[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
_____
U.S. GOVERNMENT PRINTING OFFICE
22-720 WASHINGTON : 2006
_________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government
Printing Office Internet: bookstore.gpo.gov Phone: toll free
(866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2250 Mail:
Stop SSOP, Washington, DC 20402-0001
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
----------
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.]
=======================================================================
A P P E N D I X
May 25, 2005
=======================================================================
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
=======================================================================
DOCUMENTS SUBMITTED FOR THE RECORD
May 25, 2005
=======================================================================
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
=======================================================================
QUESTIONS AND ANSWERS
May 25, 2005
=======================================================================
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]