
agriculture do just that.
Fine Tuning of the FMD and MAP Programs has Enhanced Effectiveness
    USAEDC members are as concerned as everyone in America about the 
ballooning federal budget deficit and the long-term fiscal health of 
this country. The public-private partnership in the FMD and MAP 
programs allows us to be proactive, increasing U.S. agricultural 
exports beyond that which U.S. agricultural interests would be able to 
do on their own. Increased exports generate increased tax revenues 
throughout the system and reduce farm payments as producers rely 
increasingly on the marketplace for their revenue.
    Annual independent evaluations are required by USDA to determine 
the past impact and future direction of their marketing programs. This 
evaluation is in addition to that conducted independently by many of 
the associations themselves as part of their own strategic planning. 
Program evaluations are reviewed jointly by USDA and program 
participants to determine the appropriate promotional programs for 
particular markets in the future and to demonstrate that program 
participants are serious about getting the best possible return on FMD 
and MAP funds.
    The programs have gone through a series of reforms that have 
resulted in application and allocation criteria being much more widely 
known and transparent for all potential applicants. Other changes in 
response to General Accounting Office and Office of Management and 
Budget recommendations to ensure the best possible return to the U.S. 
taxpayer and the U.S. Treasury have been executed. FAS is to be 
commended for its work in implementing these changes as well as its 
continuing efforts to support efforts by U.S. agriculture to expand our 
exports. A continued strong and well-funded FAS is an important part of 
our successful public-private partnership. Without a strong overseas 
presence that is supported in Washington by sufficient staff with 
access to adequate technology, success in the global marketplace will 
be much more difficult to achieve. USAEDC supports the fiscal year 2005 
request of the President for full FAS funding at $148 million.
    The U.S. Agricultural Export Development Council (USAEDC) 
appreciates this opportunity to submit written testimony in support of 
an aggressive United States effort in fiscal year 2005 to increase U.S. 
agricultural exports, specifically with an FMD program funded at $34.5 
million, and an MAP program funded at $140 million.
  members of the u.s. agricultural export development council (usaedc)
Alaska Seafood Marketing Institute
Almond Board of California
American Forest & Paper Association
American Peanut Council
American Seafood Institute
American Seed Trade Association
American Sheep Industry Association
American Soybean Association
Blue Diamond Growers
California Agricultural Export Council
California Asparagus Commission
California Cherry Advisory Board
California Cling Peach Growers Advisory Board
California Dried Plum Board
California Kiwifruit Commission
California Pistachio Commission
California Strawberry Commission
California Table Grape Commission
California Tomato Commission
California Tree Fruit Agreement
California Walnut Commission
Catfish Institute
Cherry Marketing Institute
Chocolate Manufacturers Association
Cotton Council International
Cranberry Marketing Committee
Florida Department of Citrus
Florida Tomato Committee
Food Export USA--Northeast
Ginseng Board of Wisconsin
Hop Growers of America
Intertribal Agriculture Council
Leather Industries of America
Mid-America International Agri-Trade Council
Mohair Council of America
National Association of State Departments of Agriculture
National Dry Bean Council
National Hay Association
National Honey Board
National Renderers Association
National Sunflower Association
National Watermelon Promotion Board
New York Wine & Grape Foundation
North American Export Grain Association, Inc.
North American Millers' Association
Northwest Horticultural Council
Northwest Wine Coalition
Oregon Seed Council
Organic Trade Association
Pear Bureau Northwest
Pet Food Institute
Popcorn Board
Produce Marketing Association
Raisin Administrative Committee
Southern U.S. Trade Association
Texas Produce Export Association
U.S. Apple Export Council
U.S. Dairy Export Council
U.S. Grains Council
U.S. Hide, Skin & Leather Association
U.S. Highbush Blueberry Council
U.S. Livestock Genetics Export, Inc.
U.S. Meat Export Federation
U.S. Rice Producers Association
U.S. Wheat Associates United Fresh Fruit & Vegetable Association
United States Potato Board
USA Dry Pea & Lentil Council
USA Poultry & Egg Export Council
USA Rice Federation
Washington Apple Commission
Washington State Fruit Commission
Western United States Agricultural Trade Association Wine Institute
                                 ______
                                 

            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; Cooperative State Research, Extension and Education 
Service (CSREES) and Agricultural Research Service (ARS) funding.
    U.S. Apple is the national trade association representing all 
segments of the apple industry. Members include 36 state and regional 
apple associations representing the 7,500 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)
    U.S. Apple encourages Congress to appropriate $140 million in MAP 
funds, the level authorized in the farm bill for fiscal 2005.
    The apple industry receives $3.2 million annually in export 
development funds from the U.S. Department of Agriculture's (USDA) 
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 nearly 150 percent, due in large part to the 
foreign promotions made possible by MAP. One-quarter of U.S. fresh 
apple production is exported, with an annual value of approximately 
$370 million.
    Strong MAP funding is critical to the U.S. apple industry's efforts 
to maintain and expand exports, and to increase grower profitability. 
Congress recognized the importance of MAP by authorizing increased 
funding in the 2002 farm bill. Over the past 2 years, congressional 
appropriations have kept pace with the farm bill's authorized level.
Food Quality Protection Act (FQPA) Implementation
    U.S. Apple urges full funding for the following U.S. Department of 
Agriculture (USDA) administered programs to mitigate the negative 
impact of FQPA implementation on apple growers.
  --$16 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;
  --$2.0 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 IPM 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 support the apple industry's 
efforts to improve its competitiveness by providing increased federal 
funding for the development and application of new technologies as 
outlined below.
    Dramatic change in the global apple market over the past decade is 
threatening the livelihood of U.S. apple growers and the viability of 
the U.S. apple industry. Low cost producers of apples in the People's 
Republic of China, South Africa and Eastern Europe are displacing our 
domestic industry worldwide. A race to survive is now underway among 
global apple competitors, and for the first time in its history, U.S. 
industry success is not guaranteed. In response to this competitive 
threat, the apple industry is seeking federal support of a National 
Tree Fruit Technology Roadmap that invests in development of new 
technologies to automate orchards and fruit handling operations, 
optimize fruit quality, nutritional value and safety.
    Each of the following research positions is part of an integrated 
approach to solving critical research problems that will help make the 
industry more competitive. The broad-based need to solve these problems 
requires systematic work across a number of problem areas 
simultaneously in different locations. Therefore, it is critically 
important that each of these programs is fully funded.
    Postharvest Quality Research--East Lansing, Mich.--U.S. Apple 
proposes increasing USDA, Agricultural Research Service (ARS) funding 
at the East Lansing, Mich. postharvest fruit quality research 
laboratory by $350,000 for fruit postharvest technology research to 
better evaluate internal fruit quality characteristics, such as sugar 
content and fruit firmness. While this research is already underway in 
a limited capacity, the increase is needed to expand the capability of 
the lab to make faster progress in solving complex research issues.
    National Research Initiative--Sensor And Automation Research.--U.S. 
Apple proposes increasing funding in the National Research Initiative 
program in USDA CSREES by $1,000,000 for automation and sensor 
research, and establishment of $2,000,000 special grants program for 
fruit quality instrumentation. This research will develop sensors that 
help growers sense and respond to insect and disease pests and 
temperature extremes that reduce the value of apple production. It will 
have additional applications in processing and packing operations to 
improve fruit quality and food safety.
    Apple Rootstock Breeding Program--Geneva, N.Y.--U.S. Apple proposes 
increasing funding for the USDA, ARS apple rootstock breeding program 
in Geneva, N.Y. by $350,000. This research will focus on rootstock 
improvements that make apple trees more resistant to diseases or pests 
that may reduce pesticide use and lead to development of more 
productive and efficient apple trees.
    Genetics Of Fruit Quality Program--Wenatchee, Wash.--U.S. Apple 
proposes increasing funding at the USDA, ARS Wenatchee, Wash. facility 
by $350,000 for new genetics of fruit quality research. This research 
will provide the fundamental scientific knowledge that will allow 
development of new apple varieties that are juicier, sweeter and more 
nutritious and attractive to consumers.
    National Research Initiative--Genomics, Genetics And Plant 
Breeding.--U.S. Apple proposes increasing funding in the CSREES 
National Research Initiative program in the area of apple, cherry and 
peach genomics by $2,500,000. This research will provide essential 
genomics and genetics research that will help solve production problems 
that result in lower profitability and help develop better apple 
varieties for consumers.
    Other Research Requests:
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 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 2005 rescinds 
this funding.
Post Harvest Quality Research Position--East Lansing, Mich.
    U.S. Apple urges Congress to maintain baseline funding of $309,600 
in the USDA ARS fiscal year 2005 budget for the postharvest quality 
research position in East Lansing, Mich., and to increase funding for 
this program by $350,000 to make faster progress in solving complex 
research problems. This increase is a specific request as part of the 
industry's National Tree Fruit Technology Roadmap initiative.
    The East Lansing, Mich., USDA ARS facility is conducting research 
critical to the future survival 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 2005 rescinds this funding. This is a request not 
only to preserve funding for this program, but also to expand it by 
appropriating an additional $350,000 in research funding.
    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 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, if required, for the hardship program, cost of money 
and loan guarantee programs in fiscal year 2005 in amounts requested in 
the President's budget. Opposing the Administration's proposal to not 
fund Rural Telephone Bank loans in fiscal year 2005. Supporting Rural 
Telephone Bank loans in the same amount as contained in the fiscal year 
2004 Appropriations Act. 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 as well as the 
requirement that Treasury pay interest on all Bank funds deposited with 
it. 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 for distance learning and telemedicine loan and 
grant authority. Supporting $20 million in mandatory funding for direct 
loans for broadband deployment.
    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 telecommunications 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
    We are now more than 8 years out from passage of the 
Telecommunications Act of 1996, a landmark piece of legislation in its 
time, and calls are multiplying for the Act to be revisited to address 
today's reality of intermodal competition. The current system of 
government-managed competition in the telecom industry is a tremendous 
obstacle to investment, economic growth and jobs creation which are 
important to all Americans, but particularly for those living in 
telecom-dependent rural America. The financial markets recognize that 
the current system of inequitable government-managed competition cannot 
stand. That recognition is reflected in the availability and pricing of 
capital to telecommunications entities. Dramatic changes in technology, 
such as Voice Over Internet Protocol (VOIP), and the wide use of 
wireless service to the point of market parity, have caused great 
uncertainty for carriers serving the most challenging areas of our 
Nation. During these changing times, access to a reliable source of 
capital such as the RUS loan programs is key to the system upgrades 
which will enable rural areas to experience the economic growth and job 
creation that a freely competitive market with ready access to fairly 
priced capital can provide.
    The need for modernization of the telecommunications technology 
employed by RUS borrower rural telecommunications companies has never 
been greater. In addition to upgrading to next generation networks to 
allow new services to be extended to rural subscribers, it is 
critically 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 a few 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 2005, this Committee should set the loan levels and 
necessary associated subsidy amounts for the hardship, RUS cost of 
money and guaranteed telecommunications loan programs consistent with 
the levels recommended in the President's budget. These levels 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 2005. 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 2005, 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 7 percent ``cap'' placed on the insured cost-of-
money loan program. The elimination of the cap should continue. 
Although the prospects for this happening in fiscal year 2005 seem 
remote at this time, 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 2005. 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 2005 be set as follows:

                          [Millions of dollars]
------------------------------------------------------------------------

------------------------------------------------------------------------
RUS Insured Hardship Loans (5 percent)..................             145
U.S. Insured Cost-of-Money Loans........................             250
Rural Telephone Bank (RTB) Loans........................             175
Loan Guarantees.........................................             100
                                                         ---------------
      Total.............................................             670
------------------------------------------------------------------------

            Loans and Grants for Telemedicine and Distance Learning
    USTA supports the continuation of $25 million for distance learning 
and telemedicine, as provided in the President's budget. 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)
    Congress has 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 the 2002 Farm 
Act in the amount of $20 million. USTA urges the provision of full 
funding for this program as authorized in the Farm Act. The capital 
intensive nature of the telecommunications industry, particularly with 
respect to implementation of broadband, requires a stable and 
predictable source of capital.
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 University of Southern Mississippi and the 
                     Mississippi Polymer Institute

    Mr. Chairman, distinguished Members of the Subcommittee, I would 
like to thank you for this opportunity to provide testimony describing 
ongoing research and commercializing efforts of The University of 
Southern Mississippi (USM) and the Mississippi Polymer Institute. I am 
very grateful to the Subcommittee for its leadership and the continued 
support of the Institute and its work. This testimony will include an 
update on the progress of the Institute since my testimony of 
approximately 1 year ago. During the past year, our efforts have 
focused principally on two commercialization thrusts. One effort 
involves our novel, agricultural-based inventions in emulsion 
polymerizations, and the other is to produce a commercial quality, 
formaldehyde-free, soybean derived adhesive for composite board 
materials, i.e., particleboard. During the past year, we have continued 
to refine the adhesive and have prepared lab scale particleboards that 
meet commercial specifications. It is my strong belief that additional 
research can expand the commercial use of the products and technology 
this project has produced. However, much more needs to be done in order 
to exploit the many uses of our novel technology. I will discuss the 
progress made with the two inventions separately in order to offer more 
clarity.
    In the case of castor and soy oils, we have designed and 
synthesized novel vegetable oil macromonomers (VOMM) or polymer 
building blocks that offer state-of-the-art technology. The success of 
the technology depends on the use of agricultural materials as a 
building block of emulsion-derived polymers and offers opportunities 
for using ag-derived materials as a raw material in the polymer 
industry. The process technology for synthesizing VOMMs has been 
revised to produce more than 95 percent conversion of the oil to VOMM. 
Thus, the revised, and now accepted, synthetic procedure affords an 
acceptable and useful polymerizable VOMM. Our previous synthetic 
efforts to prepare emulsion or latex polymers containing significant 
amounts of VOMM monomers (>20 percent by weight) were complicated by 
synthetic and stability issues. However, during the past year, we have 
been successful in developing latexes with VOMM content as high as 30 
percent by weight by modifying the emulsion recipe and process 
parameters. Currently, these high VOMM latexes are being evaluated for 
a variety of applications, but particularly in coating formulations. 
Furthermore, significant progress has been made in the synthesis of 
novel VOMMs that copolymerize more readily with commercial monomers. 
The new VOMMs provide latexes with improved stability and reduced 
yellowing on aging. The fundamental scientific principles regarding its 
mode of action have been confirmed, yet additional data must be 
collected as more of these novel monomers, or polymer building blocks, 
are being designed and synthesized.
    Our sustained efforts to patent the technology developed in this 
project has resulted in a total of eight patents, including one 
international patent. Seven patent applications are pending with the 
U.S. Patent Office and more applications will certainly be submitted 
during the coming year.
    Another novel application for vegetable oils is the development of 
derivatives for use in ultraviolet (UV) curable coatings using thiol-
ene chemistry. Castor and soybean oil derivatives were synthesized and 
crosslinked with commercial thiols in UV curable formulations. The 
coatings produced showed excellent flexibility but lower hardness 
values than the controls. Research efforts are in progress to 
synthesize derivatives that will improve product hardness while 
retaining other coating properties.
    Commercial nail polishes contain very high amount of solvents which 
constitute volatile organic compounds (VOCs) and negatively impact the 
environment. Novel VOMM-based latexes have been designed for use in 
nail polishes. Previous latexes prepared for this application gave poor 
adhesion to the fingernail and were easily chipped during use. Nail 
polishes formulated with the new and improved latex emulsions have 
given consistent adhesion to the fingernail even after one week of 
application. Rheology studies are in progress to achieve optimum flow 
and leveling properties of the finished product. Nail polishes 
constitute a low-volume, high-profit niche market. Presently, there are 
no low-VOC waterborne products with sufficient adhesion to fingernails.
    VOMM-based emulsions have been formulated as coatings for paper 
coating applications and show promising results in screening tests. At 
this writing, additional paper coating testing equipment has been 
ordered for more definitive performance testing.
    We have successfully synthesized a soybean oil acrylate monomer 
(SAM) for incorporation into a permanent press treatment to replace the 
castor oil acrylate monomer (CAM). Warmkraft, a Mississippi-based 
company, has tested the new latex and will begin using the soy-based 
latex this year in their permanent press treatment for use on the U.S. 
Marines military uniforms. The U.S. Air Force has received 7,500 
permanent pressed uniforms for field tests by military personnel. This 
novel product increases military uniform durability by 30+ percent and 
minimizes laundry costs creating a significant savings for service 
personnel and the DOD. Research efforts are now being directed to 
providing antimicrobial properties to the military uniform treatment 
formulation to add protection for combat forces.
    In summary, commercialization efforts have continued over the past 
year with waterborne architectural coatings and polymer for textile 
treatments. Patents have been approved; new patent applications have 
been submitted; several toll manufacturing runs have been completed; 
new coatings have been designed, manufactured, formulated, and tested; 
and formulation efforts have been directed toward the generation of 
high performance, low odor, and low VOC coatings. We are optimistic 
that commercialization and sales of these ag-derived products will 
expand over the next year.
    In yet another of our novel ag based technologies, we have 
developed formaldehyde-free adhesives for use in particleboard 
composites. The developmental adhesive is composed of 80+ percent soy 
protein isolate (SPI) and lab produced particleboards made with this 
formaldehyde-free adhesive meet or exceed industry performance 
requirements as defined by ANSI standards for M-S grade boards. Efforts 
are underway to reduce the water content of the current adhesive to 
decrease dry time and increase line speeds. The new adhesive is 
scheduled for scale-up to quantities required for commercial scale 
testing. A leading particleboard manufacturer has requested a 
commercial trial of the adhesive and we plan to complete the trial in 
the 2nd quarter of 2004. Kenaf and wood flour are being investigated as 
alternative sources of wood furnish in our composites. Additional novel 
soybean oil-based derivatives are also being investigated in an effort 
to continue to improve the performance properties of the composite 
particleboards even further. These developments represent major 
technical advancements during the past year.
    A vegetable oil based waterborne, waterproofer polymer has been 
developed and formulated into wood stain and coating systems. The 
weathering characteristics of this product are currently being 
evaluated. The material functions as a waterproofer yet is carried in 
water. However, after application to the intended substrate, typically 
wood or cementitious products, the material becomes hydrophobic and 
highly water resistant. VOC emission regulations need to be tightened 
to facilitate the movement towards new, environmentally friendly, 
products. We will continue our efforts to promote the use of ag-based 
products offering improved environmental attributes, i.e., high 
performance accompanied by low odor and low VOCs.
    In 1983, the Mississippi Legislature authorized the Polymer 
Institute at USM to work closely with emerging industries and other 
existing polymer-related industries to assist with research, problem 
solving, and commercializing efforts. The institute has maintained that 
thrust during the past year with much success. In fact, while 
manufacturing jobs alone in Mississippi have declined over the past 10 
years, manufacturing jobs in the plastics sector have risen 45 percent 
and continue to rise.
    The Institute provides industry and government with applied or 
focused research, development support, and other commercializing 
assistance. This effort complements existing strong ties with industry 
and government involving exchange of information and improved 
employment opportunities for USM graduates. Most importantly, through 
basic and applied research coupled with developmental and 
commercializing efforts of the Institute, the School of Polymers and 
High Performance Materials continues to address national needs of high 
priority.
    The focus of our work has been the development of a technology 
platform that will lead to the commercialization of alternative 
agricultural crops in the polymer industry. The polymer industry is the 
single largest consumer of petroleum chemical intermediates in the 
world. However, petroleum resources are in finite supply, are non-
biodegradable in many cases, and therefore do not represent a 
sustainable economic development alternative for the polymer industry. 
The theme of our work is to develop high performance, and 
environmentally friendly technology utilizing agriculturally produced 
intermediates. In this way, we as a Nation can improve our environment, 
reduce our dependence on imported petroleum, and keep America's 
farmlands in production. As farm products meet the industrial needs of 
the American society, rural America is the benefactor. Heretofore, this 
movement to utilize alternative agricultural products as industrial raw 
materials has received some attention but much less than opportunities 
warrant. Your decisions are crucial to the accomplishment of these 
goals as funding from this Subcommittee has enabled us to implement and 
maintain an active group of university-based polymer scientists whose 
energies are devoted to commercializing alternative crops. We are most 
grateful to you for this support, and ask for your continued 
commitment.
    The faculty, the University, and the State of Mississippi are 
strongly supportive of the Mississippi Polymer Institute and its close 
ties with industry. Most faculty maintain at least one industrial 
contract as an important part of extramural research efforts.
    Polymers, which include fibers, plastics, composites, coatings, 
adhesives, inks, and elastomers, play a key role in the materials 
industry. They are used in a wide range of industries including 
textiles, aerospace, automotive, packaging, construction, medical 
prosthesis, and health care. In the aerospace and automotive 
applications, reduced weight and high strength make them increasingly 
important as fuel savers. Their non-metallic character and design 
potentials support their use for many national defense purposes. 
Moreover, select polymers are possible substitutes for so-called 
strategic materials, some of which come from potentially unreliable 
sources.
    As a polymer scientist, I am intrigued by the vast opportunities 
offered by American agriculture. As a professor, however, I continue to 
be disappointed that few of our science and business students receive 
training in the polymer-agricultural discipline as it offers enormous 
potential. The University of Southern Mississippi, the School of 
Polymers and High Performance Materials, and the Mississippi Polymer 
Institute are attempting to make a difference by showing others what 
can be accomplished if appropriate time, energy, and resources are 
devoted to the understanding of ag-based products.
    I became involved in the polymer field 40 years ago and since that 
time, have watched its evolution where almost each new product 
utilization offered the opportunity for many more. Although polymer 
science as a discipline has experienced expansion and a degree of 
public acceptance, alternative agricultural materials continue to be an 
underutilized national treasure for the polymer industry. There is less 
acceptance of petroleum-derived materials today than ever before, and 
consequently the timing is ideal for agricultural materials to make 
significant inroads as environmentally friendly, biodegradable, and 
renewable raw materials. These agricultural materials have always been 
available for our use, yet society for many reasons has not recognized 
their potential.
    U.S. agriculture has made the transition from the farm fields to 
the kitchen tables, but America's industrial community continues to be 
frightfully slow in adopting ag-based industrial materials. The prior 
sentence was included in my last three testimonies but continues to 
ring true, even as I write this report. However, we are making progress 
and we must persist. We must aggressively pursue this opportunity and 
in doing so:
  --Intensify United States efforts to commercialize alternative crops 
        and dramatically reduce atmospheric VOC emissions and odor. The 
        result will be much cleaner and less noxious air for all 
        Americans.
  --Reduce United States reliance on imported petroleum.
  --Maintain a healthy and prosperous farm economy.
  --Foster new cooperative opportunities between American farmers and 
        American industry.
  --Create advanced polymer technology-based manufacturing jobs that 
        can not be easily exported to other countries.
    Mr. Chairman, your leadership and support are deeply appreciated by 
the entire University of Southern Mississippi community. While I can 
greatly appreciate the financial restraints facing your Subcommittee, I 
feel confident that further support of the Mississippi Polymer 
Institute will continue dividends of increasing commercialization 
opportunities of agricultural materials in American industry. Advances 
in polymer research are crucial to food, transportation, housing, and 
defense industries. Our work has clearly established the value of ag 
products as industrial raw materials and we must move it from the 
laboratories to the industrial manufacturing sector. Only then can the 
United States enjoy a cleaner and safer environment which these 
technologies offer, as well as new jobs, and expanded opportunities for 
the U.S. farmer. We are most grateful for the support you have provided 
in the past. The funding you have provided has allowed laboratory work 
to be conducted, pilot commercial manufacturing to be completed, and 
limited sales of products derived from this technology. However, 
additional funds are needed to make these technologies cost effective 
while maintaining the high performance standards of which we are 
accustomed. Pilot scale processes are necessary to move this technology 
into the market place and this will be the principal focus of our 
upcoming work. Of course, while working to achieve commercialization, 
continued technology advancement will be in effect, as will basic 
research on those topic areas where knowledge is required.
    Since our testimony last year we have reached new levels of 
commercializing efforts in that we have manufactured final and finished 
products for sale. Indeed, the technology has matured and marketing and 
sales must move parallel with continued commercial development of new 
products. Thus, we are in need of additional resources to take these 
technologies to the market place and to continue our developments of 
other exciting technologies. We therefore respectfully request $1.5 
million in Federal funding to more fully exploit the potentials of 
commercializing the technologies described herein. We have shown that 
we can be successful, yet we need additional resources in order to 
optimize the potential of this technology. Our efforts will be 
recognized as instrumental in developing a ``process'' for 
commercialization of new ag-based products. That is, we will have taken 
a technology from the ``idea'' stage to commercialization in several 
market areas. The development of this process, and to show it 
successful, is extremely important to all entrepreneurs who believe in 
ag-based products. Thank you Mr. Chairman and Members of the 
Subcommittee for your support and consideration.
                                 ______
                                 

  Prepared Statement of the Upper Mississippi River Basin Association

    The Upper Mississippi River Basin Association (UMRBA) is the 
organization created in 1981 by the Governors of Illinois, Iowa, 
Minnesota, Missouri, and Wisconsin to serve as a forum for coordinating 
the five States' river-related programs and policies and for 
collaborating with Federal agencies on regional water resource issues. 
As such, the UMRBA has an interest in the budget for the U.S. 
Department of Agriculture's conservation programs and technical 
assistance.
    Prior to enactment of the Farm Security and Rural Investment Act of 
2002, conservation spending was lower in constant dollars than during 
the depths of the Great Depression. In passing the 2002 Farm Bill, 
Congress made a bold, multi-year commitment to reinvigorate 
agricultural conservation in this country. In particular, the Farm Bill 
recognized the importance of providing adequate funding levels and 
balancing programs that remove land from production with those that 
support sound practices on working lands. There was also explicit 
recognition that the USDA's conservation programs and technical 
assistance are crucial alternatives to a totally regulatory approach to 
addressing agriculture-related water quality impairments. Now, as the 
Nation faces an increasingly difficult budget climate, it is essential 
that Congress maintain its commitment to the vision for agricultural 
conservation articulated in the Farm Bill. This will involve not only 
providing adequate funding, but also ensuring effective administration 
and geographic distribution of those resources.
    Of particular importance to the UMRBA is funding for the 
Conservation Reserve Program (CRP), Wetlands Reserve Program (WRP), 
Environmental Quality Incentives Program (EQIP), and Conservation 
Security Program (CSP). Taken together, these four Commodity Credit 
Corporation-funded programs provide an invaluable means for the USDA to 
work with landowners, local conservation districts, and the States to 
maintain agricultural productivity while protecting the Nation's soil 
and water resources. Moreover, they do this in a voluntary, non-
regulatory fashion. CRP, WRP, EQIP, and CSP will be key non-regulatory 
elements in the States' efforts to address agricultural sources of 
water quality impairment through the Total Maximum Daily Load program. 
Successful application of conservation programs to this region's water 
quality problems will also help address the growing national concern 
with hypoxia in the Gulf of Mexico, which has been linked to nutrient 
loads from agriculture and other sources. As stewards of some of the 
Nation's most productive agricultural lands and important water 
resources, the five States of the Upper Mississippi River Basin believe 
these programs are vital. Strong farmer interest and state support 
demonstrate the region's commitment to the objectives of these 
programs. In fiscal year 2003, non-NRCS sources contributed $88.3 
million in financial assistance and $27.9 million in technical 
assistance to help plan and implement natural resource conservation 
systems in the five basin States, with almost 94 percent of this money 
coming from state government.
Conservation Reserve Program
    Under President Bush's fiscal year 2005 budget request, funding for 
the CRP would increase modestly to $1.96 billion. While this increase 
is certainly welcome, it is not adequate to fund the expanded CRP 
provided for in the 2002 Farm Bill. The CRP acreage cap is now 39.2 
million acres. Yet, as of January 2004, only 34.6 million acres were 
enrolled in the program, below even the program's previous cap. In the 
most recently completed general sign-up, USDA was able to accept less 
than half of the acreage offered for enrollment.
    Since its inception, enhancements to the CRP have increased its 
effectiveness in improving water quality, soil conservation, and 
habitat. These same enhancements, which include noncompetitive 
enrollment for filter strips, riparian buffers, and similar measures, 
as well as establishment of the Conservation Reserve Enhancement 
Program (CREP), have made the program more flexible and thus more 
attractive to farmers. Most recently, USDA announced a new continuous 
sign-up for 500,000 acres of bottomland hardwood trees. Targeted toward 
the Mississippi, Missouri, and Ohio Rivers, this initiative offers a 
valuable tool in floodplain restoration efforts on some of this 
Nation's most important rivers.
    In Illinois, Iowa, Minnesota, Missouri, and Wisconsin, CRP general 
sign-up enrollment currently totals 5.5 million acres, or approximately 
17 percent of the national total. All five States also have active CREP 
programs tailored to meet their priority conservation needs. Current 
CREP enrollment in the UMRB States is approximately 233,000 acres, or 
42 percent of the national total. These rates of participation clearly 
demonstrate the importance of the CRP and CREP in the Nation's 
agricultural heartland and reflect the compatibility of these programs 
with agricultural productivity.
Wetlands Reserve Program
    Equally pressing is the need to provide sufficient resources for 
the WRP. The 2002 Farm Bill more than doubled the WRP acreage cap to 
almost 2.3 million acres, with a goal of enrolling 250,000 acres 
annually. Yet the President's fiscal year 2005 budget proposes $295 
million for the WRP. While a slight increase from fiscal year 2004, 
this would be enough to enroll only about 200,000 acres, or 80 percent 
of the authorized enrollment rate. Since the WRP's establishment in 
1996, its easements have proven to be important tools for restoring and 
protecting wetlands in agricultural areas. This is clearly evident from 
the overwhelming landowner response and the resulting improvements to 
water quality and habitat. At the end of fiscal year 2003, WRP 
enrollment in Illinois, Iowa, Minnesota, Missouri, and Wisconsin 
totaled more than 273,000 acres, or 18 percent of the national total. 
In fiscal year 2003 alone, landowners in the five States enrolled more 
than 43,000 acres in the WRP. However, there were eligible, but 
unfunded, applications to enroll another 147,000 acres from the five 
States in fiscal year 2003. This represents 20 percent of the national 
backlog of applications for that year. As with the CRP and CREP, the 
WRP is a vital tool in the agricultural conservation toolbox. The UMRBA 
continues to support funding the WRP at a level sufficient to fully 
enroll the program as authorized.
Environmental Quality Incentives Program
    The CRP and WRP have been extremely effective in helping Midwest 
farmers to protect land and water resources by curtailing production on 
some of their most sensitive land. And there are certainly many more 
opportunities to make good use of the CRP and WRP in the region. 
However, it is also essential to support sound conservation practices 
on the far greater amount of land that remains in production. EQIP is 
the USDA's largest and most effective means of assisting farmers and 
ranchers to implement conservation practices on land currently in 
production. EQIP assistance can, for example, help operators balance 
the new dynamics of livestock production with the need to protect soil 
and water resources.
    Like many other conservation programs, EQIP funding has not kept 
pace with demand. In fiscal year 2003, the backlog of unmet requests 
for EQIP assistance in Illinois, Iowa, Minnesota, Missouri, and 
Wisconsin alone was estimated at $249.1 million. This is more than 3 
times the $74.1 million in EQIP funding actually allocated to the five 
States in fiscal year 2003, and is 8 percent of the Nation's total 
unfunded EQIP applications. While this is a slight decrease from the 
level of unmet need in fiscal year 2002, it is not clear whether there 
is modest progress in addressing the backlog or whether farmers are 
simply increasingly disinclined to submit applications to an over-
subscribed program. The 2002 Farm Bill authorizes EQIP at $1.2 billion 
for fiscal year 2005, but the President is proposing to fund the 
program at only $1.0 billion. The UMRBA urges Congress to maintain EQIP 
at its full authorized level, while recognizing that, even at full 
funding, there will likely be significant numbers of unfunded EQIP 
applications.
Conservation Security Program
    Newly authorized in the 2002 Farm Bill, the CSP also focuses 
conservation efforts on working lands. A tiered program, it encourages 
landowners to implement advanced, cost-effective measures. The States 
are concerned that several early developments may limit the CSP's 
ultimate effectiveness. First, USDA still has yet to finalize its 
implementation rule for the program. As a result, little, if any, CSP 
enrollment will be possible in fiscal year 2004. Of greater long term 
significance, the fiscal year 2003 omnibus spending measure capped the 
CSP at $3.77 billion over 10 years. Congress has since lifted that 
restriction. However, in his fiscal year 2005 budget, the President 
assumes that the program will be limited to $4.4 billion in financial 
and technical assistance through 2010. This approach would represent a 
substantial shift in a program that Congress and the Administration 
agreed in the 2002 Farm Bill to fund without a fixed cap through the 
Commodity Credit Corporation. It remains to be seen what the ultimate 
level of landowner interest will be in the CSP, but the States are 
reluctant to have the program reduced so dramatically prior to its 
implementation.
Conservation Technical Assistance
    The UMRBA has consistently expressed the States' concern with the 
adequacy of funding and staffing levels for conservation technical 
assistance. With the expansion of conservation programs under the 2002 
Farm Bill, the issue has become both more complicated and more 
important. For fiscal year 2005, the President is proposing a $138 
million, or almost 19 percent, decrease in the Conservation Operations 
Technical Assistance account. This is the funding that supports NRCS's 
voluntary conservation planning with landowners. It addresses critical 
concerns including nutrient management and other water quality issues.
    The President's budget also includes a revised version of his 
previous proposal for a new Farm Bill Technical Assistance account. 
Under the new proposal, this account would fund technical assistance 
for the Conservation Reserve Program and the Wetlands Reserve Program. 
In fiscal year 2005, the President is requesting $92 million for this 
new account, which would be subject to annual appropriations. The 
States certainly recognize that adequate technical assistance is 
absolutely essential to the success of the USDA's conservation 
programs, and believe that it is important to address the strain that 
funding CRP and WRP technical assistance from other conservation 
programs has placed on those programs. However, the States do not 
believe that the President's proposal reflects Congressional intent in 
the 2002 Farm Bill. Instead, the States share the perspective of many 
Members that the intent was to fund the necessary technical assistance 
for the various conservation programs separately, through mandatory 
funding rather than annual appropriations. The UMRBA urges that 
sufficient resources for technical assistance be provided using an 
approach consistent with this intent.
Watershed Programs
    The UMRBA is pleased that the President has once again budgeted for 
three critical watershed programs--i.e., Watershed and Flood Prevention 
Operations, Watershed Surveys and Planning, and the Watershed 
Rehabilitation Program--for which he did not request any funds in 
fiscal year 2003. However, the President's requests still fall far 
below recent funding levels for these programs. The three programs all 
provide significant local, regional, and national benefits in the areas 
of erosion, sediment, and flood damage reduction; conservation; water 
supply; and development. They are soundly within USDA's tradition of 
working with States and local communities to enhance rural America. 
Specifically, the budget proposal includes only $40.2 million for 
Watershed and Flood Prevention Operations, an important proactive 
program for which Congress approved $86.3 million in fiscal year 2004. 
Even at the more generous appropriated levels from recent years, the 
Watershed and Flood Prevention Operations program falls far short of 
meeting demand. In fiscal year 2004, there are $191.2 million in Public 
Law 534 and Public Law 566 flood control projects ready for 
construction, and the total project backlog is estimated at $1.557 
billion. The 2002 Farm Bill authorized significant new funding for the 
Watershed Rehabilitation Program, through which the NRCS assists local 
sponsors in rehabilitating aging Public Law 534 and Public Law 566 
structures. Of the more than 11,000 such structures nationwide, more 
than 1,800 will reach the end of their design life by 2010. A 1999 
estimate put national rehabilitation needs at $543 million, with needs 
in Illinois, Iowa, Minnesota, Missouri, and Wisconsin accounting for 
more than 10 percent of the total. These are very real needs, with very 
real potential public health and safety implications. This important 
program received $29.8 million in fiscal year 2004, but would be funded 
at only $10.1 million in fiscal year 2005 under the President's plan. 
Also of concern, the Watershed Surveys and Planning account would be 
reduced by more than half under the President's budget. The President's 
fiscal year 2005 request of $5.1 million for Watershed Surveys and 
Planning compares with pending projects totaling $18.8 million in 
fiscal year 2004. The States urge Congress to provide adequate funding 
for these three important watershed programs.
                                 ______
                                 
             Prepared Statement of the USA Rice Federation
    This is to convey the rice industry's request for fiscal year 2005 
funding for selected programs under the jurisdiction of your respective 
subcommittees. The USA Rice Federation appreciates your assistance in 
making this a part of the hearing record.
    The USA Rice Federation is a federation of U.S. rice producers, 
millers and allied businesses working together to address common 
challenges, advocate collective interests, and create opportunities to 
strengthen the long-term economic viability of the U.S. rice industry. 
USA Rice members are active in all major rice-producing states: 
Arkansas, California, Florida, Louisiana, Mississippi, Missouri, and 
Texas. The U.S.A. Rice Producers' Group, the USA Rice Council, and the 
U.S.A. Rice Millers' Association are charter members of the USA Rice 
Federation.
    USA Rice understands the budget constraints the committee faces 
when developing the fiscal year 2005 appropriations bill. We appreciate 
your past support for initiatives that are critical to the rice 
industry and look forward to working with you to meet the continued 
needs of research, food aid and market development in the future.
    A healthy U.S. rice industry is also dependent on the program 
benefits offered by the 2002 Farm Security and Rural Investment Act of 
2002. We oppose any attempts to modify the support levels provided by 
this vital legislation through more restrictive payment limitations or 
other means and encourage the committee to resist such efforts during 
the appropriations process.
    USA Rice's top priority for 2004 is to regain market access in our 
former number one export market, Iraq. We realize the Committee's 
limitations on this issue but encourage you to seek opportunities to 
increase U.S. agricultural exports to the Iraqi people. Whether through 
increased MAP and FMD funds for market development or other means, we 
seek U.S. rice sales to Iraq and urge all options be exhausted.
    A list of the programs the USA Rice Federation supports for 
Appropriations in fiscal year 2005 are as follows:
Funding Priorities
            Research and APHIS
    The Dale Bumpers National Rice Research Center should receive 
continued funding at the fiscal year 2004 approved level. This center 
conducts research to help keep the U.S. rice industry competitive in 
the global marketplace by assuring high yields, superior grain quality, 
pest resistance, and stress tolerance.
    The Western Regional Research Center should receive continued 
funding at fiscal year 2004 levels for operating funds. In addition, we 
support $3.4 million in construction funds for Phase 3 of the 
modernization project. The center has already completed 25 percent of 
the modernization project and we feel it is vitally important to 
complete the remaining updates to this facility.
    For APHIS-Wildlife Services, we encourage the committee to fund the 
Louisiana blackbird control project at $333,000. This program annually 
saves rice farmers in southwest Louisiana over $4,000 per farm, or $2.9 
million total. No increases have been provided to the program since 
1994 and inflation is reducing the overall impact. A slight increase 
from the $150,000 baseline is justified.
            Market Access
    Exports are critical to the U.S. rice industry. Historically, 40-60 
percent of annual U.S. rice production has been shipped overseas. Thus, 
building healthy export demand for U.S. rice is a high priority.
    The Foreign Market Development program allows USA Rice to focus on 
importer, food service, and other non-retail promotion activities 
around the world. For fiscal year 2005, FMD should be fully funded at 
$34.5 million, consistent with the President's Budget request.
    The Market Access Program allows USA Rice to concentrate on 
consumer promotion and other activities for market expansion around the 
world. For fiscal year 2005, MAP should be funded at $140 million as 
authorized by the 2002 Farm Security and Rural Investment Act of 2002. 
This is $15 million above the President's Budget request.
    In addition, the Foreign Agricultural Service should be funded to 
the fullest degree possible to ensure adequate support for trade policy 
initiatives and oversight of export programs. These programs are 
critical for the economic health of the U.S. rice industry.
            Food Aid
    We encourage the committee to fund Public Law 480 Title I at fiscal 
year 2004 levels. This program is our top food aid priority and we 
support continued funding in order to meet international demand.
    For Public Law 480 Title II we support a slight increase in the 
program over fiscal year 2004 levels due to increased freight costs and 
higher commodity prices. We encourage the committee to fund Title II at 
$1.2 billion in order to ensure consistent tonnage amounts for the rice 
industry.
    USA Rice supports continued funding at fiscal year 2004 levels for 
Food for Progress. Funding for this program is important to improve 
food security for food deficit nations.
    The Global Food for Education Initiative is a proven success and it 
is important to provide steady, reliable funding for multi year 
programming. USA Rice supports $100 million for this education 
initiative because it efficiently delivers food to its targeted group, 
children, while also encouraging education, a primary stepping-stone 
for populations to improve economic conditions.
            Other
    Farm Service Agency.--We encourage the Committee to provide 
adequate funding so the agency can deliver essential programs and 
services. The Agency has been hard hit by staff reductions and our 
members fear a reduction in service if sufficient funds are not 
allocated.
    Please feel free to contact us if you would like additional 
information about the programs we have listed. Significant background 
information is available for all of the programs we have referenced, 
however, we understand the volume of requests the committee receives 
and have restricted our comments accordingly.
    Thank you for consideration of our recommendations.
                                 ______
                                 

                 Prepared Statement of VeriPrime, Inc.

    Mr. Chairman and Members of the Committee, it is a tremendous 
pleasure and a privilege to provide testimony on this important topic 
on behalf of VeriPrime, a member-owned and member-operated cooperative. 
I would like to offer the insights of our members, which may be helpful 
as Congress and the USDA address these issues.
    As a practicing veterinarian I work closely with feedyards and 
ranchers. I see about a million head of cattle each year in my 
practice. As a businessman I helped develop and organize an animal 
tracking company listed on the NASDAQ exchange. My experience relates 
both to the pragmatic concerns of the animal producer as well as to the 
bottom-line concerns of business, and consumer concerns about food 
safety.
    My comments are in no way intended as criticism of the U.S. 
Department of Agriculture or the Congressional Committees of 
jurisdiction. I believe the government has done a responsible job of 
BSE surveillance. When the infected animal was found in Washington 
State, the government responded quickly and efficiently to address 
industry concerns and to safeguard consumer confidence.
    As we move from this point forward, I am hopeful we can do so in a 
coordinated government-industry effort. VeriPrime is a member-owned and 
member-operated cooperative created two and one-half years ago to 
address situations exactly like this. Membership presently consists of 
two-thirds of the nation's fed cattle supply. We are also a partner 
with PigCHAMP, a division of farms.com, which gives us access to 75 
percent of the pork supply. Having secured a majority of the beef and 
pork supplies as partners, we are moving forward to recruit members 
from the packing industry and food retailers. Swift & Co. has joined as 
a founding member in the packer sector, and Burger King is our founding 
retailer.
    Needless to say, this amalgamation of producers, packers and 
retailers is watching closely as government ponders what to do next to 
ensure food safety, consumer confidence, foreign trade, and the 
economic well being of the $75 billion beef industry.
    USDA's call for a national animal identification system, its 
decision to evaluate rapid BSE screening methods and, its willingness 
to reexamine the complicity of Suspected Risk Material, are important 
and relevant steps. However, speaking from the perspective of the 
private sector, I respectfully suggest these initiatives and others 
could more efficiently, effectively, and economically be accomplished 
by the industry itself.
    Overlaying all these issues and solutions is the ever-present 
question of cost. Both the USDA and Congress are concerned, and rightly 
so, about adopting costly programs that will increase tax burdens. But 
an industry-financed alternative, regulated by the USDA, should be 
considered a viable option. Animal ID and traceability are the backbone 
of any reliable, responsible food safety system, and we believe the 
private sector can add value to this discussion as well as self-finance 
any number of solutions.
    At VeriPrime, for example, we employ a licensing strategy in which 
a fee paid by retailers reimburses the cattle production side for the 
cost of compliance with an animal identification program. The system 
would be, and should be technology neutral and have the flexibility to 
accommodate virtually all vendors. Once established, the revenue stream 
will make possible evolution to electronic ID and the economies and 
efficiencies those systems can offer. Moreover, because we are member-
directed, we can guarantee adoption of the least-cost, highest-
efficiency systems. A competitive marketplace will encourage innovation 
and as new, better, and cheaper systems evolve, the membership will 
naturally move to adopt them.
    The issue of BSE testing is particularly worrisome to us. No 
rational view can suppose there was only one BSE-infected animal in 
this country and we were lucky enough to find it through our very 
limited test protocols. If in response to the discovery of BSE, the 
USDA now decides to require increased testing--as has been suggested--
the consequences could be severe. The more we test, the more likely we 
are to discover additional cases. And without a safety net, the 
economic consequences to the U.S. beef industry would surely be 
calamitous. After the Washington incident, even though the USDA's 
response was quick and efficient, cattle prices quickly dropped by 20 
percent. We need only look at the economic consequences of BSE in 
Canada, Japan, and Europe to imagine the catastrophic effect we could 
anticipate in this country.
    Our industry objective must be this: When a consumer prepares to 
bite into a burger, if a news flash reports another BSE discovery, the 
announcement should be accompanied by the statement, ``the affected 
meat has been quarantined, and all meat now in the marketplace has 
passed BSE testing.''
    Rapid test-hold-release programs have shown excellent results in 
Asia and in Europe, restoring consumer confidence and economic 
stability to those beef industries. Our consumers and our marketplace 
need similar protections. It has been widely stated that testing 100 
percent of the beef supply would be prohibitively expensive. From the 
government's perspective, that is probably true. But the tremendous 
power of the American economic marketplace could easily support such a 
program.
    A number of models can be employed. At VeriPrime, we would propose 
to use our licensing system to finance such an endeavor, giving 
retailers the opportunity to market BSE-screened beef products in 
response to consumer preferences. We would regard this function as 
screening only. Suspected test samples would be referred to the USDA 
for its ``gold standard'' testing while the source product is withheld 
from the food supply.
    Some will no doubt argue that the United States does not have a BSE 
problem. Let's assume they are correct, and that rapid testing as I 
have discussed is not a food safety issue. I would then suggest that 
rapid testing is important to the private sector as a marketing 
attribute. Surveys uniformly show that consumers would prefer the 
safety margin this screening provides, and are willing to pay much more 
than the two-pennies-per-burger cost of screening. And to the beef 
industry, from the cattle rancher all the way through the supply chain, 
the economic protections BSE screening offers are very attractive and 
highly desirable.
    Mr. Chairman, this is a time of great uncertainty. The threats to 
our food supply from natural, inadvertent, and malicious sources are of 
great concern to us. And we face an uncertain future. Ten years ago, 
none of us had heard of ``Mad Cow'' disease. What will it be 10 years 
from now? We need a system that provides responsive, flexible, cost-
effective consumer protections. The U.S. Congress, in its rightful role 
of oversight; the U.S. Department of Agriculture, in its rightful role 
as regulator; and the U.S. food industry in its rightful role as 
purveyor of safe, fresh, nutritious products, can form a powerful 
partnership. We look forward to working together to achieve a balance 
of responsibility that properly serves our constituents, our customers, 
and our industry.
                                 ______
                                 

        Prepared Statement of the Wildlife Management Institute

    The Wildlife Management Institute (WMI) is pleased to submit this 
testimony for your consideration in determining the fiscal year 2005 
budgets for the United States Department of Agriculture (Natural 
Resources Conservation Service, Farm Services Agency, and Animal and 
Plant Health Inspection Service). Established in 1911, the Institute is 
staffed by professional wildlife managers and scientists. Its purpose 
is to promote the restoration and improvement of wildlife in 
populations and their habitats throughout North America.
             natural resources conservation service (nrcs)
    General comments.--The USDA's 2005 Budget Summary states the 
following: ``The Department's 2005 budget supports achievement of the 
five USDA strategic goals and the commitment to provide first-class 
service, state-of the art science, and consistent management excellence 
across the board responsibilities of USDA. The Department promotes . . 
., protection of natural resources . . .'' Out of the 5 listed goals, 
two of them reflect budget decreases. Ironically both deal with Natural 
Resources and Environmental issues (quality of life in rural America 
and protecting and enhancing the nation's natural resource base and 
environment). As we review this budget, we continue to see a 
deterioration in funding and manpower necessary to address this 
nation's natural resource needs, in particular, programs concerning and 
fish and wildlife. If we are to meet goals and objectives of the 2002 
Farm Bill Conservation Title (as set by Congress), we will need to 
ensure adequate funding for these programs.
    Conservation Operations/Conservation Technical Assistance.--WMI 
recognizes that there has been a decrease in the number of positions 
within NRCS over the past several years. Our concern continues to be 
for the resource and the ability to deliver quality technical 
assistance (TA) to private landowners across this nation. We observe 
that TA will decrease by $138 million in fiscal year 2005 under the 
Administration's proposed budget. In a briefing to the conservation 
community on the agency's budget on February 19, 2004, it was stated 
``there is a policy shift in the Administration'' towards TA. This 
shift will result in creating a further backlog in the delivery of the 
conservation programs. This ultimately will lead to further confusion 
among the very constituents (private landowners) we desire to serve, 
thereby preventing us from contributing to the goals set by Congress 
when it approved the Farm Bill in May, 2002.
    Farm Bill Technical Assistance.--Compared to the fiscal year 2004 
estimate there is a decrease of $28 million. The Administration's 
proposed fiscal year 2005 budget allocates $92 million to Wetland 
Reserve Program and Conservation Reserve Program for TA. WMI requests 
TA funding for these programs to be supported by the Commodity Credit 
Corporation oppose to annual appropriations.
    The Technical Services Provider (TSP) program also needs attention. 
Level of allocations to Conservation Districts, State fish and wildlife 
agencies and Conservation organization's is good, but there is a need 
to evaluate effectiveness of TSP funds when achieving conservation 
goals for soil, water and wildlife enhancements. Therefore, $2 million 
additional dollars should be allocated to do just that. In fiscal year 
2003 and 2004, NRCS respectively received $30 million and $40 million 
to implement TSP. According to the Administration's fiscal year 2005 
proposed budget request no money is set aside for TSP; at least $40 
million should be allocated.
    Performance measures on page 9 of a February 2, 2004 budget 
briefing book listed targets for 2004 and 2005. These targets are 
activities and will not contribute to the Administration's and OMB's 
Performance Control Standards. They are not RESULT oriented and will 
NOT enable NRCS to communicate achievements specifically on soil, water 
and wildlife enhancements. WMI recommends that Congress require such 
standards as part of the NRCS budgetary process. WMI also recommends 
that $10 million specifically be targeted to conduct comprehensive 
monitoring and evaluation studies on all Farm Bill Conservation 
programs. Results of such studies will help the USDA and Congress 
identify future spending priorities under the Farm Bill.
    Wildlife Habitat Incentives Program (WHIP).--WMI supports the $25 
million increase in funding. This funding greatly needed to address 
over subscriptions in the program, especially in the country's 
Northeast and Northwest regions.
    Grassland Reserve Program (GRP).--The Administration has requested 
a $31 million decrease for this program in fiscal year 2005. WMI 
suggests that with a backlog of private landowners involved in this 
program, it is unwise to decrease funding for GRP. Because this is a 
new program, its financial growth curve should extend beyond its first 
2 years of implementation.
                       farm service agency (fsa)
    Staff Years: FSA is slatted to lose 967 positions by fiscal year 
2005. These are primarily temporary positions and the Administration 
has justified these losses as the result of completed Farm Bill 
activities. The next scheduled sign up of 800,000 acres in the 
Conservation Reserve Program (CRP) is slated for the spring of 2004. It 
is expected a similar effort in 2005 will occur. Thus, there is a need 
to have sufficient staff to process these additional contracts for the 
CRP program, as well as the expected increase for the Conservation 
Reserve Enhancement Program (CREP) agreements. WMI is concerned about 
the delivery of CRP to private landowners and seeks Congressional 
support for retention of FSA's 967 positions.
 wildlife services, animal and plant health inspection services (aphis)
    Wildlife Services Methods Development: In 1997, the United States 
and the European Union (EU) entered into a Memorandum of Understanding 
that identified a process for developing and evaluating more effective 
and humane trapping devices used to manage certain wildlife populations 
(e.g. for research and mitigating wildlife damage, to reestablish 
species extirpated from prior habitats, and to protect endangered 
species). An active research program is being developed at the USDA's 
National Wildlife Research Center in Fort Collins, CO. WMI strongly 
objects to the proposed elimination of $3.35 million for the Methods 
Development program, and urges Congress to restore this funding.
    WMI also recommends Congress restore funding for research of non-
lethal methods to mitigate wildlife damage and that Congress provide 
additional funding to Wildlife Services (WS) to conduct research for 
improved management of invasive species (such as the brown tree snake 
and the Coqui frog that threatens local agriculture, fragile 
ecosystems, and threatened and endangered species in Guam and Hawaii).
                                 ______
                                 

               Prepared Statement of The Wildlife Society

    The Wildlife Society (TWS) appreciates the opportunity to submit 
testimony concerning the fiscal year 2005 budgets U.S. Department of 
Agriculture agencies. 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.
    The following table summarizes The Wildlife Society's 
recommendations for USDA, compared with fiscal year 2004 enacted and 
the President's fiscal year 2005 request:

                                            [In thousands of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                   Fiscal year--
                                                                 -----------------------------------------------
                       USDA Agency/Program                                             2005
                                                                   2004 Enacted     President's      2005 TWS
                                                                                      Budget        Recommended
----------------------------------------------------------------------------------------------------------------
Natural Resources Conservation Service:
    Wildlife Habitat Incentives Program.........................          42,000          60,000         100,000
    Grassland Reserve Program...................................         115,000          84,000          84,000
    Wetlands Reserve Program....................................         280,000         295,000         295,000
    Forest Land Enhancement Program.............................          10,000  ..............          80,000
    Technical Service Provider training.........................  ..............  ..............             100
    Conservation Program Monitoring and Evaluation..............  ..............  ..............           1,000
Animal & Plant Health Inspection Service:
    Wildlife Services--Operations...............................          71,313          71,684          77,184
    Wildlife Services--Methods Development......................          16,999          13,876          17,266
    Veterinary Services--Chronic Wasting Disease................          18,522          20,067          30,067
Coop. St. Research, Education, and Extension Serv.:
    Renewable Resources Extension Act...........................           4,040           4,093          15,000
    McIntire-Stennis Cooperative Forestry.......................          21,755          21,844          30,000
    Natural Resources Inventory.................................         164,027         180,000         180,000
----------------------------------------------------------------------------------------------------------------

Natural Resources Conservation Service
    Wildlife Habitat Incentives Program (WHIP).--The 2002 Farm Bill 
included landmark increases for conservation, but annual appropriations 
have not been commensurate the 80 percent increase passed in the bill. 
The authorized level for WHIP cost-share payments and technical 
assistance in fiscal year 2005 is $325 million. Given the important 
impacts of WHIP in providing technical and financial support to farmers 
and ranchers to create high quality wildlife habitat, we request a 
minimum of $100 million.
    Grassland Reserve Program (GRP).--With estimated expenditure of 
$115 million in fiscal year 2004, the proposed funding level of $84 
million in fiscal year 2005 will meet the Farm Bill-authorized cap of 
$254 million for GRP. GRP should focus on grasslands of high 
biodiversity that are at risk of conversion and support grazing 
operations. In addition, enrollment must increasingly focus on long-
term enrollment, since no more than 40 percent of authorized funding 
can be used for short-duration rental agreements, which have been 
emphasized to date.
    Wetland Reserve Program (WRP).--The continued target of enrolling 
200,000 acres annually in WRP is essential; if 200,000 acres are not 
enrolled every year (fiscal year 2004 was limited to 189,000 acres), 
enrollment must increase in future years to reach the authorized level 
of 2,275,000 acres. Full WRP enrollment is necessary for the 
Administration to achieve no-net-loss of wetlands by building on the 
WRP successes of the 1990's that reduced wetland losses to 32,600 
acres/year (as reported in the USDA National Resource Inventory).
    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. We request restoration of the full 
funding balance, $80 million, for this program in fiscal year 2005.
    Technical Service Provider Training.--NRCS is building a Technical 
Service Provider program of certified professionals who can assist the 
agency in delivering conservation services to agricultural producers. 
Training will be needed to effectively prepare Technical Service 
Providers to assist these producers. TWS recommends that Congress 
direct NRCS to appropriate $100,000 for a pilot training program at a 
university in cooperation with professional societies (Society for 
Range Management, The Wildlife Society, American Fisheries Society) and 
the USDA Cooperative State Research, Education, and Extension Service 
that subsequently can be repeated at land grant universities and 
colleges across the country to train Technical Service Providers. This 
program is critical to the effective delivery of Farm Bill Conservation 
Programs.
    Conservation Program Monitoring and Evaluation.--Monitoring Farm 
Bill conservation programs and evaluating their progress toward 
achieving Congressionally established objectives for soil, water, and 
wildlife will ensure successful program implementation and effective 
use of appropriated funds. Thus far, limited monitoring efforts have 
been focused on soil and water achievements, and NRCS and the 
Agricultural Research Service have done all the evaluations. It is 
important for assessments to address wildlife and habitat impacts, and 
for external parties to be included to ensure credibility and 
objectivity. We recommend Congress direct $1 million toward a pilot 
watershed-based monitoring and evaluation project, which would include 
participation by state conservation and agriculture agencies and the 
state land-grant university, that can serve as a model for conservation 
program assessment nationwide.
Animal and Plant Health Inspection Service
    Wildlife Services.--The Wildlife Services Unit 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. The Administration proposes a 
program reduction of $5.5 million from fiscal year 2004 levels to 
offset a $5 million increase in fiscal year 2005 for a wildlife disease 
surveillance system. We recommend Congress restore the $5.5 million 
reduction to maintain existing operations. We also recommend that 
Congress restore the $3.35 million (need $17,266) decrease in the 
Methods Development program, which provides the credible means to 
identify and improve publicly acceptable methods of wildlife control.
    Veterinary Services.--We commend APHIS-Veterinary Services for 
working with the state wildlife management agencies on Chronic Wasting 
Disease (CWD) surveillance and management in free-ranging deer and elk. 
Additionally, we support APHIS efforts to eliminate CWD from captive 
cervids to eliminate the risk of spread of the disease from these 
animals to free-ranging deer and elk. We recommend increasing CWD 
funding to a total of $30.067 million in fiscal year 2005 to fully 
address management of CWD in the states, with emphasis on preventing 
the spread of CWD from captive cervid operations.
Cooperative State Research, Education and Extension Services
    Renewable Resources Extension Act.--We strongly recommend that the 
Renewable Resources Extension Act be funded at $15 million in fiscal 
year 2005. RREA funds, which are apportioned to State Extension 
Services, leverage (at an average of 4:1) cooperative partnerships with 
a focus on development and dissemination of information needed by 
private landowners. The need for RREA educational programs is greater 
than ever today due to fragmentation of ownerships, urbanization, and 
increasing societal concerns about land use and its impact on soil, 
water, air, and wildlife. Though RREA has been proven to be effective 
in leveraging cooperative state and local funding, it has never been 
fully funded.
    McIntire-Stennis.--We encourage Congress to increase McIntire-
Stennis Cooperative Forestry funds to $30 million. These funds are 
essential to the future of resource management on non-industrial 
private forestlands, supporting state efforts in forestry research to 
increase the efficiency and sustainability 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.
    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 requests $180 million for National Research Initiative 
Competitive Grants in fiscal year 2005.
    Thank you for your past support of conservation funding and for 
considering the views of wildlife professionals. We look forward to 
working with you and your staff to ensure adequate funding for wildlife 
conservation.
                                 ______
                                 

                Prepared Statement of the Wine Institute

    This statement is in support of the Market Access Program and the 
need to fully fund it for fiscal year 2005 at $140 million, the level 
established in the Food Security and Rural Investment Act of 2002.
    The California wine industry has benefited significantly from the 
MAP, and previous USDA export promotion programs since 1986. At that 
time our exports were only $34.9 million. Last year, we exported over 
$633 million. Despite this growth, we have a huge potential remaining 
as our international market share is only about 5 percent. Wine imports 
to the United States still outweigh exports by a factor of 4-1 but we 
are determined to level this balance of payments in the next few years. 
We need the full amount authorized by the 2002 Farm Bill in order to 
maintain our growth and accomplish our objectives.
    The MAP allows our industry to counter the significant trade 
barriers we face in all foreign markets. In Europe, our major market, 
we face high tariffs, expensive certification procedures, and 
restrictions to our winemaking practices. In addition, we face 
competition from the European wine industry which is heavily subsidized 
and backed with export credits and other significant government support 
programs. In Asia, our industry faces high tariffs in all countries and 
protective systems that allow preference for local bottlers and wine 
products.
    International wine marketing requires substantial costs of 
additional labeling requirements, testing and certification procedures. 
To be competitive, companies must attend major trade shows, conduct 
educational programs and produce expensive promotional materials. Every 
competitive wine industry relies on a government program to back its 
export efforts. Small U.S. wineries simply do not have the resources to 
compete in this arena without the support of the MAP.
    The increase in funding authorized by 2002 Farm Bill for the MAP is 
necessary for new market entry and expansion into current markets. The 
Administration's active international trade agenda has allowed for 
opportunities that all exporters need to address as quickly as 
possible. Creating opportunities without providing resources is 
ineffective policy. Our wine industry needs to expand its efforts into 
China, South America, Eastern Europe, and Russia. We need additional 
resources to fuel this expansion.
    The MAP is a cost share program. Our industry's annual contribution 
has increased from 50 percent to its current level of 150 percent. We 
are more than willing to pay our share. However, we also need the 
resources and support that our competitors enjoy. Therefore, we 
strongly support the authorized, full funding for the MAP at $140 
million for fiscal year 2005.
                                 ______
                                 

       Prepared Statement of the Wyoming State Engineer's Office

    This statement is sent in support of the designation of 2.5 percent 
of the fiscal year 2005 Environmental Quality Incentive Program (EQIP) 
funding for the Department of Agriculture's Colorado River Salinity 
Control (CRSC) Program. Pursuant to Public Law 104-127, the USDA's CRSC 
Program is a component program within EQIP. Wyoming views the inclusion 
of the CRSC Program in EQIP as a direct recognition on the part of 
Congress of the Federal commitment to maintenance of the water quality 
standards for salinity in the Colorado River--and that the Secretary of 
Agriculture has a vital role in meeting that commitment.
    The State of Wyoming is a member state of the seven-state Colorado 
River Basin Salinity Control Forum. Established in 1973 to coordinate 
with the Federal Government on the maintenance of the basin-wide Water 
Quality Standards for Salinity in the Colorado River System, the Forum 
is composed of gubernatorial representatives and serves as a liaison 
between the seven States and the Secretaries of the Interior and 
Agriculture and the Administrator of the Environmental Protection 
Agency. The Forum advises the Federal agencies on the progress of 
efforts to control the salinity of the Colorado River and annually 
makes funding recommendations, including the amount believed necessary 
to be expended by the USDA for its on-farm CRSC Program. Overall, the 
combined efforts of the Basin States, the Bureau of Reclamation and the 
Department of Agriculture have resulted in one of the nation's most 
successful non-point source control programs.
    The Colorado River provides municipal and industrial water for 27 
million people and irrigation water to nearly four million acres of 
land in the United States. The River is also the water source for some 
2.3 million people and 500,000 acres in Mexico. Limitations on users' 
abilities to make the greatest use of that water supply due to the 
River's high concentration of total dissolved solids (hereafter 
referred to as the salinity of the water) are a major concern in both 
the United States and Mexico. Salinity in the water source especially 
affects agricultural, municipal, and industrial water users. While 
economic detriments and damages in Mexico are unquantified, the Bureau 
of Reclamation presently estimates salinity-related damages in the 
United States to amount to $330 million per year. The River's high salt 
content is in almost equal part due to naturally occurring geologic 
features that include subsurface salt formations and discharging saline 
springs; and the resultant concentrating effects of our users man's 
storage, use and reuse of the waters of the River system. Over-
application of irrigation water by agriculture is a large contributor 
of salt to the Colorado River as irrigation water moves below the crop 
root zone, seeps through saline soils and then returns to the river 
system. The Department of Agriculture's CRSC Program is an important 
proven and cost-effective tool in improving irrigation water 
application and thus reducing salt loading into the Colorado River 
system.
    For the past 20 years, the seven-state Colorado River Basin 
Salinity Control Forum has actively assisted the U.S. Department of 
Agriculture in implementing its unique, collaborative and important 
program. At its recent October 2003 meeting, the Forum recommended that 
the USDA CRSC Program should expend 2.5 percent of the Environmental 
Quality Incentive Program funding. In the Forum's judgment, this amount 
of funding is necessary to implement the needed program. ``Catch-up'' 
funding in the future will require expending greater sums of money, 
increase the likelihood that the numeric salinity criteria are 
exceeded, and create undue burdens and difficulties for one of the most 
successful Federal/State cooperative non-point source pollution control 
programs in the United States.
    The State of Wyoming greatly appreciates the Subcommittee's support 
of the Colorado River Salinity Control Program in past years. We 
continue to believe this important basin-wide water quality improvement 
program merits support by your Subcommittee. We request that your 
Subcommittee direct the allocation of 2.5 percent of the Environmental 
Quality Incentives Program funding for the USDA's CRSC Program during 
fiscal year 2005. Thank you in advance for your consideration of this 
statement and its inclusion in the formal record for fiscal year 2005 
appropriations.

















       LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                              ----------                              
                                                                   Page
Ad Hoc Coalition, Prepared Statement of..........................   409
American:
    Farm Bureau Federation, Prepared Statement of................   412
    Honey Producers Association, Inc., Prepared Statement of.....   415
    Indian Higher Education Consortium, Prepared Statement of....   419
    Legion, Prepared Statement of................................   422
    Public Power Association, Prepared Statement of..............   423
    Sheep Industry, Prepared Statement of........................   423
    Society:
        For Microbiology, Prepared Statements of...............427, 429
        For Nutritional Sciences (ASNS), Prepared Statement of...   432
        Of Plant Biologists, (ASPB), Prepared Statement of.......   435
    Veterinary Medical Association, Prepared Statement of........   436
Association of State Dam Safety Officials, Prepared Statement of.   438

Bennett, Senator Robert F., U.S. Senator from Utah:
    Opening Statements.........................................107, 273
    Questions Submitted by.................................38, 171, 380
Berne, Bernard H., M.D., Ph.D., Prepared Statement of............   443
Bond, Senator Christopher S., U.S. Senator from Mississippi, 
  Questions Submitted by...................................59, 174, 256
Bosecker, R. Ronald, Administrator, National Agricultural 
  Statistics Service, Department of Agriculture, Prepared 
  Statement of...................................................   358
Bost, Eric M., Under Secretary for Food Nutrition and Consumer 
  Services, Department of Agriculture............................   107
    Prepared Statement of........................................   111
    Statement of.................................................   109
Byrd, Senator Robert C., U.S. Senator from West Virginia:
    Prepared Statement of........................................     4
    Questions Submitted by.......................................    99

Calaveras County Water District, Prepared Statement of...........   445
California:
    Association of Winegrape Growers, Prepared Statement of......   447
    Industry and Government Central California Ozone Study 
      Coalition, Prepared Statement of...........................   450
    Table Grape Commission, Prepared Statement of................   451
Coalition:
    On Funding Agricultural Research Missions, Prepared Statement 
      of.........................................................   452
    To Promote U.S. Agricultural Exports, Prepared Statement of..   453
Collins, Keith, Chief Economist, Office of the Secretary, 
  Department of the Secretary, Department of Agriculture.........1, 273
    Prepared Statement of........................................   275
    Statement of.................................................   274
Colorado River Basin Salinity Control Forum, Prepared Statement 
  of.............................................................   454
Crawford, Lester M., D.V.M., Ph.D., Acting Commissioner, Food and 
  Drug Administration Department of Health and Human Services....   184
    Prepared Statement of........................................   186

Davidson, Ross J., Jr., Administrator, Risk Management Agency, 
  Department of Agriculture, Prepared Statement of...............   304
Dewhurst, Stephen, Budget Officer, Office of the Secretary, 
  Department of the Secretary, Department of Agriculture.........     1
Dorgan, Senator Byron L., U.S. Senator from North Dakota, 
  Questions Submitted by........................................71, 267
Durbin, Senator Richard J., U.S. Senator from Illinois:
    Prepared Statement of........................................   108
    Questions Submitted by.................................87, 270, 273

Easter Seals, Prepared Statement of..............................   456

Federation of American Societies for Experimental Biology, 
  Prepared Statement of..........................................   458
Feinstein, Senator Dianne, U.S. Senator from California, 
  Questions Submitted by........................................80, 267
Fernandez, Dr. Peter, Acting Administrator, Animal and Plant 
  Health Inspection Service, Department of Agriculture, Prepared 
  Statement of...................................................   129
Florida State University, Prepared Statement of..................   460
Forest Landowners Association, Prepared Statement of.............   462
Friends of Agricultural Research--Beltsville, Inc., Prepared 
  Statement of...................................................   463

Garcia, Arthur A., Administrator, Rural Housing Service, 
  Department of Agriculture, Prepared Statement of...............   329
Gonzalez, Gilbert G., Acting Under Secretary for Rural 
  Development, Department of Agriculture.........................   273
    Prepared Statement of........................................   322
    Statement of.................................................   320
Great Lakes Indian Fish and Wildlife Commission, Prepared 
  Statement of...................................................   467
Gulf Coast Research Laboratory, Prepared Statement of............   516

Harkin, Senator Tom, U.S. Senator from Iowa, Questions Submitted 
  by............................................................63, 401
Hawks, William T., Under Secretary for Marketing and Regulatory 
  Programs, Department of Agriculture............................   107
    Prepared Statement of........................................   119
    Statement of.................................................   118
Hefferan, Dr. Colien, Administrator, Cooperative State Research, 
  Education, and Extension Service, Department of Agriculture, 
  Prepared Statement of..........................................   346
Humane Society of the United States, Prepared Statement of.......   469

Inouye, Senator Daniel K., U.S. Senator from Hawaii, Questions 
  Submitted by...................................................   106
International Association of Fish and Wildlife Agencies, Prepared 
  Statement of...................................................   472
InterTribal Bison Cooperative, Prepared Statement of.............   475

Jen, Joseph J., Under Secretary for Research, Education and 
  Economics, Department of Agriculture...........................   273
    Prepared Statement of........................................   339
    Statement of.................................................   338
Johnson, Senator Tim, U.S. Senator from South Dakota:
    Prepared Statement of........................................     4
    Questions Submitted by.......................................    92

Knight, Bruce I., Chief, Natural Resources Conservation Service, 
  Department of Agriculture, Prepared Statement of...............   317
Knipling, Dr. Edward B., Acting Administrator, Agricultural 
  Research Service, Department of Agriculture, Prepared Statement 
  of.............................................................   343
Kohl, Senator Herb, U.S. Senator from Wisconsin, Questions 
  Submitted by............................................176, 256, 389

Landrieu, Senator Mary L., U.S. Senator from Louisiana, Questions 
  Submitted by...................................................    95
Legg, Hilda Gay, Administrator, Rural Utilities Service, 
  Department of Agriculture, Prepared Statement of...............   326
Little, James R., Administrator, Farm Service Agency, Department 
  of Agriculture, Prepared Statement of..........................   290

Masters, Dr. Barbara J., Acting Administrator, Food Safety and 
  Inspection Service, Department of Agriculture, Prepared 
  Statement of...................................................   163
Mid-America International Agri-Trade Council (MIATCO) and Food 
  Export USA--Northeast, Prepared Statement of...................   479
Murano, Elsa A., Under Secretary for Food Safety, Department of 
  Agriculture....................................................   107
    Prepared Statement of........................................   153
    Statement of.................................................   150

National:
    Association of:
        Professional Forestry Schools and Colleges (NAPFSC), 
          Prepared Statement of..................................   481
        State Departments of Agriculture, Prepared Statement of..   484
        State Foresters, Prepared Statement of...................   485
        University Fisheries and Wildlife Programs, Prepared 
          Statement of...........................................   486
    Coalition for Food and Agricultural Research, Prepared 
      Statement of...............................................   488
    Commodity Supplemental Food Program (CSFP) Association, 
      Prepared Statement of......................................   490
    Council of Farmer Cooperatives, Prepared Statement of........   492
    Potato Council, Prepared Statement of........................   494
    Rural Housing Coalition, Prepared Statement of...............   495
    Rural Telecom Association, Prepared Statement of.............   500
    Telecommunications Cooperative Association, Prepared 
      Statement of...............................................   503
    Treasury Employees Union, Prepared Statement of..............   506
    Turfgrass Evaluation Program, Prepared Statement of..........   507
New Mexico Interstate Stream Commission, Prepared Statement of...   511
Nez Perce Tribe, Prepared Statement of...........................   512
Nicholls State University, Prepared Statement of.................
Northwest Indian Fisheries Commission, Prepared Statement of.....   513

Oceanic Institute:
    Letter From..................................................   515
    Prepared Statement of........................................   516
Offutt, Susan E., Administrator, Economic Research Service, 
  Department of Agriculture, Prepared Statement of...............   349
Oklahoma Farmers Union, Prepared Statement of....................   478
Organization for the Promotion and Advancement of Small 
  Telecommunications Companies (OPASTCO), Prepared Statement of..   522

Penn, J.B., Under Secretary for Farm and Foreign Agricultural 
  Services, Department of Agriculture............................   273
    Prepared Statement of........................................   284
    Statement of.................................................   281
People for the Ethical Treatment of Animals (PETA), Prepared 
  Statement of...................................................   524
Pickle Packers International, Inc., Prepared Statement of........   526

Red River Valley Association, Prepared Statement of..............   531
Reifschneider, Donna, Administrator, Grain Inspection, Packers 
  and Stockyards Administration, Department of Agriculture, 
  Prepared Statement of..........................................   141
Rey, Mark, Under Secretary for Natural Resources and Environment, 
  Department of Agriculture......................................   273
    Prepared Statement of........................................   314
    Statement of.................................................   312
Rosso, John, Administrator, Rural Business-Cooperative Service, 
  Department of Agriculture, Prepared Statement of...............   334

Salazar, Roberto, Administrator, Food and Nutrition Services, 
  Department of Agriculture, Prepared Statement of...............   115
Society of American Foresters, Prepared Statement of.............   534
Stevens, Senator Ted, U.S. Senator from Alaska, Questions 
  Submitted by...................................................    59

Terpstra, A. Ellen, Administrator, Foreign Agricultural Service, 
  Department of Agriculture, Prepared Statement of...............   295
Texas Agricultural Experiment Station, Prepared Statement of.....   516
Tufts University, Prepared Statement of..........................   516

U.S.:
    Agricultural Export Development Council, Prepared Statement 
      of.........................................................   536
    Apple Association, Prepared Statement of.....................   540
    Marine Shrimp Farming Consortium, Prepared Statement of......   516
United States Telecom Association, Prepared Statement of.........   543
University of:
    Arizona, Prepared Statement of...............................   516
    Southern Mississippi and the Mississippi Polymer Institute, 
      Prepared Statement of......................................   545
Upper Mississippi River Basin Association, Prepared Statement of.   548
USA Rice Federation, Prepared Statement of.......................   551

Veneman, Ann M., Secretary of Agriculture, Office of the 
  Secretary, Department of Agriculture...........................     1
    Prepared Statement of........................................    11
    Statement of.................................................     6
VeriPrime, Inc., Prepared Statement of...........................   552

Waddell Mariculture Center, Prepared Statement of................   516
Wildlife:
    Management Institute, Prepared Statement of..................   554
    Society, Prepared Statement of...............................   555
Wine:
    America, Prepared Statement of...............................   447
    Institute, Prepared Statements of..........................447, 557
Winegrape Growers of America, Prepared Statement of..............   447
Wyoming State Engineer's Office, Prepared Statement of...........   558

Yates, A.J., Administrator, Agricultural Marketing Service, 
  Department of Agriculture, Prepared Statement of...............   125


















                             SUBJECT INDEX

                              ----------                              

                       DEPARTMENT OF AGRICULTURE

                                                                   Page
Access to CSP by Producers.......................................   372
Achieving the Next Level of Food Safety..........................   156
Additional Committee Questions.............................38, 171, 380
Addressing Overweight and Obesity................................   112
Adjusted Gross Revenue Program...................................    81
Administrative:
    Expenses.....................................................   326
    Support......................................................   295
Advanced Telecommunications in Rural America.....................   327
Adventitious Presence............................................   387
Agricultural:
    Estimates Restoration........................................   381
    Marketing Service............................................   123
    Trade........................................................    76
        And CAFTA................................................    30
    Transportation Security......................................   129
AMS' 2005 Budget Request.........................................   124
Animal:
    And Plant Health Inspection Service..........................   120
    Welfare Act Violations.......................................    24
APHIS' 2005 Budget Request.......................................   121
Asian Soybean Rust...............................................    77
Assistance on Public Lands.......................................    56
Avian Influenza.................................................52, 172
Beaver Control...................................................   181
Beef Export Markets..............................................    53
Better Nutrition for a Healthy US................................    14
Bovine Spongiform Encephalopathy (BSE).51, 54, 63, 78, 90, 151, 171 182
    And Cattle From Canada.......................................    30
    Policy.......................................................    78
    Related Activities...........................................    13
    Surveillance Program.........................................    72
    Testing......................................................28, 93
    Trade Restrictions...........................................   382
Broadband......................................................389, 407
    Funding......................................................    73
    Loan Program.................................................   393
Brown Tree Snake.................................................   106
Budget...........................................................   349
    And Performance Integration..................................   116
    Cuts.........................................................    59
    Impact of Information Security Requirements..................    47
    Request Summary..............................................   129
    Requests.....................................................   292
Business and Industry:
    Guaranteed Loan Program......................................   336
    Program......................................................    42
Central Filing System Programs...................................    25
Centralized Servicing Center.....................................    43
Challenges for 2004............................................151, 154
Child Nutrition Program...................................110, 114, 117
Childhood Obesity...............................................89, 173
Civil Rights.....................................................    21
Combating Childhood Obesity......................................   176
Commodity:
    Credit Corporation...........................................   292
    Supplemental Food Program....................................   117
        Fiscal Year 2004 Funding.................................   177
Community Programs...............................................   330
Completing Risk Assessments......................................    47
Comprehensive Program Assessment...............................331, 388
Congressional Add-Ons............................................   363
Conservation:
    Programs.....................................................    63
    Security Program..................................34, 312, 364, 401
Consumer Data and Information System.............................   356
    Initiative...................................................   380
Cooperative Services...........................................334, 401
    Technical Assistance.........................................    62
Coordination of USDA Rural Programs..............................    41
Coqui Frog.......................................................   106
Corn Shipments...................................................    33
Country of Origin Labeling.......................................77, 92
Crop Insurance...................................................   386
CSP:
    Base Payment.................................................   314
    Funding Cap..................................................   371
    Proposed Rule................................................   369
Customer Service and Technology..................................   125
Customers, Partners, and Stakeholders............................   358
Cyber Security...................................................    37
Dairy Forward Contacting.......................................365, 389
Decreases........................................................   141
Departmental Management..........................................    21
Designate Biobased Products......................................    68
Developing the Animal Identification Program.....................    93
Digital Data Maps................................................   393
Discretionary Funding............................................   318
Distance Learning, Telemedicine and Broadband....................    60
Downed Animal Risk Management Tools..............................   392
Durum and Spring Wheat Yields....................................    79
Electric Program.................................................   327
Employee Security Awareness Training.............................    48
Empowerment Zones................................................    71
Energy Balance of Ethanol........................................    94
Enhance Public Education Efforts.................................   167
Enhancing Program Integrity and Delivery.........................   113
Ensure That Policy Decisions are Based on Science................   165
Ensuring:
    Adequate Funding for FISMA Remediation.......................    51
    Effectiveness of Security Management.........................    47
    Program Access...............................................   112
    Systems are Certified and Accredited.........................    49
Environmental Impact of On-Farm Burial of Downer/Dead Cattle.....    85
ERS Contributions to Mission Area Goals..........................   349
Export Market Problems...........................................   390
Exports Transportation Infrastructure............................    32
Facility Feasibility Studies.....................................   362
Farm:
    And Foreign Agricultural Services............................    14
    Bill Authorized Programs.....................................   319
    Credit Administration Review.................................    43
    Loan:
        Programs.................................................   293
        Staffing...............................................386, 392
    Service Agency...............................................   282
Federal Grain Inspection Service.................................   144
Filling ACIO for Cybersecurity...................................    47
Fiscal Year 2005:
    Budget Request..............................128, 138, 152, 157, 169
    Funding Request..............................................   371
    Plans........................................................   361
Food:
    And Agriculture Defense......................................    12
    Guide Pyramid................................................   178
    Safety.......................................................    16
    Stamp Program.........................................110, 113, 117
Food, Nutrition, and Consumer Services...........................    17
Foreign Agricultural Service...................................283, 287
Forest Service Management Plans..................................   402
Fraud and Abuse..................................................    56
Fruit and Vegetable Pilot Program................................    82
FSA Farm Loan Portfolio..........................................   384
Funding:
    For Food Safety/Animal Health Inspections and Research.......   105
    Sources......................................................   120
    To Continue Emergency Programs...............................   140
Genetically Modified:
    Crops........................................................   390
    Food.........................................................   383
Genomic Science..................................................   338
Geospatial Information System (GIS)..............................   368
    Progress.....................................................   369
GIPSA's 2005 Budget Request......................................   122
Glassy-Winged Sharpshooter.......................................    84
Grain Inspection, Packers and Stockyards Administration..........   121
Guaranteed Single-Family Housing Program.........................   395
Guidelines on Fat Consumption....................................   174
Health Care Cooperative Pilot....................................    61
High Fructose Corn Syrup.........................................   403
Highest Priority Components of the Strategic Plan and Homeland 
  Security.......................................................   138
Holding Senior Management Accountable for Information Security...    46
Horticultural Specialties........................................   381
How USDA Budget Corrects Security Weaknesses.....................    49
Human Capital Management.........................................   116
Humane Slaughter Operations......................................    99
Hunger Task Force Pilot Program..................................    23
Importation of Live Cattle From Canada...........................    31
Improve Coordination of Food Safety Activities With Other Public 
  Health Agencies................................................   166
Indefinite Funding in the Food Stamp Act.........................   174
Inspector Travel.................................................   183
Interest Assistance Loans........................................    77
Intermediary Relending Program...................................   336
Iraq Food Aid....................................................   384
Low:
    Carbohydrate Diets...........................................   178
    Pathogenic Avian Influenza...................................    52
Major Activities of the National Agricultural Statistics Service 
  (NASS).........................................................   360
Management Control Review........................................   388
Marketing and Regulatory Programs................................    15
McGovern-Dole International Food for Education Program...........    65
Meat and Poultry Safety..........................................    64
Merging of Urban and Rural Housing and Community Development 
  Programs.......................................................    44
MFH Automation Initiatives.......................................   333
Mission........................................................125, 349
Multi Family:
    Housing.....................................................42, 388
        Programs.................................................   329
    Update.......................................................   331
Multi-Peril Crop Insurance.......................................    74
National Animal Identification:
    Database.....................................................    86
    Program......................................................    22
    System.......................................................25, 65
National:
    Board on Rural America.......................................    42
    Center for Animal Health.....................................    70
    Finance Center:
        Data Mirroring...........................................    97
        E-Payroll Initiative.....................................    95
        Thrift Savings Plan......................................    96
            Competitive Bidding..................................    57
    Organic Standards Board......................................   178
    Research Initiative..........................................   404
    Resources and Environment...................................18, 369
    Rural Development Partnership................................    26
New Direction....................................................   138
Northern Great Plains Regional Authority.........................    74
Nutrition Programs Administration.........................111, 115, 118
Obesity Prevention...............................................   338
    Initiative Grand Forks ARS...................................    72
Organic Agriculture Research and Extension Initiative............   405
Organization.....................................................   142
Other:
    Appropriated Programs........................................   294
    Increases....................................................   140
Packers and Stockyards Programs..................................   142
Partnerships.....................................................   126
Pasture-Raised Beef Project......................................   104
Payment Limitation...............................................   403
Performance Review...............................................   385
Pilot Program....................................................    41
Plans to Finalize Security Policies and Procedures...............    48
Preclearance Inspections in Hawaii...............................   106
Prepayment.......................................................   333
    In Section 515 Program.......................................   399
Program Highlights...............................................   309
    And Initiatives..............................................   330
Proposed:
    Increase for Buildings and Facilities........................   345
    Operating Increases..........................................   345
    Program:
        Decreases................................................   345
        Initiatives..............................................   343
    Rule 3560....................................................   332
Protect Meat, Poultry, and Egg Products Against Intentional 
  Contamination..................................................   167
RD:
    Information Technology.......................................    40
    State Offices................................................    38
Reaching Out to Those in Need through Faith-based and Other 
  Community Organizations........................................   116
REE Agency Fiscal Year 2005 Budgets..............................   341
Renewable Energy.................................................    69
    Grants Program...............................................   337
    Systems......................................................    68
Rental Assistance.........................................332, 387, 397
    Preservation.................................................    44
    Program......................................................   400
Reopening Export Markets for Beef and Poultry....................   366
Repair and Rehabilitation........................................   399
Research, Education, and Economics...............................    20
Resignation of Administrator Bobby Acord.........................    78
Responsibilities.................................................   323
Revenue Based Programs...........................................    81
RHS/GAO Report on Rental Assistance..............................    38
Risk:
    Factors......................................................    59
    Management Agency..........................................282, 286
Rural Business:
    And Cooperative Service......................................    42
    Enterprise Grant Program.....................................   336
    Investment:
        Corporation..............................................   376
        Program..................................................   406
    Cooperative Programs.........................................   324
    Development Grant Program....................................   335
    Opportunity Grant Program....................................   337
Rural Development................................................    18
    Accomplishments..............................................   321
    Budget Request...............................................   323
Rural:
    Economic Development Loan and Grant Programs.................   337
    Housing Programs.............................................   325
    Partners.....................................................   334
    Programs.....................................................    39
    Telecommunications...........................................    73
    Utility Programs.............................................   323
Sausage Casings..................................................   184
Section:
    502 Guaranteed Program.......................................   330
    502 Single-Family Housing Programs...........................   397
    515 Multi-Family Housing Program.............................   395
    521 Rental Assistance........................................    37
    523 Mutual and Self-Help Housing.............................   330
    538 Guaranteed Rural Rental Housing Program..................   332
Self-Help Technical Assistance and Other Single Family Housing 
  Programs.......................................................   329
Significant Food Safety Advancement of 2003....................151, 153
Single Family Housing:
    Programs.....................................................   329
    Update.......................................................   330
Single Food Safety Agency........................................27, 87
Small Area Estimation............................................   382
Sound:
    Science....................................................183, 391
    Scientific Information for Regulatory Decisionmaking.........    70
Soybean Rust...............................................88, 176, 404
Specialty Crops..................................................    80
Standard Reinsurance Agreement..................31, 55, 74, 75, 94, 375
Subsidy Rates....................................................   398
Sudden Oak Death.................................................    84
Summary........................................................328, 343
Supercomputer Resources..........................................   377
Systems Testing and Evaluation...................................    48
Technical:
    Assistance...................................................   372
        For Specialty Crops Program..............................    81
    Service Providers............................................   373
Telecommunications Budget........................................   328
Testing of Animals Prior to Export...............................    52
The Challenge of Improper Payments...............................   115
The Emergency Food Assistance Program (TEFAP)..................114, 117
Time Lag on CSP Implementation and Rulemaking....................   374
Trade Implications of Genetically Modified Crops.................   367
Training of DHS Employees........................................    83
Transportation Efficiency........................................    33
Transshipment of Beef From the Lower 48 to Alaska................    60
U.S. Agricultural Economy........................................   274
Underwriting Gains Tax...........................................    74
USDA Key Information Security Weaknesses.........................    45
USDA's:
    Center for Veterinary Biologics..............................    58
    Five Star Commitment to Increase Minority Homeownership......   331
Vision...........................................................   323
Water and Environmental Programs.................................   328
Watershed Approach to CSP........................................   313
Web-Based Supply Chain Management System.........................   128
WIC............................................................114, 117
    Contingency Funds............................................    24
    Program......................................................   110
Wool for Berets in Iraq..........................................    79

                DEPARTMENT OF HEALTH AND HUMAN SERVICES

                      Food and Drug Administration

Additional Committee Questions...................................   237
Agricultural Products............................................   242
Albuterol Metered-Dose Inhalers..................................   247
Animal:
    Drug Compounding.............................................   265
    Feed.........................................................   230
    Inspections..................................................   230
Biotech-Enhanced Events in Food and Feed.........................   247
Bioterrorism Regulations.........................................   232
Bovine Spongiform Encephalopathy...............................198, 233
    Testing......................................................   235
Combating Counterfeit Drugs: A Report of the Food and Drug 
  Administrat- 
  ion............................................................   200
Counterfeit:
    Alert Network Co-Sponsorship Agreement.......................   221
    Drugs......................................................200, 265
Critical Path Initiative.........................................   231
Dentician........................................................   236
Dietary Supplements..............................................   270
Drug:
    Information Web Site.........................................   237
    Reimportation................................................   267
Emergency Contraception..........................................   269
Executive Summary................................................   200
Expanded Description of Comments Received........................   222
FDA FOIA Policies................................................   259
Food:
    Guide Pyramid................................................   197
    Safety.......................................................   243
Generic Biologicals............................................199, 248
Implicit Pre-Emption.............................................   260
Import Inspections...............................................   258
Larium (Mefloquine)..............................................   267
Live Bird Markets and Avian Influenza............................   197
Medical Device:
    Drug Marketing...............................................   239
    Review.......................................................   238
    User Fee and Modernization Act...............................   198
Methylmercury Advisory for Seafood...............................   240
Monograph Drug Approval System...................................   245
NARMS............................................................   265
National:
    Animal Identification......................................235, 236
    Organic Program..............................................   229
New Drug Approval Process........................................   241
Nutritional Guidelines...........................................   256
Obesity........................................................246, 256
Prescription Drug Abuse..........................................   245
Proposed Legislation.............................................   196
Recall Report by Office of Inspector General.....................   198
Regulatory Initiatives and State Model Rules.....................   210
Seafood Inspection/GAO Report....................................   241
Technology.......................................................   205
Transgenic Animals in CVM........................................   242
WIC:
    Contingency Fund.............................................   228
    Food Costs...................................................   229
    Only Stores..................................................   231

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