[Senate Hearing 109-620]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-620
 
  REVIEW THE UNITED STATES DEPARTMENT OF AGRICULTURE'S MANAGEMENT AND 
              OVERSIGHT OF THE PACKERS AND STOCKYARDS ACT

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

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION


                               __________

                             MARCH 9, 2006

                               __________

                       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 United States Department of Agriculture's Management 
  and Oversight of the Packers and Stockyards Act................    01

                              ----------                              

                         Thursday March 9, 2006
                    STATEMENTS PRESENTED BY SENATORS

Chambliss, Hon. Saxby, a U.S. Senator from Georgia, Chairman, 
  Committee on Agriculture, Nutrition, and Forestry..............    01
Salazar, Hon. Ken, a U.S. Senator from Colorado..................    02
                              ----------                              

                               WITNESSES

Bertoni, Daniel, Acting Director, Natural Resources and 
  Environmental Team, United States Government Accountability 
  Office, Washington, DC.........................................    08
Fong, Phyllis K., Inspector General, United States Department of 
  Agriculture, Washington, DC....................................    05
Link, James E., Administrator, Grain Inspection, Packers and 
  Stockyards Administration, United States Department of 
  Agriculture, Washington, DC, Accompanied by: Ms. Mary Hobbie, 
  Assistant General Counsel, Trade Practices Division Office of 
  the General Counsel, United States Department of Agriculture, 
  Wahington, DC..................................................    04
                              ----------                              

                                APPENDIX

Prepared Statements:
    Harkin, Hon. Tom.............................................    30
    Bertoni, Daniel..............................................    52
    Fong, Phyllis K..............................................    41
    Link, James E................................................    34
Document(s) Submitted for the Record:
    Grassley, Hon. Charles E.....................................    66
    Thomas, Hon. Craig...........................................    64
    Stevenson, Randall J.........................................    68
Questions and Answers Submitted for the Record:
    Chambliss, Hon. Saxby........................................    72
    Harkin, Hon. Tom.............................................    83
    Salazar, Hon. Ken............................................    95
    Thomas, Hon. Craig...........................................   101



REVIEW THE U.S. DEPARTMENT OF AGRICULTURE'S MANAGEMENT AND OVERSIGHT OF 
                     THE PACKERS AND STOCKYARDS ACT

                              ----------                              


                        Thursday, March 9, 2006

                                       U.S. Senate,
          Committee on Agriculture, Nutrition and Forestry,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:36 a.m., in 
room SR-328A, Russell Senate Office Building, Hon. Saxby 
Chambliss, chairman of the committee, presiding.
    Present or submitting a statement: Senators Chambliss, 
Lugar, Thomas, Harkin, Nelson, and Salazar.

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 this hearing to review the United States Department of 
Agriculture, Grain Inspection, Packers and Stockyards 
Administration's management and oversight of the Packers and 
Stockyards Act. I want to thank our witnesses for making the 
effort to attend this hearing to provide testimony on this 
issue of critical concern to the United States livestock 
industry. I also welcome those listening today on our web site.
    In January of this year the USDA Office of the Inspector 
General released an audit report that detailed serious failures 
in GIPSA's management and oversight of the Packers and 
Stockyards Act of 1921. This act is a critical law that assures 
farmers and ranchers that business transactions are conducted 
under the principles of fair competition, open and honest trade 
practices, and prompt payments to producers.
    The audit report from the Inspector General raises serious 
questions about the Department of Agriculture's competence in 
investigating anticompetitive behavior in order to ensure that 
all livestock industry participants are treated equitably. I am 
greatly concerned and disheartened with the message that the 
findings detailed in the report regarding GIPSA's actions sends 
to the American public, consumers, and participants in the 
livestock marketplace.
    The report from the Inspector General States that some 50 
investigations into potential anticompetitive behavior were 
awaiting approval from senior management and therefore were not 
being acted upon. Further, the report states that policy 
decisions were not being made due to a lack of a competent 
internal managerial structure within the Packers and Stockyards 
Program Division of GIPSA, and that previous advice provided to 
GIPSA by the Office of Inspector General in 1997, and by the 
Government Accountability Office in 2000, was not implemented.
    It is totally unacceptable for our government to conduct 
business in this way, and I fully expect the Department of 
Agriculture to swiftly and honestly respond to actions in the 
marketplace that might signal anticompetitive behavior. Not 
doing so calls into question the ability of the department to 
oversee the Packers and Stockyards Act generally, and greatly 
threatens the confidence livestock market participants extend 
to the government.
    While it appears that the problems identified in the report 
are managerial in nature, I cannot emphasize enough my 
frustration and discomfort on behalf of America's farmers and 
ranchers. It is imperative that GIPSA correct the failings 
identified in this and previous reports in a timely fashion, to 
ensure that this vital sector of our agricultural economy 
continues to operate in a transparent, fair, and competitive 
manner.
    I look forward to hearing from our witnesses, and I am 
hopeful their testimony will provide us with some confidence 
that steps are being taken to address this critical issue. 
Senator Harkin has told us that he will be a little late in 
getting here this morning. When he does arrive, we will 
certainly turn to him for any opening statement he might wish 
to make. At this time I will ask my two colleagues that are 
here, Senator Lugar, Senator Salazar, if you all have any 
opening comments you wish to make.
    Senator Lugar. No.
    The Chairman. Senator Salazar?

  STATEMENT OF HON. KEN SALAZAR, A U.S. SENATOR FROM COLORADO

    Senator Salazar. Thank you very much, Chairman Chambliss. I 
want to thank you and all of my colleagues on this committee 
who requested the hearing, and I think it focuses on a very 
important issue. It is important for this committee to be 
involved in making sure that the provisions of GIPSA are 
enforced.
    The Packers and Stockyards Act is an extremely important 
law, and when properly enforced, it should effectively ensure 
fair trade practices and competitive marketing conditions in 
our livestock, meat, and poultry markets. Ranchers across the 
country, including in my State of Colorado, are faced every day 
with the increased concentration in the industry.
    For example, we all know today that four meat packers 
control over 80 percent of the market--four meat packers 
controlling over 80 percent of the market. Consider that in a 
multibillion dollar industry, four packers control, again, 80 
percent of the market.
    Mr. Chairman, I hope that this hearing today signals that 
this committee is committed to ensure that GIPSA is in fact 
carefully enforced, and that the Department of Agriculture is 
fulfilling its responsibility and mission with regard to the 
Packers and Stockyards Act. The issue is of paramount 
importance to many of the small, independent ranchers in 
Colorado, and I am pleased that the Office of the Inspector 
General completed a thorough and I must say what I believe is 
an unbiased audit of GIPSA's management and oversight 
practices. I appreciate your work on that, Ms. Fong.
    I am also heartened that GIPSA has already taken some steps 
to improve their deficient policies, and has signaled that they 
will actively work with OIG to remedy both their inadequate 
management structure and investigation protocol. I also hope, 
Mr. Chairman, that this hearing indicates our intention to 
ensure that there is fair enforcement of this important law, 
and that we will follow up on this matter in the next few 
months to check on the progress of GIPSA in implementing and 
enforcing the OIG recommendations.
    The Packers and Stockyards Act was passed in order to 
prevent unfair, discriminatory, and deceptive acts and 
practices in the meat packing industry. Under the act, ranchers 
who are bound to the market are prevented from being taken 
advantage of by the huge producers. In addition, it rightly 
separated production and manufacturing arms of the meat and 
poultry industry. I am extremely supportive of the mission of 
this act, and believe that if properly implemented and 
enforced, that the act will serve everyone well, both big and 
small.
    Many of these small, independent ranchers in Colorado and 
across the country have faced years of drought. That, combined 
with increased concentration of the markets, has resulted in 
declining farming and ranching populations, and indeed over the 
last several years a decline overall in terms of the income 
that is coming into rural America.
    Unfortunately, this audit reveals that the agency tasked 
with protecting our ranchers by guarding against deceptive 
practices was found to itself have engaged in questionable 
reporting and oversight. I am deeply concerned about that, and 
look forward to your presentation here this morning.
    U.S. cattlemen deserve to have protection from 
anticompetitive practices, and deserve to know that the proper 
checks and balances are in place so that they are protected 
against any type of discriminatory practice that may occur. I 
truly hope that GIPSA enacts the policy recommendations of the 
OIG with all diligence and all speed. And again I thank 
Chairman Chambliss and Ranking Member Harkin for agreeing to 
hold this hearing.
    Thank you, Mr. Chairman.
    The Chairman. Thank you. The committee would like to 
welcome our panel today, which includes representatives from 
the Grain Inspection, Packers and Stockyards Administration of 
USDA; USDA's Office of Inspector General; and the Government 
Accountability Office.
    James Link is the Administrator for USDA's Grain 
Inspection, Packers and Stockyards Administration. Mr. Link 
holds an MBA and a Certificate of Ranch Management from Texas 
Christian University, and has contributed to American 
agriculture in both academic and professional settings. Most 
recently he served as the Director of the Ranch Management 
Program at Texas Christian University in Fort Worth, Texas. 
Welcome, Mr. Link. We are pleased to have you with us.
    Ms. Phyllis Fong is the Inspector General for the U.S. 
Department of Agriculture. Ms. Fong holds a JD degree from 
Vanderbilt University School of Law and is a member of the 
Tennessee and District of Columbia bars. Ms. Fong has served 
our country through various government positions, most recently 
as the Inspector General for the U.S. Small Business 
Administration. Ms. Fong, we are glad to have you with us.
    Mr. Daniel Bertoni is the Acting Director for Agriculture, 
Food Safety and Security issues in the U.S. Government 
Accountability Office's Natural Resources and Environment team. 
He holds a Master's degree in political science from the 
Rockefeller School of Public Affairs and Policy. Over the 
course of his career, Mr. Bertoni has focused on identifying 
and preventing waste, fraud, and abuse in Federal programs. Mr. 
Bertoni, we welcome you today.
    We are pleased that you are all here. We look forward to 
your testimony, and Mr. Link, we will start with you, go to Ms. 
Fong, and then to Mr. Bertoni.

 STATEMENT OF JAMES E. LINK, ADMINISTRATOR, GRAIN INSPECTION, 
   PACKERS AND STOCKYARDS ADMINISTRATION, U.S. DEPARTMENT OF 
  AGRICULTURE; ACCOMPANIED BY MARY HOBBIE, ASSISTANT GENERAL 
   COUNSEL, TRADE PRACTICES DIVISION, OFFICE OF THE GENERAL 
            COUNSEL, U.S. DEPARTMENT OF AGRICULTURE

    Mr. Link. Thank you. Good morning. First I would like to 
introduce Mary Hobbie with the Office of General Counsel, that 
works with us on a daily basis. I appreciate the opportunity to 
be here today to highlight for you a number of the changes 
underway in the Grain Inspection, Packers and Stockyards 
Administration to improve and strengthen the enforcement of the 
Packers and Stockyards Act.
    On October 17, 2005, I became the Grain Inspection, Packers 
and Stockyards new Administrator, responsible for, among other 
things, the Packers and Stockyards Program. The Packers and 
Stockyards Program facilitates the marketing of livestock, 
poultry, and meat, and promotes fair and competitive trade 
practices for the overall benefit of consumers and American 
agriculture.
    Under my leadership, the employees of the agency are making 
and will continue to make the needed changes to strengthen and 
enforce the Packers and Stockyards Act. We have already begun 
making the fundamental changes in the culture of the 
organization that are essential to empower our employees to 
enforce the act, and develop the internal processes and 
controls necessary to deliver improved results.
    The Office of Inspector General report identified four 
major areas of weakness in the Packers and Stockyards Program: 
bad recordkeeping; poor investigation management; lack of 
policy vision and decision; and lack of follow-through on 
recommendations of early reviews. These are fundamental and 
serious weaknesses. No business can be successful with this 
report card.
    The Inspector General offered 10 recommendations to improve 
our operation. We have accepted all 10 and established an 
aggressive schedule to implement them. The Inspector General 
has expressed satisfaction with all measures we are taking. 
Adopting an Inspector General's recommendation represents a 
good start, but is only the beginning of the changes that we in 
the Grain Inspection, Packers and Stockyards Administration are 
going to take.
    We have undertaken specific steps to meet the 
recommendations of the Office of Inspector General's report. 
For example, we have implemented four new policy directives to 
address recommendations one, three, five, and six in the Office 
of Inspector General's report, which deal respectively with 
defining investigations versus regulatory activities; revising 
the organizational structure to provide greater authority to 
the regional offices; enabling the legal specialists to freely 
contact and work more directly with the Office of General 
Counsel; and developing a structure for receiving, reviewing, 
and acting on policy issues and internal requests for guidance. 
We are also in the process of programming changes into existing 
software to accommodate the need to track investigations and 
identify regulatory versus investigative activity in the old 
Complaint and Investigation Log.
    To accomplish this goal, we must begin by addressing the 
needs of our employees. I have opened my door to all employees 
by establishing a confidential employee-Administrator 
communication web site; by making onsite visits to the field 
offices; and, most recently, by initiating a full-scale 
organizational review and assessment of the program.
    The review team, comprised of USDA officials outside our 
agency, will begin analyzing the organization of headquarters 
staff and continue about the organizational strength and 
weaknesses in a variety of areas. I will use the survey results 
to enhance our work environment and culture and to improve our 
organizational effectiveness.
    The Packers and Stockyards Act and the Packers and 
Stockyards Program that enforces it play an important role in 
American agriculture. The Office of Inspector General report 
was a disturbing reflection of weaknesses that are impeding our 
agency from carrying out our mission. I am fully committed to 
establishing the policies and creating the organizational 
culture that we need to promote fair business practices and 
competitive environments to market livestock, meat and poultry. 
Only through these changes can we protect consumers and members 
of the livestock, meat and poultry industry.
    Thank you for the opportunity to address the committee, and 
I am happy to respond to your questions.
    [The prepared statement of Mr. Link can be found in the 
appendix on page 34.]
    The Chairman. Thank you, Mr. Link. I should have made it 
very plain that the issue raised in the OIG report preceded 
your leadership in this position, and the criticism that may be 
directed by this committee toward the activities detailed in 
this report certainly are not a reflection on you. I should 
have made that very plain.
    Ms. Fong, we welcome you and look forward to your 
testimony.

     STATEMENT OF PHYLLIS K. FONG, INSPECTOR GENERAL, U.S. 
                   DEPARTMENT OF AGRICULTURE

    Ms. Fong. Thank you, Mr. Chairman and members of this 
committee. We are very pleased to be here. It is a privilege to 
address you on this issue of great concern to all of us, and we 
certainly appreciate your interest in the work that we have 
done. We are very committed to assisting the department to move 
forward in its efforts to improve and implement this program in 
an effective and efficient way, so we thank you for this 
opportunity.
    Our written statement, which is provided for the record, 
provides a detailed overview of our work in this area, so this 
morning I just want to highlight for you the most important 
findings in our recent audit report. As you have noted, we have 
done work in this area over the last decade.
    We issued a report in February 1997 that reported on the 
results of our assessment, and at that time, we recommended 
that GIPSA consider improving its monitoring of the market for 
anticompetitive behavior by taking actions such as 
redistributing agency resources among its national and regional 
offices, making greater use of its economic staff in 
investigations, and increasing its consultation with OGC and 
its attorneys. As you all have mentioned, GAO has also done a 
report in this area which I am sure my colleague will address, 
so I would like to move on and talk about our most recent audit 
report that was issued in January of this year.
    That audit report was done in response to a request from 
Senator Harkin, who wrote to us last year expressing his 
concerns about the management and oversight of the Packers and 
Stockyards Program. Of particular concern to him was the number 
of investigations being conducted by GIPSA's Competition 
Division, as reported in GIPSA's annual reports. As you know, 
the number of actual investigations can be an indicator of the 
level of GIPSA's enforcement activity for a particular year.
    So in response to this request, we initiated an audit to 
evaluate GIPSA's management and oversight of P&SP. We focused 
on GIPSA's actions to investigate and act against anti-
competitive activities; to count and track its complaints; to 
improve program operations; and to improve its allocation of 
investigative resources.
    To accomplish this audit work, we performed 6 months of 
field work, both in headquarters and the regions, and we 
interviewed over 50 GIPSA employees, which is a large number of 
people for us to interview during the course of an audit. We 
released our audit report in January to the committee, and we 
had four major findings.
    First of all, regarding P&SP's investigative tracking 
system, we found that the system counted all P&SP activities as 
investigations, including administrative and routine 
activities, because there was no better policy-based definition 
established. We also found that records in the tracking system 
were not complete and there were no procedures for validating 
the accuracy and completeness of the information recorded. 
There were also variances among how the agency's three regional 
offices classified activities as investigations.
    To address these issues, we made some recommendations to 
GIPSA: that it implement a policy that better defined what an 
investigation is and that it implement procedures for recording 
data in its tracking system. GIPSA has taken action to address 
this. They have issued a policy statement to accomplish this, 
and they have agreed to implement procedures for tracking and 
validating their investigative data.
    Our second set of findings pertain to GIPSA's management 
control over competition and complex investigations. We found 
that during the period of our audit, P&SP's Senior Management 
Review Panel, which was created to plan and conduct these 
complex investigations, was in fact inhibiting the agency's 
ability to investigate anticompetitive activities. This was 
due, we found, to lack of an effective process for identifying 
the work to be performed, for approving work plans, for 
performing field work and analysis, and for reporting on 
results. As a result, complex investigations were not being 
completed.
    We made recommendations to GIPSA that it implement a well-
defined investigation system that would communicate 
management's expectations to its staff about the investigative 
process, and that the agency develop an organizational 
structure that better divided responsibility. Administrator 
Link has led GIPSA, in agreeing to these recommendations, and 
they have taken action to implement a revised structure in 
response.
    Our third major finding pertains to our review of the 
agency's control structure for making policy decisions and 
regulatory changes. We found that while GIPSA had established a 
new policy group in June of 2005, P&SP had not established an 
effective internal control structure for this group to receive 
and act on policy questions that were raised by its own staff.
    As a result, timely action was not being taken on issues 
that impact the day-to-day business practices and activities of 
producers. There were numerous policy issues covering all types 
of P&SP investigations that did not receive adequate attention 
and were awaiting decision. We made recommendations to GIPSA 
that it implement an approved structure to address policy 
issues and regulatory reform matters, and GIPSA has agreed to 
implement these actions promptly.
    Finally, our audit assessed GIPSA's implementation of prior 
IG and GAO recommendations. What we found was that, in response 
to prior review recommendations, P&SP had taken positive action 
to reorganize its operations and enhance regional office 
expertise in livestock species. They also took action to hire 
staff with the right mix of skills: legal, economic, and 
statistical.
    What our report found, however, was that the agency's 
actions in these areas could still be improved. The areas that 
could be improved involved integrating economists into the 
investigations; establishing effective legal consultations with 
OGC; hiring an experienced manager to lead P&SP investigations; 
and developing more of a teamwork approach for investigations, 
to involve economists and OGC attorneys.
    We recommended that GIPSA take further action to empower 
its legal specialists to consult with OGC, and to develop a 
process to make substantive changes regarding P&SP operations 
and internal review functions. GIPSA again has accepted our 
recommendations and has taken action or pledged to take action 
in response to these recommendations.
    In conclusion, I would like to recognize and thank 
Administrator Link for his willingness to work with us in 
addressing these issues, and for his resolution and ability to 
take prompt action. I would also like to recognize Secretary 
Johanns' strong support for this program and his commitment to 
resolving these issues.
    I want to thank the committee for your interest in these 
issues, and would be happy to respond to any questions.
    [The prepared statement of Ms. Fong can be found in the 
appendix on page 41.]
    The Chairman. Thank you.
    Mr. Bertoni?

 STATEMENT OF DANIEL BERTONI, ACTING DIRECTOR FOR AGRICULTURE, 
 FOOD SAFETY AND SECURITY, NATURAL RESOURCES AND ENVIRONMENT, 
             U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Bertoni. Good morning, Mr. Chairman, members of the 
committee. I am pleased to be here today to discuss the 
Department of Agriculture's management and oversight of the 
Packers and Stockyards Act. Within USDA, the Grain Inspection, 
Packers and Stockyards Administration or GIPSA is responsible 
for investigating unfair and anticompetitive practices in the 
$90 billion livestock market.
    Prior reports by USDA's Inspector General and our office 
over the last decade have identified substantial weaknesses in 
GIPSA's investigation and enforcement activities and 
recommended actions to address them. However, the most recent 
OIG report shows that GIPSA still has not taken sufficient 
steps to address those recommendations.
    My testimony today is based on our prior work, and focuses 
on three specific areas: first, the factors that affected 
GIPSA's ability to investigate anticompetitive practices; 
GIPSA's actions to address our recommendations in areas where 
its efforts fell short; and, going forward, other issues GIPSA 
should consider as it moves to strengthen its oversight and 
investigative role.
    In summary, several critical factors detracted from GIPSA's 
ability to investigate anticompetitive practices. First, its 
investigations were initiated and conducted primarily by 
economists, without formal involvement of USDA's General 
Counsel, and often lacked a legal perspective necessary to 
assess potential violations of the law. Second, its 
investigations were designed for trade practices and financial 
issues it had emphasized for years rather than the more 
complex, competition-related concerns it was now encountering. 
And, third, while not a critical issue, GIPSA's efforts to 
inform the Congress about certain industry activities that 
raised concerns under the Packers and Stockyards Act were 
lacking.
    We recommended that USDA integrate OGC attorneys into the 
investigative process earlier; that they enhance the role of 
legal specialists; that they develop a teamwork approach to 
investigations similar to the Department of Justice and the 
Federal Trade Commission, where economists and attorneys work 
closely together throughout the investigative cycle; and, 
finally, to adopt a more systematic approach to case selection, 
planning, and conducting investigations.
    USDA concurred with our recommendations and noted specific 
actions it planned to take. We later testified that we were 
encouraged by USDA's positive response. Unfortunately, the 2006 
report of the OIG identified substantial ongoing management 
weaknesses and noted that GIPSA's actions to implement our 
prior recommendations were insufficient, especially in regard 
to integrating OGC attorneys into the investigative process and 
developing a teamwork framework for its investigations.
    It is troubling that these plans which appeared to be 
carefully laid out by USDA in late 2001 were never wholly or 
effectively implemented. Unfortunately, as the 2006 report 
makes clear, GIPSA's Senior Management Review Group became a 
log jam for the progress of investigations and contributed to 
delays in providing policy and investigative guidance, the end 
result being a deterioration in GIPSA's investigative capacity.
    As noted this morning, GIPSA has stated its intent to 
address the new OIG findings as well as our prior 
recommendations. However, given its lack of progress in 
implementing report recommendations dating back nearly a 
decade, continued vigilance and monitoring by the OIG and other 
oversight entities will be essential.
    Beyond increased monitoring, GIPSA's success will also 
require sustained management attention and commitment that has 
thus far been elusive. However, we believe that such a focus is 
necessary and will ultimately result in a more vigilant and 
skillful Federal presence.
    Finally, as GIPSA moves forward, it should consider 
assigning lead roles to OGC attorneys for more complex 
anticompetitive investigations, a practice that we have 
recommended, and is also consistent with DOJ and FTC 
investigations. In going forward, it is also possible that 
GIPSA's efforts to periodically inform the Congress about new 
anticompetitive activities could be further leveraged.
    For example, GIPSA has initiated a study on livestock 
marketing practices which will be issued later this year. While 
informative to the industry and policymakers, this analysis 
could also help GIPSA identify current and emerging areas of 
vulnerability and better target its investigative activities 
for the future.
    Mr. Chairman, this concludes my formal statement, and I am 
pleased to answer any questions you or other members of the 
committee may have. Thank you.
    [The prepared statement of Mr. Bertoni can be found in the 
appendix on page 52.]
    The Chairman. Ms. Fong, Mr. Bertoni, thank you for your 
thorough investigation and your issuing of this detailed report 
on this issue that is critically important to this industry.
    Mr. Link, GIPSA has traditionally provided Congress with an 
annual report detailing its performance and activities in both 
the Federal Grain Inspection Service and the Packers and 
Stockyards Program. In 2004 the P&SP Division of GIPSA did not 
provide Congress with an annual report, and again failed to do 
so for 2005.
    Based upon the findings in the 2006 OIG audit report, I 
think it is imperative that P&SP reinstate its policy of 
providing Congress with an annual report, and I would hope that 
you would be willing to do that in the future. Can you give us 
some idea about when we might be able to expect that?
    Mr. Link. Yes, sir. I was made aware of that quite 
recently, and I have already enacted that this year there will 
be a report filed from GIPSA that includes both Packers and 
Stockyards and Grain Inspection.
    The Chairman. Very good. Thank you.
    At this time Senator Harkin has arrived, and Senator, we 
will turn to you for any comments you might have to make, and 
if you will, just proceed directly into questioning when you 
complete any comments you wish to make.
    Senator Harkin. Thank you very much, Mr. Chairman. I 
apologize for arriving late. But I had read your testimony last 
night, Mr. Link, be assured of that. And Ms. Fong and Mr. 
Bertoni, I read your prepared testimonies last night. I just 
ask that my full statement be made a part of the record. I will 
just comment on it briefly, Mr. Chairman.
    The Chairman. Without objection.
    [The prepared statement of Senator Harkin can be found in 
the appendix on page 30.]
    Senator Harkin. I just want to first of all commend you, 
Mr. Chairman, for holding this hearing today to examine USDA's 
authority and commitment to enforcing this important law, the 
Packers and Stockyards Act.
    Over a period of time I had heard from a lot of producers 
that USDA was failing to act on their complaints of unfair and 
anticompetitive practices by packers. I was also hearing 
through various sources that USDA was purposely misrepresenting 
its enforcement activities to give the appearance that it was 
in fact enforcing the Packers and Stockyards Act when it was 
not, so that is when I asked the Inspector General to 
investigate. The Inspector General found that USDA management 
was preventing employees from investigating complaints of 
anticompetitive conduct, and even covering up its inaction by 
inflating the number of investigations listed in its annual 
reports.
    Again, Mr. Link, I read your prepared testimony and some of 
the actions that you are taking. I commend you for that, and I 
hope you proceed quickly to implement those, but I hope you 
will understand if I am a little skeptical. We have had 
promises before. USDA has had a long history of agreeing to 
make changes and never following through.
    The Inspector General, at our insistence--and I don't mean 
just me, there are a number of us here--in 1997 the Inspector 
General made recommendations to improve GIPSA at that time. The 
GAO, Mr. Bertoni, in 2000 conducted another audit suggested 
those same changes be made as recommended by the Inspector 
General. A number of us provided funds. GAO said funds were 
lacking. Well, we provided money. We provided funds to carry 
out GAO's recommendations in 2001. It is now 2006. None of 
those recommendations were ever implemented, even though we 
were told and told and told that they were going to be done, 
and now GIPSA is in complete disarray.
    It is also troubling that while GIPSA was failing to 
enforce the Packers and Stockyards Act, no one above the level 
of Deputy Administrator took corrective action. Where was the 
government oversight? Where was the GIPSA Administrator, the 
Under Secretary for Marketing and Regulatory Programs, or even 
the Secretary of Agriculture?
    Most importantly, though, what bothers me is, where was 
USDA's Office of General Counsel? OGC has a history of inaction 
on enforcement of the Packers and Stockyards Act. Surely the 
OGC has a responsibility to enforce the law. I commend, again, 
the Inspector General for looking at this.
    Now, again, we have some legislation that a number of us, 
bipartisan, have introduced to provide improved enforcement of 
the law. I would like to hear from you, Mr. Link, on this. This 
legislation would create an Office of Special Counsel for 
Competition Matters at USDA, whose sole responsibility is to 
investigate and punish unfair, anticompetitive behavior in the 
agricultural markets. This high profile person would be 
appointed by the President, confirmed by the Senate, to create 
new accountability for enforcing the Packers and Stockyards 
Act.
    The fact is that upper levels of USDA were unresponsive to 
the problems at GIPSA, despite the fact that I and many others 
on both sides of the aisle were sending letters to the 
Secretary pointing out that such problems existed, and the 
failure to implement the past OIG and GAO recommendations, 
supports my assertion that something is needed to change here.
    And so I guess my first question to you, Mr. Link, would be 
just that. I hope you are aware of this legislation that has 
been introduced. Like I said, it has some bipartisan support. 
With the low office morale at GIPSA, the rate of turnover, all 
of the things that happened, please address yourself to the 
provision of the bill that would set up a high level Special 
Counsel for Competition Matters, appointed by the President, 
confirmed by the Senate, to create new accountability for 
enforcing the Packers and Stockyards Act. Could you address 
yourself to that, please?
    Mr. Link. Senator, yes, sir. Senator, the Administration 
has not been asked their opinion of the bill at this point in 
time. I feel that our agency has the capability to work within 
the guidelines that we have now, to operate and be successful.
    Senator Harkin. Well, again, as I said, I like to hear 
that, but I heard that in 1997. I heard it in 2000 under a 
previous Administration, I want to add, under a Democratic 
Administration, I heard the same thing. So again, I am just a 
little skeptical, and I just wonder if we don't need something 
else. The status quo just does not seem to be working.
    How has it been possible, Mr. Link--and I am sure you have 
investigated this, and I commend you, you have been more active 
on this than anyone I have seen in a long time--how it is, in 
your own words, how is it possible that GIPSA was in such 
disarray for so many years but no one above the level of Deputy 
Administrator ever took corrective action?
    Mr. Link. Sir, I am not trying to avoid your question, but 
I really don't know enough about the history of the previous 
Administrators that were involved with GIPSA to really be able 
to answer your question intelligently. Really all I can address 
is what I am aware of after I came on board, and I am sorry, I 
don't know the history.
    Senator Harkin. Mr. Link, I hope that you and your staff 
will go back and see what happened in 1997, in some of the 
hearings we had then, and in 2000. This is not new stuff. It is 
new because you are new, but sometimes it is interesting to go 
back and try to take a look at what happened in the past, to 
inform you of where you are right now. So I hope that you will 
take a look at that and become more knowledgeable of what has 
happened in the last eight or 9 years.
    What is GIPSA's protocol right now, Mr. Link, for 
communicating its mission and daily operations up through you 
to the Secretary? What kind of protocol is that?
    Mr. Link. You mean from an inquiry from a producer, 
basically?
    Senator Harkin. Yes, for communicating what it is GIPSA is 
doing, what kind of input is it getting in from producers, what 
kind of requests are coming in, what actions are taken. How 
does that get to the Secretary?
    Mr. Link. Well, first of all, when an inquiry comes in from 
a producer, let's say he feels that he was wronged at a local 
sale barn, they will contact the regional office in which it 
occurred. The regional manager then makes a decision as to 
whether it will be investigated or not. We have clarified what 
is going to constitute an investigation, a regulatory thing.
    The team there then will decide whether action needs to be 
taken. If that happens, then one of our RAs, resident agents, 
will go out and start the process to look into this thing, to 
decide whether yes, it is a violation, or not. If they 
determine it is, then the team gets involved, with our legal 
specialist that we have there, the economist that we have 
there, to determine what the infraction is. Then that decision 
is made with the Office of General Counsel as to whether to 
move forward through that, and then it comes, that case then 
would come to the headquarters for action by the Office of 
General Counsel.
    Senator Harkin. Now, you may not have this information 
right now, but would you provide it to the committee? Mr. 
Chairman, I would like to ask that this information be 
provided. In the last 7 years, can you go back for the last 7 
years and inform this committee how many requests for 
investigation--I want to make sure I get my terminology right--
how many requests for investigation came in regarding 
anticompetitive practices, and how many that GIPSA referred?
    I am told that GIPSA only referred two investigations over 
the course of several years, but I don't know how many came in. 
I am told they referred two, but I don't know how many came in, 
and I would like to know what that was. Is there any 
recordkeeping of that? I don't know.
    Mr. Link. I would have to go back and look. Part of the 
problem that we had, and the OIG report pointed that out, was a 
breakdown in communication as to what the complaint was, 
whether it was anticompetitive, whether it was check-kiting, 
and part of that it would be difficult to point out. Some of 
these, also, we have to realize that a complaint may be made 
and the evaluation looked at and said, you know, ``This isn't a 
valid complaint. We don't need to go forward with it.'' But 
that would be recorded.
    Senator Harkin. I understand that.
    Mr. Link. So this is part of what we are addressing now 
with our tracking system, is so that we can, if someone does 
complain, we can enter that and tell where it is at any given 
time, and if it is followed up on or not.
    Senator Harkin. Well, let me ask you this, Mr. Link, 
following up on the Chairman's question on the annual report 
that you say you are now working on developing. That might be a 
good thing to include in that report, and I would ask that you 
do so, and if there is any problem with that, I would like to 
know why you can't. Put in your annual report how many requests 
came in and then how many were referred on, and obviously we 
don't need to know the disposition of every one, but sort of 
categorize them for us, so we have some idea of what is 
happening there.
    Last, Mr. Chairman, I just want to ask one question. For 
the OIG, what was the cause of the dysfunctions at GIPSA? What 
caused all this dysfunctional activity going on?
    Ms. Fong. Well, I think it was a very difficult situation. 
As you know, GAO and our office had done a number of reviews 
over the years, and we pinpointed a number of areas where we 
thought GIPSA should take action.
    Our recommendations have focused on the need to have the 
legal and economic and statistical expertise integrated as a 
team early on in the process, so that those kinds of 
investigations are handled appropriately. We also felt that 
there was a need to make sure that the appropriate level of 
management attention was given to these investigations.
    Our review showed that GIPSA tried to take action to 
implement our recommendations back in 2000 and 2001. They 
attempted to hire more staff with the kinds of expertise that 
they needed. They attempted to implement a structure where they 
would make sure that the investigations moving forward had some 
quality control to them.
    Unfortunately, the efforts that GIPSA took to address our 
previous recommendations in fact inhibited their ability to 
really implement an effective program. We were told that there 
was such an emphasis on trying to ensure quality in the 
investigative process that that tended to create other issues, 
as detailed in our reports. As a result, there were bottlenecks 
in the process and policy issues were not addressed, and 
basically the program was not able to move forward as it should 
have moved forward.
    Senator Harkin. Well, when a phone call is listed as an 
investigation, you know there is something wrong.
    Mr. Chairman, you have been very kind. I have taken more 
than my share of time. If we go around again, I would like to 
ask for some time after others have had the chance.
    The Chairman. Senator Lugar?
    Senator Lugar. Thank you very much, Mr. Chairman. I 
appreciate the focus of you and Senator Harkin on the 
procedures and the expert testimony of our witnesses.
    Let me take a little different tack. I come from a family 
in which my grandfather and my father were involved in 
commission business at the Indianapolis stockyards from the 
1930's to the early 1950's. As a boy I went out to the yards. I 
saw what they did at 5 o'clock in the morning. They were with 
the packers, with their customers. I went with my dad out into 
the field to consult with farmers about when their livestock 
should come in. He was their advocate. They were his clients.
    So that was obviously a different period with the 
stockyards that came into being in the 1920's, but it was a 
highly competitive situation. Many bidders, although there were 
two or three large packers in Indianapolis which dominated the 
scene, but the price mechanism situation was very active.
    Now, what I see described here is a situation which you 
have detailed in preparation for our hearing, our staff pulled 
together, in which essentially in the 1990's, with the decade 
before this one, there were 300,000 farms involved in hog 
farming, and this was down to less than 100,000. I don't know 
what the figure is now, but I suspect many fewer. And we are 
still maybe only 25, 26 percent of the hogs by the turn of the 
century, 2000, were really involved in a competitive market. 
This is the allegation, that the other 74 percent became 
involved with large packers dealing with large feed lots.
    And I think, you know, for the general public as well as 
Senators, we have to look at the heart of the matter. The 
allegation is that concentration continues, that it is very 
substantial, and that it inhibits price finding in a 
competitive way. And in short, that deals are made outside the 
stockyards and they involve most of the livestock, cattle and 
hogs, just sort of out of sight, out of mind.
    What is left for the few that are still in the yards is 
also questionable, because at least in the alternative press, 
not in your testimony here, there are allegations literally 
that retaliation occurs against some of these small farmers who 
protest that a deal is being made. Now that is why the 
enforcement mechanism is of the essence.
    If I were Secretary of Agriculture, I would say, ``Listen, 
the integrity of the whole process is at stake here.'' This is 
not simply whether GIPSA works or whether it doesn't, whether a 
few inspectors more are needed here and there, and whether the 
audits come in quickly. This is sort of basic to the whole 
competitive aspect in the industry.
    And the allegation is being made that the Secretary of 
Agriculture has not taken that very seriously, not just this 
one, but this certainly goes back for several years. If you 
were a conspiracy theorist, you would say that the large 
packers, the large farmers, really have a friend in whoever the 
Secretary is. And so whoever down in the weeds is taking a look 
at all of this, is going to be hobbled by the fact that at the 
top level, the top guy doesn't say, you know, ``Get to it. 
Let's make sure that there is integrity in the process and we 
can se what is occurring.''
    Now at the end of the day economists may say, ``Listen, you 
don't understand the way things are going. Whether it is dairy 
cattle or regular cattle or hogs, the economic way to handle 
this is by having very large production, very large feed lots. 
The logistics of all of this ought to be evident to you.''
    This is the way our country becomes more competitive, and I 
think we all understand that. We have all witnessed that in our 
States. But this is of small comfort, that if you are still out 
there with 50 hogs or 100 hogs or 200 or what have you in some 
sort of minimum lot, you may be ``in transition.'' The next 
generation may not want to feed that number, may want to join 
somebody else.
    And so I think we realistically understand the trends of 
things, but we also understand the need for integrity and 
fairness and somebody with the searchlight of truth, in 
essence. And as I understand, Mr. Chairman, this is why you and 
Senator Harkin have called the hearing, so that in fact 
somebody says to the Secretary of Agriculture, not just to you 
people, that this is very important; that at least there are 
some people in the Senate who thing it is important.
    We may not be savants as to precisely how you get to it, 
although I support the thoughts that Senator Harkin has 
suggested. Procedurally you have to do it in the rule of law. 
You need proper counsel, proper investigations. But we also 
need some analysis by the department. What is going on in these 
markets? Some overview in terms of policy, whether this is good 
or bad for America, and how in fact we protect at least those 
from any thoughts of intimidation or being outside the market.
    So, having given this essay, I ask you, Mr. Link, if you 
have any comment as to what kind of interest is there at the 
level of the Secretary or anybody else in the department? Are 
you sort of left alone down there to do your duty as a new man 
on the job, full of vim and vigor, but at the same time you are 
wondering what is happening upstairs?
    Mr. Link. The Secretary is committed to enforce the act and 
correct these measures that we are taking right now. The market 
reporting is a complex issue, and we are working on that right 
now through this RTI study. Hopefully we will have that 
information by the end of the year.
    Senator Lugar. About how many farms are left and how they 
sell and so forth?
    Mr. Link. This is basically on how things are marketed, 
both through the cattle and the hogs and the sheep industry. We 
are auditing not only the producers but also the procurers of 
this, the slaughterhouses also, and hopefully that information 
will give us a better picture of what we have. I think we are 
pretty well informed now, but this will either confirm or deny 
what we know about how the market is functioning right now.
    Senator Lugar. I hope you will share that with the Chairman 
and the Ranking Member quite promptly, because we need that 
data. The data we are looking at here is at best circa 1999, 
maybe 2000. We are way behind the curve, even in terms of the 
official documents of our government, quite apart from what we 
have in front of us today, so we don't want to deal with the 
anecdotal. We need the facts, and I would hope that you would 
stress the urgency of getting that information here, because 
this is a committee that might want to take action on this.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Lugar.
    And, Mr. Link, I think as you can see, the emotions run 
pretty high on this issue. This has obviously not been getting 
the attention at the department that the members of this 
committee think it should be, and I would hope you would not 
only think through the comments that Senator Lugar made, but 
stress that to the folks underneath you as well as above you, 
that we are serious about enforcement of this particular act.
    I don't know where we are going relative to this 
legislation. I don't know whether the legislation put forward 
by Senator Harkin, Senator Enzi, Senator Thomas, and Senator 
Grassley is a good idea or a bad idea but I would encourage you 
to take a look at it. And I would encourage you within the next 
30 days or so to report back to Senator Harkin your feelings 
relative to that particular piece of legislation, because I 
have an idea that there is going to be a movement on the part 
of these folks to try to pursue some activity on this.
    So I can't overemphasize that I know you are the new man, 
the new sheriff in town, and we appreciate that, but you have 
been there for about 5 months now, and I would hope that you 
would certainly move the ball forward and begin addressing the 
issues that are out there, as well as this legislation, and do 
so with all due haste so that we can start getting some 
positive answers.
    Senator Salazar?
    Senator Salazar. Let me just follow up on the question in 
terms of attention at the higher levels, and I will direct this 
to the Inspector General, Ms. Fong. You obviously spent a lot 
of time doing this report, and I commend you for taking the 
kind of straightforward approach and developing recommendations 
that I know are harsh, but I think they are real.
    Do you have any thoughts about how we get this issue, which 
has been hanging around the heads of GIPSA now for many, many 
years under both Democratic and Republican administrations, at 
a much higher level of attention within USDA?
    Ms. Fong. Well, this certainly has been a difficult issue 
for the department. Just to reiterate our experience in the 
Office of Inspector General, when Senator Harkin sent us his 
request last spring that we look into this program, and he 
detailed first the reasons for his concern, we immediately 
briefed the Secretary on it. We told him that there was a great 
deal of concern on the part of the committee, and that we were 
going to initiate the work. We kept the Secretary apprised of 
our findings as we uncovered them, and he expressed to me his 
full support for addressing these issues.
    So that is our experience in terms of how the upper levels 
of the department are viewing these issues. We have been told 
that it is of prime concern to the Secretary.
    Senator Salazar. Let me just follow up with that question. 
I think that the essence of your findings here is that there 
has been a systemic failure in terms of the enforcement of the 
law, and I am trying to figure out what the motivation of that 
systemic failure is.
    As Senator Lugar said, and I have the most admiration for 
him, the allegation might be made that those who have the 
economic power in this industry now have a good friend in the 
position of Secretary of Agriculture, regardless of which 
administration has been in power. Just given the systemic 
failure that you identified in your report, do you sense that 
that might have been the case? That there is took much of 
coziness, if you will, between those who control 80 percent of 
the market and what's happening in the Secretary's office?
    Ms. Fong. I can understand that that question would be on 
the table. When we did our review, we performed extensive field 
work. We visited all the field offices and talked with over 50 
GIPSA employees. We talked with officials at headquarters. And 
during our field work, the issue of improper influence or undue 
influence was never raised with us.
    It has been our experience when we do reviews that if there 
is a concern about improper motivation or lack of interest, 
those kinds of concerns are put on the table by someone. In 
this case we did not hear that kind of concern raised. We 
focused our review on the systems and the processes that we 
felt required attention, and basically found the systems were 
in disarray.
    Senator Salazar. Ms. Fong, in your conducting of your 
review and developing your report, I know you spoke to many of 
the employees of GIPSA out in the field to develop your 
findings and your recommendations. Did you speak as well with 
people within the Secretary's office, and try to get their 
assessment as to why we were having these kinds of problems in 
the enforcement of GIPSA?
    Ms. Fong. To the best of my knowledge, we did not. We 
focused on GIPSA primarily because the scope of our work was to 
identify what was going on with regard to how investigations 
were being handled, and how the recordkeeping processes and the 
approval processes worked within GIPSA itself. At the point 
where we came up with our findings, which we felt were very 
significant, we stopped our field work and wrote our report, 
because we thought it was important to surface these issues as 
soon as possible. So we did not expand the scope of our audit 
beyond GIPSA.
    Senator Salazar. Let me just ask you one more question. One 
of the things that I think you found was, there were some 1,800 
inquiries or investigations that were being cited by GIPSA that 
they were working on, but in fact only two or maybe three 
investigations had really moved forward.
    And one of the recommendations in your audit is that a 
standard come forward from GIPSA that would determine what is, 
you know, just a phone call, what might be just an inquiry, 
versus what is an investigation. Did you provide 
recommendations on what kind of standard it is that GIPSA might 
be able to use with respect to that definition of what is an 
investigation versus just answering a phone call?
    And, Mr. Link, if you would answer that question, too, 
relative to how you intend to define that standard for what is 
an investigation versus just picking up somebody's phone call 
that somebody might answer.
    Ms. Fong. Yes, we did address that issue. We found that 
things that were classified as investigations under the old 
system ranged from, as you point out, dealing with phone calls 
or reviewing paperwork within the office, including field 
visits to field locations. We recommended that GIPSA make an 
appropriate delineation between what was truly investigative 
activity versus more administrative oversight or routine 
correspondence activity.
    Senator Salazar. Mr. Link?
    Mr. Link. Yes, this is one of the things that we have 
already done. We have spelled out what constitutes an 
investigation, and then what other activities are regulatory. 
The majority of our activities are regulatory: getting annual 
reports, reminding, checking bonds, this type of stuff.
    Senator Salazar. What would you say is an investigation 
versus a regulator monitoring action? How would you define an 
investigation, Mr. Link?
    Mr. Link. Well, if there is a complaint for late payment or 
a bad check, something like that, that would instantly be an 
investigation. But again, we do a lot of annual things, like 
annual reports, checking bonds, checking custodial accounts, 
that type of stuff that is part of the regulatory action but it 
doesn't really require an investigation. Or if it is an 
inquiry, somebody calls in to ask about some order buy or 
something like that, those aren't counted as investigations. 
Those are part of the regulatory action.
    Now, what actually has to have someone go out or come into 
the field office, that requires looking into, then that is. We 
classify that as an investigation. We follow their guidelines 
almost to the letter.
    Senator Salazar. If I may, Mr. Chairman, just a quick 
comment. It seems to me that Senator Lugar's point is a very 
important point in terms of what has happened in the market out 
there, with now having 80 percent of the market concentrated 
among four packers, and how that economic reality of our times 
is affecting our agricultural industry and our independent 
livestock producers is something which is just a reality. I 
mean, I don't know that I know what the answer is to how we 
deal with that issue, but it is something that would be 
important, from my point of view, for us as a committee to have 
a better handle on, also for the Department of Agriculture 
maybe to give us some guidance on that particular issue.
    And the second comment I would make, Mr. Chairman, is that 
it seems to me there is a management disconnect somehow between 
the Secretary of Agriculture and what is happening in GIPSA. So 
notwithstanding that over the years the Congress will make all 
these recommendations and suggestions, we don't seem to be 
moving the ball forward in terms of improving the enforcement 
of GIPSA.
    And I think all of us here, Mr. Link, want you to do your 
job well, and want to support you in doing your job well, but 
it seems that there is a management disconnect somehow between 
GIPSA and the Secretary's office.
    The Chairman. Point well taken.
    Senator Thomas?
    Senator Thomas. Thank you, Mr. Chairman. I will try and 
stay within my time here.
    It seems like the purpose of the Packers and Stockyards Act 
is fairly well defined: maintaining competition, banning price 
discrimination, manipulation of prices and those kinds of 
thing, misrepresentation of sources and that. So I assume that 
that is your responsibility.
    Mr. Link. Yes, sir.
    Senator Thomas. What do you think are the biggest 
obstacles? I hear from my friends that apparently most people 
don't believe it has been administrated properly. What do you 
think are the biggest obstacles to accomplishing what is 
clearly set out here?
    Mr. Link. Well, I think we have addressed them. Like the 
OIG report, I think there was a breakdown of communications, 
kind of a case where the left hand didn't know what the right 
hand was doing, and it slowed the process down.
    I think the steps that we have taken to smooth that out, to 
make sure everybody knows where they fit into the picture so 
that they can move things forward at a much more rapid pace, 
will be very helpful, and closer attention to detail. I am kind 
of detail person, and I have become intimately involved in the 
operations since I have been here.
    And I think clarifying to everybody how they fit into the 
picture. Some of the strides that we are taking in response to 
the earlier reports about putting legal specialists in the 
field and economists in the field, I think there was a little 
disconnect there that we are fixing, to where they are making 
more of the decisions at the local level, so they are more in 
tune to what the problems are on the local level rather than 
sending them forward to the headquarters to be dealt with at 
this level.
    Senator Thomas. Thank you. Ms. Fong, I understand or I 
would think the Inspector General means oversight of activities 
to see if they in fact are being done thoroughly and properly. 
Why do you suppose it has taken so long, if in fact what I hear 
here is the case, for 10 years? Who is responsible for coming 
up with some solutions to these things or causing things to 
change?
    Ms. Fong. Well, I think we have addressed our 
recommendations to the department, to GIPSA and its 
Administrator, and certainly oversight should be provided at 
the Under Secretary level to make sure those things happen.
    Senator Thomas. What is your responsibility to see that 
they do happen, if they are not happening?
    Ms. Fong. Well, our responsibility is to periodically 
review and evaluate what is going on, and to report to you and 
to the Secretary what we see.
    Senator Thomas. And do you feel as if that has been done 
thoroughly?
    Ms. Fong. I believe that our audit work has been very 
thorough in terms of the issues that we have looked at. We were 
responding in this particular case to specific questions that 
were raised to our attention by the ranking minority member 
here, and I believe that we addressed those questions very 
thoroughly.
    Senator Thomas. That is good, and I am glad to hear that, 
but I would think regardless of the minority member, your 
responsibility is to see that it is carried out in accordance 
with the provisions of the act.
    Ms. Fong. Yes, you are absolutely right, and our oversight 
continues. It doesn't end when we issue an audit report. We do 
engage in continual conversation with the agency as to how they 
follow up on our recommendations.
    Senator Thomas. I understand.
    Why is the Natural Resources and Environment Team involved 
in this?
    Mr. Bertoni. We have the agricultural issues in NRE, and we 
have done prior work on this issue also. We issued a report in 
2000 on this.
    Senator Thomas. Thank you. Thank you very much.
    The Chairman. Senator Nelson?
    Senator Nelson. Thank you, Mr. Chairman.
    Inspector General Fong, I am going to relate a bunch of 
words that begin with the prefix ``in''. In dealing with GIPSA, 
in your report you didn't conclude that they were indifferent 
or incompetent, but that there were some systems that were 
inadequate. Is that an appropriate conclusion for me to draw 
from looking at your report on GIPSA?
    Ms. Fong. I think that is a fair statement.
    Senator Nelson. Is it also fair to say that in some 
respects their effort was incomplete and inadequate?
    Ms. Fong. That is also fair.
    Senator Nelson. Well, to use another word, Mr. Link, when 
you come back here at our invitation, I assume that all these 
``in'' words will go away, and that you will be able to come 
back with adequate, complete action and the like, or I can 
suggest to you that you will be in hot water.
    [Laughter.]
    Thank you, Mr. Chairman.
    The Chairman. Again, well stated.
    Senator Harkin?
    Senator Harkin. Thank you, Mr. Chairman, and I wanted to 
follow up on Senator Lugar's very probative discourse a little 
bit ago. I thought, when he started talking, some bells went 
off in my head. I started remembering some things, so I asked 
my staff to get me a letter.
    And I am going to ask that this letter be included in the 
record, Mr. Chairman. It is a letter I received in response to 
an inquiry that I had made 2003, January 14th. It is a letter 
to me dated February 24, 2003, from Bill Hawks, Under Secretary 
for Marketing and Regulatory Programs. Are you ready for this? 
This is his letter to me:
    ``Given the rapid changes in industry, it is important to 
note that the Packers and Stockyards Act has not undergone a 
thorough review since its passage over 80 years ago. While most 
of the provisions are sufficiently broad to address emerging 
needs of market participants, there might be changes to the 
Packers and Stockyards Act that would be appropriate to address 
the major changes occurring in technology, marketing, and 
industry business practices. GIPSA is undertaking a top-to-
bottom review of the Packers and Stockyards Act and its 
regulations to help ensure that the Packers and Stockyards Act 
continues to help assure a healthy, efficient, fair, and 
competitive market for everyone competing in today's livestock, 
meat packing, and poultry industries.''
    It is 3 years later. I haven't seen one iota of anything 
come out of this. Do you happen to know what happened to that 
top-to-bottom review at all, Mr. Link? I will bet it is the 
first time you ever heard of this, probably.
    I don't know, Ms. Fong, did you, in your investigation, did 
you find out anything at all of what happened to this so-called 
top-to-bottom review?
    Ms. Fong. I am not aware of that.
    Senator Harkin. I am just saying that is why I agree 
Senator Lugar is right on this. I mean, there needs to be 
something brought up-to-date on this, to make sure that we are 
doing what needs to be done in the present situation, present 
marketing practices, to provide that we have transparency in 
competition.
    I just wanted to read one other thing. I just want you to 
know that this is not something--and, by the way, the 
legislation has three Republicans and one Democrat. I seem to 
be lonesome on my side on this right now. I hope to get some 
more. But this is the one calling for a special counsel. I had 
said that in my letter at that time, and here is the response 
from Mr. Hawks:
    ``Regarding a Special Counsel for Competition, we believe a 
special counsel in USDA would not benefit USDA or agriculture. 
Competition issues can affect all parts,'' he goes on, and 
basically they are saying they have got all the authority they 
need. So again you can see why I might be a little skeptical. 
We have been down that road before, and we were told 3 years 
ago we didn't need it. They were going to do all this stuff, 
and nothing has ever happened.
    And so again, Mr. Chairman, I just think that we need to 
proceed on this. I hope that you will follow through, and I 
think Ms. Fong has done an outstanding job. I shouldn't say you 
particularly, but your whole department, the IG and the 
investigation has done a good job. I would say the same with 
GAO, too.
    But one last thing I just wanted to bring out. I had hoped 
that maybe we might, Mr. Chairman--and I am sorry I didn't 
mention this to you, I am at fault on this, trying to get Ms. 
Waterfield to testify, but I didn't request it. She has 
resigned, I know. She is no longer there.
    But for the Inspector General, just for the record, I just 
want to say, do you feel, given the past Deputy Administrator's 
actions or inactions, basically actions, that there should be 
any further action regarding her?
    Ms. Fong. I am not sure what further action could be taken. 
And the reason I say that is, as you mentioned, she has 
resigned. During our review we looked very carefully at what 
she did, and how she managed her operation. What we found, we 
would characterize as tremendous mismanagement. She told us 
that she was motivated by trying to make sure that the 
investigations that moved forward were of high quality. Her 
motivation was to ensure quality in the program, and so she 
instituted a number of measures that, as we have seen, 
backfired in a sense.
    We did not find any evidence that would lead us to make a 
referral to our investigative side of the house. In other 
words, we did not find any indication of criminal conduct, as 
it were. And so I am not sure what further action could be 
taken at this point.
    Senator Harkin. Well, are you, in your investigation are 
you confident that the people above her were not aware of or 
were not complicit in some of the actions that she was taking? 
It just seems to me that over all this time, with the things 
that she was doing, what was happening above her? Was there any 
oversight? Were there any communications? Or was she just out 
there on her own?
    Ms. Fong. We had no evidence that there was tremendous 
involvement from the ranks above her, in any kind of sense. The 
Administrator position had been vacant for a number of months, 
and so there was an Acting Administrator for a period of time. 
The Under Secretary position has been vacant for a period of 
time as well. And so I think that created a situation where 
perhaps there weren't the levels of review that would normally 
exist.
    Senator Harkin. Just in closing, Mr. Link, I would ask you 
again if you will go back and try to find out what happened to 
that promised review. Was anything done? I don't know. It was 
said in the letter that they were going to do this top-to-
bottom review and everything. I just don't know how far it got.
    Maybe if you go back and have some of your people look back 
in the files and find out what happened to that promised 
review, and if there were any findings from that at all. I 
mean, maybe a review was done and some findings were made but 
never communicated to us. I don't know. Could you go back? And, 
Mr. Chairman, I would ask that you formally to do that, and try 
to get whatever information you have on that back to the 
committee here.
    The Chairman. Senator Lugar?
    Senator Harkin. Well, I don't know that I have anything 
else, Mr. Chairman.
    The Chairman. You want to think about it a minute?
    Senator Harkin. Yes, yes.
    The Chairman. Senator Lugar?
    Senator Lugar. Mr. Chairman, I wanted to comment that 
obviously our witnesses today are taking the brunt of all these 
questions, and at the same time we are commending them for 
their conscientious activity. I think in fairness there is some 
shared responsibility.
    And Senator Harkin's letter to the Secretary in 2003 sort 
of reminds me of hearings even way back in the ancient history 
of my chairmanship, in which we were trying to probe what is 
going on in the stockyards in America, what is happening in the 
cattle and hog markets. Obviously it was of great interest to 
not only me personally but members of our committee, and it is 
apparent that not much has happened in the intervening period.
    This is why I think the Secretary and each of you have to 
understand, it is not that I have some brief in conspiracy 
theories, but the facts are that as you pointed out, Mr. Link, 
you are pulling together some very important information about 
concentration in the markets. How many farmers are actually 
left as competitors in these situations? And what are the 
realities, if we look at the local level, of the pricing 
mechanism? The perception and the reality of the fairness of 
that?
    Now, you know, for this committee to act appropriately, we 
also need to be updated. Not every member of the committee, 
myself included, really understands precisely who is in the 
market now and what their perceptions are. It may be the 
Stockyards Act itself needs substantial amendment, quite apart 
from the agency that you are trying to regulate. It could be 
that, as Senator Harkin's letter suggests, and the response 
from Secretary Veneman, that a lot has changed, a whole lot.
    Now this committee, say in dealing with the commodity 
futures markets, has recognized that. We have had regular 
amendments of statutes because those markets are dynamic and 
they have changed abnormally in a very short period of time. I 
don't see the same activity in the livestock markets, or the 
same recognition of what is actually occurring in agricultural 
America.
    So even as we charge you with being very diligent with 
whatever this act is now, and it may have been just as 
inadequate 10 years ago as it is now, in order to get something 
that is up-to-date, we really need to understand the markets 
and the feelings of people who are in these markets. Otherwise 
we are going to have political arguments that are based not on 
the facts but on emotions and feelings of unfairness, and that 
will not be healthy for the USDA or for us or for, more 
importantly, the constituents that we serve.
    And I think you understand that, but I just wanted to 
underline my concern once again, to get us the facts, to try to 
think through, is the act that we now have adequate really to 
meet these particular circumstances in 2006, as opposed to what 
they may have been at any one point in our history?
    Thank you, Mr. Chairman.
    The Chairman. Senator Harkin?
    Senator Harkin. Mr. Chairman, I just have one last question 
for the record.
    Ms. Hobbie, how long have you been in your position?
    Ms. Hobbie. I have been the Assistant General Counsel in 
the Trade Practices Division since 1994.
    Senator Harkin. Well, since GIPSA was not performing 
anticompetitive investigations, few or no referrals were being 
made to the Office of General Counsel for administrative action 
for several years, as I pointed out earlier. Ms. Hobbie, didn't 
you find it odd that GIPSA only referred two minor competition 
investigations to OGC over the course of many years?
    Ms. Hobbie. Senator, since the Grain Inspection, Packers 
and Stockyards investigators and legal specialists were not 
talking to the Office of the General Counsel very freely about 
the kind of investigations that they were doing, we took what 
investigations came our way for referral for enforcement. As 
you have indicated, between November 2004 and the present there 
were--excuse me, November 2002 and the present--there were only 
two. Both those cases we have acted on. I really have no answer 
beyond that, that we acted on what came to us.
    Senator Harkin. I am just saying you never found it odd 
that only two minor cases were referred to you on this? I mean, 
you have been there a long time. Wouldn't that kind of raise 
some questions in your mind?
    Ms. Hobbie. It was my understanding in conversations with 
the agency that they were investigating competitive matters, 
and so I expected to receive referrals. I suppose it would be 
correct to say that I was surprised.
    Senator Harkin. Well, if you were surprised, did you ever 
contact anyone such as the Under Secretary or the Secretary or 
the General Counsel, that GIPSA was failing to refer 
competition investigations.
    Ms. Hobbie. Senator, I didn't know that they were not 
referring investigations that would rise to the level of 
showing a potential violation of the act. I knew that they were 
doing investigations. Often it is the case that when the agency 
conducts investigations, they will determine that in fact the 
investigation does not rise to the level of a violation of the 
act, or in talking to the subject of the investigation as the 
investigation proceeds, they are able to achieve compliance 
without referring the case for enforcement.
    Senator Harkin. But, Ms. Hobbie, you are in a key position 
in the Office of General Counsel. You have been there a long 
time. You know what is happening out there. You read the press, 
and you read the agricultural press. You know how many requests 
come in.
    In 2000 the GAO said the Office of General Counsel and 
GIPSA must coordinate better. This exchange further shows a 
breakdown and failure to do what should have been done a long 
time ago. So you had that information, and it would seem to me 
that--as you said, you were surprised.
    Do you feel it is your obligation in your position to 
question this, perhaps to the Under Secretary or even to the 
General Counsel? I mean, if you were surprised, I mean, did you 
make any inquiries about this at all during this period of 
time?
    Ms. Hobbie. During this entire period of time my office and 
the Office of the General Counsel was working with the agency 
to some extent on investigations that they were pursuing. The 
investigations that we were working on sometimes did not 
proceed to come to us in a formal referral for enforcement. In 
those cases there were generally reasons that the case did not 
come to us for enforcement. There was no reason that I could 
see to believe that the agency was not pursuing those cases 
where there were potential violations of the Packers and 
Stockyards Act.
    Senator Harkin. But to have only two referrals to your 
office over this period of years, as you said, came as a 
surprise to you.
    Ms. Hobbie. Only two competition referrals, Senator. Over 
the past, since 2003, there have been referrals of almost 100 
enforcement cases under the Packers and Stockyards Act, and we 
have filed 74 enforcement actions under the act in that time 
period. There was plenty of enforcement activity going on under 
the Packers and Stockyards Act.
    Senator Harkin. But in terms of the referral of 
anticompetitive activities, as I understand, there was only two 
referrals. Now, you may have been doing some other things on 
your own that I may not have known about. I don't know. But 
with regard to the referrals from this office, you only had 
two.
    Ms. Hobbie. The Packers and Stockyards Program has three 
different categories for cases. One category are the financial 
cases; the trade practices cases; and the competition cases. 
Over the period that I mentioned we got referrals from all of 
Packers and Stockyards, that is, all three of those areas, of 
almost 100 cases.
    Senator Harkin. Going back to what year?
    Ms. Hobbie. Going back to fiscal 2003, and we filed 
complaints in 74 of those cases.
    Senator Harkin. But those were in what areas?
    Ms. Hobbie. Two of them--one of those would have been a 
competition case. The others would have been probably in trade 
practices enforcement, things like failures to pay, insolvency, 
false weighing, various kinds of fraud.
    Senator Harkin. OK. I understand. I just wanted to get that 
clear. What we are here about, I think, well, at least what I 
am here about today, I cannot speak for others, is the 
anticompetitive aspects. That is what we are about, and that is 
I think sort of what all these letters and these hearings were 
about.
    We are not into this other stuff. I mean, those are other 
things. We are into the anticompetitive aspects of this, and 
that is what we are trying to focus on. So please don't try to 
say that you are doing all these things under Packers and 
Stockyards. You may be, in these other areas that have to do 
with those other issues that you are talking about. We are 
talking about the issue of competition.
    Ms. Hobbie. Yes, sir, and in competition cases, there were 
two cases referred to us for enforcement and we acted on both.
    Senator Harkin. I have said that repeatedly, Ms. Hobbie, 
and all I have gotten from you is that you were surprised about 
this. And I am just asking, don't you feel it is your 
obligation, as a public servant, don't you feel that it is your 
obligation that if you are surprised, if you see something you 
don't think is working right, that you should talk to your 
superiors about it, or the Under Secretary? I mean, you are in 
the General Counsel's office. Or do you just wash your hands of 
it and walk away?
    Ms. Hobbie. Well, Senator, with all respect, to say that I 
was surprised does not mean that I thought that anything was 
being handled incorrectly or that there was any wrongdoing. 
What happened was, the agency did not refer to us competition 
cases for enforcement. I did not believe that there were cases 
of alleged violation of the Packers and Stockyards Act that 
were going unreported or unacted upon. I did not believe that 
to be the case.
    Senator Harkin. So why were you surprised? Were you 
surprised that there were two and there shouldn't have been 
any, or were you surprised that there should have been more? 
What could have surprised you?
    Ms. Hobbie. I was surprised. I was surprised only in that I 
did not get more requests from the Packers and Stockyards 
Program investigators and legal specialists for assistance in a 
competition investigation. I had little or no knowledge of the 
type of investigations they were doing, because free 
communication with the Office of the General Counsel was not 
encouraged by Packers and Stockyards management.
    Senator Harkin. Thank you, Mr. Chairman.
    The Chairman. Senator Salazar?
    Senator Salazar. May I just ask one question of you, Mr. 
Link? Your are now the Administrator and the Honorable James 
Link, in charge of this program, and no doubt you have 
inherited here some very important, significant, difficult 
challenges, and I think, as Senator Chambliss said earlier on, 
you are the new guy on the block, the new sheriff in town.
    Can you just tell me what maybe your top two priorities 
are, as you assume this position as Administrator? I ask you 
that question in my context and background as Attorney General, 
where on my non-criminal side of life I had a number of 
consumer protection laws that I oversaw, antitrust laws, and I 
had to make decisions about where my priorities would be in 
consumer protection because I couldn't do everything. So in my 
own case in Colorado, among other things, one of the targets 
for me was going after senior fraud. In your case now as the 
man at the top, being in charge of this program that has been 
in existence now for over 8 years, what would you say would be 
your one or two top priorities?
    Mr. Link. Well, I will give you both one and two because 
they changed in December. My first priority now is to correct 
the inadequacies that is going on and to get smoother 
investigative reporting going on and tracking this, so that we 
get it back into what we want it to be as far as the agency 
goes, get the right people doing the right thing at the right 
time so that we will move forward.
    My second priority is to update some of our regulations, to 
address what Senator Lugar was discussing about bringing some 
of the activities up to the time. And I have started that a 
little but I have been distracted some, working with Office of 
General Counsel, because we do have regulatory authority to 
address some of the changing times.
    And that is one of the things that I would like to do, is 
to update our regulations to bring them into the times that we 
have now, to address the marketing changes that have occurred 
recently, the differences in the value of the livestock that we 
are dealing with now as opposed to the last time that was dealt 
with, and basically find better ways to protect sellers on the 
open market.
    Senator Salazar. I would hope that as you move forward with 
both of those priorities, that you keep me updated as one 
Senator, and I would expect that the committee would probably 
also be very interested as you take on both of those major 
initiatives. Thank you very much.
    The Chairman. Mr. Link, again, just to repeat myself, you 
can see that there is a lot of keen interest in this issue. And 
while we know you are still getting your staff together and 
getting your ducks in a row, so to speak, down there, it is 
critically important that we continue to move forward.
    I am going to ask that staff send you a copy of this 
letter. I am sure you could probably find it, but just to make 
sure you have got it. I would like for a copy of your letter, 
Tom, to the department, plus the department's response to you, 
be sent to you, Mr. Link, and that you make a review of your 
files within your office and respond to us within 30 days as to 
whether or not there was any review. If there wasn't, let us 
know that, and what may be your intentions in that regard with 
reference to a review of GIPSA.
    Second, I would request that within 90 days that you give 
us a written report regarding the implementation of the 
suggestions and recommendations coming from both OIG as well as 
GAO, and that will be in lieu of us reconvening a hearing, 
unless Senator Harkin, you think it might be necessary, upon 
receipt of that written information, that we reconvene another 
hearing.
    We don't want to take any more of your time than we have 
to, but this thing has been going on too long, and we are not 
getting the responses that we need. In fact, we are not getting 
responses, period. And again, I am not throwing this in your 
lap because you are the new sheriff down there, but as the new 
sheriff we expect you to provide the leadership that brings 
this issue to the forefront, and that the information that the 
committee requests be given to the committee.
    So, Mr. Link, if you will do that, both at the end of 30 
days and the end of 90 days, give us those respective pieces of 
information, we will certainly look forward to hearing from 
you.
    We are going to leave the record open until Monday in case 
anybody has any additional questions. I think Senator Grassley 
may have some written questions that he will propound to any 
one of the three of you, and I would ask that you certainly get 
those responses back, if there are any questions, within 30 
days.
    Thank you very much, and this hearing is concluded.
    [Whereupon, at 12:05 p.m., the committee was adjourned.]
      
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                            A P P E N D I X

                             March 9, 2006



      
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                   DOCUMENTS SUBMITTED FOR THE RECORD

                             March 9, 2006



      
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                         QUESTIONS AND ANSWERS

                             March 9, 2006



      
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