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



 
AGRICULTURE, RURAL DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS FOR 
                            FISCAL YEAR 2007

                              ----------                              


                        THURSDAY, MARCH 30, 2006

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10 a.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Robert F. Bennett (chairman) 
presiding.
    Present: Senators Bennett and Kohl.

                       DEPARTMENT OF AGRICULTURE

STATEMENTS OF:
        KEITH COLLINS, CHIEF ECONOMIST
        J.B. PENN, UNDER SECRETARY, FARM AND FOREIGN AGRICULTURAL 
            SERVICES
        MARK REY, UNDER SECRETARY, NATURAL RESOURCES AND ENVIRONMENT
        ERIC M. BOST, UNDER SECRETARY, FOOD, NUTRITION, AND CONSUMER 
            SERVICES
        RICHARD RAYMOND, M.D., UNDER SECRETARY, FOOD SAFETY
        CHARLES LAMBERT, ACTING UNDER SECRETARY, MARKETING AND 
            REGULATORY PROGRAMS

             OPENING STATEMENT OF SENATOR ROBERT F. BENNETT

    Senator Bennett. The subcommittee will come to order.
    This is the subcommittee's third and final hearing on the 
administration's budget request for fiscal 2007 for the 
Department of Agriculture.
    And today, we have the following witnesses: Dr. Keith 
Collins, who is the Chief Economist at USDA; Dr. J.B. Penn, the 
Under Secretary for Farm and Foreign Agricultural Services; Mr. 
Mark Rey, the Under Secretary for Natural Resources and 
Environment; Mr. Eric Bost, the Under Secretary for Food, 
Nutrition, and Consumer Services; Dr. Richard Raymond, Under 
Secretary for Food Safety; and Dr. Charles Lambert, Acting 
Under Secretary for Marketing and Regulatory Programs.
    And if Dr. Lambert nods off during the hearing, we will 
understand and forgive him. He has just gotten off an airplane 
from Japan. We want to ask you, Dr. Lambert, about what you 
found when you got over there with the activities.
    They are accompanied by Mr. Dennis Kaplan, of the Office of 
Budget and Program Analysis. And we thank you all for being 
here this morning.
    We are going to focus on the budget for the mission areas 
that each of you is responsible for, but not limited to those 
areas, if you have additional information to share with us. 
This is production, agriculture, trade, conservation, 
nutrition, food safety, animal and plant health, and 
marketing--a wide portfolio represented by this group of half 
dozen under secretaries at the table.
    Unfortunately, the Under Secretaries for Rural Development 
and Research, Education, and Economics could not join us this 
morning. But we will receive information from them later. The 
mission areas of the under secretaries before us demonstrate 
the breadth of the programs offered by USDA.
    Now the combined fiscal year 2007 discretionary budget 
request for the agencies under the jurisdiction of this group 
of under secretaries is $11.1 billion. And to compare where we 
are, discretionary funding provided in fiscal 2006 for these 
mission areas was approximately $11.3 billion. So there has 
been a cut. A real cut, not a Washington cut.
    A Washington cut is where you spend more than you did last 
year, but less than somebody thought you should. A real cut is 
where you spend less than you did last year, and there is a 
real cut of $200 million. And that represents a 2 percent 
decrease from fiscal 2006 levels.
    Now you drill down below that top number, and the fiscal 
2007 budget request for Under Secretary Rey is 21 percent below 
fiscal 2006. For Secretary Raymond, it is 9 percent below 
fiscal 2006. For Secretary Bost, it is 2 percent on the overall 
number below 2006. Secretary Penn, 2 percent above 2006. And 
Acting Secretary Lambert is 11 percent above fiscal 2006.
    So while the 2 percent number is enough to get our 
attention as a whole, you get into the specifics, and you get 
even closer attention that has to be paid. And I am sure we 
will discuss that.
    Now some will say that the message from this is that it is 
better to be an acting under secretary than an under secretary.
    But I think that is coincidence.
    Now, before I turn to Senator Kohl for his remarks, I would 
like to specifically mention the efforts of the Farm Service 
Agency, Natural Resources Conservation Service, and the Food 
and Nutrition Service in the wake of Hurricane Katrina.
    The employees of these agencies rescued and fed people in 
the immediate aftermath, and they are currently helping the 
region recover from this terrible disaster. And we would be 
remiss if we did not formally acknowledge their work and the 
leadership that you gentlemen provided to them in that time of 
great national distress.
    Now, members who are not here are free to submit questions 
for the record. Senator Kohl and I may have some questions for 
the record, in addition to the round of questioning.
    But again, gentlemen, we welcome you here and thank you for 
your service.
    Senator Kohl.
    Senator Kohl. I join Chairman Bennett this morning in 
welcoming members of this panel who represent nearly all of the 
agencies within USDA. Your presence shows the diverse missions 
of the USDA, and this panel is an excellent representative of 
the many priorities that we must balance--farm support, 
nutrition, marketing, foreign aid, food safety, conservation. 
All of those mission areas are represented here today.
    American farmers are no strangers to adversity, harsh 
weather, or unpredictable markets. And the past year or so has 
led them to again face hard times. Storms have hammered the 
Gulf State coast. Drought has gripped much of the Nation. 
Wildfires have raged across prairie lands. Energy costs have 
cut profit margins, and foreign markets for certain products 
have been closed.
    Around the world, drought continues to devastate Africa. 
Millions of Americans were displaced because of the hurricanes 
and are still trying to find their way. Another case of mad cow 
disease and the impending arrival of avian flu remind us just 
how at risk we really are.
    It is not fortunate, therefore, that the President's budget 
calls for cuts in nearly all of these areas. It proposes 
significant cuts to support programs for dairy and other 
producers. It imposes new fees for farmers and rural families 
seeking credit. It eliminates many ongoing conservation and 
research projects. It eliminates a small, but important elderly 
feeding program. It proposes food safety user fees that have 
been rejected time and again.
    On the other side of the coin, technology and market 
conditions are giving U.S. producers an important role in 
helping this Nation move closer to energy independence. 
However, our central challenge is to help guide these changes 
so that they benefit everyone and not just a few.
    Mr. Chairman, I look forward to working with you to develop 
an appropriations bill to help support all of USDA's 
constituencies in what we all know is going to be a challenging 
year.
    Thank you.
    Senator Bennett. Thank you very much.
    Let us go in the order in which I introduced the witnesses, 
which means, Dr. Collins, that we start with you.

                       STATEMENT OF KEITH COLLINS

    Mr. Collins. Thank you very much, Mr. Chairman, Mr. Kohl. 
Thanks for the opportunity to begin this hearing with some 
brief comments on the general economic environment for U.S. 
agriculture, which I hope will provide a backdrop for your 
deliberations on the USDA's budget.
    Over the past 2 years, U.S. agriculture has experienced 
solid growth in both domestic and export demand. We have had 
record-high cattle, broiler, and milk prices; record-high net 
farm income in 2004; near record-high again in 2005; and 
record-high net wealth.
    Such accomplishments in agriculture occur only 
periodically. And when they occur, they provide the opportunity 
for savings and wealth creation that enables many farmers to 
maintain their operations during less prosperous times.
    Large harvests last fall, adverse weather, higher energy 
prices, the continued loss of Asian beef markets, the global 
spread of avian influenza are some of the challenges the farm 
economy must surmount in 2006. And facing these and other 
challenges, I would like to highlight several key developments.
    First, global and U.S. farm product demand generally 
remains favorable. The United States and world economies show 
strong growth, despite this morning's reduced GDP estimate for 
the fourth quarter, we are looking for an improvement in 2006. 
U.S. agricultural exports are forecast to be a record-high 
$64.5 billion, and U.S. food and industrial product demand is 
expanding.
    Second, most world commodity markets are moving toward 
better supply and demand balance. The record-high crops of 2004 
raised global stock levels and reduced market prices. But this 
year, we have generally lower world production, higher 
consumption, and as a result, stocks of major commodities are 
likely to decline, but they will still remain above the levels 
of 2 years ago.
    A notable exception is soybeans, where with very large 
South American harvests in prospect we once again will add to 
our already large supplies.
    The U.S. market is showing more of an imbalance than the 
world market as we face a second consecutive year of higher 
corn, soybeans, and cotton stocks. Last fall's large harvests 
are more than offsetting increased corn demand for ethanol and 
strong soybean and cotton exports to China.
    Wheat and rice look a little more robust as poor weather is 
reducing the 2006 global wheat production prospects, and rice 
has the tightest global market in over 3 decades. All of this 
for this year means a mixed picture for U.S. crop prices 
compared to the across-the-board declines we saw last year.
    A third observation is that U.S. livestock and poultry 
production is now rising fairly rapidly. Meat and poultry 
production is expected to be up 3 percent this year, led by a 5 
percent increase in beef production. As U.S. cattle numbers are 
increasing, we expect more live cattle imports from Canada.
    The large increase in meat supplies is reducing cattle, 
hog, and broiler prices. With progress in opening foreign beef 
markets, we expect higher beef exports in 2006, although they 
will remain well below the pre-BSE levels. Pork continues to 
benefit with another record-high export year in prospect.
    And for poultry, as a result of avian influenza, we have 
been reducing our export forecast. But at this point, we still 
expect exports to be slightly above a year ago. Leg quarters, 
in fact, have become quite a bargain. Prices ranged from 40 to 
50 cents a pound late last fall. Last week, they were selling 
for under 20 cents a pound, which should attract foreign buyer 
interest.
    Milk production is expected to increase a hefty 3 percent 
for the second year in a row this year, and that will lead to 
lower prices, Milk Income Loss Contract payments, and a modest 
increase in price support purchases for nonfat dry milk.
    This year's return to trend in many markets means somewhat 
lower farm cash receipts. Also, Government payments are 
expected to be down by $4.5 billion because of lower disaster, 
tobacco, and marketing loan payments.
    Higher interest rates and energy costs are expected to 
increase farm production expenditures again in 2006. Thus, we 
have lower revenues and higher costs, that suggests the U.S. 
farm income in 2006 will drop from the unusually high levels of 
the last few years to the long-term average level.

                           PREPARED STATEMENT

    Meanwhile, farm land values are expected to keep rising, 
net worth for farmers is expected to set another record high, 
and the farm debt-to-asset ratio is expected to drop to the 
lowest level in over 4 decades.
    While the coming year will present more of a financial 
challenge for many producers, a strong balance sheet, average 
cash flows, and the resiliency in managerial capacities of 
America's farmers should help them meet this year's challenges.
    Thank you, Mr. Chairman.
    [The statement follows:]

                  Prepared Statement of Keith Collins

    Mr. Chairman and Members of the Subcommittee thank you for the 
opportunity to discuss the general economic situation in U.S. 
agriculture as background for the Subcommittee's review of the 
Department of Agriculture's (USDA) fiscal year 2007 budget submission. 
I will review the major factors affecting agricultural markets in the 
coming year and their implications for financial conditions in U.S. 
agriculture.
    U.S. agriculture experienced an extremely strong recovery following 
the economic slowdown at the start of this decade. With solid growth in 
domestic and export demand, large crop harvests, and record-high 
cattle, broiler and milk prices, net farm income reached a record high 
in 2004. In 2005, net farm income reached the second highest level on 
record despite a large increase in crop stocks which reduced crop 
prices; multiple hurricanes that shut down the central marketing 
infrastructure of the country; sharply higher energy prices that raised 
production, marketing and processing costs; continued loss of Asian 
beef markets; and the emergence of global Avian Influenza (AI) 
concerns. Adverse factors were partially offset by continued strong 
global demand for food, the ability of the agricultural system to 
rebound from shocks, a substantial increase in government support 
spending and continued strong livestock and livestock product markets.
    In the year ahead, global economic growth and food demand is 
expected to remain strong, but markets for major crops will face lower 
prices from higher stock levels built up from the large production 
levels the past 2 years. In addition, expansion of livestock and 
livestock product production following several years of profitable 
returns will likely reduce market prices somewhat. Higher interest 
rates and energy costs and continued disruption of markets due to 
animal diseases and weather are also likely to be factors affecting 
economic performance. Together, these factors suggest that net cash 
farm income will drop in 2006. Even with the contraction and more 
financial stress for some farming operations, the overall farm economy 
is expected to perform at long-term average levels with farm household 
income remaining strong and farm net worth continuing to increase.
Global Economic Growth and Farm Product Demand
    The U.S. economy grew at 3.5 percent in 2005, down from 2004's 4.2 
percent but well above 2003's 2.7 percent. For 2006, U.S. Gross 
Domestic Product (GDP) growth is expected to be slightly less than last 
year. The decline in the rate of growth in 2006 from last year is 
expected to be due to slower growth in consumption, housing, and tight 
energy markets. Increased tightness in labor markets is likely also to 
be a factor. As the unemployment rate continues to decline, the lack of 
unemployed labor resources tends to slow real productivity and output 
growth.
    Foreign economic growth retreated in 2005 from 2004's strong growth 
rate of 4.0 percent, with most areas slowing, particularly Western 
Europe. This year, Western Europe is expected to have the strongest 
growth since 2000, and growth prospects appear good in Canada, Japan, 
East Asia and Mexico--all important markets for U.S. agriculture. 
Foreign economic growth is expected to rise to 3.4 percent in 2006, up 
from 2005's 3.2 percent, which would be the second strongest rate of 
foreign economic growth since 2000.
    With the U.S. economy expected to have another year of steady 
growth, consumption expenditures on food remain positive, although the 
rate of growth is likely to decline to near 3.5 percent from the 
unusually high 5 percent levels in 2004 and 2005. Average growth was 
less than 2.5 percent during the slowdown in 2001 and 2002. This year, 
slower growth in consumer spending on food is likely, as consumers face 
heavier debt loads, higher energy costs, and are less likely to use 
household assets to finance consumption. Consumer spending, which 
accounts for two-thirds of GDP, increased only 1.4 percent in the last 
quarter of 2005, sharply below the third-quarter, but a rebound is 
expected in the first quarter of 2006.
U.S. Agricultural Trade
    Turning to foreign demand for U.S. agricultural products, our 
latest quarterly forecast for farm exports in fiscal year 2006, 
released in February, is a record-high $64.5 billion, up $2 billion 
from 2005's record and unchanged from our last quarterly forecast. 
Stronger horticultural product, cotton, and beef exports are expected 
to show the greatest gains, while oilseeds and their products, the 
largest decline compared with fiscal year 2005. The increase in 
forecast beef exports assumes that the current suspension in Japanese 
imports is a temporary divergence from the earlier Japanese policy 
decision to resume imports. We have no information as to when imports 
will resume, but for the purposes of making a forecast, we simply 
assume Japan resumes imports of U.S. beef during the second quarter of 
2006.
    U.S. agricultural imports are forecast at $63.5 billion, up $2 
billion from our last forecast, and $5.8 billion more than in fiscal 
year 2005. Much of the increase from last year and from our last 
forecast is due to increased imports of coffee, cocoa, sugar, wine, 
beer, and fruits. The agricultural trade surplus for fiscal year 2006 
is forecast at $1 billion, down from $3 billion in our last forecast 
and $4.7 billion in fiscal year 2005.
    While the agricultural export-weighted value of the dollar 
appreciated in the second half of 2005, at the start of 2006, it was 
still over 10 percent below the start of the 2003 level. The current 
period of strong foreign economic growth and continued effects of the 
decline in the value of the dollar from several years ago should show 
up in higher U.S. agricultural exports in the future and a modestly 
improving trade balance. However, the strong consumption growth in the 
United States and the consumer desire for horticultural products 
suggest the trade balance in the future will be much smaller than in 
the past. USDA's long-run projections issued in February forecast U.S. 
agricultural exports rising to nearly $73 billion by fiscal year 2010 
and imports of $70.5 billion, leaving a trade surplus of a little over 
$2 billion. By 2015, projected exports equal projected imports.
Crops: Supply, Demand, and Price
    The 2004/2005 marketing year began with relatively tight crop 
supplies, but global production of grains, oilseeds and cotton reached 
record-highs. As a result, stock levels increased, market prices 
declined, and farm program costs rose. In 2005/2006, global production 
was near-record high for most major crops, except for oilseeds 
production which set another record-high. Global total use this year is 
expected to be about the same as last year for rice and higher than 
last year for wheat, coarse grains, oilseeds, and cotton. With 
generally lower production and rising consumption, global stocks of 
most major commodities will decline this year but remain above the 
level of 2 years ago. In the United States, supplies for feed grains, 
cotton, rice and soybeans are at record highs this year, although not 
for wheat. Unlike the world market where major crop stocks are expected 
to decline, the large 2005-crop U.S. production levels are expected to 
cause an increase in corn, soybean, and cotton stocks this year, while 
wheat remains about the same and rice declines.
    World grain (wheat and coarse grain) consumption this year is 
expected to exceed last year's record high and slightly exceed reduced 
world production. This will lead to a drawdown in world grain stocks, 
with world stocks as a percent of total use not excessive. The picture 
for oilseeds is quite different. Global oilseed production is forecast 
to be record high for the 10 consecutive year. And, in the coming year, 
this increase in production is expected to exceed the increase in 
consumption, resulting in higher global stocks. For soybeans, global 
stocks as a percent of use is forecast to exceed the high set in 1986.
    For the United States, the 2003/2004 grain and oilseed markets, 
which featured strong demand and tight supplies, was a major 
contributor to the record high farm income of the past 2 calendar 
years. The current market prospects have changed as a result of 2 
consecutive years of large production and increasing stock levels.
    The U.S. soybean situation reflects the world situation, with U.S. 
stocks expected to be excessive, rising nearly 400 percent above the 
level of 2 years ago. This jump reflects our bumper harvest this past 
fall and strong competition from Brazil. For example, Brazil had record 
high soybean exports during the October-December 2005 quarter, and a 
rebound in Brazilian production from last year's drought is expected to 
boost Brazil's soybean production this spring to 58.5 million tons, up 
from 53 million last year. Still, U.S. soybean prices this winter have 
been strong in the face of this prospective stock buildup, reflecting 
perhaps a risk premium, purchases by index funds, or other factors. For 
the year as a whole, the average price received for soybeans is 
expected to average $5.50 per bushel compared with $5.74 last marketing 
year. If the Southern Hemisphere crop and the increase in U.S. stocks 
materialize as expected, soybean prices will likely drop in the second 
half of the year and into 2006/2007.
    For 2006/2007, last year's record-high soybean yields, pressure to 
rotate to more soybeans from corn, and high energy costs may cause some 
shifting of corn to soybeans. We expect an increase in soybean planted 
area of nearly 2 million acres to 74 million. The increase in planted 
area, combined with trend yields, would result in production levels 
near expected demand; consequently, carryover levels would remain about 
the same. With continued heavy stocks and large expected supplies in 
South America, weaker prices are expected for soybeans.
    The U.S. corn market in 2005/2006 is expected to see another year 
of increasing carryover with ending stocks 150 percent above 2 years 
ago. Corn prices have rebounded from the extraordinary lows following 
the hurricanes when the transportation network was impaired and are 
expected to average $1.90 per bushel this year, down from $2.06 last 
year. As of the end of February, the average corn loan deficiency 
payment rate made so far on 9.75 billion bushels of corn (88 percent of 
the 2005 crop), was $0.44 per bushel, up sharply from $0.27 averaged on 
the 2004 crop. In addition, producers received marketing loan gains 
averaging $0.42 per bushel on 569 million bushels of corn.
    Another important influence on this year's and future corn and 
other crop markets is biofuels. While biodiesel production has 
increased from less than a half million gallons in 1999 to over 70 
million in 2005, it remains relatively small, equivalent to 3 percent 
of soybean oil production. That is about where ethanol production was 
relative to corn production in 1983. Ethanol production this marketing 
year is expected to account for 14 percent of U.S. corn production. The 
USDA baseline, released on February 10, 2006, projects ethanol 
production will account for 22 percent of corn use by 2010 and drive 
corn prices to $2.60 per bushel.
    In 2004, ethanol accounted for about 2 percent of motor gasoline 
use in the United States on a btu basis. Under the Department of 
Energy's baseline projections for motor gasoline and ethanol use to 
2010, gasoline use is expected to grow 1.2 percent per year, and 
ethanol use at over 15 percent per year. Consequently, ethanol is 
expected to account for over one-quarter of the increase in motor 
gasoline use through 2010.
    For 2006/2007, with soybean area expected to expand, high corn 
stocks, and high energy prices, corn planted area is forecast to 
decline 1.3 million acres to 80.5 million. Less acreage and stronger 
ethanol use is expected to reduce carryover and raise corn prices $0.25 
per bushel, or 13 percent, over the 2005/2006 expected average farm 
price.
    The 2005/2006 wheat market is in good overall balance, with 
carryover stocks forecast to be nearly the same as last year and the 
year before. Farm prices are forecast to average $3.40 per bushel, the 
same as in each of the past 2 marketing years. After much of the 2005-
crop had been marketed, wheat prices started to rise reflecting reduced 
2006-crop prospects due to deteriorating weather conditions in the 
United States and abroad and a currently tight situation for hard red 
winter wheat. The last week of February saw the nearby Kansas City 
wheat futures price reach a 40-month high.
    For 2006/2007, wheat acreage, which has been trending down and is 
now 30 million acres less than 25 years ago, is expected to increase by 
less than 1 million acres to 58 million due to more winter wheat 
planted last fall. Fall seedings were up reflecting the better price 
prospects than other crops and good planting weather in the Corn Belt. 
Yield prospects for the 2006 crop are clouded by the intense drought in 
the South in areas west of the Mississippi River. Winter wheat in Texas 
was rated 89 percent poor or very poor as the end of February and the 
quality of the wheat crop is also reported to be down sharply in 
Oklahoma. Wheat yield problems are also expected in the Former Soviet 
Union, an important grain producer, where planted acreage of winter 
grains are down and a very harsh winter is likely to result in above 
average winterkill. These poor starting conditions suggest global wheat 
production will be down again in 2006/2007. If at this point we use 
trend yields, U.S. wheat production would be near expected demand and 
wheat 2006/2007 carryover levels and average farm price would remain 
about the same as this year.
    U.S. cotton production reached an all-time high in 2005/2006, and 
stocks are expected to rise for the second year in a row to 7 million 
bales, double the level 2 years ago. The increase is expected despite a 
forecast of record-high exports of 16.4 million bales, up 2 million 
from last season. About half of U.S. cotton exports are expected to go 
to China where domestic use is rising rapidly and production is down 
from last season. U.S. cotton mill use continues to trend down as 
textile mill activity continues to move offshore. Mill use this year is 
forecast at 5.9 million bales, compared with 6.7 million last season. 
Even with stocks increasing, farm prices of cotton have been running 
above year-ago levels as the world stock situation is tightening.
     For 2006/2007, lower production is expected to support prices as a 
third consecutive record-high crop is unlikely. With the prospect of 
continued strong exports, ending stocks will likely decline to more 
average levels in 2006/2007.
    Despite a near-record crop, a sharp increase in exports is moving 
the U.S. rice market into balance with only a slight rise in stocks 
expected this year compared with 2 years ago. Rice ending stocks are 
forecast at 26.5 million cwt., down from carry-in stocks of 37.7 
million cwt. Medium grain stocks at 5.25 million cwt are the tightest 
on record (since 1982/1983-first year of supply and use statistics for 
rice by class). The global rice market is the major factor contributing 
to strong exports and steady U.S. farm prices, as global ending stocks 
are expected to be the lowest since 1982/1983, with the stocks-to-use 
ratio the lowest since 1974/1975. U.S. average farm-level rice prices 
are forecast at $7.80 per cwt. this season compared with $7.33 last 
season.
    For 2006/2007, a rebound from last fall's reduced yields would 
raise rice production, but with production costs rising, producers are 
expected to reduce plantings causing production to decline for the 
second year in a row. As in 2005/06, total use is expected to outpace 
production leading to another decline in carryover stocks and higher 
rice farm prices in 2006/2007.
    Under the 2002 Farm Bill, lower prices for major crops trigger 
increases in counter-cyclical payments and marketing assistance loan 
benefits, thus increasing farm program costs. Based on current market 
price projections, counter-cyclical payments could reach $5.2 billion 
for the 2005/2006 crops, up from about $4.3 billion for the 2004/2005 
crops and $0.5 billion for the 2003/2004 crops. Marketing assistance 
loan benefits (loan deficiency payments, marketing loan gains and 
certificate exchange gains) are projected to increase from less than $1 
billion for the 2003/2004 crops to $5.5 billion for the 2004/05 crops 
to about $6.1 billion for the 2005/2006 crops. In addition, program 
crop producers receive nearly $5.3 billion annually in direct payments.
    The 2005/2006 sugar market has been very different from other crops 
this year as hurricane-reduced production has driven prices up 
substantially. Since this market is heavily regulated by USDA, the 
Department has substantially increased import quotas to meet this 
year's demand and help relieve market tightness. In the current 
marketing year, sugar imports are forecast to reach 3.1 million tons, 
up from 2.1 million tons last year and 1.8 million tons 2 years ago.
    Fruits, vegetables, nursery and greenhouse products continue to 
provide good news for U.S. agriculture. They are expected to generate 
$49 billion in sales in 2006, similar to 2005, and account for 21 
percent of farm cash receipts. Sales of these products are now about 
equal to the value of sales of program crops. U.S. horticultural 
exports are forecast at $16.3 billion and imports at $28.2 billion, 
indicating a continuing widening of the sector's traditional trade 
deficit.
Livestock & Livestock Products: Production, Demand and Price
    Turning to livestock and poultry markets, U.S. meat exports 
continue to be heavily influenced by animal diseases. Although we 
expect rising beef exports in 2006 as trade with Japan eventually 
resumes, beef exports are still expected to be only about 40 percent of 
the level of 2003. Our current forecast assumes shipments to Japan 
resume in the second quarter and does not include any exports to South 
Korea. We expect the Korean market to open soon and at that time we 
will incorporate exports to South Korea into our forecasts. With 
continuing limitations on beef exports, pork exports are forecast to be 
4 percent higher than 2005's record high. Lower broiler prices this 
year would normally help increase exports. However, in January, the 
forecast of the rate of growth in poultry exports was lowered to a 4 
percent increase, half the rate of our prior estimate and down from 
last year's 9 percent increase, due to reduced consumption in some 
countries due to AI concerns. In recent weeks, AI has been found in 
Europe and other areas, suggesting USDA's poultry export forecast could 
go lower in the months ahead.
    While animal disease issues are surrounding meat and poultry export 
prospects, U.S. production of meat and poultry is expected to be 
record-high in 2006, leading to record-high U.S. per capita meat and 
poultry consumption. With a 3 percent increase in U.S. meat and poultry 
production in 2006, a mixed export picture, and some slowing in the 
growth of overall consumer expenditures, lower live animal, meat and 
poultry prices are expected in 2006.
    Even though several countries continued to block imports of U.S. 
beef, U.S. livestock markets were very strong in 2005. The index of 
prices received for meat animals was an all-time high, 4 percent above 
2004 and 17 percent above 2003. Although U.S. cattle numbers increased 
for the first time in 9 years in 2005, cattle slaughter continued to 
drop. For 2006, the situation will change. First, the U.S. cattle 
inventory on January 1, 2006 was up 2 percent over last year, 
indicating that producers are now moving well into the expansion phase 
of the cattle cycle. Second, live cattle imports from Canada will be up 
in 2005. Third, higher carcass weights are expected. And lastly, 
drought conditions in Texas and Oklahoma are causing some producers to 
market additional animals and to place cattle in feedlots sooner. 
Consequently, cattle slaughter and beef production are expected to 
increase a strong 5 percent in 2006. Despite the increase in output, 
choice fed cattle prices are expected to decline only about 2 percent 
to about $85 per cwt., and retail beef prices are expected to be down 
about 3-4 percent.
    Despite sustained profitability in hog production, hog producers 
have been cautious about expanding the past few years. Still, with 
back-to-back years of good returns, we expect hog slaughter and pork 
production to be up about 3 percent in 2006 following a modest increase 
of 0.8 percent in 2005. Hog prices are expected be average $44 per cwt. 
in 2005, down about 13 percent from last year, but still stronger than 
during the 1998 to 2003 period.
    Broiler production is expected to again be record high in 2006. A 
nearly 4 percent increase in production in 2005 was driven by record-
high broiler prices in 2004 and low feed prices. Although broiler 
prices fell about 5 percent in 2005, they remained fairly strong and 
with favorable feed costs, broiler production is expected to be about 2 
percent higher in 2006. Wholesale broiler prices are expected to 
average 67 cents per pound, down from 70.8 cents last year. However, 
this forecast was made prior to the finding of AI in Europe and the 
current acceleration in its spread. As AI has become more widespread, 
world poultry trade has slowed, which is now adversely affecting U.S. 
poultry exports and broiler prices. In late February, prices of leg 
quarters, the principal U.S. broiler export product, had fallen to the 
low 20-cents-per-pound range, after reaching the high 40-cents-per-
pound range in late fall.
    Milk, like meat and poultry, is coming off 2 years of strong 
prices. Widespread forage problems and reduced rBST are largely behind 
producers now, and following record and near record milk prices in 2004 
and 2005, milk production is accelerating. U.S. milk production in 
January 2006 was up an extremely strong 5 percent over January 2005. In 
2004, milk production was flat; in 2005, it rose 3.3 percent; and in 
2006, it is forecast to be up nearly 3 percent despite declining 
prices. Increased milk production this year is expected to exceed the 
trend growth in dairy product demand, consequently, the all-milk price 
is forecast to average $13.45 per cwt. in 2006, down 10 percent from 
2005. Payments were triggered under the newly reauthorized Milk Income 
Loss Contract Program beginning in December 2005, following essentially 
no payments from the second quarter of 2004 through the third quarter 
of 2005. The payment rate for March will be $0.41 per cwt. the highest 
rate since March 2004. Cheese prices have recently declined to near 
support levels and price support purchases of nonfat dry milk and 
cheese are likely during 2006. There were no purchases of dairy 
products under the milk price support program in 2005.
Farm Income and Government Payments
    In 2004, net farm cash income reached nearly $86 billion, up from 
the previous record of $72 billion in 2003. Declining crop prices and 
increasing production expenses caused net cash farm income to decline 
to $83 billion in 2005. In 2006, the farm economy is pulling back from 
the strong crop prices and production levels in 2003 and 2004 and the 
record livestock and milk prices of 2004 and 2005. With higher crop 
stocks, reduced crop prices, and a modest decline in livestock sector 
receipts, the value of 2006 farm marketings is expected to decline 
about $7 billion from the last year's near record $239 billion, with 
two-thirds of the decline in crops. With further increases in 
production expenses and lower government payments, net cash farm income 
is forecast to fall to $65 billion in 2006, or about equal to the 
previous 10-year average.
    In 2005, government payments to producers were a record high $23 
billion, up from $13 billion in 2004. In 2005, increased marketing loan 
costs aggravated by the marketing system disruption caused by the 
hurricanes, increased counter-cyclical payments, ad hoc disaster 
assistance, and tobacco program buyout payments all contributed to 
higher government payments. Payments to farmers are expected to decline 
by $4.5 billion in 2006 due to lower ad hoc disaster payments, 
marketing assistance loan outlays, and tobacco buyout payments.
    Cash production expenses are expected to rise 4 percent in 2006 
following increases of 6 percent in 2005 and 5 percent in 2004. Energy-
related input (fertilizer, lime, fuels, oils, and electricity) and 
interest expenses increased by $6.5 billion in 2005 and are expected to 
rise by over $4 billion or 10 percent in 2006. For 2006, the Department 
of Energy projects that diesel and natural gas will cost another 5 
percent more on top of the increases of around 35 percent that these 
fuels saw in 2005. Corn, a heavy user of energy for fertilizer, 
irrigation and grain drying, can be used to illustrate the impact of 
higher energy costs on crop returns. For 2006, energy is expected to 
add about 5 cents to national average corn operating costs compared 
with a year ago and 23 cents more than 2 years ago. These rising costs 
will reduce farm income and have some effect on crop acreage and 
production in 2006. This forecast increase in energy expenses assumes 
producers will not alter their production methods to reduce energy use 
and lower costs, and of course, many will do so.
    Net farm income is expected to decline for all major types of crop 
and livestock farms and in all production regions. Farm household 
income is also expected to decline for the first time in 7 years, but 
at over $80,300, would still be 20 percent higher than in 2003 and well 
above the average of all U.S. households.
    Despite the drop in income and the increase in interest rates, we 
project that farm real estate values will rise 6.5 percent in 2006, 
down slightly from the 7 percent gain in 2005. Another land value 
increase would continue the recent strong improvement in the farm 
sector balance sheet. The ratio of real estate value to net cash farm 
income, a concept similar to a price-to-earnings ratio, is forecast to 
spike up in 2006 to the highest level since the early 1980s. If that 
ratio were to stay high over the next few years, it would suggest the 
increase in farmland values may not be sustainable. For the last 3 
years in a row, farm net worth has gone up by an average of nearly $95 
billion per year, which is more than the increase in farm income each 
year and much more than the $6 billion annual increase in farm debt. 
That is expected to be true again in 2006. Farm net worth, or equity is 
now a record high at $1.4 trillion and the debt-to-asset ratio at the 
end of 2006 is forecast at 13.1 percent, the lowest in 45 years.
    A return to average national farm income, lower enterprise and 
regional farm income, lower cash margins, and an increase in farm debt 
do not indicate an impending financial crisis in U.S. agriculture. Yet, 
they do suggest there is likely to be greater financial stress for an 
increasing number of producers. That stress is likely to show up in 
tighter credit standards, delayed loan repayments and loan extensions, 
and more demand for USDA credit guarantees. The coming year will 
present more of a financial challenge for U.S. agriculture than in 
recent years. In addition, agriculture will have to contend with 
questions over the effect of rising interest rates on the durability of 
the U.S. economic recovery, the value of the dollar, issues raised by 
the Federal budget deficit, trade negotiations, bird flu, BSE, oil 
prices, and terrorism. Producers will likely need to draw more on their 
resiliency and managerial capabilities in 2006 than during in the past 
couple of years of abnormally high farm income.
    That completes my comments and thank you.

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

                         STATEMENT OF J.B. PENN

    Mr. Penn. Thank you, Mr. Chairman.
    I am pleased to be here with you and Senator Kohl again 
this year and to present the budget and program proposals for 
the Farm and Foreign Agricultural Services mission area. As you 
will recall, this mission area is comprised of the Farm Service 
Agency, the Risk Management Agency, and the Foreign 
Agricultural Service.
    The budgets we are discussing today provide the resources 
needed to ensure our continued ability to implement our 
programs effectively. Although the budget is constrained by the 
need to reduce the Federal deficit, it meets our priorities and 
ensures our continued efforts on behalf of America's farmers 
and ranchers.
    I would like to discuss the three agencies and their 
budgets individually, beginning first with the Farm Service 
Agency (FSA). FSA is the lead agency, as you know, for 
delivering farm assistance, and the budget places a priority on 
maintaining and enhancing our ability to provide efficient, 
responsive services to all producers.
    Recently, FSA has faced a series of program implementation 
challenges that have required the full commitment of agency 
resources. Last year and this year, several new disaster 
programs have been implemented. We have had the tobacco buyout 
program while continuing administration of the 2002 Farm Bill 
programs.
    The 2007 budget is designed to ensure the agency's 
continued delivery of its services. The budget provides a total 
program level for FSA salaries and expenses of nearly $1.4 
billion, a net increase of $86 million above 2006. Now this 
requested level will support a ceiling of about 5,250 Federal 
staff-years and 9,400 non-Federal staff-years, and temporary 
staffing will remain at the 2006 levels.
    FSA also provides a variety of direct loans and loan 
guarantees to farm families who would otherwise be unable to 
obtain the credit they need to continue their operations. And 
by statute, a substantial portion of the direct loan funds are 
reserved each year for assistance to beginning, limited 
resource, and socially disadvantaged farmers and ranchers.
    The 2007 budget includes funding for about $930 million in 
direct loans and $2.5 billion in loan guarantees. This level of 
funding is consistent with the actual program use in 2005, and 
we believe these proposed loan levels will be sufficient to 
meet the demand in 2007.
    Turning to the Risk Management Agency (RMA), the Federal 
Crop Insurance Program is another part of the strong safety net 
that is available to our Nation's agricultural producers. Last 
year the crop insurance program provided about $45 billion in 
protection on over 246 million acres out of the total crop land 
base of about 325 million acres.
    We project that for last year, the total indemnity payments 
will be about $3.3 billion. And despite all of the droughts and 
freezes and floods and hurricanes, that is about the same level 
of indemnities that we had in 2004. Our current projection 
shows that for the coming year, we will insure about $49 
billion worth of product.
    For salaries and expenses of RMA, the budget provides $81 
million in discretionary spending. That is an increase of $4.5 
million from the 2006 level, and this net increase includes 
additional funding for information technology (IT) and 
increased staff-years to improve our monitoring of the 
financial health of the insurance companies.
    The budget also includes a proposal to implement a 
participation fee to fund IT modernization and maintenance 
costs. The fee would be assessed on the insurance companies 
that participate in the program and that benefit from the 
subsidies paid by the Federal Government.
    Finally, let me turn to the Foreign Agricultural Service 
(FAS) and our international activities. I am pleased to report 
that we have made considerable progress in trade expansion 
activities this past year, but challenges remain.
    FAS has been very actively involved in supporting all of 
the trade negotiations, including the comprehensive World Trade 
Organization (WTO) negotiations, but also the several bilateral 
and regional free trade negotiations. It has been very actively 
involved in reopening the markets closed because of bovine 
spongiform encephalopathy (BSE) and other animal and plant 
diseases. And the agency continues to work to expand foreign 
sales and, at the same time, provide foreign food aid.
    The proposed budget provides a program level of $162 
million for 2007. That is an increase of $11 million above 
2006. This funding is proposed to meet higher overseas 
operating costs in the agency's overseas posts, including 
increased payments to the Department of State for 
administrative services that are provided in the embassies in 
which our personnel are posted.
    Funding is also included for FAS's contribution to the 
Capital Security Cost Sharing Program operated by the State 
Department. The budget also includes a small increase for trade 
capacity building. This initiative assists developing countries 
in adopting policies that meet WTO standards and to adopt 
regulatory systems that are transparent and science based and 
modeled after ours.
    The budget also includes a projected program level of $1.3 
billion for the Public Law 480 program, and the budget proposes 
that all of the Public Law 480 funding will be through Title II 
donations. This reflects our recent experience in which an 
increasing share of the foreign food assistance has been 
directed to emergency situations, where such aid is critical to 
preventing famine and saving lives.
    For the McGovern-Dole Food for Education Program, the 
budget continues funding at the 2006 level.
    So, in conclusion, Mr. Chairman, our 2007 budget and 
program proposals provide the resources we need to continue the 
important work that these agencies do on behalf of America's 
farmers and ranchers.

                          PREPARED STATEMENTS

    We certainly appreciate the support for our mission area 
that we have received from this committee in past years, and we 
look forward to working with you in the future.
    Thank you.
    [The statements follow:]

                    Prepared Statement of J.B. Penn

    Mr. Chairman and Members of the Committee, I am pleased to appear 
before you this morning to present the 2007 budget and program 
proposals for the Farm and Foreign Agriculture Services (FFAS) mission 
area of the Department of Agriculture (USDA). The FFAS mission area is 
comprised of three agencies: the Farm Service Agency, Risk Management 
Agency, and Foreign Agricultural Service.
    Statements by the Administrators of the FFAS agencies, which 
provide details on their budget and program proposals for 2007, have 
already been submitted to the Committee. My statement will summarize 
those proposals, after which I will be pleased to respond to any 
questions you may have.
    Mr. Chairman, the FFAS mission area and the programs it carries out 
are critical for meeting three of the Department's strategic 
objectives: enhancing the international competitiveness of American 
agriculture in order to increase export opportunities; enhancing the 
competitiveness and sustainability of the rural and farm economies; and 
protecting and enhancing the Nation's natural resource base and 
environment. By providing the diverse array of programs offered by our 
agencies--price and income support, farm credit assistance, 
conservation and environment incentives, risk management tools, and 
trade expansion and export promotion programs--we are in the forefront 
of efforts to accomplish the Department's mission of service to 
American agriculture.
    The 2007 President's budget provides the resources needed to ensure 
continuation of these diverse activities. Although the budget does 
include proposals for savings in both discretionary and mandatory 
programs, as part of government-wide efforts to reduce the deficit, it 
meets our priorities and ensures our continued efforts on behalf of 
America's agricultural producers.

                          FARM SERVICE AGENCY

    The Farm Service Agency (FSA) is the lead agency for delivering 
farm assistance. It is the agency that the majority of farmers and 
ranchers interact with most frequently. Producers rely on FSA to access 
farm programs such as direct and countercyclical payments, commodity 
marketing assistance loans, loan deficiency payments, farm ownership 
and operating loans, disaster assistance, and certain conservation 
programs, such as the Conservation Reserve Program (CRP). Because FSA 
is the prime delivery agency for most of the major farm assistance 
programs, the budget places a priority on maintaining and enhancing 
FSA's ability to provide efficient, responsive services to our 
producers.
Farm Program Delivery
    FSA has faced a series of program implementation challenges that 
have required the full commitment of agency resources. Last year, FSA 
implemented the Emergency Hurricane Supplemental Appropriations Act of 
2005, which included more than a dozen programs and $2.9 billion for 
farmers and ranchers who were affected by drought and other weather-
related problems in 2003 and 2004. FSA also implemented an emergency 
relief program, supported with $600 million of section 32 funds, for 
Florida's citrus, nursery, and vegetable growers who were affected by 
three hurricanes in 2004.
    In addition, FSA was required to implement the tobacco buy-out 
program during 2005, with very little lead time to prepare. Under the 
program, transition payments of about $950 million per year are being 
made to tobacco quota holders and producers, ending all elements of the 
Federal tobacco price support program effective with the 2005 crop.
    Although the emergency supplemental provided some funds to cover 
administrative costs of delivering disaster assistance, they were not 
sufficient to meet those costs fully. As a result, FSA had to cut 
expenses aggressively in all but the most essential areas and was 
forced to divert IT resources away from planned modernization to 
provide the resources needed to implement these new programs. In 2006, 
FSA is again meeting the challenge of delivering disaster assistance to 
producers affected by hurricanes in the Gulf Coast states.
    In the fall of 2005, FSA reduced permanent staffing through the use 
of buy-out authority to adjust staffing due to workload changes 
resulting from elimination of the tobacco program and other changes. 
Although the demands on FSA's resources have tightened and workload and 
staffing needs have shifted, the FSA office structure has remained 
stable for several years. FSA now has hundreds of county offices with 
three or fewer employees that are increasingly expensive to maintain 
and are hard pressed to provide effective customer service. As you 
know, the agency terminated its ``FSA Tomorrow'' plan to close and 
consolidate county offices, but the need to streamline operations and 
office structure continues. FSA has asked its State Executive Directors 
to conduct independent, local-level reviews of the offices and 
operations in their states. This ongoing effort will follow the 
guidelines established in the 2006 Agriculture Appropriations Act with 
respect to public meetings, Congressional notification, and 
communications with affected producers. This will ensure the most 
appropriate adjustments are made, consistent with local needs and 
within the constraints of available resources.
    The 2007 budget is designed to ensure the agency's diverse efforts 
can move forward. It provides a total program level for FSA salaries 
and expenses of nearly $1.4 billion, a net increase of $86 million 
above 2006. The requested level will support a ceiling of about 5,250 
Federal staff years and 9,425 non-Federal staff years. Staff levels 
have been reallocated among FSA's program activities to reflect the 
decreased workload associated with the tobacco program and other areas. 
Permanent Federal staff years will be reduced by 65 and permanent full 
time non-Federal county staff years will be reduced by 24, while 
temporary staff years will remain at 2006 levels.
    FSA is taking other actions designed to improve their services on 
behalf of America's producers. Among the most important of these are 
information technology (IT) improvements, including the adoption of 
web-based applications that allow farmers to sign up for programs, as 
well as receive payments, on line. This reduces the paperwork burden 
significantly and provides for more timely receipt of payments.
    Critical to the success of this endeavor is the need to replace 
farm program delivery software now running on FSA's remaining legacy 
computer system which is obsolete and incapable of meeting future 
needs. In order to complete the transition to the modern web-based 
technology system, the budget proposes $14 million for a multi-year 
investment in streamlining farm program delivery processes and software 
to allow retirement of the legacy system.
Commodity Credit Corporation
    Domestic farm commodity price and income support programs are 
financed through the Commodity Credit Corporation (CCC), a Government 
corporation for which FSA provides operating personnel. CCC also 
provides funding for conservation programs, including the CRP and 
certain programs administered by the Natural Resources Conservation 
Service. In addition, CCC funds most of the export programs 
administered by the Foreign Agricultural Service.
    In 2005, CCC outlays were relatively high at $20.2 billion due to 
recent large crops that have contributed to growing supplies and 
weakened prices. CCC outlays are now projected to reach $21.3 billion 
in 2006 and $20.2 billion in 2007 under current law, which reflects the 
recent enactment of the Agricultural Reconciliation Act of 2005.
    In light of the continuing high levels of CCC outlays and the 
continuing budget deficit, the President's budget again includes a 
number of proposals to reduce the level of farm spending consistent 
with the government-wide goal of reducing the Federal deficit. These 
proposals are designed to work within the existing structure of the 
2002 Farm Bill and achieve savings over the next 10 years. The 
proposals, which are spread across the entire agricultural sector, 
include reducing commodity payments across the board by 5 percent; 
tightening payment limits; lowering dairy program costs; and 
reinstituting a 1.2 percent marketing assessment on sugar processors as 
well as a 3 cent per hundredweight assessment on milk marketings.
    These proposals are expected to save $1.1 billion in 2007 and $7.7 
billion over 10 years. The majority of the savings is achieved through 
the across-the-board reduction in program payments.
Conservation Programs
    The 2002 Farm Bill provided for significant growth in the 
Department's conservation programs. The CRP, which is funded by CCC and 
administered by FSA, is the Department's largest conservation/
environmental program. The Farm Bill extended CRP enrollment authority 
through 2007 and increased the enrollment cap by 2.8 million acres to a 
total of 39.2 million acres.
    As of January, CRP enrollment totaled 35.9 million acres. The 2007 
budget assumes general signups will be held this year and next to 
enroll about 2.5 million and 4.9 million acres, respectively. In 
addition, a major effort is underway beginning this year to re-enroll 
or extend a large number of CRP contracts that will begin expiring over 
the 2007-2010 period.
    Our current baseline assumptions are that CRP acreage will increase 
gradually to 39.2 million acres by 2008 and remain at that level 
through 2016.

                           FARM LOAN PROGRAMS

    FSA plays a critical role for our Nation's agricultural producers 
by providing a variety of direct loans and loan guarantees to farm 
families who would otherwise be unable to obtain the credit they need 
to continue their farming operations. By law, a substantial portion of 
the direct loan funds are reserved each year for assistance to 
beginning, limited resource, and socially disadvantaged farmers and 
ranchers. For 2007, 70 percent of direct farm ownership loans are 
reserved for beginning farmers and 20 percent are reserved for socially 
disadvantaged borrowers, who may also be beginning farmers.
    The 2007 budget includes funding for about $930 million in direct 
loans and $2.5 billion in guarantees. This level of funding is 
consistent with actual program use in 2005, and we believe these 
proposed loan levels will be sufficient to meet demand in 2007.
    The 2007 budget provides funding of $4 million for the Indian Land 
Acquisition program, double the amount provided in 2006. For the Boll 
Weevil Eradication loan program, the budget requests $59 million, a 
reduction of $41 million from 2006. This reduction is due to the 
successful completion of eradication efforts in several areas. The 
amount requested is expected to fully fund those eradication programs 
operating in 2007.
    For emergency disaster loans, no additional funding is requested. 
As of January, about $175 million is available for use in 2006, and 
sufficient funding is expected to carry forward into 2007 to assist 
producers whose farming operations have been damaged by natural 
disasters.

                         RISK MANAGEMENT AGENCY

    The Federal crop insurance program represents one of the strongest 
safety net programs available to our Nation(s agricultural producers. 
It provides risk management tools that are compatible with 
international trade commitments, creates products and services that are 
market driven, harnesses the strengths of both the public and private 
sectors, and reflects the diversity of the agricultural sector.
    In 2005, the crop insurance program provided about $45 billion in 
protection on over 246 million acres. Our current projection is that 
indemnity payments to producers on their 2005 crops will be about $3.3 
billion, which is about the same level as in 2004. Our current 
projection for 2007 shows a moderate increase in the value of 
protection to more than $49 billion. This projection is based on the 
Department(s latest estimates of planted acreage and expected changes 
in market prices for the major agricultural crops, and assumes that 
producer participation remains essentially the same as it was in 2005.
    The 2007 budget requests an appropriation of ``such sums as are 
necessary'' as mandatory spending for all costs associated with the 
program, except for Federal salaries and expenses. This level of 
funding will provide the necessary resources to meet program expenses 
at whatever level of coverage producers choose to purchase.
    The Risk Management Agency (RMA) is making significant progress in 
preempting fraud, waste, and abuse through the expanded use of data 
mining. RMA has preempted million of dollars' worth of improper 
payments and continues to identify ways to reduce program abuse. RMA 
continues to use data mining to identify anomalous producer, adjuster, 
and agent program results and, with the assistance of FSA offices, 
conducts growing season spot checks to ensure that new claims for 
losses are legitimate. These spot checks based on data mining have 
resulted in a significant reduction in anomalous claims for certain 
situations.
    Despite the successes of the crop insurance program, more can be 
done to improve its effectiveness. One of the overarching goals of the 
crop insurance program has been the reduction or elimination of ad hoc 
disaster assistance. However, in recent years Congress has passed four 
disaster bills covering 6 crop years and costing the government about 
$10 billion. Therefore, the budget includes a proposal to link the 
purchase of crop insurance to participation in farm programs, such as 
the direct and counter-cyclical payment programs. This proposal would 
require farm program participants to purchase crop insurance protection 
for 50 percent, or higher, of their expected market value or lose their 
farm program benefits. This level of coverage is nearly double the 
amount of protection currently provided at the catastrophic level.
    Additionally, participants in the Federal crop insurance program 
would contribute to the President's deficit reduction program. The 
budget includes several proposals that would reduce subsidies paid to 
producers and approved insurance providers. In total, these changes are 
expected to save about $140 million annually beginning in 2008.
Salaries and Expenses
    For salaries and expenses of RMA, $81 million in discretionary 
spending is proposed, an increase of $4.5 million from the 2006 level 
of about $77 million. This net increase includes additional funding for 
IT, increased staff years to improve monitoring of the insurance 
companies, and pay costs.
    The budget also includes a proposal to implement a participation 
fee to fund IT modernization and maintenance costs. The fee, of about 
one-half cent per dollar of premium, would be assessed on the insurance 
companies that participate in the program and benefit from the 
subsidies paid by the Federal Government. The fee will be collected 
beginning in 2008 and will initially supplement the annual 
appropriation to provide for modernization of the IT system. After 
modernization is completed, the fee would be shifted to maintenance and 
would at that point reduce the discretionary appropriation required by 
RMA.
    RMA has an aging IT system; the last major overhaul occurred about 
12 years ago. At that time, the crop insurance program offered seven 
plans of insurance covering roughly 50 crops and providing about $14 
billion in protection. In 2005, protection was offered through more 
than 20 plans of insurance covering 370 crops, plus livestock and 
aquaculture, and providing over $44 billion in protection.
    Several major changes also have occurred over the years in the way 
producers protect their operations from losses. In 1994, there were no 
plans of insurance that offered protection against changes in market 
prices. Today, over 50 percent of the covered acreage has revenue 
protection and nearly 62 percent of the premium collected is for 
revenue based protection. In addition, the Agricultural Risk Protection 
Act (ARPA) of 2000 authorized the development of insurance products to 
protect livestock. RMA has implemented several new livestock price 
protection products. Because livestock production occurs year-round, 
these products must be priced and sold in a different manner than 
traditional crop insurance. The advent of new types of insurance, not 
contemplated when the IT system was designed, has placed tremendous 
strain on an aging system.
    ARPA also instituted new data reconciliation, data mining, and 
other anti-fraud, waste, and abuse activities that require the data to 
be used in a variety of new ways. The current IT system was not 
designed to handle these types of data operations. Consequently, the 
data must be stored in multiple databases which increases data storage 
costs and processing times, and increases the risk of data errors.
    Finally, I would note that the budget for RMA includes a request 
for 15 additional staff years. This increase will provide RMA with the 
additional resources necessary to improve oversight and internal 
controls of the insurance providers. In 2002, American Growers', the 
Nation's largest crop insurance company, failed. RMA, in concert with 
the Nebraska Department of Insurance, did a tremendous job of ensuring 
that both the producers' and the Government's interests were protected, 
indemnities paid, and policies transferred to other insurance 
providers. The additional staffing will help to ensure that a similar 
failure does not occur in the future.

                      FOREIGN AGRICULTURAL SERVICE

    I would now like to turn to the international programs and 
activities of the FFAS mission area. One of the goals that Secretary 
Johanns has established for the Department is to enhance the 
international competitiveness of American agriculture in order to 
provide increased export opportunities for our farmers and ranchers. 
The FFAS mission area is a primary contributor to that goal through 
activities that expand and maintain opportunities for U.S. agricultural 
exports; enhance the global sanitary and phytosanitary system to 
facilitate agricultural trade; and support international economic 
development and trade capacity building.
    We made noteworthy progress in our export expansion activities 
during the past year. During fiscal year 2005, the value of U.S. 
agricultural exports was once again at a record level, and we are 
presently on course to set another record--$64.5 billion--during fiscal 
year 2006.
    One of our highest priorities this past year was working to achieve 
an agreement on reform of agricultural trading practices in the Doha 
Round of multilateral trade negotiations. Last fall, the United States 
tabled an ambitious proposal to advance the negotiations that we 
believe provides the basis for their successful conclusion. Although 
the ambition of our proposal has not been matched by others, Members of 
the World Trade Organization (WTO) have agreed to reach agreement on 
the modalities (i.e., reduction formulas and methodologies) for a final 
agreement by the end of April, and we are working diligently to achieve 
that goal. We have a tremendous opportunity to achieve significant 
reforms in this Round, and we are committed to achieving a successful 
outcome that will provide new and meaningful opportunities for export 
growth in future years.
    Regional and bilateral trade agreements are another, very important 
avenue for opening new markets. Just last month, the President 
announced that South Korea and the United States intend to negotiate a 
bilateral free trade agreement that will offer significant 
opportunities for increased sales of U.S. food and agricultural 
products in what is already our sixth largest overseas market. In 
addition, we have recently completed free trade negotiations with Peru, 
Colombia, and Oman and are continuing negotiations with an array of 
other countries that are expected to provide new opportunities for U.S. 
agricultural sales.
    One of our other very important priorities during the past year has 
been our efforts to recover access to overseas markets for U.S. beef 
that were closed following the discovery of bovine spongiform 
encephalopathy (BSE) in the United States in 2003. Despite our recent 
setback with Japan in this regard, we have made significant progress. 
To date, we have regained at least partial access to 28 markets (not 
including Japan). Restarting shipments to Japan is now of paramount 
importance. We are confident the steps Secretary Johanns has directed 
be implemented in response to recent developments in Japan lay the 
groundwork for resumption of sales there. The Department has provided a 
full report on this matter to Japan, and we will continue to engage our 
Japanese counterparts to achieve our objective of resuming sales in 
near future.
Salaries and Expenses
    The Foreign Agricultural Service (FAS) is the lead agency for the 
Department's international activities and is in the forefront of our 
efforts to expand and preserve overseas markets. Through its network of 
77 overseas offices and its headquarters staff here in Washington, FAS 
carries out a wide variety of activities that contribute to the 
objective of providing increased export opportunities for our 
agricultural products.
    During the past year, FAS has continued to review its activities 
and operations in order to ensure that it is structured appropriately 
to address priority issues that will characterize global agriculture in 
the 21st century. As a result of the agency's review, FAS has increased 
its focus on inherently governmental functions such as trade 
negotiations, enforcement of trade agreements, and strategic management 
of country relationships. In response to the increased importance of 
sanitary and phytosanitary issues for trade, FAS has stepped up its 
monitoring and enforcement activities and increased its efforts through 
international standard-setting bodies to support the development of 
science-based regulatory systems. It also has increased its emphasis on 
trade capacity building activities that facilitate achievement of the 
U.S. trade agenda.
    With trade of such critical importance to the future health and 
vitality of American agriculture, it is imperative that FAS have the 
resources needed to continue to represent and advocate for American 
agriculture on a global basis and to open new markets overseas. The 
budget provides a program level of $162 million for FAS in 2007, an 
increase of $11 million above 2006. This includes funding to meet 
higher overseas operating costs at the agency's overseas posts, 
including increased payments to the Department of State for 
administrative services provided at overseas posts.
    Funding is also included for FAS' contribution to the Capital 
Security Cost Sharing Program. Under that program, agencies with an 
overseas presence in U.S. diplomatic facilities are contributing a 
proportionate share of the construction of new, safe U.S. diplomatic 
facilities over a 14-year period.
    The budget also includes funding to support a new Trade Capacity 
Building initiative that supports U.S. trade policy objectives. By 
assisting developing countries to adopt policies that meet WTO 
standards and regulatory systems that are transparent and science-
based, we will improve access for U.S. products to their markets. At 
the same time, by enhancing their ability to benefit from trade, we 
encourage them to become more forthcoming and supportive in market 
access negotiations. As their ability to participate in and benefit 
from global trade is improved, they will become better markets for U.S. 
agricultural exports.
International Food Assistance
    The United States continues to provide leadership in global efforts 
to provide humanitarian relief and promote economic development through 
foreign food assistance. Emergency needs for food assistance remain at 
high levels, particularly in sub-Saharan Africa. To help meet those 
needs, the supplemental appropriations package submitted by the 
President on February 16th includes a request for $350 million to 
support additional Public Law 480 Title II food donations. This funding 
will be used to respond to humanitarian food aid needs in the Darfur 
region of Sudan, including for refugees in neighboring Chad; other 
regions of Sudan; and other areas facing critical food situations, 
including those in East and Central Africa.
    For 2007, the budget continues our support for these efforts by 
providing an overall program level of nearly $1.6 billion for U.S. 
foreign food assistance activities.
    For the Public Law 480 program, the budget includes a projected 
program level of $1.3 billion. This includes $1.2 billion of 
appropriated funding requested in the budget, plus projected 
reimbursements from the Maritime Administration for prior year cargo 
preference related expenses. The budget proposes that all funding for 
Public Law 480 will be provided through Title II donations in 2007 and, 
therefore, includes no new funding for additional Title I concessional 
credit or grant programs.
    This proposal reflects the experience of recent years in which an 
increasing share of U.S. foreign food assistance has been directed to 
emergency situations in which food aid is critical to preventing famine 
and saving lives. At the same time, demand for food assistance provided 
through concessional credit has declined significantly. This year, only 
two government-to-government agreements are expected to be signed.
    The budget also proposes that the Administrator of the Agency for 
International Development have the authority in emergency situations to 
use up to 25 percent of Title II funding to purchase commodities in 
locations closer to where they are needed. This authority is intended 
to expedite the response to emergencies overseas by allowing food aid 
commodities to be purchased more quickly and closer to their final 
destination, while increasing the total amount of commodities that can 
be procured to meet those emergencies. It is important to emphasize 
that U.S. commodities will continue to play the primary role in U.S. 
foreign food aid purchases and will be the first choice for meeting 
global needs. Furthermore, with this authority commodities would be 
purchased from developing countries that are eligible for official 
development assistance and not from developed countries, such as the 
European Union.
    For the McGovern-Dole International Food for Education and Child 
Nutrition Program, the budget continues funding at the 2006 level. With 
the conclusion of 2005 programming, this program and its predecessor, 
the Global Food for Education Initiative, will have provided assistance 
to more than 10 million children, mothers, and infants throughout the 
world. Particularly noteworthy, this assistance has helped establish 
sustainable programs in four countries--Kyrgystan, Lebanon, Moldova, 
and Vietnam--where parents and local governments have assumed 
responsibility for continuing the feeding programs, allowing United 
States support to be ended.
    The budget also includes an estimated program level of $161 million 
for the CCC-funded Food for Progress program, which supports the 
adoption of free enterprise reforms in the agricultural economies of 
developing countries.
Export Promotion and Market Development Programs
    FAS administers the Department's export promotion and market 
development programs that play an important role in our efforts to 
enhance the international competitiveness of American agriculture.
    The CCC export credit guarantee programs provide payment guarantees 
for the commercial financing of U.S. agricultural exports. The 
guarantees facilitate exports to buyers in countries where credit is 
necessary to maintain or increase U.S. sales. For 2007, the budget 
projects a program level of nearly $3.2 billion for CCC export credit 
guarantees.
    For the Department's market development programs, including the 
Market Access Program and Foreign Market Development Program, the 
budget includes funding of $148 million. This level reflects a proposal 
to limit the Market Access Program to $100 million in 2007, which is 
intended to achieve savings in mandatory spending and contribute to 
government-wide deficit reduction efforts.
    The budget also includes $35 million for the Dairy Export Incentive 
Program and $28 million for the Export Enhancement Program.
Trade Adjustment Assistance
    For the Trade Adjustment Assistance (TAA) for Farmers Program, the 
budget includes $90 million, as authorized by the Trade Act of 2002. 
The program provides assistance to producers of raw agricultural 
commodities, who have suffered lower prices due to import competition, 
and to fishermen who compete with imported aquaculture products. In 
order to qualify for assistance, the price received by producers of a 
specified commodity during the most recent marketing year must be less 
than 80 percent of the national average price during the previous 5 
marketing years. In addition, a determination must be made that 
increases in imports of like or competitive products ``contributed 
importantly'' to the decline in prices.
    During 2005, 14 petitions for TAA were approved, including 9 that 
were recertified for a second year of assistance. Commodities that were 
approved for assistance included Pacific salmon, shrimp, lychees, 
California black olives, Idaho potatoes, and Concord juice grapes. 
Total program costs for 2005 were approximately $21 million.
    The deadline for submission of petitions for 2006 TAA closed on 
January 31. To date, TAA petitions have been certified for producers of 
Florida avocados and Indiana snapdragons. Additional petitions are 
under review, and decisions on their eligibility should be announced in 
the near future.
    That concludes my statement, Mr. Chairman. I would be pleased to 
answer any questions that you and other Members of the Committee may 
have.
                                 ______
                                 

 Prepared Statement of Teresa C. Lasseter, Administrator, Farm Service 
                                 Agency

    Mr. Chairman and Members of the Subcommittee, I appreciate the 
opportunity to appear before you for the first time as Administrator of 
the Farm Service Agency (FSA). I have taken the helm at a challenging 
moment for FSA--a moment when the agency is at a crossroads. As things 
currently stand, we are faced with a choice between delivering programs 
to the best of our ability using current methods, or modernizing the 
agency in terms of structure and technology to respond more quickly to 
new legislation, provide better access to our programs and data for our 
customers and business partners, and more efficiently implement a 2007 
Farm Bill. Our fiscal year 2007 budget request provides a fiscally 
responsible approach which addresses these agency priorities while also 
doing our part to restrain discretionary spending to help reduce the 
deficit. Before I begin discussing the details of the budget, I would 
like to comment on how we arrived at our current position, provide a 
status of some of our current initiatives and challenges, and solicit 
your support and partnership for approval of this budget request.
Office Structure
    As competition and accountability for limited resources continue to 
increase, we want to ensure we are still providing our customers with 
the efficient, accurate and timely service they deserve. Quite frankly, 
FSA as presently structured must change in order to best serve our 
customers. There have been numerous program changes over the past few 
years as well as improvements in technology that have shifted our 
workload. Also, reductions in the number of employees in the past 3 
years require that we adjust our present structure. As you know, we set 
aside our FSA tomorrow plan and stopped all actions on county office 
restructuring and office closures under that plan. Many of our State 
Executive Directors, however, are experiencing extreme difficulty in 
providing services due to the increased number of offices that have two 
or fewer employees in them, and the increasing number of managers who 
are responsible for more than one county and must divide their time 
between two or more offices.
    At present we have 36 offices that have no permanent employees in 
them, 144 offices with only one employee, 372 offices with 2 employees, 
and 266 offices that share a manager. Providing a full range of 
services to our customers full-time is impossible in these offices. We 
must reorganize, modernize and streamline this agency from the bottom 
up. We must reinvent FSA on a technological platform that feels more 
like 2006 than 1980. Having set aside the national FSA Tomorrow plan, 
and in accordance with your guidance, we have asked our State offices 
for a full review of their technology, training, staffing and 
facilities. We know that we need widespread technology upgrades. We 
know that we need to provide our people with better training. We know 
that absent our ability to hire more employees, temporaries and 
contractors, we need technology to streamline our operations to 
increase productivity.
    FSA's State Executive Directors (SEDs) will conduct independent, 
local-level reviews of the efficiency and effectiveness of the FSA 
office structure in each State. SEDs and State committees will form 
review committees to identify what the optimum network of FSA 
facilities, staffing, training, and technology should be in each State 
within existing budgetary resources and staffing ceilings. Furthermore, 
SEDs will also explore potential joint-effort opportunities with the 
Natural Resources Conservation Service and other Department of 
Agriculture agencies.
    As recommendations are received from each State, FSA's Deputy 
Administrator for Field Operations will review and validate the 
proposed changes. After the recommendations are shared with the 
affected Congressional delegations, the agency will hold public 
hearings and coordinate communications efforts with area farmers, 
ranchers, and stakeholders.
    We will faithfully follow your instructions as outlined in Public 
Law 109-97. If State offices recommend that any of our offices be 
closed or consolidated, we will hold public hearings within 30 days and 
notify Congress of all impending changes within 120 days.
Administrative Budget Trends
    Congress has provided an increase in the appropriations for our 
Salaries and Expenses (S&E) account each year, and we appreciate the 
support of the Committee reflected in those numbers. At the same time, 
however, operational costs such as pay costs, information technology 
infrastructure and legacy systems, rents, and utilities have been 
increasing at a faster pace. The President's Budgets have taken this 
reality into account in the requested levels. However, for the past 3 
years the enacted appropriations for S&E together with the FSA 
component of the Common Computing Environment account have averaged 
about 3.8 percent below the budget request. In addition, during fiscal 
year 2005, FSA implemented the newly enacted Tobacco Buyout Program 
under the American Jobs Creation Act of 2004 and disaster programs for 
2003, 2004, and 2005 crop losses as directed by the Military 
Construction Appropriation and Emergency Hurricane Supplemental 
Appropriations Act, 2005. It is estimated that these programs cost the 
Agency a minimum of $26 million to administer.
    These effective reductions in the agency resource level have been 
addressed through aggressive cost-cutting measures. For example, FSA 
reduced discretionary non-information technology (IT) expenses such as 
travel, equipment and supplies by 39.5 percent from fiscal year 2003 
levels. FSA also deferred and realigned investment funding intended for 
modernization of IT systems in order to fund uncontrollable increases 
in non-discretionary IT and non-IT expenses. FSA successfully carried 
out its new programs at the expense of its modernization progress. In 
addition, Federal and non-Federal permanent staffing ceilings were 
reduced by 5 percent and 3 percent from fiscal year 2003 to fiscal year 
2005.
    Mr. Chairman, we in FSA have always considered ourselves a ``can-
do'' agency. That is why in recent years we have told an optimistic 
story even while facing resource challenges. And that is why it is 
difficult to come before you sounding a less optimistic note today. The 
time has passed, however, when we can promise to do more with less. The 
time has come when we must make some difficult choices. This brings me 
back to the crossroads I mentioned earlier: do we direct our resources 
to maintaining the status quo as nearly as possible to focus on near-
term program delivery? Or do we make the investments needed for future 
program delivery, which would divert resources from current activities? 
Even with your support for the President's budget, we must work with 
our stakeholders on an acceptable office consolidation plan to ensure 
we are providing our customers with the quality service they are 
entitled to.
    Our restructuring plan is not limited to our county offices but 
will involve a comprehensive review of the organization and operations 
at all levels of the agency, including State and national offices. We 
need to wisely invest in our employees, technology and equipment. With 
the 2007 requested level for both our Salaries and Expenses and the 
Common Computing Environment accounts, we can achieve this by providing 
critical training to our employees, upgrading computer systems, 
networks and software, and modernizing local office equipment. With 
over 45 percent of FSA offices staffed with three or fewer people, IT 
modernization has become significantly more important.
Employee Buyout Program
    During first quarter of fiscal year 2006, we conducted two employee 
buyout programs, commonly known as the Voluntary Separation Incentive 
Program (VSIP) or ``buyouts'' and the Voluntary Early Retirement 
Authority (VERA) or ``early outs''. A total of 424 Federal and non-
Federal employees were separated from FSA with buyout payments of up to 
$25,000. Several factors influenced our decision to request VSIP and 
VERA authority, including legislative changes ending the tobacco 
program, a transfer of the bulk of the administrative activity FSA 
previously performed for the Natural Resources Conservation Service 
(NRCS) on the Environmental Quality Incentives Program back to NRCS in 
fiscal year 2005, and shifts in program participation in certain States 
causing workload decreases in those States and a resulting staffing 
imbalance. As a result, reductions to staffing levels could be absorbed 
at the affected locations, without severely impacting their ability to 
deliver ongoing programs. The buyouts resulted in a 3-percent reduction 
in FSA permanent staffing levels. Through the use of buyout/early out 
authority we were able to more efficiently align ourselves within 
existing resources and begin to right-size in an employee friendly 
manner without the need for a reduction-in-force. In partnership with 
stakeholders, implementation of a comprehensive agency-wide 
restructuring plan will enable us to address our remaining workforce 
right-sizing challenges.
Disaster Assistance
    The past 2 years have presented producers with tremendous 
challenges from Mother Nature, with record rainfall in parts of the 
country, a pervasive drought in the West, and the worst hurricane 
season in decades. The Emergency Supplemental Appropriations to Address 
Hurricanes in the Gulf of Mexico and Pandemic Influenza Act, 2006 
(Public Law 109-148) included $404 million for the Emergency Forestry 
Conservation Reserve Program, which will provide assistance for farmers 
and ranchers who have suffered forestry damage directly related to 
hurricanes Katrina, Ophelia, Rita, Dennis and Wilma. FSA anticipates 
publishing the rule and issuing software by late winter, and holding a 
2006 signup in the spring. In addition, $199.8 million was designated 
for the Emergency Conservation Program (ECP). The language of the 
Supplemental Appropriations Bill provides for assistance with 
restoration of activities such as oyster operations not normally 
covered by ECP. Therefore, new regulations are required to make certain 
that new practices are developed that achieve the goals of the program 
while ensuring program integrity. We expect ECP regulations to be 
published soon, with signups anticipated in early spring.
    In addition, Secretary Johanns authorized $250 million for crop 
disaster, livestock, dairy, tree and aquaculture assistance. These 
funds are authorized under Section 32 of the Agricultural Act of August 
24, 1935, which allows the Secretary to restore producers' purchasing 
power. These funds will be distributed by way of five new programs: the 
Tree Indemnity Program (TIP), the Livestock Indemnity Program (LIP), 
the Feed Indemnity Program (FIP), the Hurricane Indemnity Program 
(HIP), and an Aquaculture Block Grant program. The Secretary announced 
these programs on January 26, 2006. For TIP, LIP, FIP, and HIP, interim 
final regulations are in final clearance, and signups will begin in 
late June. For the Aquaculture Program, memorandums of understanding 
will be sent to the States in early March.
    Prior to the President's signing of the Emergency Supplemental 
Appropriations Bill, FSA made more than $30 million in Emergency 
Conservation Program assistance available to agricultural producers 
suffering damage from Hurricane Katrina. In addition, USDA's Commodity 
Credit Corporation implemented immediate changes to its Marketing 
Assistance Loan Program to allow producers to obtain loans for on-farm 
grain storage on the ground in addition to grain bins and other 
normally approved structures.
Tobacco Transition Program
    FSA has expeditiously implemented the provisions of the ``The Fair 
and Equitable Tobacco Reform Act,'' otherwise know as the ``tobacco 
buyout'' program which was part of the American Jobs Creation Act of 
2004, signed by the President on October 22, 2004. The Act terminated 
the tobacco quota and price support program of more than 65 years, 
which had restricted production and kept domestically produced tobacco 
prices high. The program allows producers and quota owners to sign up 
for 10 years of transition payments to ease the economic adjustment 
process.
    As of December 20, 2005, the Commodity Credit Corporation (CCC) had 
approved 382,972 quota holder contracts valued at $6.6 billion, and 
181,696 producer contracts valued at $2.9 billion. CCC disbursed fiscal 
year 2005 payments to 563,770 contracts holders, valued at $945.9 
million.
    On October 17, 2005, CCC implemented the successor-in-interest 
provision of the Tobacco Transition Payment Program or TTPP. The 
successor-in-interest program allows contract holders to transfer their 
remaining contract rights in full to a third party in return for a 
lump-sum payment. As of December 2, 2005, 89,885 quota holder and 
producer contracts valued at $1.5 billion were sold to lump-sum 
providers. There are over 60 financial institutions participating in 
the successor-in-interest program.
    As of February 28, 2006, approximately $934.6 million had been 
disbursed for fiscal year 2006 TTPP payments. County offices will 
continue to disburse payments through March. Contracts requiring a 
correction for over- or under-payments have been delayed. The 
correction software is complex and deployment is targeted for late 
April.

                            BUDGET REQUESTS

    Turning now to the specifics of the 2007 Budget, I would like to 
highlight our proposals for the commodity and conservation programs 
funded by the Commodity Credit Corporation (CCC); the farm loan 
programs of the Agricultural Credit Insurance Fund; our other 
appropriated programs; and administrative support.

                      COMMODITY CREDIT CORPORATION

    Domestic farm commodity price and income support programs are 
administered by FSA and financed through the CCC, a government 
corporation for which FSA provides operating personnel. Commodity 
support operations for corn, barley, oats, grain sorghum, wheat and 
wheat products, soybeans, minor oilseed crops, upland cotton and extra 
long staple cotton, rice, milk and milk products, honey, peanuts, pulse 
crops, sugar, wool and mohair are facilitated primarily through loans, 
payment programs, and purchase programs.
    The 2002 Farm Bill authorizes CCC to transfer funds to various 
agencies for authorized programs in fiscal years 2002 through 2007. It 
is anticipated that in fiscal year 2006, $1.797 billion will be 
transferred to other agencies.
    The CCC is also the source of funding for the Conservation Reserve 
Program administered by FSA, as well as many of the conservation 
programs administered by the Natural Resources Conservation Service. In 
addition, CCC funds many of the export programs administered by the 
Foreign Agricultural Service.
Program Outlays
    The fiscal year 2007 budget estimates largely reflect supply and 
demand assumptions for the 2006 crop, based on November 2005 data. CCC 
net expenditures for fiscal year 2007 under current law are estimated 
at $20.2 billion, down about $1.1 billion from $21.3 billion in fiscal 
year 2006. If the President's proposals for farm program savings are 
enacted, CCC outlays would decline by an additional $1.1 billion in 
fiscal year 2007.
    This net decrease in projected expenditures is attributable to 
decreases for crop, tree and livestock disaster payments, tobacco 
payments, loan deficiency payments, and the Noninsured Assistance 
Program, partially offset by an increase in counter-cyclical payments.
Reimbursement for Realized Losses
    CCC is authorized to replenish its borrowing authority, as needed, 
through annual appropriations up to the amount of realized losses 
recorded in CCC's financial statements at the end of the preceding 
fiscal year. For fiscal year 2005 losses, CCC was reimbursed $25.4 
billion in fiscal year 2006.
Conservation Reserve Program
    The Conservation Reserve Program (CRP), administered by FSA, is 
currently USDA's largest conservation/environmental program. For 20 
years it has cost-effectively assisted farm owners and operators in 
conserving and improving soil, water, air, and wildlife resources by 
converting highly erodible and other environmentally sensitive acreage, 
normally devoted to the production of agricultural commodities, to a 
long-term resource-conserving cover. CRP participants enroll acreage 
for 10 to 15 years in exchange for annual rental payments as well as 
cost-share assistance and technical assistance to install approved 
conservation practices.
    The 2002 Farm Bill increased authorized enrollment under this 
program from 36.4 million acres to 39.2 million acres. Under the fiscal 
year 2005 continuous and Farmable Wetlands Program (FWP) signups, a 
combined total of 387,000 acres was enrolled. We issued incentive 
payments totaling approximately $76 million in fiscal year 2005 under 
continuous signup, Conservation Reserve Enhancement Program (CREP), and 
FWP under the incentives program that began in May 2000 to boost 
continuous signup participation. As of January 2006, total CRP 
enrollment is 35.9 million acres, nearly 92 percent of the 39.2 million 
acres authorized under the Farm Bill.
    The CREP is also a major initiative under CRP that seeks to address 
recognized environmental issues of States, Tribes, and the Nation. CREP 
is a voluntary program implemented through Memoranda of Agreement with 
partners, such as States, Federal agencies, and private groups. FSA 
currently has 34 CREP agreements with 27 States with over 2 million 
acres reserved for enrollment. The program is very popular with 
environmental and wildlife groups, in addition to States and private 
landowners. More than 772,000 acres are currently enrolled in CREP 
nationwide. Most recently, in July 2005, FSA launched a new CREP 
project in Indiana.
    No general signup was held in fiscal year 2005. However, the fiscal 
year 2007 budget assumes general signups in fiscal years 2006 and 2007 
to enroll approximately 2.5 million acres and 4.9 million acres, 
respectively. In fiscal years 2006 and 2007, we anticipate enrolling 
410,000 acres and 774,000 acres under continuous signup and the CREP. 
About 40,000 acres are estimated to be enrolled in the FWP in fiscal 
year 2006 and 40,000 acres in fiscal year 2007. Additionally, the 
fiscal year 2007 budget assumes early re-enrollments and extensions of 
fiscal year 2007-2010 expiring contracts. Overall, CRP enrollment is 
assumed to gradually increase from 35 million acres at the end of 
fiscal year 2005 to 39.2 million acres by fiscal year 2008, and to 
remain at 39.2 million acres through fiscal year 2016, maintaining a 
reserve sufficient to provide for continuous signup and CREP.

                           FARM LOAN PROGRAMS

    The loan programs funded through the Agricultural Credit Insurance 
Fund provide a variety of loans and loan guarantees to farm families 
who would otherwise be unable to obtain the credit they need to 
continue their farming operations.
    The fiscal year 2007 Budget proposes a total program level of about 
$3.5 billion. Of this total, approximately $1 billion is requested for 
direct loans and nearly $2.5 billion for guaranteed loans offered in 
cooperation with private lenders. These levels should be sufficient to 
provide adequate funding throughout the year. While the total request 
is below the amounts provided by Congress in fiscal year 2005 and 2006, 
it is nearly $500 million above the amount actually obligated in fiscal 
year 2005.
    For direct farm ownership loans we are requesting a loan level of 
$223 million. The proposed program level would enable FSA to extend 
credit to about 1,921 small and beginning farmers to purchase or 
maintain a family farm. In accordance with legislative authorities, FSA 
has established annual county-by-county participation targets for 
members of socially disadvantaged groups based on demographic data. 
Also, 70 percent of direct farm ownership loans are reserved for 
beginning farmers, and historically about 35 percent are made at 
reduced interest rates to limited resource borrowers, who may also be 
beginning farmers. Recently, however, the reduced-rate provisions have 
not been utilized since regular interest rates are lower than the 
reduced rates provided by law. For direct farm operating loans we are 
requesting a program level of $644 million to provide approximately 
14,525 loans to family farmers.
    For guaranteed farm ownership loans in fiscal year 2007, we are 
requesting a loan level of $1.2 billion. This program level will 
provide about 4,600 farmers the opportunity to acquire their own farm 
or to preserve an existing one. One critical use of guaranteed farm 
ownership loans is to allow real estate equity to be used to 
restructure short-term debt into more favorable long-term rates. For 
guaranteed farm operating loans we propose a fiscal year 2007 program 
level of approximately $1.3 billion to assist nearly 7,800 producers in 
financing their farming operations. This program enables private 
lenders to extend credit to farm customers who otherwise would not 
qualify for commercial loans and ultimately be forced to seek direct 
loans from FSA.
    In addition, our budget proposes program levels of $4 million for 
Indian tribe land acquisition loans and $60 million for boll weevil 
eradication loans. For emergency disaster loans, our budget does not 
request any new appropriation; anticipated carryover funding will 
support a program level of approximately $70 million, which should 
provide sufficient credit to producers whose farming operations are 
damaged by natural disasters.
    The 2007 budget request reflects the Administration's proposed 
increase in the fees producers pay to secure guaranteed farm ownership 
or guaranteed unsubsidized farm operating loans. This change will bring 
the fees for these loans more in line with the fees charged to secure 
other types of guaranteed loans. This proposal will be implemented 
through the rulemaking process and is expected to save about $30 
million annually.

                      OTHER APPROPRIATED PROGRAMS

State Mediation Grants
    State Mediation Grants assist States in developing programs to deal 
with disputes involving a variety of agricultural issues including 
distressed farm loans, wetland determinations, conservation compliance, 
program payment eligibility, and others. Operated primarily by State 
universities or departments of agriculture, the program provides 
neutral mediators to assist producers--primarily small farmers--in 
resolving disputes before they culminate in litigation or bankruptcy. 
States with mediation programs certified by FSA may request grants of 
up to 70 percent of the cost of operating their programs.
    For fiscal year 2006, grants have been issued to 32 States. Two 
additional States are expected to become certified during the fiscal 
year. For fiscal year 2007, we anticipate that the requested $4.2 
million will provide grants to 34 States and seed funding for 2 new 
States.
Emergency Conservation Program
    Since it is impossible to predict natural disasters, it is 
difficult to forecast an appropriate funding level for the Emergency 
Conservation Program, and in recent years the program has been funded 
through supplemental appropriations. During fiscal year 2005 Congress 
provided $150 million for the program to assist producers in repairing 
damage caused by natural disasters. For fiscal year 2006, as I 
mentioned earlier, the program received supplemental funding of $199.8 
million specifically for hurricane damage to the Gulf States. On March 
3, $63 million of the $199.8 million was allocated. The eligible States 
have requested a total of $374 million. Nationwide, as of March 3, 
$20.6 million is pending allocation to 28 States, and $4.8 million has 
already been allocated, for recovery from various disasters utilizing 
funds carried forward from fiscal year 2005 together with recoveries of 
unused prior allocations. As of March 3, $5.1 million is available for 
allocation nationwide. The fiscal year 2007 Budget proposal does not 
include funding for this program.
Dairy Indemnity Program
    The Dairy Indemnity Program (DIP) compensates dairy farmers and 
manufacturers who, through no fault of their own, suffer income losses 
on milk or milk products removed from commercial markets due to 
residues of certain chemicals or other toxic substances. Payees are 
required to reimburse the Government if they recover their losses 
through other sources, such as litigation. As of March 1 we have paid 
fiscal year 2006 DIP claims totaling $44,000 in 3 States.
    The fiscal year 2007 appropriation request of $100,000, together 
with unobligated carryover funds expected to be available at the end of 
fiscal year 2006, would cover a higher than normal, but not 
catastrophic, level of claims. Extended through 2007 by the 2002 Farm 
Bill, DIP is a potentially important element in the financial safety 
net for dairy producers in the event of a serious contamination 
incident.
Grassroots Source Water Protection Program
    The Grassroots Source Water Protection Program (GSWPP) is a joint 
project by the Farm Service Agency and the nonprofit National Rural 
Water Association (NRWA) designed to help prevent surface and ground 
water pollution through voluntary practices installed by producers at 
the local level. With the fiscal year 2006 appropriations of $3.7 
million, the NRWA is hiring a rural source water technician in each of 
the 36 participating States to work with FSA State and county directors 
as well as State conservation specialists to develop water protection 
plans within priority watersheds.
    Legislative authority for the GSWPP will expire September 30, 2007. 
The budget requests no funding for this program.

                         ADMINISTRATIVE SUPPORT

    The costs of administering all FSA activities are funded by a 
consolidated Salaries and Expenses account. The account comprises 
direct appropriations, transfers from loan programs under credit reform 
procedures, user fees, and advances and reimbursements from various 
sources.
    The fiscal year 2007 Budget requests $1.41 billion from 
appropriated sources including credit reform transfers, for a net 
increase of about $86 million over the fiscal year 2006 level. The 
request reflects increases in pay-related costs to sustain essential 
program delivery and increases in information technology investments. 
The request would fund IT operational expenses, technical analysis and 
design documentation of the Modernize and Innovate the Delivery of 
Agricultural Systems (MIDAS) program, and development and enhancements 
necessary to support legacy IT systems and maintain current IT 
operations during the transition to Web-based systems. It would also 
shift to the S&E account certain costs previously included in the 
Common Computing Environment (CCE) account, such as the Universal 
Telecommunications Network and enterprise licensing. These increases 
are offset by decreases in both Federal and non-Federal county office 
staff years and operating expenses.
    As I have already noted, FSA has taken aggressive action over the 
past 3 years to reduce discretionary administrative expenditures and 
live within available funding. In conjunction with this effort, the 
employee buyout/early out program I mentioned earlier yielded a 
reduction of 143 Federal and 281 non-Federal staff-years for fiscal 
year 2006. The fiscal year 2007 request reflects a total of 5,253 
Federal staff-years and 9,425 non-Federal staff-years, representing 
decreases of 65 and 24 staff-years, respectively, from the fiscal year 
2006 levels. Temporary non-Federal county staff-years will remain at 
the fiscal year 2006 level of 650.
    I would like to emphasize the importance of the support of FSA's 
modernization effort that is provided through the Department's CCE 
account. Funding made available to FSA under this account will provide 
needed telecommunications improvements and permit us to continue 
implementation of GIS, which is so crucial to rapid and accurate 
program delivery. If this source of funding were not available, the 
additional costs would have to be covered by FSA's S&E account.
    Mr. Chairman, this concludes my statement. I will be happy to 
answer your questions and those of the other Subcommittee Members.
                                 ______
                                 

    Prepared Statement of A. Ellen Terpstra, Administrator, Foreign 
                          Agricultural Service

    Mr. Chairman, Members of the Subcommittee, I appreciate the 
opportunity to review the work of the Foreign Agricultural Service 
(FAS) and to present the President's budget request for FAS programs 
for fiscal year 2007.

                              INTRODUCTION

    FAS is a small agency with a big mission: working to expand and 
maintain international export opportunities for U.S. agricultural, fish 
and forestry products; supporting international economic development 
through trade capacity building and sustainable development practices; 
and supporting the adoption and application of science-based Sanitary 
and Phytosanitary (SPS) regulations to facilitate agricultural trade. 
In addition to our Washington-based staff, the Agency maintains a 
network of overseas offices that provide critical market and policy 
intelligence to support our strategic goals, respond quickly in cases 
of market disruption, and represent U.S. agriculture in consultations 
with foreign governments.
    To meet new international challenges, FAS has refined the three 
functions essential to our mission--market access, intelligence, and 
analysis; trade development; and agricultural development for national 
security. While the first two functions represent the historic 
activities of the Agency, the third reflects new tasks that we have 
identified as essential to support U.S. agriculture and broader U.S. 
Government policy goals.
    In addition, we have developed a new strategic focus for the 
Agency. We are placing a greater priority on inherently governmental 
functions such as trade negotiations, enforcement of trade agreements, 
and strategic management of country relationships. We have increased 
our emphasis on SPS issues by stepping up our monitoring and 
enforcement activities and increasing efforts to work through 
international standard-setting bodies to support the development of 
science-based regulatory systems. We are placing greater emphasis on 
trade capacity building activities that are in line with the 
President's trade agenda, and we are shifting from implementing 
individual development activities to coordinating USDA international 
activities.
Market Access, Intelligence, and Analysis
    Our core objective continues to be the expansion and maintenance of 
overseas market opportunities for U.S. agriculture. If we are to help 
U.S. food and agricultural exporters build on three consecutive years 
of record export sales, expanding market opportunities will be vital 
for America's food and agricultural sector. We all recognize the United 
States is a mature market, while around the world we see emerging 
markets with rapidly growing middle classes.
    Our primary tool to expand access is the negotiation of new 
bilateral, regional, and multilateral trade agreements that lower 
tariffs and reduce trade impediments. FAS provides the critical 
analysis and policy advice to ensure U.S. agriculture achieves 
substantial benefits in these negotiations.
    Over the past several years, maintaining existing market access has 
grown in importance. We monitor foreign compliance with trade 
agreements, analyze trade issues, and coordinate with other trade and 
regulatory agencies to develop effective strategies to avoid or reverse 
trade-disruptive actions. We also use the extensive expertise within 
USDA to pursue solutions to difficult technical issues that restrict 
trade, such as those related to bovine spongiform encephalopathy (BSE) 
and biotechnology or those that create barriers to trade, such as 
sanitary and phytosanitary or food safety regulations. We have 
increased our efforts to ensure that more trading partners use science-
based regulatory systems and follow international guidelines in order 
to reduce the number of technical problems and non-science based 
policies that hinder trade. We also work with the Office of the U.S. 
Trade Representative to ensure trade agreements are enforced through 
formal dispute mechanisms, when necessary.
Trade Development
    Our trade development function includes price/credit risk 
mitigation and market development programs that support U.S. firms and 
industries in their efforts to build and maintain overseas markets for 
U.S. agricultural products. The price/credit risk mitigation programs 
include the GSM-102 Export Credit Guarantee Program, the Supplier 
Credit Guarantee Program and the Facility Guarantee Program.
    FAS administers two major market development programs--the Foreign 
Market Development (Cooperator) and Market Access Programs. These are 
carried out chiefly in cooperation with non-profit agricultural trade 
associations and private firms. Several smaller programs--Technical 
Assistance for Specialty Crops (TASC) and the Quality Samples Program 
(QSP)--also provide financial and technical support to U.S. exporters.
Agricultural Development for National Security
    President Bush's National Security Strategy recognizes 
international economic development, along with defense and diplomacy, 
as one of the three pillars of U.S. foreign and national security 
policy. The Strategy recognizes that the lack of economic development, 
particularly in fragile and strategic countries and regions, results in 
economic and political instability, which can pose a national security 
threat to the United States. For most developing countries, a 
productive and sustainable agricultural sector and open markets are the 
key elements for economic growth.
    FAS deploys USDA's unique resources and expertise in agricultural 
development activities to promote market- and science-based policies 
and institutions, and sustainable agricultural systems. One way that 
USDA helps developing countries increase trade and integrate their 
agricultural sectors in the global economy is to improve regulatory 
frameworks. Promoting productivity-enhancing technologies that will 
help increase food security is also a priority. In addition, we support 
agricultural reconstruction in post-conflict or post-disaster countries 
or regions such as in Afghanistan.

                       MAJOR ACTIVITIES AND GOALS

    In 2005, FAS was a key contributor to the bold U.S. agriculture 
proposal that has been credited with providing new impetus to the Doha 
Development Agenda of the World Trade Organization (WTO) negotiations. 
While much work needs to be done to bring the negotiations to a 
successful conclusion, we believe that the Hong Kong Ministerial 
Declaration laid a solid foundation for the final phase of the 
negotiations. Later this week, Secretary Johanns will participate in a 
Ministerial meeting in London. Ministers will be working to narrow 
differences in order to meet the April target for defining modalities.
    In preparation for and follow-up to the Hong Kong Ministerial, FAS 
actively worked to convince developing countries, particularly cotton-
producing African countries, of the benefits of trade to their economic 
growth. In addition, FAS conducted several technical assistance 
programs to help improve those countries' ability to trade. These 
efforts played a key role in helping move the Doha trade talks forward.
    Last year saw Congressional ratification of the Central America-
Dominican Republic-United States Free Trade Agreement. FAS worked in 
tandem with the Office of the United States Trade Representative (USTR) 
on the development, analysis and negotiation needed to bring the 
agreement to completion. When implemented, it will provide U.S. 
exporters improved access to 40 million consumers with growing incomes.
    In 2005, we worked to recover trade lost as a result of the finding 
of BSE in the United States when 51 markets closed their borders to our 
products. I am pleased to report that we have regained at least partial 
access to 26 (not including Japan) of these markets for beef and beef 
products, representing 45 percent of our 2003 export value. Momentum in 
reopening export markets for U.S. beef gained considerably since Japan 
announced on December 12, 2005, that it was resuming imports of U.S. 
beef. Hong Kong, Korea, Taiwan, and Singapore all agreed to open to 
boneless beef. In addition, Mexico announced the lifting of its import 
ban on U.S. bone-in beef. These openings represented market access 
gains of 82 percent of our 2003 export value for beef and beef products 
(includes Japan). Unfortunately, as you know, Japan ($1.4 billion 
market) has since closed its market due to the finding of vertebral 
column in a few boxes of a U.S. veal shipment, reducing our regained 
market access to $2.5 billion. We continue to work on regaining 
Japanese confidence in U.S. beef and our ability to meet Japan's import 
requirements.
    We successfully defended U.S. export market access in a number of 
countries. In the European Union (EU), our intervention delayed the 
implementation of debarking requirements for wood packaging materials. 
This ensured continued smooth trade in U.S. exports packed in or on 
wood packaging materials. That trade is valued at nearly $80 billion 
annually. With the help of our industry partners, we were able to 
preserve $300 million in corn gluten feed exports to the EU.
    Through our monitoring and enforcement of the WTO Sanitary and 
Phytosanitary Agreement, we reviewed over 600 foreign SPS regulations 
and took direct action against 40 that were inconsistent with U.S. 
regulations or did not comply with the WTO Agreement. Our successes 
with India and China are particularly noteworthy. As a result of our 
efforts, India relaxed import requirements that could have blocked U.S. 
shipments of almonds, pulses, and horticultural products. Almond 
shipments, the top U.S. agricultural export to India, increased from 
$95 million to $118 million, and U.S. sales of pulses grew from 
$500,000 to over $3 million in 1 year. Our actions caused China to 
change its import regulations on meat, wine, spirits and fresh fruit. 
U.S. exports of these products grew from $142 million to $252 million.
    FAS has worked aggressively to recover, maintain and expand markets 
for U.S. farm products that have been produced with agricultural 
biotechnology. A high priority is assisting other countries in their 
efforts to develop, safely regulate, and begin using this important 
tool to reduce hunger and alleviate poverty. For example, for the past 
2 years, the United States has aggressively pursued a WTO case against 
the EU's moratorium on agricultural biotechnology, which has cost U.S. 
producers of corn and related products, hundreds of millions of dollars 
each year. In addition, FAS leads U.S. efforts to work with like-minded 
countries to assure that international rules and regulations for 
agricultural biotechnology are science-based and implemented in 
transparent and predictable ways.
    As in the case of the EU's biotechnology moratorium, when we are 
unable to resolve problems bilaterally, we have used the WTO dispute 
settlement mechanism to advance our trade objectives. In 2005, we were 
successful in cases with Japan on fire blight in apples and with Mexico 
on rice and high-fructose corn syrup.
    Just as we look to the WTO to enforce our complaints against 
trading partners, we must also live up to WTO decisions that raise 
questions about U.S. programs. After the WTO decision in the Brazil 
cotton case, we were able to revise our export credit guarantee 
programs to comply with the deadline imposed by the WTO. Officials of 
several developing countries have complimented the United States on our 
efforts to bring our export credit guarantee programs in line with the 
WTO decision. Of course, we also recognize the important role that the 
Congress has played in working with the Administration to address these 
critical issues. We appreciate that Congress recently approved 
legislation including repeal of the Continued Dumping and Subsidy 
Offset Act--the Byrd Amendment--and the Step 2 cotton program. Both 
programs were ruled inconsistent with our WTO obligations. This action 
demonstrates that the United States intends to live up to our WTO 
commitments.
    In the area of trade development, we launched several e-gov 
initiatives to improve electronic access to key programs to meet 
requirements of the President's Management Agenda. We launched a new 
electronic registration system for the export credit guarantee programs 
that allows U.S. exporters to quickly register sales via the Internet. 
We are implementing a streamlined, integrated process to manage grant 
applications.
    Our projects to promote agricultural development took us to many 
countries. We participated in post-conflict reconstruction efforts in 
Afghanistan by sending 26 USDA advisors to nine provinces to assist 
with livestock management, irrigation methods, and rudimentary food 
safety procedures. We expanded trade capacity building and technical 
assistance efforts in Armenia, Algeria, Malawi and Yemen. We worked 
with African countries to help them develop the institutional capacity 
to expand their exports and to regulate imports according to principles 
of sound science. We placed pest risk assessment advisors in the trade 
hubs sponsored by the U.S. Agency for International Development, and we 
are training 200 people from 35 countries on a wide variety of sanitary 
and phytosanitary issues. We hosted an Avian Influenza Conference last 
summer for the Asian Pacific Economic Cooperation (APEC) forum that was 
attended by more than 100 officials from the 21 APEC economies.
    Under the Cochran Fellowship Program, we provided short-term 
training for nearly 500 participants from 81 countries. Cochran 
participants meet with U.S. agribusiness, attend policy and food safety 
seminars, and receive technical training related to market development 
and trade capacity building. Under the Borlaug Fellows program, 
launched in 2004, 120 researchers, policymakers and university staff 
received short-term scientific training and research opportunities at 
U.S. colleges and universities.
    Our food aid programs have helped millions of hungry people around 
the world. For example, under the McGovern-Dole International Food for 
Education and Child Nutrition Program, a record 3.4 million children 
and mothers benefited from our 2005 programming efforts.
    In 2006, our goals include bringing the multilateral trade talks to 
a successful conclusion, working to complete the outstanding bilateral 
free trade agreements with the United Arab Emirates, Peru, Panama and 
Thailand, launching new negotiations with Korea, and monitoring 
existing agreements. We also will continue our efforts to ensure that 
more trade partners use science-based regulatory systems and follow 
international guidelines, particularly regarding BSE and products from 
agricultural biotechnology. Our trade capacity activities will be used 
to support all these efforts. We will continue the process to realign 
our overseas staff to meet the changing world trading environment, 
focusing on Asia.

                             BUDGET REQUEST

    Mr. Chairman, our fiscal year 2007 budget proposes a funding level 
of $162.5 million for FAS and 974 staff years, an increase of $11.0 
million above the fiscal year 2006 level. The budget has been developed 
to ensure the agency's continued ability to conduct its full array of 
activities and provide services to U.S. agriculture.
    The budget proposes an increase of $7.4 million to meet higher 
operating costs at FAS overseas offices. The FAS network of 77 overseas 
offices covering over 130 countries is vulnerable to macro-economic 
events and developments that are beyond the agency's control but which 
must be met if FAS' overseas presence is to be maintained. 
Specifically, these increases include:
  --$3.4 million for wage and price increases to meet higher operating 
        costs at overseas offices. Declines in the value of the U.S. 
        dollar, coupled with overseas inflation and rising wage rates, 
        have led to sharply higher operating costs that must be 
        accommodated in order to maintain our current overseas 
        presence.
  --$1.1 million for increased payments to Department of State (DOS) 
        for International Cooperative Administrative Support Services 
        (ICASS). The DOS provides overseas administrative support for 
        foreign affairs agencies through the ICASS system. FAS has no 
        administrative staff overseas, and thus relies entirely on DOS/
        ICASS for this support.
  --$2.9 million for the Capital Security Cost Share program 
        assessment. In fiscal year 2005, DOS implemented a program 
        through which all agencies with an overseas presence in U.S. 
        diplomatic facilities pay a proportionate share for accelerated 
        construction of new secure, safe, and functional diplomatic 
        facilities. These costs are allocated annually based on the 
        number of authorized personnel positions. This plan is designed 
        to generate a total of $17.5 billion to fund 150 new facilities 
        over a 14-year period. The FAS assessment will increase 
        annually in roughly $3 million increments until fiscal year 
        2009 to total annual assessed level of $12 million. This level 
        is assumed to remain constant at that point for the ensuing 9 
        years.
    The budget also requests $1.5 million in support of the President's 
trade policy agenda for Trade Capacity Building. One of the challenges 
we face is obtaining the dedicated funding that can be used throughout 
the Department in support of this initiative. Through technical 
assistance, training, and related activities, this initiative will 
support U.S. trade policy objectives on a proactive basis by assisting 
developing countries to adopt scientifically sound health and safety 
standards that will enable U.S. exporters to take advantage of 
negotiated market access. It will also strengthen their ability to 
participate in, and benefit from, the global trading arena and, 
thereby, enhance opportunities for U.S. agricultural exports. 
Successful Free Trade Agreement (FTA) implementation requires that 
market access issues based on SPS problems be resolved, otherwise the 
benefits of the FTA are not realized by either side. In this regard, 
FAS works closely with USDA agencies, such as APHIS and FSIS, and the 
Food and Drug Administration. Obtaining a dedicated source of funding 
will lay the foundation for more effective resolution of ongoing and 
emergent SPS market access issues without recourse to time-consuming 
and costly dispute resolution procedures.
    Finally, the budget includes an increase of $2.1 million to cover 
higher personnel compensation costs associated with the anticipated 
fiscal year 2007 pay raise. Without sufficient funding, absorption of 
these costs in fiscal year 2007 would primarily come from reductions in 
agency personnel levels that will significantly affect FAS efforts to 
address market access for U.S. food and agricultural exports.

                            EXPORT PROGRAMS

    Mr. Chairman, the fiscal year 2007 budget proposes approximately $4 
billion for programs administered by FAS designed to promote U.S. 
agricultural exports, develop long-term markets overseas, and foster 
economic growth in developing countries.
Export Credit Guarantee Programs
    The budget includes a projected overall program level of $3.2 
billion for export credit guarantees in fiscal year 2007. Under these 
programs, the Commodity Credit Corporation (CCC) provides payment 
guarantees for the commercial financing of U.S. agricultural exports. 
Last year, we announced changes to these programs to comply with the 
WTO cotton decision in a dispute with Brazil. We implemented a risk-
based fee structure for the GSM-102 and Supplier Credit Guarantee 
Programs. Fee rates are now based on the country risk that CCC is 
undertaking, as well as the repayment term and repayment frequency 
under the guarantee. We also suspended operation of the GSM-103 
program, effective July 1, 2005, in response to a WTO dispute panel 
decision. In addition, USDA proposed legislative changes to the cotton 
and export credit programs. Congress passed legislation to repeal the 
Step 2 Program and the repeal will take effect on August 1, 2006.
    As in previous years, the budget estimates reflect actual levels of 
sales expected to be registered under the programs and include:
  --$2.5 billion for the GSM-102 program;
  --$602 million for Supplier Credit guarantees; and
  --$30 million for Facility Financing guarantees.
    The fiscal year 2005, the GSM-102 program provided credit 
guarantees which facilitated sales of approximately $2.2 billion of 
U.S. agricultural exports to 8 countries and 6 regions. In fiscal year 
2005, the Supplier Credit Guarantee Program (SCGP) registered 
approximately $455 million in credit guarantees which facilitated sales 
of over $700 million to 9 countries and 8 regions. USDA has also 
undertaken a top-to-bottom review of the Supplier Credit Guarantee 
Program. Most recently, USDA announced an Advanced Notice of Proposed 
Rulemaking on the SCGP and invited suggestions on changes that would 
improve program operations and efficiency. Several factors are behind 
the effort to improve program operations. As the SCGP has grown, 
defaults have also increased. Although CCC has improved its claims 
recovery process, further changes may be necessary. The comment period 
closed in late February and USDA is reviewing the comments.
Market Development Programs
    Funded by CCC, FAS administers a number of programs to promote the 
development, maintenance, and expansion of commercial export markets 
for U.S. agricultural commodities and products. For fiscal year 2007, 
the CCC estimates include a total of $148 million for the market 
development programs, $100 million below the fiscal year 2006 level and 
includes:
  --$100 million for the Market Access Program;
  --$34.5 million for the Foreign Market Development (Cooperator) 
        Program;
  --$10 million for the Emerging Markets Program;
  --$2.5 million for the Quality Samples Program; and
  --$2 million for the Technical Assistance for Specialty Crops 
        Program.
    The lower program level for these activities reflects a proposal to 
limit funding for the Market Access Program to $100 million in fiscal 
year 2007, which is intended to achieve savings in mandatory spending 
and contribute to government-wide deficit reduction efforts.
International Food Assistance
    The United States continues to play a leading role in providing 
international food aid. In this regard, the fiscal year 2007 budget 
includes an overall program level for U.S. foreign food assistance of 
$1.6 billion consisting of:
  --$1.3 billion for Public Law 480 which is expected to provide 
        approximately 2.2 million metric tons of commodity assistance. 
        The budget proposes that all Public Law 480 food assistance be 
        provided through the Title II donations program in fiscal year 
        2007, which is administered by the U.S. Agency for 
        International Development. In recent years, there has been 
        significant decline in demand for food assistance provided 
        through concessional credit financing, accordingly, no funding 
        is requested for Title I credit sales and grants. The budget 
        includes an appropriation request of $1.2 billion for Public 
        Law 480 Title II, an increase of $80 million over the 2006 
        enacted level, and proposes a new provision that will allow up 
        to 25 percent of the funding to be used to purchase commodities 
        locally in emergency situations thereby saving more lives.
  --$161 million for the CCC-funded Food for Progress Program. Funding 
        at that level is expected to support 300,000 metric tons of 
        commodity assistance.
  --$103 million for the McGovern-Dole International Food for Education 
        and Child Nutrition Program. This comprises $99 million in 
        appropriations and an estimated $4 million in reimbursements 
        from the Maritime Administration. Funding at this program level 
        will assist an estimated 2.5 million women and children through 
        the donation of nearly 80,000 metric tons of commodities.
Export Subsidy Programs
    FAS administers two export subsidy programs through which payments 
are made to exporters of U.S. agricultural commodities to enable them 
to be price competitive in overseas markets where competitor countries 
are subsidizing sales. These include:
  --$28 million for the Export Enhancement Program (EEP). World supply 
        and demand conditions have limited EEP programming in recent 
        years and therefore, the budget assumes a limited program level 
        for 2007. However, the 2002 Farm Bill does include a maximum 
        annual EEP program level of $478 million which could be 
        utilized should market conditions warrant reactivation of the 
        awarding of bonuses.
  --$35 million for the Dairy Export Incentive Program (DEIP), $33 
        million above the fiscal year 2006 estimate of $2 million. This 
        estimate reflects the level of subsidy expected to be required 
        to facilitate export sales consistent with projected United 
        States and world market conditions. The actual level of bonuses 
        awarded may change during the programming year as market 
        conditions warrant.
Trade Adjustment Assistance for Farmers
    Authorized by the Trade Act of 2002, the Trade Adjustment 
Assistance Program for Farmers authorizes USDA to make payments of up 
to $90 million annually to members of eligible producer groups when the 
current year's price of an eligible agricultural commodity is less than 
80 percent of the national average price for the 5 marketing years 
preceding the most recent marketing year, and the Secretary determines 
that imports have contributed importantly to the decline in price.
    This concludes my statement, Mr. Chairman. I will be pleased to 
answer any questions.
                                 ______
                                 

   Prepared Statement of Eldon Gould, Administrator, Risk Management 
                                 Agency

    Mr. Chairman and members of the Subcommittee, I am pleased to 
present the fiscal year 2007 budget for the Risk Management Agency 
(RMA). Although this budget was developed by my predecessor, I have 
been fully briefed on the funding issues facing RMA and I support the 
funding level requested in this budget submission.
    One of my principle goals is to make the crop insurance program 
more efficient so farmers can be less reliant on ad hoc disaster 
payments. When I accepted this position, Secretary Johanns charged me 
with administering the crop insurance program in a timely and farmer-
friendly manner. I take this charge very seriously; cooperation and 
unity between the Government and our reinsured partners are necessary 
to meet our common goals of providing effective insurance products, 
processing timely and accurate claims when losses occur and identifying 
and eliminating waste, fraud and abuse in the program to the greatest 
extinct possible. In addition, effective outreach to our stakeholders 
and customers is necessary to identify attributes of the program that 
are working well and the aspects that need to be changed to improve 
efficiency and effectiveness. Administration of the crop insurance 
program requires all interested parties working together to identify 
viable insurance products and solutions that meet farmer/rancher needs 
of the agricultural community. Moreover, if the program is to continue 
to be successful, the checks and balances necessary to guard against 
the risks of fraud, waste and abuse need strengthening.
    The Federal Crop Insurance Corporation continues to improve the 
economic stability of agriculture through a sound system of crop 
insurance, in paying out approximately $3.3 billion in losses in fiscal 
year 2005. Overall, the program provided farmers with more than $44 
billion in protection on about 246 million acres with a participation 
rate of about 80 percent (principal crops). In order to maintain and go 
beyond our current participation rate, while at the same time reducing 
the expectation of ad hoc disaster payments when bad weather or natural 
disasters strike, a strategy that compels the purchase of crop 
insurance must be implemented.
    The 2007 budget supports more than $49 billion in protection on 
approximately 286 million acres through about 1.2 million policies. The 
appropriations required for this level of risk protection is $4.2 
billion, which includes program administration, product evaluation and 
program oversight, as well as premium subsidies, administrative 
expenses reimbursements, and payments for excess losses estimated above 
the mandated loss ratio of 1.075. The funding level proposed for the 
Federal Crop Insurance Corporation (FCIC) Fund is $4.1 billion and for 
the Administrative and Operating Expenses, $80.8 million.

                               FCIC FUND

    The fiscal year 2007 budget proposes that ``such sums as may be 
necessary'' be appropriated to the FCIC Fund. This ensures the program 
is fully funded to meet the contractual obligation to pay claims, to 
reimburse for expenses incurred in delivering insurance to farmers and 
ranchers, and to provide premium subsidies to make crop insurance 
affordable. Of the total funding requested for the FCIC budget, 66 
percent is for premium subsidies. This level of subsidy is necessary to 
maintain participation in the program and to encourage producers to 
purchase higher levels of coverage.
    To make the crop insurance program more efficient and to reduce the 
reliance on ad hoc disaster payments, the 2007 budget includes a 
proposal to encourage producers to purchase more adequate crop 
insurance coverage by linking direct payments or any other Federal 
payment for crops to the purchase of crop insurance. This change will 
ensure farmer's revenue loss would not be greater than 50 percent. 
Other changes include making catastrophic coverage more equitable in 
its treatment of both large and small farms, restructuring premium 
rates to better reflect historical losses, and reductions in delivery 
costs. Essentially, the majority of producers will have crop insurance 
and the minimum coverage level will be sufficient to support the 
producers when losses occur. The estimated savings to the program is 
$140 million beginning in 2008. This proposal will be submitted along 
with the other mandatory proposals for farm programs that support the 
President's Budget.
    The FCIC budget estimates are $2.7 billion for premium subsidy, 
$940.3 million for delivery expenses, $379.8 million for estimated 
excess losses, and $74.5 million for Agricultural Risk Protection Act 
of 2000 (ARPA) initiatives. With the exception of ARPA initiatives, 
these estimates are based on program indicators derived from USDA's 
latest projections of planted acreage and expected market prices.

              ADMINISTRATIVE AND OPERATING EXPENSES (A&O)

    RMA's fiscal year 2007 request of $80.8 million for Administrative 
and Operating Expenses represents a base of $76.3 million, which 
includes $3.6 million for data mining, and an increase of about $4.5 
million from fiscal year 2006. The increase includes funding for an 
increase in Compliance staffing, $1.3 million; improving monitoring of 
the insurance companies, $1.0 million; pay costs, $1.2 million; and 
information technology costs of $1.0 million.
    The 2007 budget requests $1.3 million to support an increase of 15 
staff years. This will raise RMA's employment ceiling from 553 to 568. 
The 15 staff years will support the increased workload for the 
Compliance function to provide the staffing to address outstanding OIG 
and GAO recommendations to improve oversight and internal controls over 
insurance providers. In response to several OIG audit reports, RMA 
needs to improve the process of auditing insurance providers to detect 
and correct vulnerabilities to proactively prevent improper payment of 
indemnities. The additional staffing will provide the necessary 
oversight to ensure taxpayers' funds are expended as intended.
    Also included in the 2007 budget is $1.0 million to expand the 
monitoring and evaluation of reinsured companies. RMA is requesting 
funds to establish a process of monitoring, evaluating, and auditing, 
on an annual basis, the performance of the product delivery system. 
These funds will be used to support insurance company expense audits, 
performance management audits and reinsurance portfolio evaluations to 
ensure effective internal and management controls are in place and 
operating for each reinsured company's business operations.
    An increase of $1.2 million is requested for pay costs. These funds 
are necessary to maintain required staffing to carry out RMA's mission 
and mandated requirements.
    Lastly, an increase of $1.0 million is requested for immediate IT 
requirements that will support patch-work enhancements to the existing 
IT system. If RMA is to continue to pay out billions of dollars in 
indemnity payments, it is prudent and necessary to have a current and 
reliable operating system to deliver the crop insurance program. To 
effectively manage a $4 billion crop insurance program, a modernized IT 
system is necessary to replace RMA's core IT operating system that is 
over 12 years old.
    In light of that, an additional legislative proposal in the 2007 
budget is being offered to require the reinsured companies to share in 
the cost to develop and maintain a new IT system. The companies would 
be assessed a fee based on one-half cent per dollar of premium sold. 
The fee is estimated to generate an amount not to exceed $15 million 
annually. After the IT system has been developed, the assessment would 
be shifted to maintenance and would be expected to reduce the annual 
appropriation of the salaries and expenses account of the agency.

                           PROGRAM MANAGEMENT

    The following is an update on accomplishments and events in 2005 
regarding key initiatives, activities and products:
  --FCIC Board Activities
  --Reinsurance
  --Hurricane Crop Losses
  --Pilot Programs
  --Product Development
  --Education and Outreach Program
  --Agricultural Management Assistance
  --Program Integrity
    The FCIC Board of Directors consists of 10 members. The Board 
receives, reviews, and approves policies and plans of insurance and 
other related materials for reinsurance, risk subsidy, and 
administrative and operating subsidy. During 2005, the Board considered 
62 action items during eight board meetings. The actions included 6 
expert reviews, 23 program revisions and modifications, 10 new program 
submissions, and 23 corporate administrative items.
Reinsurance
    Currently, there are 16 approved insurance providers. Recent 
entrants into the crop insurance program include: Austin Mutual 
Insurance Company and its managing general agent (MGA), Crop USA; 
Westfield Insurance Company and its MGA, John Deere Risk Protection, 
Inc., and Stonington Insurance Company and its MGA, Agro National, LLC. 
The new Standard Reinsurance Agreement has been put in place, effective 
beginning the 2005 crop year.
    During 2005, RMA published a proposed rule for premium reduction 
plans (PRP). The PRP authorizes a company to pass confirmable cost 
savings to insured in the form of premium reductions. After a 60-day 
comment period, an interim final rule was published. Currently, nine 
insurance providers are eligible to offer a premium reduction plan for 
the 2006 reinsurance year. However, due to a provision in the 2006 
appropriations act, the PRP will not be available for the 2007 
reinsurance year which begins July 1, 2006.
Hurricane Crop Losses
    Like other Federal agencies, RMA had a role in responding to 
victims of last years' hurricanes. When Wilma, Katrina and Rita hit the 
southeast and Gulf Coast areas, RMA's delivery system was available to 
respond to the crop losses ensuring the timely disbursement of 
payments. In addition, the Agency put in place emergency loss 
procedures to help producers who were subject to cancellation or 
termination dates for indebtedness or unpaid premium. This change 
allowed producers who might have become ineligible for the 2006 crop 
year to have additional time to either make payment of the premium due 
or execute a payment agreement with the approved insurance provider. 
This primarily impacted about 1,500 crop insurance policies that earned 
premium mostly on nursery, wheat, sugarcane, and oat crops. An 
estimated 500-600 insured producers were impacted. The following are 
the current 2005 loss estimates of the hurricanes:

----------------------------------------------------------------------------------------------------------------
                 Hurricane                          States Impacted             Liability       Estimated Losses
----------------------------------------------------------------------------------------------------------------
Wilma......................................  Florida......................     $1,196,400,000       $194,000,000
Katrina....................................  Alabama, Florida,                    525,710,000        129,709,000
                                              Mississippi, Louisiana.
Rita.......................................  Arkansas, Louisiana, Texas...         130,183,00         15,447,000
                                                                           -------------------------------------
      Total................................  .............................      1,852,293,000        339,156,000
----------------------------------------------------------------------------------------------------------------

Pilot Programs
    RMA has 26 active pilot programs in various phases of development. 
The pilot programs for crop year 2005 are Adjusted Gross Revenue (AGR) 
and AGR-Lite, apple pilot quality option, avocado actual production 
history, avocado revenue, avocado/mango trees, cabbage, cherries, 
citrus (dollar), coverage enhancement option, cultivated clams, 
cultivated wild rice, Florida fruit trees, forage seed, fresh market 
beans, the Income Protection plan of insurance, mint, mustard, onion, 
pilot stage removal option, processing chile peppers, processing 
cucumbers, rangeland, raspberry/blackberry, strawberries, sweet 
potatoes, and winter squash/pumpkins. After about three to five years 
of experience, pilot program evaluations are performed to determine 
whether the plans of insurance should be converted to permanent 
programs and offered in counties where the crop is routinely grown. 
During 2005, RMA completed evaluations on eight pilot programs 
including: cherries, chile peppers, California citrus, processing 
cucumbers, strawberries, winter squash, AGR and avocado revenue. After 
consideration by the FCIC Board, winter squash and processed cucumbers 
were terminated; cherries, chile peppers, and California citrus were 
continued as pilots until the 2006 crop year; and strawberries extended 
through the 2008 crop year. Consideration of the evaluations of AGR and 
avocado revenue pilots will come before the Board in the 2006 fiscal 
year.
Product Development
    In January 2006, the FCIC Board approved two new pilots, pasture 
range and forage programs set to begin for the 2007 crop year. These 
are group-risk programs, one using a temperature adjusted normalized 
difference vegetative index and the other a rainfall index program. The 
programs will be piloted in different States and areas with sales 
beginning this fall. In addition, RMA plans to seek expert review of a 
third proposal this spring in an attempt to create viable products for 
commodities representing over 550 million acres.
Education and Outreach Program
    A total of $4.4 million was distributed for education and outreach 
projects with State departments of agriculture, universities and non-
profit organizations. As a result, crop insurance education was 
provided to producers in Connecticut, Delaware, Maine, Pennsylvania, 
Rhode Island, Maryland, Massachusetts, Nevada, New Hampshire, New 
Jersey, New York, Utah, Vermont, West Virginia and Wyoming. These 
educational projects will promote risk management education 
opportunities by informing agribusiness leaders about new trends in 
risk management and by delivering risk management training to producers 
with an added emphasis on reaching small farmers.
    Similar to last year, RMA awarded 40 commodity partnership 
agreements at a cost of $5.5 million. These agreements will provide 
outreach to specialty crop producers to broaden their risk management 
education. In addition, RMA also directs education and outreach efforts 
toward women, small, and limited resource farmers, and ranchers. In 
2005, 63 outreach projects were funded at a cost of $7 million. RMA 
continues to partner with community-based organizations such as 1862, 
1890, and 1994 land grant colleges, universities, as well as, with 
Hispanic serving institutions to provide technical assistance and risk 
management education on managing farming risks.
Agricultural Management Assistance
    In 2005, RMA provided $4.1 million in financial assistance to 
producers purchasing spring buy-up crop insurance policies in 15 
targeted States. The primary goal of the program is to encourage 
producers to purchase higher levels of coverage, and to provide an 
incentive for new producers to enter the program. In 2005, RMA paid up 
to 15 percent of producers' out-of-pocket premium costs to encourage 
increased participation.
Program Integrity
    RMA, the Farm Service Agency (FSA), and the reinsured companies 
continue to improve program compliance and integrity through: (l) data 
reconciliation and matching of disaster program payments; (2) 
evaluating and amending procedures for referring potential crop 
insurance errors or abuse between FSA and RMA; and (3) creating anti-
fraud distance learning training packages as required by Agricultural 
Risk Protection Act of 2000. Compliance managers have increased efforts 
to integrate new data mining projects to improve program results and 
are exploring ways to expedite processing of sanctions requests.
    The efforts of FSA and the results from the data mining and 
analysis tools have greatly improved the referral activity to and from 
RMA. As a result, from the period of January to December, 2004, an 
estimated $71 million reduction in program costs has been identified by 
preventing or deferring unsubstantiated claims.
    Currently, to manage the referral activity and the responsibilities 
of data reconciliation RMA has dealt with the added workload by 
increasing emphasis on data management and computer based resources. 
But the workload continues to create a challenge for Compliance to 
accomplish current activities along with new requirements mandated by 
ARPA without the benefit of additional resources. Therefore, the fiscal 
year 2007 budget includes 15 additional staff years for Compliance to 
strengthen the front-end reviews of approved insurance providers and to 
address outstanding recommendations to improve oversight and internal 
controls over insurance providers.

                               CONCLUSION

    RMA is faced with many challenges to make the crop insurance 
program more efficient and effective. But along with these challenges 
come opportunities to provide more meaningful insurance products and 
tools, ensure a first-rate delivery system and the opportunity to 
verify and validate that the program is solvent and administered with 
integrity. I look forward to working with our stakeholders to make this 
program even better than it is today. However, the improvements require 
the resources requested in the 2007 budget along with passage of the 
proposed legislations.
    Mr. Chairman, this concludes my statement. I will be pleased to 
answer any questions.

    Senator Bennett. Thank you, sir.
    Mr. Rey.

                         STATEMENT OF MARK REY

    Mr. Rey. Thank you, Mr. Chairman and Senator Kohl.
    I am pleased to appear before you today to present the 
fiscal year 2007 budget and program proposals for the Natural 
Resources Conservation Service (NRCS).
    Overall, for fiscal year 2007, the President's budget 
recommends a record $4 billion in mandatory funding to expand 
participation in Farm Bill conservation programs throughout the 
department. Proposals in the 2007 budget will produce savings 
in both the mandatory and discretionary accounts. These savings 
will enable the administration to target funding based on 
resource needs and program results.
    The 2007 budget request for the Natural Resources 
Conservation Service provides $2.8 billion in total funding, 
with $788.6 million in discretionary funding and $2 billion in 
mandatory funding, including $1 billion for the Environmental 
Quality Incentives Program.
    Also, on the mandatory side, the budget request includes an 
increase of $153 million for the Wetlands Reserve Program to 
enroll an additional 250,000 acres in fiscal year 2007. This 
represents a total investment of $402 million for the Wetlands 
Reserve Program and will bring the total acreage enrolled in 
the program to more than 2.2 million acres.
    The Wetlands Reserve Program is the principal supporting 
program for the President's Wetlands Initiative to restore, 
protect, and enhance 3 million acres of wetlands over a 5-year 
period that began in June 2004. The Wetlands Reserve Program 
contributes roughly one third of all of the acres included in 
the President's initiative.
    The appropriations request includes $634.3 million for the 
Conservation Technical Assistance Program, the base 
conservation program that enables NRCS to successfully 
implement Farm Bill conservation programs. In past testimony, 
the department has discussed the excellent score NRCS received 
in the measure of customer satisfaction for conservation 
assistance.
    Today, I am pleased to announce that we are releasing a new 
report from the American Customer Satisfaction Index, conducted 
by the University of Michigan, that gives NRCS an overall score 
of 76 out of 100 for administering the Conservation Security 
Program (CSP). This score for CSP is considerably higher than 
the 2005 national average of 71 for other Federal Government 
programs.
    We are very proud of the results of this survey, as it 
highlights our commitment to quality customer service. In 
addition, we have continued to make strides in streamlining our 
operations as well. We are striving to keep the administration 
of conservation programs as efficient and as lean as possible.
    This year alone, we have streamlined program forms to make 
them more consistent among like programs, such as the easement 
programs. We have consolidated program manuals where possible. 
We have established a process for rapid watershed assessments 
to provide initial estimates of where conservation investments 
can best address resource concerns, and we have instituted 
programmatic reforms, such as a pilot sign-up process for 
conservation planning and technical assistance.
    We are also preparing for the future with a new strategic 
plan that charts the agency's future over the next 10 to 20 
years. The plan introduced a new mission statement--``helping 
people help the land.''
    This mission and the accompanying vision statement affirm 
the agency's commitment to assist private land owners and 
solidify the essential connection between working agricultural 
lands and sustaining a healthy environment.

                          PREPARED STATEMENTS

    In summary, I believe that the administration's fiscal year 
2007 budget request reflects sound policy and provides solid 
support for the vital mission of voluntary conservation on 
private lands.
    Thank you very much.
    [The statements follow:]

                     Prepared Statement of Mark Rey

    Mr. Chairman and members of the Subcommittee, I am pleased to 
appear before you today to present the fiscal year 2007 budget and 
program proposals for the Natural Resources Conservation Service (NRCS) 
of the Department of Agriculture (USDA). I am grateful to the Chairman 
and members of this Subcommittee for the ongoing support of private 
lands voluntary conservation and the protection of soil, water, and 
other natural resources.
    Farmers, ranchers, and other private landowners across America play 
a vital role in conserving our Nation's soil, water, air, and wildlife 
resources, while producing abundant food and fiber. More than 70 years 
of ``helping people help the land'' gives NRCS a firm foundation to 
meet the challenge of balancing production agriculture with resource 
conservation. For fiscal year 2007, the President's Budget meets that 
challenge by recommending a record $4 billion in mandatory funding to 
expand participation in Farm Bill conservation programs.

                  PRESIDENT'S FISCAL YEAR 2007 BUDGET

    The President's fiscal year 2007 budget request for NRCS provides 
resources for the ongoing mission of NRCS, while ensuring that new 
challenges faced by landowners can be addressed.
    Because of the overriding need to reduce the deficit, NRCS, like 
every Federal agency, will share in the responsibility of controlling 
Federal spending. There are proposals in the fiscal year 2007 Budget 
that will produce savings in both the mandatory and discretionary 
accounts. These savings will enable the Administration to target 
funding based on need and program results.
    With that said, the President's fiscal year 2007 budget request for 
NRCS recognizes the vital role that natural resource conservation plays 
in securing America's national security. Without productive soil, clean 
water and air, and farmers and ranchers who can make a living off the 
land, the United States would not be the strong Nation it is today.
    The fiscal year 2007 budget request for NRCS provides $2.8 billion 
in total funding, with $788.6 million in discretionary funding, and $2 
billion in mandatory funding, including $1 billion for the 
Environmental Quality Incentives Program.
    Also on the mandatory side, the Budget request includes an increase 
of $153 million for the Wetlands Reserve Program (WRP) to enroll and 
additional 250,000 acres. This represents an investment of $402 million 
for WRP, and will bring the total acreage enrolled in the program to 
more than 2.2 million acres.
    WRP is the principal supporter of the President's Wetlands 
Initiative to restore, protect, and enhance 3 million acres of wetlands 
over a 5 year period that will begin in June 2004. WRP also contributes 
roughly one-third of all the acres toward the goals of the President's 
Wetlands Initiative.
    The appropriation request includes $634.3 million for the 
Conservation Technical Assistance (CTA) Program, which is the base 
program that supports the Department's conservation efforts with State 
and local entities, and the basic conservation planning and decision 
support needed to successfully implement Farm Bill conservation 
programs.

                BUILDING STRONG ACCOUNTABILITY MEASURES

    In the current budget environment, it is more important than ever 
to continue working diligently on accountability and results 
measurement for the funds provided by Congress. Mr. Chairman, I am 
proud of the great strides NRCS has made in the past year on this 
effort as well as on making NRCS information more accessible to 
farmers, ranchers, and the general public. NRCS has taken bold steps to 
address all the challenges identified as a result of the Office of 
Management and Budget's Program Assessment Rating Tool (PART) scores 
for various conservation programs. PART reviews have been completed for 
12 NRCS programs. The Agency has used these assessments to develop 
long-term outcome based performance measures and to become even more 
results oriented.
    Meeting the President's Management Agenda is critical to all of us 
at USDA. Linking program requirements and program allocations to 
performance and accountability measures helps both the Administration 
and Congress make the most informed budget decisions.

  CONSERVATION SECURITY PROGRAM (CSP) CUSTOMER SERVICE RESULTS SURVEY

    Mr. Chairman, in past testimony before this Subcommittee, I have 
discussed the excellent score NRCS received in a measure of customer 
satisfaction for conservation assistance. I am proud to report that 
according to the American Customer Satisfaction Index (ACSI) conducted 
by the University of Michigan, NRCS received an overall score of 76 out 
of 100 for administering CSP. This voluntary program supports ongoing 
stewardship of private agricultural land by providing payments for 
maintaining and enhancing natural resources.
    NRCS' score for CSP is considerably higher than the 2005 national 
average of 71 for the Federal Government and right on track with 
earlier scores for the Environmental Quality Incentives Program (75) 
and the Wildlife Habitat Incentives Program (77) from surveys conducted 
in 2004.
    The four drivers of satisfaction that were measured for CSP include 
its Self-Assessment Workbook, the one-on-one personal interview with 
NRCS, the contract review and award process, and NRCS staff. This is 
the first customer satisfaction survey for this new program.

                  STREAMLINING FOR CONSERVATION GAINS

    NRCS continues to make strides in streamlining operations. In this 
process, the Agency is striving to keep the administration of 
conservation programs as lean as possible. We are doing that by:
  --Streamlining the payment process;
  --Building our eGovernment infrastructure, including eForms, and the 
        programs Web site;
  --Reducing required paperwork for customers through a common computer 
        database in USDA Service Centers;
  --Streamlining program forms that are used, trying to be more 
        consistent between like programs such as the easement programs, 
        and consolidating program manuals when possible;
  --Costing and revising program allocation formulas to distribute 
        funds to States on resource-based methodology;
  --Working on an automated application ranking tool;
  --Establishing a process for rapid watershed assessments to provide 
        initial estimates of where conservation investments can best 
        address resource concerns;
  --Continuing to place programmatic and technical information 
        available on the Agency's Web site to give our employees and 
        customers access to the latest, high-quality information; and
  --Instituting programmatic reforms such as a pilot sign-up process 
        for conservation planning technical assistance.

                ACCELERATING CONSERVATION IMPLEMENTATION

    Accelerating conservation implementation is essential. Wise 
management of resources is critical. We need to get the 5 to 10-year 
contracts the Agency has signed with farmers completed, get the 
conservation on ground, and at the same time, aware of the realities of 
farm economics. Conservation is a wise investment in the future of our 
country's healthy soil, clean water, and abundant wildlife; but 
practicing good conservation also makes good economic sense.

                   STRATEGIC PLANNING FOR THE FUTURE

    I am proud of the accomplishments NRCS achieved in 2005. An effort 
that particularly stands out is one undertaken to chart the future by 
completing a new strategic plan. The strategic planning process 
incorporated internal and external assessments of natural resources, 
human capital, civil rights, and other issues. The information 
collected through this assessment served as the foundation to formulate 
the new strategic plan. This plan will be a comprehensive roadmap to 
guide the Agency over the next 10 to 20 years.
    The plan introduced a new mission statement, ``helping people help 
the land.'' This mission, and an accompanying vision statement, 
articulates the Agency's role to assist private landowners and solidify 
the essential connection between retaining a viable agricultural 
presence on the landscape and sustaining a healthy environment.

                               CONCLUSION

    Mr. Chairman, in summary, we are planning for the future under an 
atmosphere of increasingly austere budgets and economic uncertainties 
along with a multitude of other unknowns on the domestic and 
international fronts. I believe that the Administration's fiscal year 
2007 Budget request reflects sound policy, and will provide stability 
to the vital mission of voluntary conservation on private lands. The 
Budget request reflects sound business management practices and the 
best way to work for the future and utilize valuable conservation 
dollars efficiently and wisely.
    I thank members of the Subcommittee for the opportunity to appear, 
and would be happy to respond to any questions that Members might have.
                                 ______
                                 

    Prepared Statement of Bruce I. Knight, Chief, Natural Resources 
                          Conservation Service

    Thank you for the opportunity to appear before you today to discuss 
our fiscal year 2007 budget request for the Natural Resources 
Conservation Service (NRCS).
    As we look ahead to fiscal year 2007, and the contents of the 
Administration's budget request, I want to take a moment to reflect 
upon the successes that NRCS has faced in the past year and what we are 
doing to move the Agency forward. It has been a productive year for 
NRCS, our partners, and landowners across America. We have assisted 
landowners to treat over 42 million acres of conservation and develop 
over 4,400 Comprehensive Nutrient Management Plans (CNMP). This brings 
the total CNMPs applied with NRCS support since 2002 to more than 
14,000. In addition, last year NRCS and our partners:
  --Served nearly 3.8 million customers around the country;
  --Completed or updated soil survey mapping on 31.2 million acres, of 
        which, 1.8 million acres were on Native American or Native 
        Alaskan lands;
  --Conducted a comprehensive study of technical assistance, 
        reaffirming the intrinsic value of scientifically based tools 
        and activities including developing conservation plans and 
        encouraging a knowledge-based approach to conservation;
  --Committed to over 49,000 Environmental Quality Incentives Program 
        (EQIP) contracts for multi-year conservation obligations;
  --Enrolled over 3,300 Wildlife Habitat Incentives Program (WHIP) 
        contracts;
  --Expanded the Conservation Security Program nationwide to recognize 
        outstanding land stewards and enable them to do more;
  --Helped land managers create, restore, or enhance more than 284,000 
        acres of wetlands primarily through WRP;
  --Facilitated nearly 1 million hours of Earth Team volunteer service; 
        and
  --Registered over 2,500 Technical Service Providers to assist in 
        conservation planning and implementation efforts, obligating 
        $52.7 million in fiscal year 2005. This provided the equivalent 
        of 520 staff years to attain additional conservation 
        achievements.
    As we look ahead to this year and beyond, we will direct our 
efforts toward ensuring that all of the potential conservation gains 
are fully realized. What I mean by that is NRCS will be focusing on 
fine-tuning our business tools and solidifying the progress we have 
made in working with farmers and ranchers across America to implement 
conservation programs. We want to make sure everything works smoothly--
for our employees and our customers. We want our decisions and 
processes to be transparent. We want to be even more efficient, 
effective and focused on meeting our customers' needs.

                      HELPING PEOPLE HELP THE LAND

    For over 70 years, NRCS has been committed to locally led, 
voluntary cooperative conservation. Last year, one of our district 
conservationists from Iowa suggested that we describe our mission as 
``helping people help the land.'' The phrase is succinct and it 
effectively describes what we do, so our Agency has adopted ``helping 
people help the land'' as our new mission statement.

                           NEW STRATEGIC PLAN

    In fiscal year 2005, NRCS initiated an aggressive strategic 
planning process to develop a roadmap to guide the Agency over the next 
10 to 20 years. This new NRCS Strategic Plan refines and builds on the 
goals and successes of past plans; and directly supports the new U.S. 
Department of Agriculture (USDA) Strategic Plan. The NRCS plan was 
developed around three foundations:
  --Agency customers;
  --Agency business lines and associated products and services; and
  --Priority and newly emerging natural resource conservation issues.
    The new plan emphasizes three overarching strategies--cooperative 
conservation, the watershed approach, and market-based approaches to 
conservation. These complementary strategies will be used effectively 
to assist private landowners manage their lands and resources to 
achieve national natural resource goals and objectives.
    The plan includes six mission goals oriented toward existing and 
emerging natural resource challenges. Three are Foundation Goals which 
reflect long-standing conservation priorities and include: high 
quality, productive soils; clean and abundant water; and healthy plant 
and animal communities. Also, new in this plan are three Venture Goals 
that reflect emerging areas of natural resource interest, posing 
challenges for niche definition and capacity building. The Venture 
Goals include: clean air, an adequate energy supply, and working farm 
and ranch land preservation.
    Even though the agency's new strategic plan has not yet been 
implemented, there are things that we are doing already to make this 
plan operational. We have integrated the concepts of business lines and 
new Agency goals in our fiscal year 2006 business planning process. Our 
Strategic Human Capital Plan has adopted the strategic plan as a 
framework, ensuring that succession planning aligns with the Agency's 
long-term goals and objectives. We are emphasizing cooperative 
conservation and market-based and watershed approaches in our programs, 
such as in the Cooperative Conservation Partnership Initiative and 
Conservation Innovation Grants that offer competitive grants to a broad 
and diverse array of potential customers.

                      HUMAN CAPITAL STRATEGIC PLAN

    NRCS is in the process of developing a Human Capital Strategic Plan 
to help us focus on the future workforce of our Agency. Over the next 5 
years, more than half of Federal employees are eligible to retire. This 
pool of potential retirees includes highly skilled key personnel such 
as our engineers, hydrologists, soil scientists, and agronomists, just 
to name a few. Because of the importance of these disciplines to our 
organization, it is vital that we have a strategy in place to fill-in 
behind these employees and provide the high level of expertise that our 
customers have come to expect. We will develop this plan to address the 
potential loss of so many employees and to compete for talent in a 
shrinking pool of candidates; primarily due to generational changes in 
employment trends, and shifts in academia from agriculture related 
disciplines to more ecology and ecological related degrees. We need a 
strategy that will continue to make NRCS the ``employer of choice'' for 
highly skilled individuals interested in serving in voluntary 
conservation.

                           EMPHASIS ON ENERGY

    One of the issues facing many farmers today is the high cost of 
fuel, fertilizer and other energy-related inputs. In early December 
2005, Secretary Johanns announced the USDA Energy Strategy, which is a 
concerted effort to look at both reducing demand for oil and natural 
gas and increasing supply through bio-fuels.
    To assist in this effort, NRCS has developed the three-click Energy 
Estimator Tool, which helps farmers and ranchers determine how much 
they could save by switching from conventional tillage to no-till or 
another reduced tillage system.
    I am pleased to announce that we recently released a Nitrogen 
Estimator Tool. Farmers can use this tool to better estimate how much 
nitrogen they are applying on the ground in order to better manage and 
minimize the amount of fertilizer applied. A large part of fertilizer 
costs relate to energy; this tool can help result in a net savings for 
farmers and ranchers that apply the technology.
    Beyond these two tools, the Agency is also working on an Irrigation 
Estimator Tool to help show water savings garnered by switching to less 
intensive water conservation practices.
    The Agency is working on an enhancement that would help farmers 
figure out how much they could save through improved irrigation 
systems. A second enhancement will enable producers to predict their 
savings by switching from fossil fuel fertilizer to animal manure.

                         WEB BASED SOIL SURVEY

    One of the fundamental building blocks of conservation is 
knowledge. We know that farmers, ranchers, contractors, and homeowners 
need sound data about the land where they live. In continued efforts to 
make conservation data as transparent and available as possible, we 
launched a Web Soil Survey to make soils data available upon demand 
through the internet. Soil survey maps and related information are 
available online for more than 95 percent of the Nation's counties.
    As we move forward in fiscal year 2006, there is some innovative 
technology that can help farmers and ranchers realize even bigger gains 
in their conservation efforts. We look forward to building upon the 
technology foundation achieved this year to implement even more 
voluntary conservation on America's private lands.

                         DISCRETIONARY FUNDING

    The President's fiscal year 2007 budget request for NRCS reflects 
our ever-changing environment by providing resources for the ongoing 
mission of NRCS and ensuring that new opportunities are realized.

                        CONSERVATION OPERATIONS

    The President's fiscal year 2007 budget request for Conservation 
Operations (CO) proposes a funding level of $745 million, which 
includes $634.3 million for Conservation Technical Assistance (CTA), 
$89.3 million for Soil Surveys, $10.6 million for Snow Surveys, and 
$10.7 million for the 26 Plant Materials Centers. As in past requests, 
the Budget does not fund continuation of fiscal year 2006 congressional 
earmarks.
    Mr. Chairman, while for years we have stated that CO is the heart 
of everything our Agency does, we need to do a better job describing 
the program's scope and effect. The Office of Management and Budget's 
Program Assessment Rating Tool (PART) process has been an important 
step in developing meaningful, quantifiable long-term performance 
measures. This review has helped the Agency streamline the program and 
focus on national priorities in fiscal year 2005 including, development 
of CNMPs that will help landowners meet regulatory challenges; 
reduction of non-point source pollution (nutrient, sediments, 
pesticides, or excess salinity); reduction of emissions, such as 
particulate matter, that contribute to air quality impairment; 
reduction of soil erosion from agricultural lands; and promotion of at-
risk species habitat conservation.
    Mr. Chairman, I am pleased to report that in fiscal year 2005, NRCS 
developed and implemented the first comprehensive CTA Program policy 
that improves transparency and clarifies the program's mission in an 
era of increased accountability. This year, NRCS revised the allocation 
process for the CTA Program to ensure that dollars go where the needs 
are greatest. This new methodology will provide a more transparent 
allocation that addresses resource issues. The new allocation formula 
also aligns with the new CTA policy and national priorities, and 
integrates program performance measures that were developed in the PART 
process.
    In addition, this year we had 9 States participate in NRCS' first 
conservation planning sign-up. This is a pilot initiative that 
emphasizes the importance of conservation planning to help producers be 
better prepared to apply for conservation programs and to comply with 
Federal, State, tribal and local governmental regulations. The sign-up 
enabled landowners to plan more realistically to implement practices 
and apply for conservation programs in a more comprehensive approach.
    All of these improvements will ensure that the most pressing 
conservation needs on America's private lands are addressed and will 
help NRCS meet its strategic planning objectives and improve 
accountability.

               WATERSHED AND FLOOD PREVENTION OPERATIONS

    Through the Watershed Protection and Flood Prevention Operations 
program that NRCS administers, our employees work in partnership with 
local leaders to improve the overall function and health of the 
Nation's watersheds. Each project developed under this program has a 
specific purpose and benefit; most address a primary purpose of flood 
control, while other project benefits include upland conservation 
practices that address a variety of natural resources needs such as 
water quality improvement, soil erosion control, animal waste 
management, irrigation, water management, water supply development, and 
recreation enhancement. However, the Administration proposes to 
terminate funding for WFPO in fiscal year 2007 for several reasons.
    First, the decrease in funding in the WFPO will enable the 
Administration to focus limited resources to other higher priority 
conservation programs. It is expected that those high-priority 
watershed projects not yet completed will continue to receive strong 
local support from project sponsors, and that progress on them will 
continue to be made.
    In 2004, the Administration compared the benefits and costs of 
three Federal flood damage reduction programs operated by NRCS, the 
Corps of Engineers, and the Federal Emergency Management Agency. The 
analysis found that of the three programs, the WFPO program provided 
the least net flood damage reduction benefits.
    Mr. Chairman, I would also note that the amount of funding 
earmarked by Congress for this program nearly equaled the amount 
appropriated. This seriously hampers the Department's ability to 
effectively manage the program, and does not permit the Agency to 
prioritize projects based upon merit and local need.

                     WATERSHED SURVEYS AND PLANNING

    The Watershed Surveys and Planning authorities are directed toward 
assessment of natural resource issues and development of watershed 
plans to conserve and utilize natural resources, solve local natural 
resource and related economic problems, avoid and mitigate hazards 
related to flooding, and provide for advanced planning for local 
resource development. This includes Floodplain Management Studies, 
Cooperative River Basin Studies, Flood Insurance Studies, Watershed 
Inventory and Analysis, and other types of studies, as well as Public 
Law 566 Watershed Plans.
    With the elimination of Watershed and Flood Prevention Operations 
(WFPO), continuation of this planning component is no longer necessary. 
The fiscal year 2007 budget proposes to redirect this program's 
resources to other higher priority programs. It is expected that local 
sponsoring organizations, as well as State and local governments, will 
assume a more active role in identifying water resource problems and 
their solutions.

                        WATERSHED REHABILITATION

    The Watershed Rehabilitation program addresses the problem of aging 
dams, especially those with a high risk for loss of life and property. 
Fifty-six dams have rehabilitation plans authorized and implementation 
of the plans is underway.
    NRCS currently has 107 dams that have rehabilitation plans 
authorized, and the projects are completed or implementation of the 
plans is underway. This number adds to the 728 rehabilitation 
assessment reports already completed.
    The Administration requests $15.3 million to address critical dams 
with the greatest potential for damage to life and property.

             RESOURCE CONSERVATION AND DEVELOPMENT PROGRAM

    The purpose of the Resource Conservation and Development (RC&D) 
Program is to encourage and improve the capabilities of State, local 
units of government, and local nonprofit organizations in rural areas 
to plan, develop, and carry out programs for resource conservation and 
economic development. The program provides technical assistance to 
local communities to develop strategic plans that address their locally 
identified natural resource and economic development concerns. The 
budget proposes to reduce funding by $25 million and consolidate the 
number of RC&D coordinators from 375 to about 150. The current number 
of authorized RC&D Areas nationwide will be maintained at the current 
375. The responsibilities and duties of the RC&D Coordinator position 
would be modified to provide more coordination and oversight duties 
instead of hands-on, day-to-day activities.
    The reduction in funding for the RC&D Program will require that it 
be more focused on multi-county/parish planning, intergovernmental 
relations, serving as the Federal Government Representative on any 
Federal contracts with the RC&D Councils, and coordinating USDA 
assistance available toward implementation of RC&D Area Plans. The 
overall proposed budget for RC&D in fiscal year 2007 is $25.9 million.

                     FARM BILL AUTHORIZED PROGRAMS
                        WETLANDS RESERVE PROGRAM

    The Wetlands Reserve Program (WRP) is a voluntary program in which 
landowners are paid to retire cropland from agricultural production if 
those lands are restored to wetlands and protected, in most cases, with 
a long-term or permanent easement. Landowners receive fair market value 
for the land and are provided with cost-share assistance to cover the 
restoration expenses. The 2002 Farm Bill increased the program 
enrollment cap to 2,275,000 acres. WRP also is the principle USDA 
program to help meet the President's Wetland Initiative goal to create, 
restore and enhance 3 million acres of wetlands by 2009.
    The President's 2007 budget proposes $402 million for the WRP, an 
increase of $153 million over the 2006 level. This will allow an annual 
enrollment of 250,000 acres; an increase of 100,000 acres, and will 
bring total cumulative enrollment to 2,225,700 acres.

                ENVIRONMENTAL QUALITY INCENTIVES PROGRAM

    The purpose of the Environmental Quality Incentives Program (EQIP) 
is to provide flexible technical and financial assistance to landowners 
that face serious natural resource challenges that impact soil, water, 
and related natural resources, including grazing lands, wetlands, and 
wildlife habitat management.
    In fiscal year 2005, EQIP funding was almost $1 billion. Over 
49,000 contracts were written to assist landowners in treating an 
estimated 18.1 million acres.
    Mr. Chairman, in addition, NRCS assumed all contracting and 
administration responsibilities for EQIP (including payments to 
participants) were previously made through the Farm Service Agency. All 
functions were carried out through a Web-based contracting software 
program called ``ProTracts.'' This streamlining of procedures 
eliminated duplication of effort and resulted in real-time data.
    Technical Service Providers (TSPs) were used to a greater extent 
last year and have more than doubled since fiscal year 2003. NRCS 
obligated over $52 million in EQIP for TSPs to complement the 
conservation planning activities carried out under this program.
    NRCS offered approximately $20 million in Conservation Innovation 
Grants (CIG) to stimulate the development and adoption of new 
innovative conservation approaches while leveraging Federal investment. 
This program was authorized under EQIP in the 2002 Farm Bill and allows 
competitive grants to be awarded to eligible entities, including State 
and local agencies, non-governmental organizations, tribes or 
individuals to accelerate technology transfer and to develop promising 
new technologies to address some of our Nation's most pressing natural 
resource concerns.
    The President's budget proposes a level of $1 billion for EQIP, 
about the same level as in 2006.

                       GRASSLAND RESERVE PROGRAM

    The 2002 Farm Bill authorized the Grassland Reserve Program (GRP) 
to assist landowners in restoring and protecting grassland by enrolling 
up to 2 million acres under easement or long-term rental agreements. 
The 2002 Farm Bill authorized $254 million for implementation of this 
program during fiscal year 2003 through fiscal year 2007. No additional 
funding was requested in the President's budget for GRP in fiscal year 
2007 as the program reached its statutory funding limit in fiscal year 
2005.

                     CONSERVATION SECURITY PROGRAM

    The Conservation Security Program (CSP), as authorized by the 2002 
Farm Bill, is a voluntary program that provides financial and technical 
assistance for the conservation, protection, and improvement of natural 
resources on tribal and private working lands. The program provides 
payments for producers who practice good stewardship on their 
agricultural lands and incentives for those who want to do more.
    In 2005, CSP was implemented in 220 watersheds nationwide, 
including Puerto Rico, and resulted in about 12,000 eligible 
applications covering more than 9 million acres of privately owned 
land. In fiscal year 2004, NRCS initiated the program in 18 watersheds 
within 22 States. In the 2-year period since, NRCS has rewarded nearly 
14,800 stewards on 10.9 million acres of working agricultural land.
    Through the CSP enhancement provisions and the application of 
intensive management measures, producers are achieving even greater 
environmental performance and additional benefits for society. Several 
new conservation activities will allow producers to further enhance 
their operation and the natural resources. For example, the energy 
component of CSP is rewarding farmers and ranchers for converting to 
renewable energy fuels such as soy bio-diesel and ethanol. Because CSP 
enhancements go beyond the minimum requirements, innovative producers 
are pushing conservation technology to produce even greater 
conservation benefits.
    Recently, the Secretary announced the fiscal year 2006 sign-up for 
CSP which runs through March 31, 2006, in 60 watersheds across all 50 
States, the Caribbean, and Guam. The fiscal year 2006 announcement 
marks the third CSP sign-up.
    The President's fiscal year 2007 budget requests $342.2 million in 
program funding an increase of $83 million to continue expanding the 
program and rewarding excellent conservation stewards.

                  WILDLIFE HABITAT INCENTIVES PROGRAM

    The Wildlife Habitat Incentives Program (WHIP) is a voluntary 
program that provides cost-sharing for landowners to apply an array of 
wildlife practices to develop habitats that will support upland 
wildlife, wetland wildlife, threatened and endangered species, 
fisheries, and other types of wildlife. The budget proposes a funding 
level for WHIP of $55 million, with the additional $10 million 
supporting the improvement and restoration of streams and rivers for 
migratory fish species. NRCS will prioritize WHIP resources to deliver 
community-driven, small dam and river barrier removal projects in 
coastal States to enhance populations of key migratory fish species.

                FARM AND RANCH LANDS PROTECTION PROGRAM

    Through the Farm and Ranch Lands Protection Program (FRPP), the 
Federal Government establishes partnerships with State, local or tribal 
government entities or nonprofit organizations to share the costs of 
acquiring conservation easements or other interests to limit conversion 
of agricultural lands to non-agricultural uses. FRPP acquires perpetual 
conservation easements on a voluntary basis on lands with prime, 
unique, or other productive soil that presents the most social, 
economic, and environmental benefits. FRPP provides matching funds of 
no more than 50 percent of the purchase price for the acquired 
easements. The budget proposes a level of $50 million for FRPP in 
fiscal year 2007.

                EMERGENCY RESPONSE TO HURRICANE KATRINA

    In addition Mr. Chairman, the NRCS helped communities across the 
Gulf Coast region recover from the devastation caused by the 2005 
hurricanes through the Emergency Watershed Protection (EWP) Program. 
The purpose of the EWP program is to undertake emergency measures, 
including the purchase of floodplain easements, for runoff retardation 
and soil erosion prevention to safeguard lives and property from 
natural disasters. The typical process for delivery of this program 
starts with the local sponsor requesting assistance for a disaster 
recovery effort. NRCS then conducts a damage assessment to identify if 
the project is eligible and develops an estimated cost. Typical work 
under this program consists of debris removal from clogged streams 
caused by flooding; installing conservation measures, like reseeding 
native grasses to prevent soil erosion on hillsides after a fire; or 
replanting and reshaping streambanks due to erosion caused by flooding. 
At the request of communities across the Gulf Coast region recovering 
from Hurricanes Katrina and Rita, NRCS completed nearly $23 million in 
recovery work under the EWP Program immediately following the damage. 
In addition, the fiscal year 2006 Supplemental Appropriations provided 
$300 million for EWP hurricane recovery efforts.
    As part of USDA's hurricane relief efforts, NRCS assisted 
hurricane-impacted States by providing maps used by first responders to 
assess ground conditions during the search and rescue of survivors. 
Current satellite and airborne imagery is used to locate possible 
dangers, such as fires, and the safest route to rescue survivors. Soil 
survey data layers are used to locate the best areas for animal debris 
disposal and burial that will not endanger water sources. NRCS 
continues to work with other USDA agencies, the Federal Emergency 
Management Agency (FEMA), and State emergency agencies to assist with 
post-disaster cleanup and restoration projects in Louisiana, Florida, 
Mississippi, Texas, and Alabama.
    The President recently made a request for $10 million of additional 
funding under WFPO for the EWP Program for the purchase of easements on 
floodplain lands in disaster areas affected by Hurricane Katrina and 
other hurricanes of the 2005 season. Under the EWP Floodplain Easement 
Program, a landowner voluntarily sells a permanent conservation 
easement to NRCS and, in return for a payment for the agricultural 
value of the parcel, foregoes future cropping and development on the 
land. NRCS restores the natural features and characteristics of the 
floodplain to generate public benefits, such as increased flood 
protection and reduced need for future public disaster assistance.

                               CONCLUSION

    As we look ahead, it is clear that the challenges before us will 
require the dedication of all available resources--the skills and 
expertise of the NRCS staff, the contributions of volunteers, and 
continued collaboration with partners and TSPs.
    I am proud of the work and the conservation ethic our people 
exhibit day in and day out as they go about the job of getting 
conservation on the ground. Through Cooperative Conservation, we have 
achieved a great deal of success. We are sharply focusing our efforts 
and will work together with our partners to consolidate our gains this 
coming year. I look forward to working with you, as we move ahead in 
this endeavor.
    This concludes my statement. I will be glad to answer any questions 
that Members of the Subcommittee might have.

    Senator Bennett.
    Thank you.
    Mr. Bost.

                       STATEMENT OF ERIC M. BOST

    Mr. Bost. Mr. Chairman and Senator Kohl, I thank you for 
the opportunity to present the administration's fiscal year 
2007 budget for Food, Nutrition, and Consumer Services.
    However, before I do that, there are a couple of 
accomplishments I would like to note that I think are very 
important. We continue to ensure programmatic success to all of 
those that are eligible and in need of benefits. Most recently, 
26 million people are participating in our Food Stamp Program, 
29 million children are participating in our National School 
Lunch Program every day, and we are serving approximately 8 
million children, women, and infants in our WIC Program.
    In addition to that, last year we released ``My Pyramid,'' 
and we are up to 1.5 billion hits to that site. In addition, we 
released ``Pyramid For Children,'' and we are over 500 million 
hits.
    The Chairman made reference to this, but I also want to 
note the outstanding work done by the FNS staff and our 
partners; APHSA, America's Second Harvest, and FRAC in terms of 
addressing the needs of those persons in our Gulf that were 
affected by the hurricanes.
    As a result of FNS's efforts, we provided over $900 million 
in food stamp benefits to over 1.9 million affected households. 
We also provided over 22 million pounds of baby food, formula, 
meats, and pasta products to persons in need. We were on the 
ground and operating 1 day after the hurricane hit, and it is 
something that we are very proud of.
    In terms of the fiscal year budget for 2007, we are 
requesting funds in the amount of $57 billion. This will allow 
us to meet the needs of approximately 25.9 million persons in 
our Food Stamp Program, monthly participation in our WIC 
Program in the amount of 8.22 million persons, serve 30.9 
million children in our National School Lunch Program, and 
serve 10.3 million students in our School Breakfast Program.
    If our estimates in terms of program participation or costs 
are too low, we continue to request $3 billion in contingency 
funds for the Food Stamp Program, and for the first time, are 
requesting $300 million for our Child Nutrition Programs.
    When you put together a budget, you are not able to do all 
of the things you might want to do. As a result, we had to make 
some tough choices and decisions. That is why we are requesting 
the ability to phase out the Commodity Supplemental Food 
Program (CSFP) program for a couple of reasons.
    First and foremost, CSFP is only operating in limited areas 
in 32 States, 2 Indian reservations, and the District of 
Columbia. We believe that we can serve these affected persons 
in other nutrition assistance programs.
    The other thing that I would say that we also believe is 
very important is the fact that the error rate in the Food 
Stamp Program is at 5.88, which is the lowest that it has ever 
been in the history of the Food Stamp Program. It is something 
we are also very, very proud of.
    With that in mind, we are requesting additional resources 
to be able to maintain that level of efficiency in our program.
    This budget also requests $675 million to continue in our 
efforts to move Americans toward a healthier lifestyle. 
Approximately 62 percent of all Americans in this country are 
overweight. Thirty percent of us are obese. Twenty-two percent 
of all adolescents are overweight. We have seen a doubling in 
the rate of Type 2 diabetes among children.

                          PREPARED STATEMENTS

    According to the numbers at the Centers for Disease Control 
and Prevention (CDC), we spend approximately $123 billion in 
health-related costs because we eat too much and exercise too 
little.
    I am really pleased to be able to present this budget 
request and am more than happy to answer any questions that you 
may have.
    [The statements follow:]

                   Prepared Statement of Eric M. Bost

    Thank you, Mr. Chairman, and members of the subcommittee for this 
opportunity to present the Administration's fiscal year 2007 budget 
request for USDA's Food, Nutrition, and Consumer Services (FNCS).
    I am here today to discuss with you the President's budget request 
which demonstrates the Administration's steadfast commitment to our 
Nation's nutrition assistance programs. These programs ensure a 
nutrition safety net for the Nation's children, elderly and low-income 
households and, in conjunction with the Center for Nutrition Policy and 
Promotion, inform all Americans about the importance of good nutrition 
and physical activity. I am proud of our accomplishments and honored to 
work for a President who provides clear and continued support for these 
programs that protect our children and low-income households from 
hunger, and help to prevent the health risks associated with poor 
nutrition and physical inactivity for all our citizens.
    Our Federal nutrition assistance programs are there to meet the 
needs of Americans, not just in their everyday life, but also in times 
of disaster. I am so proud of my staff's efforts in the aftermath of 
the recent hurricanes. When the victims of Hurricanes Katrina, Rita and 
Wilma needed our programs, we responded immediately. Cutting through 
red tape, simplifying requirements, trucking and airlifting food, 
expediting services, working around the clock, our staff worked side by 
side with State and local staff and volunteers to help the evacuees get 
the food they needed. We even negotiated with other States to borrow 
eligibility workers to help meet high program demand within disaster 
States. Over $900 million in Food Stamp benefits were provided to over 
1.9 million affected households. For situations where food stamps could 
not meet the needs, we worked in cooperation with the Agricultural 
Marketing Service, made commodity purchases; sped up planned deliveries 
already in the pipeline; and diverted product from other parts of the 
country to move commodities where they were most needed. In total, we 
provided over 22 million pounds of baby food, formula, meats, pasta 
products, fruits and vegetables for congregate feeding and also for 
distribution to households for home consumption.
    I am proud to report to you today that the Federal nutrition 
assistance programs staff, at every level, succeeded in providing a 
timely and robust nutrition response to these devastating storms. This 
response underscores the value and high level of performance of these 
programs and the people at the Federal, State and local level who make 
them work across the country, every day. These programs truly operated 
as a safety net in the days and months immediately following these 
disasters. The President's budget is committed to keep these vital 
programs strong.
    Mr. Chairman, this budget, more than any other I have presented to 
you, reflects the fundamental challenge of this Administration: 
ensuring that the needs of all eligible persons seeking to participate 
in our programs are met while at the same time protecting the interests 
of current and future generations who must accept the consequence, both 
economic and social, of the unsustainable levels of deficit spending 
and Federal debt. Not all of our existing programs are funded in this 
request, but we have been very careful to make certain to provide 
access to nutrition assistance programs for all eligible populations we 
serve.
    We have made tough choices and developed a budget request that 
makes every dollar produce maximum benefit for the vulnerable 
populations served by our programs and for the Nation as a whole. This 
is the first budget request I have presented to you that includes an 
overall decrease in resources requested. That decrease, however, in no 
way represents a wavering in the Administration's demonstrated, 
consistent support for the Nation's nutrition safety net. Funds 
requested within the budget fully support our best estimates of demand 
for program services and cost for the major nutrition assistance 
programs in fiscal year 2007.
  --This includes a monthly average participation of 25.9 million 
        persons in the Food Stamp Program. This represents a decrease 
        of approximately 1 million from fiscal year 2006, the first 
        projected decrease in participation in 5 years. This reduction 
        results, in large part, from sustained strong economic 
        performance and the transition of Gulf Coast disaster 
        participants to self-sufficiency.
  --Participation in the WIC program is expected to rise slightly in 
        fiscal year 2007 from 8.17 million participants a month to 8.22 
        million.
  --In the School Meals Programs, daily meal service to our youth will 
        reach 30.9 million students in the National School Lunch 
        Program and 10.3 million students in the School Breakfast 
        Program.
    Three principle objectives guide our administration of these 
programs, (1) to ensure that low-income people have access to food by 
ensuring sufficient funding for the major nutrition assistance 
programs; (2) to promote healthful diets and active lifestyles by 
making nutrition education an integral part of the nutrition assistance 
programs; and (3) to manage prudently and efficiently so that every 
dollar invested has maximum benefit for those truly in need. The 
President's budget request for fiscal year 2007, like all prior 
requests submitted by this Administration, reflects these prime 
objectives.

            ENSURING LOW INCOME PERSONS HAVE ACCESS TO FOOD

    At its most basic level, ensuring program access must begin with 
making certain that sufficient resources are available so all who are 
eligible and in need can have ready access to benefits. The President's 
fiscal year 2007 budget requests funds to support anticipated 
participation in the Food Stamp Program, the Child Nutrition Programs 
and the WIC Program. The Administration's strong commitment to 
adequately fund these critical programs acknowledges the inherent 
difficulties in anticipating future demand for program services, and 
provides for contingency funding should program costs exceed our 
estimates. Should our estimates of program participation or costs prove 
too low, we have continued to protect program access for all eligible 
persons, a key objective of the President and myself, through properly 
funded contingency reserves. In the Food Stamp Program we have 
continued the funding for the contingency reserve of $3 billion. These 
funds are especially important as the program transitions out of a 
period of growth and begins to reflect the benefits of strong economic 
performance the Nation has been enjoying. In the WIC Program, 
approximately $125 million remains available to ensure that the 
essential food, nutrition education, and health care referral services 
remain available to all who need them.
    For the first time, the President has proposed a contingency 
reserve for the Child Nutrition Programs. The reserve, proposed at $300 
million, will ensure that sufficient resources are available to fully 
fund the mandatory entitlement payments to our State and local partners 
who make certain that nutritious, appealing meals are available to all 
our children in schools and many childcare settings.

            PROMOTING HEALTHFUL DIETS AND ACTIVE LIFESTYLES

    Our programs provide nutrition assistance, including both access to 
healthy food and nutrition education and promotion to support and 
encourage a healthy lifestyle. With this nutrition mission in mind, and 
the Center for Nutrition Policy and Promotion's (CNPP) focus on the 
broader population, we play a critical role in the integrated Federal 
response to the growing public health threat posed by overweight and 
obesity which affects well over half of adult Americans.
    The Federal nutrition assistance programs play a critical role in 
combating this epidemic by providing not just access to healthful food, 
but also promoting better health through nutrition education and 
promotion of physical activity. These FNS program services, along with 
the work of the CNPP to improve the diets of all Americans, are a key 
component of the President's HealthierUS Initiative. I believe the 
American public is served well by USDA's contributions to addressing 
the critical nutrition- and health-related issues facing us today. This 
budget request provides approximately $675 million in resources tied 
specifically to improving the diets, nutrition knowledge and behavior 
and promoting the importance of physical activity among the people we 
serve.
    The CNPP continues to have an integral role in the development and 
promotion of updated dietary guidance and nutrition education. The 
Dietary Guidelines for Americans (Guidelines), published jointly every 
5 years by the USDA and the U.S. Department of Human Services (HHS), is 
the cornerstone of Federal nutrition policy, allowing the Federal 
Government to speak with one voice. This request features an increase 
of $2 million to support the efforts of the CNPP to maintain and 
enhance the extremely well-received food guidance system, 
MyPyramid.gov, which is one of the most frequently visited of all 
Federal websites for the public. In addition, base funding will allow 
CNPP to begin preparations for the 2010 update to the Dietary 
Guidelines for Americans for which USDA is the lead Federal agency.

                   MANAGING PRUDENTLY AND EFFICIENTLY

    With this budget request, we are asking the Nation to entrust us 
with over $57 billion of public resources. We are keenly aware of the 
immense responsibility this represents. To maintain the high level of 
public trust that we have earned as good stewards of the resources we 
manage, we will continue our ongoing commitment to program integrity as 
an essential part of our mission to help the vulnerable people these 
programs are intended to serve.
    This is not a new commitment. As I noted earlier, in fiscal year 
2004, the most recent year for which data is available, the Food Stamp 
Program achieved a record high payment accuracy rate of 94.1 percent, 
up 0.7 percent points from the fiscal year 2003 level of 93.4 percent. 
Our budget request included an increase of $4 million in the Nutrition 
Program Administration account focused on sustaining the momentum we 
have achieved to improve the Food Stamp payment accuracy and overall 
program integrity.
    We have proposed elimination of restrictive language that prohibits 
the use of funds appropriated in the program accounts for the purpose 
of studies and evaluations. This proviso has limited our capacity to 
support and assess program innovations, many of which are initiated by 
our State and local partners. Lifting this restriction will help us to 
document results more effectively, and contribute to better program 
management.
    We also continue to develop strategies to improve the accuracy of 
eligibility determinations in our school meals programs--an issue of 
mutual concern to all those that care about these programs. The Federal 
administrative resources provided for in this budget will allow us to 
advance our close work with our State and local program partners on 
both of these essential integrity initiatives--continuing both our 
successes in the Food Stamp Program and our intensified efforts in 
school meals.
    In the remainder of my remarks, I'd like to discuss in greater 
detail a few of the key proposals contained in the President's fiscal 
year 2007 request.

                           FOOD STAMP PROGRAM

    The Food Stamp Program is fully funded in the President's budget at 
$37.9 billion. This will support an anticipated average monthly 
participation of 25.9 million persons, about 1 million persons lower 
than expected in fiscal year 2006. This displays a key strength of the 
Food Stamp Program: its ability to respond dynamically to the changing 
levels of need within American society. We responded to the hurricanes 
in the Gulf Coast this past fall, providing benefits to 1.9 million 
affected households. Elsewhere, the program is now responding to the 
strength of the economy, and is no longer growing as it did in recent 
years.
    Should our estimate of fiscal year 2007 program participation or 
cost prove to be too low, the program continues to be protected by a 
contingency reserve, proposed at $3 billion in new budget authority for 
fiscal year 2007. As an alternative to the contingency reserve, the 
President's request offers a proposal of indefinite authority. This 
form of appropriation would eliminate the need for an annual 
contingency reserve appropriation, while at the same time guaranteeing 
that sufficient funds will be available to meet the entitlement 
components of the program.
    We continue to aggressively promote the message that Food Stamps 
Make America Stronger, in the sense that the program puts healthy food 
on the tables of low-income families and has a positive effect on local 
economies. The President's budget features proposals targeted at 
ensuring those in need can access benefits without sacrificing their 
retirement savings, making certain that all persons in need face the 
same program eligibility requirements regardless of where they live, 
and improving the ease and accuracy of the certification process so 
each household receives the proper benefit level. Given tough budget 
constraints, the food stamp proposals focus on those who are most 
needy.
    The President's budget proposes to expand and make mandatory the 
exclusion, first made a State option for 401(k) and Keogh accounts in 
the 2002 Farm Bill, of the value of tax-preferred retirement accounts 
from the asset test. This exclusion strengthens retirement security 
policy and enables low-income people to get nutrition assistance 
without depleting their retirement savings. It also simplifies food 
stamp resource policy and makes it more equitable because under current 
law some retirement accounts are excluded and some are included. This 
proposal supports the President's Ownership Society Initiative, by 
increasing the ability of low-income people to save for retirement. It 
is expected, when fully implemented, to add approximately 100,000 
persons to the program and to increase benefits by $592 million over 5 
years. The majority of the new participants will be workers and their 
families, most with children. On average, each new household will get 
$122 in benefits each month.
    While we seek to encourage all who are eligible and in need to 
participate in the program, we feel strongly we must also ensure that 
access to the program is administered in an equitable manner across all 
States. For this reason we have once again included a proposal to 
eliminate categorical food stamp eligibility for Temporary Assistance 
for Needy Families (TANF) participants who receive only services and 
not cash benefits. The people affected by this proposal have income or 
assets that exceed the program's regular limits. When fully implemented 
in fiscal year 2008, this change is estimated to affect approximately 
300,000 individuals and save $658 million over 5 years. The President's 
proposal restores equity among participants and ensures that food stamp 
benefits go to individuals with the most need while retaining 
categorical eligibility for the much larger number of recipients who 
receive cash assistance through TANF, Supplemental Security Income and 
General Assistance.
    Also included in the budget request is a proposal to add the Food 
Stamp Program to the list of programs for which States may access the 
National Directory of New Hires. Access to this national repository of 
employment and unemployment insurance data will enhance States' ability 
to quickly and accurately make eligibility and benefit level 
determinations, improving program integrity. This proposal is expected 
to produce a net savings of $1 million annually beginning in fiscal 
year 2008.
    Finally, the budget request reflects our continued commitment in 
two important areas. First the President's request includes a proposal 
to exclude special military pay received by members of the armed forces 
deployed in combat zones when determining Food Stamp Program 
eligibility and benefit amounts for their families back home. This 
proposal has been provided for in appropriations law in previous years, 
where it is requested again. Second, the Administration remains 
committed to working with Congress on a name change for the program. 
The President's request continues the process that began in 2006 to 
gather information related to a proposed name change for Congressional 
consideration.

                        CHILD NUTRITION PROGRAMS

    A base increase of $685 million is requested to fully fund the 
Child Nutrition Programs including our three largest programs serving 
children, the National School Lunch Program, the School Breakfast 
Program, and Child and Adult Care Food Program. This increase will 
support the continuing growth in meal service in these programs with 
more than 9 billion appealing, nutritious meals provided to all of our 
children in schools and many childcare settings. Since fiscal year 
2000, average daily participation in the National School Lunch Program 
has climbed from 27.2 million to an estimated 30.9 million in fiscal 
year 2007. In the School Breakfast Program, 10.3 million children will 
be served each day in fiscal year 2007, up from 7.8 million in fiscal 
year 2000.
    Should this increase not prove sufficient to fully cover program 
costs, the budget request proposes an additional increase of $300 
million to, for the first time, fund a contingency reserve for the 
Child Nutrition Programs. This reserve will serve to ensure access to 
these important services to all children and make certain that funds 
are available to meet our mandatory obligations to our State and local 
partners in the administration of the Child Nutrition Programs.
    Improving both the nutrition of children and their awareness of the 
role that healthy food choices and physical activity play in promoting 
overall well being are core goals of these programs. The Food and 
Nutrition Service is reviewing the new Dietary Guidelines, as well as 
the Dietary Reference Intakes, and working to incorporate their 
recommendations into our nutrient standards and meal patterns. 
Additional resources requested under the Nutrition Program 
Administration for Cross-Program Nutrition Education will help us to 
incorporate family-based approaches to nutrition education into the 
Child Nutrition Programs and to leverage those messages and materials 
to improve nutrition education and promote smart food choices and 
physical activity across all of the nutrition assistance programs. We 
also are continuing efforts to promote healthy behaviors through 
support for implementation of local school-based wellness programs 
required by the Child Nutrition and WIC Reauthorization Act of 2004.

                                  WIC

    In fiscal year 2007, the President's budget request of $5.2 billion 
anticipates supporting critical services to a monthly average 
participation of 8.2 million women, infants and children through the 
Special Supplemental Nutrition Program for Women, Infants and Children 
(WIC). While this request is a small decrease from the enacted fiscal 
year 2006 level, in combination with available prior-year resources it 
will support a slight increase from anticipated fiscal year 2006 
participation levels. The $125 million contingency reserve appropriated 
in fiscal year 2003 and replenished in fiscal year 2005, remains 
available to the program should participation or food costs exceed our 
projections. We currently do not anticipate the need to access the 
contingency reserve in either fiscal year 2006 or fiscal year 2007.
    In all of the Federal nutrition assistance programs, the 
Administration is committed to ensuring that benefits are targeted to 
those most in need. WIC applicants can currently receive adjunctive or 
automatic eligibility for benefits based on their participation in 
other means-tested programs such as the Food Stamp Program and 
Medicaid. However, in some States, individuals with incomes higher than 
those established for participation for WIC are eligible for Medicaid. 
Included in the budget request is a proposal to limit adjunctive 
eligibility based on participation in Medicaid to those individuals 
whose incomes are below 250 percent of Federal poverty guidelines.
    The budget also reflects the Administration's dual commitment to 
both support the WIC Program and to control discretionary spending 
growth. We are committed to working with our State partners to manage 
program costs to ensure future access to this critical program for all 
who are eligible and seek its services. The President's budget contains 
a two-part proposal that will allow us to reduce Federal expenditures 
on Nutrition Services and Administration (NSA) with the participation 
of the States. WIC is currently one of the few Federal programs that do 
not require matching funds for administration funds. The President's 
budget proposes a 20 percent State matching on NSA funds that would 
take effect in fiscal year 2008. The 1-year delay in implementation is 
essential so that the States can incorporate this new requirement into 
their fiscal plans. As a transitional step, we are renewing our 
proposal to cap the level of NSA funding at 25 percent of the total 
level grants to States in fiscal year 2007. We will also continue our 
long successful partnership with the States in containing food package 
cost growth through sharing of best practices and providing technical 
assistance in the implementation of food cost containment strategies.

               COMMODITY SUPPLEMENTAL FOOD PROGRAM (CSFP)

    The President's fiscal year 2007 budget request does not fund CSFP. 
We face difficult challenges and decisions with regard to discretionary 
budget resources and have chosen to not request funding for this 
program for several reasons. First, CSFP is not available in all 
States. It currently operates in limited areas of 32 States, two Indian 
reservations, and the District of Columbia. Second, its benefits, to a 
great extent, overlap those available through other nutrition 
assistance programs. Finally, we believe our limited resources are best 
focused on those programs that are universally available to serve these 
needy populations. The priority of the Administration is to ensure the 
continued integrity of the national nutrition assistance safety net, 
including the Food Stamp Program and WIC. However, we want to 
acknowledge our CSFP partners at the State and local level who have 
worked on behalf of this program.
    USDA will work closely with CSFP State agencies to ensure that any 
negative effects on program participants are minimized, and that they 
are transitioned as rapidly as possible to other nutrition assistance 
programs for which they are eligible. The budget request includes funds 
to support the transition of CSFP participants to nationally available 
FNS nutrition assistance programs such as WIC and FSP. The budget 
requests $2 million to provide outreach and to assist individuals to 
enroll in the Food Stamp Program. Elderly participants who are not 
already receiving food stamp benefits will be eligible to receive a 
transitional benefit worth $20 per month ending in the first month 
following enrollment in the Food Stamp Program under normal program 
rules, or 6 months, whichever occurs first. CSFP women, infants, and 
children participants who are eligible for WIC benefits will be 
referred to that program. Commodities obtained under agriculture 
support programs will be redistributed for use in other nutrition 
assistance programs, such as TEFAP.

             THE EMERGENCY FOOD ASSISTANCE PROGRAM (TEFAP)

    TEFAP plays a critical supporting role for the Nation's food banks. 
This support takes the form of both commodities for distribution and 
administrative funding for States' commodity storage and distribution 
costs. Much of this funding flows from the States to faith-based 
organizations, a cornerstone of the food bank community. The 
President's budget requests the fully authorized level of $140 million 
to support the purchase of commodities for TEFAP. Additional food 
resources become available through the donation of surplus commodities 
from USDA's market support activities. State and local administrative 
costs, which support the food bank community, are funded at $49.5 
million in the President's request.

                   NUTRITION PROGRAMS ADMINISTRATION

    We are requesting $160.4 million in our Nutrition Programs 
Administration account, which reflects an increase of $18.6 million in 
our Federal administrative funding. This account supports Federal 
management and oversight of a portfolio of program resources totaling 
$57 billion, almost 60 percent of the USDA budget.
    A key component of this year's request is a $4 million increase to 
support additional program integrity and accountability efforts in the 
Food Stamp Program. These resources would support up to 40 additional 
staff dedicated to continuing our strong record of results in improving 
payment accuracy and improving our ability to provide oversight and 
technical assistance to our State partners. While I am very proud of 
our accomplishments in program integrity, maintaining those gains and 
achieving further improvement in payment accuracy is a daunting 
challenge. This request represents a small investment that will pay big 
dividends in our continuing efforts to make certain we get the right 
benefits to the right people.
    The budget also requests an increase of $2 million to support the 
efforts of the Center for Nutrition Policy and Promotion. These 
resources will continue the Center's work on MyPyramid and will support 
up to an additional 4 staff years dedicated to this initiative.
    Also included in the President's request is $6 million to support 
important program assessment and evaluation activities examining 
program integrity issues and ways to improve the delivery of benefits 
and services with the Food Stamp Program.
    Other increases contained in the budget request include the $3 
million for Cross-Program Nutrition Education efforts, $3.5 million to 
support FNCS' participation in the OMB's government-wide initiative to 
modernize and better integrate financial management systems, and $2.8 
million to support base pay cost increases.
    The increases requested within this budget are essential to 
ensuring that FNCS can continue to successfully execute its basic 
program administration, oversight and fiscal stewardship duties. We 
understand the difficult budgetary circumstances the Federal Government 
now faces and support and have participated in the tough choices that 
must be made. However, it is essential that FNCS address the serious 
challenge posed by both the accumulated effect of over a decade of 
staffing reductions and the loss of critical skills and experience 
inherent in the impending retirement of close to 30 percent of its 
workforce over the next 5 years.
    I have begun that process by improving the management of human 
capital planning processes, strengthening services provided to 
employees, and implementing programs designed to improve the 
efficiency, diversity, and competency of the work force. With just 
nominal increases for basic program administration in most years, FNCS 
has reduced its Federal staffing levels significantly over time. We 
have compensated for these changes by working smarter--re-examining our 
processes, building strong partnerships with the State and local 
entities which administer our programs, and taking advantage of 
technological innovations. We are extremely proud of what we have 
accomplished and continue to seek new ways to meet the challenges 
before us. However our ability to continue to reliably meet these 
challenges will be in question if staffing levels continue to decline.
    Mr. Chairman, I appreciate the opportunity to present to you this 
budget and what it means for the millions of Americans that count on us 
for nutrition assistance. I would be happy to answer any questions you 
may have.
                                 ______
                                 

 Prepared Statement of Eric J. Hentges, Executive Director, Center for 
                     Nutrition Policy and Promotion

    Thank you, Mr. Chairman, and members of the Subcommittee, for 
allowing me this opportunity to present testimony in support of the 
Administration's budget for fiscal year 2007.
    With the Nation facing significant public health issues related to 
the quality of the American diet, I believe that the outcome-based 
efforts of the Center for Nutrition Policy and Promotion are key to 
promoting more healthful eating behaviors and lifestyles across the 
Nation. Working from its mission to improve the health of Americans by 
developing and promoting dietary guidance that links scientific 
research to the nutrition needs of consumers, the Center for Nutrition 
Policy and Promotion has a critical role in how USDA meets its 
strategic goal to improve the Nation's nutrition and health.

    TRENDS CONTINUE TO SHOW NEED FOR REVISED NUTRITION GUIDANCE AND 
                           EDUCATIONAL TOOLS

    Recent studies of America's dietary and physical activity behaviors 
reveal disturbing trends. First, a combination of poor diet and 
sedentary lifestyle not only undermines quality of life and 
productivity, but it also contributes to the preventable causes of 
deaths each year in the United States.
    Second, specific diseases and conditions, such as cardiovascular 
disease, hypertension, overweight and obesity, and osteoporosis, are 
clearly linked to a poor diet. Recent statistics are staggering: 65 
percent of adults (ages 20 to 74) are overweight, with 31 percent among 
this group classified as obese. Children and adolescents have not 
escaped this unhealthy outcome: among 6- to 19-year-olds, 16 percent 
(over 9 million) are overweight--triple what the proportion was in 
1980. Another 15 percent are at risk of becoming overweight. With 
statistics showing an increase in overweight and obesity and estimates 
indicating that obesity-attributable medical expenditures in the United 
States reached $75 billion in 2003, the health of Americans is a 
serious concern that must be addressed.
    Third, the lack of physical activity has been associated with a 
number of conditions, including diabetes, overweight and obesity, 
cardiovascular disease, and certain cancers. Supporting evidence 
indicates less than half (46 percent) of the U.S. population meets the 
recommended level of physical activity. USDA's involvement is critical 
in helping to stem and eventually reverse some of these disturbing 
trends.

  DIETARY GUIDELINES FOR AMERICANS ESTABLISH FEDERAL NUTRITION POLICY

    In conjunction with the Department of Health and Human Services, 
USDA released the sixth edition of the Dietary Guidelines for Americans 
on January 12, 2005. This science-based blueprint for promoting good 
nutrition and health encourages Americans to ``(1) Make smart choices 
from every food group, (2) Find your balance between food and physical 
activity, and (3) Get the most nutrition out of your calories.''
    The Guidelines, the basis for Federal nutrition policy, provide 
advice for healthy Americans, ages 2 years and older, about food 
choices that promote health and prevent disease. These Guidelines not 
only form Federal nutrition policy, but they also set standards for the 
nutrition assistance programs, guide nutrition research and education 
efforts, and are the basis for USDA nutrition promotion activities.
    As the lead Federal agency in administration of the 2010 
Guidelines, USDA's Center for Nutrition Policy and Promotion has 
already begun laying the foundations--planning the management 
strategies that USDA will use to lead in interagency coordination and 
putting into place an evidence-based system. An evidence-based system 
will provide a framework or protocol for comprehensive analysis and 
synthesis of scientific literature, ranking its strengths according to 
established criteria. In developing nutrition guidance, this system 
will enable government decision makers to make the best policy 
supported by the strongest scientific evidence available, giving both 
the Executive and Legislative branches of government along with the 
scientific community and the general public a continued confidence in 
nutrition policies, guidelines and recommendations that are being 
developed and promoted.

               MYPYRAMID SERVES AS PREMIER TEACHING TOOL

    MyPyramid, based on the 2005 Dietary Guidelines for Americans, 
supports two pillars of the President's HealthierUS Initiative: to 
``Eat a Nutritious Diet'' and to ``Be Physically Active Every Day.'' 
MyPyramid is an individualized, interactive tool to help Americans 
build the Guidelines into their daily lives. Included in the MyPyramid 
webpage are the MyPyramid Plan and MyPyramid Tracker. MyPyramid Plan 
helps consumers find the types and amounts of food they should eat to 
meet nutrient requirements. MyPyramid Tracker, which has nearly 1 
million registered users to date, is for consumers who want a detailed 
assessment and analysis of their current eating and physical activity 
behaviors; and it provides guidance on how to improve those behaviors. 
Since its launch in April 2005, MyPyramid.gov has received over 1.5 
billion hits.
    USDA also launched MyPyramid for Kids, a child-friendly version of 
MyPyramid targeted to schoolchildren. This tool is designed to 
encourage children to make smart food choices each day. An interactive 
learning computer game; lesson plans for educators; colorful posters 
and flyers; and other resources are available to help children make 
those choices. To reach an even broader audience, Spanish language 
versions of MyPyramid (MiPiramide) and MyPyramid for Kids (MiPiramide 
para Ninos) have been developed. These materials have been distributed 
to tens of thousands of schools across America and are also available 
online.
    The President's budget requests an increase of $1.98 million for 
CNPP. These funds will support maintenance and enhancements to 
MyPyramid, improvements in customer support and outreach capabilities. 
This budget will help USDA determine whether the use of the Dietary 
Guidelines and MyPyramid by the American public, teachers, students, 
and health professionals ultimately improves the American diet.
    Planned activities directly related to MyPyramid include the 
procurement of ongoing web hosting and maintenance of MyPyramid.gov and 
MyPyramid Tracker, which assist the public in monitoring and developing 
individualized healthy eating plans. In addition, this funding will 
provide for the maintenance and upgrading of related hardware and 
software; increased operational costs realized from spikes in the usage 
of the website; developmental costs associated with improvements to 
MyPyramid Tracker; and acquisition of new food and nutrient composition 
data bases and integration of the Healthy Eating Index into MyPyramid 
Tracker.
    With this budget, CNPP will procure the development and 
implementation of a continual evaluation plan for MyPyramid to 
ascertain its usefulness by the American consumer. Additionally, CNPP 
plans to enhance the MyPyramid.gov website with interactive 
capabilities to encourage behavior change that promotes healthful diets 
across a broad spectrum of American society. This would include a meal 
planning feature which is currently missing, a recipe file feature, and 
a shopping list feature all of which have been requested by the public 
and the professional nutrition community.
    With thousands of emails, written correspondence, telephone 
inquiries and hotline calls that have resulted from the overwhelming 
success of the Dietary Guidelines for Americans and MyPyramid.gov, CNPP 
also intends to use appropriated resources toward four additional staff 
years devoted exclusively to assisting the public in the areas of 
information dissemination and improvement of the CNPP, Dietary 
Guidelines and MyPyramid websites. These additional staff years would 
allow CNPP to provide customer support in timely manner; enhance the 
outreach and promotion of MyPyramid.gov; and support USDA's 
Nutrition.gov website and USDA's on-line ``Ask the Expert.''
    With your support, we look forward to continuing to build, enhance, 
and better promote personalized and individualized nutrition guidance 
tools--such as MyPyramid.gov--reaching millions of Americans daily. 
Your support will also help us improve customer support and outreach as 
well as set the foundation for future development of scientific 
nutrition policy, which is vital to addressing the growing problems of 
overweight and obesity and the related health challenges in America.
    I thank the Committee for the opportunity to present this written 
testimony.
                                 ______
                                 

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

    Thank you, Mr. Chairman, and members of the Subcommittee for 
allowing me this opportunity to present testimony in support of the 
fiscal year 2007 budget request for the Food and Nutrition Service 
(FNS).
    FNS is the agency charged with administering the fifteen Federal 
nutrition assistance programs which create the Nation's nutrition 
safety net and providing Federal leadership in America's ongoing 
struggle against hunger and poor nutrition. Our stated mission is to 
increase food security, reduce hunger and improve health outcomes in 
partnership with cooperating organizations by providing children and 
low-income people access to nutritious food and nutrition education in 
a manner that inspires public confidence and supports American 
agriculture. The budget request clearly demonstrates the President's 
continuing commitment to this mission and our programs as well as 
strengthens the Federal nutrition assistance safety net in a time of 
competing priorities and limited resources. Balancing program access, 
good nutrition, and program integrity, this budget makes tough choices 
to meet our key commitments:
  --To ensure that low-income people have access to food by ensuring 
        sufficient funding for the major nutrition assistance programs.
  --To promote healthful diets and active lifestyles by making 
        nutrition education an integral part of nutrition assistance 
        programs.
  --To manage prudently and efficiently so that every dollar invested 
        has the maximum positive benefit for those truly in need.
    A request of $57 billion in new budget authority is contained 
within the fiscal year 2007 budget to fulfill this mission through the 
FNS nutrition assistance programs. These critical programs touch the 
lives of more than 1 in 5 Americans over the course of a year. Programs 
funded within this budget request include the National School Lunch 
Program (NSLP), which will provide nutritious school lunches to 30.9 
million children each school day, the WIC Program, which will assist 
with the nutrition and health care needs of 8.2 million at risk 
pregnant and postpartum women, infants and children each month, and the 
Food Stamp Program (FSP), which will ensure access to a nutritious diet 
each month for an estimated 25.9 million people. The remaining programs 
include the School Breakfast Program (SBP), the Summer Food Service 
Program (SFSP), the Child and Adult Care Food Program (CACFP), The 
Emergency Food Assistance Program (TEFAP), the Food Distribution 
Program on Indian Reservations (FDPIR) and the Farmers' Market 
Programs.
    We are proposing, with this budget request, the elimination of the 
Commodity Supplemental Food Program (CSFP). The priority of the 
Administration, as reflected in the President's budget request, is to 
ensure the continued integrity of the national nutrition assistance 
safety net. CSFP is only available in limited areas. It operates in 
parts of 32 States, two Indian Tribal Organizations, and the District 
of Columbia. Its benefits and target populations to a great extent, 
overlap with two of the largest nationwide Federal nutrition assistance 
programs--Food Stamps and WIC. FNS seeks to serve the children and low-
income households of this Nation. We believe the President's budget 
request, allows us to focus scarce resources on addressing the diverse 
ways which hunger and nutrition-related problems present themselves 
through the core programs of the nutrition safety net.
    The resources we are here to discuss represent an investment in the 
health, self-sufficiency, and productivity of Americans who, at times, 
find themselves in need of nutrition assistance. Under Secretary Bost, 
in his testimony, has outlined the three critical challenges which the 
Food, Nutrition and Consumer Services team has focused on under his 
leadership: promoting access and awareness of the Federal nutrition 
assistance programs; addressing the growing epidemic of obesity; and, 
improving the integrity with which our programs are administered. In 
addition to these fundamental priorities specific to our mission, the 
President's Management Agenda provides an ambitious agenda for 
management improvement across the Federal Government as a whole. I 
would like to report on our efforts to address three specific items 
under this agenda: reducing improper payments and enhancing the 
efficiency of program delivery, building partnerships with faith and 
community-based organizations, and systematically planning for the 
human capital challenges facing all of the Federal service.

                   THE CHALLENGE OF IMPROPER PAYMENTS

    Good financial management is at the center of the President's 
Management Agenda. As with any Federal program, the nutrition 
assistance programs require sustained attention to program integrity. 
We cannot sustain these programs over the long term without continued 
public trust in our ability to manage them effectively. Program 
integrity is as fundamental to our mission as program access or healthy 
eating. Our efforts to minimize improper program payments focus on (1) 
working closely with States to improve food stamp payment accuracy; (2) 
implementing policy changes and new oversight efforts to improve school 
meals certification; and (3) improving management of CACFP providers 
and vendors in WIC. We have identified these 4 programs as ones 
susceptible to improper payments and will continue to enhance the 
efficiency and accuracy with which these programs are delivered.
    I am happy to report that in fiscal year 2004, the most recent year 
for which data is available, we have achieved a record level of food 
stamp payment accuracy with a combined payment accuracy rate of 94.12 
percent. This is the sixth consecutive year of improvement, making it 
the lowest rate in the history of the program. With this budget 
request, we will continue our efforts with our State partners toward 
continued improvement in the payment accuracy rate. We will continue 
efforts to address the issue of proper certification in the school 
meals programs in a way that improves the accuracy of this process 
without limiting access of eligible children. Analytical work has begun 
to better assess the accuracy of eligibility determinations in the 
CACFP.

            FAITH-BASED AND COMMUNITY ORGANIZATIONS OUTREACH

    Faith-based and community organizations have long played an 
important role in raising community awareness about program services, 
assisting individuals who apply for benefits, and delivering benefits. 
President Bush has made working with these organizations an 
Administration priority, and we intend to continue our outreach efforts 
in fiscal year 2007. The partnership of faith-based and community 
organizations and FNS programs, including TEFAP, WIC, CACFP and NSLP is 
long-established. Significant numbers of faith-based schools 
participate in the NSLP and many child care providers and sponsors are 
faith-based and community organizations. In addition, the majority of 
food pantries and soup kitchens that actually deliver TEFAP benefits 
are faith-based and community organizations. Across the country, faith-
based organizations have found over the years that they can participate 
in these programs without compromising their mission or values. They 
are valued partners in an effort to combat hunger in America. I am 
happy to report we have provided eight grant awards of approximately $2 
million to community and faith-based organizations to test innovative 
food stamp outreach strategies to reach underserved, eligible 
individuals and families.

                        HUMAN CAPITAL MANAGEMENT

    We currently estimate that up to 80 percent of our senior leaders 
are eligible to retire within five years, as is nearly 30 percent of 
our total workforce. FNS must address this serious challenge by 
improving the management of the agency's human capital, strengthening 
services provided to employees, and implementing programs designed to 
improve the efficiency, diversity, and competency of the work force. 
With just nominal increases for basic program administration in most 
years, the FNS has reduced its Federal staffing levels significantly 
over time.
    We have now reached a critical point within our agency staffing 
levels; we simply must have the ability to develop the resources 
necessary to continue to assure appropriate access to the agency 
programs while maintaining stellar integrity outcomes. While we have 
compensated in the past by building strong partnerships with the State 
and local entities which administer our programs and taking advantage 
of technological innovations, the President's budget proposes the 
addition of 40 staff years to perform fundamental program integrity 
activities for the Food Stamp Program.
    It is also important that we have the ability to conduct research 
on our programs and we ask that we not be prohibited from doing so. We 
are extremely proud of what we have accomplished. In order to continue 
to achieve improvements in program integrity and program access; I 
believe full funding of the Nutrition Program Administration (NPA) 
request in this budget is vital.
    Now, I would like to review some of the components of our request 
under each program area.

                           FOOD STAMP PROGRAM

    The President's budget requests $37.9 billion for the Food Stamp 
account including the Food Stamp Program and its associated nutrition 
assistance programs. These resources will serve an estimated 25.9 
million people each month participating in the Food Stamp Program 
alone. Included in this request is the continuation of the $3 billion 
contingency reserve provided for the program in fiscal year 2006. While 
we anticipate improvement in the general economy, the turning point of 
participation continues to be challenging to predict.
    To better meet this challenge, we have proposed, as an alternative 
to the traditional contingency reserve, indefinite funding authority 
for program benefits and payments to States and other non-Federal 
entities. These contingency resources are important to not only 
ensuring the availability of basic program benefits, but also to 
ensuring that adequate funds are available in the event of disasters. 
The Food Stamp Program is designed to respond, not only to the economy 
but also to disaster-related food assistance needs. Our recent 
experience with the Gulf Coast disasters made this very clear when over 
$900 million in food stamp benefits have been issued to date to over 
1.9 million households affected by Hurricanes Katrina, Rita and Wilma 
in the fall of 2005. In addition, we have made a concerted effort to 
encourage working families, senior citizens and legal immigrants to 
apply for benefits.
    The President's budget request contains three legislative proposals 
for the Food Stamp Program. These proposals work together to strengthen 
the national framework of the Food Stamp Program by setting national 
standards that better target benefits to low-income persons. They 
support the priorities of access and nutrition assistance for those in 
need while ensuring integrity in the program.
    The budget proposes to exclude the value of tax-preferred 
retirement accounts from the Food Stamp certification asset test. This 
exclusion strengthens retirement security policy and enables low-income 
people to get nutrition assistance without depleting their retirement 
savings. It also simplifies food stamp resource policy and makes it 
more equitable because under current law, some retirement accounts are 
excluded while others are not. This proposal is consistent with the 
President's Ownership Society Initiative, by increasing the ability of 
low-income people to save for retirement.
    Our budget once again proposes to eliminate categorical Food Stamp 
eligibility for Temporary Assistance for Needy Families (TANF) 
participants who receive only non-cash TANF services. Fully implemented 
in fiscal year 2008, this change is estimated to affect approximately 
300,000 individuals and save $658 million over five years. We believe 
this proposal ensures that food stamp benefits will go to the 
individuals with the most need and retains categorical eligibility for 
the large number of recipients who receive cash assistance through 
TANF, Supplemental Security Income and General Assistance.
    Also included in the budget is a proposal to add the Food Stamp 
Program to the list of programs for which States may access the 
National Directory of New Hires. Access to this national repository of 
employment and unemployment insurance data will enhance States' ability 
to quickly and accurately make eligibility and benefit level 
determinations, supporting continued program integrity. The budget also 
requests a continuation of a policy included in last year's 
appropriations act to exclude special military pay received by members 
of the armed forces serving in combat zones when determining food stamp 
benefits for their families back home.
    Finally, the Administration remains committed to proposing a name 
change for the program to Congress. We will continue the process that 
began in 2006 to gather information related to a proposed name change 
for Congressional consideration.

                        CHILD NUTRITION PROGRAMS

    The budget requests $13.6 billion for the Child Nutrition Programs, 
which provide millions of nutritious meals to children in schools and 
in childcare settings every day. This level of funding will support an 
increase in daily NSLP participation from the current 30.2 million 
children to approximately 30.9 million children. Requested increases in 
these programs reflect rising school enrollment, increases in payment 
rates to cover inflation, and proportionately higher levels of meal 
service among children in the free and reduced price categories. To 
ensure that Child Nutrition Programs respond to unforeseen increases in 
participation, the request provides $300 million in contingency 
funding. This contingency reserve would make supplemental funding 
requests unnecessary at times of budgetary shortfalls. Similar to the 
Food Stamp Program, such a shortfall could result from larger than 
anticipated program participation growth, responses to natural 
disasters or other national emergencies.
    We are continuing to implement program changes and new activities 
resulting from the 2004 reauthorization of these programs including the 
Fruit and Vegetable Program. We are also continuing our efforts to 
promote healthy behaviors by supporting the implementation of local 
wellness policies. We created the HealthierUS Schools Challenge to 
encourage communities to improve the foods offered at school and other 
aspects of a healthy school nutrition environment and to recognize 
schools that made improvements.
    FNS is continuing to integrate the 2005 Dietary Guidelines for 
Americans recommendations into the school meal programs. By law, school 
meals are required to be consistent with the Guidelines. Meals in the 
NSLP must provide one third of the Recommended Dietary Allowances 
(RDAs), while meals in the School Breakfast Program must provide one 
fourth of the RDAs. An FNS workgroup is reviewing the new Guidelines as 
well as the Dietary Reference Intakes (DRIs) nutrient standards to 
identify potential changes in the meal patterns within the existing 
meal reimbursement structure.
    The workgroup will make recommendations based on its review. USDA 
will publish a proposed rule with changes to the meal patterns and 
actively seek public comment. Federal, State and local staff will work 
together to implement the new requirements, plan improved recipes and 
menus, modify contracts to obtain the needed ingredients or modified 
products, and train staff who prepare and serve the food.

SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS AND CHILDREN 
                                 (WIC)

    The President's budget request includes $5.2 billion for the WIC 
Program. This request will provide food, nutrition education, and a 
link to health care to a monthly average of 8.2 million needy women, 
infants and children during fiscal year 2007, including former CSFP 
participants.
    The budget contains a two-part proposal that reflects our 
commitment to both support core activities of the WIC Program and 
reduce Federal discretionary spending. We are proposing to cap the 
level of Nutrition Services and Administration (NSA) funding to no more 
than 25 percent of the total WIC State grant amount for fiscal year 
2007. We continue to believe the reduction in NSA funding will not have 
a significant impact on the delivery of core WIC services. States will 
be encouraged to work with Federal program staff to seek efficiencies 
in the delivery of the program to ensure that the reduction in NSA 
funding does not impact core services.
    Looking forward to fiscal year 2008, the budget proposes to replace 
this NSA cap with a 20 percent State match requirement. WIC is 
currently one of the few Federal programs that do not require State 
matching funds for administrative purposes. The proposal is not 
effective until fiscal year 2008 so that States are provided adequate 
notification to allow their legislatures to appropriate funds.
    The President's budget request contains a proposal which limits 
automatic (adjunctive) eligibility based on participation in Medicaid 
to those individuals whose incomes are below 250 percent of Federal 
poverty guidelines. In the WIC Program, applicants can currently 
receive automatic (adjunctive) eligibility for benefits based on their 
participation in other means-tested programs such as the FSP and 
Medicaid. However, in some States, Medicaid permits participation of 
individuals with incomes higher than those established for eligibility 
for WIC (185 percent of the Federal poverty level). This proposal will 
better target WIC benefits to those most in need and, if enacted, the 
proposal will affect six States (Missouri, Maryland, Minnesota, 
Vermont, New Hampshire and Rhode Island).
    The $125 million contingency fund provided in the fiscal year 2003 
appropriation and replenished in fiscal year 2005, continues to be 
available to the program. We currently do not anticipate using the 
reserve in either fiscal year 2006 or 2007, as available resources in 
fiscal year 2006 and the President's budget request will fully meet our 
projected program need for those 2 years.
    FNS is continuing its efforts to review and consider revisions to 
the WIC food package. In September 2003, FNS contracted with the 
National Academies of Sciences' Institute of Medicine (IOM) to 
independently review the WIC food packages. The IOM recommendations on 
the WIC Food Packages were published in a final report in April, 2005. 
FNS has used these recommendations along with comments received on the 
public notice soliciting comments on food package changes to develop a 
proposed rule to update the WIC food packages. This proposed rule is in 
clearance and is expected to be published in the Summer of 2006.
    The President's budget also requests the continuation of the 
moratorium on the authorization of new WIC-only stores. The current 
moratorium was put in place through the fiscal year 2006 appropriations 
bill and will expire at the end of this year. We believe it is 
important to continue this moratorium due to the uncertainty that 
States encountered concerning the status of our regulations 
implementing new management controls on WIC vendor authorizations. This 
uncertainty arose as a consequence of a law suit filed by the National 
Women, Infants, and Children Grocers Association and the subsequent 
Temporary Restraining Order (TRO) issued by the Federal District Court. 
Although the law suit was resolved in favor of the government, States, 
particularly those covered by the TRO, were delayed several months in 
moving ahead with the implementation of new requirements. Therefore, to 
give States reasonable opportunity to put into place approved plans 
effecting these new cost control requirements, we believe continuation 
of the moratorium is prudent.

               COMMODITY SUPPLEMENTAL FOOD PROGRAM (CSFP)

    CSFP serves elderly persons and at risk low-income pregnant and 
post-partum and breastfeeding women, infants and children up to age 
six. The budget does not request funding for this program which is not 
available nationwide and duplicates two of the Nations' largest Federal 
nutrition assistance programs--Food Stamps and WIC. This program 
operates in selected areas in just 32 States, the District of Columbia, 
and two Indian Tribal Organizations. The populations served by CSFP are 
eligible to receive similar benefits through other Federal nutrition 
assistance programs that offer them flexibility to meet their 
individual needs. The Administration has proposed this change to better 
target limited resources to those major programs that are available 
nationwide, promoting equity and effectiveness.
    The President's budget does include a request for funds to support 
the transition of CSFP participants to nationally available FNS 
nutrition assistance programs such as WIC and FSP. USDA will work 
closely with CSFP State agencies to ensure that any negative effects on 
program participants are minimized. We plan to implement a transition 
strategy to encourage those women, infants and children that are 
eligible for WIC to apply for that program, and to encourage elderly 
CSFP recipients to apply for the Food Stamp Program.
    The budget request includes $2 million to provide outreach and to 
assist individuals enrolling in the FSP. Elderly participants who are 
leaving the CSFP upon the termination of its funding and who are not 
already receiving FSP benefits will be eligible to receive a 
transitional benefit of $20 per month. This transition benefit will end 
in the first month following enrollment in the FSP under normal program 
rules, or in 6 months, whichever occurs first. CSFP women, infants, and 
children participants who are eligible for WIC benefits will be 
referred to that program. Commodities obtained under agriculture 
support programs that would be used to support CSFP will be donated for 
use in other nutrition assistance programs, such as TEFAP.

             THE EMERGENCY FOOD ASSISTANCE PROGRAM (TEFAP)

    As provided for in the Farm Bill, the budget requests $140 million 
for commodities in this important program. Our request for States' 
storage and distribution costs, critical support for the Nation's food 
banks, is $50 million. The Food and Nutrition Service is committed to 
ensuring the continuing flow of resources to the food bank community 
including directly purchased commodities, administrative funding, and 
surplus commodities from USDA market support activities. Much of this 
funding is provided, at the local level, to faith-based organizations. 
Surplus commodity donations significantly increase the amount of 
commodities available to the food bank community from Federal sources.

           SENIORS' FARMERS MARKET NUTRITION PROGRAM (SFMNP)

    The President's budget request includes two provisions that improve 
the value of the SFMNP benefits. The first provision prohibits farmers 
selling eligible foods under the SFMNP from charging sales tax on fresh 
fruits and vegetables that are purchased using SFMNP checks or coupons, 
or that are provided to eligible recipients through community supported 
agriculture. The second provision ensures that the value of benefits 
provided to eligible recipients is not considered as income in the 
process of determining eligibility for any other Federal or State 
programs, such as food stamps, TANF, energy assistance, and housing 
assistance. It would also ensure that the value of the SFMNP benefit 
would not be considered as income in calculating the recipients' 
Federal or State tax obligations. These proposals are consistent with 
the way benefits are treated in all other Federal nutrition assistance 
programs.

                NUTRITION PROGRAMS ADMINISTRATION (NPA)

    We are requesting $160.4 million in this account, an increase of 
$18.6 million over our fiscal year 2006 level. This increase will 
partially offset personnel-related costs of the FNS workforce in fiscal 
year 2007. Our request for Federal administrative resources is needed 
to sustain the program management and support activities of our 
employees nationwide. The NPA account supports both FNS' administration 
of the nutrition assistance programs and CNPP's nutrition policy 
development and promotion activities targeted at the general 
population. Specific requests for this account include $2 million to 
support continuing work on MyPyramid; $4 million to support initiatives 
to improve program integrity within the Food Stamp Program and $3 
million to improve the coordination of nutrition education efforts 
across all of the our programs.
    Our request for $6 million to fund critical research and evaluation 
activities examining program integrity issues and ways to improve the 
delivery of program services is essential to the management of our 
programs, as is the $3.5 million request to fund FNS' participation in 
Office of Management and Budget's initiative to modernize and better 
integrate financial management system across the government. I firmly 
believe we need this increase in NPA funding in order to maintain 
accountability for our $57 billion portfolio and to assist States to 
effectively manage the programs and provide access to all eligible 
people.
    Thank you for the opportunity to present this written testimony.

    Senator Bennett. Thank you very much.
    In spite of how much we eat, we still have surpluses that 
Dr. Collins talks about. That is why we need to export.
    Yes, sir. Dr. Raymond.

                      STATEMENT OF RICHARD RAYMOND

    Dr. Raymond. Thank you, Mr. Chairman and Senator Kohl.
    I am pleased to appear before you today to discuss the 
status of the Food Safety and Inspection Service (FSIS) 
programs and the fiscal year 2007 budget request for food 
safety within the U.S. Department of Agriculture.
    As we begin another new year at USDA, I would like to point 
out that this one marks the 100th anniversary of the passage of 
the Federal Meat Inspection Act. We can look back over the past 
century with pride and certainly gain a greater appreciation 
for what USDA has done to protect our food supply and further 
public health protection.
    Today, I will share with you some recent accomplishments, 
as well as our priorities to further protect the food supply, 
and will conclude with some highlights of our fiscal year 2007 
budget request.
    FSIS is accountable for ensuring safe meat, poultry, and 
egg products for 295 million people in this country and 
millions more around the world. In addition, we are accountable 
for ensuring compliance with the Humane Methods of Slaughter 
Act, so that all livestock used for human food are humanely 
handled and slaughtered.
    There are indications that our risk-based Hazard Analysis 
and Critical Control Point, known as HACCP, system is working. 
We have seen dramatic declines in the prevalence of pathogens 
in the products that we regulate and the numbers of food-borne 
illnesses stemming from these pathogens.
    Our regulatory sampling for E. coli O157:H7 and Listeria 
monocytogenes shows evidence of our successes. We have gone 
from a 0.86 prevalence rate for positive E. coli O157:H7 
samples in calendar year 2000 to only 0.17 percent prevalence 
rate for positives in the calendar year 2004. That is a four-
fold drop.
    During the same period, the prevalence rate for Listeria 
monocytogenes samples testing positive dropped from 1.45 
percent in calendar year 2000 to only 0.55 percent in calendar 
year 2004, a three-fold drop.
    Another success has been the break in the annual cycle of 
multi-million pound recalls and a dramatic decline in the 
number of recalls each year. We reached an all-time high of 113 
recalls, totaling nearly 61 million pounds of product in 2002, 
and in 2004, we were down to only 48 recalls, totaling 
approximately 3 million pounds of product.
    We have also seen the effect that the declining number of 
positive E. coli: O157:H7 and Listeria monocytogenes samples is 
having on food-borne illnesses caused by these two pathogens 
over an 8-year period of time. Illnesses caused by E. coli 
O157:H7 have decreased by 42 percent. That is less than 1 
person per 100,000 population. And those illnesses caused by 
listeria have dropped by 40 percent.
    I might add, these numbers do come from the CDC. These are 
not our numbers. I do feel that a picture is worth more than 
1,000 words, and I have included graphs with our submitted 
written testimony with those numbers.
    These successes would indicate that our risk-based approach 
is working and that we are protecting public health through a 
safer food supply. If we make the assumption, from the E. coli 
and Listeria data, that using product sampling trends can also 
be indicators for human illness trends, then we do have a 
glaring problem. That would be Salmonella.
    According to our sampling data, the number of product 
samples positive for Salmonella has been on the rise in several 
poultry categories over the past 3 years, specifically in young 
chicken or broiler carcasses. The overall incidence of 
Salmonella infections also remains far greater than for other 
food-borne pathogens.
    In 2004, according to data, again from the CDC, there were 
14.7 cases of culture-proven Salmonella infections per 100,000 
population in this country. This means 115 people are infected 
by Salmonella every day, or 42,000 every year. The CDC also 
says this is an underestimate by a factor of 38, which means 
that nearly 1.3 million people actually had Salmonella 
infections last year. In my view, that is way too high.
    Salmonella infection rates are not declining like they are 
for the E. coli, Listeria, and Campylobacter bugs. In fact, 
they are rising for certain Salmonella serotypes. Last month, 
we announced an initiative to reduce Salmonella in meat and 
poultry products. This initiative will help FSIS be more 
proactive and will prevent illnesses.
    It incorporates 11 steps, including increased product 
sampling and food safety assessments in plants where they are 
most needed, and our quarterly publication of nation-wide 
Salmonella data by class.
    A $602,000 increase that we are requesting for our risk-
based Salmonella approach in fiscal year 2007 would, among 
other things, allow us to do serotyping more quickly and to 
initiate more food safety assessments at high-risk 
establishments before an outbreak occurs.
    Our next priority for the year is the cornerstone strategy 
to further improve food safety, implementing a more robust 
risk-based inspection system. Our 100-year-old inspection 
system was based on visual examination for visible signs of 
disease. The future demands that we also be able to identify 
things that the human eye cannot see, things the nose cannot 
smell, and things the fingers cannot feel.
    We need to be able to better anticipate and more quickly 
respond to food safety challenges before they negatively affect 
the public's health. The $2.6 million increase that we are 
seeking in the 2007 budget for risk-based inspection services 
will help FSIS reallocate its resources to focus more closely 
on food safety systems and prevent public health problems 
before they occur.
    Finally, to further improve our food defense capabilities, 
we are asking for an increase of $15.8 million for food and 
agriculture defense. A major component of this request will be 
allocated for the enhancement of the Food Emergency Response 
Network, known as FERN, which is a joint laboratory partners 
project between FSIS, Department of Health and Human Services, 
FDA, and selected State public health laboratories.
    We saw what happened to laboratory capacity and the U.S. 
Postal Service efficiency when just a few letters were sent 
containing anthrax to just a few persons. That same thing can 
happen again with one phone call to the Washington Post 
indicating that the meat supply has been contaminated 
intentionally.
    That is why our $13 million request for FERN will provide 
23 selected existing State or local laboratories with the 
necessary training, equipment, and supplies that they need so 
that surge capacity can be handled more quickly and closer to 
home.
    From a public health standpoint, an investment in FERN is 
absolutely essential if we want to prevent or mitigate the loss 
of life and economic hardship if an intentional or an 
unintentional incident affecting the food supply or even a hoax 
were to happen.
    We must also be prepared for the distinct possibility that 
one or all of our three FSIS laboratories could be 
intentionally incapacitated in an attack on our food supply.
    Overall, in fiscal year 2007, FSIS is requesting an 
appropriation under current law of $862.9 million, a net 
increase of about $33.5 million from the enacted level for 
fiscal year 2006. This request supports the agency's basic 
mission, providing continuous or daily inspection in each U.S. 
meat, poultry, and egg products plant. The agency's permanent 
statutory obligation to provide continuous inspection is a 
labor-intensive mandate, therefore making its salary costs 
relatively inflexible.
    An increase of $16 million for the FSIS inspection program 
is requested to provide for a 2.2 percent pay raise for FSIS 
employees as well as $1 million for salary increases in 
cooperating State inspection programs in fiscal year 2007 to 
assure that the agency is provided sufficient funds to maintain 
its programs.

                           PREPARED STATEMENT

    Mr. Chairman, thank you again for providing me the 
opportunity to speak with the subcommittee and submit testimony 
regarding the steps that we are taking to continue our public 
health leadership role. Implementation of these budget 
initiatives is imperative so that we can continue to ensure the 
safety of the products that we regulate.
    I look forward to working with you and the subcommittee to 
further improve our food safety program, and I would welcome 
any questions from the committee that you might have.
    [The statement follows:]

                 Prepared Statement of Richard Raymond

    Mr. Chairman and Members of the Subcommittee, I am pleased to 
appear before you today to discuss the status of the Food Safety and 
Inspection Service's (FSIS) programs and the fiscal year 2007 budget 
request for food safety within the U.S. Department of Agriculture 
(USDA). I am Dr. Richard Raymond, Under Secretary for Food Safety. With 
me today is Dr. Barbara Masters, Administrator of FSIS.
    USDA Secretary Mike Johanns and I share a passion for public 
health. I accepted this position last year because of the Secretary's 
commitment. I knew he would support and allow us to move forward to 
further enhance public health protection. The long history this Agency 
has of protecting public health was another aspect that drew me to this 
opportunity.
    In fact, this year marks the 100th anniversary of the passage of 
the Federal Meat Inspection Act (FMIA), which ushered in a new era of 
food safety on a national level. Even prior to the passage of the FMIA, 
FSIS' predecessor agency, the Bureau of Animal Industry (BAI), carried 
out many important responsibilities to protect public health here and 
abroad. With an appropriation of $150,000 in 1884--the first year of 
its existence--the BAI focused on preventing diseased animals from 
being used as food. Then in 1891, the initial Meat Inspection Act of 
1890 was amended to cover the inspection and certification of all live 
cattle and beef for export.
    As you see, the USDA has a long and proud history in protecting 
public health through food safety. To give you an idea of how far we 
have come in protecting public health, let me share these two facts 
with you.
    One hundred years ago in the United States, the life expectancy was 
45 years. Now it is approximately 75 years. And 100 years ago in the 
United States, one in five coffins contained a child under 5 years old. 
Today that number in the United States is only one in 100 coffins.
    These are amazing accomplishments that have had a profound effect 
on our society and everyone here. Clean water, proper sewage treatment, 
vaccines and antibiotics have all played an important role, but a safer 
food supply has also played a vital role in this amazing improvement.
    This is truly a good story, but the journey is far from over. There 
is much more we need to do. Both Secretary Johanns and I want to push 
the envelope to improve food safety and public health. We all must 
strive to do better because of constantly evolving threats and 
challenges to food safety and our public health system. Having been in 
the medical profession for 27 years as a doctor in both rural and urban 
parts of Nebraska, and having spent the last 6 years prior to USDA in 
public health, I know that the public health environment constantly 
evolves and it is not always a nine-to-five job. Product recalls during 
off hours and the Agency's response in the aftermath of Hurricane 
Katrina are just a couple of examples of the many instances when FSIS 
personnel worked many hours beyond their regular tours of duty.
    This is why I am truly proud and impressed by the dedicated 
professionals at FSIS, who often put in long hours when needed to 
ensure that our meat, poultry and egg products supply is the safest in 
the world. Their support and the Agency's successes in protecting the 
health and well being of millions of consumers worldwide would not have 
been possible without the resources you have so generously given to us. 
I will cover FSIS' successes in more detail, our priorities in the 
coming year, and conclude with a discussion of the fiscal year 2007 
budget request.
Accomplishments
    We are accountable for protecting the lives and well-being of 295 
million people in this country and millions more around the world. 
There are indications that our risk-based system to protect these 
consumers is working. We have seen dramatic declines in the prevalence 
of pathogens in the products we regulate and the numbers of foodborne 
illnesses stemming from these pathogens due to many actions by the 
Agency including the use of risk assessments, working with our partners 
along the farm-to-table continuum, and basing our policies on sound 
science.
Regulatory Sampling
    One such success is apparent in our regulatory sampling for E. coli 
O157:H7 and Listeria monocytogenes.
    Let's take a look at results from our microbiological surveillance 
testing program for E. coli O157:H7. We have gone from 59 positives in 
7,010 samples for E. coli O157:H7 in CY 2001 to only 14 positives in 
8,010 samples in CY 2004. Each year's prevalence rate is listed below.
  --In CY 2001, our testing program yielded 59 positive results out of 
        7,010 samples for a rate of .84 percent;
  --In CY 2002, there were 55 positive results from 7,025 samples for a 
        rate of .78 percent;
  --In CY 2003, there were 20 positives out of 6,584 samples for a rate 
        of .3 percent; and
  --In CY 2004, there were 14 positives out of 8,010 samples for a rate 
        of .17 percent.
    Our testing for Listeria monocytogenes (Lm) in all ready-to-eat 
(RTE) products shows similar progress. Compared to a decade ago before 
HACCP was implemented, we have made substantial progress in Lm control, 
as these statistics from our RTE sampling program indicate:
  --In 1995, 3.02 percent tested positive;
  --In 1996, 2.91 percent tested positive;
  --In 1997, 2.25 percent tested positive;
  --In 1998, 2.54 percent tested positive;
  --In 1999, 1.91 percent tested positive;
  --In 2000, 1.45 percent tested positive;
  --In 2001, 1.32 percent tested positive;
  --In 2002, 1.03 percent tested positive;
  --In 2003, .76 percent tested positive; and
  --In 2004, .55 percent tested positive.
Recalls
    Another success has been the break in the annual cycle of multi-
million pound recalls and a dramatic decline in the number of recalls 
each year. The number of recalls had been increasing since the mid 
1990s, with at least one multi-million pound recall being conducted 
every year until 2002.
    For example:
  --In 1997, there were 27 recalls for a total of nearly 28 million 
        pounds;
  --Followed by 44 recalls of just over 44 million pounds in 1998;
  --58 recalls in 1999 for 40 million pounds of product;
  --76 recalls of almost 23 million pounds in 2000;
  --87 recalls in 2001 for 33 million pounds; and
  --Reaching an all-time high of 113 recalls in 2002, totaling nearly 
        61 million pounds.
    After we implemented science-based policies for E. coli O157:H7, 
Listeria monocytogenes, and Salmonella, we saw a dramatic decline in 
recalls, culminating in a reduction of nearly 18 percent in the number 
of pathogen-related recalls, from 28 in 2003, to 23 in 2004.
Foodborne Illnesses
    Another significant measure of how our science-based policies are 
making a major impact on public health is from the annual FoodNet 
preliminary report published by the Department of Health and Human 
Services' (DHHS) Centers for Disease Control and Prevention (CDC) every 
spring [the annual report is published later each year]. I will discuss 
FoodNet later, but according to the CDC, there have been significant 
declines from 1996 to 2004 in illnesses caused by E. coli O157:H7, 
Listeria monocytogenes, Campylobacter, and Yersinia. Compared to the 
1996-98 baseline, illnesses caused by E. coli O157:H7 decreased by 42 
percent; Listeria monocytogenes dropped by 40 percent; Campylobacter 
fell 31 percent; and Yersinia decreased by 45 percent.
    This is just raw data. To put these figures into real human terms, 
in 2004, we saved at least an additional 21,815 people from suffering 
the debilitating effects of a foodborne illness. That is nearly the 
number of people who work inside the Pentagon on a daily basis.
    Stated another way, in 2004, compared to the 1996-98 baseline, an 
additional 1,939 people did not miss work because of E. coli O157:H7. 
Five hundred thirty-five more people did not suffer from a high fever 
caused by Listeria monocytogenes. Nearly 17,250 consumers did not have 
severe abdominal cramps caused by Campylobacter. And approximately 
2,100 people did not have to think, ``What did I eat?'' thanks to an 
illness caused by Yersinia.
    Taken together, these human health results, declines in recalls, 
and decreasing numbers of pathogens in our sampling program indicate 
that our risk-based approach is working, and that we are protecting 
public health through a safer food supply. While this is good news, we 
still have areas of concern.
Salmonella
    A specific concern is Salmonella. When FSIS reported its 2003 data, 
the Agency acknowledged concern that the percentage of positive 
Salmonella tests had increased slightly in all three poultry 
categories. While the 2004 data showed more mixed results, there was a 
continued increase for young chicken (or broiler) carcasses and that 
number rose again in 2005.
    It is clear that the overall incidence of Salmonella infections 
remains far greater than our objective. In 2004 FoodNet data, there 
were 14.7 cases of culture-proven Salmonella infections per 100,000 
people. This means 115 people are infected by Salmonella every day, or 
42,000 every year. In my view, as someone with a medical background, 
that is way too high.
    The CDC's 1999 estimate of Salmonella infections is even higher. 
They estimate about 1.4 million cases of infection each year, with 
about 16,000 hospitalizations, 580 deaths and $3.1 billion in health 
care costs.
    The CDC's 2005 FoodNet report (of 2004 data) did not look any 
better. While it did report that Salmonella infections dropped 8 
percent, only one of the five most common strains, which accounted for 
56 percent of the reported Salmonella infections in 2004, declined 
significantly. That strain was Salmonella Typhimurium which declined 38 
percent.
    Salmonella Enteritidis and Salmonella Heidelberg neither increased 
nor decreased significantly. However, incidences of Salmonella Newport 
increased by an alarming 41 percent.
    It is clear that we must do better if we are going to meet DHHS' 
Healthy People 2010 objective for Salmonella, which is 6.8 infections 
per 100,000 people. We have already met the DHHS' Healthy People 2010 
objective of 1.0 cases of E. coli O157:H7 per 100,000 people. In 2004, 
the CDC reported 0.9 cases of E. coli O157:H7 infections per 100,000 
people.
    However, I do believe there is a way this year to combat Salmonella 
as I will explain later. I believe that we can leverage new 
technologies and cutting edge research, not only to reach the Healthy 
People 2010 objective, but to drive the numbers even lower.
Cooperation and Collaboration with Other Agencies and Food Safety 
        Partners
    Another significant accomplishment from 2005 has been unprecedented 
cooperation and collaboration with other Federal, State and local 
agencies and food safety partners.
    For starters, Avian Influenza has received a significant amount of 
press recently. FSIS takes this animal health issue very seriously. We 
will require a multi-agency effort to address this issue, and we have 
embarked on such an approach. FSIS has a Memorandum of Understanding 
with the Animal and Plant Health Inspection Service (APHIS), in which 
FSIS agrees to promptly notify APHIS if FSIS inspection program 
personnel detect signs of foreign animal disease. FSIS is also 
participating in several interagency groups that include DHHS, as well 
as State and local government agencies.
    In food defense, FSIS has been working very closely with DHHS' Food 
and Drug Administration (FDA), the Department of Homeland Security and 
the National Association of State Departments of Agriculture in 
developing guidelines and procedures for State and local first 
responders and Federal food regulatory agencies. This interagency 
response plan will facilitate cooperation with State and local 
emergency efforts when responding to incidents involving the food 
supply. We have already started testing these guidelines. We conducted 
an exercise through our district office in California with the 
California Department of Agriculture, the California Department of 
Health, Environmental Protection Agency, FDA, Federal Bureau of 
Investigation, CDC, and local and county health officials. We intend to 
hold more of these exercises with each FSIS district office and our 
partners so that we can make continuous improvements to the guidelines.
    We also have been working closely with industry to help them 
develop voluntary comprehensive food defense activities for every 
establishment. We feel it is essential that all slaughter, processing, 
import and export establishments take steps to ensure the security of 
their operations. Earlier in 2005, we made available on FSIS' Web site 
an ``Industry Self-Assessment Checklist for Food Defense'' and model 
food defense activities that they can use to guide their actions to 
defend the safety of their product. In addition, we have our inspectors 
ready and trained to assist industry as they enhance the protections 
they already have in place. As of this date, FSIS inspection program 
personnel have conducted over 1.3 million evaluations of establishment 
food defense activities and have found less than 1,500 areas that 
needed to be addressed.
    The model food defense activities were developed as a result of the 
vulnerability assessments that FSIS conducted for selected domestic and 
imported food products. These assessments allowed us to rank food 
products and potential contaminating agents in order of highest 
concern. Using this risk-based ranking, during periods of heightened 
awareness, FSIS' laboratories examine samples for threat agents posing 
the greatest risk as identified in FSIS' vulnerability assessments.
    Although the findings from these vulnerability assessments are 
classified, FSIS has been training industry representatives in how to 
conduct the assessments. As a result, many companies are now conducting 
their own assessments and taking appropriate measures to defend their 
processing lines and distribution chains from intentional 
contamination.
    Another example of collaboration is the Food Emergency Response 
Network (FERN). This joint FSIS-FDA effort of national, State, and 
local laboratories provides ongoing surveillance and monitoring of food 
and will promptly respond to an intentional contamination that targets 
the Nation's food supply. I will discuss FERN in more detail later when 
I go over our priorities for fiscal year 2007.
    We are also working closely with the CDC and FDA to improve our 
ability to link foodborne illness estimates with different food 
vehicles. Data on foodborne illnesses due to specific pathogens also 
needs to be connected with data on the prevalence of different 
pathogens in specific foods.
    The Foodborne Diseases Active Surveillance Network, or FoodNet 
which I mentioned before, is part of CDC's Emerging Infections Program, 
and it allows FSIS and our Federal, State, and local food safety 
partners to integrate foodborne illness data to determine the burden of 
foodborne disease, monitor foodborne disease trends, and determine the 
extent of foodborne diseases attributable to specific foods. Since 
1995, FSIS has worked closely with the CDC, FDA, and State and local 
epidemiologists and public health laboratories in making FoodNet an 
essential public health tool.
    FoodNet includes active surveillance of foodborne diseases, case-
control studies to identify risk factors for acquiring foodborne 
illness, and surveys to assess medical and laboratory practices related 
to foodborne illness diagnosis. It provides estimates of foodborne 
illness and sources of specific diseases that are usually found in the 
United States and interprets these trends over time. Data are used to 
help analyze the effectiveness of our HACCP rule and other risk-based 
regulatory actions, as well as to develop public education initiatives.
Consumer Safety Education
    Speaking of education, last year FSIS reached nearly 120 million 
citizens by developing and distributing brochures, technical papers, 
and booklets through the media, educators, the Agency's Web site, the 
Meat and Poultry Hotline, FSIS' virtual representative ``Ask Karen,'' 
and the USDA Food Safety Mobile. As a medical doctor, I truly value the 
importance of effective and continuous food safety outreach to 
consumers. It is the key to any multi-pronged strategy to prevent 
people from getting sick and possibly dying.
    In fiscal year 2005, our Meat and Poultry Hotline handled nearly 
88,000 consumer calls on the safe storage, preparation, and handling of 
meat, poultry and egg products and over 130 media and information 
multiplier calls that included requests from newspapers, magazines and 
book authors along with live interviews with radio and television 
stations. From a public health standpoint, we still want to serve 
consumers even if an unexpected event affects the Washington, DC 
metropolitan area. No one should have to suffer through a foodborne 
illness after they have tried to contact our Hotline and have found it 
is down due to some unforeseen incident in the capital area. That is 
why in fiscal year 2006, we are expanding and upgrading the Hotline 
communication equipment to ensure uninterrupted service to the public 
in the case of an unexpected event.
    Research has shown FSIS that the at-risk, under-served, and 
Spanish-speaking populations require education and messages geared to 
their needs. In fiscal year 2005, FSIS continued to develop education 
programs for elderly, immune-compromised, and other at-risk 
individuals, and assisted with revisions to the American Medical 
Association/CDC/FDA/FSIS Diagnosis and Management of Foodborne Illness: 
A Primer for Physicians. We also developed a brochure titled, What 
Transplant Recipients Should Know About Food Safety. This is just one 
in a series of publications that will be developed targeting other at-
risk audiences.
    In an unprecedented effort to reach those underserved, yet at-risk 
for foodborne illness, FSIS is cosponsoring a food safety conference 
entitled, ``Reaching At-Risk Audiences and Today's Other Food Safety 
Challenges,'' with the FDA, CDC, and private sector organizations. The 
goals of this conference include sharing current surveillance and 
epidemiological data on foodborne illness; presenting strategies 
leading to enhanced food safety knowledge, skills, and abilities in the 
general population and among at-risk populations; and to communicate 
the latest science-based safe food handling principles and practices.
    Also, FSIS produced a public service announcement (PSA) ``Fight 
BAC!'' in Spanish and distributed more than 50,000 copies to a 
national network of physicians' offices. In addition to being able to 
view the PSA, patients had access to flyers describing listeriosis, a 
foodborne illness more common in the Hispanic population.
    The USDA Food Safety Mobile that I mentioned earlier tours 
nationwide to support food safety education efforts and reach consumers 
where they live. In fiscal year 2005, the Mobile appeared at State and 
county fairs, food events, media events, schools, libraries, grocery 
stores, community events, parades, festivals, health and safety expos, 
trade shows, conventions, FSIS District Offices, and at FSIS events in 
conjunction with visits and presentations by USDA officials. Hundreds 
of thousands of educational items have been distributed and millions of 
consumers have been reached through media coverage of the Mobile. Since 
its launch in March 2003, the Food Safety Mobile has traveled more than 
66,000 miles, appearing in 247 events in approximately 185 cities, in 
48 States and the District of Columbia.
Hurricane Katrina Response
    The Mobile was a vital component of our Hurricane Katrina response 
strategy. We deployed it in September 2005 to areas affected by 
Hurricane Katrina to provide firsthand food safety education and 
assistance to prevent any outbreaks of foodborne illness. I realized 
that food safety would not be one of the top priorities with many of 
the affected populace, given that they were displaced, grieving the 
loss of loved ones, or looking for missing family and friends. However, 
we were gravely concerned about the public health consequences of the 
hurricane's aftermath. With power outages and flooding of contaminated 
water, the potential for people consuming contaminated food was 
alarmingly high, which was why I ordered the Mobile to immediately 
abandon its previously scheduled course in the Northeast and head down 
to the Gulf Coast. I also directed FSIS to lease a second Food Safety 
Mobile to go to the affected areas.
    During its two-and-one-half month tour of the Gulf States, the Food 
Safety Mobile reached nearly 41,000 total consumers and distributed 
food safety brochures, bleach, hand wipes and thermal bags. The second 
Mobile appeared at 18 events, reaching an additional 15,000 consumers.
    In addition to our swift and aggressive consumer outreach, FSIS 
worked as rapidly as possible with industry to resume operations at 
meat, poultry and egg product establishments in the affected areas of 
the Gulf States. By September 5, 2005, FSIS had deployed approximately 
30 additional inspection program personnel and compliance staff 
personnel to this area so these plants could quickly resume operations. 
These personnel also oversaw the appropriate disposal and 
decontamination procedures at the plants.
    On September 20, 2005, FSIS began increased Salmonella testing of 
raw meat and poultry products in the affected areas of the Gulf Coast 
to provide microbial data to compare with nationwide data. FSIS also 
trained additional non-field staff to assist in conducting intensified 
verification tests in ready-to-eat establishments for Listeria 
monocytogenes, including collecting food-contact surface and 
environmental samples, to supplement product sampling and food safety 
assessments. These provided an additional layer of microbial testing 
and verification to ensure the safety of the ready-to-eat meat 
products.
Building the Foundation of a More Robust Risk-Based Inspection System
    The successes from 2005 are varied and significant, ranging from 
reductions in pathogen prevalence to a quick and concerted response in 
the aftermath of Hurricane Katrina. The examples I just covered 
indicate that our food safety system works and is strong. However, I do 
not want to serve as just a caretaker of a good system.
    Even though FSIS has accomplished a lot, people still get sick and 
die each year from consuming contaminated food. As a medical doctor, 
that simply does not set well with me. I did not accept this job last 
year to recall hamburger, ham, sausage or any other product on a 
routine basis. I want to focus our time and valuable resources on 
prevention, rather than on response. It is a common sense, cost-
effective public health strategy that best serves the American 
consumer.
    However, in order to move forward with this approach, we are going 
to need the help of everyone along the farm-to-fork continuum and 
Congress. I know with your support, we can further improve upon the 
food safety successes that we have already seen.
    The cornerstone of our strategy is to move forward on implementing 
a more robust risk-based inspection system. Our current system, while 
strong, is not suited to the future realities of food safety and public 
health, and we will need the new capabilities offered by an enhanced 
risk-based system.
    Our 100-year old inspection system was based on visual examination 
for visible signs of disease. The future demands that we be able to 
focus more on things that the human eye cannot see, things the nose 
cannot smell, and things the fingers cannot feel.
    We will also need the ability to anticipate and quickly respond to 
food safety challenges before they negatively affect public health. 
This is vital, as is a system that will allow us to use our finite 
resources more effectively and efficiently to further improve food 
safety. As a public health agency, we must have the capability and 
capacity to be smarter and act more efficiently, quickly and flexibly.
    This means a move away from a regulatory agency that protects 
public health by recalling dangerous product or withdrawing marks of 
inspection toward one that is focused on actively preventing foodborne 
illnesses from ever occurring. However, it is important to note that 
FSIS already uses a risk-based approach to food safety. Our goal is to 
further enhance and strengthen that system so that we are prepared for 
the food safety challenges in the next century. This is why we are 
requesting in the fiscal year 2007 budget an increase of $2.6 million 
to help us move toward our goal of a more robust risk-based inspection 
system.
    To continue our progress toward a more robust risk-based inspection 
system, we need to be sure that we communicate openly and often with 
all of our food safety stakeholders. We will use a transparent and 
inclusive process to seek input on a wide range of issues related to 
creating a more robust risk-based inspection system.
    We will proceed through a public process, gaining input from all of 
our stakeholders. At the last meeting of the National Advisory 
Committee on Meat and Poultry Inspection (NACMPI) in November, the 
Committee recommended a third-party approach to assist us in reaching 
out to, and gaining input from, our stakeholders. For this purpose, we 
are now in the process of selecting a third party. We have already 
established a NACMPI subcommittee to provide regular, ongoing guidance. 
It is important that we ensure everyone participates in this process.
    In fiscal year 2007, we plan to advance risk-based inspection in 
processing establishments through team inspection. This approach will 
utilize Agency-developed measures, which gauge an establishment's 
inherent hazard; monitor how well establishments are controlling 
hazards and complying with regulatory requirements; and provide for 
risk-based verification testing for Listeria monocytogenes in ready-to-
eat products and the environment, and for Salmonella and E. coli 
O157:H7 in raw products.
    Effective implementation of team inspection in processing and risk-
based verification testing will require not only workforce training for 
risk-based inspection, but also implementation support activities to 
ensure consistency of application after training.
    As part of a comprehensive risk-based inspection system, we will 
develop risk-based verification strategies for meat and poultry in 
commerce that can be used by FSIS personnel. Such activities would 
complement inspection activities performed in-plant. This initiative in 
fiscal year 2007 covers the cost of testing the policies, methods, and 
information technology (IT) applications to determine which mix 
provides the best consumer protections within FSIS' regulatory 
authority.
    Data obtained through surveys enable the Agency to base policies 
and regulations for inspection on a comprehensive understanding of the 
measures taken by establishments to reduce foodborne risks and the 
efficacy of such measures as processing technologies and pathogen 
reduction interventions. These surveys will be used to measure the 
potential impact of proposed regulatory changes, identify which 
segments of the industry may be achieving a regulatory standard, and 
identify improvements other establishments will need to make to achieve 
the standard.
Risk-Based Salmonella Control
    Part of the $2.6 million request for risk-based inspection is for 
risk-based Salmonella control, which amounts to $602,000. Given the 
challenge we face with Salmonella that I mentioned earlier and the fact 
that there has been an increasing concern about outbreaks attributed to 
emerging and multi-drug resistant strains of Salmonella, it is 
imperative that we take a risk-based approach to investigating and 
controlling the incidence of Salmonella in meat, poultry and egg 
products.
    Since the prevalence rate in broiler chickens seems to be a trouble 
spot, we are looking into revising the performance measure for 
Salmonella on this particular product. Since 1998, FSIS has used the 
prevalence of Salmonella on broiler chickens, which is a regulatory 
performance standard for the production of raw poultry carcasses 
(broilers), to measure the Agency's performance in achieving its goal 
of reducing foodborne illness.
    However, FSIS has identified three weaknesses with the current 
measure. The first one is that the measure is scientifically unsound. 
The FSIS regulatory testing program that is the source of the data used 
in the current performance measure does not provide a true measure of 
prevalence of the pathogen.
    The second weakness is that the current measure overlooks an 
important public health issue. The current measure is for generic 
Salmonella, including those that are not attributed to foodborne 
illness. Not all serotypes of Salmonella are equally dangerous for 
humans. There are many known serotypes of Salmonella found in broilers, 
some of which cause human illness with varying severity. In fact, the 
most common serotype is not a significant factor in human foodborne 
illness.
    The third weakness is that the current testing program is not 
consistent with FSIS' goal of transitioning to a more risk-based 
inspection system. Plant process controls for Salmonella vary widely. 
Since 2003, aggregate percent positives in sample sets have increased 
each year from 11.5 percent in 2002, to 16.3 percent in 2005 while 
still remaining within regulatory performance standards. In order to 
improve program performance, FSIS is working to strengthen its 
verification testing program by making it more risk-based.
    Recognizing these weaknesses, FSIS will develop a new performance 
measure that more accurately measures:
  --Agency performance in achieving its goal of reducing foodborne 
        illness; and
  --Plant performance, including identification of those plants that 
        are most likely to have Salmonella serotypes that cause human 
        illness.
    FSIS has analyzed data from approximately 7 years of regulatory 
testing for Salmonella in broilers. The Agency found strong evidence 
that plants that have consistently achieved a percent positive rate in 
sample sets at or below half the current regulatory performance 
standard are less likely to produce raw product that have the serotypes 
of Salmonella that are causes of human illness. Since these plants have 
been successful in controlling overall Salmonella to low levels, they 
would also have low levels of serotypes that are causes of human 
illness.
    As a result, achievement of performance goals established under the 
new measure would provide a better indication of process control and 
relate more directly to the improved safety of broilers. Consequently, 
we are developing a new measure to replace the existing Salmonella 
performance measure that would demonstrate the potential for reduction 
in exposure of humans to the serotypes of Salmonella most commonly 
associated with human illness.
    As we move forward on Salmonella, much can be learned from the 
success from our risk-based model dealing with E. coli O157:H7. In 
2002, FSIS issued a Federal Register notice to manufacturers of raw 
ground beef to conduct reassessments of their HACCP plans. Our 
scientifically trained personnel conducted food safety assessments 
through the first-ever, comprehensive reviews of all-beef products. The 
reassessments and enhanced process control by plants, with assessments 
by FSIS and testing, led to reductions in E. coli O157:H7 percent 
positives in FSIS' verification testing program.
    Using this model, we are planning to re-evaluate the broiler 
industry's process controls for serotypes of Salmonella that cause 
human illness. We will use food safety assessments as tools to reassess 
higher risk plants, which have the greatest potential to operate above 
the existing Salmonella performance standard. A food safety assessment 
is a systematic evaluation of a plant's scientific basis, design, 
validation and execution of its HACCP plan. In an example of how 
effective food safety assessments are, one broiler plant had a 30 
percent positive Salmonella rate. After our enforcement, investigation, 
and analysis officers conducted the assessment, the plant has a two 
percent positive Salmonella rate and is holding steady. This is the 
kind of result we anticipate for Salmonella.
Outreach to Small and Very Small Plants
    In order to move forward with a more robust risk-based inspection 
system, we need to have the support of industry. All plants need to 
fully embrace HACCP, and a critical sector of the industry we regulate 
are small and very small plants, which comprise the majority of the 
plants we oversee each day.
    We realize that small and very small plants have unique needs when 
it comes to full-scale HACCP implementation and that they might not 
have as many resources as large plants do. Therefore, I made an 
absolute priority of increasing the communication between FSIS and the 
small and very small plants so that we can identify and respond to 
their needs faster and more efficiently with regard to full-scale 
implementation of their HACCP plans.
    Since September 2005, we have held listening sessions for small and 
very small plant owners and operators in Montana, California and 
Pennsylvania. These sessions gave us a better understanding of what was 
causing gaps between a plant's performance and our expectations for 
them to operate under HACCP. As a result, we have taken several actions 
to remedy any misunderstanding and deliver what small and very small 
plants need to embrace HACCP effectively.
    I do believe that education facilitates a greater understanding and 
helps close any performance gaps in implementation of HACCP plans. It 
also keeps FSIS from having to take enforcement action on 
establishments. I would be much happier with a solution that calls for 
increased education rather than for increased regulation; however, I 
have made the point to industry that we will do whatever it takes to 
ensure that a robust HACCP system is implemented and maintained in each 
and every plant, large or small. Public health is our responsibility 
and we will take regulatory action as necessary.
    This is absolutely necessary to move forward because when a child 
eats a hamburger, that burger should be as safe as it possibly can be, 
regardless of the size of plant it comes from. If that child gets E. 
coli O157:H7 or Salmonella, then that child, the child's parents and 
the child's doctor do not care what size that plant was, or how much 
ground beef it produced.
Workforce Training
    In addition to industry's complete embracing of HACCP, training 
FSIS' workforce is a key component to ensure a robust risk-based 
inspection system. I understand that it requires a large investment in 
FSIS employees to ensure they have the training and skills they need to 
be successful in a risk-based environment. However, it is an investment 
that I know will continue to provide food safety dividends well into 
the future. If they succeed, then the American consumer is better off 
as well.
    Training enables inspection program personnel a wider range of 
opportunities to make a real difference in public health, and it also 
opens new avenues of career advancement to our employees. I also 
believe training improves job satisfaction, which leads to increased 
employee retention and recruitment.
    One of the Agency's top priorities in recent years has been to 
aggressively address the training and education of its workforce. We 
truly appreciate the support you have provided for us to pursue this 
goal. The increased workforce capabilities made possible by the changes 
and improvements in FSIS training have led to measurable improvements 
in public health, as I mentioned before using the data from the CDC. 
The declines in pathogen contamination further demonstrate that your 
support for our investment in training is a critical component of our 
public health infrastructure.
Public Health Communications Infrastructure
    Another critical building block for the foundation of a robust 
risk-based inspection system is to have a public health communications 
infrastructure that has the ability to collect, assess and respond to 
data in real-time. This is why we are requesting $1.9 million in fiscal 
year 2007 to enhance our communications infrastructure.
    It is vital for our in-plant personnel to have this data in real-
time in order to do their jobs properly and effectively. If they can do 
their jobs effectively, then FSIS will be able to react more rapidly in 
a crisis to better protect public health and ultimately save lives.
    Enhancing effective field communication capabilities has been a 
major goal of FSIS. Yet, while these efforts are continuing, 
approximately 40 percent of FSIS' field inspection workforce remains 
without timely communication capabilities. Part of the $1.9 million 
request for the communications infrastructure would be $615 thousand 
dedicated specifically toward inspector communication enhancement. With 
a need for increases in food safety assessments, enforcement actions 
and increased readiness, timely communication is vital to more 
effectively protect consumers.
    We need to continue the progress we have been making in replacing 
dial-up connections with high speed telecommunication lines for our 
field force. High-speed access enables us to receive real-time data and 
thus react more quickly to protect the public health. It is also an 
essential time-saving and cost-saving mechanism that makes management 
of the Agency's operations more efficient in the long run. We provided 
high speed telecommunication lines first to slaughter establishments 
with inspection personnel having bovine spongiform encephalopathy 
regulatory enforcement responsibilities. In fiscal year 2006, we are 
continuing this strategy of bringing broadband service to over 2,300 
base plant locations.
    In addition, the rapid pace of technological change in operating 
systems, application software and hardware, as well as the failure/
repair rates for equipment, necessitates the replacement of computers 
every 3 years. The $1.3 million requested for computer replacements 
will enable FSIS to meet the demands of major operating system changes 
and eliminate the need for warranties extended beyond 3 years and 
expenditures not covered by the warranties. We need to ensure our 
compliance officers, supervisory and inspection program personnel, as 
well as State inspection personnel receive replacement computers. At 
present, this accounts for about 4,000 microcomputers in the field, and 
our goal is to replace 1,300 to 1,400 computers annually.
Food Emergency Response Network
    To continue the advancements in food defense that I mentioned 
earlier, we are asking for an increase of $15.8 million for food and 
agriculture defense. A major component of this request would be 
allocated for the Food Emergency Response Network (FERN), which I also 
mentioned earlier.
    Consumer safety and public health protection will be enhanced 
through FERN. This will be possible through achieving FERN's four 
primary objectives. The first objective is to help us and partnering 
agencies prevent, or at least mitigate the brunt of, any attacks on the 
food supply through surveillance testing. The second objective is to 
prepare for emergencies by strengthening laboratory capabilities 
through the development and validation of analytical methods, analyst 
training and proficiency testing. The third objective is to respond to 
threats, attacks and emergencies in the food supply by providing a 
communications network and the necessary laboratory surge capacity. And 
the final objective is to provide laboratory support for investigations 
of, and recovery from, terrorism-related events.
    Being able to respond rapidly to a sudden surge in demand for 
testing is imperative, if we are going to restore consumer confidence 
in the safety of the Nation's food supply and to maintain U.S. economic 
stability in spite of the event. We only need to look back at the 
anthrax attacks in the autumn of 2001 to learn a valuable lesson. Only 
a few envelopes containing traces of anthrax were opened and only a few 
people died.
    But what happened in this bioterrorism event was that all Americans 
became fearful of exposure to anthrax when they came in contact with 
any white, powdery substance. Demand for laboratory testing of these 
substances was nationwide, and most laboratories did not have the 
necessary resources to handle this surge, causing prolonged delay 
before people knew if they had been exposed or not, putting a great 
burden on the Nation's psyche.
    When I worked in Nebraska's Department of Public Health, we had set 
up and maintained an effective laboratory testing system that could 
handle surge capacity within that State, whether it was for events 
stemming from intentional acts or Mother Nature. If we had not built 
such capacity, then only a few State laboratory technicians would have 
been inundated with West Nile virus testing when the virus hit 
Nebraska. We had an integrated system, so that when West Nile did 
become a public concern, we were able to call upon laboratory 
technicians from hospitals and universities to start testing for the 
virus. Having several hundred laboratory technicians test for West Nile 
as opposed to having only several do the job was certainly a much more 
sensible and effective public health strategy.
    If something were to happen in the food and agriculture sector that 
would cause public alarm, then our current system simply would be 
inundated. FSIS has three regulatory sampling laboratories and they 
work great under normal conditions. However, we need the surge capacity 
to help us handle at least three potential likely scenarios. The first 
one would be a hoax--let's say someone or some organization claims they 
have contaminated the food supply, but have not. The second would be an 
actual attack on the food supply by an individual or group. The third 
would be an outbreak stemming from an act of Mother Nature. In all 
three cases, there would be mass public concern and significant 
economic consequences. In the last two cases, there could potentially 
be hundreds, perhaps thousands, of people getting sick and dying. The 
sad reality is that we do not at this time have a laboratory system 
effective enough to handle the surge capacity if one of these three 
scenarios were to happen today or tomorrow.
    This is why FSIS' $13 million request for FERN will help provide 
participating laboratories with the necessary training, laboratory 
equipment and supplies so that we can handle surge capacity and achieve 
the other three objectives I mentioned earlier. From a public health 
standpoint, an investment in FERN is an absolute essential priority if 
we want to prevent, or mitigate, the loss of life and economic hardship 
if an intentional or unintentional incident affecting the food supply 
were to happen.

                    FISCAL YEAR 2007 BUDGET REQUEST

    I appreciate having the opportunity to discuss a number of FSIS' 
accomplishments and priorities with you. Now, I would like to present 
an overview of the fiscal year 2007 budget request for FSIS.
    Implementation of these budget initiatives is imperative to helping 
us attain FSIS' public health mission. In fiscal year 2007, FSIS is 
requesting an appropriation under current law of $862.9 million.
Supporting FSIS' Basic Mission
    The FSIS budget request for fiscal year 2007 supports the Agency's 
basic mission of providing continuous food safety and inspection in 
each meat, poultry, and egg products establishment in the United 
States.
    The Agency's permanent statutory obligation is to provide 
continuous inspection of meat, poultry, and egg products is a labor 
intensive mandate, thereby making its salary cost relatively 
inflexible. An increase of $16 million for the FSIS inspection program 
is requested to provide for the 2.2 percent pay raise for FSIS 
employees in fiscal year 2007 to assure that the Agency is provided 
sufficient funds to maintain programs. Failure to provide the full 
amount for pay and benefit costs jeopardizes the effectiveness of FSIS 
programs and weakens food safety.
    We also seek an increase of $1.9 million for Agency efforts to 
support the President's Management Agenda in the area of IT. As I 
pointed out earlier, the Agency is seeking ways to have electronically 
stored information from all FSIS personnel integrated and available in 
real-time. This would allow inspectors ready access to information 
necessary to protect the public health.
    As I mentioned several times, as someone with a medical background, 
I view the bottom line of preventing foodborne illness and saving lives 
very stringently. My focus is on prevention, and I believe the request 
for increases of $2.6 million for risk-based inspection and $15.8 
million for food and agriculture defense will move us where we need to 
be to further enhance public health protection.
    In order to facilitate cross-agency coordination of information, 
FSIS seeks an increase of $600,000 for International Food Safety in 
order to link to the International Trade Data System managed by the 
Department of Homeland Security's Customs and Border Protection.
User Fees
    Inspection services for the cost of Federal meat, poultry and egg 
products during all approved shifts are now paid with Federal funds. 
Legislation will be re-submitted to Congress, which would provide USDA 
with the authority to collect fees for inspection services beyond one 
eight-hour shift per day, saving significant Federal costs by 
transferring these costs to the industries that directly benefit from 
services performed. New industry costs would be a small fraction of one 
cent per pound of production, but would allow FSIS to ensure a safe 
food supply. Of the $862.9 million requested in the fiscal year 2007 
budget, $105 million is proposed to be derived from these user fees.

                                CLOSING

    We will continue to engage the scientific community, public health 
experts, and all interested parties in an effort to identify science-
based solutions to public health issues to ensure positive public 
health outcomes. It is our intention to pursue such a course of action 
this year in as transparent and inclusive a manner as is possible. The 
strategies I discussed today will help FSIS continue to pursue its 
goals and achieve its mission of reducing foodborne illness by 
protecting public health through food safety and security.
    Mr. Chairman, thank you again for providing me with the opportunity 
to address with the Subcommittee and submit testimony regarding the 
steps that FSIS is taking to remain a world leader in public health. I 
look forward to working with you to improve our food safety system, 
ensuring that we continue to have the safest food supply in the world. 




                                 ______
                                 

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

    Mr. Chairman and members of the Subcommittee, I am pleased to be 
here today as we discuss public health and the U.S. Department of 
Agriculture's (USDA) fiscal year 2007 budget request for the Food 
Safety and Inspection Service (FSIS).
    This year marks the 100th anniversary of the passage of the Federal 
Meat Inspection Act (FMIA), which ushered in a new era of food safety 
on the national level. Although FSIS was established under its current 
name by the Secretary of Agriculture on June 17, 1981, our history 
dates back prior to 1906. Our mission is to ensure that meat, poultry, 
and egg products distributed in commerce for use as human food are 
safe, secure, wholesome, and accurately labeled. FSIS is charged not 
only with administering and enforcing the FMIA, but also the Poultry 
Products Inspection Act (PPIA), the Egg Products Inspection Act (EPIA), 
portions of the Agricultural Marketing Act, and the regulations that 
implement these laws.
    At FSIS, we are committed to the idea that an effective food safety 
and food defense system must be rooted in science. To meet its goal of 
protecting public health, FSIS will continue to review policies and 
regulations in light of what the science demands. We will also work 
with interested parties to modernize and enhance our inspection and 
food safety and defense verification efforts. All of this is necessary 
if we are to fulfill our public health mandate and stay ahead of the 
evolving threats to America's food safety.
    I am pleased to report that progress is being made in measurable 
and significant ways. An effective gauge of how our scientific policies 
are working is looking at how public health is positively impacted. Our 
efforts are clearly on the right track, as evidenced by the decline in 
foodborne illness over a recent 6-year span. For instance, the Centers 
for Disease Control and Prevention (CDC) last spring reported continued 
reductions in foodborne illnesses from 1996-1998 through 2004 stemming 
from E. coli O157:H7, Listeria monocytogenes, Campylobacter, and 
Yersinia. The report indicates that reductions in foodborne illness 
reported in 2003 were not an isolated event and that sustained progress 
is being made toward reducing illness from very dangerous foodborne 
pathogens.
    While these reported declines in foodborne illness are dramatic, we 
believe more can--and will--be done. We will realize further progress 
in the food safety dynamic by implementing a more robust, risk-based 
inspection system.
    The foundation of this system will be the ability to anticipate and 
quickly respond to food safety challenges before they have a negative 
impact on public health. While FSIS incorporates risk assessments in 
our approach to food safety, our goal is to further strengthen the 
system so that inspection program personnel may more effectively 
anticipate problems before they happen. A more robust, risk-based 
inspection system will ensure that our Agency's resources are used in 
the most effective and efficient way possible. We need a more robust 
system to help us meet future food safety challenges, some of which are 
either evolving or unknown today. An optimal risk-based inspection 
system is what FSIS is striving to achieve, and it will continue to 
guide our activities in fiscal year 2007.
    Ensuring the safety of America's meat, poultry, and egg products 
requires a strong infrastructure. To accomplish this task, FSIS has 
dedicated public health servants stationed throughout the country and 
in laboratories, plants, and import houses everyday. In fiscal year 
2005, the Agency had approximately 7,600 full-time personnel protecting 
the public health in 5,870 Federally-inspected establishments 
nationwide. FSIS inspection program personnel performed ante-mortem and 
post-mortem inspection procedures at 1,700 slaughter establishments to 
ensure public health requirements were met in the processing of 140 
million head of livestock, 9.4 billion poultry carcasses, and about 4.3 
billion pounds of liquid egg products. In fiscal year 2005, FSIS 
inspection program personnel also conducted over 8 million procedures 
to verify that establishments met food safety and wholesomeness 
requirements. In addition, during fiscal year 2005, approximately 4.3 
billion pounds of meat and poultry and about 8.4 million pounds of egg 
products were presented for import inspection at U.S. ports and 
borders.
    In an Agency the size of FSIS, with employees stationed all around 
the country, it quickly became apparent to me that effective 
communication was central to our mission. I have made improved 
communication a major priority, and we have greatly enhanced our 
communications tools including a redesigned, consumer-friendly Website; 
the debut of an Intranet for employees where they can access important 
and vital information; the launch of ``all-employee'' meetings via Web-
cast; and more regular communications from the Administrator's office 
to the field. We continue to work on communications enhancements in 
order to ensure our entire workforce remains fully knowledgeable about 
the Agency's mission and goals.
    Fulfilling our public health mandate to ensure a safe and wholesome 
food supply is a demanding responsibility and an exciting challenge. I 
would like to thank you for providing FSIS with the resources to 
protect meat, poultry, and egg products. For fiscal year 2006, FSIS 
received $837.7 million ($829.4 million after rescission), and these 
funds are helping to move the public health agenda forward. For 
instance, for fiscal year 2006, Congress approved $2.2 million in 
additional funds for frontline inspection. This funding is enabling us 
to hire additional supervisory consumer safety inspection personnel, 
thus freeing up time for Public Health Veterinarians to focus on more 
complex and demanding food safety projects such as conducting food 
safety assessments and focusing on the design of food safety systems. 
Further, the additional funding you have provided us in the area of 
food defense has helped the Agency in further developing our response 
to contamination of the food supply, whether intentional or accidental. 
I will provide additional information on both these subjects later in 
this document.
    Today, I would like to share with you how we will further implement 
a more robust, risk-based inspection system, as well as some of our 
leading pathogen control efforts; our enhanced outreach to small and 
very small plants; our workforce training initiatives; our food defense 
activities; and our public health communications programs.
FSIS' Six Priorities
    First, I want to reiterate that the Agency operates under six 
operational priorities, which I first shared with you 2 years ago. FSIS 
continues to hold itself accountable for improving public health. When 
we established these priorities, we outlined a series of actions to 
enable us to better understand, predict, and prevent contamination of 
meat and poultry products to improve health outcomes for American 
families. Since then, we have been building upon these priorities, all 
equally important, and continue to improve the Agency's infrastructure 
with a greater attention to risk so that we can continue improving our 
performance under the public health model. I should note that even 
though our priorities remain the same, we are constantly raising the 
bar so we can move forward to enhance public health protection. These 
priorities are building the infrastructure for further implementation 
of a more robust, risk-based inspection system.
Continuing Evolution of Inspection and Enforcement: The Three Pillars
    The first major initiative I want to discuss today is the 
continuing evolution of inspection and enforcement. The evolution of 
inspection and enforcement is most closely aligned to our building a 
more robust, risk-based inspection system. (See Attachment.)
    This process can best be described by an illustration we have often 
used at FSIS. Namely, a more robust, risk-based system is a major 
structure built on a strong foundation with three pillars providing 
support. The pillars, taken together, maintain the system's integrity. 
The three pillars are: industry, FSIS personnel, and consumers.
    The Hazard Analysis and Critical Control Point (HACCP) system is 
the core of the industry pillar, and FSIS has a vital role in 
educating, as well as regulating industry's ability to achieve a 
positive outcome. Industry, for its part, is responsible for designing 
and implementing an effective food safety system. In this regard, we 
have been enhancing our outreach efforts, especially to small and very 
small plants, which I will describe later in this document.
    The FSIS personnel pillar is necessary so that we can collect, 
assess, and respond to public health data. Our verification must be 
uniform and consistent, especially in areas of greatest risk. Under a 
more robust, risk-based inspection system, we must use science as our 
guiding principal. In other words, we follow the core functions of the 
public health model--assessment, policy development, and assurance. 
Thus, the type and intensity of inspection at each plant would be 
determined by an analytical process which allows our inspectors to 
foresee problems so they can focus their efforts at plants and in 
processes that pose a public health risk. But in order to reach this 
point, we must develop a new system that will allow us to collect, 
assess, and respond to public health data. This need is emphasized in 
our budget request.
    The third pillar is one which represents consumers. Consumers--
including all of us here today regardless of title--need to have 
confidence in a safe and well-defended food supply.
    As we move towards a more robust, risk-based inspection system, our 
goal is to ensure that we receive input from all stakeholders 
(industry, employees, and consumers) along every step of the process. 
We need to ensure that all food safety partners are aware of the 
expectations and goals and have had the opportunity to provide input in 
moving towards a more robust, risk-based inspection system.
Risk-Based Pathogen Controls
    FSIS' Listeria monocytogenes verification sampling is a good 
example of how we have taken a more risk-based approach in processing 
plants. Under this initiative, FSIS tailors its verification activities 
to the interventions that plants choose to adopt and to the potential 
for Listeria monocytogenes growth in their products. In other words, 
FSIS conducts less sampling in those plants that have the best Listeria 
monocytogenes control programs and more sampling in plants that adopt 
less vigorous programs. Thus, plants have an incentive to do more to 
control Listeria monocytogenes.
    Considering all the progress that has been made in reducing 
Listeria monocytogenes, E. coli O157:H7, Campylobacter, and other 
pathogens, FSIS believes that it is time to enhance the risk-based 
approach to investigating and controlling the incidence of Salmonella 
in meat, poultry, and egg products. Salmonella is the most frequently 
reported foodborne illness in the United States, causing culture proven 
cases of foodborne illness at a rate of 14.7 per 100,000 population. 
The Department of Health and Human Services' (DHHS) Healthy People 2010 
calls for a rate of Salmonella infections of 6.8 per 100,000 
population. We have a long way to go.
    Salmonella includes over 2,300 serotypes, all of which are 
considered pathogenic in humans. Although most of the reported cases in 
the United States are associated with a relatively small number of 
serotypes--some of which are commonly found in raw meat and poultry 
products--there has been increasing concern about outbreaks attributed 
to relatively rare strains of Salmonella resistant to multiple 
antibiotics.
    While the Agency responds quickly to positive findings of 
Salmonella linked to human illness at any establishment, our risk-based 
Salmonella approach for raw product would help us be proactive before 
human illness is associated with our regulated products rather than 
reactive. It is essential that FSIS proceeds with its new Salmonella 
performance measure because it more accurately reflects Agency 
performance in reducing foodborne illness and plant performance in 
reducing the pathogen in its processes. Our risk-based Salmonella 
approach would also provide us with an early warning capability for the 
high-risk Salmonella serotypes from meat, poultry, and egg products in 
particular geographic areas.
    Our budget request would allow us to fully characterize isolates; 
initiate a Food Safety Assessment at a high-risk establishment before 
an outbreak occurs rather than as part of the investigation of why an 
outbreak has occurred; conduct more testing in areas where a cluster of 
serotypes is identified to determine if an unusual prevalence is 
occurring; and continually feed to CDC and State public health 
officials any data concerning patterns. We are requesting $602,000 for 
this risk-based Salmonella approach.
    In many ways, our foundational work has already started. We held 
public meetings to work with our stakeholders to find ways to reduce 
food safety hazards. In August 2005, for example, we held a public 
meeting on Advances in Pre-Harvest Reduction of Salmonella in Poultry 
in Athens, Georgia. The meeting, with over 208 participants, focused on 
research and practical experiences aimed at reducing Salmonella at the 
poultry production level, or before poultry reaches Federally-inspected 
plants. Based on input from the meeting and other information available 
to us, we are developing compliance guideline materials for producers 
that address pre-harvest food safety and Salmonella control. We held a 
second public meeting on February 23 and 24, 2006, in Atlanta, Georgia, 
which outlined new approaches to in-plant controls for Salmonella. 
Approximately 150 attended the meeting, with close to 100 joining the 
meeting by phone or netcast; the netcast was available both days. This 
meeting discussed new FSIS actions for encouraging industry to control 
Salmonella. Both of these meetings served as important steps in our 
foundational work.
Funding Progress
    As a more robust, risk-based inspection system is the Agency's 
number one priority, we are requesting $2.6 million for this risk-based 
effort in fiscal year 2007. I will go over in more detail the specific 
funding needs for these efforts later when I review our budget request. 
However, it is worth highlighting here the following ways in which the 
Agency will prepare for the further evolution of the risk-based system 
through the improvement of Agency support:
  --$602,000 Salmonella risk-based inspection system approach described 
        above.
  --Advance risk-based inspection in processing establishments through 
        reprogramming databases to better assess plant data to 
        determine where to sample based on risks to public health.
  --Development of risk-based verification strategies for meat, 
        poultry, and egg products in commerce that can be used by FSIS 
        personnel. We will collaborate with State, local, and public 
        health officials at the retail level to determine strategies 
        for enhanced consumer protections within our regulatory 
        framework. These activities would complement inspection 
        activities performed in-plant.
  --Use of data to base policies and regulations for inspection on 
        information obtained that defines measures taken by 
        establishments to reduce foodborne risks and the efficacy of 
        measures implemented to reduce risk, e.g., pathogen reduction 
        interventions.
  --Use of new technologies to increase the effectiveness of the risk-
        based inspections that inspectors perform including such things 
        as rapid tests for residues and microbes.
Training, Education, and Outreach
    The next priority I want to discuss is training, education, and 
outreach. Training is the foundation of our public health successes and 
a key element in our strategy to meet the Healthy People 2010 goals. 
All employees need to be equipped with the knowledge and technical 
expertise to operate within a public health framework, and the Agency 
has made great strides in achieving a well-trained workforce that is 
not only able to identify threats to the public health, but also to 
anticipate possible threats. We continue to have a need for training 
and are moving beyond the entry level and basic HACCP training provided 
to our workforce. As new employees join the Agency, they still require 
the basic training. With ongoing changes in policy, and as we move to a 
more robust, risk-based inspection system, new training and refresher 
training will be needed by all employees. Additionally, we are 
beginning to explore intermediate and advanced training opportunities 
for our employees. Based on new, innovative ways of reaching our 
employees, the Agency is using its existing budget to conduct this 
training.
    It has been easier to reach our employees and provide them training 
with the implementation of our regional training system to deliver 
vital training courses closer to employees' worksites. This innovative 
program ensures that our workforce receives critical scientific 
training in a timely manner. Providing this training efficiently and 
effectively has been a key element in the on-going reductions of 
foodborne pathogens.
    Due to improvements FSIS has made to its training program, 100 
percent of those hired as entry-level employees, as well as those who 
are promoted into inspection and enforcement occupations, now receive 
mission-critical training within 1 year of entering Agency duty. Many 
of these employees will receive the training within the first 6 months 
of being hired, or sooner.
    FSIS' Food Safety Regulatory Essentials (FSRE) training program has 
equipped inspection program personnel in verifying an establishment's 
HACCP system. Customized HACCP training is then provided, based on the 
types of products being produced at the establishments where inspectors 
are assigned. Approximately 1,400 FSIS employees received FSRE training 
in fiscal year 2005, and an additional 1,200 are slated to complete 
this customized job-training program this fiscal year. We continue to 
provide specialized training to our Public Health Veterinarians (PHVs), 
and this year, for the first time, this training will be required as a 
condition of employment, meaning that employees must successfully 
complete the curriculum in order to remain in our workforce. Since 
being launched in fiscal year 2004, over 230 PHVs have received the 9-
week classes. We plan to hold eight PHV training classes this year, 
reaching nearly 200 people.
    We are also partnering with other Federal agencies to leverage 
resources for training. FSIS PHVs are trained to identify signs and 
symptoms during ante-mortem and post-mortem inspection that could 
potentially signify the presence of a foreign animal disease or 
suspicious condition, and they learn the appropriate response and 
reporting procedures. Working closely with our sister agency, the 
Animal and Plant Health Inspection Service, we are developing a 
training module on this issue that is available anytime, anywhere 
through the Department's AgLearn system. The course is also currently 
available through CD-ROM.
    In addition, we recognize that we employ individuals who must 
maintain their professional licenses. That is why we became a certified 
continuing education units outlet so that many of our courses can be 
utilized by the PHVs to obtain continuing education credit.
    FSIS is also in the midst of a comprehensive, multi-year training 
and education effort designed to ensure that every FSIS employee fully 
understands their role in preventing, or responding to, an attack on 
the food supply. Efforts began in fiscal year 2002 with food defense 
awareness training for supervisors. Since then, we have expanded with 
contracted anti-terrorism training that was provided to more than 5,000 
field and headquarters employees. Food defense awareness training is 
also being conducted with local partners, such as State and local 
inspectors, in a cooperative effort with other Federal agencies (Food 
and Drug Administration, USDA/Food and Nutrition Service, and USDA/
Agricultural Marketing Service).
    With a regional approach to training, we have been able to deliver 
training faster and more efficiently to employees entering mission-
critical occupations. Through e-learning techniques, we have been able 
to distribute training materials more rapidly to the workforce on vital 
issues such as bovine spongiform encephalopathy (BSE) policy. Through a 
policy of training as a condition of employment, we have also been able 
to ensure that all employees have the competencies to perform 
successfully. The regional approach also allows us to better leverage 
our resources so that our trainers can also provide outreach and 
education to small and very small plants, as well as in the course of 
interacting with their FSIS colleagues.
    FSIS is exploring a wide range of methods to reach its 
geographically dispersed workforce with on-going training updates. The 
newest vehicle FSIS has used is netcast. Most recently, Export 
Verification training was provided to inspection program personnel via 
netcast at establishments that produce beef products for export under 
Export Verifications programs.
    We know that for a more robust, risk-based inspection system to be 
successful then all plants must have well-designed, food-safety 
systems. To that end, we have been enhancing our outreach efforts, 
especially to small and very small plants, to ensure everyone is 
meeting the same requirements. We are significantly changing the 
dynamic of our workforce in order to improve our outreach efforts in 
this area. It is clear to us from our existing communication efforts 
that effective outreach can lead to important changes in food safety 
designs by industry. Small and very small plants are also part of the 
industry pillar that supports a more robust, risk-based inspection 
system, and any performance gaps that exist between them and the larger 
plants needs to be closed.
    One method we know is succeeding in this area is our actions 
following Food Safety Assessments (FSA), which have remained consistent 
over the past 3 years. For example, out of 1,501 FSAs conducted in 
2005, 912 of the establishments were found in compliance. We believe we 
have a vital role in educating and regulating industry to achieve this 
outcome, so we are assessing all aspects of our industry outreach. In 
2005, we held outreach and listening sessions with small and very small 
plants in Montana and California. Early this year, we held two more in 
Pennsylvania. From these sessions, we are gathering critical feedback 
to ensure plants do not fall behind in HACCP implementation.
    FSIS recognized, based on responses and comments from the outreach/
listening sessions, the need to update its outreach strategy from one 
focused on initial development of a HACCP plan, to one that is geared 
towards the scientific basis of the HACCP plan. In other words, we need 
to shift from ``execution'' of HACCP plans to ``design'' of those 
plans. FSIS especially wants to continue to work with small and very 
small plant owners and operators so they can continue to enhance the 
design of their food safety systems.
    Ultimately, making certain that the Nation's food supply is safe 
makes good business sense, as well as good public health. We realize 
plant owners and operators must have the necessary tools for success, 
so education through outreach is an important focus for us. Likewise, 
plant owners and operators must seek this education and these tools and 
follow them. If educational or training opportunities are repeatedly 
ignored then we have made it clear that public health is our 
responsibility and we will take regulatory action as necessary.
    Most recently, the International HACCP Alliance hosted a strategy 
session attended by senior-level FSIS employees to discuss and discover 
the needs business owners, especially those of small and very small 
plants, have in relation to fully implementing HACCP. Both Dr. Raymond, 
Under Secretary for Food Safety, and I attended the meeting to show how 
important and valuable we view these sessions. The recommendations from 
this session are being included as part of an implementation plan by a 
group of senior-level FSIS employees. While the implementation plan is 
not yet finished, I can tell you that a uniform, consistent, and 
effective message regarding food safety regulations is a critical 
deliverable on the part of the Agency.
Consumer Education Initiatives
    In the area of consumer education this year, the Food Safety Mobile 
played perhaps our most prominent role when it visited the Hurricane-
ravaged Gulf Coast region. This eye-catching ``food safety educator-on-
wheels'' brings important public health information to consumers and 
builds on our partnerships in grassroots communities across the 
country. Through the Food Safety Mobile, FSIS is sharing its food 
safety message with the public, especially culturally diverse and 
underserved populations and those with the highest risk from foodborne 
illnesses. In addition to dispensing important food safety tips in 
areas hit with power outages and water damage, the Food Safety Mobile 
distributed food safety brochures, bleach, hand wipes, and thermal 
bags. During its two-and-one half month tour of the Gulf States, the 
Food Safety Mobile reached nearly 41,000 total consumers face-to-face. 
In fact, the Food Safety Mobile was so successful that a second mobile 
was launched in October 2005, appearing at 18 events in 11 additional 
cities in Texas and Louisiana following Hurricane Rita. Food Safety 
Mobile II reached an additional 15,000 consumers affected by the 
hurricanes.
    In another inter-agency collaborative effort to educate about the 
importance of food safety, FSIS is cosponsoring with the DHHS' Food and 
Drug Administration (FDA), CDC, and private sector organizations an 
international food safety education conference this September, focusing 
on reaching at-risk audiences. An unprecedented effort, the goals of 
the conference include sharing current surveillance and epidemiological 
data on foodborne illness; presenting strategies leading to enhanced 
food safety knowledge, skills, and abilities in the general population 
and among at-risk populations; and to communicate the latest science-
based safe food handling principles and practices.
Food Defense
    The third priority is our substantial effort to continue to improve 
our food defense capabilities. The Agency has accomplished much in the 
area of food defense, making a strong system even stronger. The name of 
the office which handles this important area was changed from the 
Office of Food Security and Emergency Preparedness to the Office of 
Food Defense and Emergency Response. This reflects the fact that we 
have restructured the office to focus on developing strategies to 
protect and defend the food supply from intentional contamination and 
to respond to both intentional acts of adulteration, as well as large 
scale food emergencies.
    Last year, FSIS developed four model food defense plans, which are 
available on our website. These models are designed to assist Federal- 
and State-inspected meat, poultry, and egg products establishments, as 
well as import facilities, to develop their own defense measures to 
deter the threat of intentional contamination or similar attacks on the 
food supply. During 2005, the Agency held workshops on these plans in 
Dallas, TX; Oakland, CA; Chicago, IL; and Philadelphia, PA. In addition 
to webcasting the Oakland and Philadelphia workshops, FSIS also 
conducted four additional web casts to ensure that as many people as 
possible had the opportunity to participate. Two of these webcasts were 
targeted specifically to State officials, and the Agency also partnered 
with the University of Puerto Rico in holding an entire webcast in 
Spanish, which also drew participants from Latin America. In all, it is 
estimated that these workshops reached over 1,200 people.
    The model food defense plans have been issued in the form of 
guidance documents and are voluntary. However, FSIS believes that every 
establishment should have a written plan that describes and documents 
controls to ensure that the premises are defended from potential 
threats.
    FSIS continues to assess vulnerabilities in the food supply. The 
Strategic Partnership Program on Bioterrorism, a program including the 
Federal Bureau of Investigation, FDA, and Department of Homeland 
Security (DHS), along with FSIS and other USDA agencies, carries out 
joint vulnerability assessments on the food supply with industry and 
States, and we have been working in conjunction with the CDC, the FDA, 
epidemiologists, and public health laboratories in several States 
through the FoodNet and PulseNet programs. FSIS is also conducting an 
assessment of vulnerabilities of the food supply from illegally 
imported products.
    The majority of the $15.8 million increase in our fiscal year 2007 
food and agriculture defense budget request focuses on the Food 
Emergency Response Network (FERN). FERN is a joint FSIS-FDA effort of 
national, State, and local laboratories to provide ongoing surveillance 
and monitoring of food and to promptly respond to an intentional 
contamination that targets the Nation's food supply, or a foodborne 
illness outbreak brought about by Mother Nature. To date, $4 million in 
funding allocated in fiscal year 2005 and fiscal year 2006 has been 
used to build on the expertise of the Federal, State, and local 
laboratories that are now part of FERN, and these laboratories are 
currently conducting method development for testing and performing 
proficiency testing. FERN has also established five Regional 
Coordination Centers that serve as the primary points of contact for 
laboratories across the country.
    This effort enables FSIS to utilize State and local laboratories in 
handling the numerous samples required to be tested in the event of an 
attack on the food supply, a natural outbreak, or even a hoax, 
involving a meat, poultry, or egg product. It is vital for the Agency 
to respond rapidly to such emergencies to not only protect the public's 
health, but also to ensure public confidence in the safety of the food 
supply and to prevent an economic collapse in the meat or poultry 
industries. The first line of this rapid response is the laboratories, 
which must be provided with training, methodology, and state-of-the-art 
laboratory equipment. Ultimately, our goal is to have 100 State and 
local laboratories actively testing the food supply for FERN, like the 
18 FSIS-affiliated biological and eight FDA-affiliated chemical 
laboratories with which FERN now has cooperative agreements.
    Another important example of inter-agency cooperation, and one that 
is designed to allow the FERN labs to test methods and proficiency, is 
a joint project between USDA's Food and Nutrition Service, Agricultural 
Marketing Service (AMS), and FSIS. Product samples will be taken from 
facilities in four States that provide ground beef to the National 
School Lunch Program. FSIS labs will test those samples for threat 
agents, in addition to the regular pathogen testing that is performed 
by AMS. Then, once that product has been sent to warehouses, it will 
then be retested for the same threat agents by non-FSIS labs in the 
FERN network that have a cooperative agreement with the FERN network. 
The project will be held later this year and is the first one to focus 
on FSIS-regulated products. Earlier projects held in November and 
December of 2004 tested FDA-regulated products.
Risk Analysis
    Fourth, is our risk analysis priority--which includes risk 
assessment, risk management, and risk communication. This is an 
extremely important process, one that provides FSIS with a way to focus 
resources on hazards that pose the greatest risk to public health.
    A good risk assessment needs good data in order to be effective. 
Therefore, we are conducting a series of nationwide baseline studies 
that will help determine the levels of various pathogenic 
microorganisms in raw meat and poultry. These baseline studies are 
designed to provide FSIS and the regulated industry with data 
concerning the prevalence and quantitative levels of selected foodborne 
pathogens and microorganisms that serve as indicators of process 
control.
    The first baseline study, which began in August and will continue 
to December 2006, is for E. coli O157:H7 and indicator organisms in 
beef trim and subprimals. Data from this study will guide Agency 
decisions on performance standards and allocation of inspection 
resources. In September of last year, a contract was awarded to a 
third-party laboratory to perform the microbial analyses for future 
baseline studies on: young chicken carcasses, ground chicken, and swine 
carcasses. From this, a new baseline study for young chicken carcasses 
will be initiated within the next few months. The young chicken 
baseline will include prevalence and quantified levels for both 
Salmonella and Campylobacter. This scientific information will allow 
FSIS to make the decisions necessary to move to a more robust, risk-
based inspection system.
    Regarding BSE, USDA has contracted with Harvard University to 
update its risk assessment to ensure previous measures implemented 
through the interim final rules were appropriate. USDA is drafting a 
final rule based on the comments received on the interim final rule, 
the results of the updated Harvard Risk Assessment and results of the 
USDA enhanced surveillance program.
    During the past year, FSIS assumed the Chair of the USDA Food 
Safety Risk Assessment Committee (FSRAC), whose purpose is to enhance 
communication and coordination among USDA agencies, to promote sound 
risk assessments in support of food safety policy, and regulatory 
decisions. FSIS also became the co-lead for the Interagency Risk 
Assessment Consortium to share information and coordinate food safety 
risk assessment approaches among 18 Federal agencies, including DHHS, 
the Department of Defense, and the Environmental Protection Agency.
Management Controls and Efficiency
    Our fifth priority is management controls and efficiency, which is 
a priority we added as a mechanism to best achieve our operational 
goals and objectives within each program area. Every task undertaken by 
the Agency has an effect on public health. Because of this, we are 
requiring each program area to illustrate through documentation that 
they are meeting their established goals.
    In order to ensure that proper management controls are implemented, 
FSIS' Office of Program Evaluation, Enforcement, and Review (OPEER) 
branch will audit all Agency program areas to measure the outcomes. In 
fiscal year 2005, the Agency began development of a two-phase 
management control audit protocol and agenda to systematically verify 
and evaluate management controls. Phase 1 will verify the 
implementation of the management controls for each program area; Phase 
2 will verify that each program is achieving its objectives, and that 
their controls are adequate and are achieving the program's desired 
results.
    During fiscal year 2005, we developed and implemented management 
controls that established operational performance standards for 
verification of HACCP requirements, ante-mortem/post-mortem 
requirements, Food Safety Assessments, administrative enforcement 
actions, food defense verification, and recall procedures.
    FSIS launched the AssuranceNet project team in fiscal year 2006. 
This team is developing a state-of-the-art management control reporting 
system that will tie into key Agency databases. The AssuranceNet team 
collects information on Agency management controls and the items the 
Agency needs in the way of a reporting tool. The team is working with 
Agency technical staff and outside contractors to develop the system 
according to industry standards and best practices. The AssuranceNet 
system will undergo extensive real world testing before it becomes 
fully available for use in June 2006.
    An area of management efficiency which we at FSIS emphasize is 
human resources (HR) modernization and reform. In 2004, FSIS launched 
an initiative to reshape the HR system to better support our human 
capital and strategic plans and to facilitate every-day mission 
performance. The resulting internal work group has developed innovative 
HR practices that can be implemented under current law, as well as 
identifying innovations that require Federal legislation or regulatory 
changes. We stand committed to the belief that the Agency requires an 
alternative HR system that emphasizes pay-for-performance.
Public Health Communications Infrastructure
    Our sixth priority is the public health communications 
infrastructure with the ability to collect, assess, and respond to data 
in real-time. Because this is also a foundation of a more robust, risk-
based inspection system, we are constantly looking for ways to improve 
communication within the Agency, between the Agency and its 
stakeholders, as well as cross-Agency communications. FSIS is examining 
its data needs to make our field operations more effective. Having the 
same data from the border, the districts, and field and laboratory 
personnel at the same time is essential so that everyone can connect 
the dots and proactively respond to this wealth of information rather 
than just react after a problem surfaces. Proactively interpreting our 
data will better protect public health from the prospect of non-
intentional or intentional contamination. By collecting, assessing, and 
responding to data in real time, lives can be saved.
    A key part of this process is through the effective management of 
information technology (IT). Through an Enterprise Architecture Working 
Group, we have been working closely with the Office of Management and 
Budget (OMB) and others involved in the Federal-government wide e-
Government efforts to develop IT systems that facilitate cross-Agency 
analysis and identification of duplicative investments, gaps and 
opportunities for collaboration within and across agencies.
    Another way we are working to enhance cross-Agency communication in 
fiscal year 2007 is to create electronic linkages with the Department 
of Homeland Security's Customs and Border Protection's International 
Trade Data System in order to provide FSIS with a stronger ability to 
screen and verify the security of products imported into the United 
States in an efficient way. FSIS is also working with its Federal 
partners through the Federal Health Architecture initiative to build a 
system that all Federal agencies can communicate through to better 
protect imported products.
    On the Agency level, FSIS is working to have electronically stored 
information from all FSIS personnel integrated and available in real-
time, allowing managers and administrators to make management decisions 
more efficiently as events are unfolding and with greater access to 
information. This is necessary for our inspection program personnel to 
do their jobs properly and effectively and to react more rapidly in a 
crisis to better protect public health and save lives. An example of 
this was shown in a recent test of an updated version of our Consumer 
Complaint Monitoring System (CCMS). When implemented later this year, 
this new version of CCMS will include improved scientific tools to 
enable us to act more quickly to prevent further foodborne illness. In 
one scenario, as we were testing this new version of CCMS, we were able 
to find an E. coli O157:H7 outbreak 3 weeks faster than with our 
present technology. FSIS is partnering with States to integrate this 
system so that this real-time data could be accessed and shared by all 
to help prevent outbreaks and/or limit their scope. Other aspects would 
also include procuring PDA-type hardware and related software 
integrating into existing Agency computer and communications equipment 
for inspection program personnel. It also includes keeping up with 
rapid changes in microcomputer technology.
    We believe these efforts to improve upon the Agency's IT systems 
will greatly enhance the Agency's efforts to support the President's 
Management Agenda, and move us towards more efficient e-Government 
solutions to the challenges we face.
InsideFSIS Debuts
    Other ways that we have improved our communications includes 
InsideFSIS, the Agency's employee intranet which was launched in June. 
With InsideFSIS, employees are able to gain instant access to important 
Agency information and may participate in netcasts, as was the case 
with a State of the Agency meeting held in September last year. We also 
have an extensive food handlers' education program that encompasses 
everything from bilingual pamphlets on using thermometers to our Food 
Safety Mobile.
    I have already mentioned the prominent role the Food Safety Mobile 
played on the hurricane-ravaged Gulf Coast, but the Food Safety Mobile 
was not the only way the Agency played an important role in our 
strategy to respond to the hurricanes. Prior to both hurricanes' 
landfalls, FSIS issued videotaped consumer alerts with food safety tips 
following a power outage or flood that were satellite broadcast to 
media outlets in Alabama, Louisiana, Georgia, and Florida. In addition, 
the Agency's Meat and Poultry Hotline began 24-hour service to handle 
any food safety questions from consumers. Our outreach to American 
consumers continued into September, when FSIS recorded and distributed 
public service announcements offering food safety tips.
Fiscal Year 2007 Budget Request
    I appreciate the opportunity to discuss FSIS' priorities with you. 
Now, I would like to present an overview of the fiscal year 2007 budget 
requests for FSIS. These budget initiatives are vital to helping us 
attain FSIS' public health mission, as outlined by our priorities. In 
fiscal year 2007, FSIS is requesting an appropriation of $862.9 
million.
Risk-Based System
    FSIS is seeking a total increase of $2.6 million for the 
improvement of Agency support for risk-based inspection and risk-based 
Salmonella control. We are requesting $1.9 million for Agency support 
of risk-based inspection. Finally, for our risk-based Salmonella 
approach, we are requesting $602,000.
Food and Agriculture Defense Initiative
    The fiscal year 2007 budget also requests a total increase of $15.8 
million for FSIS to support the Food and Agriculture Defense Initiative 
in partnership with other USDA agencies, the DHHS, and the Department 
of Homeland Security. Because food contamination and animal and plant 
diseases could have catastrophic effects on human health and the 
economy, the three Federal departments involved are working together on 
a comprehensive food and agriculture policy that will enrich the 
Government's ability to respond to the dangers of disease, pests, and 
poisons, whether natural or intentionally introduced. The total is 
broken down as follows:
    Central to FSIS' food defense efforts is FERN, for which we are 
seeking an increase of $13 million. These funds are critical to help 
FSIS provide participating laboratories with the necessary training, 
laboratory equipment and supplies so that we can handle surge capacity, 
whether from events stemming from a hoax, intentional acts or mother 
nature. From a public health standpoint, an investment in FERN is an 
absolute essential priority if we want to prevent, or mitigate, the 
loss of life and economic hardship if an intentional or unintentional 
incident affecting the food supply were to happen.
    We are also requesting $2.5 million for two data systems to support 
FERN--the electronic laboratory exchange network (eLEXNET), and a 
repository of analytical methods. The eLEXNET is a national, web-based, 
electronic data reporting system that allows analytical laboratories to 
rapidly report and exchange standardized data. This system is currently 
operational in nearly 100 food-testing, public health, and veterinary 
diagnostic laboratories across the country. The fiscal year 2007 budget 
request would make eLEXNET available to additional FERN and other 
analytical, food-testing laboratories. This will require eLEXNET system 
management, travel, on-site computer programming, and training.
    Access to current, properly validated methods used for screening, 
confirmation, and forensic analysis is critical to all laboratories. 
For this reason, FSIS is working with FDA to develop a Web-based 
repository of analytical methods compatible to eLEXNET. Access to these 
methods will greatly enhance the ability of FERN and other laboratories 
to respond to emergencies, to use new methodologies and technologies, 
to enhance efficiency, and to trouble-shoot problems. The requested 
funding will be used to enhance the repository and to populate the 
repository with numerous methods that will be obtained from analytical 
laboratories.
Communication
    In order to facilitate cross-Agency coordination of information, 
FSIS seeks an increase of $600,000 for International Food Safety in 
order to link to the Import Trade Data System managed by the Department 
of Homeland Security's Customs and Border Protection. Currently, FSIS 
relies on the importer of record to present shipments for reinspection, 
and the lack of network linkages among import data systems maintained 
by different agencies contributes to a prolonged, sometimes incomplete 
rendering of product dispositions and document certification for 
imported meat and poultry products at U.S. ports of entry.
    We are also requesting funds for Agency efforts to support the 
President's Management Agenda in the area of IT. As I pointed out 
earlier, the Agency is seeking ways to have electronically stored 
information from all FSIS personnel integrated and available in real-
time. This would allow inspectors ready access to information necessary 
to protect the public health. For inspector communication enhancements, 
such as the PDA-type hardware for inspectors mentioned earlier, we are 
seeking $615,000.
    Our experience has shown that the originally postulated life cycle 
of 5 years for microcomputers delivered to the field inspection 
workforce is not practical, given the rapid pace of technological 
changes. To replace a 5-year lifecycle for computer hardware with a 3-
year lifecycle, the Agency seeks $1,271,000. This accounts for the 
approximately 4,000 microcomputers in the field. Our goal is to replace 
1,300 to 1,400 computers annually.
Personnel Pay Increase
    An increase of $16 million for the FSIS inspection program is 
requested to provide for the 2.2 percent pay raise for FSIS employees 
in fiscal year 2007 to assure that the Agency is provided sufficient 
funds to maintain programs. Failure to provide the full amount for pay 
and benefit costs jeopardizes the effectiveness of FSIS programs and 
weakens food safety.
User Fee Proposal
    Once again this year, our budget reproposes the implementation of a 
new user fee. As you know, inspection services for the cost of Federal 
meat, poultry, and egg products during all approved shifts are 
currently paid for with Federal funds, provided that the species or 
product is covered under our legislative authority. However, most 
plants run beyond one 8-hour shift per day. A fee for services beyond 
that would save significant Federal costs by transferring these costs 
to the industries that directly benefit from them. The proposed fiscal 
year 2007 savings are projected at $105.4 million to reflect 
collections of receipts for three quarters of the year.
Closing
    As we mark the 100th anniversary of the passage of the FMIA, FSIS 
will continue to engage the scientific community, public health 
experts, and all interested parties in an effort to identify science-
based solutions to public health issues to ensure positive public 
health outcomes. It is our intention to pursue such a course of action 
this year, as we have in the past, in as transparent and inclusive a 
manner as possible. The strategies I discussed today will help FSIS 
continue to pursue its goals and achieve its mission of reducing 
foodborne illness, and protecting public health through food safety and 
defense.
    Mr. Chairman, thank you again for providing me with the opportunity 
to speak with the Subcommittee and submit testimony regarding the steps 
that FSIS is taking to remain a world leader in public health. I look 
forward to working with you to improve our food safety system and 
ensuring that we continue to have the safest food in the world. 




    Senator Bennett. Thank you. Dr. Lambert.

                      STATEMENT OF CHARLES LAMBERT

    Mr. Lambert. Thank you, Chairman Bennett, Senator Kohl.
    I am pleased to appear before you to discuss the activities 
of the Marketing and Regulatory Programs and to present our 
2007 budget proposals.
    With me today are Dr. Ron DeHaven, who is the Administrator 
of the Animal and Plant Health Inspection Service (APHIS); Mr. 
Lloyd Day, Administrator of the Agricultural Marketing Service 
(AMS); and Mr. James Link, who is the Administrator of the 
Grain Inspection, Packers and Stockyards Administration 
(GIPSA). And those are the three agencies that make up 
Marketing and Regulatory Programs (MRP).
    In addition, Mr. Dennis Kaplan from the department's Budget 
Office is here with us.
    MRP has addressed several broad goals and objectives to 
increase marketing opportunities and to protect American 
agriculture from damages caused by pests and diseases, both 
intentional and unintentional. The key to private sector 
financial success is relatively simple. First, offer high-
quality products. Second, produce them at a competitive cost. 
And third, earn a fair price in the marketplace.
    In relation to this, MRP has identified three areas for 
special attention to make American agriculture more 
competitive. They include protecting plant and animal health; 
ensuring quality; and continuing to work with the Department of 
Homeland Security to exclude agricultural health threats and 
with farmers and ranchers to control endemic pests and diseases 
once they are here.
    Through MRP's commodity grading and inspection programs, we 
support producers in the marketing of high-quality crops and 
livestock.
    Second is through enhancing market access by reducing 
technical barriers to trade. And third is harmonizing 
international standards by redoubling our efforts in a variety 
of international standard-setting organizations and working 
closely with our sister agencies to ensure that technical 
standards do not become technical barriers.
    MRP activities are funded both by the taxpayers and 
beneficiaries of program services. The budget proposes that the 
MRP agencies carry out programs of close to $2 billion, with 
$412 million funded by fees charged to direct beneficiaries and 
$450 million from customs receipts.
    On the appropriation side, the President's budget requests 
about $959 million for APHIS, $85 million for AMS, and $42 
million for GIPSA.
    The budget proposes user fees that, if enacted, would 
generate about $42 million in savings to the U.S. taxpayer. The 
budget also includes a proposal to terminate the AMS 
Microbiological Data Program, given its limited use to 
determine the source of food-borne illnesses and other reasons.

                          PREPARED STATEMENTS

    Mr. Chairman, the increases that you referred to are 
generally in the exclusion of foreign animal and plant diseases 
and pests and for enhanced monitoring and surveillance 
primarily related to avian influenza.
    I look forward to working with the committee on the 2007 
budget for marketing and regulatory programs. We believe the 
proposed funding amounts and sources of funding are vital to 
improving plant and animal health and ensuring quality and 
enhancing market access and achieving harmonization of 
international standards. It also works to reduce the deficit 
and protects American agriculture from terrorists.
    We are happy to answer any questions. Thank you.
    [The statements follow:]

                 Prepared Statement of Charles Lambert

    Mr. Chairman and members of the Committee, I am pleased to appear 
before you to discuss the activities of the Marketing and Regulatory 
Programs (MRP) of the U.S. Department of Agriculture and to present our 
fiscal year 2007 budget proposals for the Animal and Plant Health 
Inspection Service (APHIS), the Agricultural Marketing Service (AMS), 
and the Grain Inspection, Packers and Stockyards Administration 
(GIPSA).
    With me today are Mr. Jeremy Stump, Acting Deputy Under Secretary 
for MRP; Dr. Ron DeHaven, Administrator of APHIS; Mr. Lloyd Day, 
Administrator of AMS; and Mr. James Link, Administrator of GIPSA. They 
have statements for the record and will answer questions regarding 
specific budget proposals.
    MRP has addressed several broad goals and objectives to increase 
marketing opportunities and to protect American agriculture from 
damages caused by pests and diseases, both intentional and 
unintentional. The key to private sector financial success is 
relatively simple. First, offer the highest quality products. Second, 
produce them at the lowest possible cost. And, third, earn a fair price 
in the marketplace.
    MRP helps American farmers and ranchers in several ways. AMS and 
GIPSA certify the quality of agricultural commodities and provide 
industry with a competitive edge earned by the USDA seal of approval 
for grading and inspection. APHIS protects the health of plants and 
animals, thereby keeping costs low. APHIS also provides plant and 
animal sanitary and phytosanitary (SPS) expertise during international 
negotiations to maintain and open markets around the world, and GIPSA 
works to ensure that livestock producers have a level playing field 
upon which to compete. A healthy and marketable product provides the 
foundation of competitive success.

                            MRP INITIATIVES

    MRP has identified three areas for special attention to make 
American agriculture more competitive. They include:
    Protect Plant and Animal Health and Ensure Quality.--MRP will 
continue to work closely with the Department of Homeland Security (DHS) 
to prevent the entry of foreign plant and animal pests and diseases 
through the Agricultural Quarantine Inspection Program (AQI). We will 
continue to work with farmers and ranchers to control endemic pests and 
diseases at minimal levels. Through MRP's commodity grading and 
inspection programs, we will support our producers in the marketing of 
their high quality crops and livestock.
    Enhance Market Access.--Market access can be impaired through 
technical barriers and SPS measures. MRP will continue to work closely 
with international counterparts to educate them about our systems; to 
learn more about the foreign country requirements; and to certify that 
U.S. products meet their standards.
    Harmonize International Standards.--MRP will continue to provide 
expertise in an effort to harmonize sanitary and phytosanitary 
measures. Since risk is inherent and fair trade relies upon the same 
standards being applied to all parties, MRP will increase its efforts 
with the World Organization for Animal Health and the International 
Plant Protection Convention to develop standards and processes for two-
way trade to exist, with restrictions and mitigations based on science 
to reduce risk. Moving away from an ``all or nothing'' approach makes 
trade therefore less risky, as a localized or contained outbreak has 
fewer effects on exports and thus on the economy. In a similar vein, a 
level playing field in world markets depends on technical standards 
that describe the quality and other characteristics of agricultural 
products in a manner that does not discriminate against U.S. producers 
and shippers. MRP will redouble its efforts in a variety of 
international standard setting organizations and work closely with our 
sister agencies to ensure that technical standards do not become 
technical barriers.

                            FUNDING SOURCES

    The MRP activities are funded by both the taxpayers and 
beneficiaries of program services. The budget proposes that the MRP 
agencies carry out programs of close to $2 billion, with $412 million 
funded by fees charged to the direct beneficiaries of MRP services and 
$450 million from Customs receipts.
    On the appropriation side, the Animal and Plant Health Inspection 
Service is requesting about $953 million for salaries and expenses and 
$6 million for repair and maintenance of buildings and facilities; the 
Agricultural Marketing Service is requesting $85 million; and the Grain 
Inspection, Packers and Stockyards Administration is requesting $42 
million.
    The budget proposes user fees that, if enacted, would generate 
about $42 million in savings to the U.S. taxpayer. Legislation will be 
proposed to provide USDA the authority to recover the cost of 
administering the Packers and Stockyards Act, developing grain and 
other commodity standards that are used to support fee-based grading 
programs and for other purposes, providing Federal oversight of 
marketing agreements and orders, and inspecting entities regulated 
under the Animal Welfare Act. I will use the remainder of my time to 
highlight the major activities and our budget requests for the 
Marketing and Regulatory Programs.

               ANIMAL AND PLANT HEALTH INSPECTION SERVICE

    The fundamental mission of APHIS is to anticipate and respond to 
issues involving animal and plant health, conflicts with wildlife, 
environmental stewardship, and animal well-being. Together with their 
customers and stakeholders, APHIS promotes the health of animal and 
plant resources to enhance market access in the global marketplace and 
to ensure abundant agricultural products and services for U.S. 
customers. I would like to highlight some key aspects of the APHIS 
programs:
    Improve Plant and Animal Health.--While APHIS continues to work 
closely with the Department of Homeland Security (DHS) to exclude 
agricultural health threats, it retains responsibility for promulgating 
regulations related to entry of passengers and commodities into the 
United States. APHIS' efforts have helped keep agricultural health 
threats away from U.S. borders through increased offshore threat-
assessment and risk-reduction activities. APHIS has also increased an 
already vigilant animal and plant health monitoring and surveillance 
system to promptly detect outbreaks of foreign and endemic plant and 
animal pests and diseases.
    Since June, 2004, when we launched the one-time, significantly 
enhanced surveillance program for BSE, we have tested about 660,000 
high-risk animals as of March 20, 2006, and an additional 21,000 
clinically-normal animals. Only two samples have tested positive. APHIS 
is in the process of evaluating the enhanced program, though it 
certainly would not be premature to say that by any measure the 
incidence of BSE in the United States is extremely low.
    In addition, we are moving ahead with the National Animal 
Identification System (NAIS). All 50 States, five Tribes, and two U.S. 
Territories are registering premises with an estimated total of about 
213,000 premises registered as of March 7, 2006. APHIS and its State 
and Tribal cooperators are registering hundreds of premises each week, 
and we are also in the preparation stage to begin allocation of 
individual animal identification numbers.
    We have been closely monitoring the very alarming spread of highly 
pathogenic avian influenza overseas. USDA is a full partner in the 
government-wide effort to prepare the country for a potential pandemic 
and the worldwide effort to stop the spread of H5N1 virus at its source 
overseas. We appreciate funding provided through the December, 2005, 
pandemic influenza emergency supplemental. We are using those funds for 
international efforts, domestic surveillance of poultry and migratory 
birds, diagnostics, and emergency preparedness and response.
    Because efforts to exclude foreign pests and diseases are not 100 
percent successful, APHIS also assists stakeholders in managing new and 
existing agricultural health threats, ranging from threats to 
aquaculture, crops, tree resources, livestock and poultry. In addition, 
APHIS assists stakeholders on issues related to conflicts with wildlife 
and animal welfare.
    Enhance Market Access.--The Trade Issues Resolution and Management 
efforts are key to ensuring fair trade of all agricultural products. 
APHIS' staff negotiates SPS standards, resolves issues, and provides 
clarity on regulating imports and certifying exports which improves the 
infrastructure for a smoothly functioning market in international 
trade. Ensuring that the rules of trade are based on science helps open 
markets that have been closed by unsubstantiated SPS concerns.
    In fiscal year 2005, reopening markets for United States products 
posed one of the greatest challenges. In regard to beef markets that 
were closed to U.S. exports because of BSE, APHIS has contributed to 
regaining at least partial access to 26 markets. Altogether, APHIS 
resolved 79 SPS issues in fiscal year 2005, allowing approximately $1.4 
billion worth of trade to occur.
    Recent developments in biotechnology underscore the need for 
effective regulation to ensure protection of the environment and food 
supply, reduce market uncertainties, and encourage development of a 
technology that holds great promise. APHIS' Biotechnology Regulatory 
Services unit coordinates our services and activities in this area and 
focuses on both plant-based biotechnology and transgenic arthropods. We 
also are examining issues related to transgenic animals.

                       APHIS' 2007 BUDGET REQUEST

    In a year of many pressing high-priority items for taxpayer 
dollars, the budget request proposes about $953 million for salaries 
and expenses. There are substantial increases to support the 
Administration's Food and Agriculture Defense Initiative, enhance avian 
influenza efforts, address SPS trade barriers, and deal with specific 
threats to the agriculture sector. In addition, existing user fees of 
about $139 million will support Agricultural Quarantine Inspection and 
related activities. A brief description of key efforts supported by the 
2007 budget request follows.
    A Total of About $182 Million for Foreign Pest and Disease 
Exclusion.--Efforts will focus on enhancing our ability to exclude 
Mediterranean fruit fly, foreign animal diseases, and screwworm. In 
addition, we also request funds to open offices in Thailand, India, 
Italy, and West Africa to facilitate U.S. exports.
    A Total of About $304 Million for Plant and Animal Health 
Monitoring and Surveillance.--Due to the critical role of APHIS in 
protecting the Nation from both deliberate and unintentional 
introductions of an agricultural health threat, the budget requests an 
increase of about $62 million as part of the Food and Agriculture 
Defense Initiative. This request would provide: enhanced international 
information gathering about potential threats abroad; greater plant 
pest detection and safeguarding; increased national wildlife and animal 
health surveillance; improved ability to respond to plant or animal 
disease outbreaks; and vaccines and supplies for the National 
Veterinary Stockpile. We will also continue efforts to build the 
National Animal Identification System to limit the spread of a 
potential animal disease outbreak.
    A new request is intended to stop, slow, or otherwise limit the 
spread of highly pathogenic avian influenza to the United States and to 
limit the domestic spread of a pandemic. The budget includes an 
additional $57 million for international capacity building (e.g., 
providing in-country veterinary expertise overseas); domestic 
surveillance and diagnostics (including wildlife surveillance); and 
emergency preparedness and response. This would continue efforts that 
were started with funds from the December, 2005, pandemic influenza 
emergency supplemental.
    A Total of $344 Million for Pest and Disease Management Programs.--
Once a pest or disease is detected, prompt eradication will reduce 
long-term damages. In cases where eradication is not feasible (e.g., 
European gypsy moth), attempts are made to slow the advance, and 
damages, of the pest or disease. APHIS provides technical and financial 
support to help control or eradicate a variety of agricultural threats. 
The budget proposes a number of increases, including those for citrus 
canker, emerald ash borer, and sudden oak death. Other programs are 
reduced. For example, successes in boll weevil eradication efforts 
allow a reduction in that program. Included is an increase of $10 
million for competitive grants to fund the application of innovative 
private-sector solutions to real-world pest and disease problems.
    A Total of $20 Million for the Animal Care Programs.--Additional 
funding will help APHIS maintain its animal welfare and horse 
protection programs despite the rapid growth in the number of new 
licensees and registrants. The budget includes a proposal to collect $8 
million in fees from regulated entities to help cover costs associated 
with inspections under the Animal Welfare Act.
    A Total of $94 Million for Scientific and Technical Services.--
Within USDA, APHIS has chief regulatory oversight of genetically 
modified organisms. To help meet the needs of this rapidly evolving 
sector, the budget includes a request to, in part, enhance our 
regulatory role towards transgenic animals and disease agents. Also, 
APHIS develops methods and provides diagnostic support to prevent, 
detect, control, and eradicate agricultural health threats, and to 
reduce wildlife damages (e.g., coyote predation). It also works to 
prevent ineffective or harmful animal biologics from being marketed.
    A Total of $10 Million for Improving Security and IT Operations.--A 
portion of the increase would be used to upgrade key computer resources 
for eGov requirements and other efforts. It also includes providing the 
State Department funds to help cover higher security costs for APHIS 
personnel abroad.

                     AGRICULTURAL MARKETING SERVICE

    The mission of the AMS is focused on facilitating the marketing of 
agricultural products in the domestic and international marketplace, 
ensuring fair trading practices, and promoting a competitive and 
efficient marketplace to the benefit of producers, traders, and 
consumers of U.S. food and fiber products. The Agency accomplishes this 
mission through a wide variety of publicly and user funded activities 
that help its customers improve the marketing of their food and fiber 
products and ensure such products remain available and affordable to 
consumers. Consequently, most AMS programs enhance access to current 
trading information, including availabilities of supply, location and 
size of demand, underutilized market facilities, and availability of 
means of transportation. In addition, the Standardization program 
contributes to the harmonization of international quality standards.
    Market News.--Market news reports improve market efficiency for all 
parties by offering equal and ready access to current, unbiased market 
information so that agricultural producers and traders can determine 
the best place, price, and time to buy or sell. AMS Market News 
provides this information by reporting current prices, volume, quality, 
condition, and other market data on farm products in more than 1,300 
production areas and specific domestic and international markets. In 
October 2005, AMS launched a new Market News Web Portal, making Fruit 
and Vegetable and Livestock and Grain reports immediately available for 
users, with other AMS commodities to be added in coming months.
    The Livestock Mandatory Price Reporting Program continues to 
provide more than 100 daily, weekly, or monthly reports on fed cattle, 
swine, lamb, beef, and lamb meat market transactions. However, since 
legislative authority for the Program lapsed on September 30, 2005, the 
program operates on a voluntary basis. The Government Accountability 
Office recently reviewed the program and we are making improvements in 
response to their recommendations.
    Commodity Standards.--AMS works with the agricultural industry to 
establish and improve commonly recognized quality descriptions for 
agricultural commodities that support access to domestic and 
international markets. The Standardization program supports exports of 
U.S. agricultural products by helping to represent the interests of 
U.S. producers in a variety of international standards development 
meetings. AMS experts continue to participate in developing 
international dairy, meat, poultry, fruit, and vegetable standards.
    Country of Origin Labeling.--AMS is implementing a Country of 
Origin Labeling surveillance and enforcement program for fish and 
shellfish. Labeling requirements for these products became mandatory on 
April 4, 2005, and AMS has educated the industry on the documentation 
and records required to substantiate country of origin and method of 
production claims.
    National Organic Program.--The National Organic Standards program 
supports market access for organic producers by setting national 
standards for organic products sold in the United States, which 
provides assurance for consumers that the organic products labeled 
``organic'' uniformly meet those requirements. The U.S. organic food 
industry has increased to an $18 billion annual sales level and is 
still growing.
    Pesticide Data and Microbiological Data Programs.--AMS also 
provides consumer assurance by collecting pesticide residue data and 
microbiological baseline data. In 2005, the Pesticide Data program 
performed over 120,000 analyses on more than 13,000 samples. The data 
gathered and reported by AMS on pesticide residues supports science-
based risk assessments performed by a number of entities, including 
regulatory agencies.
    Transportation Services.--The Transportation Services program 
supports market access by facilitating the movement of U.S. agriculture 
products from farm to market. This program helps maintain farm income, 
expand exports, and sustain the flow of food to consumers by providing 
``how to'' technical expertise, research, and data on domestic and 
international transportation to growers, producers, and others in the 
marketing chain, and for government policy decisions. The 
Transportation Services program also produces periodic publications 
that improve market access by providing information for agricultural 
producers and shippers on trends, availability, and rates for various 
modes of transportation, including grain and refrigerated transport, 
agricultural containers, and ocean shipping. In fiscal year 2005, the 
program greatly expanded its reporting to keep the Secretary and 
Administration officials well-apprised on the impacts of Hurricanes 
Katrina and Rita on agricultural transportation.
    Wholesale, Farmers, and Alternative Markets.--AMS program experts, 
in cooperation with local and city agencies, improve market access to 
market facilities by assisting local efforts to develop or improve 
wholesale and farmers markets, and to discover other direct marketing 
opportunities. This program also supports research projects to help 
agricultural producers discover new or alternative marketing channels 
and new technology. For 2006, AMS was appropriated funds to implement 
the Farmers Market Promotion program. The program will make grants of 
up to $75,000 to eligible entities, such as agricultural cooperatives, 
local governments, and others, to establish, expand, and promote 
farmers' markets and other direct-to-consumer marketing channels.
    Federal/State Marketing Improvement Program (FSMIP).--AMS helps to 
resolve local and regional agricultural market access problems by 
awarding Federal matching grants for projects proposed by State 
agencies. In 2005, the FSMIP program allocated grant funds to 21 States 
and Puerto Rico for 27 projects such as studies on linking producers 
with new buyer groups and innovative uses for locally important 
agricultural products.
    Commodity Purchases.--USDA nutrition programs provide growers and 
producers with access to an alternative outlet for their commodities. 
AMS food purchases stabilize markets and support nutrition programs, 
such as the National School Lunch Program, the Emergency Food 
Assistance Program, the Commodity Supplemental Food Program, and the 
Food Distribution Program on Indian Reservations. AMS works in close 
cooperation with both the Food and Nutrition Service (FNS) and the Farm 
Services Agency (FSA) to administer USDA commodity purchases and to 
maximize the efficiency of food purchase and distribution operations. 
In fiscal year 2006, we will begin the development of a Web-based 
Supply Chain Management System, which will enhance our ability to track 
bids, orders, purchases, payments, inventories, and deliveries of 
approximately $2.5 billion of commodities used in all food assistance 
programs every year in addition to those price-support commodity 
products maintained in inventory.

                        AMS' 2007 BUDGET REQUEST

    For 2007, the AMS budget proposes a program level of $730 million, 
of which $195 million (nearly 27 percent) will be funded by existing 
user fees, $450 million (approximately 62 percent) by Section 32 funds 
and $85 million (about 12 percent) by appropriations, which includes 
$14.5 million to be derived from proposed new user fees. More 
specifically, the budget includes the following:
    An Increase of About $1 Million for the National Organic Program.--
This request is to ensure that the National Organic Program can meet 
the needs of the rapidly growing organic industry. The increase will 
support: rulemaking needed to address a court order that found three 
elements of the national organic standards regulations inconsistent 
with statutory authority; renewal of substances on the National List of 
Approved and Prohibited Substances that are set to expire on October 
21, 2007; and increased compliance actions, including training sessions 
for certifying agents.
    An Increase of About $400,000 for the Federal Seed Act Program.--
AMS would assume seed testing in those States that have withdrawn from 
the program and work with seed producers and States to improve the 
accuracy of seed sampling and testing programs.
    An Increase of About $2.8 Million for a Food Protection Program.--
AMS would promote the protection of commodities provided to the 
National School Lunch Program (NSLP) and other Federal nutrition 
assistance programs by incorporating food security attributes into 
purchase specifications, conducting vulnerability assessments needed to 
develop industry guidance on how to protect products purchased for 
distribution through NSLP, and development of model food security plans 
for products of importance to NSLP.
    Funding of More than $1 Million for Payments to States.--Under the 
Federal-State Marketing Improvement Program, AMS awards Federal 
matching grant funds to State agencies to address local and regional 
agricultural marketing problems.
    Funding of Nearly $10 Million Within Marketing Services for the 
Web-based Supply Chain Management System.--As mentioned earlier, this 
system, the successor to the Processed Commodities Inventory Management 
System, will improve information technology systems used to manage and 
control commodity orders, purchases, and delivery. Discretionary 
appropriated funding is requested in fiscal year 2007 to continue 
developing the system.
    As Secretary Johanns testified before this committee last month, 
the 2007 budget funds our most important priorities while exercising 
fiscal discipline that is necessary to reduce the Federal deficit. The 
AMS budget has proposals that moves us in the right direction while 
continuing to meet key priorities.
    A Decrease of About $6.3 Million for the Termination of the 
Microbiological Data Program (MDP).--The fiscal year 2007 budget does 
not request funding to continue the MDP because it is difficult to 
determine to what extent the data is used to support risk assessments. 
Sample origin data is not collected which limits the use of the data in 
epidemiological investigations aimed at determining the source of 
outbreaks of foodborne illness. In response to these findings and the 
need to limit Federal spending, the program is proposed for termination 
in 2007.
    User Fees.--The budget proposes to collect about $2 million through 
user fees for the development of domestic commodity grade standards 
that are associated with a grading program. Users of grading services 
are direct beneficiaries of commodity standards and, therefore, should 
be charged for the development of commodity grades associated with the 
grading and inspection program. In order to implement this proposal, 
legislation will be submitted to Congress to authorize these fees. 
Likewise, approximately $12 million in user fees would be collected for 
Federal administration of marketing agreements and orders, which is 
currently funded through Section 32. The local market administrator or 
committee will be billed for their portion of Federal administrative 
costs.

        GRAIN INSPECTION, PACKERS AND STOCKYARDS ADMINISTRATION

    GIPSA's mission is to enhance market access for livestock, meat, 
poultry, cereals, oilseeds, and related agricultural products and to 
promote fair and competitive trade for the benefit of consumers and 
American agriculture. GIPSA fulfills this through both service and 
regulatory functions in two programs: the Packers and Stockyards 
Programs (P&SP) and the Federal Grain Inspection Service (FGIS).
    Before proceeding, I want to note that we are taking very seriously 
the recent audit by the Office of Inspector General (OIG) of the P&SP 
and we have established an aggressive schedule to improve enforcement 
of the Packers and Stockyards Act. The audit identified areas where 
program management was not up to the high standard that this 
Administration expects and our stakeholders deserve. The OIG provided 
ten recommendations for strengthening the P&SP. GIPSA concurs with all 
recommendations and is taking aggressive action to implement them.
    Packers and Stockyards Programs.--Recognizing what needs to be 
improved, the strategic goal for P&SP is to promote a fair, open and 
competitive marketing environment for the livestock, meat, and poultry 
industries. Currently, with 152 employees, P&SP monitors the livestock, 
meatpacking, and poultry industries, estimated by the Department of 
Commerce to have an annual wholesale value of about $120 billion. Legal 
specialists and economic, financial, marketing, and weighing experts 
work together to monitor emerging technology, evolving industry and 
market structural changes, and other issues affecting the livestock, 
meatpacking, and poultry industries that the Agency regulates.
    The Swine Contract Library began operation on December 3, 2003, and 
continues, though since October, 2005, it has been on a voluntary basis 
since the legislative authority in the Livestock Mandatory Price 
Reporting Act lapsed. Producers can see contract terms, including, but 
not limited to, the base price determination formula and the schedules 
of premiums or discounts, and packers' expected annual contract 
purchases by region.
    Progress continues to be made on the Livestock and Meat Marketing 
Study, which examines broad issues surrounding packer ownership of 
livestock. The contractor for the study, the Research Triangle 
Institute (RTI), released an interim report in August, 2005. The final 
report is scheduled for release in early 2007. We recognize that this 
is later than expected, but given the complexity of issues, more time 
is needed to adequately analyze them.
    Federal Grain Inspection Service.--FGIS facilitates the marketing 
of U.S. grain and related commodities under the authority of the U.S. 
Grain Standards Act and the Agricultural Marketing Act of 1946. As an 
impartial, third-party in the market, we advance the orderly and 
efficient marketing and effective distribution of U.S. grain and other 
assigned commodities from the Nation's farms to domestic and 
international buyers. We are part of the infrastructure that undergirds 
the agricultural sector.
    GIPSA works with government and scientific organizations to 
establish internationally recognized methods and performance criteria 
and standards to reduce the uncertainty associated with testing for the 
presence of biotechnology traits in grains and oil seeds. It also 
provides technical assistance to exporters, importers and end users of 
U.S. grains and oilseeds, as well as other USDA agencies, industry 
organizations, and other governments. These efforts help facilitate the 
sale of U.S. products in international markets.
    Our efforts to improve and streamline our programs and services are 
paying off for our customers, both in terms of their bottom lines and 
in greater customer satisfaction. In fiscal year 2005, GIPSA employees 
issued nearly 3 million certificates representing approximately 245 
million tons of grain. One indicator of the success of our outreach and 
educational initiatives is the number of foreign complaints lodged with 
FGIS regarding the quality or quantity of U.S. grain exports. In fiscal 
year 2005, FGIS received only ten complaints regarding poor quality and 
one complaint regarding inadequate weights from importers on grains 
inspected under the U.S. Grain Standards Act. These involved 456,069 
metric tons, or about 0.4 percent by weight, of the total amount of 
grain exported during the year.
    I would like to acknowledge the efforts of GIPSA employees in the 
aftermath of Hurricanes Katrina and Rita. We are proud to report that 
no service requests were denied as a result of the hurricanes. GIPSA 
personnel were on duty and ready to provide service as soon as the 
industry resumed operations. Our local personnel showed fortitude and 
determination in addressing both the personal and work-related 
challenges created by the storms.

                      GIPSA'S 2007 BUDGET REQUEST

    For 2007, the budget proposes a program level for salaries and 
expenses of about $84 million, of which more than $42 million is from 
existing inspection and weighing user fees. Of the appropriations 
request of almost $42 million, approximately $20 million is devoted to 
the grain inspection activities including standardization, compliance, 
and methods development activities and about $21 million to the P&SP. 
The 2007 budget includes the following program increases:
    About $2.9 Million for IT Initiatives.--This would continue the 
agency's multi-year IT modernization efforts, of which $1.4 million is 
one-time funding. The agency's eGov initiatives would facilitate the 
electronic transfer of information to and from stakeholders, and allow 
more efficient utilization by GIPSA of information such as program 
reviews and evaluations, agricultural product standards, inspection 
data, field test equipment reporting.
    About $400,000 to facilitate U.S. grain exports to Asia. GIPSA 
would establish an ongoing presence in Asia to expand upon our 
successful international services and trade activities currently 
provided on a temporary basis.
    User fees. Two user fees are included in the budget. One would be 
charged to recover the costs of developing, reviewing, and maintaining 
official U.S. grain standards used by the grain industry. This fee 
proposal would enable GIPSA to recover almost $4 million in fiscal year 
2007. Also, a further $16 million in license fees would be collected 
for the Packers and Stockyards program.

                               CONCLUSION

    This concludes my statement. I am looking forward to working with 
the Committee on the 2007 budget for the Marketing and Regulatory 
Programs. We believe the proposed funding amounts and sources of 
funding are vital to improving plant and animal health and ensuring 
quality, enhancing market access, and achieving harmonization of 
international standards. It also reduces the deficit and protects 
American agriculture from terrorists. We are happy to answer any 
questions.
                                 ______
                                 

    Prepared Statement of Lloyd C. Day, Administrator, Agricultural 
                           Marketing Service

    Mr. Chairman and Members of the Committee, I am pleased to have 
this opportunity to represent the Agricultural Marketing Service (AMS) 
in presenting our fiscal year 2007 budget proposal. Although I have 
worked with AMS only since early August, I understand the importance of 
efficient and effective marketing systems for U.S. agricultural 
producers and consumers. My previous Government experience was focused 
on international trade issues at the Foreign Agricultural Service and 
the California Trade and Commerce Agency; in private industry, I have 
managed business development and marketing activities.
    To provide a starting point for discussion of our budget proposals, 
I would like to begin by reviewing our agency's mission in the context 
of USDA's strategic objectives. I will also discuss a few of the 
programs through which we carry out that mission, and mention a few 
recent accomplishments and issues of interest to AMS clientele.

                                MISSION

    AMS is a key component in USDA's strategic objective to increase 
the efficiency of domestic agricultural production and marketing 
systems. This objective recognizes that the long-term viability of 
agricultural producers depends on their ability to manage an efficient 
and profitable operation. Once produced, agricultural goods need 
efficient and equitable market outlets. AMS plays an integral role in 
the U.S. marketing system by ensuring that buyers and sellers in the 
food production and distribution chain have equal access to market 
information and technical services. Although our focus is generally on 
domestic marketing, some of our programs also support USDA's efforts to 
assist U.S. agricultural producers in international marketing.
    The mission of AMS is to facilitate the marketing of agricultural 
products in the domestic and international marketplace, ensure fair 
trading practices, and promote a competitive and efficient marketplace 
to the benefit of producers, traders, and consumers of U.S. food and 
fiber products. We accomplish our mission through a wide variety of 
appropriated activities and through our user-funded grading, 
certification, and Perishable Agricultural Commodities Act programs. 
Although our user-funded and reimbursed programs are important to 
agricultural marketing, most of my discussion today will focus on our 
appropriated programs.

                              AMS PROGRAMS

    AMS programs work together, in cooperation and coordination with 
other Federal agencies within USDA and outside the Department, and with 
State partners to provide services that support our mission. Our 
``clients'' span the marketing chain from the producer to the consumer. 
For example, we collect and disseminate current market information on 
agricultural prices, quality, supply, demand, and other data useful for 
production, sales, and purchase decisions. We also publish current 
rates and availability information on agricultural product 
transportation modes. We provide technical advice and support on market 
facilities, methods, and technology, plus matching grants for regional 
projects that support agricultural marketing. We offer independent, 
official verification services to provide assurance for sellers and 
buyers that commodities meet contract specifications, quality and 
marketing claims, labeling, and Federal requirements, and to ensure 
fair trading of agricultural production in the United States. Consumers 
benefit directly from organic labeling, graded foods, farmers markets, 
and pesticide residue information. Our programs assist commodity 
producer groups by providing technical and regulatory support for 
federally-authorized self-help programs, and we purchase food 
commodities that are in short-term oversupply for use in USDA nutrition 
assistance programs.

                           MARKETING SERVICES

    Our Marketing Services programs provide services that benefit all 
agricultural producers, traders, and consumers of dairy products, 
fruits, vegetables, specialty crops, livestock and meat, poultry, 
cotton, and tobacco. These programs facilitate marketing by providing 
information, technical expertise, and buyer assurance. They are funded 
through annual appropriations and include our Market News, 
Standardization, Shell Egg Surveillance, Federal Seed, National 
Organic, Pesticide Recordkeeping, Country of Origin Labeling, Pesticide 
Data, Transportation Services, and Wholesale, Farmers, and Alternative 
Market Development programs.

                              MARKET NEWS

    AMS' Market News service reports market data on farm products in 
more than 1,300 production areas and many domestic and international 
markets. Market News reports for over 700 commodities are disseminated 
within hours of collection via the Internet and other electronic means 
and through the news media. In October 2005, we made available a new 
Market News Web Portal to the public, making Fruit and Vegetable and 
Livestock and Grain reports immediately available for users, with other 
AMS commodities to be added in coming months. The portal allows the 
agricultural industry and other interested users to customize the data 
they receive, build their own reports, and query the database back to 
1998. We have already received an enthusiastic response to the expanded 
availability of data through the portal.
    Market news data is provided by buyers and sellers for most 
commodities on a voluntary basis. However, Congress established 
Livestock Mandatory Price Reporting (LMPR) in 2000 to ensure that 
information on meat and livestock trades would continue to be available 
for producers in a consolidating industry, including formula and 
contract market information. LMPR generates more than 100 daily, 
weekly, or monthly reports on fed cattle, swine, lamb, beef, and lamb 
meat market transactions. Legislative authority for LMPR lapsed on 
September 30, 2005, following a 1-year extension. As both Houses of 
Congress were considering bills to continue the program, AMS sent 
letters to all packers previously required to report, requesting 
voluntary cooperation in continuing to submit information required 
under the mandatory program. Consequently, most of the reports continue 
to be published--only the imported boxed lamb cuts and slaughter cow 
reports have been discontinued.
    The Government Accountability Office recently reviewed the program 
and recommended some improvements. To improve reporting transparency, 
AMS will inform Market News readers about the general guidelines 
followed by AMS reporters in making reporting decisions through 
periodic public reports on the volume of submitted transactions that 
are excluded by reporters and the effect that such exclusions had on 
net price distributions on all reported commodities. We also have 
established a toll-free telephone information line for questions about 
reporting which gives producers an opportunity to obtain information on 
how the data for the livestock they sold is used in reporting.
    To help verify the overall accuracy of the transaction data 
supplied by packers and to identify recurring significant problems, AMS 
will implement additional or modified auditing methods to increase the 
overall effectiveness of compliance activities. The program is 
reviewing sample selection, the need for more audits at plants that 
demonstrate a higher frequency of non-compliances, and additional 
analyses to identify any widespread reporting problems. To ensure 
timely and consistent follow-up to audit findings, AMS has developed 
new procedures that greatly improve the audit process, including 
timeframes for corrective action and a hierarchy for categorizing the 
severity of non-compliances. AMS also has modified its audit process to 
more closely review transactions reported at the low-price end of the 
market. All of these improvements will be completed by the end of this 
fiscal year.
    Livestock and meat information is used as a basis for developing 
contracts between producers and packers, as well as packers and 
retailers. We believe that the program has resulted in the availability 
of comprehensive information that has improved the transparency of the 
marketplace. Therefore, we request continued funding and support 
reauthorization of Livestock Mandatory Price Reporting.

                       COUNTRY OF ORIGIN LABELING

    This year, we are implementing a Country of Origin Labeling (COOL) 
surveillance and enforcement program for fish and shellfish. Labeling 
requirements for these products became mandatory on April 4, 2005, and 
we have used the intervening months to educate the industry--suppliers 
and retailers--on the documentation and records required to 
substantiate country of origin and method of production claims. 
Mandatory labeling requirements for all other covered commodities were 
delayed until September 30, 2008. The delay will allow us to develop an 
operational infrastructure before mandatory labeling for all other 
commodities covered by the Act--beef, lamb, pork, perishable 
agricultural products, and peanuts--becomes effective.

                             TRANSPORTATION

    Our Transportation Services program facilitates the movement of 
U.S. agricultural products to market. As part of that effort, the 
program produces periodic publications that provide information for 
agricultural producers and shippers on various modes of transportation, 
including grain transportation, refrigerated transport, ocean rates and 
transportation trends, and agricultural containers. In 2005, the 
program greatly expanded its reporting to keep the Secretary and 
Administration officials well-apprised of the impacts of Hurricanes 
Katrina and Rita on agricultural transportation; issuing 22 daily and 5 
weekly briefing reports from August 29, 2005 to October 26, 2005. In 
early November, the program switched to issuing a Weekly Transportation 
Update, which continued to provide information on the recovery status 
of the transportation systems. During the aftermath of the hurricanes 
AMS participated with the Army Corps of Engineers in briefing staff 
from both houses of Congress and supported Departmental testimony on 
the recovery.

                           MARKET DEVELOPMENT

    Our Wholesale, Farmers, and Alternative Market Development program 
experts, in cooperation with local and city agencies, assist local 
efforts to develop or improve wholesale and farmers market facilities, 
and to discover other direct marketing opportunities. This program also 
supports research projects on marketing channels and market technology 
improvements, as well as numerous marketing conferences and workshops 
across the country. For 2006, AMS was appropriated funding to implement 
the Farmers Market Promotion program. The program will make grants of 
up to $75,000 to eligible entities to establish, expand, and promote 
farmers' markets and other direct-to-consumer marketing channels. These 
eligible entities include agricultural cooperatives, local governments, 
regional farmers' market authorities, and nonprofit, public benefit, 
and economic development corporations.

                               SECTION 32

    AMS also receives appropriated funding for activities authorized 
under Section 32 of the Act of August 24, 1935. AMS' Commodity Purchase 
program buys perishable non-price supported agricultural commodities--
meat, poultry, fruits, vegetables, and fish to encourage domestic 
consumption. Commodity purchases support the market for these 
agricultural commodities by reducing supplies in temporary surplus, by 
providing foods used by domestic nutrition assistance programs, and by 
purchasing commodities for use in disaster relief efforts. The 
purchased foods are donated to the National School Lunch Program and 
other domestic nutrition programs. In fiscal year 2005, AMS purchased 
1.46 billion pounds of commodities that were distributed by the Food 
and Nutrition Service through its nutrition assistance programs. As 
directed by the Secretary, this program may also make emergency 
diversion and relief payments to producers in temporary distress. In 
addition to commodity purchasing activities, Section 32 funds the 
Federal administration of Marketing Agreements and Orders, which help 
producers in the marketing of their milk, fruit, vegetables, and 
specialty crops.

                              PARTNERSHIPS

    Discussion of AMS' programs is not complete without a brief mention 
of the extensive partnerships with other Federal agencies, State 
agencies, and industry that characterize our program delivery.
    The Agricultural Marketing Act of 1946, the authority on which we 
rely for a great number of our programs, encourages Federal-State 
cooperation in carrying out market facilitating activities. AMS depends 
on strong partnerships with cooperating State and Federal agencies to 
operate many of our programs. AMS provides guidance and coordination to 
State agency partners who collect data, provide inspection, monitoring, 
and laboratory services, and otherwise maximize the value of both State 
and Federal resources through sharing and coordination. For instance, 
AMS' Market News program maintains cooperative agreements with 38 
States to coordinate their local market coverage with the regional and 
national coverage needed for AMS' market reporting. State employees, 
who inspect shipments of seed within a State, provide information to 
AMS' Federal Seed program on potential violations in interstate 
shipments. Our transportation and direct marketing programs work with 
Federal, State, city and local policy makers to maintain an efficient 
national transportation system and expand and improve market outlets 
for U.S. agricultural products. Under Section 32, USDA's food purchase 
programs have developed partnerships that maximize the unique expertise 
that each agency brings to the process. AMS works in close cooperation 
with the Food and Nutrition Service (FNS) and the Farm Service Agency 
(FSA) to support USDA's nutrition assistance and administer surplus 
commodity programs.

                    FISCAL YEAR 2007 BUDGET REQUEST

    This leads us into our budget requests for fiscal year 2007. In 
Marketing Services, we propose to strengthen the operations of the 
National Organic and Federal Seed Act programs, implement a new Food 
Protection program for purchased commodities, and continue work on the 
Web-based Commodity Supply Chain Management System. The budget also 
includes a proposal to terminate the Microbiological Data program and 
institute new user fees for the development of grade standards and the 
Federal administration of Marketing Agreements and Orders.

                        NATIONAL ORGANIC PROGRAM

    The U.S. organic food industry has grown approximately 20 percent a 
year to an $18 billion annual sales level and provides an important 
marketing opportunity for many producers. We are requesting additional 
funding of $1.1 million for fiscal year 2007 so that we can more 
effectively manage the statutory and operational requirements of the 
National Organic Program (NOP) to ensure that it meets producers' needs 
and consumers' expectations.
    The National Organic program (NOP) provides assurance for consumers 
that organic products uniformly meet established requirements 
nationwide. Program personnel work in partnership with the National 
Organic Standards Board, which is appointed by the Secretary to 
represent industry and consumer interests. In January, six new members 
were appointed to the Board. Based on earlier Board recommendations, 
AMS has hired an Executive Director and developed a plan to establish a 
peer review panel. The panel will assist in evaluating applications of 
certifying agents seeking accreditation and ensure that the 
accreditation process is consistent with the intent of the law.
    The budget request will provide the funds needed for independent 
peer audits that evaluate all aspects of the NOP accreditation program 
and for program staffing to implement the results of those audits and 
otherwise assist in the delivery of this program. The audits, which 
will be conducted every 2 years, are necessary to maintain the 
program's credibility with the organic industry and for continuous 
improvement of the program's management systems.
    The program also needs additional resources to avoid interruption 
of organic production. As provided in statute, the approvals for some 
174 materials originally placed on the National List of approved and 
prohibited substances for organic production will sunset in October 
2007. AMS program staff works with the National Organic Standards Board 
to update and maintain the National List and each of the expiring 
materials must be re-evaluated. To ensure that the Board and all 
interested parties have sufficient time to evaluate such a large number 
of materials, AMS published an Advance Notice of Proposed Rulemaking in 
June 2005 that began the public comment process on whether the specific 
exemptions or prohibitions should be continued. Due to heightened 
interest, technological obsolescence, or available alternatives, we 
expect that almost one-third of those materials will have to undergo 
independent scientific reviews before their use can be reauthorized. 
Our fiscal year 2007 budget request includes funding for the program to 
work with the Board to complete the re-evaluation of the National List.
    The requested funding also will provide the resources needed to 
resolve other issues facing the program: (1) strengthening compliance 
and enforcement activities to maintain trade and consumer confidence; 
(2) developing organic standards for additional products, which will 
require extensive public input; and (3) dealing with current issues 
such as recent amendments to the Organic Foods Production Act and 
questions on access to pasture for organically produced ruminants. 
Although Congressional action amending the Organic Foods Production Act 
of 1990 (OFPA) restored the program to its status before the decision 
by the U.S. District Court for the District of Maine in the case of 
Harvey v. Johanns, certain procedural issues remain to be resolved. The 
court found, on June 9, 2005, that USDA had in two instances exceeded 
its statutory authority in developing program regulations. To reduce 
the impact of the court's ruling on the organic industry, Congress 
amended the OFPA on November 10, 2005, to permit the use of synthetic 
ingredients and the transitioning of dairy farms.

                        FEDERAL SEED ACT PROGRAM

    Our fiscal year 2007 budget request includes an increase of 
$432,000 for our Federal Seed Act program. The Federal Seed Act 
protects anyone who purchases seed by prohibiting false labeling and 
advertising on seed shipped interstate. The program prevents financial 
losses to farmers by detecting mislabeled, low quality seed before it 
is planted and creates a level playing field for seed companies that 
market truthfully labeled seed. In States where seed monitoring 
programs exist, AMS works with State partners who refer interstate 
violations to us. However, in States that do not have their own 
monitoring programs, we estimate that the percentage of mislabeled seed 
doubles. To better enforce the Act to protect growers, we propose to 
assume seed testing in 8 States--Maine, Vermont, New Hampshire, 
Connecticut, Rhode Island, New York, Michigan, and Wisconsin--that 
receive most of their seed from other States but do not have their own 
monitoring programs.

                        FOOD PROTECTION PROGRAM

    For fiscal year 2007, we are requesting a $2.75 million increase in 
Marketing Services to establish a new Food Protection program that will 
better protect the recipients of commodities that are purchased by USDA 
and distributed through the National School Lunch Program (NSLP) and 
other Federal nutrition assistance programs.
    The Food Safety and Inspection Service (FSIS) and the Food and Drug 
Administration (FDA) are doing significant work with the food industry 
to promote food defense. AMS is pleased to be participating in several 
FSIS and FDA initiatives. Additional funding is necessary to ensure 
that all possible actions are taken in assessing and eliminating 
vulnerabilities in the production and distribution of foods for NSLP 
and other Federal nutrition assistance programs that serve vulnerable 
population segments. The resources we are requesting will enable us to 
work effectively with our vendors in their protection of their 
production facilities and with distributors in the transport of food 
products to State warehouses. AMS will ensure that our vendors are 
aware of FSIS' and FDA's food defense guidance and that they are early 
and effective adopters of that guidance.
    In full partnership with FSIS and FDA, AMS will work with the 
vendor community to conduct vulnerability assessments, develop guidance 
on protecting products purchased for distribution through Federal 
programs, fund studies on improving security through safer packaging 
and transportation, and incorporate food protection attributes into our 
purchase specifications. AMS has begun developing specialized training 
materials to ensure that agency staff involved in contract acceptance 
are properly trained and supervised. With additional resources, we plan 
to offer food protection training for about 6,000 employees of State 
partner agencies, along with workshops and training sessions for vendor 
employees. With the funds being requested we can protect Federal 
commodity purchases and help advance the food defense efforts of FSIS 
and FDA by ensuring that AMS' vendors are implementing effective food 
defense plans in their facilities.

              FEDERAL-STATE MARKETING IMPROVEMENT PROGRAM

    The Federal-State Marketing Improvement Program (FSMIP) helps to 
resolve local and regional agricultural marketing problems by awarding 
Federal matching grant funds for projects proposed by State agencies. 
Our fiscal year 2007 budget request includes $1.3 million for FSMIP. 
These matching grant funds are made available to State departments of 
agriculture and other State agencies for 25 to 35 projects each year, 
with the State agencies contributing at least half of the project cost. 
In 2005, the program allocated grant funds to 21 States and Puerto Rico 
for a total of 27 projects, including studies on linking producers with 
new buyer groups and innovative uses for locally important agricultural 
products. The program encourages projects that use a collaborative 
approach between the States, academia, and the farm sector, that have 
regional or national significance, and that address challenges or 
opportunities posed by the global economy, changing consumer 
preferences, agricultural diversity, technical innovation, 
transportation, and distribution.

            WEB-BASED SUPPLY CHAIN MANAGEMENT SYSTEM (WBSCM)

    For fiscal year 2007, we are proposing to continue development of 
the Web-based Supply Chain Management System at a reduced level of $9.9 
million, and we are requesting funding from Marketing Services so that 
this project is funded from discretionary resources. As $20 million was 
provided from Section 32 in fiscal year 2006, our budget request for 
Commodity Purchases Administrative funds in fiscal year 2007 has been 
reduced by that amount.
    The WBSCM system will support $2.5 billion worth of USDA food 
purchases distributed through the National School Lunch Program and 
other domestic and international food assistance programs. WBSCM will 
replace USDA's existing Processed Commodity Inventory Management System 
(PCIMS) that links the procurement and distribution functions of AMS, 
FNS, and FSA. PCIMS is over 15 years old and is inflexible, resource 
intensive, and costly to maintain. AMS initiated and coordinated the 
budget request for this initiative on behalf of all three agencies.
    The implementation of WBSCM will save USDA's nutrition programs 
several million dollars annually, in operational and maintenance costs, 
increased productivity, and reduced purchase and shipping costs. WBSCM 
will create a single point of access for customers, allowing the 
agencies to share information with customers more quickly and 
conveniently. The new system will improve efficiency by greatly 
reducing the time required for processing purchases; shortening 
delivery times; improving USDA's ability to collaborate with other 
Departments; improving reporting capabilities; reducing transportation, 
inventory, and warehousing costs; and enabling future systems updates 
as needed. Successful completion of this initiative will support clean 
financial audits for the Department, the agencies' ability to 
effectively and efficiently work with recipients and vendors, and 
USDA's ability to respond to natural disasters.

                MICROBIOLOGICAL DATA PROGRAM TERMINATION

    The fiscal year 2007 budget does not request funding to continue 
the Microbiological Data Program (MDP) which was established in 2001 to 
establish a national database on foodborne pathogens on domestic and 
imported produce. It is difficult to determine to what extent the data 
obtained through this program are used to support risk assessments by 
other Federal agencies such as the Food and Drug Administration. 
Furthermore, the use of these data by agencies, such as the Centers for 
Disease Control and Prevention, involved in epidemiological 
investigations aimed at determining the source of outbreaks of 
foodborne illness is limited because data on sample origin is not 
collected, as directed by Congress. In response to these concerns and 
the need to limit Federal spending, the program is proposed for 
termination in 2007.

                             NEW USER FEES

    Our Marketing Services request for fiscal year 2007 includes $2.2 
million to be recovered through new user fees, based on a proposed 
legislative change that would convert most of our domestic standards 
activities to user-fee funding. USDA will submit legislation that will 
amend the Agricultural Marketing Act of 1946 and authorize the agency 
to implement, collect, and retain user fees for domestic standards that 
are associated with AMS' grading and certification services. Also, 
$12.3 million is proposed to be recovered for the Federal 
administration of Marketing Agreements and Orders through increased 
assessments on program beneficiaries, which is currently funded through 
Section 32.

                          STANDARDS USER FEES

    This budget again proposes to recover the costs for developing and 
updating domestic standards through user fees paid by those requesting 
AMS' grading and certification services. This proposal was recommended 
by the Program Assessment Rating Tool (PART) review conducted for the 
fiscal year 2006 budget. On average, we expect the cost for Standards 
development will be about 2 percent of the cost of grading services. 
The Department has proposed a legislative amendment authorizing 
standards user fees.
    AMS' Standardization program works closely with interested parties 
in agriculture and the food marketing system to ensure that quality 
descriptions are aligned with current U.S. marketing practices because 
efficient markets need widely-recognized agricultural product 
descriptions in commercial sales and purchases. The agriculture 
industry uses these descriptions to convey commodity quality in 
purchase specifications and sales contracts. AMS currently maintains 
about 600 U.S. agricultural quality standards for domestic and 
international trading of cotton, tobacco, dairy products, fruits and 
vegetables, livestock, meat, poultry, eggs, and rabbits.
    The Standardization program also supports exports of U.S. 
agricultural products by representing the interests of U.S. producers 
in a variety of international standards development organizations. We 
are proposing to retain appropriations to fund these activities.

               MARKETING AGREEMENTS AND ORDERS USER FEES

     Marketing Agreements and Orders are requested by producers and 
handlers to help establish orderly marketing conditions for milk, 
fruits, vegetables, and tree nuts. AMS evaluates and conducts hearings 
on proposed Marketing Orders, which are subject to approval by 
producers of the regulated community. Section 32 funds have been 
appropriated for Federal costs in administering the order at the 
national level, including public hearings, referenda on new programs 
and proposed revisions, and enforcement. The Milk Marketing Order 
Administrators and Fruit and Vegetable Marketing Order Committees, who 
oversee local administration of Marketing Orders, operate on 
assessments paid by their industries. Our fiscal year 2007 budget 
proposes to charge user fees to recover the cost of Federal oversight. 
The assessments already charged to beneficiaries for local program 
administration would be increased to cover Federal costs. USDA is 
preparing a legislative amendment to authorize recovery of these costs.

                         BUDGET REQUEST SUMMARY

    Our budget request includes $81.5 million in appropriated funds and 
$2.2 million in new user fees for a total budget of $83.7 million in 
Marketing Services; we also request $1.3 million for FSMIP grants 
funding. For administration of Section 32 activities, we request $11.6 
million to support commodity purchasing and a total of $16.4 million 
for the Marketing Agreements and Orders program--$4.1 million in 
appropriations and $12.3 million from user fees. Our Marketing Services 
and Section 32 administrative funding requests include an increase for 
pay costs.
    Thank you for this opportunity to present our budget proposal.
                                 ______
                                 

  Prepared Statement of Dr. W. Ron DeHaven, Administrator, Animal and 
                    Plant Health Inspection Service

    Mr. Chairman and members of the Subcommittee, it is a pleasure for 
me to represent the Animal and Plant Health Inspection Service (APHIS) 
before you today. APHIS is an action-oriented agency that works with 
other Federal agencies, Congress, States, agricultural interests, and 
the general public to carry out its mission to protect the health and 
value of American agriculture and natural resources. This mission is 
vital not only to protect the livelihoods of agricultural producers and 
the industries related to them, but also to United States homeland 
security and food and agriculture defense. The past year has brought 
many challenging agricultural issues our way, such as the threat of a 
pandemic Highly Pathogenic Avian Influenza (HPAI) outbreak and Bovine 
Spongiform Encephalopathy (BSE); outbreaks of Medfly, Sudden Oak Death, 
and Emerald Ash Borer; as well as the spread of citrus canker in 
Florida due to the heavy hurricane season last year. APHIS remains 
committed to preventing the spread of animal and plant pests and 
diseases in the United States and our Agency has continued its vigilant 
effort to prevent foreign agricultural pests and diseases from entering 
the country. We also remain committed to keeping American agricultural 
products moving overseas. APHIS' mission of protecting the health and 
value of United States agricultural and natural resources encompasses a 
wide variety of activities. I would like to report on our fiscal year 
2005 highlights, and our fiscal year 2007 budget request.

                      FISCAL YEAR 2005 HIGHLIGHTS

Pest and Disease Exclusion Activities
    APHIS' efforts begin with offshore threat assessment and risk 
reduction activities at the sources of exotic agricultural pests and 
diseases. Through our pest and disease exclusion programs, we follow 
animal and plant health throughout the world and use this information 
to set effective agricultural import policy, and facilitate 
international trade by clarifying and amending import requirements, as 
necessary. Our off-shore risk reduction activities also include 
conducting pest and disease eradication programs in foreign countries 
and pre-clearance inspection of certain commodities in off-shore 
locations; performing intense monitoring and surveillance for exotic 
fruit flies and cattle fever ticks in high-risk, border areas of the 
United States; and cooperating with the Department of Homeland 
Security's Bureau of Customs and Border Protection (CBP) to inspect 
arriving international passengers, cargo, baggage, mail, and other 
means of conveyance.
    Officials with our Agricultural Quarantine Inspection, Trade Issues 
Resolution Management, Foreign Animal Disease/Foot and Mouth Disease 
(FAD/FMD), and Import/Export programs track plant and animal health 
issues around the world and use the information to set import policies 
to ensure that agricultural diseases are not introduced through 
imports. This information also helps determine what pests and diseases 
might have pathways into the United States and informs our monitoring 
and surveillance efforts here at home. APHIS is establishing a formal 
international information gathering program under the FAD/FMD and Pest 
Detection line items to build on these efforts. Through its off-shore 
pest information system, APHIS has identified more than 600 plant pests 
that pose risks to U.S. agriculture. APHIS uses this information to 
provide guidance to CBP on inspection protocols and to target cargo 
from certain areas for increased inspection.
    To ensure our import regulations are enforced and adequately 
protect United States agricultural and natural resources, we work 
closely with CBP to monitor and intercept prohibited items that arrive 
at United States ports of entry. In fiscal year 2005, agricultural 
inspectors checked the baggage of nearly 66 million arriving passengers 
and cleared 49,394 ships and 2,239,813 cargo shipments. In total, 
agricultural inspectors intercepted 49,665 reportable pests at land 
borders, maritime ports, airports, and post offices. These include 
exotic fruit flies, various moth species, scale insects, and rust 
diseases.
    In fiscal year 2005, APHIS and CBP also began enforcing new entry 
requirements for solid wood packaging materials, which can harbor 
serious forest pests. The introduction of pests such as the Asian 
longhorned beetle and emerald ash borer has been linked to solid wood 
packaging materials used as crates and boxes for shipping all kinds of 
commodities. The new regulations are based on an international standard 
that will be used by more than 150 countries to address this world-wide 
problem.
    APHIS continued to support the FMD barrier between Central America 
and Columbia and began plans to move it further away from the United 
States to reduce the risk of an FMD introduction. We reported 29 FMD-
positive cases in countries bordering Columbia: 21 in Ecuador and eight 
in Venezuela. Agency officials in these two countries maintained 
relationships with local governments and strengthened cooperative 
agreements for FMD eradication. In particular, we supported 15 new 
cattle movement control posts along the Columbian-Ecuador border that 
will begin operating in November 2007 to establish a buffer zone to 
prevent the introduction of FMD in Columbia.
    APHIS is actively engaged in ensuring that U.S. agricultural 
producers benefit from the global trade system established under the 
World Trade Organization (WTO), particularly the WTO Sanitary/
Phytosanitary (SPS) Agreement. APHIS' scientific and technical 
expertise is key to enforcing our rights under the SPS Agreement 
involving animal and plant health measures. As a direct result of our 
efforts, 79 SPS trade issues were resolved in fiscal year 2005, 
allowing trade of U.S. agriculture exports worth close to $1.4 billion 
to occur. These accomplishments involved retaining or expanding 
existing markets as well as opening new markets for U.S. products. The 
products involved range from poultry exports to China, apples to Japan, 
stonefruit to Mexico, almonds to India, and feeder cattle to Canada.
    Our efforts to remove unjustified trade barriers related to BSE and 
AI are prime examples of APHIS work in this area. In fiscal year 2005, 
we successfully addressed barriers for U.S. poultry and poultry 
products in 25 export markets worth a combined $254 million. We 
resolved BSE-related trade issues involving 19 foreign markets for U.S. 
bovine genetics, beef and beef products, allowing exports worth $58 
million in fiscal year 2005. Furthermore, APHIS leadership in 
international standard setting resulted in important science-based 
changes to the international standards for BSE and AI that we believe 
will encourage greater reliance on sound science in the trade of beef 
and poultry products.
Animal and Plant Monitoring and Surveillance
    To minimize agricultural production losses and export market 
disruptions, APHIS quickly detects and responds to new invasive 
agricultural pests and diseases, or other emerging agricultural health 
threats, through our plant and animal health monitoring programs. The 
Agency creates and updates endemic pest and disease information 
systems, and monitors and conducts surveys in cooperation with States 
and industry. APHIS also conducts surveys for exotic plant pests and 
investigates reports of suspicious animal pests and diseases to reduce 
their spread, which eliminates significant losses and helps maintain 
pest-free status for export certification of agricultural commodities.
    The Animal Health Monitoring and Surveillance (AHMS) and Pest 
Detection programs coordinate national detection efforts for animal and 
plant pests and diseases. Both work closely with State and university 
cooperators to ensure that any introduction of exotic or foreign pests 
and diseases is quickly detected. These programs are also working 
closely with USDA's Cooperative State Research, Education, and 
Extension Service (CSREES) to coordinate the National Animal Health 
Laboratory Network and the National Plant Diagnostic Network to 
increase testing capacity in the United States for economically and 
environmentally significant animal and plant diseases.
    To quick detect and contain foreign animal disease incursions from 
spreading, APHIS thoroughly investigates all suspicious situations. In 
fiscal year 2005, the AHMS program conducted 1,027 foreign animal 
disease investigations, up from 870 in fiscal year 2004. The most 
common investigation was for vesicular conditions. Most suspected cases 
were investigated and subsequently diagnosed as not being an FAD. The 
program also continued to implement an enhanced surveillance program in 
response to the December 2003 detection of BSE in Washington State. 
With additional funding from the Commodity Credit Corporation, as of 
March 20, 2006, APHIS has sampled more than 660,000 animals for BSE 
since the inception of the enhanced surveillance program. To date, two 
samples have tested positive. Most samples were from high-risk 
categories (such as those animals exhibiting signs of central nervous 
system disorders); however, we also tested more than 21,000 samples 
from clinically normal adult animals. APHIS is in the process of 
analyzing data from the enhanced surveillance effort to determine what 
appropriate conclusions to draw about BSE prevalence, though it 
certainly would not be premature to say that the incidence of BSE in 
the United States is extremely low. At the conclusion of the enhanced 
BSE surveillance effort, we will continue our BSE monitoring program by 
conducting a minimum of 40,000 tests annually, which would still allow 
us to find BSE in one million cattle, with a confidence level of 95 
percent.
    To facilitate response efforts in the event of a future foreign 
animal disease outbreak, APHIS and its State and industry cooperators 
continue to implement the National Animal Identification System (NAIS) 
designed to identify, within 48 hours of discovery, any agricultural 
premise exposed to a disease so that potential outbreaks can be 
contained and eradicated as quickly as possible. The NAIS is a 
networked computerized system that will allow us to identify livestock 
and poultry and record their movements over their life-spans. All 50 
States, five Tribes, and two U.S. Territories are currently registering 
premises with an estimated total of 213,000 premises registered. APHIS 
and its State and Tribal cooperators are registering hundreds of 
premises each week, and we are also in the preparation stage to begin 
allocation of individual animal identification numbers.
    Through the Pest Detection program, APHIS targets pests based on 
their risk of entry and potential to cause significant economic or 
environmental damage. In fiscal year 2005, our national Cooperative 
Agricultural Pest Survey network resulted in the detection of several 
significant pests and diseases, including citrus greening in Florida 
and swede midge and sirex beetle in New York. While the responses to 
these pests will differ based on many factors, the early detections 
made by the Pest Detection program are allowing APHIS or the affected 
State to take action to address the outbreaks and mitigate their 
effects.
    In addition to conducting traditional surveys, the Pest Detection 
program and its cooperators are implementing ongoing monitoring 
activities at high-risk sites such as nurseries and warehouses that 
receive international cargo. In June 2005, California personnel 
detected an Asian longhorned beetle (ALB) introduction at a Sacramento 
warehouse as part of these efforts. ALB is present in urban locations 
in New York, New Jersey, and Chicago, Illinois. To control the beetle 
in these places, APHIS and cooperators have removed more than 10,000 
trees at a significant cost to U.S. taxpayers. Because the Sacramento 
introduction was detected and addressed at its source, APHIS and State 
officials believe they have eliminated the threat of an ALB infestation 
in California by fumigating the warehouse and quickly tracking other 
products from the same shipment. Surveys will continue through 2008 to 
make certain that the beetle is not present.
    In fiscal year 2004, Asian soybean rust (SBR) was detected for the 
first time in the United States. Because SBR cannot be eradicated, 
soybean producers must adjust to its presence and the costs associated 
with it, namely the application of fungicides to protect crops. Early 
detection of SBR in each new area is critical for effective disease 
management because the application of fungicides is most effective if 
applied as a preventive measure, before a field is infected. However, 
fungicide application is cost prohibitive (an average of $25 per acre) 
if a particular area is not at risk for infection. Accordingly, USDA 
(including APHIS and CSREES) implemented a short-term monitoring and 
surveillance network for the disease in fiscal year 2005. The survey 
data collected by the program in 36 States provided soybean producers 
with accurate information to use in determining whether or not to treat 
their fields and prevented the unnecessary application of fungicides.
    Under the Animal and Plant Health Regulatory Enforcement program, 
our Investigative and Enforcement Services unit continues to provide 
support to all APHIS programs by conducting investigations of alleged 
violations of Federal laws and regulations under APHIS' jurisdiction 
and taking appropriate civil or criminal enforcement actions. 
Regulatory enforcement activities prevent the spread of animal and 
plant pests and diseases in interstate trade. In fiscal year 2005, 
APHIS conducted 842 investigations involving animal health programs, 
resulting in 440 warnings, 104 civil penalty stipulations, three 
Administrative Law Judge Decisions, and $345,044 collected in fines. 
APHIS also conducted 1,773 investigations involving plant quarantine 
violations resulting in 456 warnings, 744 civil penalty stipulations, 
157 Administrative Law Judge decisions, and approximately $2 million 
collected in fines.
    The Agency maintains a cadre of trained professionals prepared to 
respond immediately to potential animal and plant health emergencies. 
APHIS' Emergency Management System (EMS) is a joint Federal-State-
industry effort to improve the ability of the United States to 
successfully manage animal health emergencies, ranging from natural 
disasters to introductions of foreign animal diseases. The EMS program 
identifies national infrastructure needs for anticipating, preventing, 
mitigating, responding to, and recovering from such emergencies. The 
Preparedness and Incident Command group of the EMS continued its 
ongoing efforts to complete, review, and update response plans for 
foreign animal diseases, such as BSE, Avian Influenza, and Classical 
Swine Fever.
Pest and Disease Management
    APHIS also works closely with State, industry, and academic 
partners to maintain national detection networks and emergency response 
teams for plant and animal pest and disease outbreaks that may occur 
here in the United States. We work with these same partners to manage 
or eradicate economically significant endemic pests and diseases, and 
manage wildlife damage to agricultural and natural resources.
    APHIS continues the cooperative effort with States and cotton 
producers to eradicate the Boll Weevil, and, by the end of fiscal year 
2005, the program had eliminated the boll weevil from approximately 85 
percent of the 15 million acres of cotton grown in the United States, 
up from 80 percent the previous year. We are on track to achieve full 
eradication by the end of fiscal year 2009.
    At the end fiscal year 2005, 47 States were in full compliance with 
the Johne's national program standards with the goal being 45 States 
enrolled. Only 3 States, Massachusetts, Montana, and Wyoming, have not 
adopted the Voluntary Bovine Johne's Disease Control Program (VBJDCP). 
By the end of the year, 7,860 herds were enrolled in the VBJDCP. Since 
the initial goal was to enroll 4,000 herds, we exceeded the target by 
96 percent.
    APHIS continues to address the last stubborn pockets of endemic 
animal diseases such as pseudorabies, brucellosis, and bovine 
tuberculosis (TB). At the end of fiscal year 2005, all 50 States and 3 
territories were in Stage V (free) status for pseudorabies. A full 
declaration of National Pseudorabies eradication will be possible after 
all 50 States and 3 territories have maintained free status for 2 
consecutive years. Throughout fiscal year 2005, 48 States and three 
Territories remained classified at Brucellosis Class Free status, and 
two States, Texas and Wyoming, continued their Brucellosis Class A 
status classification for bovine brucellosis. In addition, at the end 
of fiscal year 2005, the TB program designated 49 States and 
Territories and portions of two others as accredited TB-free, thus 
exceeding the target of 47 States and territories considered class 
free.
    Through our Wildlife Services Operations program, the Agency's 
cadre of wildlife disease biologists provided technical assistance, 
conducted surveillance, and maintained control of more than 18 wildlife 
diseases including Chronic Wasting Disease, West Nile Virus, bovine and 
swine brucellosis, pseudorabies, classical swine fever and plague. In 
addition, APHIS reinforced oral rabies vaccination zones along the 
Appalachian Ridge through the distribution of 5.52 million baits on 
31,000 square miles from the Ohio-Pennsylvania border through northern 
Alabama.
    APHIS wildlife biologists provided wildlife hazard management 
assistance to over 580 airports nationwide for the protection of human 
safety and property in fiscal year 2005, more than 12 times the amount 
in 1990 with only 42 airports. Wildlife strikes cost U.S. civil 
aviation nearly $500 million in 2004.
    APHIS has been challenged with numerous emergencies over the last 
several years. As such, we took quick and aggressive action to address 
plant and animal health situations with BSE, Mediterranean fruit fly, 
citrus canker, sudden oak death, and emerald ash borer. The Secretary 
approved approximately $177 million in Commodity Credit Corporation 
funding releases for APHIS programs in fiscal year 2005, of which $8 
million was funded through unused balances and $169 million from new 
funds.
Animal Care
    APHIS ensures the humane care and treatment of animals covered 
under the Animal Welfare Act (AWA) and the Horse Protection Act. Under 
this legislation, first enacted in 1966 and amended several times 
thereafter, APHIS carries out activities designed to ensure the humane 
care and handling of animals used in research, exhibition, the 
wholesale pet trade, or transported in commerce. APHIS places primary 
emphasis on inspection of facilities, records, investigation of 
complaints, inspection of problem facilities, and training of 
inspectors. Regulations supporting the AWA provide minimum standards 
for the handling, housing, feeding, transportation, sanitation, 
ventilation, shelter from inclement weather, and veterinary care of 
regulated animals. APHIS continues to focus on conducting quality 
inspections at USDA licensed and registered facilities. The program's 
risk-based inspection system concentrates activities on facilities 
where animal welfare concerns are the greatest. During fiscal year 
2005, the program conducted 16,474 inspections of licensees, 
registrants, and prospective applicants. This represents a 9 percent 
increase over fiscal year 2004.
    APHIS conducted 575 animal care investigations in fiscal year 2005, 
resulting in 391 formal cases submitted for civil administrative 
action. We also issued 219 letters of warning for animal care. During 
fiscal year 2005, we resolved 87 cases with civil penalty stipulations 
resulting in $160,184 in fines. Administrative Law Judge decisions 
resolved another 82 cases resulting in $946,184 in fines. High-priority 
and significant cases included several involving the sale of dogs and 
exotic animals by unlicensed dealers as well as numerous handling 
violations involving exhibition animals attacking and/or injuring the 
public.
Scientific and Technical Services
    The programs within this component ensure the effectiveness of the 
technology and protocols used in APHIS programs. The Agency conducts 
these programs to develop new or improved methods for managing wildlife 
damage and detecting and eradicating animal and plant pests and 
diseases. The Agency also conducts laboratory testing programs to 
support disease and pest control and/or eradication programs. 
Additionally, those programs provide advice and assistance to APHIS on 
environmental compliance requirements with respect to pesticide 
registration and drug approvals for products used in implementing these 
programs.
    APHIS has successfully regulated the biotechnology industry for 
almost 20 years. During that time, the Agency has overseen 
approximately 10,000 field trials without any adverse impacts on human 
health or significant environmental harm, and has evaluated more than 
90 petitions for deregulation to ensure these plants posed no threat to 
other plants or the environment. As of September 30, 2005, APHIS has 
granted 68 petitions for deregulation for varieties of the following 
crops: tomatoes, squash, cotton, soybeans, rapeseed, potatoes, papayas, 
beets, rice, flax, tobacco, and corn.
    To carry out its goal of safeguarding U.S. agricultural resources 
from foreign pest and disease introductions, APHIS needs the 
appropriate technological tools. The Plant Methods program develops new 
or improved existing tools to enhance APHIS' safeguarding capabilities. 
The program met its fiscal year 2005 performance target of developing 
five new quarantine treatments or detection methods or improving 
existing ones for commodities of trade.
    In our Veterinary Biologics program, APHIS issued 97 product 
licenses in fiscal year 2005. Veterinarians and animal owners now have 
16 new products for the diagnosis, prevention, or treatment of animal 
diseases. Of the 16, four new product licenses were issued for 
biotechnology-based products.
    APHIS exceeded its long-term performance measure target in fiscal 
year 2005 to have 39 States involved with the National Animal Health 
Laboratory Network (NAHLN). At the end of fiscal year 2005, the NAHLN 
consisted of 49 State and university laboratories in 41 States that are 
available to assist our National Veterinary Services Laboratory in 
animal disease testing. The laboratory network forms the nation's 
strongest weapon against bioterrorism: an effective network of 
laboratories capable of integrated and coordinated response to 
emergencies that could otherwise devastate the U.S. economy and food 
supply. This key resource of APHIS has increased testing capacity 
significantly. APHIS and its NAHLN partners are currently testing up to 
10,000 samples per week for BSE, 4,800 samples per week for chronic 
wasting disease, and 4,800 samples per week for scrapie. Additionally, 
in a period of extraordinary demands caused by an adverse animal 
disease event, the network could test up to 18,000 samples per day for 
AI/Exotic Newcastle Disease or 15,000 samples per day for classical 
swine fever or FMD.
    Growing populations of Canada geese, a Federally-protected species, 
continue to pose problems for homeowners across the country. In 
September 2005, APHIS' National Wildlife Research Center (NWRC) 
received a Notable Technology Development Award from the Federal 
Laboratories Consortium Mid-Continent Region for its role in the 
development and registration of OvoControl-G Canada goose bait. Which 
is the first EPA approved oral contraceptive of its kind. The NWRC also 
continued work to support the Environmental Protection Agency's 
approval of a new chemical treatment to reduce the hatchability of eggs 
laid by treated Canada geese.

                    FISCAL YEAR 2007 BUDGET REQUEST

    The fiscal year 2007 Budget Request for Salaries and Expenses 
totals just over $953 million, an increase of $146 million over the 
fiscal year 2006 Agriculture Appropriations Act and an increase of $75 
million when the fiscal year 2006 supplemental for avian influenza is 
included. About $9.2 million of the increase is for pay raises. Of the 
total request, approximately $453 million is identified in the 
President's Homeland Security initiative, including $314 million in 
discretionary funding. Of the $453 million, $188 million is also 
identified in the President's Food and Agriculture Defense Initiative, 
which serves to protect the agriculture and food system in the United 
States from intentional, unintentional, or naturally occurring threats.
    The increase, approximately 15 percent above the fiscal year 2006 
appropriation, is for initiatives designed to address the increasing 
domestic and international threats to the health of United States 
agriculture. In the international arena, APHIS plans to use additional 
funding to establish a formal international information collection 
program that will help us set agricultural import policy and inform 
others of our monitoring and surveillance efforts here in the United 
States, and protect and expand the $53 billion annual agricultural 
export market, among other things. We are also addressing HPAI threats 
in other countries by requesting additional funding to provide 
technical assistance to develop knowledge and experience in 
surveillance and control techniques, which will help prevent the spread 
of HPAI to the United States. On the domestic side, our efforts include 
enhancements to both animal and plant health surveillance systems and 
diagnostic capabilities; the ability to track animal and plant 
pathogens and toxins identified as Select Agents; the build up of our 
animal disease vaccine bank; the ability to address wildlife disease 
threats to livestock health; an investment to substantially reduce 
emergency fund transfers for a variety of plant pest and disease 
programs; and continuing enhancements to our Biotechnology Regulatory 
Services program. Our goal is to reduce economic damage that pests and 
diseases can cause to American agriculture. As such, APHIS is in the 
process of developing a new performance measure that will allow us to 
assess the value of the pest and disease damage that our programs are 
preventing or mitigating, and we will utilize this information to help 
determine future funding requests. We will begin applying this measure 
to all of our programs.
    The following paragraphs detail some of the funding increases and 
associated accomplishments expected under the fiscal year 2007 budget 
request:
Pest and Disease Exclusion
    An increase of $6.4 million for the Foreign Animal Disease/Foot-
and-Mouth Disease program and $4.7 million under Pest Detection to 
expand the program's formal collection of international health 
information, which will allow APHIS to conduct risk assessments and 
regulate imports more effectively as well as provide an overall picture 
of global animal health trends.
    An increase of $13.85 million for the Fruit Fly Exclusion and 
Detection program to strengthen the Moscamed (Mediterranean fruit fly) 
program along the Mexico-Guatemala border to prevent the northward 
spread of the Medfly into Central Mexico thereby reducing the threat to 
the United States.
    An increase of $4.68 million for the Trade Issues Resolution and 
Management program to increase work on Free Trade Agreements, and 
expand and retain markets to provide new market access and facilitate 
trade worth $2.4 billion in fiscal year 2007.
Animal and Plant Monitoring and Surveillance
    An increase of $8.5 million for the Animal Health Monitoring and 
Surveillance program to enhance the current disease monitoring and 
surveillance system by increasing and integrating its infrastructure to 
better protect the nation's animals from emerging and foreign animal 
disease. The fiscal year 2007 request also includes continued funding 
for the maintenance of monitoring and surveillance of BSE 
(approximately $17 million for 40,000 samples) and continued 
implementation of the National Animal Identification System 
(approximately $33 million).
    An increase of $1.2 million for the Animal and Plant Health 
Regulatory Enforcement to provide additional support to APHIS programs 
by conducting investigations of alleged violations of Federal laws and 
regulations under the Agency's jurisdiction.
    An increase of $9.1 million for Emergency Management Systems to 
improve readiness at the Federal, State, Tribal, and local levels to 
respond to disease incursions or acts of bioterrorism, and respond 
effectively and efficiently to all hazardous animal health incidents. 
We will also stockpile sufficient levels of supplies, vaccines, 
materials, and equipment needed to respond to an outbreak of 50 percent 
of the most damaging disease agents, or four of the eight most damaging 
and highly contagious foreign animal diseases.
    $57 million for the new HPAI program (initially funded via fiscal 
year 2006 supplemental appropriation) to continue the development of 
the Agency's new HPAI surveillance and preparedness program through 
efforts with international capacity building ($5.01 million) and 
domestic surveillance and preparedness ($51.72 million).
    An increase of $15.4 million for Pest Detection activities to 
enhance early detection efforts through an increase in the number and 
intensity of surveys conducted throughout the United States for high-
risk plant pests; enhance emergency response capabilities; and develop 
molecular diagnostic tools for high-risk pests.
    An increase of $1.8 million for the Select Agents program to 
register facilities desiring to handle select agents, and enhance 
current physical security requirements to expand the barcode inventory 
tracking system.
    Approximately $2 million for the new Wildlife Disease Monitoring 
and Surveillance program to establish methods for surveillance data 
collection in wildlife populations and investigate the prevalence of 
specific diseases that may move from wildlife to domestic livestock or 
poultry populations.
Pest and Disease Management
    A $16 million shift in funding from Boll Weevil and Pink Bollworm 
programs to establish a new program, Cotton Pests, to improve technical 
efficiency by formally merging resources to simplify administration of 
both programs and help move toward the goal of eradication of both 
pests.
    An increase of approximately $27 million for Emerging Plant Pests 
to enhance survey and tree removal to control emerald ash borer ($21 
million); continue conducting surveys for various citrus pests and 
diseases in Florida ($2 million); conduct additional inspections in 
nurseries to determine extent of P. remora (Sudden Oak Death) in 
California, Oregon, and Washington State ($3.45 million); and continue 
containment activities for Karnal bunt ($1.25 million).
    An increase of approximately $10 million for Invasive Species to 
establish a new competitive grant program to the private sector to 
apply innovative and cost-effective methods for responding to and 
controlling invasive species.
    An increase of approximately $3 million for the Low Pathogenic 
Avian Influenza (LPAI) program to continue addressing LPAI on a 
national level in live bird markets and commercial industries, and 
develop and oversee production of AI test reagents to be distributed to 
State and industry laboratories approved to participate in the LPAI 
program.
    An increase of $3 million for the Wildlife Services Operations 
Airport Safety program to enhance human safety by reducing wildlife 
strikes to aircraft.
    An increase of $1.75 million for rabies control under the Wildlife 
Services Operations program to maintain the oral rabies vaccination 
barrier to prevent the spread of this disease.
    An increase of $5 million for Homeland Security and Food and 
Agriculture Defense to enhance wildlife disease surveillance.
Animal Care
    An increase of almost $1.5 million for the Animal Welfare program 
to enhance current program operations through the application of the 
new regulation to inspect facilities that contain mice, rats, and birds 
not involved in research. We will continue to use a risk-based 
inspection system to concentrate activities on facilities where animal 
welfare concerns are greatest, while also developing strategies for 
effective outreach and education programs to develop expertise and 
promote voluntary compliance.
Scientific and Technical Services
    An increase of $3.3 million for the Biotechnology Regulatory 
Services program to enhance our infrastructure for a transgenic program 
by conducting additional risk assessments; preparing environmental 
assessments; advising on policies related to animal and disease agent 
biotechnology; developing and implementing regulations and guidelines 
regarding transgenic animals and disease agents; and providing 
leadership to advance the Agency's use of biotechnology oversight to 
protect and enhance American agriculture. We will also strengthen 
regulatory validation activities by developing scientific personnel 
exchange programs with academia and industry; conducting peer reviews 
for significant scientific components of biotechnology policies and 
regulations; and conducting quantitative analyses and studies to 
support regulatory decisions.
    An increase of $1 million for Plant Methods Development 
Laboratories to establish a new National Crop Biosecurity Center to 
coordinate technical and scientific needs for detecting and responding 
to high-consequence plant pests and diseases. We also will assess 
current and emerging threats and develop a laboratory accreditation 
program to certify State and university laboratories to conduct tests 
for high-risk diseases that have the potential to generate large 
volumes of samples and overburden the current testing capacity.
    An increase of $3.5 million for Veterinary Biologics to reduce the 
time it takes to review and test new veterinary biologics products 
entering the market. We also will address containment requirements to 
meet the required standards for the use of select agents and toxins 
maintained by the Center for Veterinary Biologics. In addition, we plan 
to expand activities in pharmacovigilance (the post-marketing 
monitoring of adverse events associated with the use of licensed 
veterinary biological products) with the implementation of a standard 
data system for sharing resources, data collection methods, and review 
processes for adverse events reporting with the Food and Drug 
Administration.
    An increase of approximately $5.5 million for Veterinary 
Diagnostics to expand diagnostics capability to include additional 
foreign animal diseases; expand the National Animal Health Laboratory 
Network to address significant biological and chemical threats to 
animal agriculture and our national food supply; address security 
requirements and meet standards related to Select Agents; and achieve 
NVSL lab accreditation.
    A $3.2 million shift in funding within Wildlife Disease Methods 
Development to dedicate funding to conduct avian influenza methods 
development research to improve environmental sample diagnostics, and 
characterize and evaluate the risk that feral swine pose in the 
generation and maintenance of avian influenza subtypes of domestic 
animal and human health concern.
Decreases
    To support our high priority programs while continuing to meet the 
goal of reducing the Federal deficit, we propose several offsetting 
decreases. Within our Pest and Disease Exclusion activities, we propose 
a reduction of $2 million for the Hawaii Interline program within the 
appropriated Agricultural Inspection Quarantine line item, which we 
expect to conduct in the future via a reimbursable agreement with the 
State of Hawaii; a reduction in Cattle Fever Tick activities to the 
fiscal year 2005 level because we do not anticipate outbreaks occurring 
outside of the quarantine zone nor an increase in incursions into the 
quarantine zone; and, a reduction of $1.2 million in the Import/Export 
program to dedicate resources to higher priority activities.
    Within our Animal and Plant Monitoring and Surveillance activities, 
we propose a $2.3 million shift in funding within the Animal Health 
Monitoring and Surveillance program and an $830,000 shift in funding 
within the Pest Detection program to dedicate resources to higher 
priority activities.
    Within our Pest and Disease Management activities, we propose a 
reduction of $25.9 million for Boll Weevil program activities due to 
the program's success in eradicating boll weevil, and other reductions 
($1.5 million for Brucellosis; $3.3 million for Chronic Wasting 
disease; $1.14 million for Grasshopper; $9.9 million for Johne's; $1.92 
million for Pink Bollworm; and $763,000 for Noxious Weeds) to dedicate 
resources to higher priority activities.
    Also, in fiscal year 2007, we are re-proposing new user fees for 
the Animal Welfare program, which would generate $8.22 million.
    Finally, within our Scientific and Technical Services activities, 
we propose a shift of $371,000 in our Veterinary Diagnostics program 
and a $3.2 million shift in our Wildlife Disease Methods Development 
program to dedicate resources to higher priority activities.

                               CONCLUSION

    APHIS' mission of safeguarding United States agriculture is 
becoming ever more critical. Although the processes by which we protect 
America's healthy and diverse food supply are being increasingly 
challenged by increased trade and tourism, APHIS is committed to taking 
the lead in building and maintaining a world-class system of pest and 
disease exclusion, surveillance, detection, diagnosis, and response. 
Healthy plants and livestock increase our market potential 
internationally, and thus contribute to a healthy U.S. economy. The 
APHIS budget consists of interdependent components that, when combined, 
truly protect the health and value of American agriculture and natural 
resources.
    On behalf of APHIS, I appreciate all of your past support and look 
forward to continued, positive working relationships in the future. We 
are prepared to answer any questions you may have.
                                 ______
                                 

 Prepared Statement of James E. Link, Administrator, Grain Inspection, 
                 Packers and Stockyards Administration

                              INTRODUCTION

    Mr. Chairman and Members of the Committee, I am pleased to 
highlight the accomplishments of the Grain Inspection, Packers and 
Stockyards Administration (GIPSA), and to discuss the agency's fiscal 
year 2007 budget proposal.
    GIPSA's activities are an integral part of USDA-wide efforts to 
support a competitive global marketplace for U.S. agricultural 
products. Our mission is to facilitate the marketing of livestock, 
poultry, meat, cereals, oilseeds, and related agricultural products, 
and to promote fair and competitive trading practices for the overall 
benefit of consumers and American agriculture.
    We fulfill our service and regulatory roles through our Packers and 
Stockyards Program, which promotes a fair, open, and competitive 
marketing environment for the livestock, meat, and poultry industries 
and our Federal Grain Inspection Service, which provides the U.S. grain 
market with Federal quality standards and a uniform system for applying 
these standards to promote equitable and efficient marketing.

                              ORGANIZATION

     We carry out our mission with a dedicated staff of 680 employees 
working in partnership with a variety of State and private entities. 
Our Packers and Stockyards Program relies on three regional offices 
which specialize in poultry, hogs, or cattle/lamb. Our grain inspection 
services are delivered by the national inspection system, a network of 
Federal, State, and private inspection personnel. The system includes 9 
GIPSA field offices, 1 Federal/State office, and 56 State and private 
agencies authorized by GIPSA to provide official services.

                     PACKERS AND STOCKYARDS PROGRAM

    Our Packers and Stockyards Program (P&SP) administers the Packers 
and Stockyards Act (P&S Act) to promote fair and competitive marketing 
in livestock, meat and poultry for the benefit of consumers and 
American agriculture. The P&S Act is intended to protect producers, 
other market actors, and consumers against unfair, discriminatory, or 
deceptive practices that might be carried out by those subject to the 
Act.
    To meet this objective, GIPSA seeks to educate, regulate and 
investigate individuals and firms subject to the P&S Act; to respond to 
anti-competitive behavior, unfair, deceptive, or unjustly 
discriminatory trade practices; and to ensure livestock producers and 
poultry growers are paid for their products. GIPSA takes corrective 
action when there is evidence that firms or individuals have violated 
the P&S Act.
    In April 2005, the USDA's Office of Inspector General (OIG) 
initiated an audit in response to Congressional concerns with the 
Agency's management and oversight of P&SP. The audit identified four 
primary areas where program management was not up to the high standard 
that this Administration expects and our stakeholders deserve.
    The OIG provided ten recommendations for strengthening P&SP. GIPSA 
concurs with all recommendations and is taking immediate actions to 
implement them. We have already taken steps to improve the management 
of investigations, to correct how we categorize and track 
investigations and to implement additional recommendations from prior 
OIG and Government Accountability Office reviews. The Administration 
takes the Inspector General's findings very seriously and we have 
established an aggressive schedule to improve the enforcement of the 
P&S Act.
    While improvements are needed, P&SP has delivered valuable services 
to the livestock, meatpacking, and poultry industries. With only 136 
employees, we continued to regulate these industries, estimated by the 
Department of Commerce in fiscal year 2002 to have an annual wholesale 
value of $120 billion. At the close of fiscal year 2005, 5,569 market 
agencies and dealers and 1,858 packer buyers were registered. In 
addition, there were 1,443 facilities that provided stockyard services, 
an estimated 6,000 slaughtering and processing packers, meat 
distributors, brokers and dealers, and 202 live poultry dealers 
operating subject to the P&S Act.
    Our regulatory responsibilities are the heart of our mission to 
administer the P&S Act. To this end, GIPSA closely monitors practices 
that may violate the P&S Act. Last fiscal year, we conducted 1,936 
activities related to compliance with the P&SP Act. These activities 
included 1,491 regulatory activities such as financial audits and scale 
check weighs and 445 investigations of P&S Act violations. As a result 
of these investigations, P&SP helped recover over $14.1 million for 
producers and enforced the restoration of nearly $350 million to 
custodial accounts and business balance sheets to protect producers 
from financial harm.
     We continue to work with violating firms to achieve voluntary 
compliance, and continue to initiate appropriate corrective action when 
we uncover evidence that the P&S Act has been violated. In fiscal year 
2005, with assistance from the Office of the General Counsel, we filed 
18 administrative or justice complaints alleging violations of the P&S 
Act. These formal disciplinary complaints resulted in 21 decisions 
ordering the payment of $116,300 in civil penalties and suspending 7 
registrants from operating for periods ranging from 21 days to 6 years. 
In one specific case, GIPSA worked through informal resolution channels 
to obtain voluntary compliance when a market agency and dealer 
operation in the Midwest discovered one of its employees had defrauded 
the company in excess of $1 million. Through GIPSA's timely 
intervention, the firm secured sufficient financial protection so that 
none of the company's livestock sellers suffered losses.
     We regularly assist the FBI, State and local law enforcement 
agencies with their investigations. Some of our investigations involve 
overlapping jurisdiction, and sometimes these agencies call on GIPSA 
for its expertise. In addition, we communicate with our sister agencies 
within USDA, the Department of Justice, the Commodity Futures Trading 
Commission, and local and State governmental organizations to discuss 
common issues and when appropriate, coordinate plans.
    GIPSA maintains a toll-free hotline (800-998-3447) as an avenue for 
receiving complaints and other communications from livestock producers, 
poultry growers and other members of the industry or general public. 
Use of the hotline allows callers to voice their concerns or file a 
complaint anonymously without fear of retaliation. In fiscal year 2005, 
GIPSA's Packers and Stockyards Program received 39 hotline calls. Those 
calls that related to livestock or poultry issues resulted in 
investigations. To encourage voluntary compliance, we regularly attend 
industry meetings and conduct orientation sessions (28 in 2005) for new 
auction market owners and feed mills to educate them about their 
fiduciary and other responsibilities under the P&S Act.
    In fiscal year 2005, we continued working with stakeholders and 
other interested parties to develop and publish two additional 
voluntary industry standards for technologies used to assess quality 
and determine payment for livestock, meat, or poultry. The tentative 
code was published by the American Society for Testing and Materials in 
the 2006 National Institute of Standards and Technology--Handbook 44 
``Specifications, Tolerances and Other Technical Requirements for 
Weighing and Measuring Devices'', which was released in October 2005. 
The new standards will help producers receive full value for the 
quality of livestock they produce as well as help packers pay only for 
the product they want to purchase. We will continue to work with 
stakeholders to develop additional standards, as needed, to enhance 
transparency in the marketplace.
     GIPSA continues to operate the Swine Contract Library (SCL) which 
includes information pertaining to price, premiums, discounts, grids, 
formulas, and other important contract terms extracted from offered and 
available contracts used to purchase hogs. The data is available on 
GIPSA's website on a real time basis. In October 2005, the reporting 
requirements under the Livestock Mandatory Reporting Act of 1999 became 
voluntary due to the sunset of the law.
    GIPSA continues to administer a livestock and meat marketing study 
that examines the broad issues surrounding packer ownership of 
livestock. Research Triangle Institute (RTI), the firm with whom GIPSA 
has contracted to complete the study, released an interim report in 
August 2005. RTI began contacting survey respondents in November 2005 
and collecting transaction data in February 2006. The final report is 
scheduled for release in early 2007.

                    FEDERAL GRAIN INSPECTION SERVICE

    Our Federal Grain Inspection Service (FGIS) facilitates the 
marketing of U.S. grain and related agricultural products through the 
establishment of standards for quality assessments, regulation of grain 
handling practices, and management of a network of Federal, State, and 
private laboratories that provide impartial, user-fee funded official 
inspection and weighing services under the authority of the U.S. Grain 
Standards Act and the Agricultural Marketing Act of 1946.
    FGIS establishes terms and methods for quality assessments that the 
grain industry uses to buy and sell about $50 billion of commodities 
annually. These standards for quality assessments provide the U.S. 
grain marketing system with the means to align post-harvested crop 
quality with the diverse end-use needs of today's food and feed 
industry. GIPSA currently maintains 131 unique standards and quality 
assessment factors to characterize the quality of grain and grain-
related products.
    We continue work with producers, technology providers, and food and 
feed manufacturers to consensually identify the essential quality 
attributes that require standard measurement to effectively 
differentiate quality and add value to U.S. agriculture. In fiscal year 
2005, GIPSA implemented artificial neural network (ANN) technology to 
streamline and improve the accuracy of the wheat protein testing 
program, and to offer, for the first time, a barley protein testing 
service. The new official ANN protein testing services facilitate the 
marketing of these grains by providing a fair, accurate, and 
transparent third-party determination, backed by a national quality 
control process, and standardized instrumentation, reference samples, 
calibration, and procedures.
    GIPSA also conducted activities related to soybeans in fiscal year 
2005. GIPSA verified and adopted an American Oil Chemists' Society 
(AOCS) gas chromatographic method as a reference method to measure 
levels of various fatty acids in soybeans, including linolenic acid. 
Soybeans with lower linolenic acid levels were introduced during 2004. 
``Low-lin'' soybeans produce oil that has half the linolenic acid level 
of commodity soybean oil, making it more stable and reducing or 
precluding the need for hydrogenation--the process that creates 
unhealthy trans fats in foods. This standard quality assessment method 
will help the market capture the full value of this emerging product. 
GIPSA continues to explore rapid tests for fatty acid contents of 
soybeans and other grains.
    We are also working with the wheat industry in an effort to regain 
the U.S. wheat market share which has declined from 33 percent of the 
international market in 1995 to an estimated 25 percent in 2005.
    Our goal is to develop rapid measurement methods to differentiate 
wheat quality at the first point of sale and allow the U.S. wheat 
industry to better meet the needs of foreign buyers. To date, working 
with the wheat industry, we have identified several key quality 
attributes, such as gluten strength, that require rapid measures, as 
well as the need to validate international reference methods relating 
to the attributes.
    In fiscal year 2005, GIPSA validated and adopted three widely used, 
internationally recognized reference methods that assess various 
aspects of protein quality in wheat: the Farinograph reference method 
to measure water absorption and dough strength; the Glutomatic 
reference method for wet gluten quantity; and the Alveograph reference 
method to measure dough strength.
    Gaining consensus on the salient wheat attributes and reference 
methods will allow GIPSA to pursue the development of rapid analytical 
methods for use at the first point of sale.
    As we develop measures of new attributes entering the market, we 
are ensuring the current measurement methods are accurate and cost-
effective. For example, we are working to transform the measurement of 
grain moisture. Maintaining current calibrations for moisture 
measurement is time consuming and resource intensive. Advances in the 
basic means to measure moisture, led by GIPSA, have the potential to 
greatly reduce maintenance costs and improve the accuracy of moisture 
measurements over a much wider range. These advances will benefit the 
entire grain industry, from producer to food manufacturer.
    We are also working with stakeholders to ensure grading standards 
further facilitate trade. GIPSA is developing national feed pea 
standards to meet surging production and use of peas for feed. As the 
global competition in soybean markets intensifies, we are collaborating 
with the soybean industry to determine whether changes in analytical 
methods and grading standards would improve the U.S. competitive 
position. One grading factor under review is test weight per bushel, a 
factor used to market soybeans in the United States for over a half 
century, but not used by our major international competitors. We are 
also working closely with the wheat industry to ensure the wheat 
standards facilitate the expansion of the new and evolving market for 
Hard White Wheat. In 2005, we amended the U.S. Standards for Wheat to 
change the definition of contrasting classes in Hard Red Winter wheat 
and Hard Red Spring wheat. The new standard and policy will ensure the 
purity of both the Hard White and the Hard Red classes, which is 
essential to promote market growth and meet the needs of those making 
high-quality wheat products for consumers around the world. All of 
these activities improve the American agriculture's ability to deliver 
the specific quality of grain desired by food manufactures and 
consumers, and strengthen its competitive position in the global 
market.
    In the biotechnology arena, we are improving the reliability and 
accuracy of testing for the presence of modern biotechnology-derived 
grains to help U.S. agriculture avoid market disruption as trading 
partners around the world implement new import requirements. Our Test 
Kit Evaluation Program validates the performance of commercially 
available rapid tests for biotechnology-derived grains. Our Proficiency 
Program improves the performance and reliability of government and 
private laboratories that test for biotechnology-derived grains in the 
United States and worldwide. More than 115 organizations participated 
in the program in fiscal year 2005, compared to 22 in 2002.
    In response to the results of the proficiency program, we are 
working to harmonize international reference materials and 
biotechnology measurement methods used in commerce to measure the level 
of biotechnology-derived events in raw agricultural products. The 
current focus of many laboratories is to assay for the presence or 
absence of a particular transgenic event, whereas the regulatory 
requirements evolving for agricultural products usually require 
reliable methods to measure the quantity of a biotechnology derived 
event.
    Our international outreach goes beyond work in the area of 
biotechnology. We work cooperatively with other government agencies to 
support market development and remove obstacles to U.S. grain reaching 
world markets.
    In recent years, we have focused on providing technical support to 
the Mexican and Asian markets. Last year, GIPSA worked with Mexico's 
private and public grain sectors to harmonize sampling and analytical 
methods with the goal of minimizing trade disruptions due to 
differences between GIPSA-certified quality and an importer's own 
quality assessment. We conducted seminars at three major grain 
importing locations in Mexico for personnel from Mexican commercial 
firms and government agencies to educate buyers on grain contracting, 
U.S. grain standards, sampling, and inspection procedures. We also 
spearheaded the establishment of a government-to-government grain 
industry consultative group as a technical-level forum to address 
cross-border grain quality issues. Finally, GIPSA led a USDA team that 
visited key Mexican border inspection offices to facilitate cross-
border trade by addressing Mexico's inspection and clearance process 
for U.S. grain shipments to Mexico.
    Since fiscal year 2002, GIPSA has placed a temporary duty officer 
in Asia to address immediate and long-term issues in the region, to 
promote a better understanding and adoption of U.S. sampling and 
inspection methods to minimize differences in inspection results and to 
develop face-to-face relationships with customers, USDA cooperators and 
government officials. During fiscal year 2005, a GIPSA officer served 
on a 7-month assignment in the region. In fiscal year 2005, this 
program allowed GIPSA to respond face-to-face to importers in Japan who 
raised concerns regarding dockage levels in U.S. wheat; to Taiwanese 
importers about differences in grain weight; and to representatives of 
Malaysia and Singapore regarding U.S. soybean quality. We also were 
able to share samples with Japan to allow them to monitor pesticide 
residue levels in U.S. wheat, rice, and barley, before they implement 
new domestic residue limits. Finally, GIPSA's representative 
participated in several marketing seminars sponsored by USDA cooperator 
organizations to inform importers and their governments about the role 
and responsibilities of GIPSA and the national inspection system.
    We also provide technical consultative services for international 
customers. During fiscal year 2005, GIPSA facilitated the reopening of 
Iraqi grain markets to the United States for the first time since 1999, 
leading to wheat sales of $107 million in 2005. We provided technical 
monitoring and on-site inspection expertise for U.S. wheat shipments 
from their departure point in the United States to their arrival in 
Syria and final destination in Baghdad.
    Also during the fiscal year, GIPSA installed and check tested 
laboratory equipment to inspect and grade wheat in Yemen; conducted 
wheat grading and inspection seminars in El Salvador and Tunisia; 
worked with Algerian grain buyers to address Karnal bunt concerns; met 
with Peruvian officials to discuss the effects of their new rice import 
regulations; developed sample collection procedures for Japan's 
Ministry of Agriculture, Forestry and Fisheries; participated in 
several international meetings on implementing the Biosafety Protocol; 
continued to work with Chinese officials to discuss biotechnology, the 
Biosafety Protocol, and their impact on trade; helped the USDA/Foreign 
Agricultural Service and Animal and Plant Health Inspection Service 
resolve various grain quality issues in other countries that would 
otherwise have restricted U.S. grain exports; and briefed visiting 
trade and governmental teams representing 44 countries around the 
world.
    In addition to facilitating the marketing of U.S. grain by 
developing grain quality assessment methods and carrying out 
international outreach efforts, GIPSA administers a national inspection 
system comprising Federal, State, and private laboratories. These 
laboratories provide valuable service to all sectors of the grain 
industry on a user fee basis, 24 hours a day, 7 days a week. The world 
recognizes the certificates issued by these laboratories as the gold 
standard for grain quality certification. Buyers and sellers around the 
world have confidence in and rely on the GIPSA certificate to trade 
grain.
    This confidence was earned. The dedicated Federal, State, and 
private employees of the national grain inspection system work 
tirelessly to ensure the integrity and reliability of the national 
inspection system. The dedication and professionalism of GIPSA 
employees was proven last year in the aftermath of Hurricanes Katrina 
and Rita. Four GIPSA offices (New Orleans and Lake Charles, Louisiana, 
and League City, and Beaumont, Texas) were in the paths of these 
storms. Through the superlative efforts of employees in New Orleans, 
Louisiana, and League City, Texas, all agency employees were located 
and inspection personnel were working with industry with 48 hours after 
the hurricanes passed to get U.S. export port operations in the Gulf 
online. Within a week, employees in the affected area had set up an 
alternate field office and were responding to industry service 
requests. Local GIPSA employees, many of whose homes were lost or 
destroyed, were on duty. Within 3 weeks, the New Orleans field office 
was fully operational.
    GIPSA's Beaumont, Texas, and Crowley/Lake Charles, Louisiana, 
offices took direct hits from Hurricane Rita. The Crowley/Lake Charles 
office suffered moderate damage and was fully functional within a week. 
The Beaumont suboffice was severely damaged by Rita and closed for a 
month but is now fully operational.
    We are proud to report that no service requests were denied as a 
result of the hurricanes. GIPSA personnel were on duty and ready to 
provide service as soon as the industry resumed operations. Our local 
personnel showed fortitude and determination in addressing both the 
personal and work-related challenges engendered by the storms. All 
told, GIPSA employees issued nearly 3 million certificates representing 
approximately 245 million tons of grain during fiscal year 2005.
    GIPSA continuously works to improve service delivery by this 
network of laboratories and meet the needs of a changing market. In 
fiscal year 2005, we revised the regulations on short-voyage 
fumigations to facilitate the movement of waterborne grain shipments of 
5 days or less duration.

                         EGOVERNMENT SOLUTIONS

    Our most ambitious undertaking to improve program operations and 
service to the public is a sweeping, multi-year project to upgrade 
information management systems and modernize our business functions. 
Our current information management system consists of several 
independent systems that have served specific purposes over the years 
well, but are not integrated. This has limited our ability to meet the 
growing demand for electronic, or web-based, delivery of our services. 
It also impedes our efforts to improve the cost effectiveness and 
efficiency of our internal business practices. The enterprise-wide 
system currently under development will modernize nearly every aspect 
of GIPSA operations and provide a great opportunity to improve current 
business practices and service delivery. The new system includes 
twenty-seven applications to be built over 5 years.
     New funding provided in fiscal year 2005 and fiscal year 2006 
along with the redirection of existing funds has enabled GIPSA to begin 
development on ten of the twenty-seven GIPSA Application Modernization 
modules. Currently funded components of the new system will be deployed 
incrementally in 2006 and 2007 with the first seven applications 
scheduled for deployment in the spring of 2006. This long term 
initiative is scheduled to continue through fiscal year 2009. We have 
requested additional funding in fiscal year 2007 to support this 
important initiative.
     When completed, customers will have online access to the 
information and applications they need to file complaints with GIPSA 
via the Internet; receive status reports on a complaint; place claims 
against bonds required under the P&S Act; register as a grain exporter 
or livestock dealer; submit required annual reports; request grain 
inspection services; receive reports on service status; see the status 
of their user-fee account; and receive final certified results online 
which will, in turn, allow customers to integrate official inspection 
data into their own information and document management systems. 
Private and State inspection agencies interested in being authorized to 
provide official inspection services will also be able to apply for 
GIPSA designation and re-designation on-line. Once officially 
designated, these agencies will have direct access through the web to 
GIPSA's extensive quality assurance program to ensure their inspection 
results align with the official standards maintained by GIPSA.
    This modernization effort will create synergy across GIPSA programs 
and data sources, allowing GIPSA to improve internal program 
efficiencies and effectiveness. This large multi-year initiative will 
deliver improved performance and reduce costs years into the future.

                        PROTECTING THE HOMELAND

    In addition, GIPSA has dedicated resources to homeland security 
efforts. We continue to work closely with the USDA Office of Crisis 
Planning and Management (OCPM) to refine the Department's and the 
Agency's Continuity of Operations Plan (COOP) and to support and staff 
the Department's Crisis Action Team (CAT). In fiscal year 2005, GIPSA's 
COOP and CAT representatives participated in critical disaster-related 
exercises and training sessions, including a major government-wide 
exercise.
    We provided technical assistance related to homeland security 
issues to a number of industry and governmental groups, including the 
USDA Homeland Security Working Group; worked with the National Food 
Laboratory Steering Committee to coordinate and integrate resources to 
support key components of the Food Emergency Response Network (FERN); 
and participated on an Federal Bureau of Investigation-led team that 
conducted a threat assessment of a major export grain elevator.

                          2007 BUDGET REQUEST

     To fund important initiatives and address the Agency's 
responsibilities, GIPSA's budget request for fiscal year 2007 is $41.5 
million under current law for salaries and expenses and $42.5 million 
for our Inspection and Weighing Services. These budgets include 
additional requests of $673,000 for employee compensation; $2,870,000 
to continue the modernization of our information management systems and 
business functions; and $405,000 for international services; and a 
decrease of $500,000 for the corn growers initiative. In addition our 
request includes a proposal to recover $19.7 million through user fees 
to cover the costs of grain standardization activities and Packers and 
Stockyards program activities.
    An increase of $673,000 for employee compensation will enable GIPSA 
to meet its objectives consistent with the priorities established by 
the Secretary of Agriculture. This critically important increase is 
needed to support and maintain current staffing levels to meet 
projected increased demand.
     We are requesting an additional $2,870,000 for our IT 
modernization initiative. This multi-year project will upgrade 
information management systems and modernize our business functions. 
This request includes $1.4 million to continue the development of eGov 
solutions and $1.5 million for recurring costs associated with the 
maintenance of these applications.
     We are also requesting an additional $405,000 to establish an 
ongoing presence in Asia allowing GIPSA to continue and expand upon our 
successful international services and trade activities currently 
provided on a temporary basis. GIPSA's hands-on approach of assigning a 
temporary duty officer in Asia to facilitate trade of U.S. grain has 
provided a positive impact on existing and potential buyers. These 
buyers say their concerns related to grain quality are addressed 
effectively. Continuing and expanding this program is crucial not only 
to increasing U.S. grain exports and reducing market disruptions due to 
technical differences in analytical methods and standards, but to 
increase satisfaction and loyalty among our current customers in an 
extremely competitive marketplace. The U.S. trade dollars saved upon 
the resolution of just one grain shipment complaint can far outweigh 
the costs associated with maintaining a GIPSA presence in Asia.
     Part of our appropriation request will be derived from proposed 
new user fees. The budget proposes collecting $3.7 million from grain 
standardization user fees and $16.0 million from Packers and Stockyards 
Program licensing fees after a 3 month start-up period.

                               CONCLUSION

    Mr. Chairman, Members of the Committee, thank you for the 
opportunity to share some of the accomplishments made by our dedicated 
staff and highlight our future plans to facilitate the marketing of 
U.S. agricultural products and to promote fair and competitive trading 
practices for the overall benefit of consumers and American 
agriculture.
    I would be pleased to address any issues or answer any questions 
that you may have.
    Thank you.

    Senator Bennett. Thank you very much. Appreciate the 
testimony of all of you.

                               USER FEES

    Dr. Collins, let us talk about user fees. FSIS proposes a 
user fee. If this were authorized, what would be the impact on 
domestic slaughter capacity and facilities? Would this increase 
the price of meat at the supermarket counter? Would it be 
absorbed? How would that happen?
    Mr. Collins. Mr. Chairman, a user fee is an increase in 
processing costs, and the way economics looks at that is that 
if slaughter is a competitive industry, that is, it is buying 
its inputs from a competitive industry and selling its outputs 
in a competitive industry that, over time, the increase in 
processing costs will be passed on. It will not be borne by the 
processor. It will be passed back in some form to the supplier 
of the live animal to the slaughterhouse. It will also be 
passed forward to consumers.
    Generally, because consumer demand for meat is so 
unresponsive to price, most of the processing costs over time 
would be passed on to consumers. The user fee that I believe 
has been proposed, which is for inspection beyond the regular 
8-hour shift, would generate about $105 million in revenue.
    That would be small in the context of our meat production; 
we produce or we expect to produce in 2006 about 90 billion 
pounds of meat in the United States. That would be red meat, 
plus poultry. So if you divide that production into $105 
million, it turns out to be about one-tenth of one cent effect 
on the price of meat if that user fee is passed fully forward 
100 percent to the consumers.
    So I find it hard to suggest that the fee would have much 
effect at all on the meat packing industry, which, 
incidentally, is getting a little bit better margins right now 
compared to a year ago.
    Senator Bennett. Okay. Thank you.

                            AVIAN INFLUENZA

    Let us talk about avian flu. If a widespread depopulation 
should occur, what do you think the effect of that would be on 
the industry as a whole? I am not predicting that it would 
occur----
    Mr. Collins. No, you are hypothesizing a widespread 
incident in the United States?
    Senator Bennett. Right.
    Mr. Collins. We have already seen it, of course, in many 
countries around the world, which has had some impact on our 
exports.
    If we had such an outbreak in the United States, there are 
a lot of scenarios that could play out. But clearly, the effect 
is going to be focused in two areas--the exports of poultry 
products, including broilers, turkeys, and eggs, and in the 
domestic demand for those products with secondary effects on 
feed markets.
    I think the impact is going to depend very much on the size 
of the outbreak, where the outbreak occurs, whether it is in 
major or minor producing States. It is also going to depend on 
the effectiveness of APHIS in eradicating the outbreak. So the 
economic effects will depend on those factors.
    But, of course, we would immediately lose some exports. It 
would be incumbent upon Dr. Lambert and Dr. Penn to work with 
other countries to ensure that any suspension of imports by 
those countries would be quickly regionalized just to those 
States where the outbreak occurs. If that is the case, then we 
might be able to reduce, fairly quickly, the effect on our 
exports.
    Regarding domestic demand, the United States has been 
incredibly resilient in the face of any kind of animal disease 
for many, many years. You can go back to the 1983-1984 high 
pathogenic avian influenza (HPAI) outbreak in Pennsylvania and 
the eastern States, and poultry consumption actually went up 
that year. We have had other high-path incidents, such as Texas 
in 2004 with no effect on poultry consumption.
    There could possibly be some small effect because of the 
front-page news that Avian influenza (AI) has had for so long. 
But I think, again, effective eradication and depopulation 
would limit any domestic consumer effect.
    You know, we use as a rule of thumb, if we were to lose 10 
percent of our exports, we say that would probably reduce 
poultry prices by about 3 percent, which on a $23 billion 
industry for broilers would be about $700 million.
    So there are any number of scenarios that you can play out 
here, but I think that on the domestic side, it ought to be 
manageable. And I think with good work by APHIS and our trade 
experts, we can limit the damage on the export side.
    Senator Bennett. Thank you. That kind of analysis is 
helpful in a world that is filled with hype about all of these 
various issues.

                    BOVINE SPONGIFORM ENCEPHALOPATHY

    Dr. Lambert, let me swing back to you now, as long as we 
are talking about these kinds of problems, and have you tell us 
what happened in Japan when you were over there. And they have 
shut their market down again because of a single cow with BSE.
    And you have just returned. You are quoted extensively, I 
hope accurately. But having been in public life now, I know 
that is not always the case. So tell us, briefly, what you 
found and what you see with respect to our possibility of 
reopening the export market for beef in Japan.
    Mr. Lambert. Thanks, Mr. Chairman.
    The technical team that went to Japan consisted of 
representatives from APHIS and AMS and MRP, but also the Food 
Safety and Inspection Service and the Foreign Agricultural 
Service. And we were there after the finding of this one cow 
that was not consistent with Japanese criteria in January. The 
Japanese government did shut off all imports or suspended all 
imports of U.S. product.
    The Secretary promised a thorough and extensive 
investigation into that incident. We have completed that 
investigation and submitted a 475-page report. After that, 
there were follow-up questions to which we responded. Then, in 
spite of those efforts, there were continued gaps in the 
understanding of officials in Japan about how this incident 
occurred and the measures that we were going to put into place 
to assure that we can at least minimize, to the extent humanly 
possible and hopefully prevent another incident like this from 
happening.
    So the team was there primarily to address these gaps in 
understanding. I feel that we were successful in doing that. We 
have both identified the next steps that our governments will 
take.
    From the USDA side, we will provide a checklist of all the 
new measures that the Secretary indicated and that were 
indicated in the report and that we agreed to during our 
discussions these last couple of days. We will provide a 
checklist of that to the Japanese government and get 
concurrence that these are the changes that processing plants 
need to make in order to resume trade.
    Once that happens, FSIS and AMS will re-audit the plants 
that are eligible to export to Japan with an eye toward getting 
Japan's technical people into the plants to do follow-up 
verification audits and verify, in fact, that we have made the 
changes we said we would, and re-establish trade.
    Senator Bennett. Do you have any kind of guess as to the 
timetable?
    Mr. Lambert. These timelines are always a crap shoot. We 
have committed that we will respond just as fast as we can with 
the checklist. Once that takes place, we will have people in 
the plants and perform the verification audits just as fast as 
we can. That probably will take in the neighborhood of 10 days 
to 2 weeks. The next challenge will be to get the audit teams 
from Japan onsite to conduct the verification visit.
    We are optimistic, but in these types of situations, 
unanswered questions continue to arise. I should mention, too, 
that while we are doing the audits, the Japanese government 
will begin communication and outreach with their consumers to 
explain the changes that have taken place and to help reassure 
Japanese consumers of the safety and wholesomeness of the 
product as we move forward to reopening trade.
    Senator Bennett. Good. Thank you very much.

                     PUBLIC LAW 480 TITLES I AND II

    Dr. Penn, the fiscal 2007 request provides no funding for 
Public Law 480, Title I. But it does provide an increase of $80 
million for Title II. Do you want to talk about that?
    Mr. Penn. Yes, Mr. Chairman, thank you for the question.
    We have, for the first time ever, not asked for funding for 
Title I because, as I indicated in my statement, it has been 
our experience that the use of that program has dwindled away. 
In the last fiscal year, we only had two government-to-
government concessional programs operating. And so, various 
countries are using that program less and less.
    Senator Bennett. Just for information, which two countries?
    Mr. Penn. One in Latin America and one elsewhere, but I 
can't tell you off the top of my head.
    Senator Bennett. Okay. Fine. All right.
    Mr. Penn. But we did, as you noted, propose an increase of 
$80 million for Title II. So all of the Public Law 480 funding 
will be made available through Title II.
    More and more of that is used for emergency purposes. We 
are seeing a greater need all around the world, and especially 
on the African continent, for emergency funding. And so, more 
and more of the resources will be devoted to that.
    Senator Bennett. Okay. Fine.
    Senator Kohl, I will come back later on. But let us hear 
from you. Thank you.

                           SPECIALTY MARKETS

    Senator Kohl. Dr. Lambert, at one of our hearings last 
year, I asked about opportunities for small farmers who are 
seeking niche or specialty markets. The response I got, talked 
about credit programs that are available and a number of grant 
programs to help with the value-added product development.
    Both things help, but I think there are a lot of 
opportunities out there for men and women who are creative, 
willing to work hard as independent business owners, and don't 
want to have their livelihoods controlled by some large mega 
grain or livestock company.
    This past November, USDA proposed a rule change to allow 
China to export processed poultry products back into the United 
States. It seems to me that if the department could find a way 
to help Chinese poultry make their way back into the United 
States, they should push as hard or harder to help our own 
farmers develop niche or specialty markets.
    So can you point to any USDA actions taken recently to help 
small producers?
    Mr. Lambert. Well, we have a number of programs within MRP 
that work with small producers. Among these are the process 
verified and organic programs. There are ways that producers 
can verify that they have a unique or specialty product to 
market in niche or specialty markets.
    The organics program is rapidly growing. One of the budget 
requests we have this year is for an additional $1 million for 
the organics program based solely on the expanding demand for 
organic products. So there are a number of programs where we 
work with small and mid-sized farmers.
    We also have the farmers markets that allow individual 
producers to market their produce and goods directly to 
consumers, and that has been a growing and very successful 
program.
    With respect to the processed poultry from China, 
basically, that is for only United States or Canadian product, 
or product that is eligible for export to the United States to 
be processed or value-added in China and then re-exported to 
the United States. But, as I say, we do have a number of 
programs that support specialty crops, including block grant 
programs for specialty crop producers that facilitate niche 
marketing both by small and mid-sized producers.
    Senator Kohl. On these farmers markets, last year we 
provided funds for the program to promote farmers markets. But 
they are not included in your budget this year. Have I missed 
something?
    Mr. Lambert. The 2007 budget includes $1 million that 
provides for block grants of up to $75,000 per farmers market 
to do outreach and promote those activities. That is included 
in the 2007 budget.

                           ALTERNATIVE FUELS

    Senator Kohl. Thank you.
    Dr. Collins, over the past several years, there has been a 
lot of talk about alternative fuels. The President's State of 
the Union address increased interest in this subject.
    As an economist, do you believe that the development of 
alternative fuels is good for our country and, in particular, 
is it good for rural America? Can you describe how the market's 
regulations and technology have changed over the recent years 
and have made alternative fuels more or less attractive?
    Mr. Collins. Certainly, Senator Kohl.
    Yes, I think we are in the midst right now of quite a 
transformation in thinking about alternative fuels. I can 
remember when I first started working at the department, we 
actually had our energy office being an opponent of ethanol. We 
were worried about creating a subsidy-dependent commodity with 
an uncertain value.
    But I think as we have gone through the 1990s, and 
particularly in this decade, there has been a substantial 
change. This substantial change relates to, of course, what 
happened on 9/11, the concern about energy security, the 
concern about diversification of energy supplies.
    We have an exploding trade deficit. One third of our trade 
deficit is oil imports. We have also had energy prices soar to 
unprecedented levels. That has changed the backdrop in which 
alternative fuels now are looked.
    In addition to that, we have the environmental side of 
alternative fuels. Today, people are valuing alternative fuels 
not just for their BTU content in the gasoline tank, but for 
their environmental value, for their rural development, 
employment creation opportunities, for their trade deficit 
reduction, for their energy security.
    I would say that many people are valuing it that way. The 
Wall Street Journal aside, of course--if you saw their 
editorial this week--which seems to miss most of those points.
    I would say also a point that you made is the development 
of new technologies. You could probably go back into the 1980s 
and find ethanol being produced at a cost of over $2 a gallon. 
It fell by the early 2000s to about 95 cents a gallon as its 
cost of production. It is now probably about $1.10 a gallon, 
mainly because of the higher price of energy, as a lot of 
natural gas is used in ethanol production.
    But I think this combination of new technologies and, of 
course, the President talked about down the road by 2012, 
hopefully, the commercialization of cellulosic conversion to 
ethanol, this advent of all of these new technologies, combined 
with the environment in which we find ourselves with high fuel 
costs, have really changed the thinking about ethanol.
    And of course, you are seeing that in the explosion of 
production across rural America. And yes, I do believe that 
this is an enormously important opportunity for rural economic 
development.
    If you look at the value of our oil imports, they exceed 
the total net cash income of agriculture. So even capturing a 
small portion of that for agriculture could be very important 
to farm income and rural economic growth.

               COMMODITY SUPPLEMENTAL FOOD PROGRAM (CSFP)

    Senator Kohl. Thank you.
    Mr. Bost, when Secretary Johanns was here, we briefly 
discussed elimination of the Commodity Supplemental Food 
Program, CSFP, which, as you know, provides food boxes to low-
income elderly individuals and also some women, infants, and 
children.
    He stated several reasons why USDA believes this program is 
no longer necessary, including the fact that seniors can move 
to food stamps, there simply isn't enough money, and that the 
program only operates in a limited number of States.
    Is CSFP the only nutrition program that operates in a 
limited number of States?
    Mr. Bost. Senator Kohl, in this particular program, it is 
not only in a limited number of States, in those States, it is 
not even State wide. Right now, it is in 32 States, 2 Indian 
reservations, and the District of Columbia.
    As I said in my opening statement, when you put together a 
budget, you are not able to do everything that you would like 
to do. We feel strongly that many of the people currently 
served in this specific program would be better served in other 
nutrition assistance programs that essentially are in existence 
across the Nation--for example, the WIC Program and, for the 
elderly participants, the Food Stamp Program.
    Senator Kohl. Well, a little bit of the math on that. The 
CSFP program was last year funded at $109 million, and it 
served over 420,000 people, nearly 90 percent of whom were 
seniors. The increase in food stamps in the budget to take care 
of these people the USDA says it plans to switch from CSFP is 
only $50 million, with an additional $18 million in transition 
benefits.
    So it seems to me that the funding levels show a 
discrepancy, and how would you explain that people are not 
going to lose benefits under this plan?
    Mr. Bost. Senator Kohl, as we are transitioning the elderly 
eligible participants in this program, we are providing them 
with $20 a month until they do participate in the Food Stamp 
Program. However, it is true given the income levels of some of 
the CSFP participants, they probably would not be eligible to 
participate in the Food Stamp Program.
    One final point, the average amount of money that we 
believe many of the elderly would be eligible to receive in the 
Food Stamp Program would be approximately $63. So, they would 
actually get more. Some of them--not all of them--would 
actually get a higher benefit under the Food Stamp Program as 
opposed to the value of their benefit as a participant in CSFP.
    Of course not all of the elderly are eligible for the 
average Food Stamp benefit, which currently is about $63. The 
food box that they get in CSFP is delivered. They do not have 
to go get it. There is some belief that many of these seniors 
will not participate in the Food Stamp Program for this reason.
    But we believe that, working with our partners, building in 
transition, we will be able to pick up and offer these services 
to a significant number of persons.
    The other point that I want to make, finally, is for those 
that are not eligible for either the Food Stamp or WIC Program, 
there is another nutrition program we have available in which 
they will probably be able to participate, which is our TEFAP 
program.
    Senator Kohl. So you are saying that in many States, like 
my own State, those people who are receiving the benefits of 
this program won't be disadvantaged?
    Mr. Bost. Some of them may be, but not all of them. That is 
why it is a very difficult budget decision for us to make 
because some may be adversely affected.
    But we are going to do our best to ensure that those who 
are eligible to participate in our nutrition assistance 
programs, are picked up. And for those that are not eligible 
they will be provide with other resources like the TEFAP 
program.

                  MEAT AND POULTRY IMPORT REQUIREMENTS

    Senator Kohl. One question for Dr. Raymond. We have 
recently heard reports that FSIS is working to set up a trial 
program during which some Canadian plants will be able to 
export beef into the United States without requiring daily 
inspections, which is something that we require in this 
country.
    I know that most recently this trial has been put off until 
at least July, but apparently, it is not off the table. One of 
our most important safety requirements for bringing food into 
this country is that the exporting country has to have the 
equivalent food safety requirements as we do, and this project 
appears to throw that out the window.
    Are you considering lessening the requirements on our food 
plants at home for less than daily inspections? Do you think 
this would be wise, especially when certain countries already 
have questions about our food safety program? Would you talk 
about this trial program that you have on the table?
    Dr. Raymond. Certainly, Senator Kohl.
    First of all, to clarify, the trial program has not been 
established as exactly what it will look like. One of the 
possibilities is that the Canadian government would do daily 
inspection for 3 months in 50 plants that export to the United 
States and do intensified laboratory testing for food-borne 
pathogens. Then they would do 3 months of less than daily 
inspection and continue with the enhanced laboratory testing so 
they could compare food product contamination rates for daily 
inspection and for less than daily inspection.
    When that product is tested, that product would not be 
shipped across the border to the United States until it tested 
negative for food-borne pathogens. That is just one proposal. 
That is not necessarily the proposal that will take place.
    First of all, they may not do any project. They may not do 
any test for equivalency of less than daily. That is their 
choice.
    But the point right now is that they cannot export product 
to America unless they have daily inspection in those plants, 
which they are now doing. All of the facilities that export to 
the United States have daily inspection.
    If they want to try to show us that less than daily 
inspection is equivalent in safety, they have to devise a 
project that would satisfy our requirements to evaluate that. 
We are still in negotiations with them on that issue.
    I hope that clarifies that issue. They have been doing 
daily inspection since August 22, 2005.
    Senator Kohl. Okay. Well, I understand there is a trial 
program under consideration in Australia to export beef to 
America from plants that pay for their own inspectors, 
something that we don't allow in this country. As you know, we 
pay for meat inspectors, believing Government employment is the 
best way to make sure that our meat stays safe.
    Are we thinking about a program with Australia that would 
allow them to export beef from companies that employ their own 
inspectors?
    Dr. Raymond. At this time, Senator Kohl, there are no 
Australian establishments certified to export to the United 
States that are using their meat safety enhancement program.
    Senator Kohl. So there is really nothing to that 
consideration of a trial program to allow them to export meat?
    Dr. Raymond. They have had one plant that has expressed 
interest, and at this point, that plant has not been certified 
for export to the United States.
    Senator Kohl. Thank you.
    Mr. Chairman.
    Senator Bennett. Thank you very much.

                  GRAZING LAND CONSERVATION INITIATIVE

    Mr. Rey, let us talk about invasive species. They affect 
forage quality and range land health and wildlife and watershed 
function and all of those things.
    And in fiscal 2006, we provided $4.1 million to control and 
manage invasive species through the Grazing Land Conservation 
Initiative. And these funds were leveraged with private 
matching, and the administration eliminated funding for Grazing 
Land Conservation Initiative.
    I have a series of questions on this, but just talk about 
that generally and let us see what your thinking is with 
respect to this problem.
    Mr. Rey. Our thinking generally is that we are trying to 
consolidate and better organize a variety of the conservation 
programs. The Grazing Land Conservation Initiative is one that 
fulfills functions that are already being fulfilled under 
Conservation Technical Assistance and under the Environmental 
Quality Incentive Program (EQIP).
    Much of the work that would have been done was being done 
under the Grazing Land Conservation Initiative. In our 2007 
budget that work will be done under the other two programs, and 
will include work on invasive species.
    We are also investing $2 million in our 2007 budget request 
in the cooperative conservation partnership initiatives to deal 
specifically with invasive species, and that issue, invasives, 
will be one of the top priorities in that area and in the EQIP 
area as well.
    Senator Bennett. Have you had any response or comment from 
the various stakeholders with the elimination of the funding 
for GLCI?
    Mr. Rey. Not so far. I expect as the budget process unfolds 
and as we talk about that, we will hear from them. Particularly 
where GLCI earmarks were directed toward specific States and 
locales, we are going to have to lift a burden of proof to 
demonstrate that the work will still be done if those earmarks 
are eliminated.

                      AIR AND WATER QUALITY ISSUES

    Senator Bennett. Okay. Let us see, Mr. Rey, Conservation 
Technical Assistance. Senator Kohl and I made this a priority 
last year. We provided $12 million, a major increase in light 
of the budget that we faced last year. There is no similar 
request for the 2007 budget. Why did the budget request not ask 
for funding to continue the progress that we started last year?
    Mr. Rey. Well, the funding request for Conservation 
Technical Assistance is a total of $634.3 million, which is a 
fairly significant budget line item.
    Senator Bennett. No. I am sorry. I am talking about 
specific money to meet water quality and air quality 
requirements. I apologize. I didn't pose the question properly.
    Mr. Rey. Sorry. We have established as a priority for the 
EQIP program and for the General Conservation Title programs at 
large to work on air and water quality issues, and we are 
making substantial progress in those areas. So I think what you 
are going to see in the mix of program priorities from both 
EQIP and Conservation Technical Assistance is a substantial 
amount of work directed toward water quality and air quality, 
particularly in addressing the air and water quality in packs 
of confined animal feeding operations.
    Senator Bennett. So you are saying that the amount we very 
specifically focused on this will be taken care of in the 
overall, and we don't need to worry about it?
    Mr. Rey. Correct. In 2006, we spent the amount that you 
earmarked for air and water quality, but we also spent a 
substantially greater amount of that as part of the overall 
EQIP and Conservation Technical Assistance budgets to deal with 
air and water quality issues.
    Senator Bennett. So you are telling us the emphasis is 
still there?
    Mr. Rey. Correct.
    Senator Bennett. All right. I am sure we will watch that 
and appreciate that.
    I have some additional questions, but I think we will 
submit those for the record.
    Okay. Senator Kohl.

                             FARM SUBSIDIES

    Senator Kohl. Thank you, Mr. Chairman.
    I would like to address this to Dr. Penn and Dr. Collins. 
There was an article in the Wall Street Journal recently about 
the future of farm subsidies. The article discussed how 
subsidies can promote overproduction and lead to other 
problems, including issues with the World Trade Organization.
    It also noted that American citizens, both rural and urban, 
are becoming concerned about the way traditional farm programs 
affect farmers in poor African countries and elsewhere, as well 
as the effect they have on our environment here.
    These issues, as you know better than I, are very complex. 
There are several different ways to estimate this, but I 
understand that in the past 3 years, farm payments averaged 
approximately 25 percent of net farm income, which is more 
generous than some countries and less generous than others.
    This is an issue that could consume an entire hearing all 
by itself, but while we have you here, I am interested in your 
views. Can you talk about this shift in public opinion? Can you 
talk about the WTO?
    Can you talk about traditional farm programs, if they were 
to decrease or to be eliminated? What thoughts do you have on 
the best way to protect not only our farmers, but our rural 
America?
    For after all, all this money that the farmers get is spent 
in rural America in ways that keep rural America alive. So 
where do you see this whole issue going in terms of its impact 
on our rural economy?

                                  WTO

    Mr. Penn. Senator Kohl, let me begin by discussing the WTO 
aspects of the question. As you indicated, it is a very broad 
question and one that we could spend a lot of time discussing.
    But let me say before I turn to Dr. Collins that in recent 
times, there has been a much greater consideration given to the 
impact of our domestic farm programs on our trading partners. 
And I think that this has been around since the Uruguay round 
agricultural agreement was concluded in the mid 1990s.
    This was the first multilateral or international agreement 
to include food and agriculture in a very substantive way. So 
we have been much more cognizant of this connection between the 
trade impacts and the domestic farm program impacts since that 
time.
    Now this really came to a head quite recently when some of 
our programs were challenged in the WTO. Brazil and some other 
countries launched the so-called ``cotton case'' in which they 
singled out cotton and other various programs and challenged 
those for the very reasons that you indicate. They said that 
the programs were stimulating additional production here at 
home. We then exported that production into the world market. 
That extra production had a price-depressing effect.
    Now we certainly think that that effect is greatly 
overstated, but nonetheless, Brazil prevailed in that WTO 
challenge, and they prevailed on the appeal. So that has now 
caused us to take into account the effects of our programs on 
others, or the extent of the trade distortions that our 
programs may have.
    So as we approach the 2007 Farm Bill, as we approach what 
we hope to be the successful conclusion of the Doha trade 
negotiations, we are now much more mindful of the form in which 
we provide support to our producers than perhaps we have been 
in the past.
    The WTO has established various color boxes. The amber box, 
which is the most trade distorting form of domestic support; 
the blue box, which is less trade distorting; and the green 
box, which is non- or minimally trade distorting.
    So we are having to give more and more thought about 
switching our support for our farmers from amber box to blue 
box to green box, so that we can continue to provide support 
for domestic agriculture, but do it in a way that doesn't 
negatively or adversely affect our trading partners around the 
world.
    That is sort of the trade aspects. But as you know, Dr. 
Collins has spent most of his career studying all of the other 
aspects of your question. So I will turn to him.
    Mr. Collins. That is very kind of a senior author of a 
multiple edition agricultural policy book to hand that off to 
me.

                 PUBLIC OPINION ON AGRICULTURAL POLICY

    Mr. Collins. Mr. Kohl, your question deserves a 
comprehensive and thoughtful answer, and Dr. Penn mentioned the 
trade implications of our programs and how that can affect 
future agricultural policy.
    One of the things you asked about was how public opinion 
has shifted, which is part of what the Wall Street Journal 
article was about. I guess my feeling is that the great 
majority of Americans really don't know much about agricultural 
policy, and I think they are very positive about agriculture 
and about farmers. So I don't sense a great shift among most 
people, urban residents, for example.
    However, within agriculture in rural areas, I think there 
is a shift, and I think part of it reflects a broader and 
deeper understanding about farm programs. Some of that has come 
because of the international scrutiny of our programs--WTO 
challenges, the loss of the cotton case, for example, the 
understanding that programs are ``amber box'' in many cases and 
have resource allocation effects.
    Also there has been a lot of discussion about the effects 
of farm programs on land values, the equity of the payments 
across commodities, across regions, and across size of 
producers. Much data has been presented in recent years about 
those things. And so, I think there is a bigger and deeper 
understanding about some of the consequences of our current 
structure of programs than perhaps we have had in the past, and 
that is starting to show in the public discourse.
    As you probably saw yesterday, the department released 41 
short papers, which are the summaries of what the department 
heard at the 52 Farm Bill forums that were held by the 
Secretary and people at this table. If you look through some of 
the comments, you will find that people are questioning.
    Well, you mentioned 25 percent of net farm income or net 
cash income coming from Government payments. You know, this 
year, it is going to be about 30 percent in 2006. That is 
roughly $20 billion the last couple of years.
    People are saying, well, $20 billion a year is a lot of 
money and are there other ways that that money can be used to 
continue to promote rural well-being, address some of the 
problems with the current programs, and also deal with some of 
the new emerging issues that people want dealt with.
    You already talked about promoting niche opportunities for 
small producers in rural America. Maybe more could be done 
there. People want to do more in energy. We had an energy title 
in the last Farm Bill. Very little money went into that energy 
title. Maybe money is not the answer for energy, but that is 
something to think about.
    There is the question of specialty crops. I have been 
struck by the fact that 20 years ago, the cash receipts that 
farmers earned from specialty crops was half of what was earned 
from program crops. And this year, it is going to be equal to 
what is earned from program crops. So we have had this 
incredible growth in specialty crops in the United States, and 
specialty crops are not really party to that $20 billion.
    So I think there is a discussion going on within 
agriculture in rural areas about farm programs and about what 
is the best way to deal with the problems that farmers face, 
which certainly are there, but also deal with the needs of 
rural areas.
    And of course, you asked, how we thought that might come 
out, and I guess my answer to that would be, well, we will wait 
and see how that comes out in the 2007 Farm Bill. But that is 
the landscape behind the debate that is emerging, and I do 
think that there has been some shifting of opinion within rural 
areas and agriculture.
    You even see that in some of the reports that some of the 
farm groups are putting out. The National Corn Growers and the 
American Farm Bureau Federation have put out some very 
thoughtful pieces about where we should go in the long run with 
our agricultural policy and it is a little bit different than 
you might have heard 10 or 15 years ago.
    Senator Kohl. Do you anticipate that there will be some 
very detailed discussion of this whole issue surrounding the 
Farm Bill in 2007 and maybe some significant changes?
    Mr. Collins. I guarantee you there will be detailed 
discussion. As to the significant changes, my forecasting 
ability there has failed me in the past. So I am not sure. But 
there is always that potential.
    Senator Kohl. But isn't it true in the sense that if we 
spend the money in different ways, the direct payments to 
farmers, as they go down, will have a direct impact on farming? 
I mean, if we are spending $20 billion a year----
    Mr. Collins. Right. Right.
    Senator Kohl. And we take that money and spend a portion of 
it or a large amount of it in other ways to impact in a 
positive way rural America, but the money doesn't go through 
the farmer, what will happen to the farmer?
    Mr. Collins. Well, it may or may not. Look at the situation 
now. The $20 billion, most of that goes to a small set of 
farmers.
    Senator Kohl. That is true.
    Mr. Collins. Most of that goes to wheat, corn, cotton, 
rice, soybeans, and so on. It is not going to another big part 
of agriculture. So you could already argue that there is some 
relative disadvantage in place right now with the current 
structure.
    So if you start to reapportion things, change things 
around, it is true that some farmers would stand to lose. Other 
farmers would stand to gain.
    And there also may be alternative ways that those producers 
who would lose their direct payments or their counter-cyclical 
payments or their marketing loan benefits could pick up those 
benefits through other programs--other programs that exist now, 
such as expanded conservation programs, or other programs yet 
to be designed in the 2007 Farm Bill.
    So I don't think you can conclude that automatically every 
producer is going to lose. They are not. There is going to be a 
distribution of losers and of gainers, and always part of the 
dilemma in changing farm policy is how to deal with anybody 
that is perceived as a loser.
    We have figured out how to do that in some cases. We had a 
peanut buyout program. We had a tobacco buyout program. Who 
knows? Maybe there will be new ways that we can think about how 
we can transition from one structure to another structure and 
minimize the losers.
    Senator Kohl. Thank you very much, gentlemen.
    Mr. Chairman.

                    ADDITIONAL SUBMITTED STATEMENTS

    Senator Bennett. The subcommittee has received statements 
from Rural Development and Research, Education and Economics 
which will be placed in the record.
    [The statements follow:]

     Prepared Statement of Thomas C. Dorr, Under Secretary, Rural 
                              Development

    Mr. Chairman, members of the Subcommittee, I appreciate this 
opportunity to appear before you today to present the President's 
fiscal year 2007 Budget request for USDA Rural Development.
    With me today are Jim Andrew, Administrator of our Rural Utilities 
Programs; Russell Davis, Administrator of our Rural Housing and 
Community Facilities Programs, and Jack Gleason, Acting Administrator 
of our Rural Business and Cooperative Programs.
    On behalf of all of us, let me say that it is indeed a privilege 
for us to be here today representing over 6,800 dedicated men and women 
of USDA Rural Development. They are spread across every State and are 
your neighbors. They do an outstanding job.
    And if I may, I would like to take just a moment to pay a special 
tribute to the extraordinary contributions so many of them made this 
past year under very difficult circumstances in the wake of the 2005 
hurricanes. This is not the place for an extended discussion, but I do 
want to say that amidst all the controversies, a great deal of good 
work by good people has gone unremarked.
    I have visited the Gulf Coast repeatedly since the hurricanes, and 
I have been inspired by the resiliency, commitment, and energy of 
hundreds of USDA Rural Development people in the affected areas. Some 
of them, in fact, had lost their own homes--but in those first days 
after landfall, all of them were working around the clock helping to 
provide emergency shelter, financial support, and transitional housing 
to evacuees. And they are hard at work now helping with the rebuilding 
of homes and businesses across the region.
    We are a relatively small agency and, in the context of the 
hurricanes, a relatively small part of a much larger story. But this 
was truly a case where we punched above our weight. I am tremendously 
proud of the work our people did, and not just those in Louisiana, 
Mississippi, Alabama, and Texas, but also their colleagues around the 
country.

                                 VISION

    Mr. Chairman, I am both honored and humbled by the opportunity 
President Bush has given me to serve as Under Secretary for Rural 
Development. I am committed to the future of rural America. My home is 
outside Marcus, Iowa, a metropolis of about 1,100. I am a farmer. I 
treasure the rural way of life and understand the pressures faced by 
rural communities in our rapidly urbanizing society. But I also believe 
that the traditions and values of rural America remain a vital part of 
our national heritage.
    I believe also that the future of rural America is bright. 
Certainly there are challenges; there always are. But rural communities 
enjoy many assets as well: the quality of life, a clean environment, 
peace and quiet, livable small towns, a lower cost of living, strong 
communities, and traditional values. These are communities worth 
preserving, and they have a future well worth building.
    The mission of USDA Rural Development is to provide leadership, 
infrastructure, venture capital, and technical support to enable rural 
communities to prosper in a dynamic new environment defined by 
globalization, the Internet revolution, and the rise of new 
technologies, products, and markets.
    In this effort, we begin with the recognition that rural America is 
extraordinarily diverse. It includes some of the fastest growing 
communities in the Nation, areas that are suffering from long-term 
economic and population decline, and everything in between. One size 
does not fit all.
    We understand as well that sustainable development must be market 
driven, not program dependent. And finally, we recognize that our role 
is to encourage and support local initiatives, both public and private. 
We know that our success depends on our ability to attract both private 
and other public partners; our success, indeed, is measured primarily 
by their success.
    I believe in this mission. And I believe firmly that rural America 
today is more competitive . . . more attractive as a place to live, 
work, and do business . . . and better positioned for self-sustaining 
growth . . . than has been the case for many years.

                    FISCAL YEAR 2007 BUDGET REQUEST

    The President's fiscal year 2007 Budget proposes $2.1 billion in 
budget authority and a program level of $13.7 billion for rural 
housing, community facilities, infrastructure, and economic 
development. Under the USDA Rural Development programs, each Federal 
dollar supports 6.5 dollars of investments in rural America. We are 
also able to leverage our funds with those of the private sector, as 
well as create partnerships with State, local, and tribal governments, 
community development organizations, and for-profit and not-for-profit 
companies.
    In a challenging budget environment, this is an important means of 
maximizing the return on scarce budget dollars. It should be 
emphasized, however, that this emphasis on leveraging is a sound policy 
choice quite independent of current budget constraints. Indeed, the 
evolution of program emphasis within USDA Rural Development has for 
some years been away from grants and direct loans and toward a greater 
reliance on loan guarantees. This has allowed us to serve more 
individuals, businesses, and communities for any given level of budget 
authority. It also reinforces our strategic objective of fostering 
sustainable development based, on market orientation and private 
investment.
    I would like to touch briefly on some highlights of our fiscal year 
2007 request.

                        RURAL UTILITIES PROGRAMS

    USDA Rural Development provides financing for electric, 
telecommunications, and water and wastewater services that enhance the 
quality of life and provide the foundation for economic development in 
rural areas. For fiscal year 2007, the President's Budget proposes $553 
million in budget authority to support a program level of $6.3 billion 
for rural utilities programs.
    Of this total, $3.8 billion is for the rural electric program. With 
the support of the President and Congress over the last several years, 
we have eliminated the backlog in electric program applications and 
believe that the funds proposed for fiscal year 2007 will be sufficient 
to meet the demand.
    In addition, the President's budget proposes $1.414 billion in 
loans and grants for rural water and wastewater projects. To enhance 
the ability of low-income communities to finance vital water and 
wastewater improvements, we propose to change the calculation of the 
``poverty'' interest rate for this program from the current fixed 4.5 
percent to an adjustable rate set at 60 percent of the market rate. 
This change is reflected in the higher subsidy rate projected in fiscal 
year 2007 for Water and Wastewater Program Direct Loans. We also 
continue to believe that in the current low interest rate environment, 
rural communities can afford to finance a higher share of project 
costs, and we therefore propose to shift the loan-grant ratio to an 
approximate 75-25 percent ratio.
    The President's budget proposes $690 million in telecommunications 
loans and the investment of $356 million in loans to accelerate the 
deployment of broadband to rural communities. Broadband is fast 
becoming an essential tool for businesses, both large and small, and we 
are acutely aware that broadband deployment continues to lag in rural 
areas. Ensuring broadband access is essential to achieving a dynamic 
rural economy. The budget request is expected to be sufficient to meet 
the demand for the next year. This represents a reduction from the 
nominal fiscal year 2006 program level of $495 million, but as this 
Subcommittee knows, we have to date been unable to obligate all the 
broadband loan funds that Congress has made available to us. The volume 
of viable applications that either we or the Congress anticipated has 
simply not materialized.
    It is clear, therefore, that the rural broadband deployment model 
must be improved. This has been a top priority since my confirmation 
last summer. We are now engaged in a thorough review to identify 
obstacles to borrower participation. In the meantime, we look forward 
to working with the Congress, the telecommunications industry, and 
rural stakeholders to accelerate deployment of this vital technology.
    In addition, the President's budget includes $24.8 million for the 
Distance Learning and Telemedicine (DLT) Grant Program, which enables 
rural communities to enhance their educational options and access the 
resources of big city medical centers via the Internet. This request 
maintains the fiscal year 2006 program level for DLT Grant Program.
            rural housing and community facilities programs
    Safe, modern, affordable housing is essential to healthy 
communities. USDA Rural Development works to extend the benefits of 
homeownership to low- and moderate-income Americans and to historically 
disadvantaged communities. We finance affordable rental housing and 
essential repairs for low- and very-low income homeowners. We also 
assist rural communities in providing quality health care, police and 
fire services, day care, educational and recreational facilities, and 
other essential community services.
    The fiscal year 2007 budget request for rural housing and community 
facilities exceeds $6.27 billion. This includes an increase in funding 
for both direct and guaranteed homeownership loans, to $1.2 billion and 
$3.56 billion, respectively. We anticipate that this level of funding 
will provide homeownership opportunities for over 40,000 rural 
families. In order to meet this goal, we propose raising the guarantee 
fee from 2 percent to 3 percent. This nominal increase will provide an 
additional $2.86 billion in single family guaranteed loans.
    For multi-family housing, the budget proposes shifting funding from 
direct to guaranteed lending in order to increase our leveraging and 
serve more residents at a lower cost. A total of $198 million--double 
the fiscal year 2006 program level for guaranteed lending--is requested 
for this purpose.
    We also propose $486 million for rental assistance, a figure which 
reflects a shift from 4 to 2 year contracts. We believe it is 
unnecessary to renew contracts for 4 years especially while 
revitalization is underway, and the Administration remains committed to 
renewing contracts as needed. However, 2 years is the minimum contract 
term the program should have to operate efficiently from year to year.
    In addition, the budget proposes $74 million to fund our multi-
family housing revitalization initiative. As this Subcommittee knows, 
the multi-family housing portfolio faces longstanding issues of 
deferred maintenance. This is compounded by the threat of prepayment by 
the owners of some complexes who may wish to exit the program, leading 
to the displacement of significant numbers of elderly and low-income 
tenants. The $74 million will fund the voucher program to help 
displaced tenants from USDA financed multifamily housing properties 
where the owner has chosen to pre-pay the Rural Development loan and 
withdraw the property from the program. The $74 million is proposed in 
the Budget solely for funding the anticipated need for the voucher 
program. Funding debt restructuring without the proper legislative 
authorizations in place would be premature. However, in order to allow 
for balancing of needs in anticipation of the new authorization 
passing, the appropriations language does allow for the funds to be 
used for this purpose if debt restructuring authorization language is 
enacted. While modest in budgetary terms, this is a very significant 
investment in the long-term stabilization and revitalization of the 
rural rental housing portfolio.
    Finally, the budget proposes to increase the program levels for the 
Farm Labor and Self Help Housing Programs to $55 million and $38 
million, respectively. It continues Community Facilities Loans and 
Grants at their fiscal year 2006 levels.

                RURAL BUSINESS AND COOPERATIVE PROGRAMS

    The third leg of the Rural Development stool is business 
development and job creation. The future of rural communities depends 
on their ability to attract and regain young families. A diversified, 
growing rural business sector is essential to offering opportunity to 
young adults and a future to growing families.
    To support these goals, the President's budget for fiscal year 2007 
requests $103 million in budget authority to support a program level of 
$1.138 billion for our Rural Business and Cooperative Programs.
    Our request for fiscal year 2007 is--as it was last year--
consistent with the Strengthening American Communities Initiative, 
which called for a consolidation of several economic development 
programs within the Department of Commerce. We are confident of our 
ability to partner with the Department of Commerce to ensure that rural 
America participates fully in this broader funding pool.
    Of the programs remaining in USDA Rural Development, the Business 
and Industry Guaranteed Loan Program (B&I) accounts for approximately 
42 percent of proposed budget authority and 87 percent of total program 
level for fiscal year 2007. We will also continue to provide technical 
assistance, development, and research support for rural cooperatives, 
targeted investment in alternative energy and energy conservation, and 
support for intermediary lending institutions through a variety of 
smaller programs. We estimate that total business program investment in 
fiscal year 2007 will create or save over 56,000 jobs.

                                CLOSING

    In closing, Mr. Chairman, I want to emphasize that the bottom line 
for USDA Rural Development is not budget numbers; it is water lines 
laid, families able to afford a new home, new businesses and jobs 
created or saved, and rural communities strengthened by what we do. It 
is a privilege to work with the members of this Subcommittee to advance 
these objectives despite the stringent budget environment we face 
today. This concludes my formal statement and I will be glad to answer 
any questions you may have.
                                 ______
                                 

 Prepared Statement of Jackie J. Gleason, Acting Administrator, Rural 
                      Business-Cooperative Service

    Mr. Chairman and members of the Subcommittee, I am pleased to 
present the Administration's fiscal year 2007 Budget for the Rural 
Development's rural business and cooperative programs.
    Mr. Chairman, the programs and services of Rural Development, in 
partnership with other public and private sector businesses, continue 
to improve the economic climate of rural areas through the creation or 
preservation of sustainable business opportunities and jobs. Rural 
Development continues to invest in rural America, especially in the 
under-served rural areas and populations. Rural Development programs 
help close the gap in opportunity for these under-served rural areas 
and populations, moving them toward improved economic growth by 
providing capital, technology and technical assistance. The $103 
million requested in budget authority for Rural Business-Cooperative 
Service programs will support $1.138 billion in direct and guaranteed 
loans and grants and will assist in creating or saving over 56,000 jobs 
and providing financial assistance to more than 1,200 small businesses.
    The cooperative form of organizational governance continues to be a 
cornerstone of business development in our rural communities, whether 
in the traditional form that brings day care services to a rural 
community or today's new generation ethanol cooperatives that lessen 
our dependence on foreign oil. From the large agricultural marketing 
cooperative that brings additional value to its members products, to 
the small rural telephone cooperative that brings broadband technology 
to its community's businesses and residents, to the elder care 
cooperative that brings desperately needed services to our ``greatest 
generation,'' cooperative organizations provide our rural residents 
with new and exciting job opportunities, enhanced educational and 
health care opportunities, and products and services that enable viable 
rural communities to compete with their urban and suburban 
counterparts.
    Rural Development's mission is ``to increase economic opportunity 
and improve the quality of life for all Rural Americans.'' Rural 
Development's business and cooperative programs successfully carry out 
this mission by providing an array of educational, technical 
assistance, research, and loan and grant programs to rural Americans.

             BUSINESS AND INDUSTRY GUARANTEED LOAN PROGRAM

    For the Business and Industry (B&I) Program, the fiscal year 2007 
budget includes
    $43.16 million in budget authority to support $990 million in 
guaranteed loans. We estimate that the funding requested for fiscal 
year 2007 will create or save over 23,667 jobs and provide financial 
assistance to approximately 554 businesses. The B&I program allows 
lenders to better meet the needs of rural businesses. Through the 
lender's reduced exposure on guaranteed loans, they are able to meet 
the needs of more businesses at rates and terms the businesses can 
afford. B&I guaranteed loans may also be used by individual farmers to 
purchase cooperative stock in a start-up or existing cooperative 
established for value-added processing.
    I would like to illustrate how this program partners with a lender. 
Desert View Regional Medical Center Holdings, LLC was approved for a 
Business and Industry Guaranteed Loan in the amount of $17.5 million. 
The funds will be used to construct a 25 bed acute-care surgical 
hospital in Pahrump, NV, which currently does not have hospital 
services. The facility will include 22 medical beds, 3 birthing suites, 
and emergency rooms with 8 treatment bays and trauma unit. The surgery 
department will have 2 operating rooms; the imaging department will 
include radiology, fluoroscopy, mammography, ultra sound, C/T, and 
mobile MRI; and there will be a clinical laboratory, cardiopulmonary, 
physical, and occupational therapies. At present, residents of the 
Pahrump area must travel approximately 60 miles to Las Vegas for acute 
primary hospital care. Approximately $12 million in equity and other 
funds will be contributed to the project. In addition to benefiting the 
community with a critical access hospital, the new hospital will bring 
140 new jobs to the area, which includes 40 doctors and nurses.
    I would also like to share with you another example of how this 
program partnering with a lender, Comerica Bank, has supported 
alternative energy development in rural America. The Snowflake White 
Mountain Power, LLC, was approved for a B&I guaranteed loan of $6 
million in addition to a Section 9006, Renewable Energy System 
Guaranteed Loan of $10 million to build a 20 megawatt biomass 
electrical generating plant 17 miles southwest of Snowflake, Arizona. 
The raw materials for generation are burnt trees from the Abitibi Paper 
Mill which is located adjacent to the proposed plant. About six jobs 
will be created directly and 40 jobs from subcontractors. This is a 
good example of how two programs within Rural Development were jointly 
utilized to purchase the guaranteed loan assistance needed for the 
project to be realized.

                   VALUE-ADDED PRODUCER GRANT PROGRAM

    For fiscal year 2007, the budget requests $20.295 million for the 
value-added producer grant program, the same as in the previous year. 
The Value-Added Producer Grant (VAPG) program encourages independent 
agricultural commodity producers to further refine or enhance their 
products, thereby increasing their value to end users and increasing 
the returns to producers. Grants may be used for planning purposes such 
as conducting feasibility analyses or developing business plans, or for 
working capital accounts to pay salaries, utilities and other operating 
costs. Program revisions were made in fiscal year 2006 that will 
increase the number of eligible applicants competing for this 
critically important funding, and in support of the President's e-Gov 
initiative, administrative processes were refined to enable producers 
to complete an electronic application template and submit their 
completed applications through Grants.gov.
    The successes of the Value-Added program are evident throughout the 
country. Alternative crops are two vital words for the survival of 
agriculture in today's world. For example, Paulk Vineyards of Wray, 
Georgia, is a family-based grower of southern grapes, commonly known as 
muscadines. While this alternative crop is used in wines, jellies, 
jams, and juice, studies have shown that the product and its by-
products have tremendous health benefits. Paulk Vineyards received a 
$126,350 VAPG to develop processes that would turn muscadine seeds into 
anti-oxidant powders and a healthy, good-tasting juice. Muscadine seeds 
are higher in reseratol antioxidant, ellagic acid, and total 
antioxidants than any other fruit analyzed according to several 
researchers, including the University of Georgia. When dried, crushed, 
and encapsulated, this value-added product can be sold on the market to 
biomedical companies, health food stores, natural food stores, and the 
public. As a result of being able to develop these new processes with 
the value-added grant, the Paulk family is building a new processing 
facility for its extract and powder lines which will substantially 
increase employment in this rural area.
    Since the passage of the 2002 Farm Bill, funding for the 
Agricultural Marketing Resource Center (AgMRC) has been set at 5 
percent of the funding made available to the other value-added 
programs. Therefore, approximately $1.015 million of the $20.295 
million budget request will fund the AgMRC's activities. AgMRC is an 
electronically based information center that creates processes, 
analyzes, and presents information on value-added agriculture. The 
center is housed at Iowa State University; however, it has partners at 
Kansas State University and the University of California-Davis. The 
center provides producers, processors, and other interested parties 
with critical information necessary to build successful value-added 
businesses.

              RURAL COOPERATIVE DEVELOPMENT GRANT PROGRAM

    For fiscal year 2007, the budget requests $4.95 million for the 
Rural Cooperative Development Grant Program. The Rural Cooperative 
Development Grant program provides funds to establish and operate 
centers for developing new cooperatives and improving the operations of 
existing cooperatives with the primary goal of improving the economic 
conditions of rural areas. This program complements our national and 
State office technical assistance efforts by increasing outreach and 
developing feasibility studies and business plans for new cooperatives, 
and assisting existing cooperatives in meeting the demands of today's 
ever-changing global economy.
    For example, when Cooperative Development Services, Inc. (CDS) 
started fielding inquiries to start new food cooperatives, they found 
this to be very unique. Not since the 1970s had a major number of new 
food cooperatives been developed in the United States. While CDS' 
consultants work with over 100 food cooperatives in rural Wisconsin, 
Minnesota, and Iowa, assisting with all phases of leadership 
development; store growth, and expansion; and operations improvement, 
it needed additional financing for the technical assistance necessary 
to meet the growing demands of start-up cooperatives. With a Rural 
Cooperative Development Grant from USDA's Rural Development, CDS was 
able to advise and assist two steering committees as they moved through 
the steps of cooperative development, including market research, 
feasibility analysis, business planning, equity formation, and, in one 
case, the hiring of the cooperative's manager. The results have been an 
overwhelming success. Harvest Market Co-op, located in the Village of 
Barneveld, opened a grocery store cooperative that has 348 members. The 
store is thriving with projections calling for the store to reach 
breakeven profitability this year. A second cooperative, Just Foods Co-
op, has already grown in membership to over 1,100. These start-ups 
served as the catalyst for CDS to create a national model to guide the 
development of food cooperatives across the country. Implemented in 
June 2005, the model has been adopted by other cooperative associations 
and is expected to grow the number of food cooperatives throughout the 
country in the next 10 years from 300 to 500.

                  GRANTS TO ASSIST MINORITY PRODUCERS

    For fiscal year 2007, the budget requests $1.485 million for 
funding for cooperatives or associations of cooperatives whose primary 
focus is to provide assistance to small, minority producers whose 
governing board and/or membership comprise at least 75 percent minority 
members. Grants may be used for developing business plans, conducting 
feasibility studies, or developing marketing plans for farmers, 
ranchers, loggers, agricultural harvesters and fishermen whose gross 
annual sales do not exceed $250,000.

                    COOPERATIVE RESEARCH AGREEMENTS

    For fiscal year 2007, the budget requests $495,000 for cooperative 
research agreements to encourage the study of those issues essential to 
the development and sustainability of cooperatives. Because so much of 
rural America's business endeavors are cooperatively formed, their 
continued success is critical for the continued sustainability of the 
Nation's rural communities. Through cooperative research agreements, 
Rural Development can continue to develop and maintain the information 
base vital for innovative, creative, and prudent decision making.

                     INTERMEDIARY RELENDING PROGRAM

    The fiscal year 2007 budget also includes $14.951 million in budget 
authority to support $33.925 million in loans under the Intermediary 
Relending Program (IRP). We estimate that the proposed level of funding 
will create or save approximately 25,952 jobs over the 30-year period 
of this year's loans. Participation by other private credit funding 
sources is encouraged in the IRP program, since this program requires 
the intermediary to provide, at a minimum, 25 percent in matching 
funds. To illustrate the benefits IRP provides to rural America, I 
would like to share with you a success story from rural Iowa.
    A $625,000 IRP loan was made to the Corn Belt Power Cooperative in 
Humboldt, Iowa, for the purpose of expanding their existing Revolving 
Loan Fund. Together with private sector matching funds, the loan fund 
was increased to approximately $2,250,000. Based on historical 
performance, Corn Belt Power estimates that approximately 95 jobs will 
be created in rural areas with this new injection of funding.

  RURAL BUSINESS ENTERPRISE GRANT PROGRAM/RURAL BUSINESS OPPORTUNITY 
                             GRANT PROGRAM

    The Rural Business Enterprise Grant (RBEG) and the Rural Business 
Opportunity Grant (RBOG) programs are being proposed to be consolidated 
into the Federal Economic and Community Development programs as part of 
the President's initiatives to help strengthen America's transitioning 
and most needy communities. These grant programs, along with others 
will be transformed into a new, two-part program: (1) the Strengthening 
America's Communities Grant Program, a unified economic and community 
development grant program, and (2) the Economic Development Challenge 
Fund, a bonus program for communities.

           RURAL ECONOMIC DEVELOPMENT LOAN AND GRANT PROGRAMS

    The fiscal year 2007 budget includes $7.568 million in budget 
authority to support $34.652 million in Rural Economic Development 
Loans (REDL) and $10 million in Rural Economic Development Grants 
(REDG). This program represents a unique partnership, since it directly 
involves the Rural Development electric and telecommunications 
borrowers in community and economic development projects. It provides 
zero-interest loans and grants to intermediaries, who invest the funds 
locally. The return on our equity from rural America is strong.
    The following is an example of how one REDL will benefit two States 
by allowing a Wisconsin firm to expand its capacity. A loan of $740,000 
was provided to the Northwest Telephone Cooperative Association on 
behalf of the Laurens Industrial Foundation for Link Snacks, Inc. 
Laurens, Iowa has a population under 1,500. The loan will be used to 
assist with the purchase of a warehouse facility and equipment to 
accommodate Link Snacks, Inc., of Minong, Wisconsin. Link Snacks, Inc. 
will use the facility as freezer storage and international distribution 
center for a snack and meat production company. In addition, some meat 
products will be processed at this site. As a result, the loan will 
increase opportunities, help fill vacant space, and create up to 150 
new jobs in an area suffering from population decline.

             RENEWABLE ENERGY GRANTS/LOAN GUARANTEE PROGRAM

    The Renewable Energy Systems and Energy Efficiency Improvements 
Program were authorized by the Farm Security and Rural Investment Act 
of 2002. The program authorizes loans, loan guarantees, and grants to 
farmers, ranchers, and rural small businesses to (1) purchase renewable 
energy systems, and (2) make energy efficiency improvements. The fiscal 
year 2007 budget proposes a $7.92 million grant program and a budget 
authority of $2.243 million to support $34.560 million guaranteed loan 
program. The program supports the President's energy policy goals by 
helping to develop renewable energy supplies that are environmentally 
friendly. In addition, the program contributes to local rural economies 
through the creation of jobs and provides new income sources to rural 
small businesses, farmers, and ranchers. Finally, the program helps to 
reduce the costs of doing business for farmers, ranchers, and rural 
small businesses by encouraging the use of energy efficient physical 
plant systems. We anticipate 37,440 households will be served, 388 
million-kilowatt hours of energy generated while reducing greenhouse 
gasses by 0.1 million metric tons. These loans and grants will reduce 
oil imports by 73 million barrels in the year funded.
    Reducing the costs of operating a business is significant in terms 
of job retention. In June, 2005, an energy efficiency improvement grant 
of $98,873 was awarded to the New Holland Brewing Company, a Limited 
Liability Corporation in Holland, Michigan. Using the grant, as well as 
leveraged funds of almost $400,000, the company installed a low 
pressure boiling storage system and a new lighting fixture with motion 
sensors. Thus, the lights are only on when a person is present to use 
them. It is estimated that the energy efficiency improvements are 
saving the business between 40 percent and 50 percent of their normal 
energy costs.

                BIOMASS RESEARCH AND DEVELOPMENT GRANTS

    The Biomass Research and Development Grant program, authorized 
under section 9008 of the 2002 Farm Bill, is jointly administered by 
USDA and the Department of Energy. During fiscal year 2006, Rural 
Development will assume USDA's part of the administration of this 
program from the Natural Resources Conservation Service. The fiscal 
year 2007 budget includes funding to provide up to $12 million in 
grants to organizations involved in researching biomass energy 
alternatives and developing bio-based energy products.
    Mr. Chairman, and members of the Subcommittee, this concludes my 
testimony for the Rural Development fiscal year 2007 budget for rural 
business-cooperative programs. I look forward to working with you and 
other Committee members to administer our programs. I will be happy to 
answer any questions the Committee might have.
                                 ______
                                 

 Prepared Statement of Russell T. Davis, Administrator, Rural Housing 
                                Service

    Mr. Chairman and members of the Subcommittee, thank you for the 
opportunity to present the fiscal year 2007 President's Budget for the 
USDA Rural Development rural housing and community facilities programs.
    As an integral part of Rural Development, the rural housing 
programs assist rural communities with a wide array of single and 
multi-family housing options to residents of rural communities. We also 
help to fund medical facilities, fire and police stations, childcare 
centers, and other essential community facilities.
    The proposed budget for rural housing and community facilities 
programs in fiscal year 2007 supports a program level of approximately 
$6.27 billion in loans, loan guarantees, grants, and technical 
assistance. It also maintains the Administration's strong commitment to 
economic growth, opportunity, and homeownership for rural Americans. We 
believe that our efforts, combined with the best of both the non-profit 
and private sectors, will ensure that this budget makes a tremendous 
difference in rural communities. The fiscal year 2007 Budget also 
includes a major initiative to revitalize the rural rental housing 
programs.
    Let me share with you how we plan to continue improving the lives 
of rural residents under the President's fiscal year 2007 Budget 
proposal for our rural housing programs.

                           PROGRAM HIGHLIGHTS

    I am pleased to provide you with an update on several highlights 
from our major programs, as well as key initiatives being undertaken.
    In fiscal year 2005, we were instrumental in the Federal response 
efforts to hurricanes Katrina and Rita. Immediately following the 
hurricanes we had our people who were already living in the gulf States 
coordinating relief efforts and assisting evacuees with their housing 
needs. Our Multi-Family Housing program was able to place about 10,000 
individuals or nearly 4,000 hurricane evacuee families nationwide and 
was able to offer approximately $17 million in emergency Rental 
Assistance. In our Single Family Housing program, we provided immediate 
housing payment moratoriums for over 18,000 of our affected borrowers, 
suspended foreclosure actions, and opened up our single family housing 
inventory properties nationwide in order to place some evacuees. We are 
continuing to provide relief and assistance through aggressive loan 
servicing, and new loans and grants in the affected areas.
    In December 2005, the Department of Defense Appropriations Act for 
2006 provided some relief for areas affected by the hurricanes of 2005. 
The legislation provides approximately $175.593 million in program 
level for section 502 direct single family loans, $1.293 billion in 
program level for section 502 guaranteed single family loans, $34.188 
million in program level for section 504 home repair loans, and $20 
million for section 504 home repair grants. In addition to funding, 
Congress gave Rural Development flexibility within their current 
statutes and regulations to meet the needs of those affected by the 
hurricanes.
    We will soon be announcing details for the rural housing voucher 
demonstration program and expanded revitalization demonstration program 
that were authorized in the 2006 Appropriations Act. We expect to have 
these programs fully underway within the next few months.

                     MULTI-FAMILY HOUSING PROGRAMS

    The Multi-Family Housing (MFH) budget preserves Rural Development's 
commitment to maintaining the affordable housing for the many rural 
Americans who rent their homes. Our existing portfolio provides decent, 
safe, sanitary, and affordable residences for about 470,000 tenant 
households.
    The total program level request is $825.4 million. Four hundred and 
$86 million will be used for rental assistance (RA) for contract 
renewals, farm labor housing, and preservation. These funds will renew 
more than 46,000 2-year RA contracts.
    The fiscal year 2007 budget also requests funds for a program level 
of $41.6 million in loans and $13.9 million in grants for the Section 
514/516 Farm Labor Housing program, and program level of $1.5 million 
in loans for credit sales, and $9.9 million for housing preservation 
grants.
Multi-Family Housing Revitalization
    The fiscal year 2007 budget extends the Administration's proposal 
to revitalize USDA's multi-family housing projects by providing $74.2 
million for rural housing vouchers for tenants of projects that have 
withdrawn from the program. Upon enactment of legislation the 
Administration has already submitted to Congress, these funds could 
also be used to provide incentives for project sponsors to stay in the 
program and make essential repairs and rehabilitations.
    We anticipate our revitalization efforts will span the next several 
years and have initiated a demonstration program using existing 
authority during fiscal year 2005 to test the viability of the 
revitalization concepts. The demonstration validated some of the basic 
revitalization concepts and helped us identify an efficient process for 
implementing the fiscal year 2006 demonstration program and preparing 
for the full scale implementation of the revitalization initiative. The 
2005 demonstration effort will revitalize 22 rental properties through 
12 transactions in the States of Missouri, Wisconsin, Louisiana, 
Arkansas, and Georgia. Through these efforts, 559 tenant families will 
continue to live in affordable rental housing. Eight of the 
transactions have closed and we will complete the remaining shortly.
Section 538 Guaranteed Rural Rental Housing Program
    The fiscal year 2007 budget request will fund $198 million in 
section 538 guaranteed loans, funds that may be used for new 
construction and repairing 515 properties. The section 538 guaranteed 
program continues to experience ever-increasing demand and brisk 
growth, and is rapidly becoming recognized within the multi-family 
housing finance, development, and construction industry as a viable 
conduit to facilitate the financing of housing projects.
    In fiscal year 2005, we distributed more than $97 million in 
guarantees to fund housing projects that attracted over $338 million in 
other sources of funds. The risk exposure to the government continues 
to be very low, as loan guarantees to total development costs are well 
under 30 percent. We also have a delinquency rate of zero. Over 90 
percent of the applications were awarded Low-Income Housing Tax Credits 
from the various State governments where the projects were located. 
This type of leveraging helps ensure that properties are affordable for 
low-income families.
    Since inception of the program, the section 538 guaranteed program 
has closed approximately 100 guarantees totaling over $185 million. 
These closed guarantees will provide over 4,500 rural rental units at 
an average rent per unit of approximately $500 per month. In addition, 
the program has more than 100 applications in the works.
    The rural housing program recently published a final rule on 
January 19, 2005, to address program concerns from our secondary market 
partners and to make the program easier to use and understand. The 
fiscal year 2007 proposed budget of $198 million will enable Rural 
Development to fund a significant number of additional guaranteed loan 
requests.

                     SINGLE FAMILY HOUSING PROGRAMS

    The Single Family Housing (SFH) programs provide several 
opportunities for rural Americans with very low- to moderate-incomes to 
purchase homes. Of the $4.80 billion in program level requested for the 
SFH programs in fiscal year 2007, $3.56 billion will be available as 
loan guarantees of private sector loans, including about $99 million 
for refinancing more affordable loans for rural families. Also, with 
$1.237 billion available for direct loans, an increase of 10 percent 
over the 2006 enacted level, our commitment to serving those most in 
need in rural areas remains strong. This level of funding will provide 
homeownership opportunities for approximately 40,760 rural families.
    Effective outreach and a quality guarantee product, coupled with 
low interest rates, have increased demand for the section 502 
guaranteed program. Currently, approximately 2,000 lenders participate 
in the guaranteed SFH program. The competitive low-interest rate 
environment has enabled the rural housing program to serve low-income 
families, who would typically receive a section 502 direct loan, with a 
guaranteed loan instead. To help decrease the Federal cost of this 
program, we are requesting the authority to charge up to a 3 percent 
guarantee fee for purchase loans. Without the proposed fee change the 
budget authority requested will support only $601 million in loans 
compared to $3.56 billion available if the 3 percent fee were in place. 
In addition, we are ensuring that this program is not redundant with 
other Federal guarantee housing loan programs by requiring that the 
lender certify that the borrower does not qualify for another guarantee 
that the lender offers and that they would not issue the loan without 
the guarantee.
Section 523 Mutual and Self-Help Housing
    The President's fiscal year 2007 Budget requests $37.6 million for 
the mutual and self-help housing technical assistance program, an 
increase of 12 percent over fiscal year 2006 levels.
    The fiscal year 2005 ended with over $42 million awarded for 
contracts and 2-year grants. There were 39 ``pre-development'' grants 
awarded in fiscal year 2005, including many first-time sponsors, 
several faith-based groups, and groups in States with no self-help 
housing programs. Pre-development funds may be used for market 
analysis, determining feasibility of potential sites and applicants, 
and as seed money to develop a full-fledged application. Groups in the 
pre-development phase typically need 6 to 12 months before they are 
ready to apply for full funding.
    The fiscal year 2007 proposed budget also includes approximately 
$36.4 million in program level for home repair loan funds and $29.7 
million for grants to assist elderly homeowners. It also includes 
approximately $5 million in loan level for each of two site loan 
programs, $10 million in loan level for sales of acquired properties, 
and approximately $990 thousand for supervisory and technical 
assistance grants.

                           COMMUNITY PROGRAMS

    The Community Facilities budget request will provide essential 
community facilities, such as educational facilities, fire, rescue, and 
public safety facilities, health care facilities, and child care 
centers in rural areas. The total requested program level of $521.7 
million includes $297 million for direct loans, $207.9 million for loan 
guarantees, and $16.8 million for grants.
    In partnership with local governments, State governments, and 
Federally-recognized Indian Tribes, the fiscal year 2007 budget will 
support more than 300 new or improved public safety facilities, 125 new 
and improved health care facilities, and approximately 90 new and 
improved educational facilities to serve rural Americans.
    In fiscal year 2005, we invested over $163 million in 155 
educational and cultural facilities serving a population totaling over 
1.8 million rural residents, over $136 million in 523 public safety 
facilities serving a population totaling over 2.4 million rural 
residents, and over $426 million in 166 health care facilities serving 
a population totaling over 2 million rural residents. Funding for these 
types of facilities totaled $725 million. The remaining balance was 
used for other essential community facilities such as: food banks, 
community centers, early storm warning systems, child care centers, and 
homeless shelters.

                               CONCLUSION

    Through our budget, and the continued commitment of President Bush, 
rural Americans will have the tools and opportunities they can put to 
work to improve both their lives and their communities. We recognize 
that we cannot do this alone and will continue to identify and work 
with partners to improve the lives of rural residents.
    I would like to thank each of you for your support of the rural 
housing and community facility programs' efforts. I look forward to 
working with you in moving the fiscal year 2007 Budget forward, and 
welcome your guidance as we continue our work together.
                                 ______
                                 

 Prepared Statement of James M. Andrew, Administrator, Rural Utilities 
                                Service

    Mr. Chairman, members of the Subcommittee, thank you for the 
opportunity to present the President's fiscal year 2007 budget for USDA 
Rural Development utilities programs. This is my first appearance 
before you and I appreciate the opportunity. We value the work and 
support you and other members of this subcommittee have provided us so 
that together we can provide a strong, dependable infrastructure in the 
rural United States.
    A strong rural America is important for a strong Nation. We 
consider the rural utilities programs an important part of the USDA 
Rural Development mission. Safe, affordable, modern utility 
infrastructure is an investment in economic competitiveness and serves 
as a fundamental building block of economic development. Changes in the 
landscape of rural America, along with developments in technology and 
changes in market structure, combined with an ageing utility 
infrastructure, are impacting the electric, telecommunications and 
water sectors. Without the help of USDA Rural Development's utilities 
programs, rural citizens face monumental challenges in participating in 
today's economy, as well as maintaining and improving their quality of 
life.
    The $43.5 billion rural utilities loan portfolio includes 
investments in 8,000 small community and rural water and waste disposal 
systems, as well as approximately 2,000 electric and telecommunications 
systems serving rural America. This local/Federal partnership is an 
ongoing success story. Eighty percent of the Nation's landmass 
continues to be rural, encompassing 25 percent of the population. For 
an economy to prosper, we need infrastructure investment to spur 
economic growth, create jobs and improve the quality of life in rural 
America.

                            ELECTRIC PROGRAM

    The Electric Program budget proposes a program level of $3.8 
billion supported by $2.7 million in budget authority. This includes a 
hardship program level of $99 million and a $39.6 million program level 
for municipal rate loans. The Direct Treasury rate loan program level 
is proposed to be $700 million. There is also $3 billion for the 
guarantee of Federal Financing Bank (FFB) direct loans. The FFB loans 
are made at the cost of money to the Federal Government plus an one-
eight of a percent. Both the President and Congress have provided very 
generous loan levels over the past four years and we have been able to 
eliminate the backlog in loan applications. I believe the President's 
budget request will meet the demand during the 2007 fiscal year.
    To meet the demands of economic growth across our Nation, the need 
for transmission lines to deliver electric power where it is needed is 
placing new demands on cooperatives providing transmission service. 
Last year we predicted that because in the last twenty years no new 
base load capacity had been built, there would be an increasing demand 
for power generation and transmission. We are now seeing the first of 
many applications for those base load requirements. However, past 
history has shown that base load is riskier than other projects. We 
intend to develop a separate subsidy rate that reflects the increased 
risk and incorporates a fee to offset the cost. Legislation will be 
necessary to allow for a fee. Within the $700 million requested for 
direct loans, we plan to make $200 million available for renewable 
energy projects.

                       TELECOMMUNICATIONS PROGRAM

    The area of rural telecommunications is the most rapidly changing 
aspect of rural utilities infrastructure. Job growth, economic 
development, and the quality of life in rural America are directly tied 
to access to today's high speed telecommunications. We administer the 
Broadband Loan Program, the traditional Telecommunications 
Infrastructure Loan Program, as well as Distance Learning and 
Telemedicine Loan and Grant Programs.
    The fiscal year 2007 Broadband Loan Program budget proposes a 
program level of $356.4 million driven by $10.8 million in budget 
authority. This replaces the mandatory funding provided by the Farm 
Bill for the 2007 fiscal year. Moreover, as a result of decreased 
subsidies, the President's budget will deliver nearly the same program 
level as was anticipated by the Farm Bill. When the 2002 Farm Bill was 
enacted, the mandatory funding anticipated a program level of 
approximately $400 million a year. The proposed budget is reflective of 
the intent of the Farm Bill and as it has turned out, more in concert 
with the demand in qualified loan applications.
    Included in the broadband loans budget proposal is $29.7 million in 
direct 4 percent loans requiring $3 million in budget authority; $297 
million in direct Treasury Rate loans is requiring $6.4 million in 
budget authority, and $29.7 million in guaranteed loans requiring $1.4 
million in budget authority.
    We are reviewing every aspect of the program with a view toward 
making needed improvements. We must continue to balance fiduciary 
responsibility with mission delivery. Making bad loans helps no one; 
making successful loans helps everyone.
    In the regular Telecommunications Program, the 2007 budget proposes 
a program level of $689 million. Included is $143.5 million in direct 5 
percent loans, $246.7 million in direct Treasury Rate loans, and $299 
million in Federal Financing Bank (FFB) direct loans guaranteed by USDA 
Rural Development. All of this is driven by $605,000 in budget 
authority.
    I am happy to report that the dissolution of the Rural Telephone 
Bank is progressing on schedule. No funds are requested for that 
program.
    Distance learning and telemedicine technologies are having a 
profound impact on the lives of rural residents. This program helps 
rural schools and learning centers to take advantage of the information 
age and enables rural hospitals and health care centers to have access 
to quality medical services only found in large hospitals. The Distance 
Learning and Telemedicine (DLT) program pulls together the best of 
Federal assistance and local leadership. The DLT grants are budgeted at 
$24.75 million. The President's proposal does not request loan program 
funding simply because the demand for loans to schools and hospitals 
has never developed and funding is available from previous years to 
support new loans in fiscal year 2007.

                    WATER AND ENVIRONMENTAL PROGRAMS

    The Water and Environmental Programs provide the most basic of 
infrastructure needs for rural citizens: clean, safe, affordable 
drinking water and ecologically sound wastewater disposal. No element 
is more vital to human life and dignity as clean, safe water. Rural 
communities are challenged to provide this vital service while facing 
increasing regulatory requirements and persistent drought conditions 
across a large area of the country.
    The budget request seeks a program level of $1.4 billion in loans 
and grants, costing $514 million in budget authority. The total is 
divided with $990 million in direct loans and $75 million in loan 
guarantees for the Water and Waste Disposal programs. The direct loan 
program requires $164.7 million in budget authority. The budget request 
also includes $345.9 million in Water and Waste Disposal Grants and 
$3.4 million in Solid Waste Management Grants.

                                SUMMARY

     Rural Utilities infrastructure programs are interwoven in the 
fabric of USDA Rural Development programs. To provide safe, clean, 
water; modern communications; and reliable, affordable electric power 
means businesses can develop, homes can have light and heat, and 
markets can be opened to the rest of the world. We will play our part 
in building communities from the ground up.
    Thank you for the opportunity to present the President's fiscal 
year 2007 Budget for USDA Rural Development utilities programs.
                                 ______
                                 

  Prepared Statement of Dr. Joseph J. Jen, Under Secretary, Research, 
                        Education, and Economics

    Mr. Chairman, members of the Committee, it is my pleasure to appear 
before you to discuss the fiscal year 2007 budgets for the Research, 
Education, and Economics (REE) mission area agencies of the USDA. I am 
accompanied by Dr. Merle Pierson, Deputy Under Secretary of REE and the 
Administrators of the four agencies: Dr. Edward Knipling, Administrator 
of the Agricultural Research Service (ARS); Dr. Colien Hefferan, 
Administrator of the Cooperative State Research, Education, and 
Extension Service (CSREES); Dr. Susan Offutt, Administrator of the 
Economic Research Service (ERS); and Mr. Ronald Bosecker, Administrator 
of the National Agricultural Statistics Service (NASS). Also present is 
Dr. Scott Steele, Director of the Office of Budget and Program Analysis 
of the Department. Each Administrator has submitted written testimony 
for the record.
    The President is committed to reducing the budget deficit by half, 
and USDA as well as many departments across the Federal Government have 
been called on to help make this a reality. The President's fiscal year 
2007 budget proposes $2.283 billion for the four REE agencies to 
conduct research, education, economics and statistical programs. This 
represents a slight decrease of $39 million from the level in the 
President's fiscal year 2006 budget and a $401 million decrease from 
the total REE appropriation in fiscal year 2006. Within this decrease, 
the agency budgets have critical increases in high priority areas such 
as food and agricultural defense, nutrition and obesity, genomics, and 
animal and plant diseases.
    Agricultural research is truly the lynchpin of the American food 
and agricultural system. A great deal of the system's success over many 
decades is attributable to the new scientific understandings and 
technology generated by our national food and agricultural research 
system, of which USDA's research agencies are key components. Numerous 
studies have found that the return on investment in agriculture 
research is high. Whether measured in productivity, competitive 
strength in global markets, environmentally sustainable production 
practices, or new science-based food safety technology, research and 
development underpins essentially all advances in the food and 
agriculture sector. It provides a necessary condition for success. 
Natural events, market conditions and resistance to adoption of new 
technologies can be formidable barriers to success. At the same time, 
absent cutting-edge research, the food and agriculture sector runs the 
risk of losing its edge in increasingly competitive global markets. In 
that context, I look forward to your consideration of the many 
important requests for the four REE agencies proposed in the 
President's budget.
    The budget we are discussing today includes what I consider to be 
an innovative and excellent proposal for restructuring the Hatch and 
McIntire-Stennis formula programs. The Administration has been on 
record for some years as believing that competitive programs provide 
the most effective mechanism for allocating research funds to solve 
pressing national problems. Consistent with that proposition, the 
fiscal year 2007 President's budget proposes an innovative approach to 
introducing competition into the Hatch and McIntire-Stennis formula 
programs. Under the proposal, the current Hatch multi-state research 
program will be expanded from 25 percent to approximately 56 percent of 
the total Hatch funding in 5 years. As current multi-state projects are 
completed, an increasing portion of these multi-state funds will be 
competed. A similar proposal is made for the McIntire-Stennis formula 
program, with the introduction of a new nationally-competed multi-state 
program in fiscal year 2007.
    This design of the proposal for the two formula programs is 
responsive to the concerns raised by many stakeholders to last year's 
budget proposal. Among other things, the new proposal sustains matching 
funds and sustains the land grant institutions' Federal funds for 
leveraging non-Federal resources. In addition, it does not reduce 
appropriated funding from the fiscal year 2006 enacted level. The 
Department looks forward to working with the State Experiment Stations 
and forestry colleges in developing an implementation plan for this 
expanded multi-state program.
    Before turning to the individual agency budgets, I would like to 
describe increases in three particularly high priority areas for the 
Department: food and agricultural defense, nutrition and obesity, and 
genomics.
    Food and Agricultural Defense Initiative.--Now in its 5 year, the 
Food and Agriculture Defense Initiative is designed to strengthen the 
Federal Government's capacity to defend the Nation's food and 
agricultural systems against terrorist attacks, major disasters and 
other emergencies. The fiscal year 2007 budget provides increased 
program funding of $42.3 million for ARS and $7.1 million for CSREES to 
expand their participation in this initiative.
    Under the Food Defense component of the initiative, ARS increases 
will allow the agency to expand its food safety research, particularly 
focused on developing technology that rapidly identifies suspected food 
pathogens and toxins. The budget also proposes an increase of $4.2 
million for ARS' National Plant Disease Recovery System which is 
designed to ensure that disease resistant seed varieties are 
continually developed and made available to producers in the event of a 
natural or intentional catastrophic disease or pest outbreak. An 
increase of $24.6 million will support strengthening ARS' ongoing 
research on rapid response systems to bioterror agents, improved 
vaccines, and identification of genes affecting disease resistance.
    The budget provides CSREES $12 million, an increase of $2.1 million 
from fiscal year 2006, to maintain and enhance the Regional Diagnostic 
Network of public agricultural institutions that serves as a component 
of APHIS diagnostic laboratories for both animals and plants. The 
initiative also includes $5 million for a competitive Higher Education 
Agrosecurity Program that promotes the training of food system defense 
professionals critically needed in securing our Nation's agriculture 
and food supply.
    Nutrition and Obesity.--Concern continues regarding the epidemic of 
obesity in the Nation. Particularly distressing is the incidence of 
obesity in children, estimated to be approximately 16 percent for 
children and adolescents ages 6 to 19. Recent studies show that Type 2 
diabetes, previously considered an adult disease associated with 
obesity, is increasingly found in children. Future projections of the 
incidence of diabetes, particularly for Hispanic and African-American 
children, are alarming. The causes of obesity are many and complex. 
Levels of physical activity, reliance on convenience food, large food 
portions, and genetic make-up all play a role. Whatever the set of 
causes and their interplay, collectively they portend greater problems 
for individuals, families, communities and the country, with the 
potential for significant productivity losses to the economy and 
increases in health-related expenses. Funding for research now could 
significantly contribute to the reduction of these negative impacts in 
the future.
    As the Federal Government department most closely associated with 
food policy and programs, USDA has an important role in addressing the 
obesity challenge and more broadly promoting healthy nutrition and 
weight. Its food assistance, nutrition education, and nutrition 
research programs are all addressing this major national public health 
problem.
    Under the President's HealthierUS Initiative, the fiscal year 2007 
budget proposes increases and program redirections for ARS, CSREES, and 
ERS that will strengthen the Department's capacity to address obesity 
and associated issues. The increases focus on gaining a better 
understanding of food consumption patterns and the factors influencing 
them, and on developing effective interventions to promote healthy 
dietary choices.
    ARS increases and redirection of funds total $11.3 million, of 
which $4.7 million will support a longitudinal study to assess the 
long-term benefits and approaches to controlling weight. We know that 
it is easy for people to control weight for a short period, but very 
difficult to do so for extended periods of time. This initiative will 
be the only one of its type to address the efficacy of the healthful 
eating and physical activity patterns set forth in the Dietary 
Guidelines in preventing obesity in the U.S. population, with 
particular attention focused on children. One aspect of the obesity 
conundrum is that the factors affecting dietary choices and the effects 
of those choices are not only complex, but vary with subpopulations. 
Redirected funds in ARS will be used to gain a better understanding of 
dietary patterns that contribute to obesity in low socioeconomic and 
minority populations. Other redirected funds will support research to 
develop effective, and likely distinct, dietary strategies for 
children, middle-aged adults and Native Americans.
    An ERS increase of $1.6 million under the agency's new consumer 
data and information system will be used to obtain food-away-from-home 
data that is important in supporting the development and targeting of 
USDA policies and programs to help improve the diets and nutrition of 
all consumers, particularly low-income consumers.
    Genomics.--The future of agriculture rests in genomics and 
associated molecular biology. Moreover, in many ways that future is 
here. Genomics and molecular biology are now effectively being used in 
many types of food and agricultural research focused on a wide range of 
research objectives. Over the last several years, ARS and CSREES have 
increased their investment in genomics and molecular biology, helping 
to lay the foundation for their use today in applied research. Past 
increases have supported sequencing the genome of important 
agricultural plants and animals and learning about the functions of 
different genes and how they can be turned on and off. ARS and CSREES 
supported researchers are now aggressively using the technology 
associated with genetic and molecular biology toward such goals as 
developing rapid detection tests, isolating disease resistant plant 
varieties, and enriching the nutrients in food.
    Both the ARS and CSREES budgets continue a trend of requested 
increases in genomics. The President's fiscal year 2007 budget provides 
a total of almost $17.7 million for the two agencies. The ARS budget 
provides an additional $8.7 million to identify genes that influence 
animal and plant growth and quality, disease resistance, and other 
economically important traits. The proposed increases in the National 
Research Initiative (NRI) of CSREES would support new or more research 
in domestic animal genomics ($5 million), genomics to improve 
production of biofuels and biobased products ($1 million) and molecular 
biology to improve the water use-efficiency of plants ($3 million).
    An important part of the ARS and CSREES genomics programs is active 
partnering with other science institutions and governments. For 
example, research on plant genomics, in particular sequencing the 
soybean genome, is being supported through a CSREES partnership with 
the U.S. Department of Energy. ARS and CSREES are both coordinating 
their genomics research with NIH's National Human Genome Research 
Institute, and the National Science Foundation.
    Classical Chinese Garden.--Under the ARS Building and Facilities 
program, the President's budget proposes $8.4 million towards a 
Classical Chinese Garden at the U.S. National Arboretum. The Garden is 
a gift from the Chinese government and people to the U.S. Government 
and people. Once completed, the Garden will be the finest example of a 
Classical Chinese Garden outside of China. The Garden will also enrich 
the Arboretum's research program, through increasing the availability 
of vast numbers of plants from China that can be used to develop new 
and improved ornamental and floral plants in the United States. The 
proposed $8.4 million will be used for design validation, 
infrastructure, and site preparation only. An estimated equivalent of 
over $50 million will be contributed by the China's State Forestry 
Administration towards the Garden. The Chinese government is providing 
the garden structures, rockeries, furniture, art objects, and unique 
plants and is reassembling all the structures and placing them on the 
infrastructure foundation provided by the United States.

                    REE FISCAL YEAR 2007 INITIATIVES

    I would now like to turn briefly to the budgets of the four REE 
agencies.
    Agricultural Research Service.--The Agricultural Research Service 
fiscal year 2007 budget requests slightly over $1 billion in ongoing 
research and information programs and facilities. Within the total, the 
budget proposes increases of $57.7 million dedicated to high priority 
programs addressing issues of national and regional importance, several 
of which were previously described. The budget also proposes $49.1 
million in program redirections of ongoing base resources to enhance 
priority research objectives. To offset the increases, terminations of 
approximately $195.7 million in current programs are proposed. As the 
principal intramural biological and physical science research agency in 
the Department, ARS continues to play a critical role for the 
Department and the larger agricultural community in conducting both 
basic and mission-oriented research. Results from ARS' basic research 
provide the foundation for applied research carried out by ARS, 
academic institutions and private industry. ARS' applied research and 
technology development address the research needs of other USDA 
agencies, as well as of those engaged in the food and agriculture 
sector.
    In addition to the increases previously described, the ARS budget 
proposes increases to strengthen its research program addressing 
several diseases, pests, and pathogens threatening crop and animal 
production and marketing and in some cases, human health. Bovine 
Spongiform Encephalopathy (BSE) continues to be a challenge for the 
livestock sector, particularly as it relates to foreign markets. An 
increase of $9.8 million will support ARS scientists in the development 
of countermeasures to detect, control, and eradicate future BSE and 
Chronic Wasting Disease. Rust diseases, such as Asian soybean rust, 
pose severe problems throughout the United States. A $3.9 million 
increase will focus on controlling or minimizing the spread of rust 
diseases of grains and soybeans. Throughout the country, different 
varieties of invasive weeds, insects, and pathogens cause tens of 
billions of dollars of agricultural losses each year. Research on these 
wide-ranging threats such as the Asian Longhorned Beetle and Salt Cedar 
will be enhanced with a proposed $5.4 million increase.
    Development of biobased fuels continues to be a high Administration 
priority. Research is critical to both improve the agricultural biomass 
feedstock for the production of energy and to develop the technologies 
to produce biofuels from the feedstock. An increase of $3.6 million 
will enhance ARS on both these research objectives, as well as 
development of other biobased products. Other priority programs to be 
strengthened through funding increases or redirections include climate 
change and associated carbon sequestration, water quality and 
technologies to minimize vulnerability to drought, and air quality in 
the context of animal feeding.
    The Abraham Lincoln National Agricultural Library (NAL), one of 
four national libraries, serves as a valuable national resource for 
information on food and agricultural sciences. Full integration of many 
kinds of digital information and fast, seamless navigation among them 
are essential for NAL to meet the increasingly complex customer 
demands. Proposed funding of $4 million will be used to sustain the 
national collection of agricultural information warranted by a national 
library. The funds will also be used to continue developing information 
technology to manage and deliver information efficiently.
    Cooperative State Research, Education, and Extension Service--The 
President's fiscal year 2007 budget provides the Cooperative State 
Research, Education, and Extension Service just over $1 billion, which 
is approximately the same as the President's fiscal year 2006 budget 
and $161.3 million less than fiscal year 2006. In providing critical 
funding for the research, education, and extension programs of the Land 
Grant system and other universities and organizations across the 
country, CSREES continues to play a central role in the generation of 
new knowledge and technology, and the transfer of that knowledge and 
technology to stakeholders.
    The restructuring of the Hatch and McIntire-Stennis formula 
programs at the same overall funding levels as fiscal year 2006 is a 
critical part of CSREES' budget proposal. The budget also includes 
important increases to strengthen high priority programs.
    The NRI, the agency's flagship competitive research program, 
continues to be a very effective avenue for supporting cutting-edge 
research conducted by the finest scientists across the country. The 
fiscal year 2007 budget proposes a $66.3 million increase in the NRI. 
In addition to the increases in genomic research previously described, 
the budget provides for increases in animal production, emerging issues 
in food and agricultural biosecurity, and invasive species. A $42.3 
million increase in the NRI on-going programs is being shifted from the 
Integrated Activities account to the NRI to achieve greater efficiency 
in program administration. The focus of the programs, including water 
quality and food safety, will stay the same.
    The proposed CSREES budget also includes an increase of about $1 
million to a total of $6.9 million to fund outreach and technical 
assistance for socially disadvantaged farmers and ranchers.
    Economic Research Service.--The Economic Research Service is 
provided $82.5 million in the President's fiscal year 2007 budget. As 
the Department's principal intramural economics and social science 
research agency, ERS conducts research and analysis on the efficiency, 
efficacy, and equity aspects of issues related to agriculture, food 
safety, human nutrition, the environment, and rural development. In 
addition to the increases described above related to obesity and 
nutrition, the budget includes $5 million to fund a new Agricultural 
and Rural Development Information System, a comprehensive data 
collection and research program to monitor the economic health and 
well-being of farm and non-farm households in rural areas. The increase 
will support collection of multiple-year, longitudinal information on 
rural household in areas with specific challenges, such as persistent 
poverty and population loss, and adds a longitudinal component to 
USDA's Agricultural Resource Management Survey (ARMS) to collect 
information on farms in the same areas. In particular, the information 
generated will support programs administered by the Department's Rural 
Development mission area.
    National Agricultural Statistics Service.--The National 
Agricultural Statistics Service budget requests $152.5 million, an 
increase of $13.3 million over the fiscal year 2006 Act. NASS' 
comprehensive, reliable, and timely data are critical for informing 
policy decisions to keep agricultural markets stable, and to ensure a 
level playing field for all users of agricultural statistics. The 
President's budget provides increases in the agency's agricultural 
estimates program and the Census of Agriculture.
    An increase of $3.9 million is directed at the continuing 
restoration and modernization of the agency's core survey and 
estimation program begun in fiscal year 2004. Producers rely on the 
NASS surveys as being comprehensive and accurate in making their 
decisions. Funding received in the fiscal year 2004 through fiscal year 
2006 appropriations has been used to successfully improve the precision 
level for commodity surveys conducted by NASS for State, regional, and 
national estimates through sample size increases and better survey 
response. Funding requested in fiscal year 2007 will promote data 
quality by encouraging voluntary response through increased respondent 
awareness of market and policy reliance upon USDA-NASS statistical 
measures and by improving the data collection capabilities of local 
interviewers throughout the Nation. The budget also provides an 
increase of $7.3 million for the Census of Agriculture based on its 5 
year cycle. The increase supports the normal increase in the level of 
activity as the next Census year, 2007, approaches. The 2007 data will 
be collected in 2008. For the first time, respondents will be able to 
complete the survey over the Internet.

                                SUMMARY

    In summary, the REE agencies' budgets we are discussing today 
present a balanced research, education, and economics portfolio, with 
investments in such high priority issues as animal disease, nutrition 
and obesity, food safety and farm household well-being. Such a budget 
is particularly notable at a time of severe budget constraints.
    Reflecting back on the importance of research to the long-term 
success and competitiveness U.S. agriculture, it is critical that a 
strong, dynamic, and focused food and agricultural research portfolio 
be sustained. The proposals for REE in the President's budget will do 
just that. This concludes my statement. Thank you for your attention. I 
look forward to answering your questions.
                                 ______
                                 

     Prepared Statement of Dr. Edward B. Kniplings, Administrator, 
                     Agricultural Research Service

    Mr. Chairman, and members of the Subcommittee, I appreciate this 
opportunity to present the Agricultural Research Service's (ARS) budget 
recommendations for fiscal year 2007. The President's fiscal year 2007 
budget request for ARS' research programs is a little over $1 billion, 
a net decrease of $123 million or about 11 percent from the fiscal year 
2006 funding level. There are several components to ARS' fiscal year 
2007 budget request: (1) $106.8 million for new and expanded priority 
research initiatives ($57.7 million represents a net increase in budget 
authority and $49.1 million is from reprogramming); (2) $15.4 million 
for pay costs; (3) $3.1 million for reprogramming recommendations to 
transfer resources from existing locations in support of priority 
research needs; and (4) $195.7 million for proposed program and project 
terminations.
    Of the proposed new and enhanced research increases, $48.2 million 
is in support of the Federal Government's initiative to strengthen the 
Nation's homeland security. Homeland security research is in the areas 
of food safety, emerging and exotic diseases of animals and crops, and 
for the National Plant Disease Recovery System. ARS is also proposing 
new and expanded initiatives for research on Bovine Spongiform 
Encephalopathy (BSE), invasive species of animals and plants, nutrition 
and obesity, genetics and genomics, biobased products and bioenergy, 
air and water quality, and climate change. Increases for the National 
Agricultural Library and information technology are also requested.
    The budget proposes the termination of a number of research 
laboratories and projects and associated resources appropriated in 
recent years totaling $195.7 million. The savings to be achieved 
through the proposed terminations will finance the higher priority 
research initiatives proposed in ARS' budget, as well as help reduce 
overall Federal spending.
    The ARS budget also includes $8.4 million under its Buildings and 
Facilities account for the construction of infrastructure for a 
Classical Chinese Garden at the U.S. National Arboretum in Washington, 
DC.

              PROPOSED PROGRAM INCREASES AND REDIRECTIONS

    These high priority increases respond to urgent, nationwide issues 
in critical areas, such as homeland security, emerging diseases, food 
safety, obesity, climate change, invasive species, and genomics and 
genetics, that affect the entire country.
  --Food Safety--$13.8 Million.--Ensuring the safety of the Nation's 
        food supply is essential and vitally important to the Nation's 
        homeland security. Bioterrorism against our food supply would 
        affect the health and safety of consumers and their confidence 
        in the safety of the foods they consume. It would also have 
        far-reaching impacts on the country's economy, since U.S. 
        agriculture employs nearly one-quarter of the Nation's 
        workforce and annually contributes over one trillion dollars to 
        the gross domestic product. ARS research will focus on 
        assessing the vulnerabilities of the food supply, strengthening 
        and expanding laboratory preparedness, and developing 
        technologies which rapidly identify suspected food pathogens 
        and toxins. ARS will work in these areas of prevention, 
        detection, and response with the Food Safety and Inspection 
        Service and other USDA agencies, through programs, such as the 
        Collaboration for Animal Health and Food Safety Epidemiology.
  --Human Nutrition/Obesity Prevention Research--$11.3 Million.--Two of 
        every three American adults and an increasing number of 
        children are overweight or obese, making obesity one of this 
        country's fastest growing public health problems. It 
        contributes to heart disease, cancer, diabetes, and other 
        illnesses resulting in hundreds of billions of dollars in 
        health care costs each year. Understanding food consumption 
        trends and the factors that influence dietary choices is 
        critical for developing strategies for preventing and 
        mitigating obesity. ARS will use the proposed increase to 
        conduct nutrition surveys and research to prevent childhood and 
        adult obesity, and to develop strategies which encourage 
        healthy food choices.
  --Avian Influenza (AI) and Foot-and-Mouth Disease (FMD)--$6.1 
        Million.--Animal health officials define a foreign animal 
        disease as a transmissible livestock or poultry disease that 
        has a potentially significant health or economic impact. AI and 
        FMD are two of the most serious foreign animal diseases which 
        presently threaten the United States. ARS will use the proposed 
        increase to: develop diagnostic detection tools that can be 
        more widely used in field situations, increase our 
        understanding of disease epidemiology (i.e., spread of virus, 
        routes of transmission, persistence of infection), and deploy 
        countermeasures in the form of vaccines and antivirals.
  --Bovine Spongiform Encephalopathy (BSE) and Chronic Wasting Disease 
        (CWD)--$9.8 Million.--BSE is a progressive, degenerative, fatal 
        disease affecting the central nervous system of adult cattle. 
        It is believed that eating contaminated beef products from BSE-
        affected cattle causes a variant form of Creutzfeldt-Jacob 
        Disease in humans. The first case of BSE was identified in the 
        United States on December 23, 2003. CWD is a disease which 
        affects deer and elk. Unlike BSE, CWD does not appear to be 
        transmissible to humans, but it is worrisome because it could 
        jump species barriers and become more virulent or infectious. 
        The proposed increase will enable ARS scientists to develop 
        countermeasures to detect, control, and eradicate future BSE 
        and CWD outbreaks.
  --Soybean and Wheat Stem Rust--$3.9 Million.--Rust diseases pose 
        severe problems in crops throughout the United States. Since 
        2000, Stripe Rust has caused hundreds of millions of dollars in 
        losses to wheat growers. Asian Soybean Rust (SBR) is reported 
        to cause up to 80 percent yield losses in numerous countries 
        around the world. The first incidence of SBR, in nine soybean 
        producing States in the United States, was confirmed by the 
        Animal and Plant Health Inspection Service (APHIS) in 2004. The 
        proposed increase will be used to control or minimize the 
        spread of SBR, Stripe Rust, and other rust diseases of grains 
        and soybeans.
  --Emerging and Exotic Diseases of Animals and Plants--$15.3 
        Million.--The United States is increasingly vulnerable to 
        emerging animal and plant diseases which could threaten the 
        Nation's homeland security. The threat of new diseases--whether 
        they are a result of bioterrorism or of naturally occurring 
        epidemics--is an urgent and growing challenge to livestock 
        producers. Bovine Viral Diarrhea in cattle, Porcine 
        Reproductive Respiratory Syndrome in swine, and Marek's disease 
        virus in chickens are examples of these exotic diseases. 
        Harmful animal diseases introduced to the United States in 
        recent years from foreign countries include Exotic Newcastle 
        Disease and Monkeypox. Brucellosis, Leptospiroris, and West 
        Nile Virus are still other examples of zoonotic diseases that 
        pose a threat not only to animals but to humans as well. 
        Similarly, exotic and emerging plant diseases--wheat and barley 
        rusts, citrus canker, and corn viruses--present a potential 
        threat to the Nation's agriculture industry. With the proposed 
        increase, ARS will develop vaccines, intervention strategies, 
        and diagnostics for the detection, identification, control, and 
        eradication of these animal and plant disease threats.
  --Emergency Research Needs and Research to Assist APHIS--$7.4 
        Million.--APHIS has requested help from ARS in controlling 
        various animal diseases, such as FMD, Rift Valley Fever, and 
        Classical Swine Fever, and plant diseases, such as Citrus 
        Canker and Citrus Leprosis Virus. There is also a need for ARS 
        to be able to respond to unanticipated special research needs 
        and emergencies. Often, funds are not readily available for 
        these situations. The proposed increase will provide ARS with 
        the flexibility to respond quickly to special needs and 
        emergencies as well as support APHIS' efforts to control and 
        eradicate pests and diseases.
  --National Plant Disease Recovery System--$4.2 Million.--The 
        emergence or spread of certain plant diseases, such as soybean 
        rust, citrus variegated chlorosis, or bacterial wilt, could 
        seriously harm America's agriculture. Recovery from a 
        significant disease outbreak requires a national system to 
        manage host/pathogen interactions using cultural, biological, 
        and chemical control strategies and deploy resistant plant 
        resources. Homeland Security Presidential Directive (HSPD-9) 
        has charged ARS with the responsibility for leading this effort 
        with the Cooperative State Research, Education and Extension 
        Service (CSREES), APHIS, and others. ARS will use the proposed 
        increase to minimize the impacts of devastating crop diseases 
        by documenting and characterizing plant diseases, developing 
        germplasm and plant varieties with improved disease resistant 
        characteristics, implementing integrated pest management 
        approaches, and transferring genetic resources (i.e., disease 
        resistant plant varieties) to its customers.
  --Invasive Species--$5.4 Million.--Invasive weeds, insects, 
        pathogens, and other pest species cost the United States tens 
        of billions of dollars each year in agricultural losses, 
        negatively impacting the environment and biodiversity as well. 
        Sudden Oak Death has had negative effects on California's plant 
        nurseries. Salt Cedar and Yellow Starthistle (invasive weeds) 
        have caused agricultural and environmental damage in several 
        western States. Lobate Lac Scale, Asian Longhorned Beetle, and 
        Emerald Ash Borer (invasive insects) have caused damage to a 
        wide range of plant species. Animals are also at risk. Imported 
        Fire Ants, which inhabit over 350 million acres in 12 southern 
        States, from Texas to Virginia, damage crops and are a threat 
        to livestock, wildlife, and humans. ARS will use the proposed 
        increase to target its research on controlling invasive species 
        including Imported Fire Ants, Sudden Oak Death, Salt Cedar, 
        Yellow Starthistle, Lobate Lac Scale, Asian Longhorned Beetle, 
        and Emerald Ash Borer.
  --Applied Genomics--$8.7 Million.--Genomics holds the key to 
        maintaining America's agricultural competitiveness in global 
        markets. Advances in genomics research can improve the 
        production and quality of food products, prevent animal and 
        plant diseases, and produce foods which are richer in 
        nutrients. To capture the potential of genomics, ARS needs to 
        continue its work on characterizing, identifying, and 
        manipulating the useful properties of genes and genomes. In 
        this regard, ARS will use the proposed increase to identify 
        genes that influence animal and plant growth and quality, 
        disease resistance, and other economically important traits. 
        ARS will continue to coordinate its genomics research with 
        National Institutes of Health's National Human Genome Research 
        Institute, CSREES, and the National Science Foundation.
  --Genetic Resources--$2.6 Million.--The rate of extinction of lines 
        and strains of food animals and plants is accelerating. The 
        Nation needs a more comprehensive program to maintain 
        threatened germplasm to prevent the loss of genetic diversity. 
        An adequate supply of useful genes is essential in the event of 
        bioterrorism or other crises (e.g., FMD, Exotic Newcastle 
        Disease, etc.). With the proposed increase, ARS will enhance 
        its ability to collect, identify, characterize, and incorporate 
        plant germplasm into centralized gene banks. The additional 
        funding will help sustain ARS' National Plant Germplasm System 
        repositories; it will also enable further development of 
        cryopreservation technologies for long-term storage of 
        important animal germplasm (i.e., of poultry, aquaculture, 
        cattle and swine).
  --Biobased Products/Bioenergy Research--$3.6 Million.--The Biomass 
        Research and Development Act of 2000 and the Food Security and 
        Rural Investment Act of 2002 encourages the development and use 
        of biobased products. There is also a need to expand the 
        development of bioenergy. ARS will focus its research on: (1) 
        improving the quality and quantity of agricultural biomass 
        feedstocks for the production of energy and biobased products, 
        (2) developing technologies to produce biofuels from 
        agricultural commodities and byproducts, and (3) developing 
        technologies leading to new value-added products from food 
        animal byproducts. Increased development of bioenergy and 
        biobased products will expand market opportunities for U.S. 
        agriculture, reduce the Nation's dependence on petroleum 
        imports from unstable regions, and improve environmental 
        quality by reducing air pollution and greenhouse gas emissions.
  --Air/Water Quality and Drought Mitigation--$3.5 Million.--Millions 
        of Americans are exposed to air pollution levels that exceed 
        the Environmental Protection Agency's air quality standards. 
        Agriculture activities, such as animal production operations, 
        which produce ammonia, particulate matter, and volatile organic 
        compounds, can adversely affect air quality. Another concern is 
        the quantity and quality of water available in the United 
        States. Drought and its impacts annually cost the Nation $6 to 
        $8 billion. ARS will use the proposed increase to develop new 
        technologies that reduce gaseous and particulate matter 
        emissions from animal feeding operations. It will also provide 
        technologies that help ensure adequate water for agriculture 
        and improve the health of the Nation's streams, rivers, and 
        lakes.
  --Global Climate Change--$3.2 Million.--Climate change encompasses 
        global and regional changes in the earth's atmospheric, 
        hydrological, and biological systems. Agriculture is vulnerable 
        to these environmental changes. The objective of ARS' global 
        change research is to develop the information and tools 
        necessary for agriculture to mitigate climate change. ARS has 
        research programs on carbon cycle/storage, trace gases (i.e., 
        methane and nitrous oxide), agricultural ecosystem impacts, and 
        weather/water cycle changes. ARS will use the proposed increase 
        to develop climate change mitigation technologies and practices 
        for the agricultural sector. Specifically, ARS will: (1) 
        conduct interdisciplinary research leading to technologies and 
        practices for sustaining or enhancing food and fiber production 
        and carbon sequestration by agricultural systems exposed to 
        multiple environmental and management conditions, (2) expand 
        the existing network of ARS sites conducting measurements of 
        greenhouse gas fluxes between the atmosphere and the land, and 
        (3) identify ways to decrease methane emissions associated with 
        livestock.
  --National Digital Library for Agriculture and Improved Agricultural 
        Information Services--$4.0 Million.--In 2001, both a ``Blue 
        Ribbon Panel'' and an advisory board concluded that the 
        National Agricultural Library (NAL) needed increased resources 
        to meet its potential, taking advantage of technological 
        innovations for timely information access and retrieval. Full 
        integration of many kinds of digital information and fast, 
        seamless navigation among them are essential for NAL to satisfy 
        the increasingly complex interdisciplinary information needs of 
        its customers. The proposed funding will support the 
        revitalization of NAL, enabling it to better deliver relevant 
        information products, satisfy increasingly complex customer 
        demands, and provide leadership as the premier agricultural 
        information resource of the United States.
  --Information Technology--$4.1 Million.--ARS information technology 
        (IT) systems and networks are exposed to an unprecedented level 
        of risk. Of particular importance is safeguarding the Agency's 
        pathogenic, genomic, and other sensitive research information 
        from being acquired or destroyed by unauthorized intruders 
        through unprotected or undetected cyber links. Agencywide 
        centralized security measures are needed to counter security 
        threats. ARS must also ensure that its IT infrastructure (i.e., 
        computers, network hardware, etc.) is up-to-date and reliable. 
        ARS will use the proposed increase to replace, upgrade, and 
        secure its IT equipment and systems.

                      PROPOSED OPERATING INCREASES

    In addition to the proposed research initiatives, ARS' fiscal year 
2007 budget provides funding to cover costs associated with pay raises. 
An increase of $15.4 million is essential to finance these costs and to 
avoid erosion of the Agency's base resources.

                       PROPOSED PROGRAM DECREASES

    ARS is proposing the reduction/termination of selected research 
programs and projects, totaling $195.7 million, to finance higher 
priority research and support the Administration's efforts to reduce 
spending and the Federal deficit. As the country faces new challenges 
in the areas of homeland security, food safety, and obesity, ARS needs 
to reprioritize and reallocate resources. Many of the projects being 
reduced or terminated pertain to research carried out by other ARS 
locations or other research institutions.

                        PROPOSED REPROGRAMMINGS

    The proposed budget includes $3.1 million to reprogram programs and 
resources currently operating at Baton Rouge, Louisiana and Lane, 
Oklahoma. Funding for Soil and Water research at Baton Rouge, Louisiana 
is proposed to be reprogrammed to higher priority initiatives and 
obesity research at the Pennington Biomedical Research Center at Baton 
Rouge. Similarly, funding for crop genetics research at Lane, Oklahoma 
is proposed to be reprogrammed to higher priority forage-livestock 
research at ARS' El Reno and Woodward, Oklahoma locations.

             PROPOSED INCREASE FOR BUILDINGS AND FACILITIES

    The fiscal year 2007 budget recommends $8.4 million for ARS' 
Buildings and Facilities account. The Agency is recommending these 
funds be used to assist in the construction of a Classical Chinese 
Garden (CCG) at the U.S. National Arboretum (USNA) in Washington, DC, 
most of which will be built and paid for by the People's Republic of 
China. The Garden will serve as a symbol of friendship between the 
Chinese and American people and help promote better relations between 
the two nations. The proposed new garden will also serve as a major 
research facility. The project will enable the introduction of unique 
Chinese flowers and plants into the United States for horticultural 
research purposes.
    CCG is a priority project for the USDA and the People's Republic of 
China (PRC). The design was developed by a joint team from the PRC and 
the United States and has been approved by the National Capital 
Planning Commission and the District of Columbia Commission on Fine 
Arts.
    The structure, landscaping, and interior furnishings of the CCG 
will be provided by the Chinese State Forestry Administration. The land 
at USNA has been made available by USDA. As part of this venture, USDA 
is responsible for providing the infrastructure and site work, 
including grading and foundations. The proposed $8.4 million is to 
cover these activities. USDA will subsequently be responsible for the 
security and maintenance of the garden.
    Mr. Chairman, this concludes my presentation of ARS' budget 
recommendations for fiscal year 2007. I will be happy to respond to any 
questions the Committee may have.
                                 ______
                                 

 Prepared Statement of Dr. Colien Hefferan, Administrator, Cooperative 
            State Research, Education, and Extension Service

    Mr. Chairman and Members of the Committee, I appreciate the 
opportunity to present the President's fiscal year 2007 budget for the 
Cooperative State Research, Education, and Extension Service (CSREES), 
one of the four agencies in the Research, Education, and Economics 
(REE) mission area of the United States Department of Agriculture 
(USDA).
    The CSREES fiscal year 2007 budget proposal is just over $1 
billion. CSREES, in concert with the Secretary of Agriculture and the 
intent of Congress, works in partnership with the land-grant university 
system, other colleges and universities, and public and private 
research and education organizations to initiate and develop 
agricultural research, extension, higher education, and related 
international activities to advance knowledge for agriculture, the 
environment, human health and well-being, and communities. In addition, 
CSREES implements grants for organizations to better reach and assist 
disadvantaged farmers and ranchers in accessing programs of USDA. These 
partnerships result in a breadth of expertise that is ready to deliver 
solutions to problems facing U.S. agriculture today.
    The fiscal year 2007 CSREES budget request aligns funding and 
performance with the USDA strategic goals. CSREES manages its many 
budget elements in support of research, education, extension, and 
outreach programs as part of a cohesive whole supporting all six of the 
Department's strategic goals. The Agency defines distinct performance 
criteria, including strategic objectives and key outcomes with 
identified annual targets. As part of an integrated budget and 
performance process, CSREES conducts periodic portfolio reviews by 
external experts to monitor overall program progress, suggest 
alternative approaches, and propose management improvements.
    In support of the Administration's commitment to ensure that 
Federal funds are used to support the highest quality research, the 
fiscal year 2006 Budget proposed to increase overall funding for 
competitive peer reviewed research and reduce funding for formula grant 
programs that do not allocate funds based on a competitive process. 
Extensive analysis of the stakeholder response to the proposal 
indicated that primary concerns included the lack of consultation with 
affected universities and stakeholders, loss of matching funds, program 
continuity and length of awards, sustaining breadth of capacity in 
agricultural science and education nationwide, providing responsiveness 
to State and local issues, and leveraging and sustaining partnerships 
across institutions.
    In response to the concerns, CSREES proposes a new initiative that 
supports the Administration's belief that the most effective and 
flexible way to fund research projects is through peer reviewed 
competitive awards that address national issues, while at the same 
time, responds to stakeholder concerns and still retains overall 
funding at enacted levels. CSREES recognizes that multi-state programs 
have been an effective part of the portfolio of work funded through the 
Hatch formula, assuring focused, non-duplicative, collaborative, 
problem-solving science. This program lends itself to national peer 
review. To achieve the goals of expanding competitiveness and peer 
review, we propose an approach that would expand and continuously 
recompete the multi-state awards of the Hatch Act program; and 
establish a similar, though separately authorized, program for 
McIntire-Stennis Cooperative Forestry (McIntire-Stennis) funds.
    In fiscal year 2007, CSREES is proposing to distribute a portion of 
the Hatch Act and the McIntire-Stennis formula programs to nationally, 
competitively awarded multi-state/multi-institutional projects based on 
high priority national topics decided by CSREES in consultation with 
our land grant partners. This new plan for multi-state programming 
sustains the matching requirement and the leveraging of Federal funds. 
It also allows institutions to focus on program strengths they identify 
and sustain through linking local issues to broad national goals. The 
Agency is eager to work with the agricultural experiment station and 
university forestry research communities to develop an implementation 
plan for the expanded multi-state/multi-institutional effort.
    CSREES also will continue to distribute a portion of the Hatch Act 
and McIntire-Stennis funds on the basis of the formula. The requested 
$177 million of Hatch Act funds will support research at the SAES 
related to producing, marketing, distributing, and utilizing crops and 
resources; enhancing nutrition; and improving rural living conditions. 
Funds will support research topics such as water and other natural 
resources, crop and animal resources, people and communities, 
competition and trade, and human nutrition. In addition, $22 million of 
the funding requested for the McIntire-Stennis program will continue to 
support research related to timber production, forest land management, 
wood utilization, and the associated development of new products and 
distribution systems. Both the Hatch Act and McIntire-Stennis programs 
allow 5 year projects supporting the goal of continuity.
    CSREES proposes to eliminate funding for the Animal Health and 
Disease Program. Alternative funding from the National Research 
Initiative (NRI) program could be used to support aspects of this 
program. Recent, large Coordinated Agricultural Project (CAP) grants 
have supported animal disease issues, such as Johnes Disease and Avian 
Influenza.
    CSREES continues to provide new opportunities for discoveries and 
advances in knowledge through the NRI program. The fiscal year 2007 
budget request of $247.5 million for the NRI is a strong statement of 
the importance that the Administration places on competitively awarded 
grants to advance knowledge for agriculture.
    The NRI will continue to support current high priority programs 
with an emphasis on critical issues. For example, under the NRI CAP, 
multi-million dollar awards support multi-year large-scale projects to 
promote collaboration, open communication, and coordinated activities 
among individuals, institutions, States, and regions to address 
priority issues of national importance. Under the NRI Animal 
Biosecurity Program, CSREES is investing funds to support three animal 
disease CAPs. CAP awards for Avian Influenza ($5 million/3 years with 
18 States involved), Porcine Reproductive and Respiratory Syndrome 
($4.4 million/3 years with 16 States involved), and Johne's Disease 
($4.4 million/3 years with 21 States involved) are working to 
accelerate research discoveries and the translation of basic and 
applied research into significant outcomes that diminish the impact and 
threat from these diseases. These projects provide a strategic 
framework of objectives that integrate research, education, and 
extension specialists representing academia, producers, veterinarians, 
pharmaceutical and other biologics companies, Federal agencies, State 
partners, and international institutions.
    Under the Applied Plant Genomics Program in the NRI, CSREES 
supports two CAPs--rice ($5 million/4 years representing 12 States) and 
wheat ($5 million/4 years representing 17 States.) Activities under 
these CAPs are working to bridge the gap between cereal grain genomics 
and traditional breeding practices. The Project Directors for the CAPs 
recently met to discuss facilitating synergistic activities across the 
CAPs that will provide lasting benefits to U.S. agriculture through 
improved varieties. Also discussed was how the U.S. public breeding 
programs can capitalize on advances in genomics. The Agency also 
continues support for a CAP focused on food safety at North Carolina 
State University.
    Expanded partnerships with other Federal agencies on research 
topics of mutual interest will be possible with the increase in the NRI 
funding. For example, research on plant genomics, in particular 
sequencing of the soybean genome, will be supported through a 
partnership with the U.S. Department of Energy. The research 
collaboration will substantially contribute to advances in soybean 
breeding, with great potential to improve the environmental and 
nutritional quality of the plant, leading to improved efficiency of 
production, reduced environmental impact, and healthier foods.
    The NRI also will support research on animal genomics. Substantial 
public investment in the Human Genome Project has led to technologies, 
practices, and knowledge which enable cost-effective research in animal 
genomics. The considerable similarities of the genomes of livestock 
species, fish, and birds to that of human will reduce the need for 
whole genome sequencing. An increase of $5 million in the NRI to 
support domestic animal genomics including bioinformatics is requested.
    CSREES proposes that $42.3 million from the Integrated Activities 
account for programs that focus on water quality, food safety, methyl 
bromide, organic transition, and pest-related programs be administered 
through the NRI. This transfer is proposed as a means to streamline the 
CSREES budget portfolio. Funding for these programs will be sustained 
at the fiscal year 2006 levels.
    Under the NRI, an increase of $1 million is requested for genomics 
and biomass/biofuels that focus on the functional genomics and 
bioinformatics of microorganisms to increase the efficiency of 
biological conversion of pulp and paper products to bioenery and 
biobased products and the development of new products including 
biologically-based fuels. These efforts will tap into the power of 
genomics to provide insights into new approaches for converting low 
value, agricultural feedstocks to high value fuels and products.
    An increase of $12 million is proposed to address emerging issues 
in food and agriculture biosecurity under the NRI. The requested 
funding will support research, education, and extension activities on 
emerging pathogens and antibiotic production for animal protection and 
biosecurity, and on microbial forensics of food safety pathogens.
    In fiscal year 2007 an increase of $3 million is proposed under the 
NRI for ecology and economics of biological invasions. The requested 
funds will support projects that couple the economic predictions of 
costs of prevention and control with ecological processes that govern 
the entry, spread, and damage by invasive species.
    Under the NRI, an increase of $3 million is proposed in fiscal year 
2007 for plant biotechnology and water security. The funds will support 
research on methods of modern molecular biology to improve the water 
use-efficiency of crops, managed forests, and horticulture plants.
    In continuing and expanding our efforts for agricultural security 
and in support of the President's Food and Agriculture Defense 
Initiative, CSREES, through cooperative efforts with the Animal and 
Plant Health Inspection Service, has established a unified Federal-
State network of public agricultural institutions to identify and 
respond to high risk biological pathogens in the food and agricultural 
system. The network is comprised of 13 State animal diagnostic 
laboratories and 6 plant diagnostic laboratories, strategically located 
around the country. These 19 key laboratories are developing a two-way, 
secure communications network with other university and State 
Department of Agriculture diagnostic laboratories throughout their 
respective regions. The diagnostic laboratories are responsible for 
identifying, containing, and minimizing the impact of exotic and 
domestic pests and pathogens that are of concern to the security of our 
food and agricultural production systems. For example, the National 
Animal Health Laboratory Network (NAHLN) with its 12 founding 
laboratories in New York, Louisiana, Georgia, Texas, Wisconsin, Iowa, 
Colorado, Washington, California, Arizona, North Carolina and Florida 
continued efforts to enhance national preparedness against foreign 
animal disease appearing in the United States by conducting activities 
related to Avian Influenza (AI). AI is one of the new high-consequence 
animal pathogens covered by the NAHLN protocols. In its efforts to 
increase the ability to respond to outbreaks, NAHLN increased the 
number of laboratories that can run the real time polymerase chain 
reaction for AI using a standardized assay and protocol. Annual 
proficiency testing is required of individuals conducting testing to 
ensure quality results. The budget proposal requests an increase of 
$2.1 million for a total of $12 million to maintain the current level 
of diagnostic capabilities across the Nation.
    CSREES proposes $5 million for the Agrosecurity Education Program 
to support educational and professional development for personnel so 
strengthen our national capacity to secure the Nation's agricultural 
and food supply. The program will develop and promote curricula for 
undergraduate and graduate level higher education programs that support 
the protection of animals, plants, and public health. The program is 
designed to support cross-disciplinary degree programs that combine 
training in food sciences, agricultural sciences, medicine, veterinary 
medicine, epidemiology, microbiology, chemistry, engineering, and 
mathematics (statistical modeling) to prepare food system defense 
professionals. Also proposed is $2.3 million for the Asian Soybean Rust 
Program. The funds will provide stakeholders with effective decision 
support for managing diseases of legume crops, particularly soybean 
rust, to continue surveillance of sentinel plots.
    CSREES continues to expand diversity and opportunity with 
activities under 1890 base and educational programs, and 1994, insular 
areas, and Hispanic-Serving Institutions educational programs. In 
fiscal year 2007, the budget requests an increase of approximately $1.2 
million for both the research and extension 1890 base programs. Funding 
for our 1890 base programs provides a stable level of support for the 
implementation of research and extension programming that is responsive 
to emerging agricultural issues. Funding for the 1994 Institutions 
strengthens the capacity of the Tribal Colleges to more firmly 
establish themselves as partners in the food and agricultural science 
and education system through expanding their linkages with 1862 and 
1890 Institutions. Proposed funding for the Resident Instruction Grants 
for Insular Areas Program will be used to enhance teaching programs at 
higher education institutions located in U.S. insular areas that focus 
on agriculture, natural resources, forestry, veterinary medicine, home 
economics, and disciplines closely allied to food and agriculture 
production and delivery systems. Continued funding for the Hispanic-
Serving Institutions promotes the ability of the institutions to carry 
out educational training programs in the food and agricultural 
sciences. This proven path of research, extension, and educational 
program development rapidly delivers new technologies into the hands of 
all citizens, helping them solve problems important to their lives.
    CSREES also will continue to effectively reach underserved 
communities through increased support for the Outreach and Assistance 
for Socially Disadvantaged Farmers and Ranchers (OASDFR) Program. 
CSREES will fund competitive multi-year projects to support outreach to 
disadvantaged farmers and ranchers by providing grants to educational 
institutions and community-based organizations to support these groups. 
Funds for the OASDFR program will encourage and assist socially 
disadvantaged farmers and ranchers in their efforts to become or remain 
owners and operators by providing technical assistance, outreach, and 
education to promote fuller participation in all USDA programs. CSREES 
requests an increase of about $1 million for the OASDFR program.
    The CSREES higher education programs contribute to the development 
of human capacity and respond to the need for a highly trained cadre of 
quality scientists, engineers, managers, and technical specialists in 
the food and fiber system. The fiscal year 2007 budget provides a $.8 
million increase in the Food and Agricultural Sciences National Needs 
Graduate Fellowship program. This program prepares graduates to deal 
with emerging challenges in such areas as agricultural biosecurity to 
ensure the safety and security of our agriculture and food supply, 
natural resources and forestry, and human health and nutrition, 
including problems related to obesity such as diabetes and 
cardiovascular health. Other higher education programs will provide 
important and unique support to Tribal Colleges, the 1890 Land-Grant 
Colleges and Universities, and the 1862 Land-Grant Universities as they 
pilot important new approaches to expand their programs.
    CSREES is requesting funds to accelerate and innovate the New 
Technologies for Agricultural Extension (NTAE) to establish an 
eXtension network which will offer Americans unparalleled access to 
scientifically-derived and unbiased information, education, and 
guidance. The fiscal year 2007 budget proposal includes a $1.5 million 
increase for the NTAE Program to allow the Cooperative Extension System 
to make available research-based education offered through eXtension to 
a technology conscious Nation.
    To ensure the highest quality research which addresses national 
needs within available funding, the fiscal year 2007 budget proposes to 
eliminate earmarked projects. Peer-reviewed competitive programs that 
meet national needs are a much more effective use of taxpayer dollars 
than earmarks that are provided to a specific recipient for needs that 
may not be national. Based upon its broad scope, including the expanded 
integrated authority, and proposed funding increase, alternative 
funding from the NRI could be used to provide a peer-reviewed forum for 
seeking and assessing much of the work funded through earmarks. For 
example in the past four years, CSREES supported research in animal 
identification and/or animal tracking under earmarked projects which 
fit within the scope of the NRI. In addition, earmarked projects for 
human nutrition and food safety also could fit within the program areas 
of the NRI.
    The fiscal year 2007 budget proposes changes in the general 
provisions including increasing the amount provided for the NRI that 
may be used for competitive integrated activities from up to 22 percent 
to up to 30 percent. Also proposed is the elimination of the cap on 
indirect costs for competitively awarded grants. In the past indirect 
cost rate caps have resulted in recipients' inability to recover 
legitimate indirect costs, thus penalizing recipients who choose to do 
business with CSREES. This elimination allows full indirect cost 
recovery under competitive awards and places CSREES competitive 
programs on an equal footing with other Federal assistance programs, so 
that top scientists will be more likely to apply for CSREES grant 
programs.
    CSREES consulted widely in the development of program goals and 
budget priorities for fiscal year 2007. In discussions with the land-
grant university system, forestry researchers, and others, stakeholders 
expressed their concerns over the approach to expand competitive 
research grant programs. The President's fiscal year 2007 budget 
proposal addresses their concerns, and is consistent with the view that 
the most effective use of taxpayer dollars is through competitively 
awarded grants that meet National goals. CSREES, in collaboration with 
university and other partners nationwide, continues to enhance its 
responsiveness and flexibility in addressing critical agricultural 
issues. This proposal provides support for research, extension, higher 
education, and outreach and assistance activities in the food, 
agricultural, and human sciences that can make a difference in solving 
problems facing the Nation.
    Mr. Chairman, this concludes my statement. I will be glad to answer 
any questions the Committee may have.
                                 ______
                                 

Prepared Statement of Susan E. Offutt, Administrator, Economic Research 
                                Service

    Mr. Chairman and members of the Committee, I am pleased to have the 
opportunity to present the proposed fiscal year 2007 budget for the 
Economic Research Service (ERS).

                                MISSION

    The Economic Research Service informs and enhances public and 
private decision making on economic and policy issues related to 
agriculture, food, the environment, and rural development.

                                 BUDGET

    The agency's request for 2007 is $82.5 million, which includes 
increases for two initiatives and pay costs. The agency is requesting 
an increase of $5 million to develop an agricultural and rural 
development information system that will monitor the changing economic 
health and well-being of farm and non-farm households in rural areas; 
and an increase of $1.6 million to continue the development of an 
integrated and comprehensive data and analysis framework of the food 
system beyond the farm-gate that will provide a basis for 
understanding, monitoring, tracking, and identifying changes in the 
food supply and in consumption patterns.

         AGRICULTURAL AND RURAL DEVELOPMENT INFORMATION SYSTEM

    In fiscal year 2007, ERS is requesting an increase of $5.0 million 
to fund the Agricultural and Rural Development Information System, to 
implement a comprehensive data collection and research program that 
will monitor the changing economic well-being of farm and non-farm 
households in rural areas. This initiative supports collection of 
survey data from farm and non-farm households over time to analyze the 
effects of policy adjustments in rural areas facing specific 
development issues, such as persistent poverty or substantial out 
migration. Data and analysis from this Agricultural and Rural 
Development Information System will be critical to identifying the most 
successful economic development strategies for different types of rural 
areas, the adjustments that farm households and rural communities make 
in response to agricultural policy changes, and the importance of the 
linkages between farm and non-farm economies in assessing farm and 
rural policy effects. The initiative also supplies the better and more 
useful information on the status of farm, market, and rural economics 
that USDA partners and customers seek.
    The $5.0 million total amount requested would be allocated to four 
specific sets of activities. The first, collecting longitudinal data 
from rural households, will involve developing and supporting an 
integrated set of surveys, which include core components to track 
critical indicators over time as well as modules on specific topics 
related to emerging policy issues. The second, collecting longitudinal 
data from farm households, will build on USDA's Agricultural Resource 
Management Survey (ARMS). The third will be to expand public internet 
access to ERS agricultural and rural data. A portion of the initiative 
funds would be devoted to providing State and local governments, trade 
and commodity associations, other interest groups, and the public, 
easy, interactive access to a new Agricultural and Rural Development 
System. The fourth is to assure research capacity to analyze, interpret 
and apply new agricultural and rural development information.
    Data are not currently available to allow analysts to distinguish 
the effects of rural development, farm, and agricultural resource 
programs from one another, and from the myriad of other forces 
affecting the economic well-being of farm and rural households. The 
Census Bureau's Census of the Population provides information on rural 
households within the context of their local area, but it does not 
include a longitudinal component that allows assessment of individual 
household response to changing policies and programs over time. The 
American Community Survey will, in time, provide social and economic 
data at the census tract level, but it does not use a longitudinal 
framework to understand individual household change. Other data 
sources, such as the Survey of Income and Program Participation, have a 
longitudinal component but do not have sufficient detail or statistical 
reliability to allow analyses of local rural area household response 
for specific areas facing specific development challenges.

                  CONSUMER DATA AND INFORMATION SYSTEM

    In fiscal year 2007, ERS is requesting an increase of $1.6 million 
to augment the Consumer Data and Information System that was provided 
funds in fiscal year 2006. New funding will be used to obtain data on 
consumption of food away from home to improve the understanding of how 
individuals make food choices. A major change in U.S. food consumption 
patterns in the last several decades has been the increasing popularity 
of foods consumed away from home. The importance of data on food-away-
home consumption for understanding food choices and nutritional 
outcomes is growing, as Americans now spend about 50 percent of their 
total food budget on food-away-from-home in 2004, up from 27 percent in 
1962.
    The additional funding requested this year supports ERS long-term 
goals and objectives for research on food choices, including:
  --Identifying differences in consumption of food away from home by 
        region and customer/household demographics (such as income, 
        education level, age, and presence of children in the 
        household);
  --Measuring the effect of prices of food away from home on food 
        choices, by region and customer/household demographics;
  --Assessing how low-income households differ in the away-from-home 
        food choices they make and the prices that they pay;
  --Assessing how households' away-from-home food choices change 
        through consumers' life cycle. For example, households with 
        young children tend to favor fast food restaurants over sit-
        down restaurants. Older Americans are known to eat out less 
        frequently than young adults; and
  --Examining the extent by which convenience of eating away from home 
        is impact American's food choices.
    USDA officials require timely information on food prices, product 
movements, and potential consumer reactions to events to effectively 
make commodity support decisions, provide nutrition education, and 
ensure the safety of food. The components of the Consumer Data and 
Information System already implemented with prior years' funding will 
provide USDA with current food prices, sales volumes, food purchases, a 
database on consumer characteristics and purchasing behavior, and the 
ability to quickly survey consumer reactions, knowledge, attitudes, and 
awareness on a host of issues. For example, we will be able to 
determine how consumers respond to USDA's nutrition information 
efforts, such as the Food Guide Pyramid and recommendations to increase 
consumption of whole grains.
    The Consumer Data and Information System has three major components 
providing intelligence across and within the food and agricultural 
complex. The Food Market Surveillance Report will provide policy 
officials with the most up-to-date information on food prices, 
purchases, and sales data publicly or privately available. This 
information will improve USDA decision-making and provide data for 
understanding consumer purchasing behaviors.
    The Rapid Consumer Response Module will provide real-time 
information on consumer reactions to unforeseen events and disruptions, 
current market events, and government policies. The module question 
will be asked of members of several proprietary consumer data panels 
currently maintained by private vendors. The Rapid Consumer Response 
Survey is awaiting OMB approval.
    Using fiscal year 2005 and fiscal year 2006 funding, ERS has 
continued development of the third major component of the Consumer Data 
and Information System, the Flexible Consumer Behavior Survey (FCBS). 
This survey will complement data from the National Health and Nutrition 
Examination Survey (NHANES) by providing information needed to assess 
linkages among individuals' knowledge and attitudes about food safety 
and dietary guidance, their economic circumstances, their food-choice 
decisions, and their nutrient intakes. Combining the NHANES with this 
new survey allows analysis of how individual behavior, information, and 
economic factors affect food choices, dietary status, and health 
outcomes. The FCBS is scheduled to appear on the 2007-2008 NHANES with 
research data available in 2009.

                ERS CONTRIBUTIONS TO MISSION AREA GOALS

    ERS supports the six USDA strategic goals to: (1) enhance 
international competitiveness of American agriculture; (2) enhance the 
competitiveness and sustainability of rural and farm economies; (3) 
support increased economic opportunities and improved quality of life 
in rural America; (4) enhance protection and safety of the Nation's 
agriculture and food supply; (5) improve the Nation's nutrition and 
health; and (6) protect and enhance the Nation's natural resource base 
and environment.
Goal 1: Enhanced International Competitiveness of American Agriculture
    ERS helps the U.S. food and agriculture sector adapt to changing 
market structures in rapidly globalizing, consumer-driven markets by 
analyzing the linkages between domestic and global food and commodity 
markets, as well as the implications of alternative domestic and 
international policies on competitiveness. ERS economists analyze 
factors that drive change in the structure and performance of domestic 
and global food and agriculture markets; provide economic assessment of 
structural change and competition in the agricultural sector; analyze 
the price impacts of evolving structural changes in food retailing; 
analyze how international trade agreements and foreign trade 
restrictions affect U.S. agricultural production, exports, imports, and 
income; and provide economic analyses that determine how fundamental 
commodity market relationships are adjusting to changing trade, 
domestic policy, and structural conditions. ERS will continue to work 
closely with the World Agricultural Outlook Board (WAOB) and USDA 
agencies to provide short- and long-term projections of United States 
and world agricultural production, consumption, and trade.
    In 2006, several initiatives are increasing the timeliness and 
availability of data and information, while simultaneously saving staff 
time. We are increasing the transparency of our commodity projections 
processes, and automating calculations where possible, and embedding 
them within databases. Our goals are to: (1) make the work transparent, 
inviting critique from both internal and external users; (2) transition 
to fewer outlook analysts as retirements near, and (3) increase 
timeliness in the release of data. Our redesigned feedgrains database 
provides a wider range of data with automatic updates from our ongoing 
commodity analysis reports. A new database on base acres allows users 
to download and map county-level farm program and planted acreage data 
for nine major program crops.
    Large developing countries--such as China, India and Brazil--are 
becoming more important to U.S. agriculture. China is one of the top 10 
markets for U.S. agricultural exports and is the world's largest 
producer and consumer of a range of commodities. ERS research continues 
to examine key factors that will shape the size and pattern of China's 
agricultural trade: water scarcity, implementation of WTO commitments, 
changes in Chinese consumers' demand for food, and new directions in 
agricultural policy and investment in agriculture and rural areas. ERS' 
China briefing room on our website provides access to a new queriable 
Agricultural and Economic database containing information on 
agricultural production, food consumption, price indices, macroeconomic 
information and industrial output. India's strong economic growth and 
rising middle class are creating new markets for agricultural products. 
ERS research examines the policy environment and prospects for growth 
in key commodity markets, such as cotton, oilseeds, poultry and apples.
    Food price determination is increasingly important for 
understanding domestic and international markets and opportunities to 
promote U.S. agriculture. ERS food markets research focuses on 
enhancing knowledge and understanding of food prices, both their 
objective measurement and how they are set by firms at different stages 
of the food system. ERS has begun to use micro-level household and 
store scanner data to measure the impact of changing store formats on 
food prices in order to focus on the changing economic environment and 
how these changes could affect customers' retail food purchasing 
habits.
    ERS will continue to work closely with the Foreign Agricultural 
Service (FAS) and the Office of the U.S. Trade Representative to ensure 
that ongoing negotiations on the Doha Development Agenda under the 
auspices of the World Trade Organization (WTO) and regional trade 
agreements are successful and advantageous for U.S. agriculture. The 
demands of developing countries for sharp cuts in domestic agricultural 
policies, along with exemptions that would limit the opening of their 
markets, serve as stumbling blocks to reaching an agreement in current 
WTO negotiations. ERS has developed new analytic tools, including its 
PEATSIM (Partial Equlibrium Trade Simulation) modeling framework, to 
provide more detailed analysis of the global benefits of trade 
liberalization. It has also completed studies of important issues 
affecting developing countries, including preferential trade agreements 
and forces shaping global cotton markets after the end of the 
Multifiber arrangement.
Goal 2: Enhanced Competitiveness and Sustainability of Rural and Farm 
        Economies
    ERS provides assessment of the effects of farm policy on commodity 
markets and the food and agricultural sector. For example, the 2005 
USDA report, The 20th Century Transformation of U.S. Agriculture and 
Farm Policy provides perspective on the long-term forces that have 
helped shape agricultural and rural life and considers the extent to 
which farm policy design has or has not kept pace with the continuing 
transformation of American agriculture. ERS is also preparing a series 
of nine commodity background studies to augment information available 
to policy decision makers.
    Changes in U.S. farm structure can have wide-ranging impacts on 
agricultural productivity, opportunities for farm operators, and the 
distribution of benefits from government programs. ERS research focuses 
on two elements of change: the widespread shift of production to larger 
farms, and the growing use of formal contracts between farmers and 
buyers, used to guide farm production and marketing decisions. An 
updated Family Farm report will be released in 2006, as well as an 
Economic Brief detailing the impact of structural change on the 
distribution of Federal commodity payments.
    ERS recently released a report, using 2003 data, on the growing use 
of agricultural contracts (Agricultural Contracting Update: Contracts 
in 2003). For producers, contracting can reduce income risks of price 
and production variability, ensure market access, and provide higher 
returns for differentiated farm products. For processors and other 
buyers, vertical coordination through contracting is a way to ensure 
the flow of products, obtain differentiated products, ensure 
traceability for health concerns, and guarantee certain methods of 
production. But widespread contract use can also limit the efficiency 
of cash markets, and under certain circumstances contracts can allow 
buyers to extend market power. A September, 2005 ERS report (Did the 
Mandatory Requirement Aid the Market? Impact of the Livestock Mandatory 
Reporting Act) examined the effects of expanded price reporting 
requirements on contract and cash markets for cattle.
    Current research is examining the effects of contract use in hog, 
dairy, and poultry sectors. For example, ERS research has found that 
marketing contracts between packers and producers can facilitate 
industry efforts to address pork quality needs by reducing measuring 
costs, controlling quality attributes that are difficult to measure, 
facilitating adaptations to changing quality standards, and reducing 
transaction costs associated with relationship-specific investments in 
branding programs.
    Organic farming continues to be one of the fastest growing segments 
of U.S. agriculture and can potentially enhance environmental 
protection, as well as economic opportunities for producers. 
Appropriations received in fiscal year 2005 and fiscal year 2006 will 
enable ERS to continue to explore in greater depth the market for 
organic products and the performance of organic farm sectors. In 2005, 
ERS hosted an interagency USDA workshop on organic agriculture which 
assessed producer options and obstacles in adopting organic farming 
systems, and evaluated new developments in organic marketing and 
technology. Also in 2005, ERS began adding a targeted sample of organic 
producers to the USDA Agricultural Resources Management Survey (ARMS). 
The first of these enhanced ARMS surveys, targeting organic dairy 
producers, will be administered in 2006, and will be followed by an 
over sample of organic soybean producers in the subsequent ARMS survey. 
Survey data for both organic and conventional operations will enable, 
for the first time, a side-by-side comparison of the profitability, 
productivity, energy efficiency, and other economic characteristics of 
these farms.
    The Agricultural Resource Management Survey (ARMS) helps support 
important estimates, analyses, and research produced by ERS. Two key 
uses of ARMS are to underpin estimates of income and value-added that 
are provided to the Department of Commerce for use in preparing the 
U.S. national accounts, and to produce estimates of income for 
different types of commercial-size farm businesses, such as those that 
produce program crop commodities, that were required by the Congress in 
the 2002 Farm Bill. Data from ARMS are used in a collaborative effort 
between ERS and the National Agricultural Statistics Service to measure 
annual production expenses in U.S. agriculture.
    A special emphasis of ARMS in 2006 is to measure use of purchase 
practices and strategies by farm managers in acquiring production 
inputs, including energy-based inputs such as fertilizers, chemicals, 
and fuels. These data will be used to help provide a broader 
understanding of how changes in inputs costs affect different types of 
farms and areas of the country. Additional funding provided for ARMS in 
fiscal year 2003 was used to increase the number of farm businesses 
included in the ARMS sample and to more effectively disseminate annual 
survey results to data users. In the 2005 calendar year survey, now in 
the field to be enumerated, about 34,000 farmers will be interviewed 
nationwide. The larger sample for ARMS gives us greater confidence in 
income and financial measures produced for the and geographic areas, 
and for types and sizes of farms engaged in U.S. agriculture. ERS 
continues to focus on improving the dissemination of ARMS data so that 
annual survey results are more readily available and easily accessible 
to data users, while assuring that sensitive data are not disclosed. 
The web-based, secure ARMS data retrieval and summarization tool, 
implement in late 2004, has now been through a successful update with 
release of the latest annual data in November, 2005. About 700 unique 
data users access ARMS results through this web-based outlet each 
month.
Goal 3: Support Increased Economic Opportunities and Improved Quality 
        of Life in Rural America
    ERS assesses rural needs by examining the changing demographic, 
employment, education, income, and housing patterns of rural areas. 
Data from the 2000 Census and other Federal information sources provide 
the most up-to-date information on the current conditions and trends 
affecting rural areas, and provide the factual base for rural 
development program initiatives. In 2006, the agency is continuing its 
series of publications that report current indicators of social and 
economic conditions in rural areas for use in developing policies and 
programs to assist rural people and their communities. Rural America at 
a Glance: 2006 and Rural Employment at a Glance, designed for a policy 
audience, will summarize the most current information on these topics.
    ERS research focuses on the determinants and consequences of 
critical themes in contemporary rural America, including changing 
population composition and industrial restructuring. One emerging rural 
population trend is baby boomer migration as they retire. The oldest 
members of the baby boom cohort are now 60 years old, just entering the 
stage in their lives when they tend to migrate for retirement. The 
growth of baby boomer populations in rural and small town America 
depends on demographic, natural amenity, housing market, urban 
proximity, and economic factors affecting their migration flows. ERS 
will publish a report in 2006 analyzing the impact of these factors 
during the 1990s, which will help policymakers and planners better 
anticipate the likely increase in migration of baby boomers into rural 
areas over the next 20 years.
    ERS is examining the effects of industrial change on the geography 
of low-skill employment. Today many rural labor market areas find 
themselves in the midst of industrial transformation as regional, 
national, and global forces reshape the geography of economic activity. 
ERS research is addressing how the transformation of rural America from 
an economy based on manufacturing and extraction to one based on 
services and amenities has changed the prospects for workers with 
limited skills and education. A recent ERS study analyzed trends in 
rural low-skill employment in the 1990s and identified the industrial 
and occupational components of this change. The findings suggest that 
investment in education and training, rather than industrial targeting, 
is a more effective approach to raising skill levels in the rural 
economy. In 2006, ERS will publish a second report looking at the 
regional variation in the rural shift toward a service economy, and in 
the effects of this shift on low-skill labor demand. The expected 
result is a better understanding of how global economic forces, 
including broader trade liberalization and rapid technological change, 
can affect rural communities and how Federal and local responses can 
assist in the resulting restructuring.
Goal 4: Enhance Protection and Safety of the Nation's Agriculture and 
        Food Supply
    In response to increased risks to the Nation's agriculture and food 
supply due to bio-terrorism, ERS embarked on an ambitious project known 
as Geo-Spatial Economic Analysis (GSEA). The GSEA system merges an 
extensive Geographic Information System with the analytical expertise 
of ERS's economists. The Security Analysis System for U.S. Agriculture 
(SAS-USA), which is being updated and enhanced in 2006 under a 
cooperative agreement with the Massachusetts Institute of Technology, 
systematically ties all food supply processes from farm production, 
food manufacturing, distribution of food products, to food consumption 
in every region of the country and other non-agricultural sectors, such 
as energy and services. The GSEA system is designed to serve as a 
platform for collaborative analysis across agencies in USDA and with 
appropriate groups in FDA and the Department of Homeland Security 
(DHS). These capabilities mean that emergencies can be managed 
efficiently and expeditiously by assessing vulnerabilities and 
predicting outcomes. The first simulation system prototype will 
completed this year as part of a joint project with the Army Corps of 
Engineers, the Tennessee Valley Authority, and Oak Ridge National Lab 
to improve our ability to measure the economic consequences in the food 
and agricultural industries caused by transportation disruptions. In 
support of broad USDA initiatives such as the National Plant Disease 
Recovery System, the GSEA system will serve as a tool to improve 
economic assessments of crop and animal disease outbreaks using 
alternative control strategies.
    As part of several national homeland security activities, ERS 
continues to develop and expand the capacity to assess the impact of 
accidental and intentional disruptions to our food and agricultural 
system. This year ERS will provide access to the GIS platform for 
selected staff in USDA and other government agencies. The GIS platform 
allows analysts to quickly manage the county-level crop, livestock, 
demographic and economic data needed to provide scope and context in 
the event of an emergency. ERS staff are prepared to conduct the 
complex economic analysis needed to assess the cost of securing our 
food supply, which includes protecting production, processing, 
distribution, and consumption of food and agricultural products. ERS is 
working with the Homeland Security Office (HSO), Office of Risk 
Assessment and Cost Benefit Analysis (ORACBA), Animal and Plant Health 
Inspection Service (APHIS), and the Food and Drug Administration (FDA) 
to improve tools for the analysis of disruption and disease mitigation 
strategies that require both sound biological and economic analysis.
    ERS has become well-known for its pioneering estimates of the 
societal costs associated with foodborne illnesses due to E. coli and 
other known pathogens. ERS and researchers from Harvard and the 
University of Wyoming are collaborating to develop new methodologies 
for more accurately eliciting and measuring the value of reductions in 
health risk associated with foodborne pathogens. This project applies 
state-of-the-art valuation methodologies to measure the benefits of 
improving food safety. A survey conducted in 2004 presented respondents 
with information on duration and severity of foodborne illness and 
asked respondents how much they would be willing to pay for a food with 
lower risk of foodborne illness. Another survey conducted in 2005 
provided respondents with information about the likelihood of foodborne 
illnesses and asked them about their food consumption and food safety 
practices. Analysts will explore the linkage between food choices and 
food safety information using the information obtained by this survey.
    In the event that unsafe food enters the marketplace, public health 
officials and food safety regulators ultimately rely on records 
maintained by private industry and retailers to track the manufacture 
and distribution of that food. Privately maintained traceability 
bookkeeping records provide investigators with information on the 
extent and distribution of a contaminated product--and on how to remove 
such a product from distribution channels efficiently. The strength of 
private traceability systems and the readiness of the food industry to 
track and recall a contaminated product is important for safeguarding 
the Nation's food supply. In 2006, ERS will continue work with 
agricultural economists from the University of Arkansas to investigate 
how various food companies in different industries handle product 
recalls, the operation of designated recall teams, and the frequency 
and results of mock recalls. The research will examine the type and 
scope of information collected from auditing and certification 
activities, characteristics of firms with recall practices, and the 
proportion of firms in given sectors participating in auditing and 
certification activities.
Goal 5: Improve the Nation's Nutrition and Health
    ERS research has a major focus on the economic dimensions of 
obesity, including understanding the societal costs of obesity, 
explaining obesity trends among different demographic and income 
groups, and assessing the benefits and costs of alternative options for 
influencing Americans' food choices and dietary behaviors, including 
roles for nutrition education and Federal food and nutrition assistance 
programs. ERS investigated consumers' likely response to a tax on snack 
foods a public health issues generated by rising U.S. obesity rates. 
Findings suggest that the impacts on dietary quality from the tax are 
small and negligible at the lower tax rates. If taxes were earmarked 
for funding information programs, as several proponents suggest, taxes 
would generate a revenue stream the public health community could use 
for nutrition education.
    In 2006, ERS is investigating the factors that influence consumers' 
food choices when eating away from home using the NHANES data. This 
research will focus on discovering consumer preferences, such as 
convenience and entertainment that compete with healthy eating. 
Information about these factors help social marketers design effective 
campaigns to influence consumers' away from home eating behavior. 
Whether the poor pay more for food than other income groups matters to 
their nutrition and health; therefore, the operating costs of the 
stores at which they shop matter. An ERS study found overall operating 
costs of stores with high food stamp redemption rates are not 
significantly different from those of stores with moderate redemption 
rates. If the poor do pay more, factors other than operating costs are 
likely to be the reason.
    ERS is currently conducting a study of the economic factors 
affecting the cost of infant formula and rebates issued to the Special 
Supplemental Nutrition Program for Women, Infants, and Children Program 
(WIC). Over half of all infant formula sold in the United States is 
purchased through USDA's Special Supplemental Nutrition Program for 
Women, Infants, and Children (WIC). In fiscal year 2004, WIC State 
agencies obtained $1.6 billion in rebates from infant formula 
manufacturers for formula purchased through WIC. In recent years, some 
States awarding new infant formula contracts have seen a marked 
decrease in the size of the rebate. As a result, concern has been 
raised that the cost to the States of providing infant formula to WIC 
participants is increasing, a result that if sustained, could have far-
reaching negative implications for the WIC program A final report will 
be released in 2006.
    ERS continues to monitor U.S. households' food security--their 
access to enough food for active, healthy living--and the extent and 
severity of food insecurity. ERS funds a national food security survey, 
conducted by the Census Bureau, and reports annually on the food 
security of the Nation's households. The Committee on National 
Statistics (CNSTAT) of the National Academy of Sciences will complete 
its review, funded by ERS and USDA's Food and Nutrition Service, of the 
methods and procedures that underlie the current measures of food 
security. ERS will lead USDA's work to enhance and strengthen these 
methods for monitoring, evaluation, and related research purposes 
pursuant to CNSTAT findings and recommendations.
    As part of our effort to improve the timeliness and quality of the 
Department's food consumption data, in 2003 ERS launched an interagency 
effort to develop a proposal for an external review of USDA's food 
consumption data needs and gaps. Enhancements to the food consumption 
data infrastructure are critical to understanding and addressing many 
market and policy issues in the Department. The interagency effort led 
to the funding of a review by the National Research Council's Committee 
on National Statistics. The Committee issued its final report in 2005, 
which included several recommendations. An interagency working group 
has been established to take responsibility for the systematic 
development and use of diet and food consumption data to address policy 
and research questions of the Federal Government, as recommended by the 
Committee. ERS is participating in this working group, which will 
consider priorities and methods for obtaining additional food and 
nutrition-related data in the National Health and Nutrition Examination 
Survey. As recommended by the committee, ERS is also evaluating the use 
of data on food purchases, prices, and consumption from proprietary 
retail scanner systems, household scanner panels, and household 
consumption surveys. This evaluation will examine the quality of the 
data, consider ways to reduce the cost of access to the data, and 
determine the highest priority applications for the information.
Goal 6: Protect and Enhance the Nation's Natural Resource Base and 
        Environment
    ERS continues to provide comprehensive information to public and 
private users on programs in the Conservation Title of the Farm 
Security and Rural Investment Act of 2002. The ERS report, Flexible 
Conservation Measures on Working Land: What Challenges Lie Ahead? 
released in 2005, deals with the complexities associated with the 
design of working-land payment programs. Program design and 
implementation will largely determine the extent to which environmental 
goals are achieved, and whether they are achieved cost-effectively. 
Empirical analysis also shows how the environment, commodity prices, 
and farm incomes could be affected by alternative designs.
    In the course of the production of food and fiber, agriculture also 
produces many by-products (positive externalities) such as open space, 
recreational amenities, scenic views, groundwater recharge, and 
wildlife habitat. Historically, the standard policy practice has been 
to address each externality through a separate policy instrument. 
However, when the transaction costs of administering policies (e.g., 
information gathering, contract formulation, enforcement) are positive, 
using one instrument to address each externality or objective may not 
be optimal. Using an empirical analysis focusing on the CRP, the ERS 
report The Multiple Objectives of Agri-Environmental Policy, to be 
released in 2006, explores the extent to which environmental attributes 
may be jointly produced, e.g., efforts to reduce soil erosion may also 
reduce nutrient runoff and increase soil carbon, with implications for 
simultaneously targeting multiple environmental and cost objectives.
    Furthermore, applying environmental policies in an uncoordinated 
fashion fails to account for interactions among environmental mediums 
(i.e., air, land, water). This can result in conflicting policies, in 
that addressing one environmental problem can make another worse. The 
ERS report, Manure Management for Multimedia Environmental Improvement: 
A Comparison of Single Media versus Multi-Media Policy Optimization, 
released in 2005, provides a concrete example of the tradeoffs of 
alternately and simultaneously meeting air and water quality 
objectives, in terms of farmers' costs, production decisions, and 
environmental indicators, by focusing on livestock and poultry 
production. Among the results in the report is that, if enacted, 
restrictions on ammonia emissions from concentrated animal feeding 
operations could increase the cost of meeting Clean Water Act 
regulations for spreading manure.
    In 2006, ERS will release an update of its popular Agricultural 
Resources and Environmental Indicators report, which describes trends 
in resources used in and affected by agricultural production, as well 
as the economic conditions and policies that influence agricultural 
resource use and its environmental impacts. Each chapter provides a 
concise overview of a specific topic with links to sources of 
additional information.
    In fiscal year 2005, ERS continued the Program of Research on the 
Economics of Invasive Species Management (PREISM) that was initiated in 
fiscal year 2003. PREISM supports economic research and the development 
of decision support tools that have direct implications for USDA 
policies and programs for protection from, control/management of, 
regulation concerning, or trade policy relating to invasive species. 
Program priorities have been selected through extensive consultation 
with APHIS, the Office of Budget and Program Analysis (OBPA) and other 
agencies with responsibility for program management. In 2004 and 2005, 
APHIS used an ERS-supplied pest ranking decision tool to determine 
which pests would be on its Federal-State Cooperative Agricultural Pest 
Survey list, making transparent the basis for selecting the pests for 
which State cooperators could receive targeted pest surveillance and 
detections funds. The recent and rapid spread of the pathogen, soybean 
rust (SBR), in South America prompted ERS, in April 2004, to publish a 
study of the potential economic impacts and policy impacts of its 
windborne entry into the United States, Economic and Policy 
Implications of Wind-Borne Entry of Asian Soybean Rust into the United 
States. USDA used this study to refine rapid response strategies to SBR 
entry, which was confirmed by APHIS in November 2004. ERS built on this 
work to examine the value to producers of USDA's coordinated framework 
to detect and report the presence of Asian soybean rust in different 
producing areas in The Value of Plant Disease Early-Warning 
Information: USDA's Soybean Rust Coordinated Framework, to be published 
in 2006.
    In addition to ERS-led analyses of invasive species issues, PREISM 
has allocated about $3.6 million in extramural research cooperative 
agreements since fiscal year 2003 through a peer-reviewed competitive 
process. These agreements and their accomplishments through 2005 are 
documented in a new report, Program of Research on the Economics of 
Invasive Species Management: Fiscal 2003-2005 Activities. PREISM-funded 
projects are developing analytical tools to address Federal and State 
decision issues such as trade regulation, design and choice of 
exclusion policies, and the selection of options or strategies to 
manage plants pests and animal diseases. For example, researchers from 
Virginia Polytechnic Institute developed a framework and assisted APHIS 
in analyzing the impacts of a trade regulation to allow imports of 
avocados from approved orchards and packers in the state of Michoacan, 
Mexico. The economic model, analysis, and responses to public comments 
were published along with the new avocado regulation in the Federal 
Register (Nov. 30, 2004). To share and review progress made by 
cooperators who received PREISM funding, and to provide a forum for 
dialogue on economic issues associated with agricultural invasive 
species, ERS organized workshops in 2004 and 2005, each with about 100 
attendees from academia and Federal agencies. Among the projects funded 
in fiscal year 2005 were studies of the value of animal traceability 
systems is managing contagious animal diseases, the economic effects of 
phytosanitary barriers to U.S. seed exports, and the benefits and costs 
of policy options to manage risks associated with commercial imports of 
non-native nursery stock.

                 CUSTOMERS, PARTNERS, AND STAKEHOLDERS

    ERS shapes its program and products principally to serve key 
decision-makers who routinely make or influence public policy and 
program decisions. This clientele includes White House and USDA policy 
officials and program administrators/managers; the U.S. Congress; other 
Federal agencies, and State and local government officials; and 
domestic and international environmental, consumer, and other public 
organizations, including farm and industry groups interested in public 
policy issues.
    ERS depends heavily on working relationships with other 
organizations and individuals to accomplish its mission. Key partners 
include: NASS for primary data collection; universities for research 
collaboration; the media as disseminators of ERS analyses; and other 
government agencies and departments for data information and services. 
Examples of successful partnerships with other agencies include 
conservation policy design (NRCS), creating a component to the National 
Health and Nutrition Examination Survey (FNS, Center for Policy and 
Promotion, along with the Department of Health and Human Services), and 
the economics of invasive species management (APHIS). ERS augments its 
research capacity with 93 cooperative agreements, 14 research grants, 
and 26 Memorandums of Understanding (MOUs).

                            CLOSING REMARKS

    I appreciate the support that this Committee has given ERS in the 
past and look forward to continue working with you and your staff to 
ensure that ERS makes the most effective and appropriate use of public 
resources. Thank you.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Bennett. Thank you. Thank you all for your 
testimony.
    We will have some written questions for you, but we 
appreciate your service and appreciate your appearing here 
today.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

            Questions Submitted by Senator Robert F. Bennett

                 CAPITAL SECURITY COST SHARING PROGRAM

    Question. The Department of State requires all agencies with an 
overseas presence in U.S. diplomatic facilities to pay a share of costs 
through the Capital Security Cost Sharing Program. The fiscal year 2007 
budget request for the Foreign Agricultural Service (FAS) includes $2.9 
million for this program. What assurances have you received from the 
State Department that FAS is paying for space that they actually 
occupy? Is the agency currently paying for space in facilities where 
they do not have a presence?
    Answer. The State Department has not provided any specific 
assurances that FAS will actually occupy the space for which we are 
billed; however, they are working very closely with the affected 
agencies. Currently, the State Department depends on several databases 
and a data call issued to Posts to collect personnel data. Once the 
data is collected, FAS reviews the results and verifies each position. 
If the State Department numbers differ from ours, we will file an 
appeal.
    The fiscal year 2007 Capital Security Cost Sharing Program is 
estimated to require an additional $2.9 million over the fiscal year 
2006 costs for a total of $6 million.

                 RISK MANAGEMENT AGENCY--CROP INSURANCE

    Question. The fiscal year 2007 budget request includes two new 
legislative proposals for the crop insurance program. One proposal 
would tie farm payments to the purchase of crop insurance protection at 
50 percent or higher of their expected market value. The other proposal 
would allow for a new participation fee that would generate funding for 
information technology improvements. Please explain both legislative 
proposals.
    Answer. The first legislative proposal would provide savings to 
reduce the Federal deficit while increasing participation in the 
Federal crop insurance program. The proposal contains several key 
features that, in combination, are expected to save about $140 million 
on an annual basis. The proposal is identical to last year's deficit 
reduction proposal which was not enacted by Congress. The proposal's 
specifics are summarized below.
  --The proposal would require any farmer that receives a Federal 
        commodity payment for his/her crop to buy crop insurance at a 
        minimum coverage level of 50/100. This is intended to ensure 
        farmers have adequate protection in the event of a natural 
        disaster without resorting to ad hoc disaster assistance.
  --The proposal reduces premium subsidies by stated percentages points 
        for buy-up coverage levels.
  --The proposal modifies the administrative fee on CAT to equal the 
        greater of $100 or 25 percent of the imputed CAT premium, 
        subject to a maximum fee of $5,000. This change would make the 
        administrative fee more equitable between small and large 
        producers.
  --The proposal would also lower the imputed CAT premium rate by 25 
        percent.
  --Finally, the proposal reduces the A&O reimbursement on all buy-up 
        coverage by 2 percentage points and increases the net book 
        quota share to 22 percent, but provides a ceding commission to 
        the companies of 2 percent.
    The second proposal is to provide the authorization for a 
participation fee. The participation fee would be used to help fund the 
modernization and maintenance of the Risk Management Agency's computer 
systems. The proposed fee would initially be used, beginning in 2008, 
to fund modernization of the existing information technology (IT) 
systems and would supplement the annual appropriation provided by 
Congress. Subsequently, the fee would be shifted to maintenance and 
would be expected to reduce the annual appropriation. The participation 
fee would be charged to insurance companies participating in the 
Federal crop insurance program; based on a rate of about one-half cent 
per dollar of premium sold. Because it is the companies that will most 
benefit from better, more advanced computer systems, it is reasonable 
that they contribute to the modernization and maintenance of these 
systems. The fee is expected to generate an amount not to exceed $15 
million annually.
    Question. Will the implementation of the proposal to tie payments 
to higher levels of crop insurance eliminate the need for ad hoc 
disaster assistance to farmers?
    Answer. Much of the demand for ad hoc disaster assistance is 
believed to be driven by producers who do not purchase crop insurance, 
or who purchase catastrophic (CAT) coverage. CAT coverage provides a 
maximum indemnity of only 27.5 percent in the event of a total loss. 
The low coverage level for CAT has produced significant pressure for 
additional relief. Linking eligibility for farm program payments to the 
purchase of buy-up levels of crop insurance should mitigate some of the 
demand for ad hoc disaster assistance as a much larger percentage of 
the losses experienced by producers will be covered by the Federal crop 
insurance program.
    Question. Also, in regard to the one half cent per dollar on 
premiums, when was the last time this type service fee was increased or 
has the cost of participating in the program been set for a number of 
years?
    Answer. The fiscal year 2007 budget proposes a ``new'' 
participation fee designed to help pay for the modernization and 
maintenance of the Risk Management Agency's computer systems. The 
participation fee to be paid by insurance companies, will generate 
funds estimated to be consistent with similar past Agency budget 
requests. The participation fee will initially supplement the existing 
appropriation to support improved IT systems for the many new programs 
and program enhancements occurring within the Federal crop insurance 
program. Modernization is expected to take about 2 years to complete, 
after which the participation fee will be available to reduce the need 
for appropriated funding. The Federal crop insurance program has seen 
substantial growth over the past several years, yet the Agency's IT 
budget has remained constant. Modernization of the RMA IT system is 
critical in light of the existing systems reaching the end of their 
expected useful life. The modernization system will provide substantial 
benefits to the participation insurance companies and will improve 
RMA's ability to comply with Congressional mandates regarding data 
mining and data reconciliation/data sharing with the Farm Service 
Agency.

                   CODEX AND TRADE CAPACITY BUILDING

    Question. USDA has publicly stated that the vitality and science 
based independence of the United Nations standard setting organizations 
under FAO, specifically Codex Alimentarius and the International Plant 
Protection Convention (IPPC) are critical to advance U.S. agricultural 
trade objectives. A strong American policy presence within these 
organizations is important to effectively represent U.S. agriculture 
interests. Yet, concern has been raised by the U.S. industry that the 
EU policy personnel, and consequently the EU influence, in those 
organizations is far greater than the United States. For example, I 
understand that of the 100 Associate Professional Officers (APOs) at 
FAO, only one is from the United States. Can you speak to this issue 
within the context of your $1.5 million budget request for trade 
capacity building and explain how the requested budget is intended to 
address this stated imbalance.
    Answer. It is critical to place Americans in key positions within 
international bodies like the CODEX and IPPC where they can influence 
policies in crucial areas such as standard-setting. These bodies are 
essential for implementing the Doha Development commitments. The APO 
program is a useful tool for placing more Americans in international 
organizations. Currently, the Netherlands funds about 30 APOs, Germany 
11, Italy 9, and Spain 8. The advancement of science-based, decision-
making practices in agricultural trade is a well known U.S. priority. 
The APO program, operating within organizations like FAO, not only 
helps to increase U.S. influence in these bodies, but it also assists 
developing member countries to build capacity to better participate in 
standard-setting bodies, comply with international trade agreements, 
and engage as full partners in global trade.
    Part of the $1.5 million requested would be used to expand the APO 
program and place at least one APO in the IPPC or CODEX secretariats, 
where the United States currently has no representation. This would not 
only allow the United States to quickly place competent Americans in 
these increasingly important secretariats, but past experience has 
shown that the APO program can also leverage additional resources from 
the international organizations themselves as well as from other member 
countries. For example, USDA provided $500,000 in funding for two APO's 
to develop a pilot International Food Safety, Animal and Plant Health 
portal at FAO. This initial funding has leveraged additional funding 
from FAO, the Netherlands, Norway, and the Standards and Trade 
Development Facility. The portal was launched at the 2nd Global Forum 
of Food Safety Regulators in Bangkok in 2004. It provides a single 
electronic access point for official information which increases 
transparency in SPS measures and improves national laws and regulations 
across the sectors of food and animal and plant health.
    Another way USDA influences CODEX is through leadership on the 
CODEX Commission as well as chairing and hosting various Committee 
meetings. Ms. Karen Hulebak of USDA's Food Safety Inspection Service 
(FSIS) was elected this year to serve as a Codex Commission vice-Chair. 
Also, the U.S. Codex Office hosts meetings for three Codex Committees--
the committee on Food Hygiene, which FSIS also chairs; Committee on 
Residues of Veterinary Drugs and Food; and the Committee on Processed 
Fruits and Vegetables. In addition, FSIS provided an employee on a 
temporary duty assignment for a year and a half to the Codex 
Secretariat, who provided secretarial support to the group of 
consultants making recommendations on Codex committee structure and 
mandates, monitored contracts to translate standards into Chinese and 
developed and edited FAO/Codex publications (e.g. ``Understanding 
Codex'').

             RESOURCE CONSERVATION AND DEVELOPMENT PROGRAM

    Question. The fiscal year 2007 budget proposes to fund the Resource 
Conservation and Development program at $25,933,000. This is a 
reduction of $25,971,000 and 230 staff years. How was this level of 
funding and staff years determined? What is your plan to allocate RC&D 
coordinators? Will you evaluate the needs of each council before 
allocating RC&D coordinators? Since many of the sponsors of these 
councils are local governments, how will this budget affect USDA's 
relationship with rural county commissioners and mayors?
    Answer. The fiscal year 2007 President's Budget recognizes the 
important role RC&D coordinators and councils play in protecting the 
environment in a way that improves the local economy and living 
standards. USDA's goal is to improve Federal efficiency and reduce 
spending. The rationale for the RC&D proposal reflects the belief that 
many councils will have the capacity to be more autonomous by fiscal 
year 2007. An assessment leading up to the proposal included a review 
of current RC&D Coordinator duties and responsibilities to find ways to 
increase efficiency and reduce costs without reducing effectiveness. 
Geographic considerations for remoteness and very large distances were 
included in the overall proposal. The Budget assumes, on average, that 
RC&D coordinators will serve multiple RC&D areas. Large geographic 
distances and complexity in service area will be taken into 
consideration.
    NRCS is updating its analysis on the staffing impacts associated 
with the President's Budget proposal. At the time the Budget proposal 
was initially developed, the Agency estimated that up to 225 current 
RC&D coordinators would need to be reassigned, without counting 
potential retirements.
    The plan to provide assistance through a federally funded RC&D 
coordinator to each RC&D Council takes into consideration three 
different factors. First, NRCS will conduct a business analysis that 
takes into consideration current geographic considerations for 
remoteness and very large distances to see if there could be some 
effectiveness gained through this analysis. In addition, it is expected 
that some RC&D coordinator positions would become vacant due to 
attrition. Over the next 5-years, more than half the Federal workforce 
is eligible to retire. This will create opportunities to once again 
assess effectiveness and service needs. And lastly, there will be many 
opportunities for promotions within the agency for existing RC&D 
coordinators. RC&D employees possess a variety of highly skilled, 
highly desirable, multi-disciplinary backgrounds and would have many 
opportunities for promotion to other positions within the Agency. This 
again would provide the Agency the opportunity to consider service and 
effectiveness criteria on a case-by-case basis.
    NRCS Regional Assistant Chiefs will work closely with State 
Conservationists throughout their regions. Parameters for the number of 
positions per State and Region will include an understanding of the 
geographic attributes and needs associated with serving multi-
jurisdictions within the region, including the needs of each council.
    USDA will continue to have a strong working relationship with rural 
county commissioners and mayors. For several years, USDA has been 
working with the National Association of RC&D Councils (NARC&DC) to 
increase council capacity by providing resources, training and 
expertise. By fiscal year 2007, many councils will be ready to take a 
more active and autonomous role in addressing local concerns identified 
in their area plans.
    Examples of council capacity building tools used and/or available 
include:
    Publication of a manual for RC&D Council members entitled: 
``Guidebook For RC&D Directors.'' This manual is designed to help 
Council members carry out their personal and corporate responsibilities 
in governing the RC&D area. This publication is available in hard copy 
and can be downloaded from the NARC&DC website: www.rcdnet.org.
    Training courses with accompanying information that include:
  --RC&D (A Primer)
  --What, Why & How (Basic Roles and Responsibilities)
  --Organizational Capacity Building
  --Nonprofit Financial Management
  --Strategies for Stronger Associations
  --Hiring 101
    Development, publication, and dissemination of guidelines for rural 
communities to use to recognize and respond to drought conditions.
    National and regional workshops for RC&D Councils to increase 
diversity from underrepresented individuals and groups in area plan 
development and implementation.
    National workshop or ``Forum on Entrepreneurial Development'' with 
an emphasis on meaningful community economic development and 
disseminate the information to RC&D Councils.
    National conference on the utilization of alternative energy and 
disseminate information to RC&D Councils.

                       WATERSHED PROJECT BACKLOG

    Question. Please provide the status of the watershed project 
backlog assessment that Bruce Knight mentioned in testimony in December 
2005 before the House Committee on Agriculture. How long will it take 
to complete this assessment? How much will this assessment cost? Which 
account will fund this assessment?
    Answer. The current watershed project unfunded list totals $1.8 
billion. The funding provided for fiscal year 2006 will fund projects 
where sponsors have acquired the necessary land rights and permits to 
proceed with construction. In addition, there are some projects on this 
list categorized as active that have been on the records for 40 years 
or longer. Clearly it is time to work with local sponsors to assess the 
viability of each individual project.
    NRCS is committed to working with local project sponsors to 
determine more accurately the viability of the potential watershed 
project unfunded list. NRCS will assess the viability of unfunded 
projects in two steps. First, we will use internal databases along with 
employee and partner knowledge to determine which projects are clearly 
active and viable. NRCS identified watershed projects that have not had 
requests for implementation funding for the last 2 years or where the 
NRCS state water resource long range plans do not indicate planned 
implementation activity over the next 3 to 5 years. Second, for 
projects that are not clearly active or viable, the sponsors will be 
contacted to establish their continued interest in project 
implementation. The sponsor's role in completing this effort will be 
critical. Upon mutual agreement with the project sponsor, adjustments 
to NRCS's watersheds database will be completed by each State to 
reflect changes agreed upon with regard to project viability. This 
effort is currently underway and will be completed by June 2, 2006.
    The staff time associated with this effort will be minimal. To date 
most of the assessment work has been completed through existing program 
manager knowledge, phone calls and record checks. Depending on the 
sponsor, additional individual case investigations for the assessment 
could be completed with Watershed Surveys and Planning, and/or 
Conservation Technical Assistance funds.

                      RAPID WATERSHED ASSESSMENTS

    Question. How many watersheds have undergone the rapid watershed 
assessment? In which states? In total how many watersheds will go 
through these assessments? How much has been spent on these 
assessments? From which account(s)? How have these assessments improved 
conservation? Please give examples. How much will be spent in fiscal 
year 2007 on these assessments?
    Answer. Thirteen watersheds have been completed using the rapid 
watershed assessment (RWA) approach in California, Oregon, and Idaho. 
Georgia and Ohio have developed assessments similar to RWAs. 
Approximately $390,000 has been spent on these assessments.
    Individual states and local stakeholders decide if they will 
conduct RWAs. NRCS currently anticipates the average cost of completing 
a single RWA on an 8-digit hydrologic unit to be in the range of 
$25,000 to $50,000. NRCS plans to mainly use Conservation Technical 
Assistance Program funding to complete RWAs.
    NRCS has been active with a variety of local, State and Federal 
agencies as well as non-government organizations in developing RWAs in 
the Klamath Basin. Through the use of rapid watershed assessments, NRCS 
and stakeholders have more efficiently targeted specific conservation 
measures to specific watersheds, ensuring the best use of available 
program funds for securing permanent solutions to the issues related to 
the quality and quantity of water.
    The Upper Klamath Basin includes 271,700 acres of irrigated 
agriculture. Based on a series of rapid watershed assessments, NRCS 
determined that approximately 260,500 acres of these irrigated lands 
need some level of conservation treatment including improvements to 
existing irrigation systems. Also identified in the RWAs, the Lower 
Klamath Basin has approximately 41,000 irrigated acres needing 
treatment to improve irrigation water management. Through the RWA 
process, local landowners were able to effectively address these 
conservation issues and identify potential funding sources for 
implementing irrigation improvements.
    NRCS's Upper Klamath Rapid Watershed Assessment concluded improving 
water quality and riparian habitat in Upper Klamath Lake and its 
tributary streams would provide the greatest benefits to the Endangered 
Species Act listed Shortnose and Lost River suckers. As a result of the 
RWA, irrigation improvement practices were identified that would have 
an impact in reducing the amount of warm, nutrient rich irrigation 
tailwater that return to area streams. It identified additional wetland 
and riparian habitat that needed restoring around the lake or along its 
tributary streams, resulting in clean, cool water as well as spawning 
and rearing habitat for endangered suckers.
    Funding decisions have not been made for fiscal year 2007 regarding 
the completion of additional RWAs.

    COMMODITY SUPPLEMENTAL FOOD PROGRAM (CSFP)--PROGRAM ELIMINATION

    Question. The budget request eliminates the Commodity Supplemental 
Food Program, which serves 32 States, 2 Indian reservations, and the 
District of Columbia. The elimination of this program results in a $108 
million reduction from the fiscal year 2006 appropriation. Please 
explain why you chose to eliminate this program. What will the 
participants in CSFP do if the program is eliminated?
    Answer. The President's fiscal year 2007 budget request proposes to 
discontinue CSFP operations and transition eligible CSFP participants 
to other nutrition assistance programs such as the Food Stamp Program 
(FSP) and the Special Supplemental Nutrition Program for Women, 
Infants, and Children (WIC Program). The CSFP is a relatively small 
program which operates in limited areas of 32 States, two Indian 
reservations, and the District of Columbia. In an era of fiscal 
constraint, we face a difficult challenge with regard to discretionary 
budget resources, and must ensure that those limited resources are 
targeted to those programs that are available to needy individuals and 
families, wherever they live.
    If Congress adopts the budget request, we will work closely with 
CSFP State agencies to ensure that any negative effects on program 
participants are minimized and that they are transitioned as rapidly as 
possible to other nutrition assistance programs for which they are 
eligible.
    We are requesting $2 million to provide outreach and to assist 
individuals to enroll in the FSP. We also propose that elderly 
participants who leave the CSFP upon the termination of its funding and 
who are not already receiving FSP benefits will be eligible to receive 
a transitional benefit worth $20 per month ending in the first month 
following enrollment in the FSP under normal program rules, or 6 
months, whichever occurs first. CSFP women, infants, and children 
participants who are eligible for WIC Program benefits will be referred 
to that program as appropriate.

                   FOOD STAMP PROGRAM--PARTICIPATION

    Question. The budget request anticipates declining participation in 
the Food Stamp Program. Specifically, overall participation is expected 
to decrease by 1.1 million in fiscal year 2007. Can you take a moment 
to explain why participation is declining and do you expect these 
reductions to continue?
    Answer. One of the key strengths of the Food Stamp Program is its 
ability to adjust automatically to changing economic conditions. The 
number of participants generally rises as the economy weakens and 
unemployment and poverty increase, and falls as the economy grows. 
Between January 2004 and January 2006, the unemployment rate fell from 
5.7 percent to 4.7 percent, and the number of people working increased. 
In 2005, program participation began to flatten before the Gulf Coast 
hurricanes of the fall. As a result, we expect the number of food stamp 
participants to decline between 2006 and 2007. We currently project 
additional reductions through 2009, after which food stamp 
participation is projected to be fairly flat.

 SPECIAL SUPPLEMENTAL PROGRAM FOR WOMEN, INFANTS, AND CHILDREN (WIC)--
                          LEGISLATIVE PROPOSAL

    Question. The fiscal year 2007 budget request includes a 
legislative proposal to cap State nutrition services and administration 
(NSA) grants at 25 percent. A savings of $152 million is assumed in the 
budget for this proposal. Please explain this proposal. What is the 
current NSA cap, and how will enacting this proposal further the goals 
of the WIC program? If the legislative proposal is not enacted, does 
the budget request fully fund the WIC program?
    Answer. The cap on WIC NSA funding will be applied at the national 
level. In other words, the funds available from the WIC appropriation 
for grants to State agencies will be divided into two components: 75 
percent of the available funds will be released to WIC State agencies 
as food funds and 25 percent of the available funds will be for NSA. 
The requested funding level for fiscal year 2007 would equally reduce 
each State agency's NSA grant from the prior year's NSA grant level as 
needed to ensure that the national total of funds allocated for NSA 
stays within the 25 percent cap.
    Currently, funds available from the WIC appropriation for grants to 
States are divided between food and NSA funds to provide a nationally 
guaranteed administrative grant per participant. During fiscal year 
2006, 26.5 percent of available funds were provided for NSA.

 SPECIAL SUPPLEMENTAL PROGRAM FOR WOMEN, INFANTS, AND CHILDREN (WIC)--
                              FOOD PACKAGE

    Question. In April 2005, the National Academy of Sciences Institute 
of Medicine released a report that recommended revisions to the food 
package offered to WIC participants. The report recommends that 
revisions to the food package encourage consumption of fruits and 
vegetables, emphasize whole grains, lower saturated fat, and appeal to 
diverse populations. In accordance with these recommendations, I 
understand that a final rule updating the WIC food package will be 
released at the end of 2006. Will the final rule be released at the end 
of this year as required? I understand that the final rule will be cost 
neutral, meaning that the total cost of the food package will not 
change. Will keeping changes to the package cost neutral have an affect 
on the overall make up of the food package?
    Answer. Absent further delays, we fully anticipate that a proposed 
rule can be published this summer. However, affording opportunity for a 
full 90-day public comment period for this important rule may preclude 
issuing an interim final rule within the 18-month statutory deadline of 
November 2006.
    Adding new items to the food package requires adjustments to 
current items in the package. As such, the overall make up of the food 
package would change.

                           MINORITY OUTREACH

    Question. The Food and Nutrition Service provides outreach and 
information on the programs it operates and dietary guidelines. What is 
FNS doing to make sure these important messages are appropriately 
targeted to minority populations, including the rapidly growing 
Hispanic population in the United States? How much does FNS spend 
annually on these information campaigns and specifically on minority 
outreach?
    Answer. For all of the major nutrition assistance programs, program 
outreach and information materials are targeted to reach low-income 
populations, including minority populations and those who speak Spanish 
and other languages beyond English. This includes making program 
application easier for non-English speakers by expanding the number and 
types of products available in Spanish and other languages.
    In food stamps, USDA's largest nutrition assistance program, FNS 
identified three target populations for food stamp outreach 
activities--seniors, the working poor, and immigrants. Each of these 
groups contain large subsets of minority populations, including 
Hispanics. These target populations were selected because they 
represent populations that are hard to reach and have historically low 
food stamp participation rates. FNS makes special efforts to reflect 
cultural diversity in all outreach materials, tools, and resources 
(including photos and cultural sensitivities) and to provide outreach 
materials in multiple languages, whenever possible. Numerous outreach 
materials are available in Spanish as well as English. In addition, 
about six informational publications are available in more than 30 
other languages. Food stamp outreach activities include:
  --Posters, flyers, and brochures available in English and Spanish 
        featuring diverse families and individuals.
  --Informational materials available in 35 languages.
  --Collection of ``10 FSP Myths and Facts'' handouts for various 
        populations in English and Spanish.
  --Television PSA available in English and Spanish.
  --Toll free number offering information and service in English and 
        Spanish.
  --Paid radio advertisements for the past 3 years in English and 
        Spanish.
  --Award of small outreach grants awarded to community organizations 
        that serve immigrants and minority populations (every year 
        since 2001 with the exception of 2003).
  --Photo gallery featuring images of outreach and nutrition education 
        for use by State and local outreach providers and featuring 
        diverse families and individuals.
  --Food stamp pre-screening tool in English and Spanish.
    In WIC, USDA developed the Fathers Supporting Breastfeeding 
Project, which focuses on educating fathers about the benefit of 
breastfeeding so that they may have a positive impact on a mother's 
decision to choose to breastfeed. The primary target audience for this 
project is African American males because African American females have 
the lowest breastfeeding rates compared to other racial/ethnic groups. 
USDA also recently launched the WIC Hispanic Breastfeeding Promotion 
and Education Project to develop educational resources that 
specifically address the barriers to breastfeeding for Hispanic WIC 
participants.
    USDA conducts a wide range of nutrition education and promotion 
activities to motivate participants to improve their eating and 
physical activity behaviors. Food and Nutrition Service (FNS) nutrition 
education efforts are targeted primarily to participants or potential 
participants in the nutrition assistance programs, rather than to the 
general public. The Center for Nutrition Policy and Promotion (CNPP) 
provides nutrition information for the general public. USDA makes the 
development of materials that promote healthy food choices to the 
Spanish-speaking community, in ways that are understandable and 
culturally relevant, a critical priority. Key efforts include:
  --Development of a comprehensive nutrition education initiative 
        targeting low-literacy and Spanish-language populations, to 
        help Food Stamp Program recipients and other groups served by 
        USDA to overcome their barriers to healthy eating and physical 
        activity behaviors, based on the Dietary Guidelines for 
        Americans. The materials are planned for release in 2007.
  --Eat Smart. Play Hard. Materials in Spanish promote healthy eating 
        and physical activity, including activity sheets, bookmarks, 
        posters, and brochures. Over 2.4 million of these Spanish-
        language materials have been ordered by program cooperators to 
        date.
  --Development of Eat Smart, Live Strong, a behavior-focused nutrition 
        and physical activity intervention for able-bodied, low-income 
        seniors, 60-74 years old. The intervention focuses on two key 
        behaviors: increasing fruit and vegetable consumption and 
        physical activity.
  --The Food Stamp Nutrition Connection (FSNC), an online resource 
        system designed to facilitate communication and resource 
        sharing among Food Stamp Nutrition Education providers. There 
        are 70 nutrition education materials written in Spanish on the 
        FSNC Web site, http://www.nal.usda.gov/foodstamp.
    One of the main tenets and philosophies of CNPP's new MyPyramid 
Food Guidance System was to personalize and individualize dietary 
guidance. Upon the release of MyPyramid in April 2005, children and 
Spanish speakers were the first two sub-groups of the U.S. population 
to receive personalized attention. Within the year, USDA released 
MyPyramid for Kids and MiPiramide, the Spanish-language version. 
MyPyramid for Kids features Tips for Families in both English and 
Spanish, an interactive computer game, posters, worksheets, and 
classroom materials to help children learn about the benefits of 
healthful diets and physically active lifestyles.
    With the funds requested for 2007, the CNPP will seek expanded 
translation of MyPyramid materials. We will also look for greater 
message dissemination supported by culturally appropriate consumer 
research and seek greater outreach through public/private partnerships.
    Major FNS/CNPP nutrition education and information expenditures are 
listed below:

     FNS NUTRITION EDUCATION AND INFORMATION ESTIMATED EXPENDITURES
                        [In thousands of dollars]
------------------------------------------------------------------------
                                            Fiscal year     Fiscal year
                 Program                       2006            2007
------------------------------------------------------------------------
Food Stamp Program......................         262,900         263,004
Team Nutrition (for Child Nutrition               15,039          15,034
 Programs)..............................
WIC Program (general nutrition education         305,599         290,510
 and information).......................
WIC Program (breastfeeding promotion and          91,091          91,241
 education).............................
Food Distribution Program...............             200           1,200
Other Nutrition Education...............           7,504           8,634
                                         -------------------------------
      TOTAL, FNS........................         682,423         669,624
CNPP Nutrition Education and Information           2,865           4,898
 Expenditures...........................
                                         -------------------------------
      Total, FNCS.......................         685,288         674,522
------------------------------------------------------------------------

    Each fiscal year, FNS spends $8 million on national outreach 
activities to promote the nutrition benefits of food stamps. As 
described above, most all of our food stamp outreach activities touch 
minority populations in some way. Thus, while it is not possible to 
break out how much is spent on minority outreach specifically, we 
believe that almost all of it is spent on program information 
activities that impact minority populations.
             food defense--food emergency response network
    Question. The fiscal year 2007 budget requests an increase of $15.8 
million to expand the Food Emergency Response Network (also known as 
FERN) and upgrade FSIS' laboratory capabilities for evaluating a 
broader range of threat agents for food. A part of the President's food 
and agricultural defense initiative, the Food Emergency Response 
Network will be a national network of 100 laboratories for testing of 
food samples for contaminants. The Food Emergency Response Network has 
been an ongoing partnership with FSIS, FDA, and State laboratories 
since fiscal year 2005. How many labs currently participate in FERN? 
Where are they?
    Answer. Currently, there are 26 laboratories actively participating 
in FERN. Of these 26 laboratories, FSIS has cooperative agreements with 
18 State laboratories to begin to build what is, at this time, a very 
limited capacity to test for biological threat agents in food, while 
the Department of Health and Human Services' Food and Drug 
Administration has agreements with 8 State laboratories to develop 
capacity to respond to chemical attacks on the food supply. Over 100 
more laboratories have completed a checklist and volunteered to share 
data with FERN.
    FSIS has cooperative agreements with the following 18 State 
laboratories to build a still very limited capacity to test for 
biological threat agents in food:

------------------------------------------------------------------------
                   State                              Division
------------------------------------------------------------------------
Virginia..................................  Virginia Division of
                                             Consolidated Laboratory
                                             Services
Arkansas..................................  Arkansas Department of
                                             Health
Delaware..................................  Delaware Health and Social
                                             Services
Florida...................................  Florida Department of
                                             Agriculture and Consumer
                                             Affairs
Hawaii....................................  Hawaii State Laboratories
                                             Division, Department of
                                             Health
Indiana...................................  Indiana State Department of
                                             Health
Massachusetts.............................  Massachusetts Department of
                                             Public Health, State Lab
                                             Institute
Michigan..................................  Michigan Department of
                                             Agriculture & Michigan
                                             Department of Health
Minnesota.................................  Minnesota Department of
                                             Agriculture
Montana...................................  Montana Department of Public
                                             Health & Human Services
Nebraska..................................  Nebraska Department of
                                             Agriculture
New Hampshire.............................  New Hampshire Public Health
                                             Laboratories
New Jersey................................  New Jersey Department of
                                             Health and Senior Services
New York..................................  New York State Department of
                                             Agriculture
Ohio......................................  Ohio Department of
                                             Agriculture, Consumer
                                             Analytical Lab
Rhode Island..............................  Rhode Island Department of
                                             Agriculture
South Carolina............................  South Carolina Department of
                                             Health & Environmental
                                             Control
South Dakota..............................  South Dakota Animal Disease
                                             Residue & Diagnostic Lab,
                                             South Dakota State
                                             University
------------------------------------------------------------------------

    The Department of Health and Human Services' Food and Drug 
Administration has agreements with the following 8 State laboratories 
to develop capacity to respond to chemical attacks on the food supply:

------------------------------------------------------------------------
                   State                              Division
------------------------------------------------------------------------
Iowa......................................  University of Iowa
California................................  Regents of the University of
                                             California
Arizona...................................  Arizona Department of Health
                                             Service
Connecticut...............................  Connecticut Agriculture
                                             Experimental Station
Virginia..................................  Virginia Division of
                                             Consolidated Labs
Minnesota.................................  Minnesota Department of
                                             Agriculture
New Hampshire.............................  New Hampshire Department of
                                             Public Health
Florida...................................  Florida Department of
                                             Agriculture
------------------------------------------------------------------------

    Question. How many labs do you hope to add with the increased 
funding?
    Answer. Using fiscal year 2005 funds, FSIS spread $1.2 million 
between 18 laboratories with which the agency has cooperative 
agreements. As a result, more funding is needed to make these labs 
operational within FERN. An operational FERN lab is defined as a 
laboratory that has developed the capability and demonstrated 
proficiency to test meat, poultry, and egg products for 2-3 threat 
agents, either as a screening test or a confirmatory test. It is 
important to note that not all labs will test for the same threat agent 
or agents. The request was for $15.8 million, $13 million of which will 
go to build laboratory capacity and $2.8 million for electronic 
communication in real-time between the laboratories for more rapid, 
timely information sharing and response. With the $13 million FERN 
request for fiscal year 2007, FSIS will be able to ensure that those 
original 18 laboratories plus five additional laboratories are 
operational FERN labs. Thus, by the end of fiscal year 2007 with the 
funding requested, 23 State labs would be capable of operating in FERN 
in the event of an intentional attack, an act of nature, or a hoax and 
help USDA ensure product safety and consumer confidence in the food 
supply.
    FSIS also requests $2.5 million for two data systems to support 
FERN: the electronic laboratory exchange network (eLEXNET), and a 
repository of analytical methods. The eLEXNET is a nationwide, Web-
based electronic data reporting system that allows analytical 
laboratories to rapidly report and exchange standardized data. This 
system is currently operational in nearly 100 food-testing, public 
health, and veterinary diagnostic laboratories across the country. The 
funding will be used to make eLEXNET available to additional FERN and 
other analytical, food-testing laboratories.
    FSIS is working with FDA to develop a Web-based repository of 
analytical methods compatible with eLEXNET. Access to these methods 
will greatly enhance the ability of FERN and other laboratories to 
respond to emergencies, to use new methodologies and technologies, and 
to enhance efficiency. The requested funding will be used to enhance 
the repository and to populate the repository with numerous methods 
that will be obtained from analytical laboratories.
    Question. What does USDA provide for the State labs with this 
funding--staff, equipment, training?
    Answer. FERN establishes the network of communication between 
levels of government and ensures that all laboratories participating 
have the necessary capacities and capabilities needed to respond to an 
attack, act of nature, or hoax affecting the food supply. FERN enhances 
the abilities of existing laboratories to perform procedures and tests 
through training, proficiency testing, food defense exercises, 
acquisition of new equipment, and the repository of validated methods. 
FERN is able to offer these, and other, resources to the State and 
local labs primarily through funding from cooperative agreements. No 
staff years are provided with these funds.
    Question. How, exactly, do the labs assist USDA in protecting the 
food supply from a potential terrorist attack?
    Answer. FERN enables FSIS to leverage State and local laboratories 
for surge capacity in handling the numerous samples that would be 
required in the event of an attack, act of nature, or hoax that affects 
the food supply and to maintain product safety and consumer confidence 
in the U.S. food supply. The request was for $15.8 million, $13 million 
of which will go to build laboratory capacity and $2.8 million for 
electronic communication in real-time between the laboratories for more 
rapid, timely information sharing and response. The $13 million budget 
request for FERN will enable the agency to manage, maintain, and expand 
the capacities and capabilities of the existing FERN labs and bring new 
labs into the network. The $2.5 million requested for eLEXNET and the 
repository of analytical methods, will enhance the data systems 
supporting FERN.
    There are estimated to be over 50,000 food types and literally 
thousands of biological, chemical, and radiological agents that can be 
added to food that pose a threat to humans. Many different laboratory 
analytical methods are needed to detect these agents. For a large 
number of agent/food combinations, there are no proven or validated 
methods. Part of the FERN effort will be to develop and validate these 
methods and to provide the necessary equipment and training to the 
member laboratories. Because there are such a large number of agent/
food combinations that may require testing, no single laboratory will 
be able to respond to every threat. The mission of FERN is to develop 
the capability and capacity of existing labs to respond to any type of 
threat to food. Some analyses can be done at a rate of over 1,000 per 
day while others are much slower, perhaps only 10 per day. The 
laboratory capacity is dependent on the specific scenarios and the 
specific threat agent involved. The goal of 100 State labs to be fully 
functional under FERN is an estimate of the capacity necessary to 
address many of the common foodborne threats agents in the vast array 
of food matrices.

                 BUDGET REQUEST--CONSTRUCTION AUTHORITY

    Question. The budget request includes $565,000, from current 
resources, for construction of a laboratory receiving facility at an 
Agricultural Research Service lab in Athens, GA. FSIS currently does 
not have authority to construct facilities, and this is the first time 
FSIS has requested such authority through the budget process. Why is 
this sample receiving facility necessary and how will it benefit FSIS 
operations and performance?
    Answer. In the event of a food safety emergency, a sample receiving 
facility that is separate and distinct from the laboratory in Athens, 
Georgia, would be essential. For instance, if a hazardous material 
arrived at the present sample receiving area, FSIS may have to shutdown 
and decontaminate the entire laboratory. As a result, all incoming test 
samples would be delayed while shipped to one of only two other FSIS 
laboratories and in a food safety emergency, such delays could have a 
serious impact on public health. The Agricultural Research Service 
laboratories in the same building could also be shut down and need to 
be decontaminated. Decontamination can be a long, tedious process. For 
example, the Hart Senate Office Building was closed for a lengthy 
period of time for decontamination. FSIS cannot afford to have its only 
BSL-3 laboratory and a major ARS research laboratory closed for any 
length of time. Thus, a separate sample receiving facility would enable 
the laboratory to continue with its work, even if the receiving 
facility was forced to shut down.
    Question. If funding for the facility comes from current resources, 
what current activities will be negatively impacted by this reduction?
    Answer. No current essential public health activities would be 
negatively impacted by the construction of a laboratory receiving 
facility in Athens, Georgia. Only after the essential public health 
needs are met will the agency consider using other available resources 
to build the facility.

                                 CODEX

    Question. The work of the U.S. Government through Codex has been 
critical in advancing trade in U.S. food and agriculture. So important, 
in fact, that several years ago dedicated funding was identified to 
support the U.S. Codex office. In fiscal year 2006, funding for Codex 
through this appropriations bill is slightly more than $3 million. This 
funding is intended, in part, for international outreach efforts with 
other countries to advance U.S. policy positions. The U.S. food 
industry has expressed concern that these dedicated resources are not 
available for Codex outreach as intended but are being directed to 
general FSIS program activities. Does your office provide an accounting 
of how the Codex money is spent?
    Answer. The U.S. Codex Office is part of the Office of the 
Administrator for the Food Safety and Inspection Service (FSIS), which 
provides funding and tracks expenditures for U.S. Codex Office 
operations, outreach and representational events. The Manager of the 
U.S. Codex Office reports directly to the Under Secretary for Food 
Safety and keeps the Under Secretary informed about the status of the 
U.S. Codex Office budget and expenditures.
    Question. Are other organizations or initiatives, outside of direct 
Codex work, being funded by this specific amount?
    Answer. No, the funding provided will be used for activities 
associated with the work of the Codex Alimentarius Commission and its 
committees, task forces, and working groups.
    Question. Please identify the international outreach programs for 
fiscal year 2007.
    Answer. The U.S. Codex Office manages a vigorous program of 
outreach to developing countries, which involves co-hosting committee 
meetings, organizing multi-day technical seminars on a variety of 
issues, and inviting delegates from developing countries to meet U.S. 
delegates at special, issue-specific workshops. These meetings provide 
opportunities for Codex officials from developing countries to exchange 
views with experts from the United States for the purpose of developing 
working relationships and building confidence in the U.S. positions on 
issues under negotiation.
    One of the United States' on-going objectives is to broaden 
participation in Codex, especially participation by developing 
countries. Many of the least developed countries have varied levels of 
food safety infrastructure, and participation in Codex by 
representatives of these countries is largely disconnected from the 
national experience. While the United States believes that capacity-
building activities should be funded and managed by other 
organizations, the outreach program of the U.S. Codex Office can help 
developing countries to set priorities for their participation in Codex 
and identify specific objectives for building their capacity to 
participate effectively in Codex negotiations.
    Africa has become a priority for developing new working 
relationships. On April 19-21, 2006, the U.S. Codex Office hosted a 
technical seminar in Maputo, Mozambique for Codex contact points from 
African countries. In 2007, the U.S. Codex Office will follow up on the 
outcomes of this technical seminar.
    The Latin American and Caribbean communities will continue to be 
top priorities, and the U.S. Codex Office will build on the working 
relationships existing with these countries to organize additional 
outreach events, just as the U.S. Codex Office has organized events 
with Latin America and the Caribbean in the previous 3 years. 
Currently, the U.S, Codex Office is working with Argentina, Mexico, and 
Brazil to organize a technical seminar with the member countries of the 
Codex Committee for Latin America and the Caribbean (CCLAC), except 
Cuba. Argentina holds the rotating presidency of CCLAC, Mexico is the 
representative for Latin America and the Caribbean on the Codex 
Executive Committee, and we propose to host this seminar with the 
Brazilians in Rio de Janeiro, June 1-3, 2006. This seminar has two main 
purposes: (1) to enhance the capacity of officials in Latin America and 
the Caribbean countries to participate more effectively in meetings of 
the Codex Alimentarius Commission and its Committees; and (2) to 
strategize about potential new work and new directions for the Codex 
Alimentarius Commission to respond to emerging food safety and trade 
issues in which the United States and the CCLAC members have common 
interests. The agenda features presentations and panel discussions with 
U.S., Latin American and Caribbean experts, and experts will also be 
invited from inter-American institutions (such as the Pan American 
Health Organization (PAHO), the Inter-American Institute for 
Cooperation on Agriculture (IICA)) and from the Food and Agriculture 
Organization (FAO) and the World Health Organization (WHO) which are 
the sponsoring organizations of the Codex Alimentarius Commission.
    In addition, FSIS' Food Safety Institute of the Americas (FSIA), 
established in October 2004 to improve food safety and public health 
training throughout the Western Hemisphere, is promoting more effective 
participation in the Codex Alimentarius Commission. The Western 
Hemisphere has many shared interests in food safety, many of which are 
raised in Codex. FSIA wants to assist these countries in becoming more 
aware of these shared hemisphere interest, and encourage joint 
scientific and unified responses in Codex by the hemisphere. FSIA will 
do this by working with governments throughout the hemisphere to 
establish permanent food safety and public health training programs in 
each country at all educational levels--high school, university, and 
graduate levels. FSIA has its own budget. No Codex funds are used for 
FSIA activities.
    Through FSIA, FSIS hopes to encourage countries to adopt the food 
safety standards developed by Codex as minimum food safety standards 
within their countries.
    By building relationships throughout the hemisphere on a non-
regulatory basis, FSIA can improve trade and public health in the 
hemisphere. With new trade agreements being implemented, FSIA has an 
opportunity to work closely with these countries to provide a forum for 
discussions about the food safety and public health needs of the 
hemisphere. Scientifically based education and training need 
improvement throughout the hemisphere, and by sharing information and 
finding common solutions, we will all benefit.
    FSIA provides training and education materials to educational 
institutions throughout the hemisphere. Many excellent but 
underutilized educational programs have been developed by international 
and hemispheric organizations such as the PAHO, the IICA, the FAO, and 
the WHO. FSIA promotes these types of existing programs.

                            HUMANE SLAUGHTER

    Question. There are allegations that USDA does not adequately 
inspect the transport and slaughter of horses. Please comment on the 
adequacy of USDA's effort for both of these critical functions.
    Answer. Under USDA's Slaughter Horse Transport Program (SHTP), 
administered through the Animal and Plant Health Inspection Service 
(APHIS) and described in the 1996 Farm Bill, only horses that are fit 
to travel may be shipped in accordance with APHIS regulations. Upon 
arrival at a U.S. slaughter plant, APHIS Veterinary Services personnel 
(1) examine each shipment of horses; (2) accept and review the owner/
shipper certificate; (3) question the shipper to verify compliance; (4) 
examine each horse after off-loading; (5) inspect the animal cargo area 
of the conveyance; (6) document any violations; and (7) ensure the 
plant provides food and water after off-loading.
    At U.S. borders, port veterinarians review and compare the health 
certificate and the owner/shipper certificate for each shipment. If 
discrepancies are noted, port veterinarians visually examine the horses 
to determine if the crossing should be permitted or refused.
    The SHTP helps ensure that horses are transported humanely to 
slaughter by preventing injuries and ensuring adequate food and water 
so that the horses do not endure unnecessary suffering prior to 
slaughter. Examination of the horses prior to and after shipment is 
critical to ensuring that owners and shippers transport horses humanely 
to slaughter.
    USDA has abided by the prohibition of federally-funded USDA 
inspections of horses presented for slaughter at official 
establishments. The fiscal year 2006 Agriculture, Rural Development, 
Food and Drug Administration and Related Agencies Appropriations Act 
included a section prohibiting the use of appropriated funds to pay the 
salaries or expenses of personnel to inspect horses (ante-mortem 
inspection) after March 10, 2006. Conference report language for the 
Act recognized the Food Safety and Inspection Service's (FSIS) 
obligation under existing statutes to ``provide for the inspection of 
meat intended for human consumption (domestic and exported).''
    While the appropriations bill prohibited appropriated funds from 
being used to pay for ante-mortem inspection, it does not eliminate 
FSIS' responsibility under the Federal Meat Inspection Act (FMIA) to 
carry out post-mortem inspection of carcasses and meat at official 
establishments that slaughter horses. In response to a petition, FSIS 
established a fee-for-service program under which establishments can 
apply and pay for ante-mortem inspection of horses. The interim final 
rule became effective March 10, 2006.
    The fee-for-service program meets all of the Federal inspection 
requirements for slaughter. Under the fee-for-service program, all 
requirements in the regulations authorized by the FMIA that pertain to 
official establishments that slaughter horses continue to apply. 
Inspection program personnel are to continue to conduct all inspection 
activities, including ante-mortem inspection, in accordance with the 
requirements of the FMIA and applicable Federal meat inspection 
regulations, including regulations pertaining to humane handling.
    Question. Will the recently implemented fee-for-service regulations 
regarding ante-mortem inspection of horses at slaughter diminish USDA's 
ability to carry out its duty under the humane slaughter act?
    Answer. No, USDA considers humane handling and slaughter high 
priorities and is committed to ensuring compliance with the Humane 
Methods of Slaughter Act (HMSA). USDA strictly enforces the provisions 
of the HMSA, which, like other Federal meat inspection regulations, 
continues to apply under the fee-for-service program.
    FSIS employs a veterinarian and slaughter line inspectors at every 
federally inspected slaughter establishment. FSIS compliance officers 
also make further inquiries and prepare reports of instances in which 
there are alleged violations of regulations, including violations of 
the humane handling and slaughter regulations. All FSIS livestock 
inspection personnel are trained in humane handling and understand that 
they are obligated to take immediate enforcement action when a humane 
slaughter violation is observed.
    Question. Will the recently enacted language in the Agriculture 
Appropriations Bill allow the USDA to adequately inspect the transport 
of horses for humane treatment?
    Answer. With the language included in the fiscal year 2006 
Agriculture Appropriations Bill, USDA will be able to continue to 
adequately inspect the transport of horses for humane treatment by 
supporting this activity through user fees.
    Question. Do you believe that the USDA is able to insure the humane 
transport and slaughter at these plants in the United States?
    Answer. As long as APHIS is authorized to carry out the SHTP 
activities through either Federal funding or user fees, program 
personnel will be able to help ensure the humane transport of horses to 
slaughter. SHTP personnel help prevent injuries and ensure that the 
horses have adequate food and water so that they do not endure 
unnecessary suffering prior to slaughter. Examination of the horses is 
critical to ensuring that owners and shippers transport horses humanely 
to slaughter.
    All requirements in the regulations authorized by FMIA that pertain 
to official establishments that slaughter horses continue to apply. 
Inspection program personnel are to continue to conduct all inspection 
activities, including ante-mortem inspection, in accordance with the 
requirements of the FMIA and applicable Federal meat inspection 
regulations, including regulations pertaining to humane handling. FSIS 
can deny or withdraw ante-mortem inspection services at horse slaughter 
establishments for any applicable reason under Federal regulations.

                         ANIMAL IDENTIFICATION

    Question. The Congress has provided over $66 million for the 
implementation of an animal identification system. This level of 
funding does not include an additional $18.7 million that was 
transferred from the Commodity Credit Corporation. With that in mind, 
the budget request for fiscal year 2007 proposes another $33 million to 
continue this animal identification exercise. Please provide us with an 
update on the status of animal identification and when you expect a 
national program to be fully implemented.
    Answer. USDA anticipates that the National Animal Identification 
System (NAIS) will be a fully operational system in early 2007, and it 
will consist of three main components: premises registration, animal 
identification, and animal tracking. The standardized premises 
registration system provided by USDA is operational in 40 States. The 
remaining States are using one of several compliant premises 
registration systems, for which they are financially responsible. 
Premises registration continues to be USDA's priority, which the Agency 
supports by providing cooperative agreement funding to States and 
Tribes. The States and Tribes themselves administer the premises 
registration process. APHIS has established benchmarks and timelines to 
achieve full participation in this aspect of the NAIS by fiscal year 
2009.
    The component of NAIS that enables individual animal identification 
became operational in March 2006 and is funded by USDA. Animal 
identification devices will be purchased by producers. The NAIS 
implementation plan calls for increased levels of animals to be 
identified with the Animal Identification Number starting in 2006, and 
for all newborn animals born throughout 2008 to be identified when 
moved from their birth premises.
    The final component of NAIS--the animal tracking databases--will be 
managed and owned by the industry and States. The cost of the animal 
tracking databases will be covered by the industry and States. An 
interim/development phase for these tracking systems will be launched 
in April 2006, and fully operational systems will be in place by 
February 2007. USDA is developing the metadata system that supports the 
integration of multiple animal tracking databases.
    Question. How do you plan to address the infrastructure needs 
(i.e.; eartags, scanners, and private databases) to implement this 
program? For instance, if all the cattle in the United States are ear 
tagged, without a network of scanners in place, the program will be 
unable to operate.
    Answer. In developing NAIS, USDA is establishing data standards and 
the design of the data system. Once the identification system is 
designed, stakeholders will determine which technologies are the most 
appropriate to meet the needs of the system and which methods are most 
cost-efficient and effective. Producers are in the best position to 
determine which animal identification and data collection technologies 
are used, and they will have responsibility for purchasing them.
    Although the marketplace will determine which technologies are used 
to support the NAIS, USDA has established minimum standards and 
requirements for certain species. For example, a visual eartag with the 
Animal Identification Number (AIN) imprinted on the tag has been 
established as the de facto standard for cattle. Other forms of 
identification that may be used with the AIN tag are referred to as 
``supplemental identification.'' The use of such supplemental 
identification is a decision to be made by the producer. This ensures 
that the additional cost of advanced technology is optional at the 
producer level. Some producers may elect not to use such technologies 
within their herd management program, and USDA does not want to limit 
their participation in the NAIS.
    It is true that automated data collection devices will help the 
industry effectively obtain information on their animals. The 
integration of the NAIS data standards into management systems and 
processes will result in the most successful and cost-effective 
systems. The selection of such technology is best determined by the 
industry sector to ensure their preferences are met in incorporating 
the data standards with their management practices and information 
systems. However, as long as animals are identified according to 
uniform standards established through the NAIS, State and Federal 
animal health officials will have a much better chance of carrying out 
a successful epidemiologic investigation than they would otherwise. The 
technology for identifying animals is rapidly evolving. USDA 
acknowledges the need to have compatibility of systems throughout the 
pre-harvest production chain, but believes producers and the 
marketplace are in the best position to determine which technologies 
are used.
    Question. Please provide a legal opinion explaining the authority 
of the Secretary to create a mandatory national animal identification 
system.
    Answer. The Animal Health Protection Act (AHPA), 7 USC  8301-8317, 
authorizes the Secretary of Agriculture to carry out operations and 
measures to detect, control, or eradicate livestock pests or disease. 
It also provides ample authority to establish and implement either a 
mandatory or voluntary system of animal identification. Further, the 
AHPA enables the Secretary to enter into agreements with States or 
other stakeholder organizations to implement either a mandatory or 
voluntary animal identification program.

                         PREMISE IDENTIFICATION

    Question. Please provide information by State on the total number 
of premises, the total number of premises identified, and the 
percentage of premises identified. Please keep the subcommittee updated 
on these figures quarterly.
    [The information follows:]

    Please note: The estimated number of premises for each State was 
obtained from USDA's National Agricultural Statistics Service 2002 
Census of Agriculture. Based on NASS' definition of a farm, the 
estimated number of premises may not accurately reflect the total 
number of premises in each State for purposes of the NAIS. (Number of 
premises identified as of March 2006)

----------------------------------------------------------------------------------------------------------------
                                                                       Total         Number of     Percentage of
                              State                                  estimated       premises        premises
                                                                     premises       identified      Identified
----------------------------------------------------------------------------------------------------------------
Alabama.........................................................          48,036           1,766            3.68
Arkansas........................................................          52,878           5,542           10.48
Arizona.........................................................           9,443             234            2.48
California......................................................          52,234           2,343            4.49
Colorado........................................................          36,747           1,667            4.54
Delaware & Maryland.............................................          13,406           2,108           15.72
Florida.........................................................          41,458           2,215            5.34
Georgia.........................................................          46,836           1,385            2.96
Iowa............................................................          64,327           3,134            4.87
Idaho...........................................................          29,502          15,073           51.09
Illinois........................................................          40,810           3,745            9.18
Indiana.........................................................          49,500           5,105           10.31
Kansas..........................................................          54,030           3,057            5.66
Kentucky........................................................          80,823           5,026            6.22
Louisiana.......................................................          27,650             517            1.87
Maine...........................................................           7,525             326            4.33
Michigan........................................................          45,706          10,221           22.36
Minnesota.......................................................          61,625          10,606           17.21
Missouri........................................................         109,082           7,771            7.12
Mississippi.....................................................          41,272             543            1.32
Montana.........................................................          32,370             312            0.96
North Carolina..................................................          51,309           2,699            5.26
North Dakota....................................................          19,716           7,182           36.43
Nebraska........................................................          43,236           5,734           13.26
New Jersey......................................................           9,169              70            0.76
New Mexico......................................................          19,338             467            2.41
Nevada..........................................................           4,764             934           19.61
New York........................................................          40,134          13,176           32.83
Ohio............................................................          72,543           1,417            1.95
Oklahoma........................................................         105,158           2,904            2.76
Oregon..........................................................          48,188           1,930            4.01
Pennsylvania....................................................          68,699          27,987           40.74
South Carolina..................................................          23,115           1,361            5.89
South Dakota....................................................          32,216           3,842           11.93
Tennessee.......................................................          93,529           9,008            9.63
Texas...........................................................         277,493           9,711            3.50
Utah............................................................          20,981           6,807           32.44
Virginia........................................................          51,097           2,686            5.26
Vermont.........................................................           7,341              78            1.06
Washington......................................................          34,541             947            2.74
Wisconsin.......................................................          74,511          47,171           63.31
West Virginia...................................................          26,582           7,452           28.03
Wyoming.........................................................          14,615             227            1.55
                                                                 -----------------------------------------------
      Total.....................................................       2,083,535      236,486I77  ..............
----------------------------------------------------------------------------------------------------------------

  OFFICE OF THE UNDER SECRETARY FOR MARKETING AND REGULATORY PROGRAMS

    Question. The Under Secretary position for Marketing and Regulatory 
programs is currently vacant. This position is one that is very 
significant based on current issues that the Department of Agriculture 
continues to monitor. For instance, this office provides oversight and 
management of Department actions related to avian influenza, pest 
eradication programs, marketing and grading of commodities, and animal 
disease surveillance.
    Please provide us with an update on this Under Secretary position. 
Also, how long do you expect this position to be vacant?
    Answer. The Secretary appointed Dr. Charles ``Chuck'' Lambert as 
the Acting Under Secretary for Marketing and Regulatory Programs on 
November 14, 2005. Dr. Lambert served as Deputy Under Secretary for 
Marketing and Regulatory Programs since December 2, 2002. The 
Department anticipates that the President will nominate someone for 
this position in the very near future.

                            AVIAN INFLUENZA

    Question. Please give us a status of avian influenza worldwide.
    Answer. Avian influenza (AI) is a disease found among poultry. AI 
viruses can infect chickens, turkeys, pheasants, quail, ducks, geese, 
and guinea fowl, as well as a wide variety of other birds, including 
migratory waterfowl. Each year, there is a flu season for birds just as 
there is for humans and, as with people, some forms of the flu are 
worse than others.
    AI viruses can be classified into low pathogenicity and highly 
pathogenic forms, based on the severity of the illness they cause in 
poultry, and within each of these forms are numerous subtypes. Most AI 
strains are classified as low pathogenicity avian influenza (LPAI) and 
cause few clinical signs in infected birds. Incidents of LPAI are 
commonly detected in domestic poultry flocks, and LPAI does not pose a 
serious threat to human health. However, two subtypes of LPAI can 
potentially mutate into a more dangerous form, and USDA is initiating 
programs to monitor those subtypes.
    In contrast, high pathogenicity avian influenza (HPAI) causes a 
severe and extremely contagious illness and death among infected birds. 
The HPAI subtype that is considered to be the most serious is H5N1. Of 
the few avian influenza viruses that have crossed the species barrier 
to infect humans, H5N1 has caused the largest number of detected cases 
of severe disease and death in humans.
    The World Organization for Animal Health reports that H5N1 HPAI has 
been detected in over 40 countries in 2005 and 2006. Nine countries 
have reported laboratory-confirmed cases of H5N1 influenza in humans, 
according to the World Health Organization.
    There is no evidence that HPAI currently exists in the United 
States. Historically, there have been three HPAI outbreaks in poultry 
in this country--in 1924, 1983 and 2004. No significant human illness 
resulted from these outbreaks.
    Question. Also, please provide an update on actions taken by your 
agency and how you are preparing for avian influenza.
    Answer. Our safeguarding system against avian influenza (AI) 
encompasses, among other things, (1) cooperation with States in 
targeted and passive surveillance; (2) cooperative efforts and 
information sharing with States and industry; (3) outreach to producers 
regarding the need for effective on-farm biosecurity practices; (4) 
trade restrictions on poultry and poultry products from overseas; and 
(5) anti-smuggling programs.
    Surveillance.--National surveillance for AI is accomplished through 
several means: (1) the National Poultry Improvement Plan (NPIP), a 
cooperative Industry-State-Federal program, which has a program for 
breeder flocks that has been in place since 1998; (2) State and 
university laboratories, which test suspect cases; (3) industry, which 
works with States to conduct export testing at slaughter; and (4) 
States, which conduct surveillance in areas where AI has historically 
been a concern (e.g., the live bird marketing system).
    Low Pathogen Avian Influenza (LPAI) Surveillance and Control.--
APHIS has developed a Federally-coordinated and State-assisted domestic 
LPAI program that provides surveillance for H5/H7 AI in two areas: (1) 
the live bird marketing system, and (2) the U.S. commercial broiler, 
layer, and turkey industries. By doing so, USDA and its partners will 
prevent the possible mutations and reassortments of the low-
pathogenicity virus to its highly pathogenic form; reduce the 
likelihood of the virus becoming a zoonotic agent, thereby protecting 
the public (human health); and preserve international trade in poultry 
and poultry products.
    Live Bird Market System.--In October 2004, APHIS established the 
live bird market segment of the National Control Program by publishing 
uniform standards to prevent and control the H5 and H7 LPAI subtypes in 
live bird markets. These standards are now being implemented. APHIS 
enters into cooperative agreements with States that have live bird 
market activities, as well as Official State Agencies and NPIP 
authorized laboratories participating in the NPIP LPAI program. States 
will use funds to implement uniform guidelines for all participants in 
the live bird market system in the areas of State licensing, AI 
testing, recordkeeping, sanitation, biosecurity education and outreach, 
surveillance, inspections, and response to positive facilities. Funds 
also provide for equipment, supplies, and personnel to inspect and 
collect samples within the live bird market system; perform trace backs 
and trace forwards; and support additional field and laboratory 
activities essential to the program. By the end of fiscal year 2005, 
cooperative agreements for the live bird market system LPAI program 
were initiated with 21 States (California, Delaware, Florida, Georgia, 
Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Minnesota, 
Missouri, North Carolina, New Jersey, New York, Ohio, Pennsylvania, 
South Carolina, Texas, Vermont, and Virginia).
    Commercial Poultry.--The NPIP is developing the commercial poultry 
segment of the LPAI surveillance. The surveillance program will provide 
for H5 and H7 AI monitoring of participating broiler, table egg, and 
turkey production flocks and their respective breeding flocks. The 
adopted program is currently proceeding through the regulatory process 
that will fully establish this voluntary program as part of the NPIP. 
Official State Agencies use funds to work with NPIP LPAI participants 
to conduct active and passive surveillance and to develop State 
containment and response plans to enhance their ability to detect and 
respond to LPAI. This also facilitates trade through the documentation 
of disease-free status. Funds also provide for supplies and labor for 
conducting tests, laboratory cost for conducting LPAI clinical 
diagnostic surveillance, laboratory equipment to conduct the official 
tests of the NPIP LPAI program, site visits, sample collection, 
transportation, and submission to authorized laboratories and NVSL. 
APHIS has memoranda of understanding in place with 48 official State 
agencies to carry out commercial flock surveillance through the NPIP. 
The rule to establish the surveillance program is in the final stages 
of clearance.
    Domestic Surveillance of Migratory Birds.--On March 20, 2006, USDA 
announced an enhanced national framework for early detection of HPAI in 
wild migratory birds in the United States. This readiness plan and 
system builds on, significantly expands, and unifies ongoing efforts 
among Federal, State, regional and local wildlife agencies. Because 
Alaska is at the crossroads of bird migration flyways, scientists 
believe the strain of highly pathogenic H5N1 currently affecting 
Southeast Asia would most likely arrive there first if it spreads to 
North America via migratory birds. Thus, the plan recommends a 
prioritized sampling system with emphasis in Alaska, elsewhere in the 
Pacific flyway, and the Pacific islands, followed by the Central, 
Mississippi, and Atlantic flyways.
    The ability to effectively prevent the spread of highly pathogenic 
H5N1 to domestic poultry operations is greatly enhanced by being able 
to rapidly detect the pathogen if it is introduced into wild migratory 
birds in the United States. The interagency plan outlines five specific 
strategies for early detection of the virus in wild migratory birds, 
including (1) investigation of disease outbreak events in wild birds; 
(2) expanded monitoring of live wild birds; (3) monitoring of hunter-
killed birds; (4) use of sentinel animals, such as backyard poultry 
flocks; and (5) environmental sampling of water and bird feces.
    In spring 2006, under the interagency plan, the USDA and its 
cooperators plan to collect between 75,000 and 100,000 samples from 
live and dead wild birds in all States and 50,000 samples of water or 
feces from high-risk waterfowl habitats across the United States. The 
U.S. Geological Survey will initially screen 11,000 of the live bird 
samples at its National Wildlife Health Center in Madison, Wisconsin. 
The remaining samples will be initially tested at labs certified by 
USDA in the National Animal Health Laboratory Network. Suspected 
findings of HPAI will be further tested and diagnosed by the National 
Veterinary Services Laboratory. Since the summer of 2005, the 
Department of Interior (DOI) has been working with Alaska to 
strategically sample migratory birds in the Pacific flyway. DOI has 
already tested more than 1,700 samples from more than 1,100 migratory 
birds. No highly pathogenic isolates have been detected. Since 1998, 
USDA has tested over 12,000 migratory birds in the Alaska flyway; since 
2000, almost 4,000 migratory birds in the Atlantic flyway have been 
tested. All birds in these flyways have tested negative for the highly 
pathogenic H5N1 virus of concern.
    Education and Outreach.--The USDA's Biosecurity for the Birds 
Campaign is an outreach initiative designed to educate noncommercial 
poultry owners about the signs of AI and other poultry diseases; 
promote the importance of practicing biosecurity; and encourage rapid 
reporting of clinical signs of disease and/or unexpected deaths. The 
advertising campaign began in July 2004 and has reached a circulation 
of over 125 million.
    Trade Restrictions and Anti-Smuggling Program.--USDA maintains 
import restrictions on poultry and poultry products from countries 
affected by H5N1. Furthermore, all imported live birds (and returning 
U.S.-origin pet birds) must be quarantined for 30 days and tested for 
the AI virus before entering the country. USDA works closely with the 
Department of Homeland Security's Customs and Border Protection to 
enforce import restrictions. To ensure compliance with restrictions, 
APHIS concentrates on identifying smuggled poultry products and live 
birds from H5N1-affected countries. APHIS also conducts routine 
surveys, special operations, and marketing activities focusing on H5N1 
products in commerce and at ports of entry. All suspected violations 
are forwarded to APHIS' Investigative and Enforcement Services staff 
for further investigation. Civil and/or criminal penalties may be 
issued for violations.
    APHIS has also increased its monitoring of domestic commercial 
markets for illegally smuggled poultry and poultry products. USDA works 
with trading partners and the World Organization for Animal Health 
(OIE) to maintain safe trade.
    Responding to an Outbreak.--In the event of an HPAI outbreak, APHIS 
has the Foreign Animal Disease management infrastructure to conduct an 
emergency response that would occur at the local level, in accordance 
with the National Animal Health Emergency Management System's 
guidelines for highly contagious diseases. Should the disease be 
detected in commercial flocks or in back yard flocks, affected flocks 
would be quickly quarantined to prevent spread. Sick and exposed birds 
would be euthanized and the premises cleaned and disinfected to stamp 
out the disease. USDA would conduct epidemiology investigations to 
determine the source of the virus, and to track the movement of birds 
to contain spread.
    To ensure immediate deployment of supplies necessary to contain, 
control, and eradicate an HPAI outbreak, APHIS is building a stockpile 
of needed vaccines, antiviral, and therapeutic products including 
reagents, disinfectants, and equipment. We are also conducting 
simulated exercises specific to avian influenza to ensure an effective 
response to an outbreak of the disease. Further, APHIS is developing 
models of the potential impacts of avian influenza outbreak in the 
United States and alternative control strategies.
    If the scope of the HPAI outbreak is beyond APHIS' and the affected 
State's immediate resource capabilities, additional resources can be 
obtained through the following mechanisms: the National Response Plan's 
Emergency Support Function #11 ensuring that animal-health emergencies 
are supported in coordination with the emergency support function that 
covers public health and medical services; and the National Animal 
Health Emergency Response Corps and various State response corps can be 
activated. These private veterinarians and animal health technicians 
are ready to assist on short notice.

                          HURRICANE ASSISTANCE

    Question. The Congress recently provided emergency funding through 
the hurricane supplemental for a number of programs that are within the 
rural development mission area. To be more specific, we provided 
supplemental funding for the Rural Community Advancement Program and 
Rural Housing.
    Please provide us with an update on the Department's use of the 
funds. What additional needs are you aware of in rural areas that were 
affected by Hurricane Katrina?
    Answer. On March 13, 2006, Rural Development published a Notice of 
Funding Availability (NOFA) in the Federal Register implementing the 
hurricane supplemental provisions of Public Law 109-148.
    The supplemental provided $35 million in budget authority for our 
direct and guaranteed homeownership programs, $10 million for direct 
homeownership repair loans, and $20 million in direct homeownership 
repair grants. These funds have been allocated to the gulf region. We 
expect that all direct loan and grant funds will be obligated in fiscal 
year 2006. Of the $15 million of budget authority for guaranteed 
homeownership loans ($1.3 billion in deliverable program level), we 
expect the majority of these funds will be carried over into fiscal 
year 2007. We are also planning to use a portion of this budget 
authority to implement a mortgage recovery program for our guaranteed 
homeownership customers. Under this program, Rural Development will 
advance to a lender up to 1 year's worth of payments to bring the 
customer to a current status. To be eligible for the program, the 
customer had to be in good standing with the lender prior to the 
hurricanes and have a reasonable prospect for success. The debt would 
be secured by a non-interest bearing soft-second lien on the property 
payable upon sale or transfer of title. Rural Development will be 
publishing a NOFA on this initiative in the near future.
    The Water and Environmental Programs received $45 million in budget 
authority. We continue to monitor the situation with regard to 
telecommunications and electric demands, but to date, we have not 
received any applications. The first request for 2005 hurricane funds 
was received on April 10, 2006, and is in the process of being reviewed 
for funding qualifications.
    Additional demand for our programs is still difficult to estimate. 
Rebuilding of the housing stock in the gulf region is very dependent on 
ensuring that adequate infrastructure exists, on-going negotiations 
between existing homeowners seeking Federal Emergency Management Agency 
(FEMA) and insurance benefits, lack of builders, and high building 
costs. Our local field offices continue to work with our customers and 
within these rural communities to help with recovery efforts.

                          515 HOUSING PROGRAM

    Question. The fiscal year 2007 budget request eliminates funding 
for the 515 Rural Rental Housing Program. The 515 housing program 
provides funding for construction and revitalization of affordable 
rental housing for rural families who have very low to moderate 
incomes.
    If the Congress does not provide funding for the 515 housing 
program, will low income citizens have any other option when it comes 
to affordable housing?
    Answer. Yes. Rural Development's section 538 Guaranteed Rural 
Rental Housing Program (GRRHP) provides affordable housing to very-low 
and low income families. The section 538 program works in partnership 
with other financing entities to create affordable housing. The lender 
provides the financing to construct or renovate affordable housing, 
Rural Development guarantees the loan. Guaranteed loans generate 10 
times more loan funds for the same budget authority than do direct 
loans, and attract 2.5 times more private sector leveraged money. More 
than 90 percent of the closed loans in the portfolio have 9 percent tax 
credit dollars. Tax credits require owners to achieve affordability 
targets, resulting in high percentages of low and very low income 
tenants. Many tenants in section 538 properties have section 8 vouchers 
which assist the tenants in paying rent. The program also offers 
interest credit subsidies that assist in lowering the interest rate 
throughout the term of the loan. The subsidized interest rate keeps 
rents low for tenants. The section 538 program requires that rents not 
be more than 30 percent of 115 percent of the area median income, and 
average rents for all units at the property cannot be more than 30 
percent of 100 percent of area median income.
    For example, last year the following was provided for new 
construction:
    [The information follows:]

COMPARING RENTAL UNITS PRODUCED IN FISCAL YEAR 2005 WITH SECTION 515 AND
                          538 BUDGET AUTHORITY
------------------------------------------------------------------------
                                                            Guaranteed
                                           Direct loans        loans
------------------------------------------------------------------------
Budget Authority........................     $13,200,000      $3,462,000
Funding Authority.......................     $28,013,000     $99,200,000
Units Produced..........................             783           3,313
Tenants < 60 percent of Area Median                  720           1,000
 Income (Est.)..........................
------------------------------------------------------------------------

    While the average incomes may appear different ($10,036/year 
adjusted income in Section 515 vs. $18,400/year gross income in Section 
538), the aggregate number of families served in the very low income 
category is greater in Section 538.

                     RURAL HOUSING VOUCHER PROGRAM

    Question. In fiscal year 2006, Congress included $16 million for a 
new rural housing voucher program. This funding is available to assist 
tenants who are unable to reside in the current rental arrangement due 
to a property owner exiting the program. The fiscal year 2007 budget 
request increases the funding level for housing vouchers to $74 
million.
    Please take a moment to explain the current status of the $16 
million that was provided for fiscal year 2006. Also, do you expect the 
funding that has been provided for the current fiscal year to meet the 
demand?
    At this point, it seems difficult to determine how many owners will 
choose to prepay and exit the program. Please explain how the 
Department determined this level of funding for fiscal year 2007.
    Answer. On March 20, 2006, Rural Development published a NOFA 
announcing the availability of a voucher demonstration program and has 
started to utilize the $16 million that was provided for fiscal year 
2006. The first Rural Development Vouchers were issued in early April. 
We anticipate that demonstration funding will be sufficient to provide 
2,700 vouchers to protect tenants in projects that prepay during fiscal 
year 2006.
    The Comprehensive Property Assessment (CPA) found that 10 percent 
of the properties (approximately 1,700) could be economically viable to 
prepay, if permitted. This is estimated to be about 46,000 units, with 
approximately one-third of the prepayments occurring in each of the 
first 3 years. The $74 million proposed fiscal year 2007 funding level 
allows USDA to fund approximately 15,000 units at a per voucher funding 
level of slightly over $400 per month. This will include the renewal of 
up to 2,700 vouchers funded during fiscal year 2006. However, the 
specific dollar amount and number of tenants is dependent on the number 
of properties that pre-pay, their location, and the market conditions 
at the time.

                          WATER AND WASTEWATER

    Question. The budget request proposes to change the calculation of 
the interest rate for water and wastewater grants from the fixed rate 
of 4.5 percent to a floating rate set at 60 percent of the market rate.
    Please take a moment to explain the reason why this proposal has 
been included and how it will affect the current program.
    Answer. The reason the President's budget proposed a change in the 
method it uses to determine its loan interest rates is to enable 
communities to better use available loan funds and make the lowest rate 
more reflective of changing market rates. Under our current method of 
establishing a three-tier interest rate, the market rate is indexed 
quarterly to the Bond Buyer 11 GO Bond Index. The poverty rate is fixed 
at 4.5 percent and the intermediate rate is halfway between the market 
and poverty rates.
    In the last 12 quarters the market rate has been at or below 4.5 
percent 7 times, effectively reducing our three-tier to a one-tier 
interest rate schedule. To avoid this, we are proposing to index all 
three interest rate tiers to the 11 GO Bond Index. The market rate will 
remain at the 11 GO Bond Index, the intermediate rate will be 80 
percent of the 11 GO Bond Index and the poverty rate will be 60 percent 
of the 11 GO Bond Index. The final rate will be 3.2 percent for fiscal 
year 2007.
    Question. Most importantly, would this be an administrative change 
or will it require legislative language?
    Answer. The change in rate calculation is administrative.

                            ORGANIC RESEARCH

    Question. Please provide information on all current research on 
organic agriculture performed by ERS and ARS or funded through CSREES.
    Answer. A search of the Current Research Information System 
indicates that there are 187 active organic agriculture research 
projects supported by CSREES. These projects are being conducted in 42 
States with 57 different cooperating land-grant university or other 
institutional partners. In total, these projects support an equivalent 
of 46 scientist years, and the funds are fairly evenly distributed 
across the four CSREES regions. The $10.2 million invested in these 187 
projects is further leveraged by the State partners to increase funding 
support to $20.5 million for organic research.
    An assessment of all Agricultural Research Service research 
activities supporting organic agriculture has been completed. Of $18.4 
million spent by ARS that directly benefits organic agriculture, $4.7 
million is spent for research conducted in the field under conditions 
that are the same or similar to certified organic. Other ARS research 
that indirectly benefits organic agriculture totals $44.1 million. ARS 
now has a national program leader for Integrated Agricultural Systems 
who oversees ARS organic agriculture research. Based on the customer 
input from the 2005 ARS organic agriculture workshop, ARS scientists 
are encouraged to incorporate organic agriculture objectives into 
research plans as part of the next national program cycle. New organic 
field research sites are being planned at Ames, Iowa, Mandan, North 
Dakota, and Fort Pierce, Florida, in addition to field research already 
conducted at Salinas, California, Lane, Oklahoma, Beltsville, Maryland, 
Dawson, Georgia, Morris, Minnesota, Weslaco, Texas, and Orono, Maine. 
ARS is developing a national strategy to identify the greatest barriers 
to organic agriculture production in different regions of the country. 
ARS will use organic agriculture customer input to develop specific 
research problems for the 2007 Integrated Agricultural Systems National 
Program Action Plan.
    The Economic Research Service has been tracking organic acreage and 
livestock, by commodity since 1997, and partnered with NASS in 
increasing the availability of production data and statistics. More 
recently, ERS has gotten involved in organic marketing and social 
science research, including work comparing United States to European 
organic policy, issues and trends in retailers and handlers and 
consumer data analysis. The most recent addition to their research 
projects is data tracking wholesale organic produce prices. In terms of 
leading the research agenda, ERS has sponsored two workshops in the 
past 5 years to frame the consumer, production and environmental issues 
that warrant more research.
    The National Agricultural Library, through its Alternative Farming 
Systems Information Center, general reference and referral services, 
document delivery services and collection development provides access 
to and/or can obtain access to published research on organics conducted 
outside the United States. Some of the information is made available 
through the AFSIC Web site, the NAL Agricola database and through other 
databases to which NAL has access. NAL helps organic farmers to locate 
information on organic research that is conducted nationally and 
internationally.
    Question. Please provide information on all statistics on organic 
agriculture published through NASS.
    Answer. Only one directed question on organic sales was included in 
the 2002 Ag Census, and NASS reported statistics for the value of 
certified organically produced sales by total sales and number of 
farms. The 2007 Census of Agriculture was modified to address the 
increasing data needs of the organic sector and will ask a number of 
new questions of producers in Section 22. Respondents will be asked 
whether the operation is a certified organic operation, how many acres 
were used for organic production, the total value of sales for crops 
and livestock produced and sold, and how many acres were being 
converted to organic production in the past year.
    NASS also conducts the Agricultural Resource Management Survey 
(ARMS) that asks very specific questions about production practices, 
including organic, which together with other detailed data could 
provide rich analyses of the financial performance, sociodemographic 
and marketing choices and trends of organic producers. This cooperative 
arrangement with the Economic Research Service is likely to increase 
the level of data and research available. For example, the ARMS for 
dairy, added an oversample of 700 organic dairy farmers to this survey. 
An expanded section on pasture, organic certification, and other 
questions to capture aspects of organic production that can be 
contrasted with conventional dairy production systems were also added. 
A similar project is underway to explore the costs and production 
practices of organic soybean producers through the ARMS survey program.
    Question. How would the amount of research and statistical 
information available for organic agriculture compare to that for other 
sectors of agriculture?
    Answer. According to the World Trade Organization's International 
Trade Centre, certified organic products make up between 2 and 2.5 
percent of total retail food sales in the United States. ARS research 
in direct support of organic agriculture is $18.4 million, or 1.4 
percent of its total budget in fiscal year 2005. CSREES research in 
direct support of organic agriculture is $10.2 million or 0.8 percent 
of its total budget in fiscal year 2005.
    The data on organic production has been relatively scarce, a 
situation that is being remedied with the ERS/NASS ARMS, and will also 
improve with the addition of questions to the 2007 Ag Census. With the 
increasing inclusion of questions on organic sales, acres and 
production practices relevant to organic producers, comparable data 
will be available on organic producers.
    On the marketing side, data and statistics on organic agriculture 
are less available than for conventional products. Again, ERS has taken 
lead in increasing the amount of information available for some 
products and geographic markets, but until the Agricultural Marketing 
Service (AMS) adapts their price reporting to include more delineations 
for organic product lines, and explores how prices are discovered 
differently, for example through direct markets, little useful price 
information will be available to organic producers and marketing 
channel partners. AMS is currently making changes that will result in 
greater availability of marketing information on organic products.
    Question. What are the organic agriculture's greatest areas of need 
for research and statistical information?
    Answer. The research topics identified at the ARS Organic 
Agriculture Customer Workshop in January 2005 suggest where more 
research is needed in core areas of production, processing, resource 
management and economics. These topics include how organic production 
contributes to different aspects of food quality, safety and security, 
developing production systems to increase profitability, ways to manage 
and measure the health of soils, the environmental benefits from 
organic production systems, ways to achieve the greatest productivity 
in organic production, the contributions of organic production to 
overall sustainability, genetic materials specific to organic 
production systems, and biologically-based strategies to manage 
diseases, weeds and insect pests.
    A recent white paper on organic agriculture developed by CSREES 
identified a number of research priorities that will facilitate organic 
production. The research priorities include developing an improved 
understanding and management of soil fertility, pest management, 
livestock production and health; the development and evaluation of 
adapted cultivars and breeds, assessment of the long term impacts of 
whole-farm systems; the evaluation of the economic, business and social 
aspects of various organic production systems to improve grower 
returns, reduce market barriers, marketing strategies to increase 
consumer demand; the development of science-based information on which 
to base organic regulations, thereby assuring rational regulation, 
providing options to overcome current constraints, and assisting in 
overcoming the increasing number of complex, technical barriers to 
foreign trade; assessment of the production and processing practices 
for impact on consumer valuation of various attributes such as 
identifying: varieties with enhanced flavor and nutrition, improved 
practices to add value and enhance shelf life and quality, effects of 
production systems on product nutrition and quality, and mechanisms to 
minimize GMO contamination of organic products; and the identification 
of the marketing and policy constraints on the expansion of organic 
agriculture, especially among conventional growers who would otherwise 
transition to organic.
    The high interest in, and widespread use of, data collected by the 
ERS on organic production scale and growth would suggest that any new 
data that can be collected on certified acres, including the detailed 
information collected in the Agricultural Resource Management Survey, 
would be a good investment. But, after consultation with the Economic 
Research Organic Work team, the true need is information on prices, 
marketing margins, marketing practices, trade data and other 
information that would allow for better research on competitiveness, 
profitability, emerging marketing trends and how the organic food 
market performs under its evolving growth and change in structure.

                               AVIAN FLU

    Question. Please provide information on all current USDA research 
on highly pathogenic avian influenza. Please provide a brief 
description of the research topic, where it is being performed, and the 
funding history by fiscal year.
    Answer. Avian influenza (AI) presents a major disease threat to the 
U.S. poultry industry. The recent highly publicized outbreak of H5N1 
avian influenza (AI) in chickens and people in Hong Kong illustrates 
the potential public health concerns that may surface as a result of AI 
infections. In 1997, a deadly form of AI (H5N1) infected poultry farms 
and live poultry markets in Hong Kong and was associated with 18 
hospitalized human cases, of which six died. More recently, a similar 
virus has been seen spreading in poultry throughout Asia and Europe and 
is occasionally infecting humans (approximately 200 cases and 100 
deaths). Less pathogenic strains of avian influenza have caused 
problems in many U.S. turkey flocks and live poultry markets since the 
1960's, although few commercial chicken flocks were involved. Because 
of research on AI viruses in recent years we now know that some viruses 
can rapidly change from causing only mild disease to ones that cause a 
deadly disease in chickens. It is likely that the longer a virus 
infects commercial poultry, the more likely it is to cause the severe 
form of the disease. This research seeks to understand the changes that 
are required for this shift in ability to cause disease. The research 
also seeks to control the presence of AI viruses in poultry by 
development of new and more effective vaccines and to develop tests to 
more rapidly diagnose infection in chickens.
    It is crucial that we both seek ways to eradicate or control these 
AI viruses and to understand their potential for a virulence shift. The 
research takes several approaches to these goals including: identifying 
and evaluating the best vaccination approaches to control the disease; 
identifying the source(s) and family relationships of the viruses; 
characterizing the events leading to increase in virulence; 
characterizing the chicken's response to infection with AI viruses; and 
characterizing the factors that allow AI viruses to cross infect other 
species of animals. To aid in the detection and control of the virus, 
ARS developed and APHIS validated a rapid detection assay for Avian 
Influenza Virus (AIV), which is now widely deployed into the National 
Animal Health Laboratory Network.
    For the control of low pathogenic AI outbreaks, vaccination is 
being more commonly considered, because it can potentially help control 
an outbreak at a lower cost than depopulation programs. At ARS, the use 
of currently available and new vaccination strategies are being 
investigated for the control of AI. Currently only two types of 
vaccines are available for use for AI, killed adjuvanted vaccines and 
fowlpox-vectored vaccines. Our research has shown that to get optimal 
protection from these vaccines, it is important to match the vaccine to 
the challenge strain. A better match of vaccines allows less virus to 
be shed from vaccinated but infected birds. Additional research has 
shown that when vaccination is used on a widespread basis antigenic 
drift, similar to what is seen with human influenza viruses, can be a 
problem for decreased effectiveness for the vaccine. Additional 
research has been focused on using viral-vectored or recombinant 
vaccines for AI including fowlpox vectored vaccines, replication 
incompetent alphavirus vectors, and Newcastle disease virus vectored 
vaccines. All three of these vaccines types have shown to provide 
protection from influenza challenge, and can provide the advantage of 
use as a DIVA (differentiate infected from vaccinated animals) vaccine. 
These vaccines are still being evaluated to determine if they have 
significant advantages over commercially available vaccines and can be 
produced in a cost-effective manner. Additional vaccine technologies, 
including the reverse genetics approach to create AI viruses that can 
also be used with the DIVA approach have also been shown to be 
effective.
    To aid in the understanding of AI epidemiology, AI viruses received 
recently from U.S.A. (low pathogenic), Hong Kong, Italy, El Salvador, 
Chile, Netherlands, Indonesia, Viet Nam, and South Korea are being 
classified for disease causing potential. Research studies include 
molecular characterization related to the lethality of the viruses, the 
search for genetic markers for this lethality, and investigating the 
epidemiology and spread of the viruses. Pathogenic potential of the 
viruses is being assessed in disease free chickens held in 
biocontainment facilities. ARS is developing and evaluating techniques 
to predict which mild forms of viruses will change to more deadly forms 
of the AI virus. Furthermore, ARS is assisting the Centers for Disease 
Control and Prevention with evaluating recombinant vaccines to assure 
human vaccines will not cause disease in poultry.
    With the supplemental funding received in fiscal year 2006, ARS 
plans to conduct the following:
  --research on developing and validating existing and new vaccines to 
        ensure that they can be distributed to domestic poultry or wild 
        waterfowl before, during, or after an outbreak to help them 
        build immunity and resistance to AI infection. In addition, ARS 
        will provide direct support to the appropriate in-country 
        counterparts in Asia for testing and evaluating different 
        vaccine formulations via challenge studies; in addition to 
        virus sequencing, cross hemagglutination inhibition titers, and 
        neutralization titers.
  --ARS with partners will develop rapid, State laboratory based or 
        site-deployable tools and other assays that will allow rapid 
        detection and classification of AI viruses. The tests will be 
        accurate for detecting AI virus in various samples including 
        birds (domestic and wild) and environmental specimens. The 
        other assays will include: (1) development, bench validation 
        and limited field validation of a real-time RT-PCR (RRT-PCR) 
        for screening of wild birds for AI viruses; (2) microarray test 
        development for AI virus classification; (3) more sensitive 
        penside tests for avian influenza.
  --genome sequencing of poultry outbreak and wild bird AI viruses in 
        SEPRL archive and those obtained by on going surveillance, and 
        characterize them biologically. ARS will sequence genomes and 
        then mine the sequence data for viral evolution, relationships, 
        and determinants of virulence as well as identify diagnostic 
        sequences and potential vaccine antigens. Viruses will be 
        studied to determine genomic changes that define host 
        adaptation and specificity and changes necessary for AI viruses 
        to cross to new avian and mammalian hosts.
  --ARS with partners will conduct epidemiological studies to identify 
        the risk factors for transmission of virus between farms and 
        biosecurity mitigation steps to reduce transmission. In 
        addition, targeted surveillance of wild birds and poultry at 
        high risk for avian influenza will be conducted to assess risk 
        of introduction to farms.
    ARS supports APHIS and poultry industry action programs with 
epidemiology, molecular virology, pathogenesis research, and technical 
assistance on AI. ARS is directly assisting APHIS in trade negotiations 
of poultry products by determining the risk for low and high 
pathogenicity AI in poultry meat and the ability of pasteurization to 
inactivate AI in egg products.
    The funding for Avian Influenza Disease research for fiscal years 
2005, 2006 and 2007 are provided below for the record.

----------------------------------------------------------------------------------------------------------------
                                                                    Fiscal year     Fiscal year     Fiscal year
                                                                       2005            2006            2007
----------------------------------------------------------------------------------------------------------------
Athens, GA......................................................      $2,171,200  \1\ $2,344,400      $5,418,400
----------------------------------------------------------------------------------------------------------------
\1\ Does not include the fiscal year 2006 supplemental funding of $7 million.

                       RENEWABLE ENERGY RESEARCH

    Question. Please provide information on all current USDA research 
on renewable energy. Please provide a brief description on the research 
topic, where it is being performed, and the funding history by fiscal 
year.
    Answer. Both the Agricultural Research Service (ARS) and the 
Cooperative State Research, Education, and Extension Service (CSREES) 
support renewable energy research. ARS, as the Department of 
Agriculture's in-house research agency, has a nationwide network of 
facilities and research scientists who conduct basic and applied 
research for the purpose of solving problems associated with regional 
and national high priority issues, including renewable fuels, affecting 
producers and consumers of U.S. agricultural products ARS cooperates 
closely with the Cooperative State Research, Education, and Extension 
Service (CSREES) and the university system.
    ARS conducts a national Bioenergy and Energy Alternatives Research 
Program (http://www.ars.usda.gov/research/programs/
programs.htm?NP_CODE=307), with the vision of meeting America's energy 
needs with renewable resources. The mission of this research addresses 
national goals of improving energy security, environmental quality, and 
the economy, with an emphasis on the rural economy. Major program goals 
include:
  --Sustainable energy from agriculture that is energy efficient and 
        economic.
  --Understanding the recalcitrance of biomass.
  --Exploiting the potential of molecular biology to improve quantity 
        and quality of agricultural biomass feedstocks and to improve 
        the effectiveness of conversion organisms.
  --Matching the characteristics of biomass feedstocks with the 
        requirements of conversion organisms.
  --Devising value-added biofuel coproducts.
  --Meeting on-farm and rural community energy needs for liquid fuel, 
        electricity, and heat.
  --Reduce energy cost for agricultural operations.
    To achieve these goals, research is conducted from feedstock, 
including crops, crop residues, byproducts, and wastes, to fuel, 
including ethanol, biodiesel, biogas, and hydrogen. Examples include:
  --Genetic modification of plants to improve the quality 
        characteristics and increase the quantity of feedstock 
        produced.
  --Technology to sustainably produce and harvest the biomass, to 
        efficiently handle, add value, store, and deliver the 
        feedstock, and to quickly measure its quality at any point in 
        the process.
  --Technology for biological or thermochemical conversion of feedstock 
        to fuel and coproducts. This includes processes, organisms, and 
        product separation for energy efficient and economical 
        application for use on-farm, in local community size plants, 
        and in large biorefineries.
  --Technology to improve quality, performance, and ease of using the 
        biofuels produced.
    Successful completion of the proposed work will promote the 
enhanced use of agricultural commodities by providing additional 
markets for farmers and for fuel producers. The public will benefit 
from reduced environmental pollution and enhanced energy security 
associated with using a domestic resource that reduces dependence on 
imported petroleum and improves the balance of trade. Outcomes and 
impact include:
  --Successful and sustainable systems of bioenergy production
  --Energy crops with greater yield and more desirable properties
  --Energy efficient conversion of herbaceous crops and crop residue to 
        ethanol
  --Biodiesel with reduced emissions and better performance
  --Less costly biofuels
  --Distributed rural energy production for farm, rural community, and 
        national needs
  --Enhanced rural economy
    With its nationwide capabilities in natural resources and 
sustainable agricultural systems, in quality and utilization of 
agricultural products, in crop production and management, and in animal 
production and management, ARS has the research capacity and is well 
positioned to lead and to partner with other Federal agencies, States 
and private interests to develop energy efficient, economical, 
sustainable, and socially acceptable technologies to make agriculture 
energy independent and for agriculture to be a major supplier of energy 
for the Nation.
    Components of ARS Bioenergy and Energy Alternatives Research are 
conducted at the following locations:
  --Energy Crop research:
    --Western Regional Research Center, Albany, California:
      --Genetic manipulation to develop crops more easily converted to 
            ethanol.
  --Lincoln, Nebraska:
    --Grasses with improved biomass yield and quality and sustainable 
            grass production management practices.
  --St. Paul, Minnesota:
    --Legumes with improved biomass yield and quality and sustainable 
            legume production management practices.
  --Corvallis, Oregon; El Reno, Oklahoma; Mandan, North Dakota; Tifton, 
            Georgia; and University Park, Pennsylvania:
    --Germplasm, physiology, and management technology for herbaceous 
            energy crop production on agricultural lands managed for 
            conservation.
  --Madison, Wisconsin:
    --Harvesting, handling, storage, and characterizing quality of 
            energy crops and plant residues.
  --Ethanol research:
  --Eastern Regional Research Center, Wyndmoor, Pennsylvania:
    --Process technologies and systems that reduce cost of ethanol 
            production.
    --Environmentally sustainable processes to maximize ethanol yield 
            from starch.
    --Processes for generating high value products from parts of corn 
            not converted to ethanol.
    --Processes to integrate production of ethanol from stover and from 
            grain.
  --National Center for Agricultural Utilization Research, Peoria, 
            Illinois:
    --Development of superior microbes and enzymes for conversion of 
            agricultural commodities to ethanol.
    --Processes for conversion of cellulosic agricultural materials to 
            ethanol.
    --Technologies to recover valuable coproducts during ethanol 
            production.
  --Western Regional Research Center, Albany, California:
    --Integration of plant molecular biology, genomics, bioinformatics, 
            and plant transformation to produce ethanol from cereal 
            crops.
    --Enzymes, which work at lower temperatures, to improve energy 
            efficiency.
    --Biomaterial membranes that improve separation of water and 
            ethanol.
  --Richard B. Russell Research Center, Athens, Georgia:
    --Characterization of herbaceous plant parts suitable for 
            conversion to ethanol.
    --Methods to evaluate plant material composition.
    --Enzymatic processes to extract carbohydrates from corn stover.
  --Brookings, South Dakota:
    --Processes and products to enhance value of distillers dried 
            grains.
    --Converting cellulosic ethanol by-products into value-added 
            coproducts.
    --Processes that add value to cellulosic feedstocks on the farm.
  --Biodiesel research:
  --Eastern Regional Research Center, Wyndmoor, Pennsylvania:
    --Enzymatic processes to convert animal fats, vegetable oils and 
            restaurant greases into biodiesel.
    --Burning of fats and oils as heating fuel.
  --National Center for Agricultural Utilization Research, Peoria, 
            Illinois:
    --Quality and performance, including storage stability, cold flow, 
            and emissions reduction, of diesel fuels and additives 
            produced from vegetable oils.
    --Use of biodiesel as aviation fuel.
  --Bushland, Texas:
    --Performance and emissions of biodiesel as affected by feedstock.
    --On-farm biofuel production.
  --Other renewable energy research:
  --Beltsville, Maryland:
    --Production of electricity from animal manure via anaerobic 
            digestion and use of the methane produced to generate 
            electricity.
  --Wyndmoor, Pennsylvania:
    --Thermo-chemical conversion of plant biomass to hydrogen.
  --Peoria, Illinois:
    --Biological production of hydrogen.
  --Bushland, Texas:
    --Systems to provide renewable energy for on-farm and remote 
            agricultural needs.

                    CSREES RENEWABLE ENERGY RESEARCH

    CSREES with Hatch Act, McIntire-Stennis, Evans-Allen, National 
Research Initiative, Special Research Grants, and Federal 
Administration funding supports research projects focused on renewable 
energy. CSREES is the lead agency for the USDA Small Business 
Innovation Research Program. Funding for this program comes from CSREES 
and other USDA agencies and also supports projects on renewable energy. 
The majority of projects address technical obstacles to the cost-
effective conversion biomass to energy. The majority of conversion 
technologies are biological or thermo/chemical conversion of vegetable 
oils, starches and lignocellulosic materials into biofuels. The 
information that is requested is listed below according to the funding 
authority.
I. Competitive awards through the National Research Initiative
(1) NOVEL BIOMASS PROCESSING CHEMISTRY
    START: 01 September 2003.
    COMPLETION DATE: 31 August 2006.
    TOTAL BUDGET: $175,000.
    PROJECT LOCATION: Institute of Paper Science And Technology, 
Atlanta, Georgia.
    OBJECTIVES: The objective of this program is directed at using 
ionic liquid-based systems to develop novel oxidative/reductive 
chemistry that will fragment and convert lignin into high-value, low 
molecular weight chemicals that could be employed as a feedstock for 
the plastic and chemical industries. This research program will take 
advantage of recent advances in ionic liquids to develop new chemical 
reactions that will convert waste biomass lignin into high-value 
chemical components including phenol derivatives for adhesive/polymer 
industry, polycarboxylate derivatives that will be employed by the 
detergent and metal chelant industry and/or lignin fragments for 
polymer synthesis.

(2) PROCESS FOR XANTHOPHYLLS FROM CORN
    START: November 2003.
    COMPLETION DATE: 14 November 2006.
    TOTAL BUDGET: $142,000.
    PROJECT LOCATION: University of Illinois, Urbana, Illinois.
    OBJECTIVES: The overall objective is to develop a process for the 
production of xanthophylls from corn using a combination of solvent 
extraction, membrane technology and chromatography. There are two 
specific objectives in this proposed research: (1) Screen membranes for 
their separation characteristics and stability in organic solvents, and 
optimize performance parameters of selected membranes for the 
concentration of xanthophylls extracted from corn. (2) Develop a method 
for producing high-purity xanthophylls by chromatography. This project 
benefits human health by creating a low-cost source of lutein and 
zeaxanthin. It also benefits the dry-grind ethanol industry by creating 
a high-value coproduct that can offset the need for tax waivers and 
subsidies. Xanthophylls can generate an income of $1-2 per bushel of 
corn which is 25-33 percent increase in net revenue with no additional 
materials coming in to the plant.

(3) GENETIC ENGINEERING OF YEAST FOR CO-FERMENTING ALL FIVE CELLULOSIC 
    SUGARS TO ETHANOL
    START: 01 September 2003.
    COMPLETION DATE: 31 August 2005.
    TOTAL BUDGET: $227,003.
    PROJECT LOCATION: Purdue University, West Lafayette, Indiana.
    OBJECTIVES: Researchers have developed recombinant Saccharomyces 
yeast that can effectively ferment xylose, a major sugar molecule in 
cellulosic biomass, to ethanol. The objective of this project is to 
make the yeast also able to effectively ferment other sugars in 
cellulosic biomass so that the engineered yeast can be more effective 
in using this ideal feedstock to produce fuel ethanol.

(4) SORGHUM AS A VIABLE RENEWABLE RESOURCE FOR BIOFUELS AND BIOBASED 
    PRODUCTS--SHORT TITLE: SORGHUM BIOCONVERSION RESEARCH (SBR)
    START: 01 September 2004.
    COMPLETION DATE: 31 August 2007.
    TOTAL BUDGET: $450,000.
    PROJECT LOCATION: Kansas State University, Manhattan, Kansas.
    OBJECTIVES: Identify hybrids, and elite germplasm, with genetic 
variation for a range of selected compositional characteristics 
(starch, starch type, hardness, protein, grain phenotype, etc). Develop 
a coordinated understanding of the relationship among composition, 
chemical structure, physical features, and the availability of 
fermentable/usable-stored glucose (starch). Expand a demonstrated 
micro-fermentation system to allow higher-throughout screening of test 
samples, and test conditions, for the production of ethanol and lactic 
acid. Integrate the results from the above experiments to determine the 
impact of compositional, structural, and physical factors on the 
efficiency of bioprocessing, and to identify the key interactions 
impacting fermentation yield from sorghum grain. Create an Energy Life 
Cycle Analysis Model to quantify and prioritize the savings potential 
from factors identified in the above research, based on both energy and 
economics.

(5) PROTEOMIC ANALYSIS OF ETHANOL SENSITIVITY AND TOLERANCE IN 
    THERMOPHILIC AND ANAEROBIC BACTERIA
    START: 01 September 2004.
    COMPLETION DATE: 31 August 2006.
    TOTAL BUDGET: $330,000.
    PROJECT LOCATION: University Of Kentucky, Lexington, Kentucky.
    OBJECTIVES: The specific objectives are to: Characterize 
alterations in the proteomic profile of C. thermocellum and T. 
ethanolicus in response to ethanol challenge. Determine the proteomic 
profile of ethanol resistant strains. Examine if proteomic changes 
elicited by ethanol are similar to those caused by environmental 
stresses including temperature, pH, and organic solvents. Evaluate 
alternative approaches to identify and quantify changes in proteomes of 
thermophilic bacteria.

(6) AN INTEGRATED APPROACH TO REDUCED RISK OF PHOSPHORUS POLLUTION OF 
    SURFACE WATERS IN CROP-LIVESTOCK BASED MANAGED ECOSYSTEMS OF THE 
    MIDWEST
    START: 15 August 2005.
    COMPLETION DATE: 14 August 2009.
    TOTAL BUDGET: $490,000.
    PROJECT LOCATION: Nebraska Corn Development, Utilization and 
Marketing Board Lincoln, Nebraska
    OBJECTIVES: Develop methods for removing phosphorus (P) from corn 
milling by-products, or improving P availability through while 
minimizing the loss of feed value for ruminants and for enzymatic 
degradation of phytate to P to produce value added products such as 
inositol, inositol phosphates and struvites. Develop a decision tool on 
the cost effectiveness of composting livestock manure to improve the 
economics of transporting manure greater distances to more land for 
agronomically and environmental sound application rates. Determine the 
effects of manure applied several years previously, of deep 
incorporation of surface soil with excessively high soil P, and the 
effects of setback alternatives on the potential for P delivery to 
surface waters. Validate and calibrate a watershed characterization 
model and two P-indexes for assessment of the potential for P delivery 
to surface waters. Provide education to various stake-holders on P 
related issues.

(7) LIGNIN BLOCKERS FOR LOWER COST ENZYMATIC HYDROLYSIS OF PRETREATED 
    CELLULOSE
    START: 01 September 2004.
    COMPLETION DATE: 31 August 2007.
    TOTAL BUDGET: $401,000.
    PROJECT LOCATION: Thayer School of Engineering, Hanover, New 
Hampshire.
    OBJECTIVES: The primary goal is to more fully develop lignin 
blocker technology for biological conversion of pretreated cellulosic 
biomass to glucose that can be converted to ethanol and a range of 
other products either biologically or chemically. In particular, to 
understand and apply lignin blockers to reduce enzyme loadings and 
costs for enzymatic digestion of pretreated cellulose to glucose. The 
first objective of the research is to screen different soluble proteins 
and other promising compounds not yet considered with pretreated 
biomass to define a library of promising lignin blockers that could 
reduce cellulase loadings and costs. The second objective is to measure 
cellulase and blocker adsorption and desorption when applied with 
different lignin blockers and cellulase addition strategies and 
pretreatment conditions. The third objective is to define the impact of 
the most promising lignin blockers on enzymatic hydrolysis of 
pretreated cellulose to determine how performance of the system is 
influenced by amounts of lignin blocker, cellulase, cellulose, and 
lignin; temperature; pH; glucose accumulation; beta-glucosidase 
supplementation; and ingredient addition strategies. The fourth 
objective is to investigate the performance of the most promising 
lignin blockers when used with pretreated cellulose in simultaneous 
saccharification and fermentation (SSF) to define the impact on 
performance versus cellulase use because SSF eliminates equipment and 
speeds rates, yields, and concentrations of ethanol production while 
inhibiting invasion by unwanted organisms. The final objective is to 
develop models to relate enzymatic hydrolysis rates and yields to 
concentrations of lignin blockers and cellulase; the cellulose, lignin, 
and other component content of pretreated biomass; process conditions; 
and the use of other ingredients (e.g., supplemental beta-glucosidase). 
This research element will focus on improving the understanding of how 
adsorption and desorption of lignin blockers and cellulase are 
influenced by processing conditions and how they in turn affect the 
performance of hydrolysis systems and use that information to project 
pathways to further improve performance

(8) NOVEL MEMBRANE TECHNOLOGY FOR VOLATILE BIOPRODUCT RECOVERY FROM 
    FERMENTATION BROTHS
    START: 01 September 2003.
    COMPLETION DATE: 31 August 2006.
    TOTAL BUDGET: $168,700.
    PROJECT LOCATION: New Jersey Institute of Technology, Newark, New 
Jersey.
    OBJECTIVES: Develop a novel composite membrane system from surface 
modified porous hydrophobic polypropylene (PP) hollow fibers and an 
appropriate liquid membrane in the macropores of the PP hollow fibers 
and determine their separation performances from model solutions of 
individual bioproducts, such as butanol, ethanol, acetic acid, 
propionic acid and butyric acid under the influence of permeate side 
vacuum. Study a batch fermentation system externally coupled with the 
novel membrane device and total broth recycle for the production and 
recovery of acetone, butanol and ethanol (ABE) from Clostridium 
acetobutylicum. Study batch fermentation also with total broth recycle 
for the production and recovery of propionic acid.

(9) BEYOND THE BARRIER: ETHANOL FROM LIGNOCELLULOSIC BIOMASS USING 
    METABOLIC ENGINEERING
    START: 01 SEP 2004.
    COMPLETION DATE: 31 AUG 2007.
    TOTAL BUDGET: $451,000.
    PROJECT LOCATION: North Carolina State University, Raleigh, North 
Carolina.
    OBJECTIVES: The main objective is to use genetically engineered 
lignocellulosics as the feedstock for fuel ethanol production. Produce 
desirable transgenic trees for ethanol conversion. Establish systems 
for high throughput, micro-scale component analysis of treatment 
streams. Determine the chemical and enzymatic digestibility of the 
transgenic materials and their ability to ferment ethanol, with the 
emphasis of using Novozyme's efficient, low cost cellulase cocktail. 
Perform cost versus performance studies of sugar/ethanol production 
from transgenics with diminished recalcitrance.

(10) ECONOMIC IMPACTS FROM INCREASED COMPETING DEMANDS FOR AGRICULTURAL 
    FEEDSTOCKS TO PRODUCE BIOENERGY & BIOPRODUCTS
    START: 15 August 2003.
    COMPLETION DATE: 31 August 2006.
    TOTAL BUDGET: $136,000.
    PROJECT LOCATION: University of Tennessee, Knoxville, Tennessee.
    OBJECTIVES: The overall objective of this proposed project is to 
develop a national bioenergy and bioproduct expansion curve. As 
bioenergy and bioproduct production increases, demand for, and price of 
agricultural products will increase. This analysis will quantify these 
expected increases considering various demand quantities of bioenergy 
and bioproducts.

(11) REGULATION OF N-ACYLETHANOLAMINE METABOLISM IN SEEDS
    START: 01 September 2002.
    COMPLETION DATE: 30 September 2006.
    TOTAL BUDGET: $145,000.
    PROJECT LOCATION: University of North Texas, Denton, Texas.
    OBJECTIVES: We propose to continue our efforts to examine the 
catabolism of N-acylphosphatidylethanolamine (NAPE) and N-
acylethanolamine (NAE) in plants. Our approach is targeted toward the 
functional characterization of candidate NAE amidohydrolase(s) from 
several plant sources (Arabidopsis thaliana, Medicago truncatula and 
cotton) as well as a detailed characterization of several putative 
NAPE-phospholipase D(s) identified in germinated cottonseeds. The 
overall goal will be to place this new biochemical and molecular 
information into the physiological context of seed development, 
germination and seedling growth, stages determined previously to be 
active in NAPE/NAE metabolism, in an effort to improve our 
understanding of the role(s) of this pathway in plants. Specifically, 
to (1) functionally identify and biochemically characterize plant NAE 
amidohydrolase(s) (or fatty acid amide hydrolase, FAAH), (2) 
functionally identify and biochemically characterize seed-derived NAPE-
phospholipase D(s), and (3) evaluate NAE amidohydrolase and NAPE-
phospholipase D expression during seed development, desiccation, 
imbibition, germination, and seedling growth.

(12) VAPOR PHASE BIOREACTORS TO TREAT AIR POLLUTANTS EMITTED FROM CORN-
    BASED ETHANOL PRODUCTION FACILITIES
    START: 01 September 2003.
    COMPLETION DATE: 31 August 2006.
    TOTAL BUDGET: $178,500.
    PROJECT LOCATION: University of Texas, Austin, Texas.
    OBJECTIVES: The primary objective of the project is to develop a 
vapor phase bioreactor system specifically optimized to treat the 
hazardous air pollutants (HAPs) and volatile organic compounds (VOCs) 
emitted from corn-derived ethanol production facilities. Specific 
objectives include: (1) Assess the biodegradability of VOC/HAP mixtures 
representative of those emitted from ethanol production facilities; (2) 
Evaluate the effect of key operating parameters on pollutant removal in 
vapor phase bioreactors treating ethanol plant emissions; (3) Evaluate 
the feasibility of using a hybrid biofilter/biotrickling filter system 
to treat plant emissions.

(13) QUANTITATIVE ASSESSMENT OF CARBOHYDRATE, LIGNIN AND EXTRACTIVE 
    DEGRADATION PRODUCTS IN PRETREATED LIGNOCELLULOSE
    START: 01 September 2003.
    COMPLETION DATE: 31 August 2006.
    TOTAL BUDGET: $175,000.
    PROJECT LOCATION: Baylor University, Waco, Texas.
    OBJECTIVES: The overall project goal is to improve fundamental 
quantitative understanding of the effect of pretreatment conditions on 
the production of a wide range of hydrolysate degradation products. 
Objectives to achieve this goal are to: (1) Develop a Liquid 
Chromatography-Mass Spectrometry method that will quantify diverse 
biomass degradation products and (2) Correlate product concentrations 
with pretreatment conditions of temperature, reaction time, pH, 
severity, and combined severity.

(14) CELLULASES FOR BIOMASS CONVERSION FROM TRANSPLATOMIC PLANTS
    START: 01 September 2005.
    COMPLETION DATE: 31 August 2008.
    TOTAL BUDGET: $399,963.
    PROJECT LOCATION: University of Wisconsin, Madison, Wisconsin.
    OBJECTIVES: Enhance translation efficiency leading to higher 
expression levels through N-terminal extension addition to three 
different cellobiohydrolases. Compare the efficiency of expression of 
the three enzymes at the trnI/A locus and trnG/fM locus. Combine 
chloroplast-derived cellobiohydrolase expression with existing nuclear-
derived E1cd endoglucanase expression through breeding.

(15) PHOTOSYSTEM I NANOSCALE PHOTODIODES FOR CREATING 
    PHOTOELECTROCHEMICAL DEVICES
    START: 01 December 2004.
    COMPLETION DATE: 30 November 2006.
    TOTAL BUDGET: $165,000.
    PROJECT LOCATION: Vanderbilt University, Nashville, Tennessee.
    OBJECTIVES: This project will utilize nanoscale components from 
green plants for solar energy conversion, exemplifying the use of 
natural resources to promote responsible environmental stewardship by 
providing alternative, biobased energy resources for our society. The 
overall objective of this project is to create an environmentally clean 
and biologically inspired photoelectrochemical device that incorporates 
one of nature's optimized nanoscale photodiodes, the Photosystem I 
(PSI) reaction center.
II. Competitive awards through the Small Business Innovative Research 
        Program
    Processing of Poultry Manure for Fuel Gas Production.--Advanced 
Fuel Research, Inc., East Hartford, CT, $79,849/6 months. The objective 
of this phase I research is to convert poultry manure into a usable 
syngas fuel. Project completed, received phase II in 2005.
    Modified Soybean Oil as a Deposit Control Fuel Additive.--Mountain 
View Systems, LLC, Canfield, OH, $80,000/6 months. This phase I project 
seeks to produce a fuel additive from soybean oil that will enhance the 
performance of biofuels by reducing deleterious deposits formed by 
biofuel combustion in engines. Project is ongoing with an extension.
    Improved Quality Soy-oil Based Biodiesel Fuel.--BioPlastic Polymers 
and Composites, LLC, Midland, MI, $40,000/6 months. The goal of this 
phase I project is to improve the process for converting soybean oil 
into biodiesel fuel. Project completed, received Phase II in 2005.
    Cellulases for Biomass Conversion from the Transgenic Maize 
System.--Prodigene, Inc., College Station, TX, $296,000/24 months. The 
enzymatic conversion of biomass is limited by the availability and 
expense of enzymatic catalysts. This phase II project seeks to develop 
an economically feasible method for producing cellulases in industrial 
scale quantities with reduced cost. Project is ongoing.
    Fiscal year 2005 projects:
    Biosolids for Biodiesel.--Emerald Ranches, Sunnyside, WA, $295,606/
24 months. The goal of this Phase II project is to set up a facility 
that is capable of extracting oil from canola seed and transforming the 
oil into biodiesel fuel through a base catalyzed esterification 
reaction. Project is ongoing.
    A New Process for Biodiesel Production Based on Waste Cooking Oils 
and Heterogeneous Catalysts.--United Environment & Energy, LLC, Orchard 
Park, NY, $80,000/8 months. The overall objective of this Phase I 
project is to study the feasibility of a proposed new process for cost-
effective production of high value biodiesel from waste cooking oils. 
Project completed, applied for Phase II in 2006, pending.
    Improved Quality Soy-Oil Based Biodiesel Fuel.--Bioplastic Polymers 
& Composites, LLC, Midland, MI, $296,000/24 months. The overall 
objective of this Phase II project is to produce biodiesel from fats 
and vegetable oils that has better low temperatures flow properties, 
such as lower viscosity, is more volatile, and is more resistant to 
thermal breakdown than current biodiesels. Project is ongoing.
    Lignin-based Polymeric Materials from Byproduct of Biomass 
Conversion.--NaSource Company, Newbury Park, CA, $80,000/8 months. The 
conversion of agricultural biomass to biofuels produces a waste stream 
of materials that require further conversion to create value-added 
products and improve the economics of fuel production. The objective of 
this Phase I project is to chemically modify certain waste stream 
components to produce lignin-based plastics. Project is ongoing with an 
extension.
    Processing of Poultry Manure for Fuel Gas Production.--Advanced 
Fuel Research, Inc., East Hartford, CT, $296,000/24 months. The 
objective of this Phase II project is to develop the technology for 
converting poultry manure into combustible gases that can be integrated 
with various electrical power generation devices and have widespread 
agricultural use for poultry manure removal, resource recovery, and 
power generation. Project is ongoing.
    Improved Anaerobic Digestion of Dairy Manure for Energy and High-
value Co-products.--Andgar Corporation Ferndale, WA, $80,000/8 months. 
This Phase I project seeks to develop the anaerobic digestion 
technology to convert manure produced by dairy cows into biogas and 
high-quality, value-added fiber. Project is ongoing with an extension.
    Camelina Sativa.--A Multiuse Oil Crop for Biofuel, Omega-3 Cooking 
Oil, and Protein/oil Source for Animal Feed: Great Northern Growers 
Cooperative, Sunburst, MT, $80,000/8 months. The objective of this 
Phase I project is to evaluate a new crop for the Northern Plains 
States that is suitable for economic conversion into biodiesel, 
biolubricants, and an omega-3 fatty acid-rich cooking oil for human 
consumption. Project is completed, applied for Phase II in 2006, and is 
pending.
  --High Yield, High Efficiency Bio-refining.--Advanced Materials and 
        Processes, San Marcos, TX, $79,966/8 months. The objective of 
        this Phase I project is to develop technology to improve yields 
        in vegetable oil processing by extracting fatty acids from 
        vegetable oils and biodiesel without creating emulsions. 
        Project is completed, applied for Phase II in 2006, and is 
        pending.
  --Ultra-Clean Mobile Incinerator for Chicken Litter/Waste Disposal.--
        Mel McLaughlin Company, Upper Marlboro, MD, $80,000/8 months, 
        The objective of this phase I is to validate the feasibility of 
        the ultra-clean mobile incinerator for chicken litter/waste 
        disposal. Project is completed, applied for Phase II in 2006, 
        and is pending.
  --Cost Effective and Reliable Anaerobic Digestion for Agricultural 
        Byproducts.--Hansen Energy and Environmental, East Garland, UT, 
        $80,000/8 months. The objective of this phase I project is to 
        study an anaerobic induced blanket reactor (IBR) system and 
        verify performance for treating manure and food waste 
        economically. Project is completed, applied for Phase II in 
        2006, and is pending.
III. Special Research Grants and Federal Administration Research grants
(1) IOWA BIOTECHNOLOGY CONSORTIUM
    The primary goal of this project is to conduct fundamental and 
applied research aimed at enhancing the recovery and utilization of by-
product materials from new and emerging biotechnology industries, with 
emphasis on agribusiness. Grants have been awarded from funds 
appropriated as follows: fiscal year 1989, $1,225,000; fiscal year 
1990, $1,593,000; fiscal year 1991, $1,756,000; fiscal year 1992, 
$1,953,000; fiscal year 1993, $2,000,000; fiscal year 1994, $1,880,000; 
fiscal years 1995-1996, $1,792,000 each year; fiscal year 1997, 
$1,738,000; fiscal years 1998-2000, $1,564,000 each year; fiscal year 
2001, $1,560,559; fiscal year 2002, $1,530,000; fiscal year 2003, 
$1,753,528; fiscal year 2004, $1,789,380; fiscal year 2005, $1,774,688; 
and fiscal year 2006, $1,757,250. A total of $30,586,405 has been 
appropriated. Research is being conducted at Iowa State University, the 
University of Iowa, and various sites throughout Iowa.
(2) FEEDSTOCK CONVERSION
    The original goal of this research was to develop the mission of 
the Sun Grant Initiative, to identify five leading universities as 
regional centers, to plan individual and collaborative activities at 
each center, and to establish a working relationship between these 
universities and Federal agencies. The work supported by this grant 
began in fiscal year 2002, and the appropriation was $560,000 in fiscal 
year 2002; $556,360 in fiscal year 2003; $671,017 in fiscal year 2004; 
$667,616 in fiscal years 2005; and $668,250 in fiscal year 2006. A 
total of $3,123,243 has been appropriated. Research is conducted at 
South Dakota State University at Brookings, Cornell University at 
Ithaca, University of Tennessee at Knoxville, Oklahoma State University 
at Stillwater, and Oregon State University at Corvallis. The 
anticipated completion date for fiscal year 2005 funds is September 30, 
2006.
(3) BIODESIGN AND PROCESSING RESEARCH CENTER
    The Center will address economic viability of farmers, and will 
include conversion of agricultural wastes to value-added products. The 
Center will also provide educational and outreach programming for 
students, farmers, woodland owners and processors in the region. During 
the first year of this project, research will focus on converting 
animal waste to energy, as a strategy for animal waste management. The 
appropriation for fiscal year 2006 is $940,500. The Center is located 
at Virginia Polytechnic Institute and State University, Blacksburg, 
Virginia. This project will be completed in fiscal year 2009.
(4) BIOMASS-BASED ENERGY RESEARCH
    This research addresses conversion of biomass to ethanol, and 
chemicals. Through an Oklahoma State University, University of 
Oklahoma, and Mississippi State University Consortium, the three 
universities are developing an ethanol gasification-bioconversion 
process that utilizes all of the plant biomass, including the lignin. 
While making the process more cost efficient than other methods of 
ethanol production, this process utilizes all portions of a variety of 
biomass and feedstock material that includes grasses, crop residues, 
and processing plant byproducts. The primary goal is to develop a cost-
effective biomass conversion-to-ethanol production system utilizing a 
unique gasification-fermentation process. The work supported by this 
grant began in fiscal year 2001, and the appropriation for fiscal year 
2001 was $900,016; for fiscal year 2002, $960,000; for fiscal year 
2003, $1,142,525; for fiscal year 2004, $1,022,929; for fiscal year 
2005, $1,014,816; for fiscal year 2006, $1,188,000. The total amount 
appropriated is $6,228,286. This work is carried out at Oklahoma State 
University, University of Oklahoma, and Mississippi State University. 
This project is expected to be completed in 3 years.
(5) INSTITUTE FOR BIOBASED PRODUCTS AND FOOD SCIENCE
    The Biobased Institute funds research projects that increase 
profitability of agriculture, enhance human health through improved 
nutrition, and reduce reliance on non-renewable energy by production of 
biofuels, ethanol and biolubricants. Research activities include 
producing ethanol from biomass, and reducing the cost of producing 
biodiesel. Technology transfer collaborations have been set up to 
ensure efficient transfer to the marketplace for all products under 
development at the Institute. The funding for this project began in 
fiscal year 2003, and $596,100 was appropriated for fiscal year 2003; 
$532,838 for fiscal year 2004; $562,464 for fiscal year 2005; $557,370 
for fiscal year 2006. A total of $2,248,772 has been appropriated. 
Currently this work is being carried out at Montana State University.
(6) ALTERNATIVE FUELS CHARACTERIZATION LABORATORY
    Through a national collaboration, the National Alternative Fuels 
Laboratory matches about half of its Federal funding with non-Federal 
money to work on industry fuel relevant research. The National 
Alternative Fuels Laboratory has developed a Federal Aviation 
Administration-certified lead-free ethanol- and biodiesel-containing 
alternative to leaded aviation gasoline. The fuel is now commercially 
available in South Dakota and will be introduced at airports throughout 
the United States in response to increasing demand. They have resolved 
ethanol-in-gasoline performance and environmental issues to accelerate 
the use of ethanol, and they have initiated new biomass fuel 
developments, including processes, to produce Environmental Protection 
Agency-approved, high-octane, emission-clean gasoline additives from 
agricultural resources. In addition, they have initiated and 
coordinated a 27-member Red River Valley Clean Cities Coalition to 
increase the number of alternative fuel vehicles in regional public and 
private fleets and have built refueling sites for disbursing fuels 
containing 85 percent of ethanol in North Dakota. The primary goal was 
to develop a database of at-the-pump-sampled conventional, 
reformulated, and alternative transportation fuels sold in the upper 
Midwest and throughout the United States to enable comparison of 
current and historical fuels on the basis of chemical and physical 
properties. This fuel database has been expanded to include how 
gasoline chemistry affects air quality and fuel performance. The goal 
of developing nonfuel products derivable from bio-oils generated via 
fast pyrolysis of lignocellulosic biomass was achieved during fiscal 
year 2005. Another original goal was to provide information on 
conversion of crop residues, agriculture processing wastes, high-
cellulose-content municipal wastes, and other biomass materials to 
alternative fuels. The National Alternative Fuels Laboratory program 
supported the Red River Valley Clean Cities Coalition, conducted 
chassis dynamometer tests comparing three major brand E10 gasoline and 
one E8 fuel, and collaborated with the American Lung Association of 
Minnesota to assess the greenhouse gas reduction potential of E85 fuel.
    The National Alternative Fuels Laboratory began in fiscal year 1991 
and was, in part, sponsored by this grant. Federal appropriations in 
fiscal year 1991 through fiscal year 1993 were $250,000 per year. Later 
awards were $235,000 in fiscal year 1994; $204,000 in fiscal year 1995; 
$218,000 per year in fiscal years 1996 through 2000; $258,430 in fiscal 
year 2001; $294,000 in fiscal year 2002; $300,037 in fiscal year 2003; 
$268,407 for fiscal year 2004; $281,728 in fiscal year 2005; and 
$279,180 in fiscal year 2006. A total of $3,960,782 has been 
appropriated. The work is performed at the University of North Dakota 
Energy and Environmental Research Center in Grand Forks.
(7) AGRICULTURE WASTE UTILIZATION
    The original goal was to determine the applicability of anaerobic 
digestion to convert organic waste materials to energy in the form of 
biogas, thereby reducing the amount of organic matter for disposal. The 
goal has gone beyond the testing of waste materials in the digester and 
proceeded with a program to determine pathogen reduction by anaerobic 
digestion and to economically use the digested sludge. The subsequent 
goal is to manage the remaining solids from anaerobic digestion in an 
environmentally-sound manner. This research indicates that for at least 
cryptosporidium parvum, the thermophilic temperature and the anaerobic 
digestion process are critical in the inactivation of the organism. 
Field trials of using digester solids for potatoes and broccoli showed 
significant increases in growth over the control experiment. The work 
supported by this grant began in fiscal year 1998, and the 
appropriation for fiscal year 1998 was $360,000; for fiscal year 1999, 
$250,000; for fiscal year 2000, $425,000; for fiscal year 2001, 
$494,909; for fiscal year 2002, $600,000; for fiscal year 2003, 
$685,515; for fiscal year 2004, $617,336; for fiscal year 2005, 
$648,768; and for fiscal year 2006, $683,100. A total of $4,764,628 has 
been appropriated. Research is conducted at West Virginia State 
College, Institute. The principal researchers anticipate the work for 
this project will be completed in 2006.
(8) MICHIGAN BIOTECHNOLGY INSTITUTE
    The goal of this research is to select and develop market-viable 
technologies for the production of industrial products from 
agricultural raw materials, and to accelerate development of product 
and related technologies that are critical to the sustainability of the 
agricultural and rural economy. Accomplishments for 2005 include 
optimization of Ammonia Fiber Explosion treatment for conversion of 
crop residues for maximum recovery of glucose and xylose sugars, 
improved extraction of protein from distillers grains and switchgrass 
using an aqueous ammonia process; and identification and cloning of two 
genes for enhancing succinic acid production from glycerol-containing 
waste streams. Demonstrations of technology occur throughout the United 
States. The work supported by this grant began in fiscal year 1989, and 
the following amounts have been appropriated: in fiscal year 1989, 
$1,750,000; in fiscal year 1990, $2,160,000; in fiscal year 1991, 
$2,246,000; in fiscal years 1992-1993, $2,358,000 per year; in fiscal 
year 1994, $2,217,000; in fiscal year 1995, $1,995,000; in fiscal years 
1996 and 1997, $750,000 per year; in fiscal years 1998-2000, $675,000 
per year; in fiscal year 2001, $723,405; in fiscal year 2002, $481,000, 
in fiscal year 2003, $623,918; in fiscal year 2004, $558,684; in fiscal 
year 2005, $554,528; and in fiscal year 2006, $549,450. A total of 
$22,099,985 has been appropriated. The research is being conducted on 
the campus of Michigan State University and at the Michigan 
Biotechnology Institute. Current objectives are expected to be 
completed in fiscal year 2007.
IV. Hatch Act, McIntire-Stennis, and Evans-Allen Projects, the formula 
        funded projects include about 40 projects with a renewable 
        energy component for a total amount of approximately $1.3 
        million for fiscal year 2005. However, the fifteen projects 
        described below were selected for their innovative and cutting 
        edge technologies that complement the portfolio of projects 
        supported through competitive grant programs.
A. FUEL CELLS, HYDROGEN
(1) SYSTEMS FOR BIOLOGICAL PRODUCTION OF HYDROGEN GAS, fiscal years 
        2004-2008, Oregon State University, Corvallis, Oregon:
    The purpose of this project is to develop bacterial strains to 
produce hydrogen efficiently and sustainably at high rates. Mutant 
strains of Clostridium acetobutylicum and a hydrogen detection method 
have been developed. Using microorganisms to produce hydrogen from 
water, using sunlight as an energy source, or from renewable 
carbonaceous materials, can contribute to meeting
(2) HYDROGEN FUEL PATHWAYS FOR TRANSPORTATION IN CALIFORNIA, fiscal 
        years 2003-2008, University of California, Davis, California:
    Decisions on how to proceed with the use of hydrogen as the fuel of 
the future, will have profound implications for the economy and for 
society. This project addresses decision-making based on sound 
knowledge from a wide variety of disciplines. The primary focus is the 
manufacture, storage and distribution of hydrogen for use in fuel cell 
vehicles. On-going research includes developing lifecycle environmental 
analysis models, innovative approaches to measure potential demand for 
hydrogen vehicles and designs for hydrogen energy stations. The outcome 
will be a set of tools and a body of knowledge to inform public sector 
debates and private sector investments.
(3) BIOENERGY BASED ELECTRICAL SYSTEMS AND THEIR SAFE, EFFICIENT 
        APPLICATIONS, fiscal years 2003-2008, Michigan State 
        University, East Lansing, Michigan:
    The purpose of this study is to develop specifications for 
installation and economic analysis of alternative systems to convert 
biogas to electrical energy. A coalition of organizations has been 
formed to address the conversion of livestock biomass to energy in 
stationary fuel cells. Proposals have been submitted to the National 
Electrical Code to address inadequate rules for the installation of the 
direct current portion of renewable energy production systems. If 
proposals are accepted, the result will be practical and safe rules.
(4) FEASIBILITY STUDY TO ANALYZE THE ECONOMIC VALUE PROPOSAITON AND 
        RELATED MARKETING STRATEGY FOR A MODULAR, PRESSURIZED ANAEROBIC 
        DIGESTION, fiscal years 2004-2005, Cornell University, Ithaca, 
        New York:
    Biogas, i.e. methane, from traditional anaerobic digestion 
technology is typically produced at atmospheric pressure, with little 
attempt made to harness this energy source for compressed natural gas 
or for application to fuel cells for stationary power generation. A 
novel design for producing biogas has been developed that delivers pure 
and compressed biogas that is promising for these applications. The 
current focus is on evaluating the commercial potential of this new 
technology for New York State dairy farms, and for farming economics 
and public policy. This technology offers a sustainable strategy to 
problems associated with animal manure management.
B. AGRICULTURAL RESIDUES, WASTES
(1) BIOFUELS PRODUCTION FROM COTTON GIN WASTE AND RECYCLED PAPER 
        SLUDGE, fiscal years 2005-2010, Virginia Polytechnic Institute, 
        Blacksburg, VA:
    Cotton gin waste can potentially be used ethanol production. Unlike 
other lignocellulosic feedstocks, this material is concentrated at the 
processing sites and therefore harvesting and transportation costs are 
considerably less than those for other agricultural and forestry 
residues. This project is developing an in situ detoxification process 
for the bioconversion of cotton gin waste and recycled paper sludge 
mixture into ethanol at high yields. Processing of agricultural 
residues is a value-added activity and will assist in implementing new 
ethanol production capacity in the southern United States.
(2) BIOLOGICAL CONVERSION OF CROP RESIDUES TO FUELS AND CHEMICALS, 
        fiscal years 2005-2008, North Carolina A&T State University, 
        Greensboro, North Carolina:
    This project addresses the biological conversion of crop residues 
to ethanol, hydrogen and succinic acid. Pretreatment steps include 
physical and chemical treatment followed by enzymatic hydrolysis and 
anaerobic fermentation. Economic and environmental evaluations will be 
conducted to validate commercialization potential.
(3) ANEROBIC DIGESTION OF AGRICULTURAL AND FOOD WASTE BIOMASS FOR THE 
        EFFICIENT PRODUCTION OF HIGH QUALITY BIOGAS, fiscal years 2004-
        2008, Ohio State University, Wooster, Ohio:
    This research is developing a laboratory scale anaerobic digestion 
system to determine the metabolic and nutritional requirement of 
digesters for efficient conversion of diverse biomass feedstocks to 
biogas energy. Feedstocks used include dairy cattle manure, corn and 
potato based snack foods and corn silage. Biogas production must be 
clean and reliable for process heat, combustion or turbine engines, or 
solid-oxide fuel cells. A closed anaerobic digestion system of 
agricultural wastes offer the opportunity to produce a clean form of 
fuel, methane and/or hydrogen, with minimal environmental emissions of 
ammonia, methane and fossil fuel based carbon dioxide.
(4) PROCESSING OF NON-TRADITIONAL AGRICULTURAL MATERIALS FOR VALUE-
        ADDED UTILIZATION, fiscal years 2004-2009, Auburn University, 
        Auburn Alabama:
    The purpose of this project is to develop procedure and methodology 
for the pelleting of poultry litter and energy crops, and to quantify 
the storage and handling of the manufactured pellets. This project is 
also testing the pelleted materials as a biofuel in a pellet furnace. 
Results to date indicate that energy saving up to 30 percent can be 
obtained with the use of a biofuel furnace in a greenhouse. The ash 
obtained from pellet combustion has value as s substrate component. 
Pelleted biofuels provide obvious environmental benefits such as use of 
wastes from agro-processing, reduced greenhouse gas emissions and 
potential on-site generation of fuel.
(5) MICROBIAL CONVERSION OF AGRICULTURAL WASTES TO ELECTRICITY, fiscal 
        years 2003-2004, University of Massachusetts, Amherst, 
        Massachusetts:
    The purpose of this study is to determine whether a microbe-
electrode system could be used to degrade compounds that are an odor or 
environmental concern in animal wastes and at the same time provide 
electrical power that could be applied to farm operations. Fuel cells 
inoculated with swine waste have been shown to produce less methane and 
to eliminate butyrate faster than controls. Ongoing research will 
define under what conditions organic loads are lessened by the presence 
of electrodes in both fuel cell and potentiostat mode. In addition, 
analysis of the microbial community associated with the graphite 
electrodes will provide further insight into the mechanism of swine 
waste treatment.
C. NEW ENERGY CROPS
(1) CARBON AND NITROGEN CYCLING AND MANAGEMENT IN ALTERNATIVE CROPPING 
        SYSTEMS, fiscal years 2004-2007, Washington State University, 
        Pullman, Washington:
    Agricultural activities impact nitrate contamination of groundwater 
and particulate emissions. Alternative cropping systems can lessen 
negative impacts and expand environmental benefits. This project 
includes determining the biomass production and partitioning of Giant 
Reed, Arundo donax, at rain-fed and irrigated locations in Washington 
State. Results to date show biomass production potential greater than 
20 dry tons per acre in the second year, with hemicellulose and 
cellulose contents similar to other grasses. Variations in wheat 
cultivars and exotic species are being evaluated to identify 
economically and environmentally sound cropping options for supplying 
bioenergy feedstocks.
(2) AGRICULTURAL AND ENVIRONMENTAL BENEFITS FROM ENERGY, FIBER AND 
        FORAGE CROPS IN ALABAMA, fiscal years 2003-2008, Auburn 
        University, Auburn, Alabama:
    This project addresses biomass crops and cropping-livestock 
production systems to realize agricultural and environmental benefits 
for the southeastern United States. Small plot experiments are underway 
and include switchgrass, mimosa, giant reed, fescue, ryegrass, and a 
comparison of productivity of goats and stocker cattle. This research 
will lead to commercialization of bioenergy in Alabama, especially co-
firing biomass with coal to produce electricity.
(3) SUGARCANE IMPROVEMENT FOR ARID, ALKALINE ENVIRONMENTS, fiscal years 
        2000-2006, Texas A&M University, College Station, Texas:
    This project is developing sugarcane as an energy crop through a 
conventional breeding and genetic engineering program. Sugarcane has 
been crossed with Miscanthus, a perennial grass that is promising as an 
energy crop, and has cold resistance and good fiber quality. New 
sugarcane varieties will allow the grower to increase production, 
reduce costs, and expand into the renewable energy market.
D. COMMODITY ENERGY CROPS
(1) VALUE-ADDED PRODUCTS FORM AGRICULTURAL COMMODITIES, fiscal years 
        2004-2009, Purdue University, West Lafayette, Indiana:
    This research is addressing the use of mixtures of soybean methyl 
esters, i.e. biodiesel, with jet fuel, quantifying the physical 
properties and measuring turbine jet engine combustion performance and 
emissions. Aviation jet fuels are a unique energy fuel market due to 
the critical nature of fuel weight/energy density required for jet 
flight. A key performance limitation of soy methyl esters is the very 
low freezing point required for jet fuel. This project has developed a 
fractionation technology that removes the saturated components to 
produce workable fuel blends with existing jet fuels. The byproduct of 
biodiesel production is glycerin. This project is also evaluating the 
use of glycerin for aviation deicers to replace ethylene/propylene 
glycol deicers. The fractionation process and glycerin deicer product 
are being patented and Purdue is working with industrial partners to 
commercialize the technologies.
E. ECONOMICS
(1) ECONOMIC ASSESSMENT OF CHANGES IN TRADE ARRANGEMENTS, BIOTERRORISM 
        THREATS AND RENEWBLE FUELS RQUIREMENT IN THE U.S. GRAIN AND 
        OILSEED SECTOR, fiscal years 2004-2009, Iowa State University, 
        Ames, Iowa:
    This project includes analyzing the effect of U.S. renewable energy 
programs as one of several factors that affect international trade and 
markets for corn, soybeans, and wheat. The impacts of energy policy 
changes on grain and byproduct markets that include gluten feed and 
distillers' grain are being addressed, along with the effects of the 
expanding bioenergy industry on the organization and performance of 
local and international grains markets. Specific studies include 
pricing in local and international grain markets, and international 
competitiveness of the ethanol industry compared to Brazil and the 
appropriate scale and organization of value-added processing. Improved 
private investment and public policy decisions will result from better 
information about the bioenergy industry.
(2) RURAL COMMUNITIIES, RURAL LABOR MARKETS AND PUBLIC POLICY, fiscal 
        years 2002-2007, Virginia Polytechnic Institute, Blacksburg, 
        Virginia:
    Rural America is experiencing substantial demographic and economic 
change and its future depends on solid policy analysis. This project 
examines how rural markets adjust to economic change and how policy can 
be formulated assist in these adjustments. Findings indicate that 
several sources of renewable fuels could be viable in Virginia. 
Biomass, particularly electricity generation through switchgrass and 
wood chips has more widespread viability than wind or solar 
technologies. Biofuels could provide additional incomes to land owners 
in depressed areas, but overall economic impacts are likely to be 
modest. Further research is needed to overcome persisting technical 
problems with switchgrass transport and processing leading to higher 
costs and lower competitiveness. It is estimated that a single 600 
megawatt coal-fired power plant that co-fires with 5 percent 
switchgrass could improve the financial viability of 140 families and 
have total economic impacts of more than $2 million per year.
                                 ______
                                 

              Questions Submitted by Senator Arlen Specter

    Question. With the dairy industry responsible for cash receipts of 
$27,367,857,000 (2004) representing 11.3 percent of total agriculture 
cash receipts for the Nation, why is the Agricultural Research Service 
terminating the Dairy processing and products Research Unit located at 
Wyndmoor, Pennsylvania, when this is the only USDA laboratory 
conducting research on dairy processing and products? In addition, it 
is my understanding that the scientists assigned to this laboratory 
have the capability of addressing the issue of bio-security research to 
help prevent the intentional contamination of the milk supply and 
support the dairy industry with research on prevention and removal of 
threat agents from the milk supply. How will this crucial research be 
accomplished if this program is eliminated?
    Answer. The consideration to close the lab was based on the fact 
that the unit has largely met its objectives and the return on 
investment was lower than for other high priority areas of research. As 
mentioned, the need for the research is reduced due to improvements in 
milk processing, much of which has been developed by the lab. If 
additional work in the area of dairy processing does arise, such work 
could and has been done in the past at the ARS Beltsville Agricultural 
Research Center (Beltsville, Maryland) or the National Animal Disease 
Center (Ames, Iowa).

                      PEST MANAGEMENT ALTERNATIVES

    Question. This question is directed to Under Secretary Jen 
regarding a letter that Sen. Rick Santorum and I sent to you on 
February 17, 2006. Pennsylvania is the Nation's number one producer of 
mushrooms, producing 59 percent of all pounds grown and valued at more 
than $420 million. Trichoderma green mold remains the most serious 
disease faced by mushroom growers, as crop losses can quickly reach 
epidemic levels. Both Sen. Santorum and I urge you to strongly support 
the research proposal, ``Resistance Management Program for Trichoderma 
Green Mold on Mushrooms,'' submitted by Drs. Peter Romaine and Daniel 
Royse, at The Pennsylvania State University, under the Special Grants 
Program--Pest Management Alternatives. This was all detailed in our 
February 17 letter.
    Are you taking this research proposal under serious consideration 
and when can we expect a response to our letter?
    Answer. In his response dated April 3rd, 2006, former Under 
Secretary Jen indicated that funds appropriated for the Pest Management 
Alternatives Program, which is administered by the Cooperative State 
Research, Education, and Extension Service, are distributed through a 
peer review competitive grants process. Priorities for the program are 
developed in consultation with stakeholders and land-grant university 
partners through the Regional Integrated Pest Management Centers. A 
major emphasis of this program is cropping systems where the loss of 
pest management alternatives has led to a loss of pest control or the 
development of pest resistance to the alternatives. The proposal from 
the Pennsylvania State University received full and fair consideration 
by the peer review panel. Applicants will be notified in the coming 
weeks of final funding decisions under the fiscal year 2006 Pest 
Management Alternatives Program.

                      COUNTY OFFICE RESTRUCTURING

    Question. The Farm Service Agency (FSA) had intended to implement 
``FSA Tomorrow'' last Fall. This plan intended to reduce the number of 
FSA county offices throughout the entire Nation through consolidation. 
Across the United States, 713 county offices were planned to be 
consolidated, in Pennsylvania alone 14 offices were planned to be 
consolidated bringing the number of offices to 32. While I understand 
the importance of efficiency, farmers work hard all day and to require 
them to drive long distances to see their FSA office puts further 
strain on their work. Under Secretary Penn, the FSA fiscal year 2007 
Budget request is $33,891,000, down from the fiscal year 2006 budget 
estimate of $36,797,000; a decrease of about 8 percent.
    Does the Department of Agriculture intend to implement a 
consolidation plan in light of the reductions in the President's fiscal 
year 2007 Budget request?
    Answer. FSA has asked our State Executive Directors (SEDs) to 
conduct an independent, local-level review of the efficiency and 
effectiveness of FSA offices in their State. Each State's SED and State 
Committee will form a review team to identify the State's optimum 
network of FSA facilities, staffing, training, and technology within 
existing budgetary resources and staffing ceilings.
    There is no comprehensive national plan or formula for the ideal 
field structure. Each State will review its own county office system 
and submit a plan for the best distribution of resources.
    Each SED is exploring potential joint-effort opportunities with the 
Natural Resources Conservation Service (NRCS) and other Department of 
Agriculture (USDA) agencies. State Food and Agriculture Councils 
(SFACs) are the primary vehicles for coordinating programs at the local 
level. SFACs provide a policy-level, cross-agency, decision-making and 
communication forum to achieve USDA's goals and objectives. In 
accordance with the SFAC mission, FSA, NRCS, and other agencies will 
work together to develop the plan for the most effective mix of local 
offices, staffing, training and technology.
    If FSA county office closures create a disadvantage for some 
producers in accessing services, those producers may request a new 
administrative county office if there is one that will be more 
convenient. The flexibility of producer choice is an important part of 
consolidation efforts. FSA is committed to delivering farm program 
services through the Service Center model.
    Question. If so, does the Department plan on bringing this to the 
attention of Congress before any implementation takes place?
    Answer. After recommendations are received from a State and 
validated by FSA's Deputy Administrator for Field Operations, any 
consolidation recommendations will be shared with the potentially 
affected Congressional delegation. The Agency will hold public hearings 
and coordinate communications efforts with area farmers, ranchers, and 
other stakeholders. Where a decision is made to consolidate offices, 
Congress will be notified 120 days before a closure takes place. FSA is 
committed to a continued dialogue with congressional delegations and 
State leaders as to how best to modernize the FSA county office system.

                             MUSHROOM SPAWN

    Question. I have been contacted by mushroom spawn manufacturers in 
my state regarding their difficulties in exporting mushroom spawn to 
certain countries which require phytosanitary certificates, for which 
mushrooms spawn is apparently ineligible. It is my understanding that 
many countries require U.S.-exported spawn to be accompanied by APHIS-
issued phytosanitary certificates; however APHIS cannot issue 
certificates for this product. This situation is especially problematic 
since governments of foreign competitors are willing to issue such 
certificates. Therefore, American spawn manufactures are unable to 
obtain the necessary phytosanitary certificates, whereas foreign 
competitors can obtain them. As a result, our Nation's mushroom spawn 
exporters are in danger of losing access to some of their most valuable 
export markets, valued at more than $8.7 million. Maintaining access to 
export markets is vital to the spawn industry in Pennsylvania and 
across the country.
    How do you intend to resolve this problem and when can constituents 
in my home State expect a solution?
    Answer. As you indicate, several countries require phytosanitary 
certificates for mushroom spawn. However, the countries in question 
(including China, Oman, and several others) have not provided 
information on what pests are associated with mushroom spawn that are 
of concern to them or of quarantine significance. Phytosanitary 
certificates are generally used to provide assurance that a shipment or 
product is free of specified pests, usually a list of quarantine pests 
provided by the importing country. Accordingly, APHIS is not able to 
issue phytosanitary certificates for this product since it is 
essentially grain inoculated with a fungus and there are no known 
quarantine pests associated with it. Our officials sent letters to the 
countries explaining that we cannot issue phytosanitary certificates 
without knowing what to certify the product for. We also explained 
APHIS policy regarding the import of mushroom spawn into the United 
States (the genus and species must be identified on the commercial 
invoice and the shipment must be free of soil) and officially requested 
that they adopt equivalent policies. In late March 2006, officials from 
APHIS and USDA's Foreign Agricultural Service met with the American 
Mushroom Institute to discuss this situation. We believe that the 
importing countries are more concerned with product quality than with 
plant health risk. In addition to working with our counterparts in the 
importing countries regarding their requirements, we are also working 
with USDA's Agricultural Marketing Service to find an alternative to 
phytosanitary certificates for mushroom spawn exports.
                                 ______
                                 

                Questions Submitted by Senator Herb Kohl

                     SIMPLIFIED SUMMER FOOD PROGRAM

    Question. Mr. Bost, as you know, the Simplified Summer Food Program 
is currently available in half of the States, including my home State 
of Wisconsin. Have States that participated in this program attracted 
more program sponsors, operated more program sites and served more low-
income children than those States not participating in the program? 
Would USDA consider this program a success? Would USDA be supportive of 
expanding this program to additional States?
    Answer. States participating in the Simplified Summer Food Program 
have shown an increase in participation as measured by sponsors, sites, 
and meals served to eligible children during the summer months. During 
the same time, those States not participating in the program have 
experienced a decrease in each of the corresponding categories. 
However, since the inception of the Simplified Summer Food Program, 
many States have also had the opportunity to operate a seamless summer 
feeding program through the National School Lunch Program (NSLP). 
Because these two initiatives have operated concurrently in these 
States, we are not able to identify the extent to which changes in 
sponsors, sites, and children result from the Simplified Summer Food 
Program, from the NSLP seamless summer feeding program, or from a 
combination of both.
    Although modest, there are costs associated with expanding the 
program to additional States. Assuming appropriate offsets could be 
found, USDA would support expansion of the program because it reduces 
paperwork burden on sponsors and aligns the program's meal 
reimbursement procedures with our school-based and day care-based Child 
Nutrition Programs.

                               NSA GRANTS

    Question. Mr. Bost, one of the hallmarks of the WIC program is that 
it goes beyond providing healthy foods to provide participants with 
nutrition education, breastfeeding support, and health care referrals. 
These services are a critical complement to the WIC food package and 
they are all funded with NSA grants. The WIC program has also achieved 
extremely effective cost-containment, particularly with regard to 
infant formula costs. The administrative costs associated with these 
accomplishments are funded with NSA grants.
    In a 2001 report, the GAO found that since the late 1980s important 
new nutrition services and administrative demands have been placed on 
State and local WIC agencies without accompanying increases in NSA 
funds. Isn't it the case that under WIC's authorizing statute NSA 
grants per-participant have remained at the same inflation-adjusted 
level for the past 19 years? If this proposal is not adopted, will your 
request level for WIC still be adequate? What effect do you believe 
this administrative proposal will have on cost-containment?
    Answer. In 1990 the guaranteed per participant nutrition services 
and administration (NSA) grant was $9.32. Adjusting the grant for 
inflation resulted in a guaranteed NSA grant of $14.12 in fiscal year 
2006.
    If this proposal is not adopted, the funds requested in the budget 
for food will be approximately $152 million less than the estimated 
amount needed to provide food benefits to a monthly average of 8.2 
million WIC participants in fiscal year 2007.
    We believe this proposal will encourage State agencies to seek cost 
saving practices and efficiencies in program management and in 
providing participant services funded with NSA grants.

 SPECIAL SUPPLEMENTAL PROGRAM FOR WOMEN, INFANTS, AND CHILDREN (WIC)--
                          LEGISLATIVE PROPOSAL

    Question. Mr. Bost, another legislative proposal included in the 
WIC account will prevent any State from allowing participation in the 
WIC program to anyone whose family income is more than 250 percent of 
poverty. How many States will this affect? Will it save any money? Is 
it true that the affected States, because their WIC participants are 
automatically deemed eligible, will have to re-check the eligibility of 
all of their participants? How many individuals would lose eligibility 
for WIC if the Administration's proposal to limit Medicaid adjunct 
eligibility were adopted? Do you intend to provide additional 
administrative funding for these States to conduct these eligibility 
exercises, or is the intent that they perform this function under the 
proposed new administrative limitations as well?
    Answer. The President's fiscal year 2007 budget prohibits the use 
of funds to provide WIC benefits to individuals who receive Medicaid or 
who are members of a family in which a pregnant woman or infant 
receives such assistance unless the family income is below 250 percent 
of the poverty guidelines. Six States (Maryland, Minnesota, Missouri, 
New Hampshire, Rhode Island and Vermont) have income eligibility cut-
offs for Medicaid that are 250 percent or above for some or all 
categories of potential WIC participants.
    Based on the estimated per-person cost in fiscal year 2007 
($52.67), it is estimated that this proposal will result in a savings 
of $2.9 million. The States affected by this proposal and the estimated 
savings per State are shown in the table below.

------------------------------------------------------------------------
                                             Number of       Estimated
                  State                       Persons       Savings (in
                                             Affected       thousands)
------------------------------------------------------------------------
Maryland................................             859            $543
Minnesota...............................           2,434           1,538
Missouri................................             573             362
New Hampshire...........................             143              90
Rhode Island............................             286             181
Vermont.................................             286             181
                                         -------------------------------
      Total.............................           4,581           2,895
------------------------------------------------------------------------

    The President's budget proposal would continue to provide automatic 
(adjunctive) income eligibility based on participation in Medicaid to 
the vast majority of WIC participants certified in this manner. Any 
mother, infant, or child who can currently be certified as income 
eligible for WIC through Medicaid, will still be income eligible for 
WIC if their household income is below 250 percent of poverty. For 
those State agencies affected by the proposal, they will have to modify 
their procedures to determine the income eligibility of individuals who 
would have otherwise been automatically income eligible to participate 
in the WIC Program based on their participation in Medicaid. Based on 
data from the 2004 Report on WIC Participant and Program 
Characteristics, we estimate that approximately 4,600 individuals will 
be affected by the proposal to limit automatic eligibility based on 
participation in Medicaid to those individuals with an income level 
that is below 250 percent of Federal poverty guidelines.
    Affected States may incur a modest increase in the needed 
administrative resources associated with eligibility determinations and 
will have to re-allocate their nutrition services and administration 
(NSA) funds accordingly. The proposal will not increase Federal 
expenditures on NSA.

                   WIC MANAGEMENT INFORMATION SYSTEM

    Question. Last year, we provided $20 million for a new WIC 
Management Information System, which we have heard for several years is 
desperately needed. We made the money contingent on WIC caseload being 
met, and it seems as though that requirement will be met this year. Has 
USDA yet, or do you plan to, release this money this year?
    Answer. The fiscal year 2006 appropriation provided $19.8 million 
(after the 1 percent rescission) for management information systems 
(MIS) if it was determined that adequate funds were available to meet 
caseload requirements without the use of contingency funds. Based on 
current projections of both food package costs and participation for 
the remainder of fiscal year 2006, we do not anticipate the need to use 
contingency funds to support WIC caseload. Therefore, we fully intend 
to allocate the $19.8 million in MIS funding during fiscal years 2006 
and 2007 to WIC State agencies for critical MIS projects.

                                  CSFP

    Question. Mr. Bost, as you know, the CSFP program is slated for 
elimination under the President's budget. Reasons USDA believes this is 
appropriate, as explained by Secretary Johanns, include the fact that 
seniors can move to Food Stamps, there simply isn't enough money, and 
the program operates only in a limited number of States. Is CSFP the 
only nutrition program that operates in a limited number of States? How 
many States currently have CSFP programs? How many, and which States 
have approved plans and would join if there was funding available? Is 
it fair to say that this program has limited participation by States 
because of funding, and not because States don't want it?
    Answer. The CSFP is not the only nutrition assistance program that 
operates in a limited number of States. The Fresh Fruit and Vegetable 
Program (FFVP) and the WIC Farmers' Market Nutrition Program (FMNP) 
also operate in a limited number of States. The FFVP is currently 
authorized to operate in a limited number of schools in limited number 
of States and Indian Tribal Organizations (ITOs); currently 14 States 
and 3 ITOs. Funding is commensurate with the number of participating 
States and ITOs. The FMNP operates in 45 locations (37 States, D.C., 
Puerto Rico, Guam and 5 ITOs). While new State agencies may apply to 
participate, appropriations have been commensurate with the number of 
currently participating States which precludes the expansion of the 
program to new States.
    CSFP currently operates in limited areas of 32 States, two Indian 
reservations, and the District of Columbia. Five States have approved 
plans for CSFP but are not yet participating: Delaware, Arkansas, 
Oklahoma, New Jersey, and Utah. CSFP's participation by States is 
currently limited because of funding.
    Question. Mr. Bost, I understand that under the Commodity 
Supplemental Food Program, States are required to order their food 
several months in advance. Do you plan to allow States to go ahead and 
place orders for food for next year? What does USDA plan to do if there 
is a continuing resolution? If the entitlement purchases from farmers 
that currently go to the CSFP program end, is it safe to assume that 
farmers will lose money?
    Answer. While the President's fiscal year 2007 budget request does 
not include funding for the CSFP, the program will continue to be 
administered in a manner that ensures program continuity until such 
time that Congress decides not to fund the program. Should Congress 
choose to adopt the President's fiscal year 2007 budget request, 
commodities remaining in CSFP inventories next fiscal year will be 
redonated for use in other programs, including the Emergency Food 
Assistance Program.
    We anticipate no impact on the agriculture sector from the 
elimination of CSFP. Food purchases that result from agricultural 
support activities will be maintained, but distributed through other 
channels.

                             WIC MORATORIUM

    Question. Mr. Bost, last year's reauthorization legislation 
included measures to contain costs in these and other high-priced 
stores. We knew, however, it would take time for those provisions to be 
implemented. To contain costs in the meantime we included in last 
year's appropriation law a moratorium on the approval of any new WIC-
only stores. We considered such a measure critical; in its absence, 
this committee would have faced even greater pressure on our limited 
resources. Can you please tell us whether this moratorium has helped 
contain WIC food costs and whether extending the moratorium will help 
to contain food costs next year? Why do you believe it is necessary to 
maintain the moratorium again this year, since the cost containment 
regulations have been in place for several months?
    Answer. We proposed a moratorium to provide States with adequate 
time to implement the newly enacted cost containment provisions of the 
Child Nutrition Act. It is difficult to know for certain how the 
moratorium has affected food costs due to limitations on the data we 
have available and the multiple factors that influence State agency 
food expenditures in any given year. Although the reasons for changes 
in average food package costs are complex, it is likely that the 
moratorium contributed to holding food costs down in fiscal year 2005. 
We know that the 6 State agencies with the largest number of WIC-only 
stores experienced food package cost increases ranging from 3.5 percent 
to 14.2 percent between fiscal year 2003 and fiscal year 2004. Between 
fiscal year 2004 and fiscal year 2005, 3 of these State agencies 
experienced a decrease in the average food package cost, and three had 
a lower rate of increase than in the previous year.
    At present we are optimistic that all State agencies that require 
certification will submit requests before September 30, 2006, and that 
all or most will receive certification by this date. Progress toward 
this goal was delayed for several months following the publication of 
the WIC Vendor Cost Containment Interim Rule on November 29, 2005. This 
rule implements the vendor cost containment certification requirement 
found in section 17(h)(11) of the Child Nutrition Act. From December 
28, 2005 through February 23, 2006, FNS was under a temporary 
restraining order (TRO) due to a lawsuit filed by the National Women, 
Infants and Children Grocers' Association and other plaintiffs to 
prevent implementation of the Interim Rule. The TRO interrupted State 
agency submission of requests for certification and FNS decisions on 
certification. Since the dismissal of the lawsuit on February 23, 2006, 
FNS has moved expeditiously to certify the State agencies that meet the 
certification requirements, and to provide technical assistance to 
others that are still in the planning process. In addition to the 
requests for certification that are currently being reviewed, FNS 
expects to receive nearly a dozen more between mid-April and the end of 
September 2006 (including California's, the State with the largest 
number of WIC-only stores). We are making every effort to certify State 
agencies before the end of the fiscal year. Extension of the current 
moratorium prohibiting the approval of new ``WIC-only'' stores until a 
State agency receives certification would ensure that the number of 
such vendors does not increase before State agencies implement improved 
cost containment methods.

                WIC REAUTHORIZATION LEGISLATIVE PROPOSAL

    Question. The 2004 reauthorization legislation added section 
9(b)(8) to the Richard B. Russell National School Lunch Act, which 
specifies that all communications with households regarding 
certification or verification for free or reduced price meals must be 
in an understandable and uniform format and, to the maximum extent 
practicable, in a language that parents can understand. FNS has already 
provided model application and verification materials that reflect the 
changes to the certification and verification processes made by 
reauthorization in English and Spanish. In which additional languages 
will translations be provided and when will they be available?
    Answer. The household application is already published in English 
and has been translated into Spanish. Both are available on our Web 
site found at http://www.fns.usda.gov/cnd/FRP/frp.process.htm. The next 
round of translations will include: Russian, Vietnamese, Chinese 
(Mandarin), Japanese, Serbo-Croatian, Arabic, Korean, Somali, 
Cambodian/Khmer, French, Hmong, Haitian Creole, Laotian, Polish, 
Portuguese, Sudanese, Thai, Urdu, Hindi, Kurdish, Farsi, Greek, Samoan, 
and Tagalog. All 25 translations of the English version of the 
application are expected to be finished in time for use in the 2006-
2007 school year.
    Question. We are aware that FNS has issued general guidance 
alerting States and school districts to this new provision. We are also 
aware that many households never respond to the request for eligibility 
verification and we want to be sure that families get the information 
they need to comply with the verification process. Please describe any 
manuals or other technical assistance materials that FNS has provided 
to local school districts clarifying the kinds of steps they are 
expected to take during the certification and verification processes to 
comply with section 9(b)(8). Has FNS reviewed materials in use by 
States and school districts to assess whether they comply with this 
provision and provide them with the assistance they need to come into 
compliance?
    Answer. FNS has issued 14 guidance memos to the State agencies 
concerning the National School Lunch Program (NSLP) free and reduced 
price applications, certification and verification, eight of which 
specifically deal with verification. The goal of each of these memos is 
to ensure that school food authorities are fully aware of the new 
provision, understand completely the requirement to follow-up when a 
request for verification goes unanswered, and that schools and families 
have the necessary information in order to comply with verification 
requests.
    FNS has updated its Guidance for Coordinated Management Evaluations 
of State Agency Operations to include the new provisions in the 
Reauthorization Act, including the new verification procedures as 
required by the Child Nutrition and WIC Reauthorization Act of 2004. As 
part of the management evaluation process, FNS reviews State agencies 
and the materials they use in their review of school food authorities 
to ensure that they comply with the new verification requirements.

                   FARMERS' MARKET NUTRITION PROGRAM

    Question. It is my understanding that States grants for the Farmers 
Market Nutrition Program have decreased this year. Is this accurate, 
and if so, why, considering the appropriated amount did not decrease? 
How much will the carryover be for the Farmer's Market Nutrition 
Program this year? How does this compare to the past 3 years?
    Answer. It is important to include the effect of prior year unspent 
funds when analyzing funding for the WIC FMNP. We anticipate 
approximately $3-4 million in unspent fiscal year 2005 funds will 
become available after closeout is completed which can supplement the 
appropriated funds, thus bringing State agencies close to their actual 
expenditure levels in fiscal year 2005.
    In fiscal year 2005, in addition to appropriated funds, we had 
available unspent prior year funds that were allocated to State 
agencies at the beginning of the fiscal year. Subsequently in fiscal 
year 2005, additional unspent prior year funds became available that 
were allocated to State agencies. For FMNP base grants for fiscal year 
2006, only available appropriated funds have been made available. 
Additional funds recovered from 2005 should be made available by early 
summer, 2006.
    In fiscal year 2005, $8.4 million in unspent funds were available 
to supplement the appropriation of $19.8 million. In fiscal year 2004, 
$5 million in unspent funds were available to supplement the $22.8 
million appropriation.

                   FRUIT AND VEGETABLE PILOT PROGRAM

    Question. As you know, last year we provided funding for an 
additional 6 States to join the Fruit and Vegetable Pilot Program. How 
much money would be required to extend the participation by these 
States through the next school year?
    Answer. No funding will be needed to extend the program to these 
States through school year 2006-2007 because the extension will be 
covered by existing funds appropriated on November 10, 2005, for the 
period January 30, 2006 through June 30, 2007. After June 30, 2007, 
however, funds will be needed should Congress wish to continue the 
program in these 6 States.

                           WILDLIFE SERVICES

    Question. What is APHIS Wildlife Services currently doing to reduce 
the effects the double-crested cormorant has on the Great Lakes fishery 
and how can we get them to expand their work to other highly impacted 
areas in the State?
    Answer. APHIS is currently conducting double-crested cormorant 
damage management activities in the Great Lake States of Michigan, 
Minnesota, New York, and Ohio. We are also conducting an environmental 
analysis in Wisconsin to determine the potential impacts of expanding 
our activities to that State. In addition, we are cooperating with 
several State, Federal, tribal, and Canadian agencies to survey Great 
Lakes breeding populations. The breeding population of Double-crested 
Cormorants on the Great Lakes has increased dramatically--from 89 in 
1970 to approximately 115,000 pairs in 2005. Also, APHIS continues to 
cooperate in satellite telemetry to monitor and assess regional 
movements in conjunction with diet and foraging studies.
    Question. Would increasing control in the Great Lakes, a prime 
breeding ground for the double-crested cormorant, help reduce the 
number of cormorants currently decimating aquaculture facilities in the 
southern United States?
    Answer. Yes, increasing control in the Great Lakes would help 
reduce the number of cormorants currently decimating aquaculture 
facilities in the southern United States. We have assessed the 
migratory path of double-crested cormorants. Using satellite telemetry 
and band recovery data, we observed the winter movement of these birds 
from the Great Lake Region to aquaculture facilities in Alabama, 
Arkansas, Louisiana, and Mississippi. We do expect that increased 
control activities in the Great Lakes would reduce the wintering 
population in the South and lessen the impact to the aquaculture 
industry and the environment.
    Question. Does APHIS Wildlife Services have enough resources to 
successfully control the Great Lakes breeding population of double-
crested cormorants?
    Answer. Our current resources allow us to respond to the immediate 
short-term needs of States and industry--such as removing birds from a 
site.

                            STANDARDIZATION

    Question. On January 26, I wrote to Secretary Johanns encouraging 
the UDSA to act expeditiously to establish a grass-fed label standard 
for red meat. This proposal has been in the works for some time.
    When can we expect the Department to act on this proposal?
    What steps can the Department take to make sure that the program is 
affordable for producers?
    Answer. Developing a label standard for the grass-fed marketing 
claim is a priority of the Agricultural Marketing Service (AMS) and we 
have been working closely with the industry to develop a workable and 
usable standard that would serve the grass-fed market. AMS has obtained 
input from a number of individual experts within government, industry, 
and academia while drafting the revised proposed standard and its 
corresponding threshold. We have finalized the development of the 
revised standard, and it is expected to be published in the Federal 
Register this spring.
    Every effort will be made to administer this voluntary program 
cost-effectively. To validate the marketing claim associated with this 
production activity, AMS will conduct verification activities in 
accordance with procedures that are contained in Part 36 of Title 7 of 
the Code of Federal Regulations for Processed Verified Programs. This 
approach to verification of marketing claims makes for the best 
utilization of government resources on a cost recovery basis while 
providing for integrity of the program.

                NATIONAL VETERINARY MEDICAL SERVICES ACT

    Question. The National Veterinary Medical Services Act (Public Law 
108-161) was funded in the fiscal year 2006 Agriculture Appropriations 
bill. What steps have been taken to implement this program? When can we 
expect those steps to be completed?
    Answer. USDA is exploring potential financial management strategies 
both within the Department and in collaboration with other Federal 
agencies in order to effectively run a loan repayment program. To 
evaluate these and other programmatic issues presented by the National 
Veterinary Medical Services Act--NVMSA, CSREES has constituted the 
NVMSA working group to develop potential program management strategies. 
The working group has met on four occasions and is exploring 
alternative strategies for managing the NVMSA. A draft program 
management proposal is presently being reviewed. We are working to 
ensure a well thought-out program plan which includes collaborations 
with veterinary schools and other stakeholders to develop research-
based consensus regarding the candidate eligibility requirements, and 
metrics to support prioritized and weighted needs within the veterinary 
need areas identified within the Act.

                            AVIAN INFLUENZA

    Question. Late last year, you were provided more than $90 million 
in supplemental funds to prepare against avian flu, a small part of the 
total avian flu supplemental.
    It is apparent this is both a public health and an agricultural 
issue. Do you think USDA should have more of a leading role in 
protecting against this disease?
    Answer. USDA has taken an important role in preparing for and 
protecting against an incursion of high pathogenicity avian influenza 
(HPAI). We initiated the National Domestic H5/H7 Low Pathogenicity 
Avian Influenza (LPAI) Prevention and Control program in 2004 to 
conduct surveillance on the subtypes of LPAI that can mutate to 
dangerous forms. We have effective trade restrictions to prevent the 
introduction of HPAI through imported poultry and poultry products. Our 
preparation for a possible outbreak includes development of USDA 
responses as well as coordination with other Government agencies to 
protect both human and animal health. Internationally, we support 
capacity building, which allows APHIS to go into countries where the 
disease exists and assist in control efforts by providing technical 
training and advice.
    Question. In what ways are you working with U.S. producers, large 
and small, to make sure they have all the tools possible to protect 
against this disease? What are producers asking you to do?
    Answer. USDA has several cooperative programs to work with 
producers. The National Poultry Improvement Plan is a cooperative 
Industry-State-Federal program through which new technology can be 
effectively applied to the improvement of poultry and poultry products 
throughout the country. The program's provisions were developed jointly 
by industry members and State and Federal officials to establish 
standards for poultry breeding stock and hatchery products with respect 
to freedom from certain diseases and thereby provide certification of 
poultry and poultry products for interstate and international shipment.
    As the avian influenza surveillance program widens, producers are 
often concerned about indemnification for flocks that test positive. 
Both the NPIP General Conference Committee, which represents poultry 
industry stakeholders, and the States have recommended 100 percent 
indemnity for participants of the NPIP H5/H7 avian influenza monitoring 
program.
    In addition to publishing rules and uniform standards, USDA has 
focused on outreach and education through its Biosecurity for the Birds 
advertising campaign, professional development training, and other 
media. The advertising campaign, which provides basic information to 
promote avian health through biosecurity, began in July 2004 and has 
reached a circulation of over 125 million. Various training courses 
have been provided to State and Federal animal health technicians, 
veterinary medical officers, and other stakeholders working with the 
H5/H7 LPAI live bird marketing system program. These training sessions 
have included comprehensive information about poultry diseases, 
laboratory testing, biosecurity, personal protective equipment, State 
regulations, and risk assessments, among other things. USDA is also 
expanding outreach to the commercial poultry industry, especially those 
involved in the NPIP program, by updating an interactive CD to provide 
new information about poultry biosecurity for feed mills, hatcheries, 
slaughter plants, vaccine crews, live haulers, and service personnel.
    Question. I understand that you plan to use $3 million from last 
year's supplemental for avian flu vaccines and immunizations. However, 
there are some concerns that vaccinations will make it difficult to 
determine if flocks are actually infected with the virus after they are 
vaccinated. Do you favor a vaccination program for U.S. poultry?
    Answer. Vaccination does have the potential to negatively impact 
our trade of poultry and poultry products, but the vaccination of 
domestic poultry for H5 Avian Influenza (AI) strains can be valuable as 
part of an official control and eradication program. If appropriate, 
USDA is prepared to vaccinate domestic poultry, and maintains a vaccine 
bank. Approximately 40 million doses of vaccine were manufactured in 
2004 (H5N2, H5N9, H7N2, and H7N3) and are stored as frozen bulk viral 
fluid antigens. In 2005, the bank was expanded by approximately 30 
million doses. The stockpiled H5 vaccines are effective against the 
current Asian strain of AI.
    APHIS's Center for Veterinary Biologics (CVB) regulates the sale 
and distribution of veterinary vaccines. CVB controls the distribution 
of AI vaccines through a license restriction that places constraints on 
when, and under what conditions, manufacturers can sell AI vaccines 
domestically.
    Question. Although the President's 2007 request includes a 
significant increase for avian flu, this bill won't be passed until 
October at the very earliest, and this disease is spreading more 
quickly than many have anticipated. Do you think the funding request in 
the 2007 budget is adequate to deal with avian flu or do you think you 
will need additional funds this year?
    Answer. Currently, APHIS has sufficient funding to carry out its 
national domestic surveillance H5/H7 Low Pathogenicity Avian Influenza 
program and initiate additional surveillance and preparedness 
activities against an incursion of High Pathogenicity Avian Influenza. 
If we were to receive the entire amount requested in the fiscal year 
2007 President's Budget and the disease situation did not change from 
its current status, we would not need additional funds to carry out our 
stated objectives. However, if there were a widespread outbreak or 
another domestic emergency related to avian influenza, we would need to 
reassess our available resources and consider adjustments to our 
spending plans at that time.
    Question. While there has been much attention to transmission by 
migratory birds, there is also evidence that a bigger threat may be 
through the shipment of poultry-related products and that the disease 
might even be carried by containers in which infected birds had been 
kept.
    Just how much do we really know about the transmission of this 
disease? For example, do we know that if all U.S. poultry flocks were 
kept inside buildings that they will be safe? Do you think we have 
enough information to control this threat?
    Answer. Poultry scientists have studied how avian influenza (AI) 
and other virulent poultry diseases are transmitted. From this 
research, they have developed effective procedures to help prevent 
transmission from occurring. USDA has been publicizing these 
biosecurity measures, and we believe that by implementing them, 
producers themselves are helping us reduce the threat of widespread 
disease transmission.
    AI is primarily spread by direct contact between healthy birds and 
infected birds, and through indirect contact with contaminated 
equipment and materials. The virus is excreted through the feces of 
infected birds and through secretions from the nose, mouth and eyes. 
Contact with infected fecal material is the most common method of bird-
to-bird transmission.
    Wild ducks often introduce low pathogenicity virus into domestic 
flocks raised on range or in open flight pens through fecal 
contamination. Because game birds and migratory waterfowl can introduce 
disease into domestic flocks, USDA and the poultry industries recommend 
preventing these avian populations from coming into contact with each 
other.
    Within a poultry house, transfer of the highly pathogenic avian 
influenza (HPAI) virus between birds can occur via airborne secretions. 
The spread of avian influenza between poultry premises almost always 
follows the movement of contaminated people and equipment. AI also can 
be found on the outer surfaces of egg shells. Transfer of eggs, 
therefore, is a potential means of AI transmission. Airborne 
transmission of virus from farm to farm is highly unlikely under usual 
circumstances.
    It is important to remember that a detection of H5N1 HPAI in wild 
birds would not mean that commercial poultry would be affected. The 
U.S. poultry industry is well equipped to prevent AI. First, chickens, 
turkeys, and eggs produced for human consumption are generally raised 
in very controlled environments. Secondly, biosecurity practices have 
been a part of the business of raising poultry in the United States for 
decades. The vast majority of our commercial poultry producers raise 
their chickens and turkeys in covered structures with controlled 
access.
    In addition to carrying out surveillance and preparedness 
activities, USDA maintains trade restrictions on the importation of 
poultry and poultry products from countries currently affected by H5N1 
HPAI. We would emphasize that there is no evidence that HPAI currently 
exists in the United States.
    Question. If we ever have an outbreak of avian flu in this country, 
what kind of contingency plan do you have in place? Do you have cost 
estimates, including who will pay for it and where will the money come 
from?
    Answer. If there were an outbreak of avian influenza (AI) in this 
country, our response would depend on the nature and extent of the 
outbreak and may require coordinated action with other Federal, State, 
and local agencies, as well as other segments of society. ``The 
National Strategy for Pandemic Influenza'' guides the national 
preparedness and response to an influenza pandemic, with the intent of 
(1) stopping, slowing or otherwise limiting the spread of a pandemic to 
the United States; (2) limiting the domestic spread of a pandemic, and 
mitigating disease, suffering and death; and (3) sustaining 
infrastructure and mitigating impact to the economy and the functioning 
of society. The Strategy provides a framework for future U.S. 
Government planning efforts that is consistent with the National 
Security Strategy and the National Strategy for Homeland Security. It 
recognizes that preparing for and responding to a pandemic cannot be 
viewed as a purely Federal responsibility, and that the Nation must 
have a system of plans at all levels of government and in all sectors 
outside of government that can be integrated to address the pandemic 
threat. APHIS has developed a response plan for AI. This plan provides 
greater detail on how APHIS will respond to an outbreak of AI and 
define activities that will be required to address the control, 
containment, and eradication of the disease. Additionally, APHIS has 
developed a playbook that acts as a direct link to the National 
Strategy for Pandemic Influenza, such that if the scope of an outbreak 
in animals surpasses APHIS and its partner's capacity, other resources 
can be activated in a standardized manner.
    In the event of an HPAI outbreak that is within the scope of APHIS' 
response capabilities, APHIS has the Foreign Animal Disease management 
infrastructure to conduct an emergency response that would occur at the 
local level, in accordance with the National Animal Health Emergency 
Management System's guidelines for HPAI. Should the disease be detected 
in commercial flocks or in back yard flocks, affected flocks would be 
quickly quarantined to prevent spread. Sick and exposed birds would be 
euthanized and the premises cleaned and disinfected to stamp out the 
disease. USDA would conduct epidemiology investigations to determine 
the source of the virus, and to track the movement of birds to contain 
spread.
    To ensure immediate deployment of supplies necessary to contain, 
control, and eradicate an HPAI outbreak, APHIS is building a stockpile 
of needed vaccines; diagnostic products including reagents; 
disinfectants; and equipment that would be required to support 
operations until normal supply lines can be established for protracted 
operations. APHIS is developing models of the potential impacts of AI 
outbreak in the United States and alternative control strategies. These 
models will enable APHIS to test preparedness and response capabilities 
through conducting simulated exercises specific to AI. The information 
gathered through the simulations and the exercises will enable APHIS to 
assess resource requirements in many different outbreak scenarios.
    If the scope of the HPAI outbreak is beyond APHIS' and the affected 
State's immediate resource capabilities, additional resources can be 
obtained through the following mechanisms: the National Response Plan's 
Emergency Support Function #11 ensuring that animal-health emergencies 
are supported in coordination with the emergency support function that 
covers public health and medical services; and the National Animal 
Health Emergency Response Corps and various State response corps can be 
activated. These private veterinarians and animal health technicians 
are ready to assist on short notice.
    Currently, APHIS has sufficient funding to carry out its national 
domestic surveillance H5/H7 LPAI program and initiate additional 
surveillance and preparedness activities against an incursion of HPAI. 
If we were to receive the entire amount requested in the fiscal year 
2007 President's Budget and the disease situation did not change from 
its current status, we would not need additional funds to carry out our 
stated objectives. However, if there were a widespread outbreak or 
other emergency related to AI, we would need to reassess our available 
resources and consider adjustments to our spending plans based on the 
nature and extent of the outbreak.
    USDA's current LPAI funding supports cooperative agreements with 
States; diagnostic work at the National Veterinary Services 
Laboratories; program personnel and their associated support costs; 
vaccine stockpiling; outreach and education; training; information 
technology/database architecture; and investigative and enforcement 
services efforts, among other things. A certain level of indemnity 
funding is available from fiscal year 2005 carry-over funding to allow 
rapid response to occasional LPAI introductions into domestic poultry 
flocks.
    USDA's current HPAI funding supports the expansion of AI 
surveillance in the commercial industry and live bird market system to 
all appropriate States. In addition, the HPAI program will allow for 
surveillance in upland game premises, commercial/backyard flocks, and 
other high-risk populations that have not been covered under the 
national domestic program. The HPAI program will support preparedness 
activities such as data modeling, simulated exercises specific to AI, 
and planning for the immediate deployment of the supplies necessary to 
contain, control, and eradicate an AI outbreak. The program will also 
expand the ``Biosecurity for the Birds'' outreach campaign, as well as 
anti-smuggling and risk management activities. Internationally, the 
HPAI program will support capacity building, which allows APHIS to go 
into countries where the disease exists and assist in control efforts 
by providing technical training and advice. This will create a more 
comprehensive approach to AI by looking at it internationally, 
monitoring the multiple ways that AI might get into the country, and 
preparing for the possibility of a H5N1 outbreak.

                         FOOD SAFETY INSPECTORS

    Question. Dr. Raymond, how many food safety inspectors will FSIS 
employ this year? Do you have a breakdown of ``off-line'' and 
``online'' inspectors? How does this compare to last year? Are 
inspectors who quit or retire being replaced?
    Answer. There are approximately 7,600 in-plant food safety 
inspection program personnel, including field import inspectors and 
compliance officers. The in-plant personnel includes 7,190 food safety 
inspectors. Of the total food safety inspectors 3,171 are ``on-line'' 
and 4,019 are ``off-line.'' This represents a slight decline in the 
number of in-plant food safety inspection program personnel due to 
difficulty finding qualified personnel to fill the positions. In-plant 
employees make up the overwhelming majority of the field inspection 
force and are the only ones designated as ``on-line'' and ``off-line.'' 
Other ``front-line'' inspection employees are not identified by these 
terms. Open positions are filled as quickly as possible with qualified 
people. Each year, FSIS hires on average approximately 300 entry-level 
Food Inspectors and approximately 75 Public Health Veterinarians.
    Question. I understand that the number of plants has decreased, but 
what about the number of animals processed? How do you do a good job 
with fewer inspectors doing more work?
    Answer. As required by the Poultry Products Inspection Act and the 
Federal Meat Inspection Act, respectively, each poultry carcass and 100 
percent of livestock carcasses presented for slaughter are inspected by 
FSIS. Over the last decade, the number of poultry carcasses inspected 
per fiscal year has significantly decreased; however, the number of 
livestock inspected per fiscal year has increased.
    The current number of FSIS inspection program personnel allows the 
agency to perform its public health functions. FSIS inspection program 
personnel provide inspection services for all establishments under its 
jurisdiction by employing alternative staffing strategies and fully 
utilizing available field inspection employees to address the demands 
of each particular area.

                HUMANE ACTIVITIES TRACKING (HAT) SYSTEM

    Question. How much funding will be required to complete connection 
of the HAT system to the FAIM architecture within FSIS? Please provide 
detailed information.
    Answer. The total amount of $7 million available from fiscal year 
2005 and fiscal year 2006 will be sufficient to complete connection of 
the Humane Activities Tracking (HAT) system to the Field Automation and 
Information Management (FAIM) architecture within FSIS. In order to 
ensure that the field work force is able to instantly transmit public 
health and humane handling data to headquarters, $5.5 million of the $7 
million is being used to install new high-speed connections in 
approximately 1,500 of 2,300 ``base plants,'' which are establishments 
from which inspection program personnel, including patrol inspectors, 
operate on a daily basis. Reflected in these costs are equipment, 
initiating services, and monthly charges for 1 year after the service 
is initiated. The agency hopes to have high-speed connections completed 
on these 1,500 base plants by February 2007, and is evaluating 
alternatives for the remaining 800 sites for which DSL/Cable Broadband 
is currently unavailable or have other connectivity issues. By 
replacing dial-up connections with high-speed access at all base 
plants, FSIS will be equipped with a fully-integrated, real-time 
communications infrastructure that gives the agency the ability to 
instantly detect and respond to abnormalities or weaknesses in the 
system to best monitor humane handling and slaughter enforcement, 
safeguard public health, and ensure food safety and food defense.
    The agency will also continue its development of a reporting tool 
which will link the HAT system to other agency databases through a web-
based system, for which the remaining $1.5 million is earmarked. As 
part of the agency's communications infrastructure, this reporting tool 
will allow inspection program personnel in the District Offices and 
headquarters to access HAT data along with other food safety 
verification data, thereby providing the agency with a powerful 
management control tool for improved and consistent enforcement of the 
Humane Methods of Slaughter Act (HMSA).
    Question. How much funding is required to maintain this technology?
    Answer. Ongoing charges for the 1,500 broadband locations are 
expected to be $3 million of base funding annually. USDA is currently 
evaluating connectivity alternatives for the remaining 800 base plant 
sites, so funding estimates are unavailable at this time.

                          COOPERATIVE SERVICES

    Question. You commissioned an outside review of the programs and 
services provided by Cooperative Services at the Rural Business-
Cooperative Services agency.
    Can you discuss the results of the review?
    In addition, what steps will USDA take to ensure the unique 
structural and economic advantages of member-owned and controlled 
cooperatives will continue to be supported by USDA and its programs?
    To support cooperatives, what steps have you taken to fill 
positions in the field at Co-op Services that are for cooperative 
development?
    Answer. The Administration contracted for an outside program review 
of Cooperative Programs. The review was conducted by a committee 
comprised of industry leaders and members of academia and was charged 
with identifying improvements or changes that would assist today's 
rural cooperatives and promote opportunities for leveraging the current 
Cooperative Programs' programs and capacity to support a broader range 
of cooperative strategies and approaches to building economic vitality 
in rural areas.
    The committee's recommendations focused on three primary areas--the 
expansion of the Cooperative Program's mission, the need for an 
infusion of new intellectual capital, and the adoption of a regional 
approach for providing cooperative services in rural communities. The 
committee recommended that Cooperative Program's mission be expanded to 
include alternative cooperative models and organizations, as well as 
non-agricultural cooperatives. The traditional cooperative model was 
seen as too restrictive, and the recommendation was made to include new 
generation cooperatives, LLCs, and other innovative ``self-help'' 
business models. The committee also found that cooperatives and other 
``self-help'' organizations that focus on housing, consumer services, 
health care, consumer goods, employer-ownership, small business 
purchasing, and other areas could be useful and important tools for 
rural economic development and improving the quality of life in rural 
areas. Finally, the committee recommended a partnership between 
regional Rural Development offices and rural cooperative development 
centers to provide information, education, and legal and development 
assistance. Rural Development is taking these recommendations under 
review.
    Rural Development's cooperative programs (CP) include the Value-
Added Producer Grant (VAPG), the Rural Cooperative Development Grant 
(RCDG), and the Agricultural Marketing Resource Center (AgMRC) programs 
that devote major parts of their programs supporting and developing 
member-owned cooperatives. The RCDG program is budgeted at $4.95 
million for fiscal year 2007. Rural Cooperative Development Centers are 
awarded funds for the purpose of providing assistance to groups wishing 
to form cooperatives, as well as for providing assistance to existing 
cooperatives in rural areas. Member-owned cooperatives are encouraged 
and made specifically eligible for the VAPG program. However, the VAPG 
program is a competitive program that does not set aside specific 
support for cooperatives or any other type of applicant. In addition, 
CP provides support to member-owned and controlled cooperatives through 
the Rural Development Salaries and Expenses account by researching 
cooperative issues, by providing cooperative development technical 
assistance, by providing cooperative education and other technical 
advisory services, and by reporting on the financial health of the 
agricultural cooperative sector. Rural Development is taking these 
recommendations under review.
    Question. Mr. Dorr, you have recently stated that Persian Gulf 
countries are showing an interest in investing in U.S. ethanol plants 
and you have said, ``If you don't own [these plants] as agricultural 
producers, someone else will and you're going to be working for them''.
    Do you think that agricultural producers and rural cooperatives 
have a roll in producing renewable fuels or have they already lost out 
to the large corporate interests? Have your dire warnings come too 
late?
    Answer. Renewable energy is, and will continue to be a big part of 
America's energy solution. From 2001 through 2005 ethanol production 
more than doubled from under 2 billion gallons per year to about 4 
billion gallons per year. Government investment, especially in recent 
years, has helped agricultural producers and rural cooperatives play a 
major roll in production of renewable fuels and will continue to assist 
in the growth of the renewable fuels sector. For example, from fiscal 
years 2001 through 2005, USDA Rural Development invested nearly $84 
million in 89 guaranteed loans and grants to assist with development of 
ethanol facilities throughout rural America. Many of these facilities 
are owned and operated by agricultural producers and by cooperatively 
organized entities.
    We sincerely hope that agricultural producers, rural cooperatives, 
and rural residents will continue to be major sources of investment in 
renewable fuels. We want the people and businesses in rural communities 
to share in the returns to investment and the local development that is 
stimulated by local business ownership. As we look at the projects 
being started across the country we see that local money is still 
flowing in. What we are seeing as well, however, is that the big 
institutional investor, domestic and foreign, is seeing those high 
returns too. We would like to see that institutional interest in 
renewables serve as a tremendous way to leverage local investment.
    Question. Mr. Dorr, your mission is to support Rural America and 
rural interests and, I think you agree, not large multi-national or 
foreign corporations.
    Do you think that the budget proposal will provide adequate capital 
to small producers or cooperatives to move into the renewable fuels 
industry?
    Answer. USDA Rural Development has several funding tools and 
opportunities, including direct and guaranteed loans and grants, to 
support investment by small agricultural producers and rural 
cooperatives and help move these entities into the renewable fuels 
industry. Most of these programs are relatively small in terms of 
budget authority. Collectively, however, they provide a highly flexible 
portfolio of management strategies and funding options with which to 
address the unique circumstances of agricultural producers and 
cooperatives we serve. The Renewable Energy/Energy Efficiency Loan and 
Grant Program (Section 9006) provides financial assistance specifically 
targeted to the industry. In order to ensure adequate capital for small 
producers under this program, the Section 9006 final rule, published in 
July of 2005, calls for the provision of priority selection points for 
small agricultural producers.
    Question. Do you think the mix of grants-to-loans that you propose 
will be enough to make sure these groups can get a fair shake in this 
growing industry?
    Answer. Rural Development will continue to extend support to 
agricultural producers and cooperatives for the development of 
renewable fuels from the full range of our business lending and 
investment programs. These funding programs, coupled with private 
sector leverage, will continue to assist rural small businesses and 
small agricultural producers in increasing their access to the growing 
renewable energy industry. In addition, continued simplification of 
application processes for small entities will encourage increased 
participation from that sector. Finally, as mentioned above, we have 
placed increased emphasis on supporting small agricultural producers 
through the priority selection process.
    Question. How do you justify the reductions you propose when the 
opportunities, and the stakes, are so great?
    Answer. One of USDA Rural Development's primary roles in nurturing 
the renewable fuels industry will be to encourage private sector 
investment to maximize the benefit of Federal funding. By leveraging 
Federal dollars with private investments, we can spread resources. By 
fostering partnerships with State, local, and tribal governments, 
community development organizations, and for-profit and not-for-profit 
companies, Rural Development can help to grow State and local renewable 
energy policies that will support further investment. To ensure that 
small projects are not overlooked, we will continue to emphasize the 
use of grants when they are needed and to increase utilization of loan 
guarantees when possible. This will continue to allow us to serve the 
neediest entities while increasing loan-based financial assistance to 
the target market. In fiscal year 2007, we will be looking for ways to 
better target all available program resources to meet the growing 
demand in the renewable fuels industry.
    Question. Please provide us a breakdown, by program, for all the 
funds under your mission area for fiscal year 2007 that can be used to 
support renewable fuels development by farm organizations and rural 
cooperatives.
    Answer.
    [The information follows:]

FISCAL YEAR 2007 PROPOSED FUNDING TO SUPPORT RENEWABLE FUELS DEVELOPMENT
------------------------------------------------------------------------
                                                            Fiscal year
                                                          2007 Projected
                                            Fiscal year       Funding
         Loan/grant description           2007 projected  Activities for
                                          funding levels     Renewable
                                                              Energy
------------------------------------------------------------------------
Business and Industry Guaranteed Loan       $990,000,000     $16,000,000
 (B&I)..................................
Rural Economic Development Loan.........      34,600,000         400,000
Rural Economic Development Grant........      10,000,000         400,000
Value Added Producer Grants.............      19,280,000       2,500,000
Section 9006 Renewable Energy Grants and       7,920,000       7,920,000
 Guaranteed Loans.......................
Section 9006 Renewable Energy Guaranteed      34,600,000      34,600,000
 Loan...................................
Section 9008 Biomass R&D Grants.........      12,000,000      12,000,000
Electric Program Loans..................     700,000,000     200,000,000
                                         -------------------------------
      TOTAL.............................   1,732,420,000     273,820,000
------------------------------------------------------------------------

    Question. Mr. Dorr, USDA has a long history of running a well-
managed guaranteed rural homeownership program through a private-public 
partnership with over 2,000 lenders. In fact, in fiscal year 2005, over 
$100 million in housing loans were provided in the rural areas of my 
home State. Of that amount, 32 percent benefited low and very-low 
income families.
    I now see you are raising the origination fee for these loans from 
2 percent to 3 percent, while interest rates are rising, and I must 
admit I am puzzled. An origination fee of 3 percent is extraordinarily 
high for this targeted market and almost unheard of in the housing 
industry. For fiscal year 2003, you stated you were lowering this fee 
from 2 percent to 1.5 percent to lower the so called ``barriers'' to 
achieve the President's Initiative of increasing minority 
homeownership.
    Why was it considered a ``barrier'' then and not now, and how do 
you justify increasing what you personally identified as a ``barrier'' 
to an unprecedented level?
    How will your increased fee with rising interest rates help you 
meet or exceed the President's goal of providing increased 
homeownership rates to low and very low-income families, especially 
minorities?
    Answer. Homeownership, particularly minority homeownership, is 
still a key Administration objective. In fiscal year 2003, fees 
presented a barrier to homeownership for some prospective minority 
borrowers because they had to pay the fees at closing. We helped 
eliminate that barrier by allowing the entire fee to be financed into 
the loan by increasing the amount we can lend up to 103 percent of the 
appraised value of the home.
    Additionally, we have no requirements for down payment or mortgage 
insurance, so even with the fees, monthly payments remain reasonable. 
The higher fee would only result in a $6 increase in the average 
monthly payment for most customers. We closely monitor the other fees 
charged by participating lenders in our SFH guarantee program to ensure 
that fees charged are reasonable.
    Raising the guarantee fee saves approximately $35 million in Budget 
Authority for fiscal year 2007. This is a significant savings. 
Realizing savings like this while at the same time maintaining 
effective programs like 502 guaranteed loans is the balance USDA Rural 
Development is trying to achieve.

                         THE USDA LOAN PROGRAM

    Question. Also as part of your request, you are asking lenders to 
certify they would not make a loan to a borrower using any other 
Federal housing program, including FHA, before making a USDA loan. The 
USDA program serves a rural based, lower-income population and is 
limited to a primary home, unlike FHA.
    What data do you have that shows these programs overlap?
    Wouldn't this requirement add another layer or layers of 
bureaucracy and most likely confuse participating lenders and drive up 
the originator's costs that will be passed on the borrower?
    What have you heard from the lending community on both of these 
proposals, because, to be honest, we have heard a great deal from 
lenders, underwriters and national lending associations from around the 
country all of which were very critical of these efforts?
    Answer. The Office of Management and Budget's (OMB's) Program 
Assessment Rating Tool (PART) indicates that the 502 guaranteed program 
may overlap other Federal housing programs, and may at times serve 
customers that could have received loans through the Federal Housing 
Authority or Veterans Administration. This general provision has been 
proposed to preclude the potential overlap of Federal programs.
    Currently, a lender must certify that they would not provide the 
proposed loan without a Rural Development guarantee. The proposed 
provision would require a lender certify that a borrower was not 
eligible for another Federal insured or guaranteed housing program. If 
the lending institution normally does not offer another Federal 
program, they would not be bound by this proposal.
    The reaction from the lending community on the fee increase and the 
new certification proposal has not been positive. Higher fees and 
additional paperwork are not popular concepts. However, given the cost 
savings that would be realized from the fee increase and the 
elimination of potential Federal program overlaps, it is felt that 
benefits from these proposals are significant, can be successfully 
implemented, and make good program management sense.

             STRENGTHENING AMERICA'S COMMUNITIES INITIATIVE

    Question. In its fiscal year 2007 Budget, the Administration again 
proposes to eliminate four programs within the Department of 
Agriculture and consolidate those activities in the Department of 
Commerce with thirteen other programs from four other departments under 
the ``Strengthening America's Communities Initiative.'' The four USDA 
programs are Rural Business Enterprise Grants, Rural Business 
Opportunity Grants, Economic Impact Grants, and Rural Empowerment 
Zones/Enterprise Communities, which annually have provided over $72 
million to Rural America's most underserved communities for several 
years.
    What assurances can you provide that rural communities will 
continue to receive the same level of support for these specific 
programs under this consolidation?
    Answer. The President's Strengthening America's Communities 
Initiative will include eligibility criteria that will ensure funds are 
directed to those communities most in need of development assistance. 
We feel confident that rural communities will fare well when these 
criteria are used. USDA Rural Development has offered our expertise, 
assistance, and experience in program delivery in rural areas through 
our 800 local offices and 6,800 employees. We will continue to work 
with the Department of Commerce and the Department of Housing and Urban 
Development on the technical details of program delivery, particularly 
as it affects rural areas.
    Question. What studies indicate that this initiative will more 
effectively deliver these specific programs?
    Answer. The initiative is designed to streamline a number of 
programs that provide regional economic assistance to communities, and 
will include eligibility criteria that will ensure funds are directed 
to those communities most in need of development assistance. While 
Rural Development has not conducted any studies of the initiative, we 
are confident that rural communities will fare well when these criteria 
are used. USDA Rural Development has offered our expertise, assistance, 
and experience in program delivery in rural areas.
    Question. If any of these four programs will experience any funding 
reduction under this consolidation, please indicate the amount of the 
reduction and provide detailed justification for each reduction.
    Answer. A total of $327 million is proposed for the economic 
development component of the restructured Initiative. Further 
distributions of funding by program area have yet to be determined. 
Again, we believe rural America will be well served as the eligibility 
criteria will direct resources to those rural communities most in need 
of assistance, and USDA Rural Development expects to be heavily engaged 
in program development, implementation, and delivery.

                              SECTION 515

    Question. The budget eliminates the section 515 rural rental 
housing program. Since 1963, the Agriculture Department has made loans 
for affordable rental housing in rural areas. The section 515 program 
is the only Federal program providing direct, subsidized loans (1 
percent) to finance rural rental housing. According to a recent USDA 
report, there is a substantial need to repair and renovate section 515 
housing. The portfolio contains 450,000 rented apartments in section 
515 developments. The average 515 tenant income is little more than 
$9,000, which is equal to only 30 percent of the Nation's rural median 
household income. Sixty percent of the tenants are elderly or disabled 
and one-quarter are minority. The existing Section 515 portfolio is 
aging. Of the 17,000 developments across the country, close to 10,000 
are more than 20 years old. To maintain this stock, it will take a 
commitment of Federal funds for restoration. It's hard to argue that 
rural America does have a housing crisis. According to the 2000 Census, 
there are 106 million housing units in the United States. Of that, 23 
million, or 23 percent, are located in non-metro areas. Many non-metro 
households lack the income for affordable housing. The 2000 Census 
reveals that 7.8 million of the non-metro population is poor, 5.5 
million, or one-quarter of the non-metro population, face cost 
overburden, and 1.6 million of non-metro housing units are either 
moderately or severely substandard.
    Why has the Administration proposed to end a program that for over 
40 years has financed over 500,000 units of affordable housing with 
very few delinquencies or defaults and why is RHS giving up on 
providing affordable rental housing for over seniors and families?
    Answer. Rural Development has not given up on providing affordable 
rental housing. The President's fiscal year 2007 budget proposes $74 
million to continue the new vision for Multi-Family Housing programs.
    The Administration proposes to create a new source of funding to 
rehabilitate 515 properties. The Comprehensive Property Assessment 
(CPA) found that 90 percent of the properties lacked sufficient cash 
and reserves to prevent economic obsolescence.
    Already, over 100 properties are lost from the program each year. 
This number will rise quickly in coming years as deferred maintenance 
overtakes the 17,000 remaining properties in the portfolio. This is a 
much bigger threat to the portfolio than prepayment. Furthermore, in a 
few years loans will begin maturing; unless 515 property owners have 
equity in their property, many may be lost to the private market.
    The Administration's multi-family housing proposal allows property 
owners to restructure their loans. With this restructuring USDA will 
exchange debt service payments on the loan to provide cash for 
rehabilitation, and the property owner will sign up for another 20 
years providing affordable housing.
    The new restructuring tools that are key components in our proposed 
revitalization legislation will allow us to assure that resources are 
available to revitalize the vast majority of properties in our 
portfolio where the owner elects to stay in the program. These 
restructuring tools, primarily the use of debt deferral, will create 
the opportunity to add additional debt to take care of immediate 
rehabilitation needs.
    One way to look at this restructuring process is to view it as a 
``fix-up vs. build'' decision: it costs $85,000 on average to build a 
new affordable housing unit, but only $20,000 per unit to rehabilitate 
what we currently have. The vision, then, is to secure the valuable 
national asset of a large affordable rural rental housing portfolio, 
for the longest period, at the lowest cost to the government, at the 
greatest benefit to tenants, owners, and communities.
    The Administration's fiscal year 2007 Budget proposes more new 
construction for multi-family housing. It does this by doubling funds 
for Section 538 guaranteed loans, thereby increasing dramatically the 
loan amounts available. The section 538 program works in partnership 
with other financing entities to create affordable housing. More than 
80 percent of the closed loans in the portfolio have 9 percent tax 
credit dollars. Many tenants in section 538 properties have section 8 
vouchers which assist the tenants in keeping section 538 housing 
affordable. The program also offers interest credit subsidies that 
assist in lowering the interest rate throughout the term of the loan. 
The subsidized interest rate keeps rents low for tenants.
    Question. According to the Department's Comprehensive Property 
Assessment, repair and renovation of the section 515 portfolio is a far 
greater problem--in terms of number of units--than prepayment. The 
Comprehensive Property Assessment indicated the need for some 50,000 
vouchers for families unlikely to be displaced by sale of certain 
section 515 development and estimated over $2 billion was needed to 
repair and restore the existing portfolio. Rural Housing Service (RHS) 
has used section 515 to finance this sort of repair and renovation 
activity. In fiscal year 2006, RHS will commit at least $50 million to 
repair and restore the existing portfolio.
    How many 515 projects have been repaired using the 538 program and 
how many projects would you predict would be rehabilitated with the 538 
program at the President's budget request?
    What statutory barriers exist for the 538 program to refinance and/
or repair a 515 project with HUD or USDA rental assistance attached to 
it?
    Answer. This is the first year of using 538 financing to renovate 
existing 515 properties. Currently, we estimate that in fiscal year 
2006, 10 properties in the 515 portfolio will receive lender provided 
funds with a 538 guarantee. At the fiscal year 2007 President's budget 
request amount of $198 million, we expect to finance approximately 20 
to 30 existing 515 properties.
    There are no statutory barriers which would preclude section 538 
financing on an existing 515 project. However, section 515 owners do 
not have to refinance their loans in order to finance repairs or to 
restore their developments. If a section 515 owner wants to finance 
repairs with a 538 loan guarantee, the section 538 program provides an 
interest credit down to the applicable Federal rate at the time the 
loan closes (currently approximately 4.6 percent). The interest rate 
difference is only part of the story. The cost of making section 538 
funds available is significantly less to the Federal Government than 
through the Section 515 program. We would also consider the section 538 
guaranteed funds to be only one of many sources of funding for 
rehabilitation purposes that can be made available to existing 515 
projects.

                                VOUCHERS

    Question. The fiscal year 2007 budget proposes $74 million for 
vouchers and indicated that some of this money will be used for 
portfolio restructuring.
    What is the planned breakout between expenditures for restructuring 
and vouchers--in both dollars and units?
    Answer. The 2007 Budget addresses the displaced tenant issue with 
the funding of vouchers and hopes to be able to address the 
dilapidation issue if the restructuring authorization is passed. The 
2007 Budget includes $74 million to continue the multi-family housing 
revitalization proposal that was initially proposed in the 2006 Budget. 
This funding will be used primarily for housing vouchers, good for 12 
months, for residents of projects whose sponsors prepay their 
outstanding indebtedness on USDA loans and leave the program. The 
specific dollar amount and number of tenants is dependent on the number 
of properties that pre-pay, their location, and the market conditions 
at the time. In addition, the Administration is proposing that 2007 
appropriation language provide the flexibility to use the $74 million 
for debt restructuring and other revitalization incentives that we 
expect to be authorized before or during 2007.
    Question. The fiscal year 2006 budget requested $214 billion for 
vouchers alone. The fiscal year 2007 budget requests much less for 
vouchers--$74 million--and proposes to use some of that for 
restructuring.
    What has changed in the last year so that the administration can 
request only about one-third of the fiscal year 2006 budget for 
vouchers?
    Answer. The Comprehensive Property Assessment (CPA) found that 10 
percent of the properties (approximately 1,700) could be economically 
viable to prepay if permitted. This is estimated to be about 46,000 
units, with approximately one-third of the prepayments occurring in 
each of the first three years. The fiscal year 2006 budget reflected 
vouchers needed in the first year funded under the assumption they 
would last 3 to 4 years and provided administrative funds to establish 
the Office of Portfolio Revitalization. The fiscal year 2007 budget 
reflects vouchers needed in the first year funded at a 1-year level.

                           RENTAL ASSISTANCE

    Question. The budget proposes to reduce the term on rural rental 
assistance contracts from 4 years to 2 years.
    If this is not approved, what is the total needed to continue all 
expiring contracts? If this is approved, what is the projected total 
needed for contract renewals for fiscal year 2008?
    Answer.
    [The information follows:]

                      RENTAL ASSISTANCE PROJECTIONS
------------------------------------------------------------------------
                                                   4 YR RENEWALS
                                         -------------------------------
                  YEAR                                      Dollars in
                                              Number         Thousands
------------------------------------------------------------------------
2006....................................          66,799        $639,126
2007....................................          85,756         987,000
2008....................................          78,567       1,284,564
2009....................................          60,524       1,204,900
2010....................................          73,531         950,000
------------------------------------------------------------------------


                      RENTAL ASSISTANCE PROJECTIONS
------------------------------------------------------------------------
                                                   2 YR RENEWALS
                                         -------------------------------
                  YEAR                                      Dollars in
                                              Number         Thousands
------------------------------------------------------------------------
2007....................................          66,799        $477,000
2008....................................          85,756         628,000
2009....................................         145,366       1,089,000
2010....................................         146,280       1,121,000
2011....................................         152,098       1,194,000
------------------------------------------------------------------------

    Question. The Administration proposes to continue new construction 
for farm labor housing. These units need rental assistance in order to 
be affordable to eligible farmworkers housing households.
    Is there rental assistance for farmworker housing included in the 
budget request?
    Answer. Yes, Rural Development's rental assistance request includes 
units for farm labor housing.

                         WATER AND SEWER GRANTS

    Question. The budget includes a reduction in the interest rate 
charged to poverty level communities, which is offset by a reduction in 
water/sewer grants. For most rural communities, grant funds are the key 
to financing new systems and system improvements. These communities 
have the most significant problems with their water-sewer systems and 
lack the capacity in terms of income and population to spread the costs 
for improvements. It is likely that a reduction in the amount of 
available grant assistance will limit the ability of the communities 
with the greatest need to afford RUS assistance. The RUS system allows 
for up to 75 percent grant financing for water or sewer systems, yet 
typically communities only get 35-40 percent grant.
    What assurance can you give the Committee that this proposal will 
not result in small poor communities being left out of the program or 
increasing the debt servicing that will have a negative impact on 
increased average user water and sewer bills?
    Did you conduct analysis on small low-income rural communities and 
can you share this information with the Committee?
    Answer. An applicant's debt repayment capacity is evaluated 
independently of the loan interest rate and based on maintaining 
reasonable user fees. The applicant's loan capacity is then determined 
based on its repayment capacity and the interest rates and terms 
available at the time the project is approved. With the proposed 
reduction in interest rates, it expects to increase most applicants' 
loan capacity. Grant funds will continue to be used to assist borrowers 
in maintaining reasonable user rates where their borrowing capacity is 
less than the project cost. Priority for funding will continue to be 
based on small communities with low income levels that must make system 
improvement to meet health standards.
    The chart below describes our analysis of the revised interest rate 
structure in funding a loan and grant project with the same level of 
budget authority. Using data available at the time the President's 
budget was being developed, the chart shows the market rate range where 
the revised interest rate structure will result in lower annual loan 
payments. Since the historic market rate falls within that range, we 
concluded our revised interest rate structure would better serve our 
borrowers in maintaining reasonable user fees. Rural Development has 
determined that because this assists all communities, it will help the 
small low-income rural communities as much or more than those between 
5,000 to 10,000 populations.
    [The information follows:] 
    
    
                            ORGANIC RESEARCH

    Question. The 2002 Farm Bill established the Organic Research and 
Extension Initiative to fund organic agricultural research at the level 
of $3 million for each of the subsequent 5 years. When combined with 
the Organic Transitions Program, this joint Integrated Organic Program 
has been disbursing about $4.5 million to fund organic research 
annually.
    How does the competitiveness of this program compare to other of 
the integrated grant programs (e.g. section 406 grants)?
    Answer. In 2005, the Integrated Organic Program received 82 
proposals requesting $39 million and the competitive review panel 
deemed 42 of the proposals requesting $23 million as high quality and 
fundable. To stay within the approximately $4.7 million available to 
the program, 8 proposals were recommended for funding, which represents 
10 percent of all submitted and 19 percent of those that were 
determined to be fundable.
    In 2005, the Crops at Risk Program received 22 proposals requesting 
$7.4 million and the competitive review panel deemed 9 of the proposals 
requesting $3.4 million as high quality and fundable. To stay within 
the $1.3 million available to the program, 5 proposals were recommended 
for funding, which represents 23 percent of those that were determined 
to be fundable.
    In 2005, the FQPA Risk Avoidance & Mitigation Program received 18 
proposals requesting $25.6 million and the competitive review panel 
deemed 12 of the proposals requesting $17.6 million as high quality and 
fundable. To stay within the $4.2 million available to the program, 4 
proposals were recommended for funding, which represents 22 percent of 
those that were determined to be fundable.
    In 2005, the Methyl Bromide Transitions Program received 19 
proposals requesting $6 million and the competitive review panel deemed 
11 of the proposals requesting $3.9 million as high quality and 
fundable. To stay within the $2.9 million available to the program, 9 
proposals were recommended for funding, which represents 47 percent of 
those that were determined to be fundable.
    Question. Please describe any plans CSREES has to increase its 
level of support for organic agricultural research.
    Answer. The quality of proposals being funded through the 
Integrated Organic Program and low percentage of high quality proposals 
funded suggest that increased funding for the Integrated Organic 
Program would be effectively used. In the 2007 President's budget, the 
program is funded under the NRI. The agency is assessing how organic 
research is currently supported through allied programs and how this 
support could be increased, if appropriate. For example, a number of 
National Research Initiative programs support basic and applied 
research directly and indirectly related to organic production, 
marketing and environmental interdependencies. It may be possible to 
increase support for organic agricultural research by increasing staff 
awareness of organic research needs and by adapting Requests for 
Applications to reflect the increasing interest of the USDA in organic 
production and marketing systems, as well as potential implications to 
the environment, rural communities and long term competitiveness in the 
United States products.

                          ORGANIC AGRICULTURE

    Question. The 2002 agricultural census contained only 2 questions 
on organic operations, providing little information about the scope of 
the industry. What is NASS's plan to gather more information to 
document demographic and economic trends in the organic sector?
    Answer. NASS has expanded the Organic Section for the 2007 Census 
of Agriculture. NASS staff consulted with other USDA agencies and 
organic grower organizations to develop a more comprehensive Organic 
Section that will better address the needs of the data user community. 
This data will allow NASS to publish the organic data in conjunction 
with the economic and demographic data already collected on the census. 
The result will be a more complete picture of the organic sector of 
American agriculture.
    Question. We understand that NASS has suggested they could better 
address data on the organic industry by doing a follow up survey to the 
2007 census sent only to certified organic operations. Is it possible 
to include this organic survey as an addendum (included with) the main 
agricultural census?
    Answer. The 2007 Census of Agriculture will collect information on 
certified, transitional, and non-certified organic agriculture. In 
combination with other data collected in the census of agriculture, 
NASS will be able to produce cross tabulations providing the most 
comprehensive data set available on the organic sector.
    The main barrier to inserting an addendum into the 2007 Census of 
Agriculture is the inability to easily pre-identify the producers in 
all sectors of organic agriculture. Industry experts have indicated 
information is needed on certified, transitional, and non-certified 
organic producers. While it may be possible to pre-identify certified 
producers, it would be virtually impossible to pre-identify the others.
    Question. Of 15 project areas in the NRI competitive grants 
program, I have been informed that only 2 of them have funded projects 
that contain an organic agriculture element within them. These are 
Managed Ecosystems and Agricultural Prosperity for Small and Medium-
Sized Farms. However, I have also been informed that since 2003, there 
have been no grants made that specifically fund organic production 
research, though five projects that had some aspect pertaining to 
organic marketing were funded through the Agricultural Prosperity 
program in 2005. How could organic be better represented through more 
program areas of the NRI?
    Answer. Organic research, extension, and educational issues are 
applicable to the majority of the NRI competitive grants programs. In 
the past, the majority of projects funded have been through the Managed 
Ecosystem program and its predecessor, the Agricultural Systems 
program. Between the fiscal years 2003 and 2006, six projects have been 
funded through the Managed Ecosystem program for an award amount of 
$1,976,127. Three of these projects are related to increasing 
production in cropping systems through more efficient cycling of 
nutrients and better understanding of soil biological processes. Two 
projects compared apple production systems between organic, 
conventional, and integrated systems. Results from the apple projects 
were published in an article in Science.
    As you mentioned, the new Agricultural Prosperity for Small & 
Medium-Sized Farms program funded two projects on organic agriculture 
during its first year. One project was from a social perspective 
looking at the role of women farmers in sustaining small farms and 
rural communities. The second project was on production systems 
transitioning to conservation tillage practices. The 2006 fiscal year 
projects have not been announced, but we anticipate additional projects 
related to organic agriculture will be funded.
    In addition to the Managed Ecosystem and the Small Farms program, 
six other programs have been involved in funding organic agriculture 
projects between fiscal years 2001 and 2006. These programs illustrate 
the diversity of topics that can support organic research interests 
through NRI programs. Programs that have funded projects directly 
related to organic agriculture are the Biology of Plant-Microbe 
Associations, Soil Processes, Biologically Based Pest Management, 
Biology of Plant-Microbe Associations, Agricultural Markets and Trade, 
and Rural Development. Research questions being addressed under these 
programs range from ``Population Migrations of Phytophthora Infestans 
in Organic and Conventional Agricultural Production Systems'' related 
to potato blight in the Biology of Plant-Microbe Associations program, 
``Microbial Community Structure in Relation to Organic and 
Conventionally Farmed Desert Soils'' related to soil health in the Soil 
Processes program, ``Dispersal of Phytophthora capsici in Soils from 
Conventional and Organic Agroecosytems'' looking at how organic 
practices can control disease in the Biologically Based Pest Management 
program, ``Population Migrations of Phytophthora Infestans in Organic 
and Conventional Agricultural Production Systems'' in the Biology of 
Plant-Microbe Associations program. Social and economic issues can be 
addressed through the Agricultural Markets and Trade and Rural 
Development programs. Examples of funded topic are ``Experimental 
Investigation of Interactions in Willingness to Pay for Certified 
Organic and Non-Genetically Modified Foods'', ``The Demand for 
Alternative Foods: Perceptions and Characteristics of U.S. Shoppers'', 
and ``Generational Transfer of Alternative Farms as Rural Development 
in the Northern Great Plains Region''.
    Projects can impact or inform organic producers, but may not be 
directly identified as an organic research project. These projects 
provide examples of the breath of issues that are facing the organic 
producer, which can be addressed through NRI programs. There were 16 
NRI programs that funded projects that are potentially relevant to 
organic research in fiscal years 2004 and 2005. The areas of research 
vary from use and management of manures, growth and health of animals, 
weed dynamics, soil biological processes and nutrient cycles, air 
quality from animal systems, bio-control of insects, biodiversity of 
systems, to health aspects encouraging vegetable consumption. NRI 
funding for these projects was at a level of $16,691,097.
    An emerging area of interest for the organic producer is in being 
able to use generally accepted practices of conservation, enhancing 
biodiversity, soil enrichment, and recycling on inputs to increase the 
economic value of organic production practices. Several programs in the 
NRI are expanding our focus on ecosystem services and market valuation 
of these practices. For example the Markets and Trade and Managed 
Ecosystem programs have funded 10 projects that will lead to adoptions 
of conservation practices or evaluate market potentials for ecosystem 
services. This is a new opportunity for research, extension, and 
educational activities in support of organic agriculture.
                                 ______
                                 

               Questions Submitted by Senator Tom Harkin

                         RISK MANAGEMENT AGENCY

    Question. In your written testimony, you referred to the 
President's request to fund 15 additional staff years for the Risk 
Management Agency to provide better oversight of the crop insurance 
program so as to avoid problems such as those that resulted in the 
failure of the American-Agrisurance insurance company in 2002. Please 
describe in greater detail what functions those additional staff would 
perform that would have such an impact?
    Answer. RMA has requested the additional staff for the Compliance 
offices to provide more effective program oversight, strengthen the 
front-end reviews of approved insurance providers, and to address 
outstanding OIG recommendations to improve company oversight and 
internal controls.
    Increased staffing will assist Compliance with ongoing efforts 
pertaining to quality control and assurance requirements and the 
increased workload associated with increases in program size and 
complexity. These efforts will clearly improve RMA's ability to deter 
waste, fraud, and abuse through better internal controls and 
monitoring. The ability of the Compliance staff to maximize automation 
and other efficiencies to offset limited personnel resources has 
reached a peak, and it is necessary to increase actual numbers of 
people at this time or alternately reduce some activities. Reducing any 
of our ongoing activity would be a hard choice since every activity 
Compliance engages in is based on statutory or approved program 
requirements. Compliance uses various methodologies to limit the number 
of policies selected for review (dollar thresholds, etc.) and refers 
complaints and other related issues back to the Approved Insurance 
Providers for their review and response. However, accomplishing more of 
this work with RMA Compliance staff would provide greater assurance and 
control over the results.
    The addition of two staff to each of the six Regional Compliance 
Offices is intended to assist with the additional workloads associated 
with performing random policy reviews associated with determining a 
program error rate under the Improper Payments and Information Act of 
2002 (IPIA). During the last decade, Compliance greatly reduced the 
numbers of random policy reviews it performed. Requirements in the 
previous Standard Reinsurance Agreement for the companies to randomly 
review policies annually, provided mixed and/or wholly unusable results 
that RMA deemed unsatisfactory, especially for establishing the 
required Program Error Rate. Presently, Compliance has taken resources 
away from other review activities to supplement the required IPIA 
random reviews. The additional staff will permit each office to recover 
some of the effort in these other areas.
    Question. For fiscal 2007, the President is seeking $109 million to 
fund computer upgrades at various agencies in the Department of 
Agriculture, a recurring request for the last several years. Why is 
Risk Management Agency the only entity within USDA for which the 
President is proposing to assess private sector partners the cost of 
upgrading the Agency's computers, by imposing a half cent fee on every 
policy sold by crop insurance companies?
    Answer. The Federal-Private sector partnership that makes up the 
Federal crop insurance program is unique among USDA programs. The 
delivery of the Federal crop insurance program is provided through a 
network of private sector insurance companies who are reimbursed by the 
Federal Government for their delivery costs. The companies are also 
able to earn underwriting gains in years of favorable loss experience. 
For the 2005 crop year, the total compensation paid to participating 
insurance companies is expected to approach $1.8 billion and more than 
$10 billion over the last decade.
    While private sector companies deliver the crop insurance program, 
the USDA Risk Management Agency (RMA) information technology (IT) 
system is critical to its ongoing operation. The RMA IT system is used 
to maintain a wide array of vital program information including acreage 
and production information on about 1.2 million policies, and provides 
critical internal controls for mitigating program vulnerabilities. The 
RMA IT system also maintains actuarial data for over 368 crops in over 
3,000 counties Nation-wide. The private sector insurance companies need 
to access the RMA IT system and data on a daily basis in order to 
conduct business. The existing RMA IT system has been in place for over 
a decade and is reaching the end of its life expectancy. The system is 
becoming increasingly difficult and expensive to maintain and recent 
years have seen increases in computer downtime which threaten the 
operation and security of the Federal crop insurance program.
    The Administration's proposal recognizes the urgency of RMA IT 
funding needs in light of previous budget requests that have gone 
unfunded. The Administration believes the private insurance companies 
are a primary beneficiary of efficient, effective and more advanced 
computer systems, and thus it is not unreasonable to have the companies 
contribute to the modernization and maintenance of the IT systems which 
they rely upon to accrue considerable financial benefits. In addition, 
the new IT systems will likely contribute to improved and more 
efficient compliance with Congressional mandates pertaining to data 
mining and data reconciliation/data sharing, which has a direct impact 
and associated cost to the insurance companies.

                         MARKET ACCESS PROGRAM

    Question. Why does the President's budget propose to reduce funding 
for the Market Access Program (MAP) by 50 percent?
    Answer. The proposal to limit funding for MAP in 2007 reflects the 
Administration's efforts to reduce the Federal deficit. It should be 
noted that even if the program is limited to $100 million in 2007, that 
level is still higher than the $90 million program level that was 
authorized for MAP prior to the 2002 Farm Bill. Reducing the deficit is 
a key component of the President's economic plan and will help to 
strengthen the economy and create more jobs. Farmers, ranchers, and 
other residents of rural America understand the importance of a healthy 
economy, which raises incomes and increases demand for their products. 
This and other deficit reduction measures will contribute to a more 
prosperous future for our citizens.
    Question. Has some problem been detected with the program, or has 
it been determined that it is no longer necessary to assist U.S. 
agricultural exporters?
    Answer. Expanding overseas markets for agricultural products is 
critical to the long-term health and prosperity of the U.S. farm 
community. This Administration is convinced that, given our advantages 
in agricultural productivity and low cost of production vis-a-vis the 
rest of the world, the future of our farmers and ranchers lies in the 
export market. FAS' international activities, including MAP, play a 
critical role in helping open new markets, pursuing the emerging growth 
markets of tomorrow, and maximizing the opportunities offered by trade 
liberalization and growth in global food demand. FAS' market 
development programs were reviewed in accordance with the Office of 
Management and Budget's Program Assessment Rating Tool in 2005 and 
received a score of 75 with a ``Moderately Effective'' rating.
    The current budget situation requires hard choices and the setting 
of priorities. We believe that $100 million is an appropriate level for 
the program in light of the fiscal discipline that is absolutely 
necessary in times of deficit spending. It is also important to 
understand that, while funding for MAP is reduced, funding for all 
other USDA market development activities, including the Foreign Market 
Development Program, remains unchanged from this year's level.

                        WORLD TRADE ORGANIZATION

    Question. In the Doha Round negotiations, the European Union has 
pushed hard to require that all international food aid be provided only 
on a cash basis, rather than through commodity donations as is done in 
U.S. programs. I find the EU proposal on food aid to be unacceptable, 
as do most other members of the Senate. Where do the negotiations stand 
on this issue?
    Answer. Recently, the Agriculture Negotiations Chair, Crawford 
Falconer, issued a Food Aid Reference Paper, which essentially 
summarized the state of play on various food aid issues. The purpose of 
the paper is to help focus discussions on key issues in upcoming 
meetings. We are encouraged by the Chair's paper as it allows for in-
kind, or commodity, food aid. Earlier this year, the African and Least 
Developed Countries (LDC) groups, which are the recipients of food aid, 
issued a joint submission on food aid. This paper, too, suggested that 
food aid disciplines should leave the door open for in-kind donations. 
These are encouraging developments in the food aid negotiations.

                           AGRICULTURAL TRADE

    Question. Many of the bilateral disputes that have emerged in 
recent years in agricultural trade are highly technical in nature, 
typically having to do with unscientific sanitary or phytosanitary 
(SPS) rules or cumbersome customs or distribution requirements. What 
steps is USDA taking to make sure that potentially problematic rules of 
this kind are identified early and addressed before they hinder access 
for U.S. agricultural exports?
    Answer. On a weekly basis FAS and U.S. food safety agencies meet to 
review new or revised foreign SPS regulations and assess their 
potential impact on U.S. exports. In 2005, USDA's World Trade 
Organization (WTO) Enquiry Point led a U.S. interagency process that 
reviewed over 600 foreign SPS regulations notified to the WTO. Based on 
an interagency analysis, the Enquiry Point drafted and submitted 
official comments on 62 foreign measures to reduce their impact on U.S. 
exports. In addition to the numbers above, FAS and U.S. food safety 
agencies also collaborated to prepare an additional dozen formal 
comments addressing barriers to market access for measures that were 
not notified to the WTO, including a number of measures implemented by 
China and India. FAS' overseas staff also actively monitor local 
government's SPS-related regulations and notify the U.S. industry and 
the Enquiry Point of potentially problematic regulations for further 
action.
    FAS uses the rules of the WTO SPS Agreement to exert pressure on 
countries such as India and China to increase the transparency of their 
import regulations, thereby, allowing the United States and other 
countries to expose and then resolve unfair SPS import barriers. In 
2005, these actions caused China to change import regulations on meat, 
wines, spirits, and fresh fruits. U.S. exports to China of these 
products grew from $142 million in fiscal year 2004 to $252 million in 
fiscal year 2005. Similarly, India relaxed import requirements that 
could have blocked U.S. exports of almonds, pulses (chick peas, 
lentils, and peas), and other horticultural exports. Almond shipments, 
the top U.S. agricultural export to India, increased from $95 million 
in fiscal year 2004 to $118 million in fiscal year 2005. U.S. exports 
of pulses to India increased from $500,000 in fiscal year 2004 to over 
$3 million in fiscal year 2005.

                           FARM LOAN PROGRAMS

    Question. I have heard from constituents that the emergency loan 
program is unnecessarily complex and, for many farmers, too restrictive 
to meet their legitimate needs. I note that FSA is continuing its 
project to streamline all farm loan program regulations, handbooks, and 
information collections. I believe that it is essential to complete 
this project and reduce the paperwork burden for all loan applicants 
and FSA employees as quickly as possible. How soon can borrowers expect 
improved loan processing procedures?
    Answer. FSA has re-engineered and streamlined the guaranteed and 
emergency (EM) loan processes, and is in the process of streamlining 
the remaining direct loan making regulations and processes. These 
streamlined regulations will reduce the paperwork required for a loan 
and shorten the time it takes to process a loan. The final rule 
implementing these regulations is currently in the clearance process, 
and we expect the regulations to be implemented in the field in early 
2007. In the case of EM loans, the submission requirements have been 
reduced and flexibility added to the process. However, the Agency still 
must determine an applicant's eligibility for an EM loan, make 
decisions regarding loan feasibility and adequacy of collateral for the 
proposed loan, and comply with Federal environmental and credit policy 
requirements. We have endeavored to make this as easy as possible for 
the applicant, but these determinations require information that some 
applicants may find burdensome to provide.
    FSA also utilizes technology to ease the application process. 
Applicants can access all forms necessary to apply for a loan via the 
internet. They may also complete and submit loan applications on-line. 
The Agency recently implemented a state-of-the-art business planning 
system that has improved loan processing response times.
    Question. What more can FSA do to make emergency loans available to 
those who have suffered crop, livestock or property damage as a result 
of natural disasters?
    Answer. FSA re-engineered the EM loan regulations and procedures in 
2002. The changes made it easier for producers, particularly livestock 
producers, to apply for and receive EM loans. Any livestock loss, 
whether it is reduced production or loss of animals, is now considered 
a qualifying loss for EM loans. If a producer meets the statutory 
eligibility requirements and has suffered any property damage, they now 
may qualify. Additional changes were made to the method used for 
calculating a qualifying loss for crop producers. These changes have 
streamlined the application process and made EM loans more accessible 
to crop producers. FSA also uses available crop insurance data to 
expedite and reduce the burden on applicants. The new regulations allow 
FSA to provide EM assistance to more producers in an efficient and 
expeditious manner and comply with statutory requirements.
    Question. I am going to read from the USDA Budget Summary: ``The 
farm credit programs provide an important safety net for America's 
farmers by providing a source of credit when they are temporarily 
unable to obtain credit from commercial sources.''
    I fully agree with this statement, but would expand it to include 
the guaranteed loan programs which facilitate loans from private 
lenders, so I am particularly concerned that the Administration intends 
to shift $30 million of the cost of the guaranteed credit to the very 
farmers who are least able to afford the additional cost.
    The Administration proposal refers to a modest increase in the fee 
required to obtain guaranteed loans. In fact, upfront fees for all 
guaranteed loans will be increased 50 percent. In addition, a proposed 
annual fee for multi-year farm operating loans will significantly 
increase the cost of credit for those farmers who obtain guaranteed 
unsubsidized credit lines. For some farmers the annual fee may make the 
difference between the ability to cash flow and the decision to quit 
farming. What makes this proposal even more distressing is that 
interest rates are rising, so farmers will face higher credit costs 
even before the fees are imposed.
    What legal authority are you relying on to impose these fees?
    Answer. The Consolidated Farm and Rural Development Act,  307(b) 
[7 U.S.C. 1927], authorizes fees on farm ownership loans. The fees are 
not statutorily limited but are ``as the Secretary may require.'' In 
the case of operating loans, Title V of the Independent Offices 
Appropriations Act of 1952 [31 U.S.C. 9701] authorizes fees for 
services or things of value provided by the Government. The statute 
requires that the fees or charges be based upon what is fair and on the 
costs to the Government.
    Question. The budget assumes a decrease of $186,000,000 for 
guaranteed farm ownership loans and a decrease of $112,890,000 for 
guaranteed farm operating unsubsidized loans. The justification for 
these significant decreases is a decline in demand for the program.
    To what extent do the proposed user fees contribute to the decline 
in program demand?
    Answer. We do not anticipate that imposition of fees will have a 
material impact on the program demand. Historically, program demand has 
reacted to trends in the agricultural and general economies. Guaranteed 
operating loan demand has actually increased to date in fiscal year 
2006 as higher energy prices, which were unforeseen during the 
development of the budget, have increased production costs. The demand 
for guaranteed farm ownership loans has declined slightly, as 
refinancing activity has slowed with rising interest rates.
    Question. How many borrowers are expected to forgo guaranteed loans 
because of the additional and new fees?
    Answer. We anticipate that very few borrowers will be forced to 
forgo guaranteed loans because of the additional and new fees. The 
amount of the fees is relatively minor as compared to the total 
expenses and overall borrowing of a typical borrower; therefore, very 
few borrowers are likely to be unable to cash flow because of the 
increased fees.
    Question. Has FSA conducted an economic assessment of the proposed 
fees on borrowers and rural lenders? If so, what are the key findings 
of the assessment?
    Answer. FSA did not conduct a formal economic assessment of the 
proposed fees. However, FSA reviewed the impacts of fee increases in 
the Small Business Administration and USDA Rural Development programs. 
Fee increases on guaranteed loans from those agencies have not 
materially impacted the use of the programs.
    Question. Are there adequate funds available to offer subsidized 
guaranteed loans or direct loans to borrowers who will be unable to 
cash flow guaranteed loans because of the additional fees?
    Answer. We anticipate that there will be adequate funds to meet the 
needs of the few borrowers likely to be in that situation. Because the 
amount of the fees is small compared to the total expenses and overall 
borrowing of most guaranteed loan applicants, we anticipate that few 
will need to move to subsidized or direct loans as a result of the 
fees.

                   SECTION 9006 OF THE 2002 FARM BILL

    Question. As you know, section 9006 of the farm bill's energy 
title, which I authored, provides grants and loans to farmers and rural 
small businesses for renewable energy projects and to make energy 
efficiency improvements. The program is very popular, and already well 
oversubscribed. Of course, I strongly disagree with the 
Administration's budget proposal to cut this program's funding by more 
than half. In 2004 less than 3 percent of applications for small wind 
and solar projects were approved and funded. What I have heard is that 
the scoring system USDA and DOE have established puts smaller scale 
distributed generation projected at a significant disadvantage to 
larger projects.
    Why are so few small-scale renewable energy projects and such a 
negligible percentage of such applications for grants receiving funds?
    Are you looking into ways to alter the program to give small-scale 
renewable energy projects a greater opportunity to participate?
    Would you supply data as to how much projects have been funded the 
past several years, by energy category, and by the size or scale of 
those projects?
    Answer. The Section 9006 regulation published on July 18, 2006, 
included a simplified and streamlined application process for small 
projects of $200,000 or less. To increase accessibility for smaller 
projects and applicants, we expanded priority points for small 
agricultural producers and small rural businesses. We are in the 
process of developing application worksheets to help guide smaller 
applicants through the process and provide them with tools to help 
improve the quality of applications. In fiscal year 2007, we are 
looking for ways to better target the resources to give small scale 
projects a greater opportunity to participate.

                                   SECTION 9006 AWARDS, FISCAL YEAR 2003-2005
----------------------------------------------------------------------------------------------------------------
                                                        Small Projects \1\              Large Projects \2\
                                                 ---------------------------------------------------------------
                                                     Award ($)        Number         Award ($)        Number
----------------------------------------------------------------------------------------------------------------
Grants:
    Anaerobic Digester..........................  ..............  ..............      21,973,493              82
    Bioenergy...................................         233,521              10       7,547,719              27
    Energy Efficiency...........................       2,068,455             132       2,861,488              33
    Geothermal..................................         130,848               3         249,435               1
    Hybrid......................................          26,457               2       2,413,375               7
    Hydrogen....................................  ..............  ..............  ..............  ..............
    Solar.......................................         229,883              12       1,212,360               5
    Wind........................................         434,712              24      27,374,804              97
                                                 ---------------------------------------------------------------
      Grant Totals..............................       3,123,876             183      63,632,674             252
                                                 ===============================================================
Guaranteed Loans:
    Bioenergy...................................         100,000               1      10,000,000               1
                                                 ---------------------------------------------------------------
      Loan Totals...............................         100,000               1      10,000,000               1
                                                 ===============================================================
Total Number....................................             437
Total Awards ($)................................      76,856,550
----------------------------------------------------------------------------------------------------------------
\1\ Small Projects=projects with total eligible project cost of $200K or less.
\2\ Large Projects=projects with total eligible project cost greater than $200K.

    Value-added Producer Grant (VAPG) applications, especially those 
seeking funds for planning purposes, do not necessarily indicate size 
or scale of the proposed project. Therefore, an accurate measure of the 
number applicants proposing small-scale energy projects is not 
available.
    Beginning in 2006, VAPG evaluation criteria provide for priority 
points to be awarded to farm-based renewable energy project 
applications.
    Following is a breakdown of VAPG-funded energy projects by number 
of projects, amount funded, and category for 2001-2005.

                                                               VAPG-FUNDED ENERGY PROJECTS
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                 Fiscal year 2001    Fiscal year 2002    Fiscal year 2003    Fiscal year 2004       Fiscal year 2005
                    Project                    ---------------------------------------------------------------------------------------------------------
                                                 No.      Amount     No.      Amount     No.      Amount     No.      Amount        No.         Amount
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ethanol.......................................      9   $3,461,704     22   $4,824,323     11   $1,849,620      6     $988,986           14   $1,519,500
Biodiesel.....................................      2    1,000,000      4    1,246,000      9    1,783,225      4      621,099            9      789,377
Solid fuel....................................      1      470,000      4      272,567      1       50,000  .....  ...........            1      110,000
Anaerobic.....................................  .....  ...........      1       65,429  .....  ...........      2      135,000            3      188,975
Wind..........................................  .....  ...........      2      298,000      2       14,812      1      128,000  ...........  ...........
Solar.........................................  .....  ...........  .....  ...........  .....  ...........      1       73,332
Other.........................................  .....  ...........      1      250,000      1      101,920  .....            3      358,435  ...........
                                               ---------------------------------------------------------------------------------------------------------
      Total...................................     12    4,931,704     34    6,956,319     24    3,799,577     14    1,946,417           30    2,966,287
--------------------------------------------------------------------------------------------------------------------------------------------------------

                     SECTION 9002 BIOBASED PRODUCTS

    Question. As you know I talked with the Secretary about the 
biobased products rule coming out a few weeks ago. We had a good 
conversation. I want to thank you as I did the Secretary for getting to 
this point. Specifically how many items do you expect to designate for 
preferred procurement by the end of this calendar year?
    Answer. We currently have six items designated by final rule for 
preferred procurement. These six items account for at least 120 
specific products from 58 different manufacturers. We expect to have 
four additional proposed rules, with ten items each, in the clearance 
process or published in the Federal Register by the end of calendar 
2006. When finalized, the first five rules will account for over 1,000 
specific products from more than 300 manufacturers within the 46 items. 
USDA will continue to designate additional items as further market 
research and test data is obtained.

                        RURAL DEVELOPMENT GRANTS

    Question. Please provide a list of Rural Development grants 
(including the amount granted) made in fiscal year 2004 and fiscal year 
2005 to communities on the list published in the Federal Register on 
January 4, 2001 (66 Fed. Reg. 751) for the purpose of building rural 
businesses infrastructures to utilize and market products from forest 
hazardous fuel reduction projects.
    Answer. Our research indicates that no Rural Development grants 
were made to organizations in the communities listed for the purpose of 
building rural business infrastructure to utilize and market products 
from forest hazardous fuel reduction projects.

        IMPLEMENTATION OF TEXAS INTEGRATED ELIGIBILITY CONTRACT

    Question. Under Secretary Bost, as you know, I have had some 
concerns about turning over core Food Stamp Program functions to 
private contractors, specifically the recent decision by the State of 
Texas to turn over large areas of program administration to private 
entities.
    As you know, at the end of January, Texas began to roll out the 
first stage of its integrated eligibility contract in two counties 
surrounding the Austin area on a pilot basis. I have had a chance to 
review several of the site and implementation reports from this 
contract phase and based upon my review, I have several reasons for 
considerable concern.
    The Weekly Post transition Status Report from the Texas Access 
alliance for the reporting period of 3/6/06 through 3/12/06 shows that 
individuals seeking assistance over the telephone are encountering 
major problems. This report indicates call abandonment rates of almost 
55 percent and average waiting time of over 21 minutes. Given that 
these are average waiting times, it is obvious that many individuals 
are waiting longer to speak with customer service representatives.
    Under Secretary Bost, what is being done to ameliorate these 
problems and, more importantly, please indicate what levels of 
telephone service you believe are acceptable. You have assured me 
several times, and I take you at your word, that FNS will not approve 
the rollout of additional project phases unless you are satisfied with 
the contractor performance in the previous contract phase. Under what 
conditions would you not approve the next contract phase? Is a 20 
minute waiting time with more than half of callers giving up 
acceptable? What are the criteria and standards that you will use to 
make a decision regarding approval of the next phase of the contract?
    Answer. Implementation of Texas' new system is intended to allow 
the State to realize the customer service improvements and potential 
savings that its new business model offers. USDA/FNS stewardship 
responsibilities require assurance that basic program standards are 
maintained. Our overriding issues for continuing project expansion are 
sustaining program access and integrity to ensure that applicants and 
recipients get fair, timely, and accurate service.
    We recognize that any new system is likely to encounter problems 
during implementation, many of which can be addressed as rollout 
continues. Our concern is that the project not expand in the face of 
major problems which jeopardize access or integrity, or which warrant 
immediate correction. We intend to continue funding and working with 
the State to resolve problems and will only halt funding in the face of 
serious deficiencies.
    Texas' recent call center performance has not been acceptable, but 
it has been improving. The data from the weekly status report for the 
week ending April 9, 2006, indicates that the call abandonment rate is 
3.86 percent and the call wait time is 66 seconds. The data from the 
week ending March 12, 2006--approximately 1 month earlier--had a call 
abandonment rate of 54.5 percent and the call wait time was 1,276 
seconds. Therefore, based on our monitoring of this project, we know 
that steps are being taken which have already resulted in improved call 
center operations.
    USDA/FNS has developed a list of performance elements which we 
consider critical and appropriate for use in considering the success of 
initial rollouts of the Texas project. While we will be monitoring many 
aspects of project implementation, we will focus on these components 
which include: System Functionality, Customer Service, and Application 
Timeliness. Findings from our recent reviews found: long call wait 
times, high call abandonment rates, and call operators providing 
misinformation; as well as backlogs in data entry, and a high 
percentage of cases returned to the vendor due to missing or inaccurate 
information. We also learned that there is insufficient system testing 
and risk assessment. While these items may not in and of themselves be 
critical, taken together their cumulative effect caused us to question 
the readiness of the system to expand.
    The decisions on the pace of rollout are complex and dynamic and 
must include assessment of the risks of identified problems and the 
availability of remedies to these problems. These must be weighed 
against the cost and risks of delayed implementation. Accordingly, we 
are not setting specific numerical standards but are reviewing and 
monitoring the overall functionality and capacity of the system. Based 
on its own assessment of readiness, the State announced a delay in its 
rollout to resolve fundamental operating concerns. We agree with the 
State's decision and continue to work closely with the State to monitor 
project implementation.
    Note: Under Secretary Bost and Deputy Under Secretary Kate Coler 
traveled to Texas on May 16, 2006 to state clearly the FNS expectation 
that further rollout should be delayed until identified issues have 
been addressed. Texas stated they will not rollout the system to 
additional areas in the State until issues of access and integrity have 
been resolved. No date for future rollout has been established at this 
time.

        IMPACT OF TEXAS ELIGIBILITY SYSTEM ON VULNERABLE GROUPS

    Question. As you know from our prior correspondence on this matter, 
I have been particularly concerned about the disparate impact of the 
new eligibility systems for persons with low levels of literacy, 
persons with limited English proficiency, the elderly, and persons with 
disabilities.
    In my previous correspondence with you, I have raised these issues 
several times. In a recent letter to me you responded that, ``we are 
working to monitor the project's impact on such persons and ensure the 
State's continued compliance with applicable civil rights laws.'' Are 
you tracking the extent to which the new eligibility process and 
systems impact these vulnerable groups compared to other individuals? 
Please tell me specifically how you are monitoring these things. Can 
you provide me with any data about differential impacts of the new 
system on these vulnerable groups? Are you collecting any data on this 
at all?
    Answer. Access to program benefits for all eligible persons is a 
priority of USDA/FNS, however vulnerable populations such as the 
elderly, disabled, and others with barriers to participation are of 
specific concern. For this reason, USDA/FNS is carefully watching for 
negative impacts on especially vulnerable populations. In addition, the 
USDA/FNS Program Access Review process includes contacting advocacy 
organizations, which represent the interests of a variety of vulnerable 
populations, to obtain their feedback on the service they have received 
during the food stamp application process.
    USDA/FNS is conducting on-site monitoring of local offices and call 
centers, participating in project meetings and conference calls, and 
performing an ongoing review of performance reports and contractor 
deliverables.
    USDA/FNS is monitoring Texas' project implementation in affected 
counties on a monthly basis. However, given the normal State reporting 
mechanisms, which include time needed for review of the data, the 
number of cases processed at the State level during the first month of 
project implementation in January 2006 will not be available until June 
2006. County level data is normally reported only for the months of 
January and July; thus county data for January will be available in 
June/July.
    FNS does not impose higher standards on Texas than exist for other 
States administering the Food Stamp Program, such as reporting or 
collecting data not normally collected as a part of routine program 
operations. However, we are monitoring these issues closely, in lieu of 
actual additional data collection. Thus far, it could be concluded that 
Texas' new business model actually has the potential to improve access 
for special populations. We will continue to watch this aspect 
carefully, as Texas proceeds with its project.

                 NATIONAL ANIMAL IDENTIFICATION SYSTEM

    Question. USDA expedited its plans to implement a national animal 
identification system after BSE was discovered in a cow in Washington 
State. A system such as this is extremely important to trace back the 
origin of animals in the event of a disease outbreak, but also to 
determine its exact age. In a recent BSE case in Alabama, the age of 
the cow has been a key issue in order to determine the effectiveness of 
FDA's ruminant-to-ruminant feed ban and for restoring beef trade. South 
Korea made it clear that it wanted certainty that the cow that tested 
positive for BSE in Alabama was in fact born before FDA's ruminant-to-
ruminant feed ban.
    Recent press accounts indicate that the national animal 
identification system will only track animal movements and not the age 
of animals. Is this correct?
    Answer. Implementation of NAIS will support State and Federal 
animal disease monitoring and surveillance through the rapid tracing of 
infected and exposed animals during animal disease outbreaks. The 
ultimate long-term goal of NAIS is to provide animal health officials 
with the capability to identify all animals and premises that have had 
direct contact with a disease of concern within 48 hours after 
discovery. While age is not required to track an animal to its origin, 
its value in an epidemiologic investigation can be significant and 
producers are encouraged to report such information to the private and 
State databases. However, it is important that the ``required'' data 
elements be restricted to the most basic information needed to trace an 
animal back to its premises of origin.
    What is USDA's justification for only tracking animal movements and 
not incorporating animal age into the system?
    Answer. Producers are very much aware of the value of having 
records to document the age of their animals and may elect to input 
such data in private tracking data systems. While age is not required 
to track an animal to its origin, its value in an epidemiologic 
investigation can be significant and producers are encouraged to report 
such information to the private and State databases. However, it is 
important that the ``required'' data elements be restricted to the most 
basic information needed to trace an animal back to its premises of 
origin. USDA wants this system to be as easy as possible to allow for 
producer participation. Increasing the amount of information producers 
must submit could discourage the number of participants.
    Why does USDA not want to know the age of animals for tracking 
purposes when it would provide critical information for restoring or 
maintaining beef trade?
    Answer. The ultimate long-term goal of NAIS is to provide animal 
health officials with the capability to identify all animals and 
premises that have had direct contact with a disease of concern within 
48 hours after discovery. While age is not required to track an animal 
to its origin, its value in an epidemiologic investigation can be 
significant and producers are encouraged to report such information to 
the private and State databases. However, it is important that the 
``required'' data elements be restricted to the most basic information 
needed to trace an animal back to its premises of origin. USDA wants 
this system to be as easy as possible to allow for producer 
participation. Increasing the amount of information producers must 
submit could discourage the number of participants. Again, market 
demands will drive the reporting of additional information and will be 
better accepted by the affected producers.
    Question. On January 10, of this year, a non-profit U.S. Animal 
Identification Organization (USAIO) was formed, at the behest of USDA, 
to implement and operate the animal movement database. USAIO submitted 
a Memorandum of Understand (MOU) to USDA to develop a strategic 
partnership.
    Has USDA approved the MOU?
    Answer. USDA has received a proposed memorandum of understanding 
from USAIO. USDA since published the document detailing our plan for 
the integration of private animal tracking databases with the National 
Animal Identification System (NAIS). This plan includes a draft 
cooperative agreement that, when finalized, will be used to establish 
the arrangement of all participating organizations. USDA plans to have 
all agreements signed in June 2006.
    Will USDA exercise authority to approve or disapprove decisions 
made by the USAIO regarding the management and operation of the 
national animal tracking database.
    Answer. Animal tracking databases will be managed and owned by the 
industry and States. As envisioned and outlined in our strategic 
documents, the NAIS will integrate with more than one of these private 
animal tracking databases. On April 6, 2006, USDA released the general 
technical standards that animal tracking databases will need to comply 
with to enable their integration with the NAIS. Private database owners 
or those involved with the development of private databases, such as 
USAIO, have been invited to submit applications for system evaluation 
to USDA and offer feedback as the final technical requirements are 
established.
    Should USDA find that the defined data elements are compliant with 
the NAIS standards, the technology architecture meets the technical 
requirements, and the proposed databases submitted for review meet all 
the other criteria, we would initiate a formal agreement with each 
entity responsible for compliant databases. The agreement would also 
detail access rights, as well as safeguards for preserving historic 
data if the organization discontinues operation of the database or 
ceases business. If and when the agreement is finalized, those 
databases would be noted as an authorized or compliant animal tracking 
system in the NAIS. The application for system evaluation and a draft 
cooperative agreement are available on the NAIS Web site at 
www.usda.gov/nais.
    By early 2007, USDA expects to have the technology in place, called 
the ``Animal Trace Processing System'' or commonly known as the 
``metadata system,'' that will allow State and Federal animal health 
officials to query the NAIS and private databases during a disease 
investigation. The animal tracking databases will record and store 
animal movement tracking information for livestock that State and 
Federal animal health officials will query for animals of interest in a 
disease investigation.
    If there is a disease outbreak, and there is an inability of USAIO 
to provide the necessary tracking information to USDA due to poor 
management decisions or technology flaws, who will be held accountable?
    Answer. USDA has released the general technical standards that 
animal tracking databases will need to comply with to enable their 
integration with the NAIS. Private database owners or those involved 
with the development of private databases, such as USAIO, have been 
invited to submit applications for system evaluation to USDA and offer 
feedback as the final technical requirements are established.
    Should USDA find that the defined data elements are compliant with 
the NAIS standards, the technology architecture meets the technical 
requirements, and the proposed databases submitted for review meet all 
the other criteria, we would initiate a formal agreement with each 
entity responsible for compliant databases. The agreement would also 
detail access rights, performance measures such as availability of the 
system, and requirements for redundancy and back-ups to ensure data is 
available on an as-needed basis. Also, safeguards for preserving 
historic data if the organization discontinues operation of the 
database or ceases business will be part of the agreement. If and when 
the agreement is finalized, those databases would be noted as an 
authorized or compliant animal tracking system in the NAIS. If USDA is 
unable to access necessary data from a compliant entity during a 
disease investigation, USDA may either revoke their status as a 
compliant entity (therefore affecting the system's marketability to 
producers) or take some other corrective action.
    Question. In June 2004, I wrote Secretary Veneman expressing 
concern that the implementation and infrastructure of the planned 
national animal identification system appeared to be geared towards 
cattle to the exclusion of other animal species. Currently, the USDAIO 
is made up of only cattle or bison representatives and the database 
appears to not be suited for poultry or hogs.
    What is USDA doing to remedy this problem to ensure that the 
database is least burdensome to producers and tailored to the daily 
functioning for operations of all animal species?
    Answer. Throughout the establishment and implementation of the 
NAIS, USDA has engaged in extensive dialogue with producers and 
industry organizations across the country to gauge their views on 
animal identification. In April 2005, USDA published a draft strategic 
plan and draft program standards for the NAIS and invited public 
comments on those documents. Industry-specific working groups have also 
been studying the issue of animal identification and will be making 
recommendations to USDA through an established advisory committee on 
how best to tailor the program to meet their industry-specific needs. 
NAIS working groups have been established for both the poultry and 
swine industries, and they have been providing input throughout the 
developmental process.
    On April 6, 2006, USDA released the general technical standards for 
animal tracking databases that will enable integration of private 
systems with the NAIS. Those involved in the development of private 
databases, such as the U.S. Animal Identification Organization (USAIO), 
were invited to submit applications for system evaluation to USDA and 
offer feedback as the final technical requirements are established. 
USDA plans to enter into cooperative agreements with organizations 
responsible for the databases that meet the standards. The application 
for system evaluation and a draft cooperative agreement are available 
on the NAIS website. More than one private animal tracking database can 
be integrated into the overall NAIS, including those that might be 
species-specific.
    By early 2007, USDA expects to have the technology in place, called 
the ``Animal Trace Processing System'' or commonly known as the 
``metadata system,'' that will allow State and Federal animal health 
officials to query the NAIS and private databases during a disease 
investigation. The animal tracking databases will record and store 
animal movement tracking information for livestock that State and 
Federal animal health officials will query for animals of interest in a 
disease investigation.
    Once the entire system is designed and implemented, the market will 
determine which technologies are the most appropriate to meet the needs 
of the system. Sale barns, feedlots, and others will help determine 
which methods are most cost-efficient and effective. In developing the 
system, USDA has been accepting input from both species-specific 
working groups and a markets and processors working group.
    Will USDA, in partnership with USAIO, be incorporating the 
principles and practices of existing USDA disease eradication programs 
into the structure and operation of the national animal identification 
system?
    Answer. The primary objective of the NAIS is to develop and 
implement a comprehensive information system that will support ongoing 
animal disease programs and enable State and Federal animal health 
officials to respond rapidly and effectively to animal health 
emergencies such as foreign animal disease outbreaks or emerging 
domestic diseases. The faster animal health officials can respond to, 
contain, and eradicate disease concerns, the sooner affected producers 
can resume business as usual. USDA has been developing data standards 
to align with this overall concept.

    GRAIN INSPECTION, PACKERS AND STOCKYARDS ADMINISTRATION (GIPSA)

    Question. On March 9, during a hearing of the Committee on 
Agriculture, Nutrition, and Forestry to review GIPSA's enforcement of 
the Packers and Stockyards Act, I asked GIPSA Administrator James Link 
why there had been no governmental oversight or corrective action given 
the high rate of staff turnover, management preventing employees from 
doing their jobs and management demanding that staff inflate the number 
of investigations listed in annual reports at GIPSA. These problems 
continued over the course of 5 years. James Link stated he did not know 
why USDA failed to take corrective action because he was not employed 
by USDA during that time. You have served as USDA's Deputy Under 
Secretary for Marketing and Regulatory programs since December 2002. 
You have also served as acting Under Secretary since last year. How is 
it possible that GIPSA was in complete disarray for so many years, yet 
you did not take corrective action?
    Answer. Prior to my appointment with USDA, I served as the Chief 
Economist for the National Cattlemen's Beef Association. Due to my past 
connection with the cattle industry, I was recused from issues that had 
a direct connection to my previous employer for a period of 1 year. 
After this recusal period ended, I continued to distance myself from 
Packers and Stockyard Program issues due to a perceived conflict of 
interest. However, upon Under Secretary Hawks retirement and assuming 
the role of Acting Under Secretary, followed shortly by Jim Link's 
appointment as GIPSA Administrator, I worked with USDA ethics experts 
to assure that by inserting myself into GIPSA management that I was not 
crossing ethical boundaries. At such time corrective actions were taken 
to begin addressing the matters that have been outlined in the OIG's 
report.
    Question. During your time as Deputy Under Secretary, what was your 
role in and responsibility for communicating with the Under Secretary 
and Secretary concerning GIPSA's mission and daily operations relating 
to enforcement of the PSA against anti-competition practices?
    Answer. Prior to my appointment with USDA, I served as the Chief 
Economist for the National Cattlemen's Beef Association. Due to my past 
connection with the cattle industry, I was recused from issues that had 
a direct connection to my previous employer for a period of 1 year. 
After this recusal period ended, I continued to distance myself from 
Packers and Stockyard Program issues due to a perceived conflict of 
interest. However, upon Under Secretary Hawks retirement and assuming 
the role of Acting Under Secretary, followed shortly by Jim Link's 
appointment as GIPSA Administrator, I
    worked with USDA ethics experts to assure that by inserting myself 
into GIPSA management that I was not crossing ethical boundaries. At 
such time corrective actions were taken to begin addressing the matters 
that have been outlined in the OIG's report.
    Question. What will you do to make sure that the Secretary or the 
new Under Secretary knows what GIPSA is doing in regard to anti-
competitive practices?
    Answer. Both the Secretary and I have an open door policy with 
GIPSA. I meet weekly with the Administrator to discuss issues ongoing 
within the agency. These discussions involve all types of Packer and 
Stockyards cases, including financial, trade practice, and competition 
issues. Also, weekly activity reports are submitted by GIPSA and 
reviewed by the Secretary's and Under Secretary's office. This report 
includes all important issues ongoing within GIPSA. As needed, GIPSA's 
Administrator briefs my office, as well as the Secretary on 
investigations that may have a large economic impact. I am committed to 
maintaining open lines of communications between GIPSA and the Under 
Secretary's office for Marketing and Regulatory Programs.
                                 ______
                                 

            Questions Submitted by Senator Richard J. Durbin

                     SIMPLIFIED SUMMER FOOD PROGRAM

    Question. The Simplified Summer Food Program, started as the Lugar 
pilot program, was expanded to now include 25 states. In Illinois, we 
know there are many children who are eligible for free or reduced price 
lunch during the school year who are not participating in a summer food 
program. I'm told sponsors are hard to come by because the paperwork 
and accounting requirements are onerous. The nutrition and anti-hunger 
community in Illinois expects to see a dramatic increase in summer food 
programs when Illinois is able to participate in the Simplified Summer 
Food Program. Have States participating in the Simplified Summer Food 
Program seen increases of this type? Have States that participated in 
this program attracted more program sponsors, operated more program 
sites and served more low-income children than those States not 
participating in the program?
    Answer. States participating in the Simplified Summer Food Program 
have shown an increase in participation as measured by sponsors, sites, 
and meals served to eligible children during the summer months. During 
the same time, those States not participating in the program have 
experienced a decrease in each of the corresponding categories. 
However, since the inception of the Simplified Summer Food Program, 
many States have also had the opportunity to operate a seamless summer 
feeding program through the National School Lunch Program (NSLP). 
Because these two initiatives have operated concurrently in these 
States, we are not able to identify the extent to which changes in 
sponsors, sites, and children result from the Simplified Summer Food 
Program, from the NSLP seamless summer feeding program, or from a 
combination of both.

                            WIC FOOD PACKAGE

    Question. Last year, the Institutes of Medicine released 
recommendations for improving the nutritional profile of the WIC food 
package, including adding whole grain foods, fresh produce and 
incentives for breast feeding. Given the growing rates of overweight 
and obese children, these recommendations for an updated food package 
also could help start children on the right path to nutritious and 
lower fat dietary habits makes. What are the USDA's plans for 
incorporating IOM recommended changes to the WIC food package?
    Answer. USDA is proceeding with a rule making process that will 
afford opportunity for public comment on all of the proposed changes to 
the WIC food packages before the rule is finalized. The proposed 
revisions to the WIC food packages largely reflect the recommendations 
of the Institute of Medicine (IOM) in its 2005 Report WIC Food 
Packages: Time for a Change. The proposed rule was sent to the Office 
of Management and Budget this spring. We are hopeful that a proposed 
rule can be published by summer 2006. However, affording opportunity 
for a full 90-day public comment period for this important rule may 
preclude issuing an interim final rule within the 18-month statutory 
deadline.

                             CSFP CASELOAD

    Question. Low-income Illinois seniors rely heavily on the Commodity 
Supplemental Food Program to supplement what they are able to purchase 
at the grocery store or obtain through a food bank. I recognize the 
program is under stress as commodity prices have grown faster than 
program funding. What plans does the agency have to ensure that current 
caseload demand can be met?
    Answer. All available resources are being utilized to support the 
program, but total estimated resources are insufficient to support 2006 
nationwide caseload at the 2005 level.
    In addition to cash resources, CSFP commodity inventory maintained 
at Federal, State, and local levels and those commodities obtained 
under agriculture support programs (surplus commodities) that are 
appropriate for inclusion in the CSFP food package are being used to 
support the program. The types and amounts of surplus commodities 
depend on agricultural market conditions.
    On December 29, 2005, we assigned tentative caseload and 
administrative grants for 2006 based on the level of resources expected 
to be available to support the program. While all available resources 
were included in our calculations, total estimated resources available 
were sufficient to support about 477,000 tentative caseload slots, 
representing a reduction of approximately 11 percent from the 2005 
caseload level. Final caseload and administrative grants were allocated 
on March 27, 2006. The final caseload level increased to over 492,000 
slots due to an expected increase in the level of surplus commodities 
available for use in the CSFP food package and lower caseload use by 
Louisiana early in the year due to the disruption caused by the recent 
hurricanes. Both of these factors served to free available cash 
resources to support more caseload slots nationwide without negatively 
impacting Louisiana. However, CSFP States were subject to at least a 6 
percent reduction in final caseload from 2005 levels, and consistent 
with the regulations, States that did not fully utilize caseload in the 
previous year were subject to further reductions.

           FINANCIAL ASSISTANCE PROGRAMS ALLOCATION FORMULAS

    Question. NRCS administers a host of conservation programs--the 
Environmental Quality Incentives Program (EQIP), Conservation Security 
Program (CSP), and others. In my view, the State of Illinois is well-
equipped to take advantage of these environmental programs--producers 
in the State have a long-standing tradition of being at the forefront 
of conservation, the State is one of the leading producers of 
agricultural products, and there is a lot of land used for farming--28 
million acres or 80 percent of the State's total land. Unfortunately, 
when compared to States with similar populations or farm sectors or 
agricultural production statistics, Illinois receives lower 
conservation technical assistance allotments. These are the multiplier 
funds that help farmers build expertise and leverage other funding 
sources. One of my concerns is that there are more than two dozen 
measures that can be weighted differently to determine State technical 
assistance allocations. My other concern is that the formulae and 
criteria that are used to make State allocations are not available on 
the NRCS website. I would like to know why the State of Illinois 
received this allocation and I would like to know what NRCS is doing to 
make these allocation decisions more transparent. Will NRCS publish 
theses criteria on its website?
    Answer. EQIP allocations to States include financial assistance 
(FA) and technical assistance (TA) dollars. FA is allocated to the 
States and territories based on 31 base and natural resource factors 
which are relevant to addressing the EQIP national priorities. The 
source of the data is generally the Natural Resources Inventory (NRI) 
data, although some data is based on Environmental Protection Agency 
(EPA), Ag Census, Bureau of Indian Affairs (BIA), National 
Oceanographic and Atmospheric Agency (NOAA) and the American Plant Food 
Control Officials reports. Program Management Performance Incentives, 
initiated in EQIP in fiscal year 2003, include FA and TA and are part 
of a State's allocation only if a high level of performance was 
achieved in administering the prior years funding.
    TA funding is used to deliver program-specific services. Technical 
assistance allocations are based on the NRCS cost-of-programs data and 
linked directly to a State's FA allocation. There are no weights in TA 
allocations. For fiscal year 2006, NRCS took into consideration the 
amount of TA that would be required to service EQIP contracts written 
in prior years. Nationally, with the prior year workload pulled into 
the equation, the total workload--represented by FA dollars equaled 
$1,947,931,838 (prior year $1,094,395,709 plus fiscal year 2006 
$662,601,964). EQIP TA was set at $190,934,165 and equals about 9.8 
percent of the FA workload. Therefore, each State, including Illinois, 
received a TA allocation equal to 9.8 percent of the total FA 
workload--as represented by the prior year and current year FA dollars.
    In fiscal year 2005, Illinois received an additional $313,958 EQIP 
TA allocation to accelerate the writing of Comprehensive Nutrient 
Management Plans through the use of Technical Service Providers. That 
same year, the State returned $1.4 million in EQIP FA without the 
commensurate amount of TA. Fortunately, other States were able to use 
the FA.
    The FA and Performance Incentive formulas are as follows:

                               FA FORMULA
------------------------------------------------------------------------
                                                              Weight
                                                             (percent)
------------------------------------------------------------------------
The base factors (49.3 percent):
    Acres of non-irrigated cropland (1997 NRI)..........             3.2
    Acres of irrigated cropland (1997 NRI)..............             4.3
    Acres of Federal grazing lands (1992 NRI)...........             0.5
    Acres of non-Federal grazing lands (1997 NRI).......             4.2
    Acres of forestlands (1997 NRI).....................             1.1
    Acres of specialty crops (1997 NRI).................             3.2
    Acres of wetlands and at-risk species habitat (1997              4.5
     NRI)...............................................
    Acres of water bodies (1997 NRI)....................             3.2
    Livestock animal units (1992 NRI)...................             5.7
    Animal waster generation (1992 NRI).................             5.7
    Waste management capital cost (1992 NRI)............             3.4
    Acres American Indian Tribal Lands (most current BIA             3.3
     acres).............................................
    Number of Limited Resource Producers (1997 Ag                    4.9
     Census)............................................
    Grazing land lost to conversion (1997 NRI)..........             0.8
    Revised Air Quality non-attainment areas (EPA)......             1.3
The resource factors (49.3 percent):
    Acres of pastureland needing treatment (1992 NRI)...             5.4
    Acres of cropland eroding above T (1992 NRI)........             6.1
    Acres of Fair and Poor Rangeland (1992 NRI).........             6.1
    Acres of Forestlands, eroding above T (1992 NRI)....             1.4
    Acres of cropland and pastureland soils affected by              2.6
     saline and/or sodic conditions (1997 NRI)..........
    Miles of impaired rivers and streams (EPA)..........             3.5
    Potential for pesticide and nitrogen leaching (1997              1.3
     NRCS Report).......................................
    Potential for pesticide and nitrogen runoff (1997                1.7
     NRCS Report).......................................
    Ratio of livestock animal units to cropland (1997                1.7
     NRCS Report & NRI).................................
    Number of CAFO/AFO (1997 Ag Census).................             2.7
    Ratio of commercial fertilizers to cropland (1995                0.8
     American Plant Food Control Officials Report)......
    Wind erosion above T (1997 NRI).....................             4.2
    Phosphorous runoff potential (1997 NRCS Report).....             3.9
    Riparian areas (1997 NRCS Report)...................             0.8
    Carbon sequestration (1992 & 1997 NRCS Reports).....             3.5
    Coastal zone (1992 NOAA Report).....................            3.6
------------------------------------------------------------------------
Note: Financial Assistance allocations to entities (Alaska, Hawaii,
  Pacific Basin, and Puerto Rico) without reliable base and resource
  factors account for 1.4 percent of total FA.
Total of FA factors (100 percent).

    Program Management Performance Incentives:
    For fiscal year 2006, $38.4 million Program Management Performance 
Incentives are part of the allocation if a State performed above the 
cut-off. The following factors were used to compare State performance:

------------------------------------------------------------------------
                                                              Weight
                   Performance Factors                       (percent)
------------------------------------------------------------------------
Cost share obligations versus payments for fiscal year                15
 2004 and fiscal year 2005..............................
FA to TA ratio..........................................              25
TSP obligations and disbursements.......................              15
Weighted cost-share percentage..........................              10
Limited Resource Farmers................................              10
Livestock-related contracts (CNMP)......................              15
Program National Priorities.............................              10
                                                         ---------------
      Total of Performance factors......................             100
------------------------------------------------------------------------

    In fiscal year 2006, NRCS will release a request for proposals to 
evaluate all of the allocation formulas in their entirety. This project 
will be a comprehensive evaluation of each program allocation formula, 
to include analysis and findings on each formula's consistency with the 
new NRCS Strategic Plan; consistency with program statutory authorities 
and regulatory requirements, and program goals and objectives; 
technical and analytical defensibility of the formula (parameter and 
variable selection, formula functional form) and data sources; the 
efficiency and effectiveness of allocation outcomes as a result of 
formula. The deliverable will be used to provide guidance for 
improvement in allocation formulas, as evidence to support NRCS's 
allocation formulas to interested external parties, to provide a 
template for which to evaluate future allocation formulas, and finally 
as a means to assess how allocation formulas relate to programmatic 
efficiency and annual/long-term performance measures.
    When the evaluation is complete, NRCS will post this information on 
the website. NRCS is committed to making our processes transparent 
through our public website.

                         MARKET ACCESS PROGRAM

    Question. The Administration's fiscal year 2007 budget cuts the 
Market Access Program (MAP) program in half from $200 million to $100 
million. Overseas markets are critical for our agricultural producers, 
and this program was an important part of making our products 
competitive overseas. The State of Illinois alone exports $4 billion 
annually in agricultural products.
    I would like a report on the markets that MAP has helped open up, 
the commodities the program has assisted since the MAP received 
funding, and the rate of return on the Map's activities. I would also 
like to know what alternative programs the Administration hopes will 
fill the place of MAP as our producers compete against foreign 
producers supported by export subsidies.
    Answer. We are providing a table which identifies more than 40 
markets where MAP funds were used to help open the market for some 35 
U.S. agricultural, fish, and forestry products. We are also providing a 
listing of all the current participants in the MAP.
    With regard to the rate of return on MAP activities, the Foreign 
Agricultural Service (FAS) has hired an independent evaluator to assess 
the effectiveness of two primary market development programs 
administered by FAS--the MAP and the Foreign Market Development 
(Cooperator) Program. This work is ongoing, and FAS hopes to receive 
the results in late summer of 2006. This evaluation will also be used 
to satisfy the Office of Management and Budget's requirement outlined 
in the Program Assessment Rating Tool to conduct independent 
evaluations of government programs.
    As for supporting U.S. producers in the export market, the U.S. 
Government is actively pursuing reform of international trade rules in 
the World Trade Organization (WTO) so that U.S. exporters will not have 
to compete with foreign producers who receive export subsidies. In 
fact, agreement was reached at the Hong Kong Ministerial meeting in 
December 2005 that all forms of export subsidies should be eliminated 
by 2013. FAS currently administers four other foreign market 
development programs that augment the MAP: the Foreign Market 
Development (Cooperator) Program funded at $34.5 million in fiscal year 
2006, the Emerging Markets Program at $10 million, the Technical 
Assistance for Specialty Crops Program at $2 million, and the Quality 
Samples Program at $2.5 million.
    Question. In its January 2006 report, the Office of the Inspector 
General stated that because of the voluntary nature of the enhanced 
surveillance program and based on USDA published data that estimated 
the ``distribution of the cattle population, as well as those that died 
or became nonabulatory,'' it could not determine whether USDA achieved 
the desired representation. How does USDA know that it is testing a 
representative sample and that it is testing animals that are at 
highest risk such as older, clinically normal cattle? Why hasn't USDA 
released detailed results of the surveillance program, such as age 
distribution, geographic locations of the sample, and whether the cows 
were down, neurologic or clinically normal?
    Answer. Experience in Europe (where there has been significant 
Bovine Spongiform Encephalopathy (BSE) exposure and circulating 
infectivity in contrast to the United States, where we can assume very 
limited, if any exposure) has shown that testing a targeted population 
of cattle--those animals exhibiting some type of clinical abnormality--
is the method most likely to identify BSE in the national herd. As an 
example, from 2001 to 2004, a total of 4,798,764 targeted animals were 
sampled, with a total of 5,486--or approximately 0.11 percent--of the 
targeted animals testing positive for BSE. In contrast, during that 
same time frame, a total of 34,207,597 clinically normal animals were 
sampled, with a total of 982--or approximately 0.003 percent of the 
clinically normal animals testing positive. These differences clearly 
demonstrate the efficiencies of sampling subpopulations where the 
disease is most likely to be detected if it is present. Therefore, 
since our surveillance efforts began, USDA has consistently focused on 
sampling these targeted cattle subpopulations. The targeted population 
includes cattle that have classic clinical signs of BSE, are 
nonambulatory, exhibit signs of a central nervous system disorder, or 
cattle that die for unexplained reasons.
    With regard to the geographic distribution of the sample obtained 
in our enhanced surveillance effort, we are still analyzing this 
information and will present this to the public when our analysis is 
complete. USDA's surveillance plan looks at this issue on a national 
level. It is most important that our sample is obtained from among the 
animals in our target populations. European reports have shown clearly 
that this disease is most likely to be found in downed, dying, dead, 
and diseased animals, so we go to the facilities where these animals 
are found, regardless of where the animals originate. We have largely 
worked with animal disposal facilities. In regions where those don't 
exist, we have made efforts to conduct other types of collection and 
are confident that we have obtained a sufficient sample that represents 
the target populations--those animals where we are most likely to 
detect the disease--within the United States.

                         CONCLUSION OF HEARINGS

    Senator Bennett. The subcommittee is recessed.
    [Whereupon, at 11:20 a.m., Thursday, March 30, the hearings 
were concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]
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