    [Senate Hearing 109-337]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 109-337

      REVIEW THE REAUTHORIZATION OF THE UNITED STATES GRAIN STANDARDS ACT

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

                                    HEARING

                                   before the

                           COMMITTEE ON AGRICULTURE,
                            NUTRITION, AND FORESTRY

                              UNITED STATES SENATE

                           ONE HUNDRED NINTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  May 25, 2005

                                   __________

                           Printed for the use of the
               Committee on Agriculture, Nutrition, and Forestry

      Available via the World Wide Web: http://www.agriculture.senate.gov

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               COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

                       SAXBY CHAMBLISS, Georgia, Chairman

    RICHARD G. LUGAR, Indiana            TOM HARKIN, Iowa
    THAD COCHRAN, Mississippi            PATRICK J. LEAHY, Vermont
    MITCH McCONNELL, Kentucky            KENT CONRAD, North Dakota
    PAT ROBERTS, Kansas                  MAX BAUCUS, Montana
    JAMES M. TALENT, Missouri            BLANCHE L. LINCOLN, Arkansas
    CRAIG THOMAS, Wyoming                DEBBIE A. STABENOW, Michigan
    RICK SANTORUM, Pennsylvania          E. BENJAMIN NELSON, Nebraska
    NORM COLEMAN, Minnesota              MARK DAYTON, Minnesota
    MICHEAL D. CRAPO, Idaho              KEN SALAZAR, Colorado
    CHARLES E. GRASSLEY, Iowa

                Martha Scott Poindexter, Majority Staff Director
                    David L. Johnson, Majority Chief Counsel
                  Steven Meeks, Majority Legislative Director
                          Robert E. Sturm, Chief Clerk
                    Mark Halverson, Minority Staff Director

                                      (ii)

                                C O N T E N T S

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                                                                       Page

    Hearing(s):

    Review the Reauthorization of the United States Grain Standards
      Act............................................................    05

                                  ----------

                             Wednesday May 25, 2005
                        STATEMENTS PRESENTED BY SENATORS

    Chambliss, Hon. Saxby, a U.S. Senator from Georgia, Chairman,
      Committee on Agriculture, Nutrition, and Forestry..............    05
                                  ----------

                                   WITNESSES

    Dahl, Tom, President, American Association of Grain Inspection
      and Weighing Agencies, Sioux City, Iowa........................    10
    Gibson, Jerry D., Regional Manager, Bunge North America, Inc.,
      Destrehan, Louisiana; On Behalf of the National Grain and Feed
      Association and North American Export Grain Association........    08
    Niemeyer, Garry, Corn Board, National Corn Growers Association,
      Glenarm, Illinois..............................................    12
    Shipman, David R., Acting Administrator, Grain Inspection,
      Packers and Stockyards Administration, U.S. Department of
      Agriculture, Washington, DC....................................    06
                                  ----------

                                    APPENDIX

    Prepared Statements:
        Dahl, Tom....................................................    20
        Gibson, Jerry D..............................................    22
        Niemeyer, Garry..............................................    38
        Shipman, David R.............................................    42
    Document(s) Submitted for the Record:
        Harkin, Hon. Tom.............................................    50
        Cochran, Hon. Thad...........................................    52
        Stabenow, Hon. Debbie........................................    54
        McCaw, Kathryn...............................................    56
        National Grain Sorghum Producers.............................    60
    Questions and Answers Submitted for the Record:
        Harkin, Hon. Tom.............................................    66
        Stabenow, Hon. Deborah Ann...................................    71

      REVIEW THE REAUTHORIZATION OF THE UNITED STATES GRAIN STANDARDS ACT

                                  ----------

                            WEDNESDAY, MAY 25, 2005

                                  United States Senate,
             Committee on Agriculture, Nutrition, and Forestry,
                                                         Washington, DC
        The committee met, pursuant to notice, at 10:00 a.m., in
    Room SR-328-A, Russell Senate Office Building, Hon. Saxby
    Chambliss (Chairman of the committee) presiding.
        Present or submitting a statement: Senator Chambliss.

    STATEMENT OF HON. SAXBY CHAMBLISS, A U.S. SENATOR FROM GEORGIA,
      CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

        The Chairman. Good morning. I welcome you all this morning
    to review the U.S. Grain Standards Act. I appreciate our
    witnesses and members of the public being here as well as those
    who are listening through our website. I know we have some
    great folks from the Georgia, Department of Agriculture and
    from GIPSA's Brunswick, Georgia office who are listening in
    today, and I particularly give a welcome to you.
        While reauthorization of the Grain Standards Act may not be
    the hottest topic of discussion in Washington, it is extremely
    important to all of agriculture that we review and reauthorize
    this act. As we will soon hear in greater detail from the
    Administration's witness, in fiscal year 2004, GIPSA provided
    inspections on nearly 61 percent of America's $50 billion total
    grain production and facilitated the marketing of $14 billion
    of U.S. grain exports. Authorities provided under the U.S.
    Grain Standards Act and those who carry out the law certainly
    contribute to the excellent reputation the U.S. grain
    inspection system holds worldwide.
        We are here this morning to hear from interested parties
    about issues the Committee should consider during the
    reauthorization process. As Chairman, I plan to introduce a
    reauthorization bill soon after the Memorial Day recess, and I
    plan to move the bill this summer. This hearing will help us
    gain a full understanding of issues to consider as we move
    forward in this process.
        If Senator Harkin has a statement he wants to enter in the
    record, obviously we will be happy to allow him to do so, as
    well as any other member of the Committee.
        We would now like to welcome our panel. Gentlemen, thank
    you all for being here this morning. Mr. David Shipman, acting
    administrator of USDA's Grain Inspection, Packers & Stockyards
    Administration in Washington, D.C. Thank you for being here
    this morning and thank you for your assistance to staff prior
    to this hearing.
        Mr. Jerry Gibson, regional manager for Bunge North America,
    in Destrehan, Louisiana. Mr. Gibson will testify today on
    behalf of the National Grain and Feed Association and the North
    American Export Grain Association.
        Mr. Tom Dahl, president of the American Association of
    Grain Inspection and Weighing Agencies from Sioux City, Iowa.
        Mr. Garry Niemeyer, a member of the National Corn Growers
    Association's Corn Board from Glenarm, Illinois. Mr. Niemeyer
    is testifying on behalf of a number of commodity groups this
    morning.
        Gentleman, again, we welcome you here and we look forward
    to your testimony. Mr. Shipman, we will start with you and
    gentlemen, we will come right down the row with Mr. Gibson
    being next.
        Mr. Shipman, thanks very much.

      STATEMENT OF DAVID R. SHIPMAN, ACTING ADMINISTRATOR, GRAIN
        INSPECTION, PACKERS AND STOCKYARDS ADMINISTRATION, U.S.
               DEPARTMENT OF AGRICULTURE, WASHINGTON, DC

        Mr. Shipman. Thank you and good morning to you and the
    members of the Subcommittee.
        I appreciate the opportunity to be here today to discuss
    the reauthorization of the United States Grain Standard Act. I
    would like to make a few opening remarks this morning and
    respectfully request that my full statement be included in the
    record.
        The Chairman. Certainly, without objection.
        Mr. Shipman. Nearly 29 years ago, Congress created the
    Federal Grain Inspection Service to maintain the quality of
    American grain exports and the integrity of the U.S. inspection
    system. In 1975, a Congressional report stated ``it is
    essential that our customers have faith in the integrity of our
    inspection and weighing system and that they get the grade, the
    quality and the quantity of grain for which they contract and
    pay.''
        For the past 29 years, the employees of the Federal Grain
    Inspection Service, which is now the Grain Inspection, Packers
    & Stockyards Administration, have dedicated themselves to
    building a National inspection system based on quality service
    and integrity. During this period of time, the structure and
    practices of the grain industry have dramatically changed as
    exporters developed relationships with overseas buyers to
    deliver the quality and quantity of grain that best meets their
    needs.
        In brief, the market environment of the 1970s no longer
    exists and our trading partners have confidence in the quality
    and quantity of grain shipped by exporters and represented by
    USDA official inspection and weighing certificates.
        Perhaps one of the best indicators of the change that has
    occurred in the industry is in the number of complaints that we
    have received from foreign buyers. In 1985, we received 74
    complaints that accounted for about 2.2 percent of the grain
    that was exported. Ten years later, in 1995, that had been
    reduced to 30 complaints, representing about 1 percent of the
    exports. And just last year, we received only four complaints,
    representing about 0.1 percent of the total volume of grain
    exported from the United States.
        As an impartial entity, GIPSA maintains over 1,400
    different quality assessment terms and methods to test post-
    harvested crops for physical condition, impurities,
    contaminants and intrinsic qualities. We work closely with all
    segments of the grain and oilseed industry to ensure that the
    terms and the methods that are used to measure quality meet the
    changing needs of the marketplace.
        In addition to establishing these standards to measure
    quality effectively in the marketplace, we manage a network of
    Federal, State and private laboratories that provide impartial
    user-fee funded services to American agriculture. Last year,
    this network of laboratories conducted more than 2.6 million
    inspections. I cannot overemphasize the commitment and hard
    work of the 523 Federal employees and the over 2,000
    individuals that work for 12 States and 46 private agencies
    authorized by GIPSA to provide inspection service.
    Collectively, they provide high quality service to American
    agriculture 24 hours a day, seven days a week, 365 days a year.
        The success of the U.S. grain inspection and weighing
    system did not just happen over the last 29 years. It required
    the collaborative effort of the Federal, State and private
    inspection personnel and the full participation and cooperation
    of the grain industry, an industry that has evolved from
    traders carying out string trades to agribusinesses with a
    greater focus on customer satisfaction. It required the
    introduction of new technology to sample, to weigh, and to
    measure the quality of grain. Again, this was accomplished
    through the cooperative efforts of the inspection agencies as
    well as the industry.
        It also required continuous improvements in our quality
    control and assurance systems to ensure that all measurements
    and inspectors were allowing to national references. And
    finally, it required reaching out to our many trading partners
    around the world to ensure they understood and had confidence
    in our system.
        If we look at just FGIS, the cost for Federal services in
    1996 was 25 cents per metric ton. In 2004, just last year, that
    price was 32.6 cents a metric ton, an increase over that period
    of time of 7.6 cents or 30 percent, which equates to about a
    3.5 percent annual increase.
        On September 30, 2005, authority to collect user fees,
    maintain our stakeholder advisory committee, and several other
    provisions will expire in the U.S. Grain Standards Act and
    require reauthorization. Without this authorization, we would
    be unable to collect the necessary fees to operate our program
    and therefore would have to shut down and disrupt the grain
    markets, especially at the export market. We believe it is in
    the best interest of American agriculture that Congress extend
    and reauthorize the provisions of the Act for a 10-year period
    from 2005 to 2015.
        With all of that said, our key customers and stakeholders
    support some change, not in the mission that we carry out or
    the role we play in the marketplace, but in how we deliver some
    of our services. Recognizing the changes that have occurred to
    both the inspection system and the customer relationships among
    industry participants over the last 29 years, an evaluation of
    how service is delivered is timely. State and private agencies
    have provided and continue to provide high quality inspection
    and weighing services in the domestic market. The introduction
    of private entities with Federal oversight into the export
    market is feasible, provided it is accomplished in a manner
    that does not compromise the fundamental integrity of the
    existing system.
        The recommendations put forth by the industry do establish
    a framework within which discussions can start on whether
    changes in the delivery of services can be done and can be done
    without compromising the integrity of the official system.
        The U.S. grain inspection system has gained worldwide
    recognition for its accuracy and reliability. Maintaining and
    strengthening this recognition in the future, regardless of how
    or by whom the services are delivered, is essential to the
    economic health of American agriculture from producers to
    exporters.
        I appreciate the opportunity to be here and I would be
    happy to answer any questions.
        [The prepared statement of Mr. Shipman can be found in the
    appendix on page 42.]
        The Chairman. Thank you, Mr. Shipman.
        Mr. Gibson.

      STATEMENT OF JERRY D. GIBSON, REGIONAL MANAGER, BUNGE NORTH
    AMERICA, INC., DESTREHAN, LOUISIANA; ON BEHALF OF THE NATIONAL
      GRAIN AND FEED ASSOCIATION AND NORTH AMERICAN EXPORT GRAIN
                              ASSOCIATION

        Mr. Gibson. Thank you, Mr. Chairman, members of the
    Subcommittee. Good morning. My name is Jerry Gibson. I am the
    regional manager for Bunge North America in Destrehan,
    Louisiana. I manage our export facility at Destrehan, which is
    a terminal involved in exporting grain and oil seeds around the
    world.
        My testimony today is presented on behalf of the National
    Grain and Feed Association and the North American Export Grain
    Association. NGFA and NAEGA strongly support reauthorization of
    the U.S. Grain Standards Act to preserve the official
    inspection system.
        The official system is a valuable enhancement to the
    efficient U.S. grain marketing system and our ability to serve
    global markets. USDA and GIPSA are to be commended for their
    efforts. We believe a five-year reauthorization is prudent to
    preserve effective oversight of the agency by Congress.
        As part off our support of reauthorization for the U.S.
    Grain Standards Act, the NGFA and NAEGA urge Congress to
    support two elements that we believe are essential to
    maintaining an effective, official export grain inspection
    system.
        First, we urge that Congress oppose any amendment to the
    U.S. Grain Standards Act that would authorize GIPSA to impose
    additional user fees to cover its grain standardization
    activities.
        Second, we urge Congress to amend the U.S. Grain Standards
    Act to give GIPSA the authority to delegate independent, third-
    party inspection agencies to perform the hands-on official
    inspection and weighing of grain and oilseeds and export
    facilities under 100 percent GIPSA oversight, using GIPSA
    approved standards and procedures.
        With respect to the second point, we would make the
    following recommendations. First, GIPSA's process for
    determining and approving independent third-party agencies to
    perform official inspections at export should be open and
    transparent.
        Second, we would recommend exporters should be free to
    contract with any GIPSA-approved third-party delegated agencies
    to perform official services at a port.
        The third recommendation would be for GIPSA to utilize
    fully the right to perform 100 percent on-site oversight
    authority at each export location and would collect a fee for
    performing this oversight function that is retained under the
    Act.
        Fourth, GIPSA would continue to issue final official
    inspection and weighing certificates.
        The fifth recommendation, GIPSA would maintain its
    comprehensive national quality assurance and control program,
    including its appeal inspection service.
        We believe now is the opportune time for change. The nature
    of the grain export industry and the global grain marketplace
    have changed dramatically in the last decade. The amendment
    also would give GIPSA the necessary flexibility to respond to
    competitive pressures in the global marketplace.
        Brazilian and Argentinean exporters have a decided cost
    advantage for quality inspections compared to the United States
    and exporters in both countries utilize non-government
    surveyors for export quality inspections.
        Confronting this global competition, U.S. exporters have
    responded aggressively by reducing operating costs and
    enhancing efficiencies whenever possible. The one operating
    expense that remains beyond our control and has come to
    represent the single largest uncontrollable operating
    expenditure we face is the cost incurred for official grain
    inspection and weighing services performed by GIPSA. The direct
    cost of GIPSA-provided official services have been rising at a
    rate well above the underlying rate of inflation. This problem
    is not new but the quickening pace of foreign competition and
    the number of other factors has provided a new sense of urgency
    to address this issue immediately.
        We believe that immediate savings from making this change
    would represent about 23 percent or $6.1 million annually. But
    because the future official inspection costs would be growing
    at a slower rate, the savings over time would expand compare to
    what would be expected to occur in the absence of such change,
    simply because the savings would be compounded from year to
    year.
        Thus, after a decade we estimate that the annual savings
    would grow to around $17.5 billion with cumulative savings of
    approximately $112 million over a 10-year period.
        In addition to reflecting industry change and cost
    competition, the time is right because fully 70 percent of
    GIPSA's inspection workforce will be eligible for retirement
    within the next five years. Making a change now would minimize
    the impact on Federal employees.
        The NGFA and NAEGA believe that this approach holds great
    promise. The competitive position of U.S. grain and oilseeds
    exports can be maintained and enhanced. The integrity of U.S.
    inspection results will be retained. U.S. official inspection
    and weighing services will be more viable in the long term.
        We are not alone in this belief. Last week six major farm
    and commodity organizations joined the NGFA and NAEGA, signing
    a letter urging Congress to adopt this approach. I would like
    to submit this letter for the hearing record.
        The Chairman. Without objection.
        [The letter signed by six major farm and commodity
    organizations was not sent]
        Mr. Gibson. In closing, Congress has an opportunity to give
    this important agency the authority and flexibility it needs to
    improve the affordability and long-term viability of official
    grain inspection and weighing at export facilities. The
    industry pledges to work with Congress and the Agency to
    achieve this important objective.
        Thank you for the opportunity to testify and I will be
    pleased to respond to any questions.
        [The prepared statement of Mr. Gibson can be found in the
    appendix on page 22.]
        The Chairman. Thank you, Mr. Gibson.
        Mr. Dahl, I am going to have to tell you that in
    preparation for this hearing, going over the list with my
    staff, I discovered something unusual. One of my very, very
    dearest and closest friends in Congress is a Congressman from
    Iowa named Tom Latham. I am pleased to serve with my colleague
    Tom Harkin from Iowa. Two weeks ago we had a hearing on the
    confirmation of Tom Dorr from Iowa. Today we have Tom Dahl from
    Iowa. And I am wondering if everybody in Iowa is named Tom?
        Mr. Dahl. Only the good people.
        The Chairman. I got you. We are pleased to have you here.

    STATEMENT OF TOM DAHL, PRESIDENT, AMERICAN ASSOCIATION OF GRAIN
           INSPECTION AND WEIGHING AGENCIES, SIOUX CITY, IOWA

        Mr. Dahl. Thank you, Chairman. And thank you for being able
    to testify today.
        The American Association of Grain Inspection and Weighing
    Agencies, AAGIWA, is the National professional association
    representing the public and private agencies that are
    designated and delegated by USDA's Grain Inspection, Packers &
    Stockyards Administration to weigh, inspect and grade the
    Nation's domestic grain. Its member agencies are located
    throughout the major grain-producing regions of the U.S. and
    represent the majority of all domestic inspections performed
    under the U.S. Grain Standards Act.
        AAGIWA member agents bring a professional and third-party
    aspect to the grading and weighing of America's grain. During
    the Association's 45-plus years of service to the industry, it
    has assisted its members in performing these services through a
    national forum that promotes and assists professionalism,
    technology and performance while providing a constant dialogue
    with Government and industry. AAGIWA wishes to comment on the
    pending reauthorization of GIPSA beyond its current September
    30, 2005 statutory expiration date. In doing so, the
    Association wishes to support Congress in the reauthorization
    of the Agency and wishes to provide the following observations
    to the Congress.
        GIPSA's role: there is an important role for a Federal
    regulatory and supervisory agency in the operation of an
    official grain inspection system. GIPSA serves to provide an
    objective third-party regulatory role which assures credibility
    and integrity for both domestic and foreign grain handlers and
    buyers of U.S. grain. Its strict Federal standards help
    maintain the accuracy and consistency that the grain industry
    has come to inspect from the Nation's official grain inspection
    system.
        GIPSA's past and present record: AAGIWA commends GIPSA for
    its current record of flexibility and availability to the
    suggestions and recommendations of its constituency. It has
    kept an open-mind to change and made changes when costs and
    benefits were analyzed and found productive. This association
    views GIPSA as an essential partner in the official inspection
    agency's efforts to promote and facilitate the movement and
    trading of the Nation's grain. The assurance of integrity that
    GIPSA lends to the official grain inspection system is vital to
    the systems' continued existence.
        As a mandate for change, AAGIWA believes the GIPSA role in
    the grain industry must keep pace with the fast-changing needs
    of its customers, that it must anticipate and react quickly to
    new trends and technology, and that it must become more
    efficient and effective as the primary monitor of the U.S.
    Grain Standards Act. Toward that end, AAGIWA calls on Congress
    to consider the following improvements to the official grant
    inspection system as it reauthorizes GIPSA.
        Extend the designation period for official agencies.
    Official agencies currently must be redesignated every three
    years, requiring an extensive on-site Federal evaluation and
    investigative manpower and resources. This designation period
    should be extended to five years or more with GIPSA maintaining
    its traditional role of closely monitoring and evaluating
    official agencies' performance.
        Support changes that would provide GIPSA the authority to
    delegate third-party inspection providers to perform official
    inspection and weighing services at ports under GIPSA
    supervision in those ports where GIPSA currently performs those
    functions. These third-party providers would be officially
    designated and would follow the same criteria as presently
    designated agencies. The proposed amendment should not affect
    those ports where inspection and weighing services are
    currently performed by delegated state agencies. To enhance the
    port inspections feasibility, official origin domestic interior
    inspections should be utilized.
        Support GIPSA in the evaluation of quality inspection tests
    for ethanol byproducts. The criteria should be established for
    the end-use of this product. These byproducts enter our food
    systems through feed given to livestock. Tests that monitor the
    level of microtoxins should be established.
        We oppose the Administration's proposal to amend the U.S.
    Grain Standards Act to authorize the collection of new user
    fees to cover the costs of GIPSA standardization activities.
        In conclusion, AAGIWA commends GIPSA for making changes for
    the betterment of the official grain inspection system, for its
    integrity and for its beneficial partnership with 55 State and
    private agencies that perform official duties at the local
    level.
        As Congress moves to reauthorize this Federal agency, it is
    important that new technologies and efficiencies be brought to
    bear as soon as possible and that the above-stated fine-tuning
    be implemented in order to assure the future strength and
    viability of this valuable national industry system.
        I am open to question afterwards. Thank you.
        [The prepared statement of Mr. Dahl can be found in the
    appendix on page 20.]
        The Chairman. Thank you very much.
        Mr. Niemeyer.

    STATEMENT OF GARRY NIEMEYER, CORN BOARD, NATIONAL CORN GROWERS
                     ASSOCIATION, GLENARM, ILLINOIS

        Mr. Niemeyer. Mr. Chairman, members of the Committee on
    Agriculture, thank you for the opportunity to testify today on
    the U.S. Grain Standards Act of 2005.
        I am Garry Niemeyer, a corn and soybean farmer from
    Glenarm, Illinois. I currently serve on the Corn Board as the
    Association Relations Committee chairman for the National Corn
    Growers Association.
        I am pleased to submit testimony on behalf of the American
    Farm Bureau Federation, American Soybean Association, the
    National Association of Wheat Growers and the National Grain
    Sorghum Producers and the NCGA.
        Agriculture today remains the backbone of our Nation's
    economy. American farmers and ranchers produce the most
    abundant, affordable and safe supply of food in the world. We
    produce over 1.7 trillion pounds of food and fiber. Even though
    the numbers of farmers and of total farmland are decreasing,
    agricultural products are increasing. Improved technology and
    efficiencies have allowed us to maximize our production per
    acre.
        Agriculture employs more than 24 million American workers
    to produce, process, sell and trade the Nation's food and
    fiber. This equals 17 percent of the total U.S. workforce.
    While we consume much of what we produce, about 17 percent of
    all U.S. agricultural products are exported yearly, including
    99 million tons of grain and feed.
        Corn exports in 2004 were over 47 million tons alone. And
    approximately half of the U.S. wheat crop is exported annually.
    The United States sells more food and fiber to world markets
    than we import, creating a positive agricultural trade balance.
        Agriculture is one of the few U.S. industries that enjoys a
    positive trade balance. When we move our commodities into more
    markets, both commodity prices and farm incomes tend to rise.
    During the 2002-2003 fiscal year, $56 billion worth of American
    agricultural products were exported around the globe. This
    leads directly into the topic of discussion for today's
    hearing, the Grain Standards Act of 2005.
        The farm and commodity groups I represent strongly support
    the reauthorization of the U.S. Grain Standards Act. Grain
    inspection and weighing services by the Federal Grain
    Inspection Service are mandatory under the Grain Standards Act.
    Reauthorization of the Grain Standards Act is imperative to our
    export markets. We have built these markets based on product
    availability and quality.
        Since the passage of the Grain Standards Act in 1916, the
    U.S. has been the pioneer in providing quality assurance to
    overseas buyers. In fact, other countries have duplicated our
    services in standard guidelines for their exports. Overseas
    buyers continue to seek products from the U.S. because they
    know the official system, with its precise testing procedures,
    equipment criteria, and conduct standards ensure accurate and
    consistent results. The integrity of this system, which U.S.
    sellers and overseas buyers rely on should never be
    compromised.
        However, the cost of obtaining official services at ports
    where GIPSA provides inspection and weighing services has
    become a factor that is contributing to the gradual erosion of
    the competitive position of U.S. grain and oilseed exports in
    world markets. U.S. exporters report that the cost of official
    grain inspection is one of the largest expense items they face.
    And these costs have been increasing at a rate well above the
    underlying rate of inflation. GIPSA inspection costs in recent
    years have been increasing at more than 7 percent annually,
    compared to other costs in the 1 to 3 percent range.
        Moreover, exporters have limited ability to pass on
    increased cost because of the highly competitive nature of the
    world's bulk trade in grains and oilseeds. Dynamic and growing
    exporters such as Australia, Canada, Brazil, and Argentina are
    increasingly challenging the U.S. in a number of important
    overseas markets. While these countries are working hard to
    narrow the cost advantage the U.S. currently enjoys because of
    its transportation and handling systems, Brazil and Argentina
    already have a cost advantage over U.S. shippers in one key
    area, the cost of obtaining export inspection services.
        During an August 2004 fact-finding mission, GIPSA found
    that Brazilian and Argentinean exporters enjoyed approximately
    20 to 25 cents per ton advantage over U.S. exporters in the
    cost of obtaining export inspections for quality. Brazilian and
    Argentinean exporters rely on private third-party surveyors to
    perform official export inspections for quality. The U.S. must
    better manage the cost of export inspections, take advantage of
    modern technologies to enhance efficiencies and to be flexible
    enough to respond to a changing industry structure and an
    increasingly competitive world market.
        We support amending the U.S. Grain Standards Act to
    authorize GIPSA to delegate qualified third-party companies to
    provide official inspection and weighing services at ports
    where GIPSA currently provides such services. This change
    offers an opportunity to provide a degree of control over costs
    for inspections while retaining 100 percent GIPSA oversight of
    the system.
        GIPSA's deputy administrator recently noted that technology
    exists to allow effective oversight of a delegated third-party
    inspection system that will ensure the continued integrity of
    the official inspection and weight certificate. If GIPSA is
    provided the option to use this new authority now, the changes
    can be implemented in stages with minimal impact on GIPSA
    employees.
        Additionally, we oppose authorizing GIPSA to collect
    approximately $4 million in fees that would cover the cost of
    the Agency standardization activities. User fees for
    standardization activities are an ill-conceived approach that
    will only serve to make effective cost management in the Agency
    more challenging than it already is.
        In addition, creating new fees for standardization work is
    inappropriate because such activities clearly benefit the
    entire marketing chain. Collection of the fee would also be
    problematic. Fees charged as part of the mandatory official
    export would further reduce the value of the competitiveness of
    U.S. exports in grains and oilseeds and would lower producer
    prices.
        For these reasons, we urge Congress to fully reject any
    attempt to grant GIPSA the authority to collect user fees for
    standardization activities.
        Finally, we support the continuation of the Grain
    Inspection Advisory Committee. It is important that this
    committee remain representative of the industry while including
    farmers, exporters, grain elevators and seed dealers.
        Again, thank you for the opportunity to testify today. I
    will restate our support for the reauthorization of the Grain
    Standards Act and I am willing to answer any questions you may
    have.
        [The prepared statement of Mr. Niemeyer can be found in the
    appendix on page 38.]
        The Chairman. Thank you very much, Mr. Niemeyer. Thanks to
    all you gentlemen.
        Mr. Shipman, I need you to educate me a little bit. Those
    are pretty remarkable numbers you gave regarding the decrease
    in complaints. Give me an example of a complaint that might be
    filed and tell me the process that complaint would go through?
        Mr. Shipman. Typically what the importer overseas would
    contact the Foreign Agriculture Service representative that is
    in the country. There is a formal process they can use to file
    a complaint. It eventually ends up with us. We have an Office
    of International Affairs that addresses that complaint. We
    maintain file samples. We maintain records as to exactly what
    happened during the loading. We go through a process of
    reviewing exactly what took place. We send samples off to our
    Board of Appeals and Review, which is a unit of our ``chief
    inspectors'' in Kansas City. They would review it for quality
    concerns. And a final report would be prepared and submitted to
    all of the interested parties that were involved in the
    transaction. It would go back to the importer, as well as the
    shipper and the exporter.
        The Chairman. Is a typical example a grading issue or a
    weight issue?
        Mr. Shipman. Primarily it would be quality. We have had a
    few cases where there have been weight issues. To give you one
    example, several years ago, because there are new automated
    scales in the process, we were able to go back and basically
    recreate the entire loading of the vessel through an audit
    process. We determined that there was a leaky gate and there
    truly was a shortage in that shipment. And we were able to give
    both parties that information and they were able to, through
    the commercial markets, settle the differences.
        The Chairman. As I understand from the National Grain and
    Feed Association and the North American Export Grain
    Association, the proposal as drafted provides USDA the
    authority to utilize third-party inspectors at export port
    locations, all of which have been described here.
        If this proposal is adopted, Mr. Shipman, do you expect to
    exercise the authority provided in the proposal?
        Mr. Shipman. We would certainly look at it and, as our
    attrition occurs over the next five years, we would have to
    look very seriously at how we would be able to implement it. If
    it was a requirement that we make that transition, we would be
    able to make that transition. Our plan or our strategy would be
    to start with a smaller port and experiment and see how well it
    works and phase it in over a period of years.
        The Chairman. Mr. Niemeyer gave a number there, 35 cents a
    ton?
        Mr. Niemeyer. It was 20 to 25 cents a ton.
        The Chairman. That is pretty significant, I would assume.
    In the overall market, from a competition standpoint, if can
    achieve that kind of savings, that appears to have some merit.
    Does USDA have a position on that, as to whether or not that is
    correct or not correct, relative to what savings can be
    achieved?
        Mr. Shipman. Let me offer a few comments on that. When we
    visited South America last year to see how their operations
    run, yes, they charge between 10 and 15 cents a metric ton for
    their inspection and weighing operation. Here in the States, in
    2003, our cost was around 34 cents a metric ton. In 2004 it
    dropped to about 32 cents a metric ton, about 32.5, because our
    volume was much higher.
        We do not believe that you are going to see that difference
    of 20 to 25 cents immediately or you would not see it at all
    until possibly long-term. What they do in South America and the
    involvement of the private sector is not what we could endorse
    or what the recommendation of the industry is right now. The
    costs that would be incurred here would be higher than the 10
    to 15 cents.
        We think that direct Federal oversight in the
    ports,including headquarters costs, would be around 11 cents.
    When we look at what the private sector provides today, both in
    the domestic markit where they are officially recognized, and
    other places in the marketplace, we think the private sector
    would be providing service for an average cost of around 19
    cents per ton.
        So you are looking at probably initially a 30 per ton, if
    you introduced that private element into the export market.
        It remains to be seen whether, over time, you would see
    greater savings if the private sector could contain costs
    better than we have been able to in the Federal system.
        The Chairman. Staff has just handed me a sheet that shows a
    comparison of inspection fees, United States, Brazil and
    Argentina, which is based on fiscal year 2004. Total inspection
    fee in the United States: $0.348 per ton; Brazil: 10 cents to
    15 cents per ton; Argentina: 33 cents per ton.
        So I guess we are in the ball park relative to Argentina.
    But that is a pretty significant difference with Brazil. So I
    hope that if it is the decision of the Committee to move in the
    direction of adapting the proposal and it becomes law, that you
    all will study this issue because we tell our farmers to be
    more efficient so we can achieve a more competitive atmosphere
    in the world market. Issues like this simply make us less
    competitive. We do not need the Federal government being a
    handicap to us. So I hope that we will monitor that very
    closely if it is the decision of the Committee to move in that
    direction.
        Relative to the third-party inspector proposal out there,
    one of the issues that we have heard is the fact that we must
    maintain the integrity of the system. You pointed out correctly
    that our reputation in the world market is pretty good from an
    inspection standpoint. It is very good, as a matter of fact.
        I hope, as we consider this issue, that we are able to
    ensure 100 percent USDA oversight of third-party inspectors to
    make sure that we do maintain that integrity in the market.
        Do you have any concerns relative to that on this issue?
        Mr. Shipman. As a model I look at our domestic market,
    where both State and private companies are operating today.
    Some of those private companies such as Mr. Dahls, who is here
    today, inspect grain that is exported to Mexico. And the
    integrity of those certificates is recognized by the buyers in
    that country as equivalent to the inspection certificates that
    are issued by the Federal work force.
        So in terms of being able to provide adequate oversight and
    ensure integrity, I think there are challenges. But I think
    that with today's technology, it is feasible.
        The Chairman. The American Association of Grain Inspection
    and Weighing Agencies has proposed extending the length of
    designations of official agencies from the current three year
    terms to five year terms. Does the Department have a position
    or any thoughts on this proposal?
        Mr. Shipman. The Department does not have an official
    position, but I have some thoughts. Right now the three-year
    designation works fairly well for us. The recommendation is
    based on driving costs down. I am not convinced at this time
    that going from a three to a five year designation would have a
    substantial decrease in cost because the real cost for
    overseeing is the continuing ongoing process, and every three
    years we go through a Federal Register process to solicit
    additional comments. The real issue is incurred in the auditing
    and ensuring oversight of the agencies operations. That is an
    ongoing process.
        The Chairman. Lastly, I understand that there is interest
    in revising current standards for grain sorghum. Can you
    explain to the Committee what USDA is doing in this regard? And
    can you also give us your timeframe for publishing a proposal
    in the Federal register?
        Mr. Shipman. We went out with an advance notice of proposed
    rule making and received a number of comments. The comments
    were fairly disparate regarding what we should be doing. In
    some cases, comment called for changing some of the, grade
    linits and definitions for grain sorghum. Others wanted more
    equality between grain sorghum and corn.
        We have collected all of that information. We are in the
    process of preparing a proposal that would be published in the
    Federal Register this summer. Once the proposal is published,
    we will receive comments review them, and prepare a final rule.
        I do not envision that any changes to the standards would
    be finalized until at least a year to a year-and-a-half.
        The Chairman. Mr. Gibson, in your testimony you mentioned
    FGIS' maturing workforce. Can you foresee a scenario in which
    FGIS inspectors retire and then are hired as third-party
    inspectors, enabling them to receive both their pensions and
    their new salaries?
        Mr. Gibson. Yes, certainly I think that would be a resource
    or a workforce that would be readily trained and available to
    move into the private sector in some port areas.
        The Chairman. In your written testimony you discuss the use
    of third-party agencies for export grain inspection. You
    mentioned that under this proposal, the fees charged for
    inspection should be negotiated between the exporter and the
    third-party agency. Are you suggesting that fees vary for each
    third-party agency?
        Mr. Gibson. No, not necessarily. I think each export
    facility, though, has different design characteristics. We all
    do essentially the same thing. But because of different design
    characteristics and different levels of automation, their
    manpower staffing to meet the FGIS oversight requirements might
    conceivably differ. So it would be up to each elevator to
    discuss that and negotiate that with the third-party, which
    would be an approved party or agency, approved by FGIS.
        The Chairman. What requirements do you envision that a
    third-party inspector will have to meet in order to receive a
    license to inspect grain for export?
        Mr. Gibson. He would go through the similar training and
    evaluation of his quality of inspection, similar to every
    licensed grain inspector in the United States now.
        The Chairman. What do you expect will happen if a foreign
    buyer questions the validity of the grade or inspection
    certificate issued as a result of the work by a third-party
    inspector?
        Mr. Gibson. I think that is certainly critical to the
    industry to maintain that integrity of the FGIS or the GIPSA
    certificate. So we would still see that as being a GIPSA
    authorized or an issued certificate, just some of the
    mechanical input into how that information is arrived at on
    that certificate could be done by third-party people. But it is
    still an FGIS or a USDA certificate. So USDA would still be
    involved in the auditing and the validation of that
    certificate, and any of the complaint reviews, similar to how
    they do it currently.
        The Chairman. Mr. Dahl, your organization has proposed
    extending the length of designations of official agencies from
    the current three year terms to five year terms. Could you
    explain the need for this extension and the process to become
    redesignated?
        Mr. Dahl. We feel, just on a business plan situation where
    we can, as private businesses, a five-year business plan that
    we can put together would be better than a three-year business
    plan.
        We do think there would be some cost savings involved in
    that. Currently, with the designation process, my agency, for
    instance, is due for designation a year from June. Our
    paperwork will go out and be due probably by October. Then
    there is a comment period of 30 days, and then another 30 days
    and it is reviewed. It is just a matter of we do the same thing
    every three years, the same format, all of the same questions
    and everything are answered. It is kind of redundant in its
    practice, and we feel that five years would be a better
    extension of that than the three.
        The Chairman. Do you envision some of the entities you
    represent being able to expand their services to export
    inspection under the NGFA and the NAEGA proposal?
        Mr. Dahl. I do not understand exactly what you are, what
    they would...
        The Chairman. If given the opportunity, do you believe your
    agencies would be interested in expanding their services to
    ports under the proposal?
        Mr. Dahl. I believe they probably would, yes. It would
    already be an officially designated agencies. I would think
    that they would already have the training and the staff in
    place to be able to do that, if given the opportunity.
        The Chairman. Mr. Niemeyer, regarding the NGFA and the
    NAEGA proposal, are you confident that USDA will issue adequate
    rules and regulations to protect the integrity of the U.S.
    grain inspection system?
        Mr. Niemeyer. I feel pretty confident about that. They have
    done a great job so far and obviously integrity is the key
    word, as well as competitiveness.
        The Chairman. Gentleman, again, thank you very much for
    being here. Thank you for your input. We look forward to
    dialoguing with you as we move through the process of drafting
    this legislation and sending it to the floor of the Senate this
    summer.
        Thank you very much, and this hearing is concluded.
        [Whereupon, at 10:45 a.m., the committee was adjourned.]

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                                A P P E N D I X

                                  May 25, 2005

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                       DOCUMENTS SUBMITTED FOR THE RECORD

                                  May 25, 2005

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                             QUESTIONS AND ANSWERS

                                  May 25, 2005

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