[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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                         QUESTIONS AND ANSWERS

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