[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



   AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND 
                RELATED AGENCIES APPROPRIATIONS FOR 2009

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS
                             SECOND SESSION
                                ________
     SUBCOMMITTEE ON AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG 
                  ADMINISTRATION, AND RELATED AGENCIES
                ROSA L. DeLAURO, Connecticut, Chairwoman
 MAURICE D. HINCHEY, New York       JACK KINGSTON, Georgia
 SAM FARR, California               TOM LATHAM, Iowa
 ALLEN BOYD, Florida                JO ANN EMERSON, Missouri
 SANFORD D. BISHOP, Jr., Georgia    RAY LaHOOD, Illinois
 MARCY KAPTUR, Ohio                 RODNEY ALEXANDER, Louisiana
 JESSE L. JACKSON, Jr., Illinois
 STEVEN R. ROTHMAN, New Jersey      

 NOTE: Under Committee Rules, Mr. Obey, as Chairman of the Full 
Committee, and Mr. Lewis, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
       Martha Foley, Leslie Barrack, Jason Weller, and Matt Smith,
                            Staff Assistants
                                ________
                                 PART 7
                                                                   Page
 Center for Biologics Evaluation and Research.....................    1
 Center for Drug Evaluation and Research..........................   69
 Center for Food Safety and Applied Nutrition.....................  211
 Food Safety and Inspection Service...............................  361
 Farm and Foreign Agricultural Services...........................  737
 Commodity Futures Trading Commission.............................  913
 Farm Credit Administration....................................... 1016

           

                                ________
         Printed for the use of the Committee on Appropriations









   AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND 
                RELATED AGENCIES APPROPRIATIONS FOR 2009

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS
                             SECOND SESSION
                                ________
     SUBCOMMITTEE ON AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG 
                  ADMINISTRATION, AND RELATED AGENCIES
                ROSA L. DeLAURO, Connecticut, Chairwoman
 MAURICE D. HINCHEY, New York       JACK KINGSTON, Georgia
 SAM FARR, California               TOM LATHAM, Iowa
 ALLEN BOYD, Florida                JO ANN EMERSON, Missouri
 SANFORD D. BISHOP, Jr., Georgia    RAY LaHOOD, Illinois
 MARCY KAPTUR, Ohio                 RODNEY ALEXANDER, Louisiana
 JESSE L. JACKSON, Jr., Illinois
 STEVEN R. ROTHMAN, New Jersey      

 NOTE: Under Committee Rules, Mr. Obey, as Chairman of the Full 
Committee, and Mr. Lewis, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
       Martha Foley, Leslie Barrack, Jason Weller, and Matt Smith,
                            Staff Assistants
                                ________
                                 PART 7
                                                                   Page
 Center for Biologics Evaluation and Research.....................    1
 Center for Drug Evaluation and Research..........................   69
 Center for Food Safety and Applied Nutrition.....................  211
 Food Safety and Inspection Service...............................  361
 Farm and Foreign Agricultural Services...........................  737
 Commodity Futures Trading Commission.............................  913
 Farm Credit Administration....................................... 1016


           
                                ________
                     U.S. GOVERNMENT PRINTING OFFICE
 48-718                     WASHINGTON : 2009

                                  COMMITTEE ON APPROPRIATIONS

                   DAVID R. OBEY, Wisconsin, Chairman

 JOHN P. MURTHA, Pennsylvania             JERRY LEWIS, California
 NORMAN D. DICKS, Washington              C. W. BILL YOUNG, Florida
 ALAN B. MOLLOHAN, West Virginia          RALPH REGULA, Ohio
 MARCY KAPTUR, Ohio                       HAROLD ROGERS, Kentucky
 PETER J. VISCLOSKY, Indiana              FRANK R. WOLF, Virginia
 NITA M. LOWEY, New York                  JAMES T. WALSH, New York
 JOSE E. SERRANO, New York                DAVID L. HOBSON, Ohio
 ROSA L. DeLAURO, Connecticut             JOE KNOLLENBERG, Michigan
 JAMES P. MORAN, Virginia                 JACK KINGSTON, Georgia
 JOHN W. OLVER, Massachusetts             RODNEY P. FRELINGHUYSEN, New Jersey
 ED PASTOR, Arizona                       TODD TIAHRT, Kansas
 DAVID E. PRICE, North Carolina           ZACH WAMP, Tennessee
 CHET EDWARDS, Texas                      TOM LATHAM, Iowa
 ROBERT E. ``BUD'' CRAMER, Jr., Alabama   ROBERT B. ADERHOLT, Alabama
 PATRICK J. KENNEDY, Rhode Island         JO ANN EMERSON, Missouri
 MAURICE D. HINCHEY, New York             KAY GRANGER, Texas
 LUCILLE ROYBAL-ALLARD, California        JOHN E. PETERSON, Pennsylvania
 SAM FARR, California                     VIRGIL H. GOODE, Jr., Virginia
 JESSE L. JACKSON, Jr., Illinois          RAY LaHOOD, Illinois
 CAROLYN C. KILPATRICK, Michigan          DAVE WELDON, Florida
 ALLEN BOYD, Florida                      MICHAEL K. SIMPSON, Idaho
 CHAKA FATTAH, Pennsylvania               JOHN ABNEY CULBERSON, Texas
 STEVEN R. ROTHMAN, New Jersey            MARK STEVEN KIRK, Illinois
 SANFORD D. BISHOP, Jr., Georgia          ANDER CRENSHAW, Florida
 MARION BERRY, Arkansas                   DENNIS R. REHBERG, Montana
 BARBARA LEE, California                  JOHN R. CARTER, Texas
 TOM UDALL, New Mexico                    RODNEY ALEXANDER, Louisiana
 ADAM SCHIFF, California                  KEN CALVERT, California
 MICHAEL HONDA, California                JO BONNER, Alabama
 BETTY McCOLLUM, Minnesota
 STEVE ISRAEL, New York
 TIM RYAN, Ohio
 C.A. ``DUTCH'' RUPPERSBERGER, Maryland
 BEN CHANDLER, Kentucky
 DEBBIE WASSERMAN SCHULTZ, Florida
 CIRO RODRIGUEZ, Texas              

                  Rob Nabors, Clerk and Staff Director

                                  (ii)

 
   AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND 
                RELATED AGENCIES APPROPRIATIONS FOR 2009

                              ----------                              

                                          Wednesday, April 2, 2008.

              CENTER FOR BIOLOGIES EVALUATION AND RESEARCH

                               WITNESSES

JESSE L. GOODMAN, M.D., M.P.H., DIRECTOR OF THE CENTER FOR BIOLOGICS 
    EVALUATION AND RESEARCH, U.S. FOOD AND DRUG ADMINISTRATION
MICHAEL A. CHAPPELL, DEPUTY ASSOCIATE COMMISSIONER FOR FIELD 
    OPERATIONS, OFFICE OF REGULATORY AFFAIRS (ORA), U.S. FOOD AND DRUG 
    ADMINISTRATION
MARY A. MALARKEY, DIRECTOR, OFFICE OF COMPLIANCE AND BIOLOGICS QUALITY, 
    U.S. FOOD AND DRUG ADMINISTRATION

                       Introduction of Witnesses

    Ms. DeLauro. The hearing will come to order.
    Today we welcome to the subcommittee Dr. Jesse Goodman, who 
is director of FDA's Center for Biologics Evaluation and 
Research, which oversees vaccines, blood products, tissues, and 
related devices, as well as therapeutics, including cellular, 
tissue engineering, and gene therapies.
    And thank you very, very much for joining us, Dr. Goodman 
and Mr. Chappell, and I'll rely on you, Dr. Goodman, to make a 
more formal introduction of Mr. Chappell.
    Today's hearing on the Center for Biologics Evaluation and 
Research is the second in a series of oversight hearings that 
take a closer look at each of the centers at the FDA.
    We began this series with a hearing on February 27th 
examining the Center for Drug Evaluation and Research, and 
while the Center for Drug Evaluation and Research receives more 
attention because of its responsibility overseeing the safety 
of prescription drugs, Center for Biologics Evaluation and 
Research regulation of biological and related products is 
equally important, and I believe this is the first time this 
subcommittee has held a hearing focused exclusively on CBER.
    And I also want to say a thank you to my colleague, Sam 
Farr, who has expressed a great interest in some issues that 
come before the center, and it was at his prodding and at his 
initiation that we decided to hold an oversight hearing.
    Unfortunately, the importance of the mission of the Center 
for Biologics Evaluation and Research is not reflected, in my 
view, in the fiscal year 2009 budget request.
    The non-user fee part of CBER's budget request for 2009 is 
$158 million, an increase of just under $3 million, or a mere 
1.9 percent, over fiscal year 2008.
    While the budget request document contains a lengthy 
description that tries to make this tiny increase sound like it 
will accomplish a lot, I fear that it will not be adequate. If 
we are to return the FDA to the gold standard for which it was 
once known, the agency will need additional resources.
    The subcommittee is trying to do our part, but we also need 
the administration to demonstrate their commitment to improving 
FDA.
    Unfortunately, the administration's budget request for the 
agency and for CBER does not reflect any type of commitment 
toward making the necessary improvements.
    Providing additional resources could help leverage some of 
the good work being done at CBER. For instance, in your 
testimony, Dr. Goodman, you talk about CBER's interdisciplinary 
review teams and how they work together to design and analyze 
results of post-approval monitoring.
    You also note that CBER has established product safety 
teams for tissue, blood, and vaccines. This sounds like a 
serious effort, which I would like to know more about.
    The good thing about holding an oversight hearing on CBER 
is that it allows the subcommittee to examine a number of 
important issues that we normally would not have the chance to 
discuss in depth. These include tissue safety, recalls of blood 
and blood products.
    In fact, on these issues, some of the responses to 
questions for the record last year by the FDA were 
unsatisfactory and require followup discussion. This hearing 
provides us that opportunity.
    Once more we say thank you to you, Dr. Goodman, and I look 
forward to discussing the issues with you and appreciate your 
willingness to rearrange your schedule to accommodate the 
subcommittee.
    Ranking Member Kingston will be late. He has another 
important meeting that he had to be at. I will ask colleague 
Congresswoman Emerson if she has some opening remarks.
    Mrs. Emerson. Thank you so much for asking, Madam Chair. I 
don't have any questions. I do want to welcome you and thank 
you for being here.
    Dr. Goodman. Thank you.
    Ms. DeLauro. Then let me ask you to proceed, Dr. Goodman, 
with your testimony, and you know the drill. The entire 
testimony will be made part of the record, so you're free to 
summarize in any way you care to.
    Dr. Goodman. Okay. Well, thank you so much for having me 
here, and Congressman Farr, Chair DeLauro, and Congresswoman 
Emerson, I really appreciate your interest, and, you know, we 
are here to really have a good exchange.
    I look at some statements that people give, these 30-second 
statements, with a lot of envy, but I'm not--that's not my 
style. And then when I looked at what--how I feel about the 
importance of what we're doing and some of our accomplishments, 
I cut it down from the written statement, but I'd still like to 
share a few things with you.
    As you know, I'm Jesse Goodman. I'm director of the CBER, 
the Center for Biologics Evaluation and Research, and this is 
Mike Chappell, who is the deputy associate commissioner for 
field operations from the Office of Regulatory Affairs, and why 
he's here, as you know, we work very closely together.
    In fact, we have a unique relationship in our center, 
because we have this Team Biologics, which is a joint 
enterprise of the center to try to bring the scientists and the 
field investigators together, and we also, in our center, most 
people don't realize, but we do the pre-licensure inspections 
from the Center for Biologics. But we've had a really great 
working relationship with ORA, and we support them.
    As you know and have said, we're responsible for regulating 
biological products that touch the lives of millions of 
Americans every day, and I think what's equally important and 
keeps me awake is that these are important for the preparedness 
of our nation, they're important for confidence in our health 
care system, so when you talk about vaccines and blood safety, 
as you know, this is critical.
    The safety expectations are very high, so our normal mode 
is to take those expectations very seriously and approach them 
innovatively.
    The funding, as you mentioned, first of all, in 2008, I 
want to express appreciation for the $2.2 million additional we 
got for our safety activities, $4 million more for our pandemic 
activities, and that was built on top of the pandemic 
supplemental that you had given us.
    And I'll say a little more. I think we've invested that 
wisely, and we've made some real gains that you really should 
share the credit for.
    In addition, in 2008, we received $1 million for critical 
path, and we received coverage of the payroll increases for our 
program.
    As you mentioned, the 2009 budget includes a $3 million 
increase in budget authority, but also an increase in user 
fees.
    An important point about the user fees is that, with the 
recent agreement, this does allow user fee use for the complete 
spectrum of product safety activities, and we are applying 
increases from both 2008 and 2009 to strengthen product safety 
activities, which we consider important.
    Okay. What are the accomplishments in pandemic 
preparedness?
    These really flow from your investments, and I think 
they're already quite tangible.
    We've accelerated America's preparedness. We've improved 
our ability to support development and evaluation of new 
vaccines. We've really enhanced our infrastructure in the 
center to test and deploy vaccines rapidly in our emergency 
preparedness.
    And then we're engaged--this is an area, as I've mentioned 
in the past, where the science is often 40 or 50 years old, the 
assays being used to evaluate vaccines are in clinical trials, 
or to test them prior to their deployment, are very old, and 
we're investing in trying to modernize those assays, and we're 
doing that in a collaborative way with colleagues around the 
world.
    In part of this accomplishment, last April we licensed the 
first vaccine to be used against avian influenza in the world. 
That's an accomplishment.
    We recognize some of the limitations of that vaccine, and 
will very actively engage with HHS and partners in next 
generation vaccines which hopefully will allow lower doses and 
more immunologic effectiveness.
    These are vaccines using new adjuvants, which raise some 
important potential safety issues, adjuvants are components 
which will strengthen the immune response, and also using new 
technologies, such as cell cultures or even recombinant 
vaccines, to generate synthetic proteins protective against 
pandemic flu.
    We put forth an accelerated approval platform, really, for 
annual and pandemic flu vaccines, and we've worked 
expeditiously to evaluate multiple new vaccines.
    I think the interrelatedness of the pandemic preparedness 
and our whole nation's public health preparedness is 
illustrated by the fact that, as part of this effort, we've 
actually doubled the number of licensed U.S. vaccine 
manufacturers and doubled the capacity to produce flu vaccine 
for annual flu, with over 130 million doses this year, for the 
first time able to come close to meeting some of the public 
health targets that CDC has put out there, and this offers the 
possibility of saving thousands of lives.
    And our hope is also that the diversity in flu vaccine 
supplied, it better prepares us for a pandemic. It also better 
prepares us for the kind of events we've had in the past, where 
one manufacturer may have problems and fail.
    So I think that's a really good story.
    We've also used this as the opportunity--one thing I want 
to say is, I was very conscious that when we got the pandemic 
supplemental, this was an opportunity to help prepare for the 
pandemic, but also to do it in a way that strengthens our 
infrastructure and deal with other emergencies that might come 
along, and we've really tried to do that very deliberatively.
    And so, for example, we've used the pandemic investment 
also to help us do post-marketing product safety activities 
better. We have a collaboration with Harvard to try to access 
health care data very quickly from flu vaccination.
    We did, some of our scientists did an amazing project 
collaborating with colleagues at CMS, where we were able to, 
within a month, capture 10 million immunizations in the CMS 
population, and look for spikes in an adverse event of 
interest.
    So again, these are the kinds of things that will better 
prepare us to monitor vaccine safety, both in a pandemic and 
every year, and actually, they're helping provide examples for 
all of FDA, in terms of how do we do product safety using 
health care and other data. So that's been very exciting.
    Now, as I mentioned, it's not just pandemic we have to 
worry about. There are many other threats, ranging from West 
Nile to bioterrorism, et cetera. These are threats which 
sometimes we need to develop new products to address, or 
sometimes we need to do things to enhance the safety of the 
blood or tissue supply, and we're actively engaged in that.
    We work proactively with HHS and WHO, numerous other 
organizations, and we're developing--we're involved and engaged 
in developing vaccines to meet these threats.
    One of the things that we did, again with your support, is 
we really put together the first, in a sense, global regulatory 
team, involving other regulatory agencies from across the 
globe, including countries affected by the avian flu risk, like 
Vietnam, Indonesia, Thailand, to get them at the table with us 
and our WHO colleagues, and develop a set of standards and 
approaches to pandemic vaccines so that not just the U.S., but 
the world, will share information and have high quality 
vaccines for a pandemic.
    With your help, we've strengthened our emergency response 
infrastructure. I won't go into that in details. But again, 
this will help us in a pandemic or in other emergencies.
    Now, I will say people really look to FDA for our safety 
and for safeguarding the safety of products, and at the end of 
the day, our most critical and unique responsibility is to give 
that objective, independent, expert assessment of safety.
    As Ms. DeLauro mentioned, we have put in place very 
interdisciplinary and proactive approaches, and we are trying 
to modernize how product safety is done, and we view product 
safety as encompassing everything from how the product is 
designed, the quality of manufacturing, and the followup on 
possible adverse events when it's approved.
    We have multidisciplinary review teams up front, so in the 
spirit of the IOM report, we have safety people involved in the 
review of the product and in designing the post-marketing 
studies that will be done, and these folks are all together in 
the room doing these reviews, and part of that, what that 
accomplishes, is everybody is identifying their concerns and 
trying to work issues out, both ahead of approval, and then we 
take a similar approach with the safety teams after approval.
    I really didn't want to see a situation where one group of 
people knows that an inspection of a facility showed X, another 
group of people is looking at the adverse events, and another 
group of people understands the benefits or the need of 
vaccines, but they're not talking with each other.
    We have them all talking to each other, and that tends to 
resolve issues and conflicts at an early stage, or identify 
problems at an early stage. Okay.
    We also put in place a new regulatory framework for tissue, 
to enhance tissue safety, and I'm happy to talk more about 
that.
    These safety teams meet regularly and consider all ongoing 
safety issues, and they also meet in emergencies. We convene 
them when new signals arise or when a product safety or 
availability issue comes up.
    And of course, one thing that's very unique in what we do 
in blood and vaccine safety and tissues is, we work very 
closely and leverage the resources of CDC, and that is a highly 
collaborative and productive relationship.
    So that we identify an issue, we may use our colleagues at 
CDC to go out and engage the states, the state health 
departments, the epidemic intelligence service people, who CDC 
has out in the states, for example, to conduct tissue safety 
investigations with us, and that's been an excellent 
relationship.
    One of the things we've tried to do, and I think this is in 
the spirit of what we understand the public wants, and I think 
it's the right thing that the public wants, is that when we 
identify potential concerns to, even if we're not clear if it's 
related to a product, to try to make that information available 
to people at an early and appropriate time, and be transparent 
about what we know and what we don't know.
    This can be complicated, and it's a challenging kind of 
risk communication, but, for example, we've used innovative 
methods to both identify possible safety signals, like we had a 
safety signal of Guillain-Barre Syndrome, a neurologic problem 
with the meningitis vaccine, but then to be able to tell people 
what we did and didn't know about it, so they were aware, and 
their physicians are aware, in making health care choices. And 
the public has really appreciated this.
    Now, as Congresswoman DeLauro mentioned, we also have a lot 
of incredibly promising, exciting, innovative products that I 
think offer the potential to cure diseases, whether these are 
gene therapies, stem cells, tissue engineered products, where 
people are starting to make in the laboratory new organs, but 
these raise a lot of unique concerns in their development and 
in their evaluations.
    So we're really, this is where our science is very, very 
important, and where we try to work collaboratively with 
product developers, with NIH, to stay ahead of the curve and 
say, how can we move such unique, innovative products more 
quickly from the laboratory to the clinic, but how can we do 
that in a way that's safe and makes sense and gets us the 
needed information. And we have numerous partnerships doing 
that.
    For example, we've issued draft guidance on how to use cord 
stem cells and guidance on how to maintain high quality in 
those cells.
    We've held joint workshops with NIH on how to develop stem 
cell therapies for neurologic and cardiac disease and how that 
should be tested--a whole bunch of things like these to try to 
move new fields forward while fulfilling our responsibilities.
    We set up what's FDA's first inter-center review team 
involving our center and the device center working together to 
review tissue-engineered products so people don't have to go 
into two different centers and deal with two different systems, 
and so the right experts are doing the reviews.
    A lot of this requires a strong science base, and you're 
all aware of the science board report raising concerns about 
the state of that.
    What I do feel very good about is that the science board 
did recognize that we were managing our program in an effective 
way and achieving some very substantial outcomes, despite those 
limited resources, and they specifically recognized this as 
they reviewed our center's science.
    But examples of some of our scientific accomplishments, as 
I mentioned, using health care databases in new ways, 
developing new tools to track adverse events, collaborative 
studies with the national toxicology program to make gene 
therapy safer, a bunch of new methods.
    The National Institute of Allergy and Infectious Disease 
came to us and said, ``You guys are the experts, can you help 
us develop new methods for assuring cells that vaccines and 
other products are safe,'' and we worked on that project and 
were able to provide guidance to industry that's actually 
allowed development of new vaccines and cell lines that 
previously could not be safely used.
    And I think one of the most well-known examples is 
providing standards and expertise that allowed implementation 
of West Nile Virus testing in eight months, and probably 
prevented thousands of disease transmissions.
    So these are scientific accomplishments that we're very 
proud of. We could certainly do more.
    And we are, you know, with your support, for example, 
through the critical path initiative, and of the center, we're 
making more investments in these areas.
    For example, we're interested in improving our ability to 
use genomic methodologies to assess rare adverse events, for 
example, in the vaccine area, et cetera.
    Now, the one thing that I feel very personally passionate 
about, I feel passionate about all of this, but one that I feel 
particularly passionate about, and we've recently seen how 
important it is on multiple levels, is that we are in a global 
community.
    Public health is a global issue. As you've heard, diseases 
know no boundaries. But as we've also found out, manufacturing 
knows no boundaries, and also, quite frankly, the positive 
knows no boundaries.
    There is knowledge and innovation out there in other 
countries and other places in the world that we need to keep 
abreast of. And I mentioned our efforts to work with other 
regulators and scientific bodies to do that.
    But we are very committed to dealing with infectious 
disease threats, like malaria, chikungunya, another mosquito-
borne virus, dengue, which is sweeping through parts of South 
America and Hawaii, new hepatitis viruses, drug-resistant TB, 
diarrheal diseases.
    People tend to think of these as diseases which just affect 
others elsewhere, but as the recent episode of the traveller 
with TB, minor variants of which, by the way, are happening all 
the time, illustrate, these things are threats to the security 
of the United States, as well, whether they occur naturally or 
deliberately, as I mentioned, and we would ignore them at our 
peril.
    So I think in global health, we face a win-win situation, 
where we can help the world solve some of the major health 
problems that are there, but where we can also protect our 
country better.
    So we place a very high priority on these global efforts, 
trying to develop products to meet these needs.
    We actually were recently recertified, there's an outside 
evaluation, as a WHO collaborating center, both for biologic 
products and for influenza, so we play a role in setting global 
standards in these areas.
    And we're out there. Our blood center director is the chair 
of the global collaboration for blood safety.
    So we're out there trying to both protect our country by 
assuring that global product quality and safety are high, but 
also trying to help colleagues throughout the world achieve 
those goals.
    We have a program called the global vaccine initiative that 
seeks to work with other countries, other regulators, WHO, to 
facilitate development of vaccines that could help face these 
neglected diseases, like malaria, TB, et cetera.
    And I often say, if there were a safe and effective 
tuberculosis vaccine, I think I would line up to get it, 
because I think the risks and the toll of that disease are 
high, even though in our country right now it isn't an issue.
    So this is just a little bit about what we do globally, but 
what I really want to say is that there are unprecedented 
opportunities to improve global health, and at the same time, 
protect the health of our people against emerging infectious 
disease threats, and we're very engaged in that and spend a lot 
of effort on it.
    So to conclude, we really have a dedicated team. We have 
knowledgeable staff. We collaborate with lots of others. And 
we're very committed to promoting innovation and quality 
concerning the products we regulate.
    While there are many new threats emerging, our blood supply 
is safer than ever, our vaccine infrastructure has dramatically 
improved, not that there aren't still areas that we're really 
concerned, and we have record influenza vaccine capacity.
    This needs continuous vigilance, monitoring, and 
improvement, but thanks to your support, I think we're a lot 
better prepared there, and for future pandemics.
    And I'm proud of this record, and my staff's 
accomplishments.
    As I said, we face continuing challenges and risks. We 
continue to remain vigilant against known and emerging health 
risks, and we do also in that process strive for continuous 
improvement.
    We realize our resources are limited. There are many 
resource needs. But we aim to face the highest-risk, most 
serious problems in an effective way, and we're committed to 
this vision and mission.
    And, you know, frankly, I totally welcome your and any 
outside input and participation in achieving what I think are 
common goals for U.S. and public health.
    So thanks so much.
    [The information follows:]


           

    Ms. DeLauro. Thank you very much, Dr. Goodman. Let me 
start.
    And I do, too, again want to compliment the 
interdisciplinary efforts that you're making, because I think 
you're more accurate when you bring people together.
    You can look at the product safety teams, which I think put 
everybody at the table, and you can figure out what direction 
you might take. But listening to people's concerns--et cetera.

                           TISSUE REGULATION

    Let me start with an area that I just want to get your 
thoughts on.
    This is, and it goes back a bit, so I understand that some 
things have been done, but I want to just get some idea of 
where efforts are.
    The AP did a two-part series on problems with tissue 
regulation, as you know. Some shocking statements.
    Let me just try to see your reaction to them, and if these 
things are correct.
    First, with respect to a healthy 23-year-old who died after 
elective surgery involving cartilage replacement, the AP story 
said he died because the cartilage came from a corpse that had 
sat unrefrigerated for 19 hours, a corpse that had been 
rejected by two other tissue banks. The cartilage hadn't been 
adequately treated to kill bacteria. The Georgia-based tissue 
bank, Cryo Life, Inc., knew that the donor had the germ, and 
released the tissue anyway. None of this broke a single federal 
rule.
    Is that accurate?
    Dr. Goodman. No. No. It did--there were a number of things 
that broke federal rules, and that event in part, and I think 
my concern and attention about that subsequent to that led us 
to push forward a new set of rules that tightened things up.
    I think that it is a complex issue and there was----
    Ms. DeLauro. At the time, though, they didn't break any 
federal rules----
    Dr. Goodman. Well, actually, I want to check with Mary 
Malarkey, but I believe that compliance action was taken 
against that company, and our view was that they had broken 
certain rules.
    But Mary Malarkey is director of our Office of Compliance 
and Biologics Quality.
    Ms. DeLauro. Why don't you get to a microphone. Can you 
identify yourself, Mary?
    Ms. Malarkey. Certainly. I'm Mary Malarkey. I'm the 
director at the Office of Compliance and Biologics Quality at 
CBER.
    Ms. DeLauro. Okay.
    Ms. Malarkey. And at that time, I was actually the director 
of the Division of Case Management.
    Cryo Life did, in fact, violate the tissue regulations at 
the time.
    We first issued them a warning letter, and then subsequent 
to that, when they did not choose to recall tissue voluntarily, 
we ordered them to recall, retain, and destroy tissue that had 
been manufactured since the time that the tissue was processed 
that resulted in Mr. Liken's death.
    Dr. Goodman. You know, I also do want to say that we took 
this event extremely seriously.
    I've met with the family in question in the past. We've 
sought--we looked at that experience both from a scientific and 
a policy point of view, and from the scientific point of view, 
it's changed some of how processors approach things, and it's 
also resulted in our rules and in guidance that makes it, I 
think, far less likely that that kind of problem occurs.
    Ms. DeLauro. Second, let me move in, if I can quickly, 
because there now appears to be three votes, and I know----
    Dr. Goodman. Okay. Do I get to vote?
    Ms. DeLauro. Well, I tell you what would be interesting.
    Later, we're going to do this Tom Lantos, Henry Hodge, 
United States Global Leadership against HIV/AIDS, Tuberculosis, 
Malaria Reauthorization Act, so it's an appropriate vote for 
today.
    Dr. Goodman. Okay.

                           TISSUE REGULATION

    Ms. DeLauro. A trade group, the American Association of 
Tissue Banks, requires accredited members to follow high 
standards, but without the FDA doing the same, hospitals and 
doctors can buy from unaccredited suppliers that offer tissue 
quicker or cheaper.
    Is that true or false?
    Dr. Goodman. What is true is that FDA does not require 
accreditation by that accreditation body.
    Ms. DeLauro. This body?
    Dr. Goodman. Right.
    What is incorrect is that we actually look at 
accreditation, for example, we do risk-based inspections and 
compliance activities, and for example, accreditation is one of 
the factors we consider in deciding on risk and where we focus 
our efforts.
    AATB is an organization we've worked with a lot. They are 
really doing a lot of work to improve quality in tissues, and 
they've been very cooperative and collaborative with us, but 
they also don't have enforcement authority.
    We have to--whether they're accredited or not, we have 
oversight on them, and they need to follow our rules.
    Ms. DeLauro. Hospitals and doctors do not have to report 
tissue infections to health officials, and evidence suggests 
that many are missed.
    True?
    Dr. Goodman. There is a requirement for the sponsors who we 
regulate to--you know, the people who ship out the tissue--to 
report infections to us----
    Ms. DeLauro. But hospitals and doctors----
    Dr. Goodman. I don't believe that----
    Ms. DeLauro [continuing]. Do not have to report----
    Dr. Goodman [continuing]. I don't believe there is--that we 
have jurisdiction or there's a requirement for the hospitals to 
report.
    I will mention, just because of awareness of that issue and 
that under-reporting probably does occur, that again, we've put 
together two projects to try to address this and understand 
what might be going on out there.
    One is, through--in collaboration again with the device 
center, who has a program called MedSun you may have heard of, 
which involves actively going out in the health care setting 
and soliciting outcomes in infections, and we have a tissue 
project with them that covers a large number of health care 
sites, and also we have a project with CMS that again is going 
to get to that database to look.
    Ms. DeLauro. But in actuality, hospitals and doctors do not 
now have to report tissue infection to health----
    Dr. Goodman. I believe that that is correct. They 
frequently do.
    Ms. DeLauro. Well, I know, but----
    Dr. Goodman. But it's not required.

                           TISSUE REGULATION

    Ms. DeLauro. The FDA requires no medical training to run a 
tissue bank or procure tissue.
    Is that true?
    Dr. Goodman. I think that what our--I may turn to Mary 
Malarkey again, but I believe what is required, it's a more 
general requirement, that they have to be qualified and have 
suitable personnel.
    Our inspectors can look at records and determine whether 
they think that's----
    Ms. DeLauro. But they don't have to have any real medical 
training in order to run the bank or to procure tissue----
    Dr. Goodman. That's my understanding.
    Ms. DeLauro. Okay.
    FDA rules state broad goals and let industry decide how to 
meet them. They say tissue should be tested for germs, but do 
not specify the type or level of testing. The same is for how 
tissue is disinfected. In some instances, some tissue, in fact, 
is not disinfected at all.
    Is that true?
    Dr. Goodman. In general, those comments are true.
    What is done is, we are actually going to be providing 
guidance that provides much more detail.
    One of the issues here, Congresswoman DeLauro, is that this 
is an industry where the scientific needs of improving--the 
science where it is, there are many different things going on 
to reduce infectious risks, and one of the things we're trying 
to promote is identifying the best practices and then putting 
those in guidance.
    Ms. DeLauro. I understand, Dr. Goodman, and you all know me 
well enough to know that I'm about up to the top of my head 
with guidance----
    Dr. Goodman. Yeah. Okay.
    Ms. DeLauro [continuing]. With some very specific--but I 
understand, I understand----
    Dr. Goodman. Can I make one other comment?
    Ms. DeLauro. Yeah, but my time has run out, and----
    Dr. Goodman. Okay. Why don't you go ahead. Sure.
    Ms. DeLauro [continuing]. And let me--this is a comment 
from your former FDA colleague, Bill Hubbard:
    ``When an industry feels like its feet are not held to the 
fire, it feels emboldened not to care.'' William Hubbard, long-
time FDA associate commissioner for policy and planning.
    The tissue industry was an example of a--that needed a firm 
regulatory hand, and it never got a firm regulatory--true or 
false?
    Dr. Goodman. We have put in place a markedly enhanced 
system of regulation, and we are going out to these facilities, 
and the major processors have been inspected, and we have taken 
actions in the last--in 2006 we put two companies out of 
business. We got the power to actually put a company out of 
business.
    Are there areas in which the regulations could be 
strengthened? Yes. Are we actively looking at this industry? 
Yes.
    Ms. DeLauro. That's good, because we'd like to work with 
you on that, and to increase the regulation in this area. We 
know that you have taken some steps, but it would appear that 
there are several areas at the moment where there are real gaps 
in terms of ensuring the public health, which I know you're 
committed to.
    Ms. Emerson.

                               USER FEES

    Ms. Emerson. Thank you.
    Dr. Goodman, thanks for being here, again.
    You know, I have this pet peeve about the fact that user 
fees are such an important part of the way that FDA does 
business, and the increased reliance on them just bothers me 
terribly, because I think there's an over-reliance, number one, 
and number two, I think there's a public perception that FDA is 
beholden to the industry it regulates.
    And, you know, when the salaries of your staff, in essence, 
could be perceived as being paid by the drug companies, then 
that is, to me, not in your good long-term interests.
    Anyway, with that being said, do you have an opinion on 
what you think the appropriate balance of user fees and the 
appropriations Congress gives you to fund your activities is?
    Dr. Goodman. Well, you raise a very important question. 
Okay.
    Frankly, I would be----
    Ms. Emerson. Just don't be political----
    Dr. Goodman. No, I'm not being political.
    Ms. Emerson. Okay.
    Dr. Goodman. Let me put it the other way.
    Right now, we get money both from user fees and from 
appropriated money.
    Ms. Emerson. Right, right.
    Dr. Goodman. Okay. In my center, we probably have a 
somewhat lower percentage of user fees than in the drug and 
device center, okay, but we have a lot of user fee activities, 
so we use a certain amount of base to pay for those user fee 
activities.
    When it comes down to it, it's about 22 percent of our 
center's budget that goes to activities that are unrelated to 
user fees, of which we--you know, base authority that is not 
tied to user fees in one way or another. Okay.
    That 22 percent is used for things like tissue safety, 
blood transfusion, medicine safety, et cetera.
    What I do want to say is that to me, the user fees, for 
example, PDUFA, have enabled us to dramatically increase our 
number of reviewers and staff to get the job done.
    The user fees, for example, particularly with the change in 
PDUFA 3 to allow their full use in post-marketing safety 
activities, have really provided added resources that we are 
putting into improving post-marketing safety activities.
    So if I didn't have those user fees right now, it would be 
very difficult to carry out our mission.
    If Congress and the executive branch--well, the 
administration or any administration said, ``We want to fund 
FDA 100 percent off appropriated funds,'' that would be fine 
with me, as well.
    One thing I have to say, and I encourage this culture 
within my center. I don't care that those are the user fees. I 
care that we get the job done.
    I tell people that those deadlines, which can create 
pressure, if you have concerns, if you have doubts, if you have 
additional questions, you don't have to approve the product by 
that deadline. Okay.
    So the culture they I'm aiming to have is make the best 
decisions, whatever the source of funds are, and to me that's 
absolutely critical.
    Also, those are not, those dates, they're not dates for 
approval, they're dates for decision, and when we have a 
concern, the decision is to tell a sponsor, we need you to 
answer these additional questions, or to provide this 
additional information.

                               USER FEES

    Ms. Emerson. Okay. So that begs the question, then, and I 
apologize for not knowing in advance what the answer is going 
to be, because, you know, there are so many competing 
priorities, obviously.
    Dr. Goodman. Right.
    Ms. Emerson. And when user fees are increased, for whatever 
reason, how do you all determine what the allocation will be of 
those additional funds?
    Dr. Goodman. Well, the way that I determine it is, I look 
at where I think our mission, you know, is most either at risk 
or our needs are greatest, so if there's a review division 
which is being overworked or where it's of incredible public 
health importance, I will move additional positions from the 
user fees into that area, or as recently, where I think 
historically, post-marketing safety activities have been 
underfunded, now that we can use those, I move those into that 
area.
    Ms. Emerson. So do you have performance goals for each of 
those programs so that you can measure how the user fees are--I 
mean, are you meeting your performance goals better because you 
have extra user fee money, or is it just----
    Dr. Goodman. Yeah. No, there's----
    Ms. Emerson [continuing]. Just because the pot is bigger?
    Dr. Goodman. The performance goals are historically very 
well developed in the pre-market area, so they are review an 
I&D within 30 days, review a priority application within six 
months, et cetera, et cetera. Those we meet. Okay.
    The area in which the goals are less developed is the post-
marketing, but there, right now for me, FDAAA, first of all, 
sets a bunch of new goals and requirements, and we will 
certainly comply with those, and use these funds to comply with 
those, but also, I look at it and say, here's what I want. I 
want our safety teams to function this way, I want us to look 
at health care data this way. And I will apply those resources 
to that.
    Ms. Emerson. I know our time is up, but I just want to--how 
does OMB account for all these user fees?
    In other words, you know, if we increase your user fees, 
by--let's just say, if you're going to increase user fees by 
$30 million, hypothetically, then, does OMB then come in and 
take $30 million off the top of what the president's budget 
would advocate for you?
    Dr. Goodman. I'm not aware, really, of what goes on at that 
level, but I think to not just avoid that, let me put it--
reverse it and make it a little hypothetical.
    If user fees allow erosion of non-user--of funding of non-
user fee activities----
    Ms. Emerson. Right.
    Dr. Goodman [continuing]. Then we have challenges, so that 
there are certain areas, such as tissues and transfusion 
medicine safety, that may not be covered by user fees, and if 
anybody mistakenly feels those are covered by increases in user 
fees, then those kinds of programs themselves are----
    Ms. Emerson. And see, that's what I think is kind of 
happening with you all, but I better leave it at that, because 
we have a vote, and my time is up.
    Dr. Goodman. Okay.
    Ms. Emerson. Thank you.

                            TISSUE RECOVERY

    Ms. DeLauro. Let me ask an additional question here.
    My understanding is that recovery locations, that most 
counter-recovery locations, the percentage of recovery 
establishments that user the locations, hospital operating 
room, 93 percent, funeral homes, 59 percent.
    What is the--is there the restrictions, the regulations 
around funeral homes, is that of concern to you, where this has 
been a real problem in the past? As far as I--and that had to 
do, obviously, with BTS, but as far as I know, this is still a 
wide open area.
    Dr. Goodman. It is a concern, but we have acted to both 
assess, and I hope reduce that concern.
    So when Biomedical Tissue Services, and Donor Referral 
Services, which was another one, a much smaller event, occurred 
in 2006, those two aspects of those, they were related to 
recovery in local organizations and funeral homes.
    They were the subject both of criminal investigations and 
ongoing cases, so they are not just an issue where, you know, 
if you--you know, it's kind of like, if you have activities 
that are designed to be hidden or circumvent regulations, even 
the best agent, as we see, the city is full of police, but that 
doesn't mean there's not crime, but you need the police.
    An interesting--what we did in response to that, and I 
acted, I think, you know, almost immediately, is we did two 
things.
    We put together a task force called the human tissue task 
force, across the FDA, and again, this was quite 
unconventional, because it wasn't just us guys. We involved 
Mike's group, high-ranking people in compliance, our chief 
counsel's office, because of the issue of authorities, et 
cetera, et cetera.
    And we got everybody together, and I said two things. I 
want to know--let's assess what's happened in the first year 
these tissue rules have been implemented. Are there weaknesses, 
are there things we can strengthen? What have we learned? And 
also, I'm very concerned. I don't want to find out that there's 
not just these two funeral homes and renegade practitioners 
doing this, but that it's a general problem.
    And what we did, which is amazing performance from our 
colleagues in the field, is went out--the number may be not 
exactly right--but over 150, we went and, within just a few 
months, to over 150 places that are registered as recovering 
tissues, and we went to every one of those and looked at those 
practices, and where there were any concerns, cited them, gave 
the message that there's going to be oversight.
    Ms. DeLauro. I understand that, and I appreciate the speed, 
but that is reaction rather than prevention, which gets me to 
the issue of why aren't we licensing, why aren't we accrediting 
these places to do this?
    I mean, I understand that you take that into consideration, 
but why do we not accredit or license these places which, if we 
find it out, in addition to which we found out here through a 
doctor in Colorado, we find out from investigative reporters 
that this is going on, it's not having to uncover it, as an 
agency uncover it, and yes, there's no question, the blitz. You 
went out, you did all of this, and I applaud that.
    But to leave such a hole in public health, it just seems to 
be non-understandable, not comprehensible that we would just 
not say, ``You can't do this unless we put a stamp of approval. 
We are the Food and Drug Administration, we put our stamp of 
approval on--you have to be trained, you have to be licensed, 
and you have to be credentialed to engage in this kind of 
activity.''

                           TISSUE REGULATION

    Dr. Goodman. Yes.
    Ms. DeLauro. I don't understand it, Dr. Goodman.
    Dr. Goodman. So you would argue and support a system where 
they might not be able to, you know, sort of like with our 
licensed manufacturers, where they would not be able to conduct 
any activities until they received----
    Ms. DeLauro. That's right. Absolutely.
    Dr. Goodman. Well, I think that is an option. It would 
obviously require a different regulatory approach and resources 
to do that.
    What I will say is that what we were doing, following 
implementation of the tissue rules, which really ramped up the 
infectious disease testing they should do, saying they should 
have good manufacturing practices, et cetera, what we initially 
did is focused on what we believed were the highest risk parts 
of this industry, which are these processors that make large 
amounts of tissue for large amounts of places.
    So we went to them, we went in, in many cases, corrected 
their practices. In many cases, their practices were excellent, 
as you mentioned, or as somebody mentioned, AATB in many cases 
said they were meeting standards. But we identified the ones 
where there were problems, and have cited them, and corrected 
them.
    What was not as high on the priority list, but was rapidly 
moved up there when we encountered these, you know, frankly, 
not just they weren't compliant, but frankly, off the--out of 
bounds practices, we did feel we had to go to those.
    But you are right, there is not a pre----
    Ms. DeLauro. Risk base is only as good as the data on which 
it sits.
    Dr. Goodman. Mm-hmm.
    Ms. DeLauro. That's the fact. And if you don't have any 
information, and you don't know what they're doing, and they 
don't have anything, any--they don't have any regulation and 
they don't have to meet any demands, they are free to do what 
they like, and if you happen to find them, fine, and if there's 
a crisis, then you find them, well, then we can attack it. It 
is not----
    Dr. Goodman. Yeah. Well, that's--I understand your concern, 
and I think, you know, it's a legitimate point.

                       TISSUE RECIPIENT TRACKING

    Ms. DeLauro. Go. Go vote. Go vote.
    Well, I would really--look, I can't account for my other 
colleagues, I can't see why they wouldn't feel the same way 
that I do about licensing these kinds of places and making them 
accredited, and to work with you on doing that and putting 
together an effort that really closes the--you know, just 
closes this gap. It's not a loophole. It's just not--it's not 
there. And not only that, it's been reviewed, and they said 
we're not going to accredit or license them.
    Let me--okay. Let me just--the timing on this. I know we're 
looking to track the tissue replacement to the recipient.
    Dr. Goodman. Right.
    Ms. DeLauro. You are going to look at legality on that 
tracking system. What's the status of all that?
    Dr. Goodman. That's ongoing, and I am concerned that I want 
to enhance our ability to rapidly track to the recipient.
    Ms. DeLauro. Ongoing. Dr. Goodman, when are we going to 
find out whether or not we have the legality, and if we don't, 
how do we get it, and if we do, how do we use it?
    Dr. Goodman. Well, I will get back to you with the 
timetable, but when I say ongoing, I mean it is ongoing, not 
that it's sitting somewhere. We're having that--we're engaged 
in that process. I'm an active advocate of it.
    Ms. DeLauro. Great. Thank you.
    Dr. Goodman. Sure.
    [The information follows:]

    FDA intends to make a determination on tracking of human tissue to 
the recipient in the next several months. We must consider the 
circumstances under which a tissue establishment should have access to 
information in a patient's medical file. The legal questions concern 
whether existing authorities related to the prevention of transmission 
of communicable disease authorize us to require health care 
professionals to disclose or permit access to such information. CBER 
has been examining recall data and data from industry to determine 
where the problem areas in tracking appear to be. CBER is currently in 
the process of assessing whether regulatory changes are warranted.

                 INSPECTION OF FOREIGN BIOLOGICS FIRMS

    Ms. DeLauro. Thank you. I appreciate that.
    Let me just say, and I don't want to go through the whole 
litany here, but it's my understanding that, with regard to 
foreign inspections----
    Dr. Goodman. Right.
    Ms. DeLauro [continuing]. That I was troubled to learn that 
the average rate of inspection for foreign biologics firms is 
once every 18.3 years. This is not as bad as CRH's rate, but it 
is still bad.
    What kinds of CBER regulated products tend to be made 
overseas, and in what countries?
    Dr. Goodman. Okay. Well, first of all, I have some good 
news for you. That calculation is essentially not correct.
    Ms. DeLauro. Okay.
    Dr. Goodman. Okay.
    Ms. DeLauro. But what is it?
    Dr. Goodman. So of the facilities of most importance to us, 
okay, which are the blood establishments, plasma manufacturers, 
other biologics manufacturers, which would include vaccine 
manufacturers, so basically our major portfolio, other than 
tissues----
    Ms. DeLauro. Blood, plasma----
    Dr. Goodman. Okay, blood, plasma----
    Ms. DeLauro [continuing]. Vaccines----
    Dr. Goodman [continuing]. Biologics----
    Ms. DeLauro [continuing]. Coming from----
    Dr. Goodman. Yeah, these are the ones that are more 
comparable to drugs in terms of some of the kinds of concerns 
that have come up, in those, I have the numbers here, but 
basically--basically, what I can tell you is, we are getting to 
them on an average of every 2.1 years, so we are close to 
meeting our statutory requirement. I can give you more details 
on----
    Ms. DeLauro. I would appreciate, because I'll tell you, the 
answer I got from Dr. Von Eschenbach last year----
    Dr. Goodman. Yeah.
    Ms. DeLauro [continuing]. The average inspection frequency 
for all foreign biologics firms is once every 18.3 years.
    Dr. Goodman. Yeah.
    Ms. DeLauro. I just didn't pull the number out of a hat.
    Dr. Goodman. That was an error. And actually, also, and I 
think we've been ahead of the curve there, from 2006 to 2007, 
we pretty much doubled the number of inspections. We went from 
22 to 37.
    Ms. DeLauro. If you can get us the list of the countries, 
what the products are, and----
    Dr. Goodman. We'll be happy to. No, I want to give you 
total truth in advertising----
    [The information follows:]

           

    
    Ms. DeLauro. I have to vote.
    Dr. Goodman [continuing]. The tissue firms are a different 
issue.
    Ms. DeLauro. Okay. I need to know that.
    We're in recess.
    [Recess.]
    Ms. DeLauro. The hearing will come to order.
    Mr. Farr.

                        BLOOD DONOR RESTRICTIONS

    Mr. Farr. Well, Madam Chair, I want to thank you very much 
for having this hearing.
    I have sort of a couple of issues that I really wanted to 
get at, and I think that's the role of this committee, to do 
oversight.
    I appreciate all the parties coming together and appreciate 
your testimony.
    I have to say, Dr. Goodman, that I just read your 
background, and you edited the ``Tick-Borne Diseases of 
Humans.''
    Having spent last week in Big Sur and pulling three ticks 
out of my body, I thought, now everything is going to start--I 
should probably talk to you a little about that. But anyway----
    Dr. Goodman. Absolutely. Luckily, there's not too much Lyme 
Disease there.
    Mr. Farr. The reason I talked to the chair about having 
this hearing is that it was brought to my attention by members 
of the gay community in my district that there's a 
discriminatory policy by FDA in providing blanket deferral to 
any male blood donor who admits any homosexual activity. And 
let me just make some points here.
    Heterosexuals who are judged to be at risk of exposure to 
sexually transmitted diseases that could result in transfusion 
transmitted infections are deferred from blood donations for 
one year.
    Any man who has had sex with another man even once, since 
1997, is banned forever from giving blood.
    The difference in treatment of homosexual and heterosexual 
blood donors is inconsistent, at the best, and outright 
discriminatory, at the worst.
    By banning all men who have had sex with other men without 
regard to how recently the man engaged in sex, or any other 
circumstances, the current policy screens are based on sexual 
orientation rather than an established risk behavior. I mean, 
that's the point.
    Why do you seem to establish risk behavior as a criteria 
for a 12-month ban, but a sexual orientation as a lifetime ban?
    And that's where I think it's--also, given that NAT, 
nuclear acid amplification testing, and other methods, allow 
detection of HIV-infected donors between 10 and 21 days after 
exposure, a lifetime donation deferral for men who have had sex 
with men is over-responsive, punitive, and potentially harmful 
to the ability of blood banks to maintain adequate blood 
supplies.
    I have a letter from the American Blood Centers, the 
American Association of Blood Banks, and the American Red 
Cross, all in support of the 12-month deferral for persons who 
engage in risk behavior, rather than a lifetime ban.
    So my question to you is, in light of the medical and 
scientific advances since 1983, and given improved blood 
donation screening improvements, including, I understand, that 
blood products are quarantined until the products have been 
thoroughly tested and donation records have been verified, that 
in light of that, what is preventing FDA from updating your 
blood donation policy so it does not discriminate against gay 
men?
    Dr. Goodman. Okay. Well, thank you, Congressman Farr, for 
your question, and I know this is a concern to you and many 
people who have raised it to us.
    Mr. Farr. The blood banks are also concerned, because they 
see a population that could be donors.
    Dr. Goodman. Well, they're concerned for a number of 
reasons. They're kind of on the front line, also, of this.
    This is simply a scientific decision. The issue here is 
that our scientists, as best as they can, dealing with data 
with some uncertainties, have concluded that relaxing this 
policy at this point would result in a real risk of additional 
transmission of transfusion transmitted diseases.
    Can I finish?
    Mr. Farr. Yeah.
    Dr. Goodman. I mean, that there would be cases, additional 
cases of HIV transmission in the blood supply, and also 
Hepatitis B virus transmission. This is a safety issue. It is 
not discriminatory.
    We, for example, defer people who have lived in the United 
Kingdom during certain years from donating because of the risk 
that they could transmit Mad Cow Disease.
    We defer people for periods of time after travel to 
malarious areas, and those are based on behaviors, not my 
judgment of a behavior, no one's judgment of the behavior.
    And I also want to say that I am very sympathetic and 
appreciative of the human rights issues and of the fact that 
you're talking about a population which is very sensitive to 
this issue.

                        BLOOD DONOR RESTRICTIONS

    Mr. Farr. The safety issues. The other thing pointed out is 
that the highest at-risk group now is women, and if that is 
true, then, and they're deferred if the sexual activity is 
disclosed, they're deferred for a year. Men aren't.
    Dr. Goodman. It is still a fact, and you know, here we rely 
on statistics from our colleagues in the CDC and also from the 
blood community, that there's two issues about the population 
of men who have had sex with men, and I also want to say it 
doesn't matter if they identify themselves as gay or not. You 
could be a heterosexual and have had sex with men, and it still 
raises this risk concern.
    The issue is that the population----
    Mr. Farr. Women who have had sex with men?
    Dr. Goodman. Hmm? A heterosexual--a person who identifies 
themselves as heterosexual male who has had sex. Okay.
    Mr. Farr. It's the sex with men that is----
    Dr. Goodman. It's the sex with men that's the risk factor 
and the issue.
    Mr. Farr. Have we told women that?
    Dr. Goodman. Men who have sex, because it's the male-male 
sex that results in increased transmission and identifies a 
group, and it identifies a group that has, as I think you know, 
a 60-fold increase in HIV compared to the rest of the 
population, an 800-fold increase in HIV compared to first-time 
blood donors, and a 1,000-fold increase in HIV compared to 
repeat blood donors.
    This becomes important, I think you raised an important 
question, and one of the reasons people look at this, and have 
difficulty understanding the point of view, is that there are 
essentially around 25 million transfusions in the United States 
annually.
    This is an extraordinary amount of blood that is tested, 
goes through numerous processes prior to transfusion.
    The tests are wonderful. They've helped us get the safest 
blood supply in history, and the safest in the world right now.
    But they are not perfect. They don't identify some early 
cases. Errors are made in testing. Errors are made in 
transfusion. Errors are made in which unit goes to which 
people.
    And even rare errors in a system that is that large and 
where you then have in that system blood with those markedly 
increased rates of carriage of these infectious diseases, poses 
a risk.
    So that's how, when people look at all these numbers, they 
find that there would be additional transmission, and I think 
as long as we see that there would be additional transmission, 
you know, really, our responsibility, first and foremost, as 
much as I totally appreciate the desire of people to donate, we 
do want to increase supply, but our key responsibility is to 
not lose any of those gains that we've made in blood safety.
    Mr. Farr. I don't think that's what I'm disputing. I think 
that we're all very appreciative of that.
    It just seems the policy is not logical if, indeed, the 
high risk population is now falling on the female side of it.
    Dr. Goodman. Yeah. So your point is that we're starting to 
see, if I understand it, increasing infections in other groups, 
as well, and that we may treat them not the same way.
    But again, the issue is, they haven't had this degree of 
risk in those populations----
    Mr. Farr. When was the last time that the FDA reviewed----
    Dr. Goodman. Well, we are reviewing it right now, and we 
had a public workshop in 2006, and since that workshop, we've 
been interacting with others who could bring--including 
industry--to bring--who could bring additional data into this.
    Mr. Farr. And how do you square this with the blood banks' 
position, that yours is different from theirs?
    Dr. Goodman. Well, they were at those meetings. We heard 
their scientific points. And, you know, I'd like to make a 
couple of comments about that.
    One is that we work day in, day out with the scientists in 
the blood community. We have a very positive interaction. 
They've helped us solve and face a lot of important blood 
problems, like West Nile Virus.
    But at the end of the day, they have their job to do. They 
run blood organizations. And we have our job to do, which is to 
protect the safety of the blood supply.
    Usually, we agree, but sometimes we don't agree, and in 
this case, at this point, based on the current evidence, we 
don't agree.
    And I've heard a lot about how important it is for FDA to 
make its decisions independently, and to not rely on regulated 
industry for its decisions, and in this case, this is a 
regulated industry.
    So I think we just need to, you know, keep this based on 
the science.
    Now, that said, we are not--we welcome difference, not just 
scientific difference from inside the agency, like I said, but 
we welcome difference from the outside. We welcome a continuing 
discussion and debate.
    If I could have--if I could say, gee, we could remove this 
deferral and I could have confidence that it wouldn't affect--
that people wouldn't get infections transmitted to them, that 
would be a very happy day for me. Okay.
    So I would like to see that happen, but I just don't think 
we're there yet.

                            BLOOD DONATIONS

    Now, we are working on----
    Mr. Farr. You can't determine by questions--I mean, I think 
the question goes here, is you're banning a whole class of 
people rather than sexual activity, which is the judgment you 
use for everyone else.
    Dr. Goodman. Well, it's a good question. I would just point 
out it's not the judgment we use for everyone else.
    For example, people who have used intravenous drugs, people 
who have been commercial sex workers who have similar kinds of 
increased risk, they also are, as a group, based on those 
behaviors, deferred from donating blood. But that----
    Mr. Farr. Deferred or banned?
    Dr. Goodman. Well, we call it all deferred. Banned, in 
terms of there is a ban on it.
    Mr. Farr. In lifetime, they can't----
    Dr. Goodman. That's my understanding.
    But I do want to, still, I think you're asking a good 
question, so I don't want to just--because it could be a good 
question for those groups, too.
    Mr. Farr. Well, it's a question of whether, you know, 
you're using good----
    Dr. Goodman. No, it's----
    Mr. Farr. It seems it's a bifurcated issue.
    Dr. Goodman. Yeah, you're asking----
    Mr. Farr. If you're a gay man, you can't give blood.
    Dr. Goodman. Yeah.
    Mr. Farr. If you're a sexually active woman, maybe high-
risk HIV, you're deferred for a year.
    Dr. Goodman. Mm-hmm. It's not a perfect system, but it's 
built on the risk rates in those groups.
    One of the questions I think you are getting at, that I do 
want to address, is could we identify a group of men who 
identify themselves as gay, or have had sex with men--it's 
really, again, about men who have had sex with men--could we 
identify a, quote, ``safe'' group?
    For instance, there's people who have had very limited 
numbers of partners, and inherently, and in my thinking about 
it, or any of us thinking about it, we would think we could 
identify a group with an HIV rate very similar to the rest of 
the population. The problem is, CDC and others have been unable 
to do that.
    So you might suspect you can find groups with somewhat 
reduced risk compared to the numbers I quoted you, but they are 
still substantially above the----
    Mr. Farr. Well, I just, when you told me about what science 
and the testing you use, and you use that for deferral, except 
you make this blanket--science doesn't seem to support that 
policy decision. That's what I think is discriminatory.
    Dr. Goodman. Yeah. Well, I beg to differ. Okay. It is our 
scientists who have looked at the data, including hearing out 
the blood organizations----
    Mr. Farr. How often do you have these reviews?
    Dr. Goodman. As I said, we had a major workshop in 2006, 
and based on input from that, we're continuing to look at the 
data, as we speak.
    Mr. Farr. So you haven't decided finally what your future 
policy will be?
    Dr. Goodman. Well, the data that I have seen, and what my 
scientists are telling me, is that we're still at a point where 
they are concerned that a change in policy to one year would 
result in transmissions of HIV, and so that's the issue.
    I do want to say that, you know, there are some other 
issues, and potential mitigating approaches, both. There are 
some other concerns and some potential mitigating approaches.
    Potential mitigating approaches, there's future 
technologies out there that might allow inactivation of 
pathogens in the blood to provide another, so that if something 
slipped through, things like the error rate issue may be able 
to be improved, and therefore much reduce those risks.
    But what I'm saying is, based on what our scientists are 
looking at now, they are seeing this risk of transmission and 
real cases that would occur.
    Now, different people--there are a lot of uncertainties in 
the data and different people could legitimately view it 
differently, but our responsibility is to--you know, is really 
to protect those recipients.
    The other case--instance--information I'd like to bring up, 
because I find it much--do you want me to finish?
    The other piece of information that's much more difficult 
to deal with is the issue of transmission of other potential 
diseases that could be blood transmitted.
    But we are--I will earnestly tell you we're engaged in this 
issue. We are seeing this as science. We would be delighted if 
we could change this without a risk to blood recipients, and it 
is not, in our minds, discriminatory. It's about risk.
    And if other populations--you mentioned women getting more 
HIV--if we saw risk information in other areas and we felt we 
had to take similar actions, we'd take it.
    This is why we have the safest blood supply. The hemophilia 
groups, other--you know, are very concerned about a change in 
policy. And most other countries have adopted a similar policy.
    Ms. DeLauro. Thank you, Dr. Goodman.
    Mr. Boyd.
    [No response.]
    Ms. DeLauro. Mr. Kingston.
    Mr. Kingston. Thank you, Madam Chair.
    I think I'll submit my questions for the record. I want to 
apologize to Dr. Goodman. As I mentioned to you earlier, I had 
a conflict in another meeting, along with Mr. Boyd, on defense. 
So I apologize.

                            BLOOD SHELF LIFE

    Ms. DeLauro. Thank you.
    Let me see if I can ask one more question.
    Dr. Goodman. Sure.
    Ms. DeLauro. Blood shelf life. You're aware of the recent 
study in the New England Journal of Medicine that indicated 
heart surgery patients getting transfusions from blood that was 
stored for longer than two weeks were 64 percent more likely to 
die in the hospital than those getting blood that had not been 
stored that long.
    I understand FDA said the study was, quote, ``narrow and 
non-randomized,'' and that regulatory action would be, quote, 
``premature.''
    It's a striking report to a layperson, and surprising.
    Could you comment on the study, and are you looking at the 
issue more closely, even if you're not prepared to take action?
    Dr. Goodman. Yeah, I'd be delighted to.
    There have been conflicting results in similar studies. In 
other words, there are previous studies that haven't shown 
worse outcomes, and it sort of depends, you know, what do you 
call young blood, what do you call old blood, and what patient 
population you study it in.
    So like in a lot of areas in medicine, there's 
complexities, with different studies showing different results.
    I don't question the results of that study. It was well 
done. But as you noted, it wasn't controlled. In essence, it 
looked at--it didn't randomize people, it just looked at what 
blood they received.
    Now, what I would like to say is, we are looking at this, 
and we are working--this is another example where-- Mr. Farr 
mentioned, you know, that our interactions with the blood 
community.
    We, and I think the blood community as well, are concerned 
about these kind of issues, and we are looking at it.
    And in fact, we just decided, actually before that came 
out, but as a group, to devote some of our scientific resources 
to try to help that process of evaluating the storage of blood.
    Ms. DeLauro. What's the shelf life that you currently work 
under with regard to blood?
    Dr. Goodman. The normal shelf life of red blood cells is 42 
days, and so if you were to reduce that to 10 days, there would 
be a huge impact on supply.
    Ms. DeLauro. Six weeks versus two weeks is a big 
difference.
    Dr. Goodman. It would be a huge impact on supply.
    But, you know, that doesn't mean that that issue should be 
ignored. It needs attention.
    For example, is there science that could allow the red 
cells to be stored for 42 days and not lose any of their 
capacity?
    So part of the reason I'm concerned about that study is 
that it makes sense, I mean, that older blood is not--you know, 
is going to have some defects that it gets from storage, and 
we've known this for a while.
    But this may have identified a particularly sensitive 
population, so it may be that we need to target older cells and 
younger cells differently.
    But what you want to say is this is an area where there's 
not a lot of investment driving improvements. That's true in 
something like donor testing and screening, too. It's a small 
area for the whole pharmaceutical enterprise.
    And I can't--I think there's a lot of exciting 
opportunities through critical path, through NIH, to look at 
some of these problems, like how do you store, how do you 
preserve the function of red cells and platelets, that if we 
applied the kind of modern science we do to that that we do to 
so many other things in our society, we could really have 
public health benefits. But the markets are just not large.

                            TISSUE RETRIEVAL

    Ms. DeLauro. How long after death can tissues be taken--can 
tissue be taken?
    Dr. Goodman. Is there a specific number in the guidance on 
how long after death tissue can be taken?
    We'll get back to you on the numbers.
    [The information follows:]

    In the preamble to the final Good Tissue Practice Rule, FDA stated, 
``Proposed Sec. 1271.180 would require establishments to establish and 
maintain procedures for all significant steps that it performs in the 
manufacture of HCT/Ps. We have reorganized Sec. 1271.180 by dividing it 
into paragraphs for greater clarity and ease of reading. In addition, 
Sec. 1271.180 now requires you to establish and maintain procedures 
appropriate to meet core CGTP requirements for all steps that 
establishments perform in the manufacture of HCT/Ps and further 
requires that these procedures be designed to prevent circumstances 
that increase the risk of the introduction, transmission, or spread of 
communicable diseases through the use of HCT/Ps. We note that, 
depending on the activities that you perform, your procedures may need 
to cover such issues as the length of time a cadaver may be stored, or 
the conditions of storage (e.g., temperature). Moreover, to prevent the 
recovery of contaminated cells or tissues, you need to establish and 
maintain procedures to prevent the recovery of cells or tissue from a 
septic donor or from an area of the body where there is a localized 
infection. The procedures of an establishment that recovers cells and 
tissue should appropriately address these possible causes of HCT/P 
contamination to comply with Sec. 1271.180(a).'' (69 FR 68611)
    FDA finds acceptable the limits that have been established in the 
American Association of Tissue Banks (AATB) Standards for Tissue 
Banking, which require that recovery commence within 24 hours of death, 
providing the body was cooled or refrigerated within 12 hours of death. 
Tissue recovery might also commence within 15 hours of death if the 
donor has not been cooled or refrigerated.

    What I will just say about that, I believe there are 
numbers, now, that we put in there, but also that part of the 
good tissue practice regulations requires them to show that 
their storage and preservation practices are sound, so that 
practice would not be allowed, that you had been concerned 
about.
    Ms. DeLauro. Dr. Goodman, I unfortunately have to leave for 
another hearing. There are a number of questions, and Mr. 
Kingston will offer his for the record. He may, if we 
reschedule, be able to ask those on the record here.
    I have additional questions which have to do with the blood 
recalls in the Red Cross, and inspections, and the flu vaccine, 
which we understand because of the three new components we may 
be delayed in getting flu vaccine. There are a whole range of 
questions.
    And I would want to suggest, and it wouldn't be a long 
hearing, because I think we've had a very good exchange here, 
that maybe we just try to, we can work with your schedule, just 
to reschedule and, you know, put a--you know, some absolute 
time frame on this, so that we don't interfere any longer with 
your schedule, but allow some of the other questions.
    This is a--it's a very--there are hearings around the clock 
here, and I know you're very busy.
    So if we could beg your indulgence on that, I would like to 
do that, and adjourn this hearing and see if we can then get 
you back again for a short time.
    Dr. Goodman. We appreciate your input, oversight, 
critiques, et cetera, and, you know, we're happy to try to 
arrange something.
    Ms. DeLauro. Thank you. Thank you very, very much for your 
patience and for your good will.
    Dr. Goodman. You're welcome.
    Ms. DeLauro. The hearing is adjourned.

           

    
                                    Wednesday, February 27, 2008.  

                CENTER FOR DRUG EVALUATION AND RESEARCH

                               WITNESSES

JANET WOODCOCK, M.D., DEPUTY COMMISSIONER FOR SCIENTIFIC AND MEDICAL 
    PROGRAMS, CHIEF MEDICAL OFFICER, AND ACTING DIRECTOR OF FDA'S 
    CENTER FOR DRUG EVALUATION AND RESEARCH
DAVID J. HOROWITZ, ESQ., DEPUTY ASSOCIATE COMMISSIONER FOR COMPLIANCE 
    POLICY, FDA OFFICE OF REGULATORY AFFAIRS
    Ms. DeLauro. The committee is called to order.
    Good morning, and thank you very, very much, and let me 
welcome all of you here today.
    I will make some more formal introductions in a second, but 
I particularly want to say thank you to all of our panelists 
this morning for their participation.
    This is an important hearing, the first hearing on drug 
safety that this committee has convened in 25 years, so I am 
eager to get started.
    A little over 100 years ago, Congress passed the Pure Food 
and Drug Act with President Theodore Roosevelt.
    Congress passed this landmark legislation to protect the 
American people from adulterated and sham drugs and unsanitary 
and dangerous drugs.
    In the newspapers today, there are daily stories about 
unsafe food and unsafe prescription drugs. It's easy to wonder 
if we have gone back in time to 1906.
    We recently discovered that the widely used blood thinner 
Heparin, under investigation after hundreds of allergic 
reactions and four deaths among the drug's users, includes an 
ingredient from a Chinese facility that had not been inspected 
by the FDA.
    What is even more startling is that apparently the FDA 
inspected the wrong Chinese factory and the wrong firm was 
entered into the FDA's database.
    Cases like this, or controversies surrounding Evandia, 
Vioxx, Trazalone and beyond are embarrassing, but more than 
that, in my view, they offer a window into the FDA's myriad 
failures under the current administration, it's work motivated 
by ideology compounded by incompetence and negligence and a 
lack of regard for the health and safety of the American 
public.
    To restore the agency's gold standard in that mission and 
to ensure the fundamental safety of the drugs that it 
regulates, I'm guided by four principles.
    First, we must increase funding to support the FDA's 
mission.
    Second, we must improve the management of the agency and 
hold it accountable.
    Third, we must push back against the influence of big 
pharma over the agency.
    And finally, and perhaps most importantly, we must let the 
scientists do their work, guided by science and not by 
political interference.
    The FDA has been starved for resources under seven years of 
this administration. FDA managers point to a lack of resources 
as a reason for not carrying out their appointed duties.
    The administration is taking the bargain basement approach, 
then using it as an excuse for its poor performance. We can do 
better.
    Since 2006, despite overall spending limitations imposed by 
the administration, this committee and Congress have increased 
the FDA's total budget by more than $227,000,000.
    Last year, our subcommittee increased funding for drug 
safety and other important FDA functions. This marks the 
beginning of an effort to rebuild the agency's capacity to 
protect the American public.
    But increased funding is only part of the challenge. Funds 
alone cannot fix an agency that routinely fails at its most 
basic responsibilities, keeping track of clinical trial, 
preventing conflicts of interest, following up on critical 
investigations.
    Sixty-five percent of post-market studies on new 
medications have not yet begun. This startling fact makes it 
clear what a long way that we have to go.
    Considering the agency's record when it comes to its own 
drug databases, schedules, and reform, I am skeptical of the 
FDA's newly proposed initiatives to turn things around.
    I look forward to hearing more about your plans for 
implementation and specific funding needs going forward.
    Ultimately, better management and resources must go toward 
supporting independent science in the service of the agency's 
most important regulatory mission, and that is protecting 
public health.
    Yet in recent years, surveys consistently show that FDA 
scientists overwhelmingly complain about interference from top 
level FDA appointees on behalf of corporate and political 
interests. They feel that factors other than good science play 
a role in important FDA decisions.
    And that may be why too many good scientists continue to 
leave the agency at a time when we should be trying to attract 
them and support their work.
    We can no longer accept federal agencies tasked to protect 
the public health that seem only interested in protecting 
business from embarrassment or cost.
    My thanks again to our panelists for being here today. I 
look forward to hearing from you in addressing these tough 
issues.
    Government has an obligation to its citizens to check 
private abuse and set standards in the public interest.
    I said it before and I believe it bears repeating.
    Our commitment to reform requires more resources and better 
management, less influence from the drug companies, and more 
influence for independent scientists.
    With the public health at stake, nothing, nothing could be 
more fundamental.
    Let me welcome my colleague, our ranking member, Mr. 
Kingston.
    Mr. Kingston. Thank you, Madam Chair. I have no opening 
statement.

                       Introduction of Witnesses

    Ms. DeLauro. I want to get the appropriate introductions so 
people know how credentialed our folks are today.
    Our first panel would be Dr. Janet Woodcock, deputy 
commissioner and the chief medical officer at the FDA, the Food 
and Drug Administration.
    She shares responsibility and collaborates with the 
commissioner in planning, organizing, directing, staffing, 
coordinating, controlling, and evaluating the agency's 
scientific and medical regulatory activities in order to 
achieve that mission of the FDA.
    She most recently served as the deputy commissioner for 
operations and chief operating officer, FDA, where she was 
responsible for overseeing agency operations and cross-cutting 
regulatory and scientific processes at the FDA.
    Given her history and the many years of service at the FDA, 
I believe no one is more prepared to answer our questions on 
the issue of drug safety than Dr. Woodcock.
    She's accompanied this morning by David Horowitz, who is 
deputy associate commissioner for compliance policy in the 
FDA's Office of Regulatory Affairs, ORA.
    Dr. Woodcock, if you would begin, and, you know, your 
testimony, and obviously, the entire testimony will be included 
in the record, and you may give the testimony or summarize in 
any way you care to.
    Dr. Woodcock. Thank you. Good morning.
    Thank you, Chairman DeLauro, Congressman Kingston, and 
members of the subcommittee.
    I'm Janet Woodcock, deputy commissioner and chief medical 
officer at the FDA.
    I'm also currently acting director of the Center for Drug 
Evaluation and Research.
    I'm here to discuss the budget of FDA's human drugs program 
as it relates to drug safety.
    Joining me for today's hearing is David Horowitz, who is 
deputy associate commissioner for compliance policy in FDA's 
Office of Regulatory Affairs.
    I'd like to start by thanking this committee for the 
important increases for the drug program in the fiscal year 
2008 budget.
    The appropriation contained a $21,000,000 increase for drug 
safety activities. I believe that's the largest increase for 
drug safety that we have ever seen.
    It included a $10,000,000 increase for CDER's officer 
surveillance in epidemiology, as well as included $4,000,000 
for review of direct consumer advertising.
    $6,000,000 was also provided to expand the generic drug 
review program to meet its markedly increased workload.
    And, there was increased funding to meet drug payroll 
obligations.
    Finally, there was an increase of $7.5 million for FDA's 
critical path initiative that was allocated among the medical 
product centers and central critical path program.
    And I would like to explain how this year's funding is 
being used to improve drug safety in the United States.

                             CRITICAL PATH

    First, the critical path initiative is improving the 
science of the drug development process.
    For example, FDA has reviewed, along with the European 
Medicines Evaluation Agency, a new set of kidney safety 
markers.
    These markers, which have now been evaluated in animal 
tests, will now move to human tests.
    It is expected that we'll get a much earlier warning system 
for drug-induced kidney damage emerging from this program.
    There is also vigorous work going on in the area of genetic 
predictors of drug-induced toxicity.
    An increasing number of cases, testing for individual 
differences--what's different between you and me--will help us 
to predict, and therefore prevent, drug side effects in 
individuals who are at risk for them.
    In another example, center scientists are working on 
creating a quantitative model of Parkinson's Disease that can 
be used to design better clinical trials.
    As you know, Parkinson's Disease is one of the many 
diseases that patients in this country have that really doesn't 
have acceptable effective treatments for the long term.
    So the critical path initiative is beginning to make real 
contributions to better drug development. That's the 
development side.

                              SAFETY FIRST

    We also need to make major steps to improve the safety of 
drugs that are already on the market.
    Using the new funding provided this year, we've launched a 
new initiative called Safety First.
    This incorporates the recommendations of GAO and the 
Institute of Medicine, as well as implantation of the new 
authorities and safety procedures that we received under the 
FDA Amendments Act.
    Under Safety First, safety issues for marketed drugs will 
be our number one priority.
    We are instituting extensive tracking and project 
management procedures to make sure we stay on top of these 
problems.
    We're appointing senior physicians, whose only job will be 
to manage these safety issues in each disease area.
    We're making sure that the opinions and the voices of all 
reviewers and scientists are heard, and I'm happy to go into 
detail about how we're doing that, and we're strengthening the 
roles and responsibilities of the Office of Surveillance and 
Epidemiology.
    As we put these programs in place, we're also going to be 
looking externally to form partnerships with parts of the 
health care system to collaborate on ways to make medication 
use safer, because medications are used out in the health care 
system, and we need to work with those individuals and systems 
to improve medication use.
    We will build a sentinel network, which is a new type of 
pharmacovigilance system that will link emerging electronic 
databases that are emerging out in health care in partnership 
with health care systems in academia to better track adverse 
events and drug performance.
    Despite these advances, drug regulation has many 
challenges. The foundation of our efforts is drug quality. 
Without quality of drugs, safety and efficacy cannot be 
maintained.
    Maintaining quality in a globalized environment where drug 
manufacturing and clinical trials are increasingly done outside 
the United States is an ongoing and still growing problem for 
the drug regulatory program.
    Without the foundation of quality, drug safety and 
effectiveness cannot be maintained.
    I would be pleased to discuss this challenge in particular 
with the subcommittee and answer any of your questions.
    Thank you.
    [The information follows:]

           

    
    Ms. DeLauro. Thank you very much, Dr. Woodcock.
    Let me just note, the first information that we've had 
about this Safety First initiative arrived, I believe, last 
night about 8:30 p.m., so we obviously will take a look and see 
what we have.
    But I must be honest. I would have thought Safety First 
was, you know, a standard that was set all along, and not 
something that we now are trying to engage in. Above all, it is 
about public health, public safety.
    With that, let me just ask some questions.

                CENTER FOR DRUG EVALUATION AND RESEARCH

    Since 2001, the Congress provided more than $2.3 billion 
for CDER under the acting director, not counting user fees.
    It has 62 percent more in taxpayer dollars to spend this 
year than it had in 2001, more than three times the rate of 
inflation in that period.
    Congress also provided more than the president requested 
for CDER during the period.
    We should have a lot to show for the money, but in my 
estimation, we don't.
    There should have been a series of--there have been a 
series of GAO IG reports that have highlighted fundamental, and 
I mean really fundamental problems, with basic systems at CDER 
that are the foundation for its work.
    I'll be looking at the FDA followup on its promises to the 
GAO and the IG to fix things.
    But today I want to know how these things got so bad and 
did not get a fix until someone else pointed them out.
    Unless we have an answer to that question, I'll be very 
honest with you.
    I don't have any confidence that giving CDER more money is 
going to solve the problems that we have.

                      FOREIGN DRUG ESTABLISHMENTS

    So let me ask you, first, foreign drug establishments. GAO 
said last fall, FDA does not know how many foreign drug 
establishments are subject to inspections.
    Instead, FDA relies on information from several databases 
that were not designed for this purpose.
    The range of FDA's estimate of the number of firms is 
between 3,000 and 6,700.
    Worse yet, these problems were identified by the GAO 10 
years ago, and they were not fixed.
    Now, I've got the March 1998 improvements needed in the 
foreign drug inspection program, 10 years ago.
    Why did FDA create three different databases that don't 
talk to each other, that serve different purposes, and that are 
all flawed?
    Somebody should jot the questions down, because I want 
answers to these questions, but I'm going to go through, 
because I don't want the time to expire here, and then we can't 
get the answers.
    Second, official list of drugs.

                         OFFICIAL LIST OF DRUGS

    In August 2006, the HHS inspector general found a huge 
problem in FDA's official list of approved drug products.
    There were 123,856 drugs listed. The IG found that 9,100 or 
almost 9,200 products were missing and 34,000 products were 
listed erroneously.
    IG found exactly the same problems 15 years earlier in a 
1991 report, and they are still not fixed.
    How can an agency that regulates drugs not have an accurate 
list of drugs it has approved and how could it go for 15 years 
without having fixed the problem?
    Third, post-marketing study.

                          POST-MARKETING STUDY

    June 2006 IG report, building on problems found in the 1996 
report, found that, one, FDA cannot readily identify whether or 
how timely post-marketing study commitments are progressing 
toward completion.
    About one-third of the annual status reports on the 
commitments that drug companies are required to submit were 
missing or incomplete. FDA lacks an effective management 
information system for monitoring post-marketing study 
commitments.
    This may be why 66 percent of CDER reviewers told the IG in 
2003 that they were only somewhat confident or not confident at 
all that FDA does an adequate job of monitoring the safety of 
drugs after they go on the market. The nonprofit had the same 
results.
    When you put of safety issues to a post-market study 
commitment, you better be able to assure that they get done, 
which obviously, they're not able to be done.
    Why did you allow problems with tracking post-market study 
commitments to fester so long when they are so critical and a 
growing part of the post-market drug market?
    Final point. Clinical trials.

                            CLINICAL TRIALS

    IG reported last September that the FDA has no idea how 
many clinical drug trials were going on.
    IG found that FDA has inspected only about 1 percent of all 
clinical trial sites between 2000 and 2005.
    Some of the same problems were found by the IG in previous 
reports but have not been corrected.
    How can you regulate clinical trials without a complete 
list of them?
    So if we can start from the top, I would appreciate answers 
about the databases, foreign drug establishments, et cetera.
    Dr. Woodcock. Right. Certainly.
    And I certainly understand your position on all these 
matters, and your statements reflect my frustration over the 
years in having to deal with these issues. It is extremely 
difficult for FDA staff.
    Let me just quote the recent report, and I will go through 
each of your issues, from the Science Board Subcommittee that 
reviewed the FDA science and IT capacity, what they say.
    ``The FDA lacks the information science capability and 
information infrastructure to fulfill its regulatory mandate.''
    They also said, ``FDA's current information supply chains 
are inefficient, cost-intensive, and prone to promote errors.''
    And they go on:
    ``Consequently, the FDA's ability to support regulatory 
activities is compromised.''
    This is from a large group of scientists that we invited 
in----
    Ms. DeLauro. I've read the report.
    Dr. Woodcock. The IT group. We provided them a lot of 
information about all the challenges that we face.
    So let me move to first the databases.
    When I was head of CDER a while ago, I was head of it 
during the 1990s, I made the ES database, which is one of these 
databases.
    Before that, the inspections were ordered up on paper, and 
paper was shuffled around to different offices, and naturally 
then we didn't have any real IT record.
    That system I built with I think $30,000 that I was able to 
scrape together, and unfortunately, we're still running on it.
    It doesn't talk very well to the other systems, because it 
requires investment, requires substantial investments to 
upgrade all the systems into an integrated system.
    A year or so ago, I helped with others form the 
bioinformatics board at the FDA. We have developed a whole plan 
of how you would create modernized IT systems to support the 
regulatory processes at FDA.
    The bioinformatics board said the number one priority is to 
get a single inventory of establishments that make drugs and 
other FDA regulated products for the agency, not multiple 
inventories.
    The data problems you're talking about, is it 3,000, is it 
6,000, comes from the fact that the import system that we have, 
to use an IT term, corrupts the database by adding duplicate 
entries that have small differences, if you follow me, and we 
need a system that refers back to a central inventory.
    We have lacked certain authorities in these areas. They 
have partly been corrected by the FDA Amendments Act.
    So the reason--but to answer your first question, the 
reason we don't have--the reason we have three databases is we 
have not been able to make the investment in building modern 
information technology platform, not to support the science, 
we're not even talking about the science here, support our 
regulatory activities for drugs.
    Okay.
    Number two. What about electronic--what about listing?

                         OFFICIAL LIST OF DRUGS

    We have an outdated listing--drug registration and listing 
system. We are in the process of changing that.
    The FDA Amendments Act called for electronic registration 
and listing, and that is a tremendous help for us, because now 
we don't have to go through regulations to get that done, 
although we are doing it.
    The current system allows the manufacturers to set their 
own codes.
    It gives them a master code and then they can add codes to 
it. That way, they can add numerous items to our database that 
are not approved drugs.
    The new system that we're building, the regulation we'll 
put through and so forth, will address this particular problem.
    We do have to have a master list of approved drugs in the 
United States. We have to know who they are. CMS has to know 
who they are. The public has to know who they are. All right?
    Should I keep going?
    Ms. DeLauro. Well, I want you to move quickly, because on 
your first issue, you know, the requests that have come up 
here, it would appear that what we're doing is continuing to 
talk about the resources.
    We gave you money. We gave you money to deal with these 
issues.
    We gave you what you requested, and more than an 
administrations have requested.
    I don't know what you've been doing with the money. You 
can't take care of basic functions, and you come up here this 
morning and talk about the critical path and new science and 
all this.
    You know, I believe in the research. You can't deal at this 
agency with basic functions with the money that we have 
provided.
    What have you been doing here the last 10 to 15 years, if 
it's all going to hell in a handbasket?
    And you're not saying anything to anyone, you're not crying 
out loud that you've got these problems, and you as the 
Congress have got to address them, that this is the first time 
at 8:30 last night we get a Safety First document that you're 
going to concentrate on safety first?
    I mean, I don't know what you've been doing for all of 
these years in these positions that you have, and you had to 
wait for these new amendments to be able to do what your job is 
necessary to do, and that is extremely frustrating, when you 
talk about frustration.
    Because all this agency ever does is to cry about 
resources. All it does is cry about resources.
    It says nothing about management. It says nothing about the 
influence of the industry, which is rife.
    And it says nothing about the demoralization of the 
scientists you have there, who are good, hardworking people, 
and their views, apparently, don't count for very much, often, 
not all the time, but often.
    Now, I don't know how you're planning to address those 
issues.
    You've got--there were two other areas that I mentioned, 
and if my colleagues will indulge, let's move quickly and get 
to an answer, about tracking the post-marketing systems----
    Dr. Woodcock. Yes.
    Ms. DeLauro [continuing]. And why you haven't been able to 
deal with that issue, and why we can't--we don't have a list of 
approved drugs.
    That's a list. That's a list. And let us know why----
    Dr. Woodcock. There is a list of approved drugs that is in 
our orange book. All right.
    We don't have a very good inventory, though, of where 
they're manufactured and so forth.
    That is----
    Ms. DeLauro. Because of resources, as well?
    Dr. Woodcock. Yes.
    Ms. DeLauro. It's because of resources that you can't keep 
a list of the accurate drugs, for the last 15 years?
    Dr. Woodcock. As I said, it's a combination of resources 
and authorities.
    Ms. DeLauro. It's not a question of authorities, my friend.
    I've sat here month after month, year after year, with an 
agency that doesn't want any authority lest it would be forced 
to use it, lest it would be forced to use it.
    And I read the Secretary Levitz, and this is his report 
that came out at the beginning of the year, which was mostly 
channeled to food safety.
    Not once did we talk about additional authority or, for 
that matter, additional funding.
    A few days ago, he talked about maybe what we ought to do 
is to have some authority with regard to overseas firms.
    So this has not been the case.
    We've been assured that everything is fine, everything is 
fine, and we can go back and get the transcripts and lay them 
out.
    Yes, and as my colleague, Mr. Hinchey, points out, most of 
your funding comes from the drug companies these days.
    Final comment, which is that one, and then the tracking of 
the post-market studies.

                          POST-MARKET STUDIES

    Dr. Woodcock. Yes. The post-market studies, we have cleaned 
up that tracking multiple times.
    The studies that have not been started that you referred 
to, that are delayed, that you referred to, actually are in 
pending status, which is something regulation requires.
    They haven't been started, but they may or may not be 
delayed.
    Ms. DeLauro. All right. That means they haven't been 
started.
    Dr. Woodcock. It takes a while to get some studies started. 
I'm not saying that all of them are on time.
    Ms. DeLauro. And you don't have any mandatory authority, 
which you haven't wanted, to say to the industry that you need 
a post-market surveillance, when are you going to do it----
    Dr. Woodcock. Now, we do. That's what the FDA Amendments 
Act enacted. Within 180 days from enactment of that Act.
    Ms. DeLauro. How do you regulate clinical trials without a 
complete list of them?
    Dr. Woodcock. We do not have a complete list of clinical 
trials. That is correct.
    Ms. DeLauro. Another resource problem, as well?
    Dr. Woodcock. Well, when you add together--I know you say 
that we have received additional resources.
    I'm aware of the $26,000,000 additional for drug safety 
since 2001 post-Vioxx that had been provided to the agency. I 
can tell you that that is not adequate to fix all these 
problems.
    All right?
    Ms. DeLauro. More money than you requested. More money than 
you requested.
    Dr. Woodcock. I'm not in charge of requesting money.
    Ms. DeLauro. I'm going to--listen, because we've got to 
move on, I've got----
    Ms. Emerson. Madam Chairman?
    Ms. DeLauro. Yes.
    Ms. Emerson. It seems to me that, because we're not 
satisfied with a lot of the answers here, that perhaps our 
subcommittee should do a field trip down to the FDA and meet 
with the offices of all of these who are running each of these 
programs, to really kind of get a handle on to see if the right 
hand knows what the left hand is doing.
    Ms. DeLauro. You know, a very, very good suggestion, and I 
appreciate that, Congresswoman Emerson.
    I'm going to conclude, to allow my colleague, Mr. Kingston, 
to ask some questions. I've gone well over my time.
    I note only that, keep in mind the four pillars that we are 
going to look at, and that's resources, management, influence 
of the drug industry, less not more, and more influence of the 
scientists.
    I don't know if you agree with that framework. At some 
point, I'd like to hear whether or not you agree with the 
framework, or are we only going to continue to hear about the 
lack of resources that you have, but you have not requested, 
and you continue to tell us you can move with what you have.
    Mr. Kingston. Thank you.

                           DRUG APPROVAL TIME

    Doctor, in terms of drug approval, there was great 
criticism on FDA by Congress for many years that your approval 
was too slow.
    And we worked with you to come up with ways of speeding 
that up.
    Do you have a chart on the duration of approval time?
    Dr. Woodcock. I don't have a chart I can show you right 
now, but basically, after the enactment of the Prescription 
Drug User Fee Act, the very prolonged review times were 
diminished. They were about cut in half.
    Right now, many priority drugs, which are drugs for serious 
or life-threatening illnesses, where there isn't an 
alternative, get on the market very rapidly, perhaps within six 
months, if they can be reviewed in the first cycle and they're 
not sent back to the company for more work.
    Mr. Kingston. Well, in terms of the data on it, you're 
going to be criticized, regardless of what you do, either for 
approving too many too quickly or going too slowly, and your 
job is to balance that.
    Now, in that equation, do you ever look at the number of 
deaths that are caused by illnesses by you not approving a 
drug?
    And do you have some statistics that you can share with us 
on that?
    Dr. Woodcock. Well, that is only available if a drug is 
shown to save lives.
    Mr. Kingston. Well----
    Dr. Woodcock. If a drug is shown to save lives, it's 
usually gotten on the market quite promptly.
    Part of the problem is that many drugs help provide a 
lesser benefit. They help with pain, terrible pain. They help 
with people getting their activities of daily living done.
    Say someone who has rheumatoid arthritis. They can go back 
to work. It isn't necessarily saving their lives, at least in 
the short term couple years of treatment.
    So we do always do analysis of the benefits of any drug 
versus the risk. That is the fundamentals of whether or not a 
drug gets on the market, is that the benefits are going to 
pretty substantially outweigh any risk, because all drugs have 
some risk.
    Mr. Kingston. Well, do you, you know, do you answer your 
critics vigorously, or as vigorously as they attack you, in 
terms of certain drugs not being approved properly or whatever 
the results are?
    Dr. Woodcock. We have----
    Mr. Kingston. I think that's one thing that maybe this 
committee would like to know.
    Dr. Woodcock. Yes.
    Mr. Kingston. You know, there's always a lot of one-sided 
outside groups who, you know, quote unknown medical providers 
and medical personnel, but they don't ever really document it.
    I mean, it makes for a great editorial, but not necessarily 
for great science.
    Do you, you know, swing back, and say, ``Let's engage in 
it?''
    Dr. Woodcock. Well, you're talking about actually doing an 
analysis of whether overall the benefits of drugs outweigh the 
risks, in general?
    Mr. Kingston. Well, not particular drugs.
    Dr. Woodcock. Mm-hmm.
    Mr. Kingston. For example, I know that this committee, 
years ago, there was a drug for epilepsy that I think was 
approved in France and used maybe widely throughout Europe, but 
the FDA was really going slow on it in America, and finally, 
FDA approved it.
    But in the meantime, there were some documented cases of 
death that this drug could have helped, if the people were 
allowed to take it.
    Dr. Woodcock. That's right.
    Well, that kind of information is very hard to find in a 
scientific way, okay, without doing a study.
    So we, when we approve drugs, we have very strong evidence 
that the benefits, the overall benefits will outweigh the risks 
of those drugs.
    Nevertheless, a lot of folks feel we're not approving 
enough drugs. We certainly very recently have had a lot of 
criticism about that in the cancer area, for example.
    And other people feel we approve too many drugs, and that 
they have too many risks.
    Mr. Kingston. Do you have any specific drugs or stories 
that you can relate on that topic, any examples?
    Dr. Woodcock. Well, any drug that we approve is going to 
provide benefit for a population, but there's going to be some 
individuals who are at risk.
    For example, you've probably heard of the drug Vioxx, 
right?
    I was at the Arthritis Foundation yesterday, addressing the 
patients who were there, and one of the patients stood up and 
said, ``Why can't I get Vioxx?''
    Because for that person, he had tried everything. He had a 
serious arthritic condition. For him, the benefits of Vioxx 
well outweighed the risks of Vioxx.
    And I have had many people, from both sides of the aisle, 
come up to me and say that that one drug was better for them.
    Now, overall, Vioxx did not benefit the population. More 
people were put at risk than the benefit. But you need to 
understand that, for individuals, many--all the drugs we 
approve provide a benefit for a substantial number of 
individuals.

                             GLOBALIZATION

    Mr. Kingston. Okay. In terms of the globalization that you 
talk about in your testimony, and the fact that drugs have 
traditionally been made in the United States, manufactured, 
packaged, and so forth here, and now there's a whole series of 
activities outside of the country, how can you address those?
    What is in your vision in terms of trying to figure that 
one out?
    Dr. Woodcock. Our maintaining quality relies on a number of 
factors, all right:
    Inspection of the plant; review of how the manufacturing is 
done; making sure the imports that come into the United States 
are from qualified facilities and should be imported into the 
United States; and then surveillance of what happens in the 
United States from our post-marketing surveillance systems.
    Mr. Kingston. Let me ask you a question, then.

                       IMPORTS AND RE-IMPORTATION

    If you're able to monitor to your comfort level an 
importation, why is it that we can't monitor to your comfort 
level a reimportation?
    Dr. Woodcock. Well, as I just said, in response to Mrs. 
DeLauro, we are not--I'm not that comfortable with the systems 
that we use to check imports, to make sure that foreign 
facilities manufacturing drugs in other countries, that we are 
there often enough to be comfortable always, and our data 
systems are not up to what they should be.
    So reimportation would add yet another level of challenge 
onto that whole system, which is under a great deal of stress 
right now.
    Mr. Kingston. Have you ever thought about putting in a 
study of how that actually can be done?
    For example, if we put in our bill some language that would 
instruct you to come up with a model for reimportation, and 
that seems to be the only way we're going to be able to get it 
done, but there would be something that would come from that, 
correct?
    Dr. Woodcock. For FDA to have reimportation would require a 
great number of steps that have been discussed by many parties, 
and we would need to have confidence that the site of 
manufacturing, the trail, the pedigree of that product as it 
moved around maybe into different countries and so forth, that 
we could keep track of that and that we knew when a product was 
imported into the United States that it was the authentic 
product that we thought was being imported.
    Mr. Kingston. So it would make sense to maybe only do it 
for, say, a Canadian reimportation rather than one from 
Singapore?

                           COUNTERFEIT DRUGS

    Dr. Woodcock. If--well, as you know, there are a large 
number of counterfeits and improperly manufactured drugs out in 
the world.
    Mr. Kingston. Let me interrupt you a minute.
    How much of the counterfeit is actually in life savings 
versus vanity drugs?
    Because I've always heard that the vanity drugs have the 
bigger counterfeiting.
    Do you have a breakdown? I don't know the answer. I'm just 
asking.
    Dr. Woodcock. David, do you know that?
    Mr. Horowitz. I don't have an exact figure on that, but 
it's--you typically see drugs that are large volume drugs being 
counterfeited, because you can make more money.
    So it's not just the Viagras of the world, but it's also 
Lipitor and things that are life saving drugs, because a lot of 
money can be made because of the high volume associated with 
those drugs.
    Dr. Woodcock. Also, even though perhaps it might be a 
vanity drug, if it has a wrong ingredient in there that can be 
harmful to people, it still could be life threatening. So the 
risks are very high.
    We've talked to regulators in other countries where 
counterfeits are rife, and any importation of unapproved drugs 
would have to have extremely careful oversight.
    Mr. Kingston. Okay. Madam Chair, I want to yield back the 
unremaining time.
    But are we going to have another opportunity----
    Ms. DeLauro. Yes, we will have another opportunity.
    Mr. Hinchey. Good morning, Dr. Woodcock.
    Dr. Woodcock. Good morning.
    Mr. Hinchey. It's very nice to see you again.
    I know this is the first time, or at least I believe it is 
the first time that you've actually testified at the table, but 
I know you've been at these hearings----
    Dr. Woodcock. That's correct.
    Mr. Hinchey [continuing]. On numerous occasions, sitting in 
that row back there, most of the time.
    So I congratulate you on moving up in your 
responsibilities, and you and I both know that they're very 
serious responsibilities.
    And I very much appreciated, frankly, what you said in the 
context of your testimony today, because it was very positive.
    And just listening to that testimony, it's inclined to give 
someone a positive feeling about what the FDA is doing, and 
that's very good, and I hope that what you are saying will 
happen.
    But at the same time, it's impossible not to be less than 
optimistic about that, based upon the past experience that we 
have, and the way in which the FDA is constituted and funded.

                          FDA FUNDING SOURCES

    We know, for example, that somewhere in the neighborhood of 
roughly about 65 percent of the funding comes from the 
corporations that the FDA oversees.
    That is just an open invitation to corruption. It's an open 
invitation to the people who are being overseen having an undue 
influence on what is being overseen, and the fact of the matter 
is, we see vast amounts of evidence that it's not working 
effectively.
    And I think that the FDA is not working effectively, and 
there are many people who look at the situation and who come to 
the conclusion that it has never been worse than it is today in 
terms of its effectiveness, in terms of its oversight of the 
drug companies, in terms of its protection of the people of our 
country, which is what the FDA was set up to do.
    And a large part of that failure has to do with the fact 
that so much of the resources which were mentioned over and 
over again this morning come from the people who are being 
overseen.
    And then, in the context of the groups that examine the 
process, we have an undue number of those people who are 
directly conflicted, and even though they're directly 
conflicted, they receive waivers, and the amount of waivers 
that we've seen is roughly about 17 percent of the people who 
are on those committees are given waivers, even though they 
have direct contact with the drug companies and are getting 
very substantial amounts of money, either directly or 
indirectly.
    All of this causes deep concern among the members of this 
committee, I think on both sides of the aisle, and the reason 
is not just because of the abstract numbers that I've been 
mentioning, but the effect of those.

                          NEURONTIN/GABOPENTIN

    Let me give you an example of that. There's a drug called 
Neurontin, which I believe is--that's the market name for it. 
The actual drug is called gabopentin, I think it's called. Is 
that correct?
    Dr. Woodcock. I believe so.
    Mr. Hinchey. Pardon me?
    Dr. Woodcock. Yes.
    Mr. Hinchey. Yeah. That's the real drug name. And it's a 
drug that is supposed to be used for people who have shingles, 
things of that nature.
    And what we have seen is that people taking this drug, in a 
number of instances, develop adverse effects toward themselves, 
some of it very deeply. Some of it attempted suicide, and a lot 
of it actual suicide.
    We have, as a result of an examination that I've been 
engaged in, and that examination was based upon an initiative 
that came from an attorney who is a constituent of mine, who 
was representing some people who were involved in this kind of 
situation. He brought it to my attention.
    We sent a letter to the then acting commissioner, Lester 
Crawford, as you know. I know you worked with him back in 2004. 
We sent that letter to him back in 2004.
    And in the context of that letter, we asked for actions to 
be taken on this particular drug, and nothing has really 
happened. It's been three-and-a-half years since that letter 
went out.
    We know that, based upon just a fraction of the 
information, we know that there have been at least 200 
completed suicides and there have been at least 2,500 attempted 
suicides.
    Now, that is not the overall picture. That's just a 
fraction of the picture, of the big picture that has been 
examined.
    So the number of suicides as a result of taking this drug 
could be 10 times that number. It could be even more than that, 
much more than that. We don't know that.
    We need the FDA to do an examination on this, to come up 
with the information as to what is happening, and we have not 
had an adequate response to the questions that we have asked.
    So these are the basic issues that we're confronting here, 
that this Appropriations Committee is trying to confront.
    We have provided substantial amounts of increases in 
revenue to the FDA, but still, most of the money comes from 
outside, comes from people who are being overseen, and that 
needs to stop. We've tried to stop that.
    We've tried to have legislation passed which would tell the 
drug companies to send their money directly to the Treasury, 
and then the Treasury can provide the money to the FDA.
    That seems to me to make a whole lot of sense, because then 
you abolish the financial connection between the drug companies 
and the FDA which is set up to oversee them, and you would 
effectively eliminate most if not all of the direct adverse 
influence that the drug companies have over the FDA because of 
the money that they provide to run the operation, and the way 
in which they get away with having people who have conflicts of 
interest nevertheless sit on the oversight committees and make 
decisions which determine whether or not a drug gets on the 
market or whether or not that drug continues to be on the 
market, even though it is having adverse consequences to the 
people who take it, including inducing suicide within them.
    So these are the points that we have to confront here, 
representing the people of this country, trying to protect 
them, trying to get this FDA, which was set up to be in their 
interest and to protect them, to actually act in the way it was 
supposed to act.
    Let me just ask you what you think the prospects are for 
change, generally, and specifically, within the context of 
Neurontin.
    Dr. Woodcock. We will see change, as we have been changing, 
as part of our response to the IOM, the FDA Amendments Act, the 
Safety First and the additional initiatives we're going to do 
after that will provide real substantive change, as well as 
being able to build better surveillance systems to look at 
what's happening out there to people in the real world.
    So I believe there is a prospect for substantial change.
    As far as the user fee program, as you know, that was set 
up by Congress because FDA was felt to have inadequate funding 
to perform its duties.
    Mr. Hinchey. It was set up by Congress, but it was set up 
back then at the request of an administration which was saying 
that we needed to save money from the federal budget, and one 
of the ways in which we could do that was to have the drug 
companies contribute to the oversight that the FDA engaged in.
    Why the Congress, back then, bought into that idea amazes 
me, frankly. It was a big, fat mistake, and it needs to be 
corrected.
    We have tried to correct it, but we have never gotten 
support in order to get it corrected.
    We're going to keep trying to do it, and we're determined 
to get that done, because it just doesn't make any sense to 
have this kind of very close financial contact with the 
companies that are being overseen and the overseer.
    So it was set up by Congress, but it was set up at the 
request of an administration similar to the one we have in the 
White House now, who had the same kind of views on the way in 
which the government should operate in the context of 
overseeing corporations whose main objective is just making 
money, which is--you know, I mean, there's nothing wrong with 
making money, but let's do it in a way that is not going to 
kill people and cause people to kill themselves.
    Dr. Woodcock. As far as Neurontin, we certainly will get 
back to you on that issue.
    [The information follows:]

    In an effort to provide a more complete understanding of safety 
issues associated with the drug Neurontin and the information that Rep. 
Hinchey's constituent provided to the FDA on possible adverse event 
associated with Neurontin, FDA officials conducted a conference call 
with Rep. Hinchey's office on February 29, 2008.

    It is never surprising that drugs that affect the nervous 
system, and gabopentin is one of those, would have 
neuropsychiatric side effects. All right? That's something 
we've come to expect.
    Large numbers of drugs have neurologic and psychiatric side 
effects.
    And so what we need to do is identify those, be alert to 
those, and make sure people are properly warned.
    On the other hand, some of the conditions for which the 
drug is prescribed are very serious for people's lives, and so 
we have to keep a balance there about the availability of a 
drug to treat very debilitating conditions versus its potential 
for having side effects.
    Mr. Hinchey. Well, thank you.
    Just looking at you, and having looked at you before a 
little bit further away, you know, I'd like to have confidence 
in you, and I would like to think that you would have the 
ability to do something, particularly as a physician yourself.
    But I know what we're dealing with, and I know that you 
can't make these decisions by yourself.
    So we would like to do everything that we can to try to 
correct this situation and continue to work on it, and it's 
going to have to be worked on aggressively in order to get it 
done.
    Thank you very much for your testimony, and I now turn over 
the time to my colleague.
    Dr. Woodcock. Thank you.
    Ms. Emerson. Thanks. Thanks for being here today.
    Doctor, can you tell me what percent of the dry, the bulk 
dry substances used by pharmaceutical manufacturers to produce 
their drugs as manufacturers--hold on just a second. Are we on 
zero for time?
    No, I think we have no time left for our vote.
    Shall we recess for just a minute?
    I think we probably, if you don't mind, doctor, I'll ask my 
question again when we get back.
    Dr. Woodcock. Certainly. If I could just follow up with Mr. 
Hinchey here, I just got some more information from my 
colleague about Neurontin. No. Okay.
    We will follow up with you, because we have made some 
announcements about this.
    Mr. Hinchey. Okay. Thanks very much.
    [Recess.]
    Ms. DeLauro. The hearing will come to order.
    Okay, Mr. Farr, I'm going to go directly to you, after you 
have your slug of water.
    Mr. Farr. Thank you, Madam Chairman.
    I appreciate you coming and testifying today.
    It's--this hearing is to me one of our most important, 
because the FDA has traditionally been the agency that has 
enjoyed the greatest public trust, and those of us that are 
elected to House of Representatives are the ones that I think I 
have found that in generally talking about the Federal 
Government, the highest respect that consumers have had, people 
have had, is in the government's ability to make sure that our 
food and drugs are safe.
    I think it's shocking to sort of get into, to lift the 
cloak of the departments and just find out how many critical 
problems there are, and I couldn't help but wonder, why--
identifying, there's a lot of testimony here, identifying what 
these problems are and they've been for a number of years, why 
there hasn't been an ask for more money.
    Dr. Woodcock. Well----

                           ADDITIONAL FUNDING

    Mr. Farr. Is it that the department isn't making the ask, 
or is it OMB is dinging the ask?
    Dr. Woodcock. As you well know, that's above my pay grade, 
and----
    Mr. Farr. Well, why should it be? You're in control, as I 
understand, you're--you oversee the ongoing agency operations.
    I mean, that shouldn't be above your pay grade.
    Dr. Woodcock. I'm a career civil servant. As you well know, 
the agency heads even do not decide what the Federal Government 
ask will be. That is an administration function. And----
    Ms. DeLauro. Will the gentleman yield for a second?
    Don't you have, as the head of the CDER, have any 
responsibility to let people know what it is that you need to 
be able to do your job, or do you just say, ``Hey, look, this 
is it, I'll take it, and, you know, come what may''?
    Dr. Woodcock. No. We have prepared--we saw, for example, 
the importation issue, manufacturing moving overseas, clinical 
trials now moving overseas.
    We have seen this coming for a decade. We have raised red 
flags. We have raised the alarm. All right?
    Mr. Farr. But who is not watching or listening to that?
    Dr. Woodcock. Well, if various administrations--this has 
been going on for more than a decade.
    If various administrations and various Congresses have had 
higher priorities, that's not for us to question at that point.
    Mr. Farr. I don't think you can bring Congress that 
question, because in this town, the president asks and the 
Congress disposes. It's always initiated with and ask.
    Dr. Woodcock. I think----
    Mr. Farr. I don't think Congress has been cutting that ask. 
I've been here long enough to know that.
    Dr. Woodcock. I can tell you----
    Mr. Farr. I think it's the other way around.
    Dr. Woodcock. I can tell you that for over a decade--I know 
you had Ben England here a few weeks ago, right, testifying 
about foods, is that right?
    He and I, I worked with him on various plans about 
importation and foods many years ago. We've been concerned 
about these problems----
    Mr. Farr. But that's--I mean, I appreciate that. I 
appreciate where your concerns are in the ranking.
    Dr. Woodcock. Right.
    Mr. Farr. But the testimony here often is that we don't 
have the resources to do all these things.
    This whole line of questioning is about, well who in the 
hell is responsible for making sure that you do have those 
resources? It's got to be in--you're an administrative arm of 
government. It's got to be from the administration.
    And my question is, at OMB, is it either the ask isn't 
being made or is it OMB rejecting it?
    Dr. Woodcock. Well, as you well know, you're putting me in 
a very difficult position. I'm a career civil servant, and, you 
know, these things are not mine to decide.
    Mr. Farr. We'll try to get that answer.

                         CDER BUDGET, USER FEES

    The other thing maybe you could tell me is that, of your 
budget, the CDER budget is $793,000,000 this year, the ask?
    Dr. Woodcock. Yes.
    Mr. Farr. How much of that budget comes from the 
Prescription Drug User Fee Act?
    Dr. Woodcock. For 2009, $380,000,000 from user fees and 357 
or 8, rounded off, million from budget authority.
    Mr. Farr. So taxpayers put in 358 and the private sector 
puts in more?
    Dr. Woodcock. That's correct.
    Ms. DeLauro. Does that include direct to consumer and the 
proposed generic drug user fees?
    Dr. Woodcock. Yes.
    Ms. DeLauro. And generic drug user fees, as far as I know, 
does not have--is not authorized, and----
    Dr. Woodcock. That's correct. That's correct.
    Ms. DeLauro. And the direct to consumer, what we did is we 
didn't do that in this budget----
    Dr. Woodcock. So there's some decrements from that, from a 
practical point of view.
    Ms. DeLauro. 50/50?
    Dr. Woodcock. The PDUFA is about, yeah, it's about 50/50 
with the user fee, prescription drug user fee program versus, 
that's correct.
    Ms. DeLauro. Right, so it's about 50/50?
    Dr. Woodcock. Mm-hmm.
    Mr. Farr. Well, as a career professional, and I appreciate 
that, and appreciate your service to our government, as a 
career professional, what would you recommend that budget 
balance be?
    Dr. Woodcock. Well, that's a very difficult question, 
again, to ask me.

                           DRUG SAFETY FUNDS

    Let me respond a little bit. Mrs. DeLauro said earlier 
about the drug safety money you've given us over the past four 
years, right, and we are very grateful to that. Post 2001, 
after Vioxx, we got increments each year for drug safety.
    But in 2000, I had testified before the Senate, Mr. Kennedy 
and Mr. Jeffords, about drug safety, and we were able to get a 
letter out to Mr. Kennedy and Mr. Jeffords telling them what we 
thought was needed just for drug safety and post-marketing.
    Mr. Farr. And that's my question. I mean, what are those 
figures?
    Dr. Woodcock. Okay. The figure was--that was in year 2000. 
Times have changed. It would probably be more. $150,000,000 in 
additional funding, minimum.
    Mr. Farr. So what would be the--I mean, the question----
    Dr. Woodcock. I can provide this letter for you, if you 
would like.
    Mr. Farr. I wish you'd be a little more frank about it. 
You're a career civil servant. You're not a political 
appointee.
    Dr. Woodcock. Right.
    Mr. Farr. And you're protected. It's your bosses that 
aren't. And obviously, with a change of administration, they're 
going to be gone.
    So we will have, you know, new figures and new approaches, 
and hopefully a new advocacy for regaining the credibility that 
the public so much wants this agency to have.
    Dr. Woodcock. Well, let me just--can I just----
    Mr. Farr. It's very difficult to assure the public that 
they're getting a fair, unbiased treatment, when more than half 
of the fees to run the department come from people who benefit 
from the outcome and make a gazillion dollars off of it.
    Dr. Woodcock. The prescription drug user fee improved the 
drug development side of drug regulation.
    In other words, it provided substantial resources for 
improving the review process, including, say, preapproval 
inspection activities, and so forth, so that part of the 
program is more robust than the other programs.
    The new prescription drug user fee does give substantial 
resources to drug safety, for the first time. There were just a 
few resources given before in PDUFA III, right.
    The drug safety program, as I just told you, is really 
vestigial. There was no real appropriations for drug--
specifically for drug, postmarketing drug safety during the 
entire time I think I worked at the Center for Drugs, perhaps 
except in 2002.
    The other program that really needs improvement has already 
been pointed out by the chairwoman, and that is the quality 
program, our ability to manage, track, what are the drug 
establishments, where are they, who is making the drug, when 
are they inspected, to be able to get there and inspect them--
--
    Mr. Farr. And how much more money do they need for that?
    Dr. Woodcock. I don't know the answer offhand, but I would 
say it is substantial.
    Mr. Farr. Well, what's substantial?
    Dr. Woodcock. Again, I can't give you a direct number. I 
can give you this letter about the drug safety program, 
however.
    Ms. DeLauro. Why don't you get us an answer on that?
    Dr. Woodcock. We can certainly try to do that.
    Ms. DeLauro. Get us an answer on what you believe it is.
    [The information follows:]

           

    
    Mr. Farr. Thank you. I'm not getting very far. I give up my 
time.
    Ms. DeLauro. Ms. Emerson.
    Ms. Emerson. Thanks, Chairwoman.
    Excuse me. Now let me go back and ask my question before, 
to which hopefully you got an answer, while I was gone.
    And I wanted to know what percent of the bulk drug 
substances used by the pharmaceutical manufacturers in the 
United States are imported?

                             IMPORTED DRUGS

    Dr. Woodcock. Approximately 80 percent.
    Ms. Emerson. And what percentage of finished drugs are 
manufactured abroad?
    Dr. Woodcock. I don't know the answer to that. Do you have 
that rough, ballpark figure, David?
    Mr. Horowitz. Not offhand, no.
    Dr. Woodcock. No. It's a much lower percentage, but again, 
that is going to change, I think.
    Various regions of the world have made it extremely clear 
that they want to take over drug manufacturing.
    Ms. Emerson. Right. So, you know, obviously, we talked 
about the challenges you face with the databases, so I'm not 
going to go there again.
    Do you know what countries have the most number of 
establishments registered to manufacture drugs outside the 
United States?
    Dr. Woodcock. David?
    Mr. Horowitz. I think the GAO report indicates that the 
largest number of registered firms are in China, but it's not 
clear that those numbers are accurate, and it's not clear that 
they are limited just to manufacturing facilities.
    They may include other things, like distributors and people 
who make herbal products, and folks that we wouldn't consider 
drug manufacturers.
    Ms. Emerson. Well, if the GAO was able to come up with a 
number, even though it might be too inclusive----
    Mr. Horowitz. Yes.
    Ms. Emerson [continuing]. Why is it that you all can't come 
up with a number?
    Mr. Horowitz. Well, that number is from our system, and as 
the GAO report describes, there are problems with our systems 
that make it difficult to come up with a number that exactly 
characterizes what you're seeking to get at, which is the 
actual number of manufacturers of drug products and ingredients 
in China.

             INSPECTION OF FOREIGN MANUFACTURING FACILITIES

    Ms. Emerson. Okay. On average, how many of these 
establishments that you are aware of that are manufacturing 
facilities are inspected each year, outside the United States?
    Mr. Horowitz. We do about 300 manufacturing inspections. 
That includes the preapproval and the so-called good 
manufacturing----
    Ms. Emerson. A year?
    Mr. Horowitz [continuing]. Or GMP inspection. We did in 
2007. That was more than we've done in previous years.
    Ms. Emerson. And if one of your databases says there's 
3,800 manufactures, we've only--y'all have only had the 
capacity to look at 300, correct?
    Mr. Horowitz. One of our----
    Ms. Emerson. Less than 10 percent?
    Mr. Horowitz. The GAO report looked at the 3,000 number, 
for 3,000 foreign manufacturers, and yes, we did about 300 of 
those manufacturing inspections in 2007.
    Ms. Emerson. How many did you do domestically?
    Mr. Horowitz. Domestically, I think we did about 1,200 drug 
quality inspections. Again, these don't include the bioresearch 
monitoring or all the other inspections that we do.
    Ms. Emerson. How many people do you all have on staff to do 
these inspections, both foreign and domestic?
    Mr. Horowitz. Let's see. We have about 232 drug 
investigators, and they do some domestic work, some import 
work, and some foreign work.
    Ms. Emerson. And how long does it take--I mean, if I was 
going into a manufacturing facility as an inspector, how long 
would it take me to go through the checklist of things that you 
all require?
    Mr. Horowitz. That really varies, depending on the 
complexity----
    Ms. Emerson. Give me the low end and the high end, just so 
I can----
    Mr. Horowitz. You know, between one to three weeks.
    Ms. Emerson. Per facility?
    Mr. Horowitz. Per inspection, yeah. One week is typical for 
a foreign inspection.
    Ms. Emerson. And why would we be spending less time, 
perhaps, in a foreign location and more time in a domestic?
    Mr. Horowitz. I don't know that we always are, but, you 
know, a lot of the foreign facilities are these active 
ingredient inspections, and those inspections tend to be 
targeted because the manufacturing is more focused on a 
particular activity.
    Ms. Emerson. Let me go back and ask a followup to Sam's 
question to you.
    Hypothetically, let's pretend--and we know you're a career 
civil servant, and the OMB runs rampant over every agency, and 
so we understand that, and I don't want you to have to say 
anything.
    But hypothetically, let's just say funding or money 
constraints were not an issue.

                         IMPROVING INSPECTIONS

    What course of action would FDA take to improve your 
inspection processes? What would be your first priority, and 
what would--yeah, and what would be your first priority?
    Dr. Woodcock. Well, we'd have two first priorities.
    Number one, we'd hire more investigators. Okay.
    Ms. Emerson. How many more investigators?
    Dr. Woodcock. Enough to have a reasonable coverage of both 
domestic facilities and out of country facilities.
    Ms. Emerson. So you have 238 now, so you would say what, 
2,000 would be----
    Dr. Woodcock. I do not know. We don't have to----
    Ms. Emerson. You might need more?
    Dr. Woodcock. We might. We'd have to run those numbers.
    We don't have to be everywhere all the time, all right, we 
go intermittently.
    We have agreements with other countries. We can talk to 
their inspectors. They may have been in the factory recently 
and done an inspection. We don't have to duplicate that. But we 
need the capacity to do that.
    But that's number one.
    Number two, we must implement all the plans that we would 
have for improving our databases so that we have a grip, so 
that we can control the inventory of drugs that enter into the 
United States, and we know who makes them, and where they are.
    We know if they come in, whether they've come in or not, 
where they come from. We know everything about that.
    Ms. Emerson. So that if money was no object.
    And so you report to the administrator, and it's your 
responsibility then to make that request, among all the other 
requests that your counterparts would have in the agency, 
correct, so it obviously hasn't been a priority.
    It's been your priority, but it's not necessarily been the 
agency's priority to get a handle on this, Chairwoman, and 
appears to have ceased, momentarily, anyway.
    Ms. DeLauro. Let me make a couple of observations, and I 
want to go to--based on something both Mr. Farr and 
Congresswoman Emerson are focused on.
    Between 2001 and 2008, we provided a 62 percent increase to 
CDER. Can you hear me?
    Dr. Woodcock. Yes.
    Ms. DeLauro. A 62 percent increase.
    Now, we do not take that money and divide it up. CDER takes 
that money and then deals with their money, and they figure out 
where their priorities are, and what they ought to try to do 
with the dollar.

                    REDUCED FUNDING FOR INSPECTIONS

    It would appear that, during that time, we have seen 
foreign inspections drop about 30 percent. We've seen domestic 
inspections drop about 17 percent. The money for these efforts, 
the money for the efforts has dropped.
    So that was an internal decision at the center, because we 
had a 62 percent increase in dollars during that period of 
time.
    The other issue is that, and I would agree with you. I 
don't hold a brief here. This is not in terms of partisanship.
    I said we had not had a hearing in the last 25 years, so 
that tells you where I'm coming from in this regard, so I look 
at the spectrum here.
    And if you got less money at that point in that budget, 
shame on those who made that decision.
    However, I would just say that it was because of this 
committee, and you've got questions, you know, later on about 
OND and OSE, et cetera.
    But it was this committee that increased funding for drug 
safety, and that's to OSE, and that was in 2006 that we did 
that, and we increased it $10,000,000 more above what was 
requested for 2008.
    It wasn't that you came in with a letter or with a request 
that drug safety was a very important critical issue that is in 
crisis, and asking for money.
    We determined that it was in crisis, and the Congress in 
the last several years has been very responsive and quite 
frankly, the administration and the agency have not been 
responsive at all to what's happened.
    Mr. Rothman.
    Mr. Rothman. Thank you, Madam Chairwoman.
    Good morning, doctor.
    Dr. Woodcock. Good morning.
    Mr. Rothman. I'd like to follow up on some of the questions 
of my colleagues, and I'm sorry I was late. I was at another 
hearing from another subcommittee, for another subcommittee.
    You indicated in response to Congresswoman Emerson's 
questions that you would need to hire more investigators.

                       REQUEST FOR INVESTIGATORS

    Did you speak to--did you make a budget submission to the 
FDA last year, for the present fiscal year?
    Dr. Woodcock. We make budget submissions----
    Mr. Rothman. The answer is yes, you did?
    Dr. Woodcock. Yes. Yes.
    Mr. Rothman. And in that, did you request investigators?
    Dr. Woodcock. I will turn over to David Horowitz, who is 
actually--those resources for investigators, I understand that 
money was given to the drug program, to CDER in the last few 
years for drug safety.
    The investigators are employed by ORA, our field 
organization.
    Mr. Rothman. Is ORA within your jurisdiction as the 
director?
    Dr. Woodcock. No.
    Ms. DeLauro. Doesn't the CDER appropriation include ORA?
    Mr. Rothman. It does include the ORA. That's a separate 
line item.
    Mr. Rothman. Okay. Dr. Woodcock----
    Dr. Woodcock. Well, according to what I see.
    Mr. Rothman. Dr. Woodcock.
    Dr. Woodcock. I'm sorry.
    Mr. Rothman. Yes. So you submitted a budget request, 
correct?
    Dr. Woodcock. Yes.
    Mr. Rothman. In your budget request, did you request money 
for more investigators, in your budget request? Or don't you 
know what was in your budget----
    Dr. Woodcock. I was not the head of CDER at that time. 
However, we have discussed endlessly the need for more 
coverage, yes.
    Mr. Rothman. Okay. Do you know if the person who was in 
charge of CDER when the budget request was submitted requested 
more investigators?
    Dr. Woodcock. I believe what they did was request that ORA 
would have more investigators, because the investigators don't 
report to CDER.
    Mr. Rothman. So the answer is yes, they did?
    Dr. Woodcock. Yes.
    Mr. Rothman. Okay. And were you turned down or were you 
approved for the number of investigators you requested?
    Dr. Woodcock. The administration, as I said, must set 
various priorities, and the FDA must set various priorities 
within the FDA.
    The foods program also has, as you probably well know, has 
very significant challenges, so forth. So, David----
    Mr. Rothman. No, Madam Director, I just want an answer to 
my question, if I can.
    Did you get what you asked for or not? Did they give you 
more, less, or the same as you had at the time of the request?
    Dr. Woodcock. Are you talking about at the FDA level or at 
whatever level----
    Mr. Rothman. The president.
    Dr. Woodcock [continuing]. Of the budget process?
    Mr. Rothman. The budget process.
    Dr. Woodcock. Oh. Well, the 2009 budget really doesn't 
contain a substantial request for additional drug 
investigators.
    Mr. Rothman. It doesn't contain a substantial request or 
any request?
    Dr. Woodcock. I believe it has----
    Mr. Horowitz. I think the, in the 2009 budget, there's 
included in that the generic drug user fees and the 
reinspection user fees.
    If those were enacted, those would provide significant 
resources for additional drug inspections.
    Mr. Rothman. Is there anywhere in the budget where it says 
that if those resources come in, because of those increases in 
fees, they are dedicated or will be specifically used for 
inspectors, or investigators?
    Mr. Horowitz. It's my understanding that the reinspection 
user fees would be dedicated to conducting additional 
inspectional activities.
    It's also my understanding that the generic drug user fee 
proposal would include additional funding for the kinds of 
inspections that are necessary prior to approval of generic 
drugs.
    Mr. Rothman. And do you happen to know that if those things 
happened, what percentage of increase in inspections or 
inspectors are anticipated as a result?
    Dr. Woodcock. I think we do know that, and we can get back 
to you on that----
    Mr. Rothman. Do you know now?
    Dr. Woodcock. I don't know----
    Mr. Rothman [continuing]. Dr. Horowitz.
    Mr. Horowitz. The only figure I have in front of me 
concerns the generic user fee proposal and an estimate that 
that would provide for 90 additional inspections.
    Mr. Rothman. Ninety inspections?
    Mr. Horowitz. Ninety additional inspections would be funded 
by the generic drug user----
    Mr. Rothman. And how many inspections are there a year now?
    Mr. Horowitz. We currently conduct----
    Mr. Rothman [continuing]. In that area?
    Mr. Horowitz. We currently, in the area of manufacturing 
quality, conduct about 300 inspections foreign and 1,200 
domestic. Foreign inspections are more resource intensive.
    Mr. Rothman. May I move on to another question----
    Ms. DeLauro. If I could just amplify----
    Mr. Rothman. Certainly.
    Ms. DeLauro [continuing]. What I understand here, and I 
thank the gentleman.
    My understanding from Dr. Woodcock's testimony on Page 2, 
you talk about the increase in ORA field operations for 
improving the safety of imported drugs.
    I think we need to be clear about what you requested. It's 
$1.2 million and three people. And I don't know what kind of an 
impact that that will have.
    Page 4, you say the proposed generic drug--keep in mind 
that has not yet been authorized, and we don't have any--I 
don't have any information about whether or not the authorizor 
will move forward--would help oversee the exploding number of 
overseas facilities.
    And it's very hard to explain--very hard for me to 
understand how $2.8 million and six people, that you get from 
the user fee, and use for the field, are going cope with what 
we talk about, the exploding number of overseas facilities.
    Now, you didn't talk about inspectors. You talked about 
inspections. So that's what I ascertained----
    Mr. Rothman. Madam Chair, do I have time for another----
    Ms. DeLauro. Absolutely, go forward.
    Mr. Rothman. Thank you.
    Dr. Woodcock, in your testimony, you address the increased 
problem the drug safety community faces as the globalization of 
drug development and manufacturing increases.

                       FOREIGN COUNTERFEIT DRUGS

    A specific problem is the issue of foreign counterfeit drug 
making, and these foreign counterfeit drugs making their way 
into our marketplace, especially through the Internet.
    Such a case was brought to the attention of my office. A 
constituent was solicited by an on-line pharmacy based in 
Canada. My office performed an investigation and found the 
complaint to be true.
    In turn, my health staffer called the Food and Drug 
Administration to log the complaint and allow for some sort of 
response or recourse by the FDA.
    My office was told that the FDA would, quote, ``handle it 
from here,'' unquote, and told that it was a policy that such 
matters are handled internally and there would be no final 
report on the outcome of the investigation.
    In essence, we were told that, ``Thank you for letting us 
know,'' but that the FDA was unable to investigate and 
prosecute all illegal web sites, and that the outcome of any 
investigation you might conduct in response to our notification 
would not be made public.
    If the FDA expects not only to stop illegal drug 
trafficking but also to increase the public's trust in the 
agency, wouldn't you think that complete transparency is 
essential, and what is the practice of the FDA in this regard?
    Thank you, doctor.
    Dr. Woodcock. David?
    Mr. Horowitz. I don't have anything specifically on the 
issue that you're raising, but we, as you can imagine, receive 
a large number of complaints about spam e-mails and other 
complaints about Internet activity, and our jurisdiction, 
unfortunately, is very limited in terms of our ability to 
pursue some of the activity which occurs on foreign web sites 
and abroad.
    Mr. Rothman. Well, we advised you that there was a specific 
company soliciting Americans to purchase counterfeit drugs from 
Canada, from this company in Canada, and when we advised you of 
the company and its name, I would think that that is no longer 
this amorphous entity that's threatening Americans, this is a 
specific, named entity threatening Americans.
    Is it your testimony that the FDA has no jurisdiction in 
this regard or that you----
    Mr. Horowitz. No, not at all.
    As you've described it, that would be something that we 
would follow up on and investigate, and I don't have the 
specifics here, so I can't tell you exactly what we did, but it 
would be our policy to look into that if we have jurisdiction, 
to follow up on reports of counterfeit drugs.
    Mr. Rothman. And would it be your policy to respond to 
let's say a Member of Congress who brought this to your 
attention, to advise this Member of Congress as to the results 
of your investigation?
    Mr. Horowitz. I think that would be my policy.
    Mr. Rothman. Okay. Would you mind, for the record, so you 
can get back to me on this, look into that and find out if the 
staff person who spoke to our office misspoke that we were not 
going to receive any followup or advice as to what at results 
were received by the FDA in the event the FDA followed up on 
our call?
    Mr. Horowitz. We'll follow up with you. Thank you.
    [The information follows:]

    In an effort to describe FDA's actions in response to the concern 
raised by Rep. Rothman's constituent about the on-line solicitation for 
drugs, FDA officials conducted a conference call with Rep. Rothman's 
office on March 4, 2008.

    Mr. Rothman. Thank you.
    Ms. DeLauro. Mr. Kingston.
    Mr. Kingston. Thank you.

                       COUNTERFEIT DRUG WEB SITES

    I want to kind of jump on that a little bit more in terms 
of the scope of the problem with web sites that may have 
counterfeit drugs.
    How big do you think that it is, and how do we best fight 
it, and do you do undercover purchases, do work with the IG's 
office, do you do any kind of sting type operations? Because I 
think that is a, you know, a serious issue.
    Dr. Woodcock. Yes, I'll refer this also to David Horowitz.
    Mr. Horowitz. Yeah, it's a very serious issue.
    Our Office of Criminal Investigations, a large percentage 
of the work they do relates directly or indirectly to 
counterfeit drugs coming from around the world. It's a serious 
problem.
    There have been a large number of prosecutions and arrests. 
I believe in the last year there were $25,000,000 in fines 
related to this.
    Undercover buys are part of that program. Collaborating 
with foreign law enforcement around the world is also part of 
that program.

                      DRUG ESTABLISHMENT DATABASE

    Mr. Kingston. Now, you talked about, in your testimony, 
implementing an electronic system for accepting and processing 
drug establishment registration and listing, and is your goal 
to have a comprehensive accounting of domestic and foreign?
    Dr. Woodcock. Absolutely.
    The law requires all the facilities that produce drugs that 
would be in the United States to register and to list, and what 
we would like to go to is that we have a common, single 
inventory of firms, each with a unique identifier, so we know 
what the firm is, where it is, how much volume it's importing, 
if it's a foreign firm, and how recently it's been inspected, 
and what the results of the inspection are, and to have that 
all in one database.
    Mr. Kingston. Do you have to have an international 
agreement?
    I mean, is that a State Department function, to do that? 
And how many countries are participating?
    Dr. Woodcock. The companies would have to then register and 
list to get their drugs imported into the United States, so 
they would be stopped unless they actually belonged to this.
    We check with that now. It's just, as Mrs. DeLauro said, 
our systems are not linked, and so it is very difficult 
sometimes.

                         REIMPORTATION OF DRUGS

    Mr. Kingston. So an American company that did want to 
reimport could do this system, and that would give you an 
opportunity to monitor reimportation?
    Dr. Woodcock. Yes. We would have to have a pedigree of 
those drugs, though, to make sure they hadn't magically turned 
into counterfeit drugs while they were off in some other 
country.
    Mr. Kingston. But there is the loop of custody that you can 
follow?
    Dr. Woodcock. We would have to do that.
    Mr. Kingston. Now, we know that American drug companies do 
not want to reimport, but the farce on Capitol Hill is that 
it's a safety issue, and the real issue is a legitimate issue, 
is that the American drug companies actually produce and patent 
most of these drugs, and they need to recoup their costs, and 
in order to, you know, have more money for R&D, they have to 
have, you know, good cash coming in.
    I mean, there's nothing wrong with that. It's just that 
they won't admit that that's the real reason.
    But I'm hearing you say that the safety reason is taken 
care of now, largely.
    Dr. Woodcock. No, I'm saying----
    Mr. Kingston. The safety argument--I mean, I think we 
should just debate this issue, in truth, in reality, and I do 
not begrudge the drug companies as a private industry to 
protect their research and development.
    Dr. Woodcock. I am saying that if we had Mrs. Emerson's 
ideal system up and in place, then we could much better assure 
anything that was imported, what it was, and the quality of its 
manufacture.
    However, for reimported drugs, we would still have to look 
at a pedigree or tracing the path of those drugs.
    Ms. Emerson. Excuse me. Just let me interrupt for a second.
    You do that now for all, you know, the bulk ingredients, as 
well as the finished product, right?
    Dr. Woodcock. Yes. We check imports as they come in, to 
make sure that they are allowed into the United States.
    Mr. Kingston. How many countries are in there?
    Dr. Woodcock. Do you know how many countries? I remember--
--
    Mr. Kingston. Would it be over 10, less than----
    Dr. Woodcock. Oh, yes, many more than 10, yes. All over the 
world.
    Mr. Kingston. 129?
    Well, I know you don't set policy on this. I'm just 
appreciating your perspective on it.
    Okay. I'll yield back.
    Ms. DeLauro. Mr. Farr.
    Mr. Farr. Thank you.

                               INSPECTORS

    You responded to Mrs. Emerson and to Ms. DeLauro's 
prioritization that you would hire more, number one, you'd hire 
more inspectors. How many?
    Dr. Woodcock. Well, I also responded I didn't know how 
many, but it would be a substantial number.
    Right now, we've all agreed that we are inspecting 
approximately 10 percent of the foreign inventory, as far as we 
can tell, yearly.
    Mr. Farr. But how can you make a priority that you would 
need more inspectors without even knowing how many?
    Dr. Woodcock. We could certainly do the analysis, look at 
the target, how many firms we want to inspect every year, what 
would be the appropriate number, and then we could certainly 
calculate the number of people needed.
    Mr. Farr. Why would you have to do that analysis, after 
you've already determined that you need more?
    Dr. Woodcock. Well, you asked me exactly how many more.
    Mr. Farr. Yeah. Well, that was your response, was that this 
is our first, highest priority.
    I mean, this is the appropriations committee. We deal with 
money in this committee. And that's the issue, is how much, how 
much will it cost.
    And if this is a priority, it's essential for the 
credibility of the department, and it's your highest priority, 
there ought to be an ask here, a specific ask.
    Dr. Woodcock. We are certainly capable of getting--doing 
the calculation, but not in my head right now.
    Mr. Farr. I would think you would do that before you'd come 
here and make that announcement.
    Mr. Rothman. Will the gentleman yield for a moment?
    Ms. DeLauro. Can I, just I think one important issue, if 
the gentleman would yield.

                      INSPECTION OF FOREIGN FIRMS

    I think it's important to know that there is no statutory 
requirements for FDA to inspect foreign firms.
    Dr. Woodcock. That's correct.
    Ms. DeLauro. In fact, the FDA says that it inspects foreign 
firms, and I quote, ``at the request of foreign drug 
manufacturers.''
    So this notion of inspection and additional people, there's 
really some fundamental gaps here in how you get to what you 
have and what you need to expect.
    Since October 1999, 59 percent of all foreign human drug 
firms in FDA's inventory, of inspected foreign drug firms, have 
been inspected only once.
    About 63 percent of all foreign generic manufacturers were 
never inspected even once.
    But we have no statutory requirement----
    Mr. Farr. Ma'am----
    Mr. Rothman. Mr. Farr, would you yield?
    Mr. Farr [continuing]. It's so shocking that if you would 
make a--we know these gaps, and you pointed out it's your 
number one priority, but we have no idea what the number is.
    Yes.
    Mr. Rothman. I thank the gentleman for yielding.
    Dr. Woodcock, the point I was trying to get at earlier, and 
Congressman Farr is elaborating on it as well, is a request was 
made to have an increase in investigators.
    Presumably, there was some rationale given to the 
administration as to why you needed more investigators.
    Presumably, you said how many you needed, and why you 
needed them, and what they were going to do if you got them.
    So I find it puzzling that you don't have that information 
now, or it appears that you need to generate this data de novo, 
brand new.
    Is it that you're just not aware of what was in the 
rationalization in the budget request that you folks made, that 
your predecessor made, or they never explained why they needed 
more or how many they needed?

                       CLINICAL TRIALS, DATABASE

    Dr. Woodcock. It's that we have a broad number of needs.
    The need I was just talking about was for inspectors, 
investigators who look at establishments.
    We also inspect 1 percent of clinical trials, as far as we 
can tell, and we also do not have a database, as you pointed 
out, for clinical trials.
    We also have other needs in other areas, as has been 
alluded to----
    Mr. Farr. The second question is along the lines of the 
first one, because it's just your priorities, because you said 
that number one was to hire more inspectors, and number two was 
to implement plans to modernize and integrate databases.
    How much money do you need for that?
    Dr. Woodcock. Again, that would be a substantial amount of 
money. It depends on what databases you're talking about.
    Mr. Farr. Well, I don't know what substantial is. We deal 
with billions.
    Dr. Woodcock. Well, good. I'll take it.
    [Laughter.]
    Dr. Woodcock. Well, no, the drug program budget is 500 and 
some millions of dollars each year, much of which goes to 
personnel.
    Mr. Farr. You've talked about database integration, and we 
get that all the time----
    Dr. Woodcock. Yes.
    Mr. Farr [continuing]. With the USDA, and we know the 
Federal Government runs on databases.
    Dr. Woodcock. Right.
    Mr. Farr. And you said this was a number one request, to 
get these databases modernized, and as I've heard in other 
testimony, integrated with other agencies and departments so 
that you could effectively do these inspections and cover data.
    Dr. Woodcock. That's correct. That was----
    Mr. Farr. You have no figure as to how much that's going to 
cost?
    Dr. Woodcock. We could easily come up with a figure. What I 
was trying to say, in response to the other question, was we 
have over the years, we have not gotten substantial increases, 
if you look over two decades, we have not.
    Ms. DeLauro. I've suggested that it is not this notion that 
this has been an unresponsive body to your needs.
    I don't believe you've calculated what your needs are and 
addressed them in terms of priorities and made the request, 
maybe not you, whoever was directing the agency, and in 
addition, the administrations, and I'll say administrations.
    Most recently, we have seen pretty much the collapse of an 
agency that had truly the gold standard in the United States.
    It's $2.3 billion from 2001 to 2008, the amount of money 
that you've received. What do we have to show for it?
    Mr. Farr. Madam Chair, I'm not going to go further, because 
it's very painful not to get these answers.
    Those are the kinds of things that, if it's broken, our job 
is to fix it, and we can debate on what a priority is to fix 
it, but this is--we need this data.
    Dr. Woodcock. Well, may I just respond a little bit?
    Mr. Farr. Hopefully, you have been, but it hasn't given me 
any confidence.
    Dr. Woodcock. I understand.
    Mrs. Emerson's question was simply about the drug quality 
piece of this, the drug registration listing imports and 
inspections and so forth. That relates to maintaining drug 
quality. That's one piece.
    That is not the entire list of additional things that need 
to be done.
    Mr. Farr. Is it still your number one priority?
    Dr. Woodcock. I'd say that is a number one priority over 
all the different needs that we have, but there are other 
important----
    Mr. Farr. Are you changing number two priority?
    Dr. Woodcock. What do you mean, changing?
    Mr. Farr. Well, if you just responded to a specific, as you 
interpret it to be, from Mrs. Emerson----
    Dr. Woodcock. Yes.
    Mr. Farr [continuing]. Now, you just stated that there's 
other issues.
    Dr. Woodcock. There are.
    Mr. Farr. Is number two the database or is it now something 
else?

                               INSPECTORS

    Dr. Woodcock. Well, if you recall, I said we had two number 
one priorities, so if you want the number two or number three 
priority, it would probably relate to more inspectors to 
monitor the clinical trials, to go out and inspect clinical 
trials, both in the United States, and increasingly, is growing 
in Europe.
    Mr. Farr. So the more inspectors--all I wrote down was more 
inspectors, because you didn't specifically say for what.
    So now we need two types of more inspectors?
    Dr. Woodcock. Correct, but one is called--inspectors, they 
look at the clinical trials. Another kind is the one that looks 
at the manufacturing quality.
    Mr. Farr. Well, your answer to us when you come back is the 
total number of inspectors you're going to need for your number 
one, two, three priorities. All right. Thank you.
    Ms. DeLauro. Ms. Emerson.
    Ms. Emerson. Thank you. Thank you.
    Let me--this is really a process question.
    Well, no. Actually, let me ask something. I'll just follow 
up with what Mr. Farr was saying.

                             DATABASE COST

    Have you all, as a team at FDA, looked at, or at least with 
regard to your database, have you actually talked about what 
this would look like and have you gotten any bids, or have you 
even gotten that far to get any bids, on how much it would cost 
you?
    Do we have to do a study to determine what kind of a 
database we want?
    Dr. Woodcock. We have done extensive work on this.
    Ms. Emerson. Like what, specifically? Tell us.
    Dr. Woodcock. What the design of the database is. We're 
ready to move this summer to electronic registration and 
listing.
    We've been developing the application, the computer 
application under a CRADA, a cooperative research and 
development agreement.
    So that we will be, thanks to the FDA Amendments Act, that 
mandates electronic activities in that regard, will be able to 
open the doors this summer, start populating the database. 
However, we will need to then link it to the field.
    We also want it to become part of the entire FDA 
registration and listing systems, and that would require 
integration.
    We've looked at that. We have the project scoped out. So 
that we're not just registering drugs here and foods here and 
veterinary drugs over there, but they would all be in a single 
FDA application.
    So we have gone through and mapped out a plan about how to 
do this.
    Ms. Emerson. But the reason that you can't tell us how much 
it is is because it really would depend on the entire FDA 
system, which makes it a whole lot more expensive than just the 
piece that you're doing, in order to make it link and talk and 
everybody be able to access that information, correct?
    Dr. Woodcock. That's correct.
    Ms. Emerson. Has the big FDA in general been helping, and 
are they interested in doing that, as well, with you all?
    Dr. Woodcock. Yes. Well, I was actually speaking as deputy 
commissioner. This is something I did over the last couple 
years.
    I got the bioinformatics board together. I got the 
different centers all to work together to make a plan to have 
single databases for registration and listing, and for adverse 
event reporting.
    We would like to build a portal so that every--anybody, any 
consumer, anyone could log on and report a problem or adverse 
event to FDA from a single FDA web site, and so forth.
    Ms. Emerson. Okay. So the next step in the process to make 
this a reality is to determine how much it's going to cost.
    Do you go out and ask IBM or some you know, IT companies to 
come in and bid on it?
    I mean, I'm serious. I don't have a clue what happens next.
    Dr. Woodcock. Yes. There are project plans in place to get 
these things done, and we have to go through contracting.
    We also have to get a final regulation out on drug 
registration and listing.
    Why do we need to do that? We need to modify the NDC 
number. Are you familiar with that?
    That's the number that's used for billing. It describes 
each drug, each dosage from under this code.
    We have to change that in order to get rid of all the 
volunteers, okay, who put things that aren't drugs into this 
database. Okay.
    We have devices in there, we have unapproved drugs. They 
give themselves NDC numbers.
    So we have to--and we have to do that by regulation, 
because there was already a regulation in place that said how 
you had to do it, by paper.
    So those things are in process. We will get them done. We 
will be able to fund them this year with the monies that have 
been made available.
    Ms. Emerson. So I guess the bottom line is, at some point 
in time in the next month or two months, would you be able to 
tell us how much it would cost to do an integrated system that 
would at least satisfy your number one priority?
    Dr. Woodcock. Yes.
    Ms. Emerson. At least tell us how much it's----
    Dr. Woodcock. I believe, yes, we can do that.
    Ms. Emerson. And give us a business plan?
    Dr. Woodcock. Yes.
    Ms. Emerson. Okay.
    [The information follows:]

    FDA is preparing a document that describes its business plan for an 
electronic registration and listing system. Consistent with the request 
made by Rep. Emerson during the hearing, FDA will submit a document to 
the subcommittee in 30 to 60 days.

    Now, my next question has to do, back on the reimported 
drugs issue, you know, and this whole issue of web sites and 
not knowing whether or not we're dealing with counterfeit drugs 
or real drugs?
    And I'm not talking about a web site from a Canadian 
pharmacy.
    I'm actually talking about every single thing that goes 
into my junk mail, for example, that says, get, you know, 
Viagra, which I obviously don't need. You know, those sorts of 
things, but for a much cheaper price.
    Do you--how do you oversee this, or can you, can you 
oversee all of those web sites that, in fact, promote cheaper 
drugs?
    Dr. Woodcock. We've been struggling with this for years, 
because you can set up a web site easily, and you can come and 
go if somebody comes after you.
    I think, David, you can talk about this more. You've been 
spearheading some of those programs.
    Mr. Horowitz. It's very difficult.
    The web sites are foreign. If you send them a letter, if 
they even have an address, a hard address, or you can send them 
an e-mail, a cyber letter we call it. They can change names and 
set up somewhere else.
    What we've tried to do is collaborate with the Federal 
Trade Commission and other regulatory agencies, including 
foreign law enforcement, and to try to find the areas where 
they're the greatest concern and to try to target those.
    But our resources are so limited, that we have to pick and 
choose----
    Ms. Emerson. So why do you think--Madam Chairman, I know my 
time is up, but let me just pursue this just for a second.
    Can you--why do you think there are so many web sites 
cropping up trying to sell people drugs cheaper? Why do they 
exist? Why are they coming into--why are we having new ones 
every day?
    Mr. Horowitz. I'll ask Dr. Woodcock if she knows the----
    Dr. Woodcock. Well, first of all, some drugs aren't 
affordable for some of our population.
    Second of all, as I learned from an attorney general once, 
a state attorney general, the criminals are always one step 
ahead of us, is what she said, and I think that's true. That's 
a problem.
    And people, health fraud, there are people out there all 
around the world now, can reach our population and defraud them 
over the Internet.
    Ms. Emerson. So it seems to me that if in fact we're able 
to get this database fixed the way you really want it fixed, 
and you can maintain chain of custody, et cetera, et cetera, 
then it seems to me that if we have a legal type of 
reimportation program or parallel trading, as they do in the 
EU, then at least you would have the capability, which might 
drive prices down, and therefore we wouldn't have as many web 
sites cropping up where people are trying to sell drugs on the 
black market and make a fast buck, but also people who are 
desperate, you know, think they can afford it.
    I'm just--so, I mean, that's my point. I'm just thinking 
that, Madam Chairman, the more that we are able to do to help 
them control the drug flow in and out and know what's going on, 
the more opportunity we have to try new systems to bring the 
drug prices down and obliterate these web sites.
    Thank you.
    Ms. DeLauro. Thank you.

             DOWNGRADING ENFORCEMENT ACTION RECOMMENDATIONS

    Let me just see if I can get a couple of questions in.
    This is a document, as I understand it, it's the 
establishment inspector report, which is something that comes 
out from the agency. It's an FDA chart.
    And what was difficult, in looking at this, when the 
violation falls into the highest category, which is official 
action indicated, which is this graph here, the need for 
immediate enforcement action, it would appear, is the highest.
    It was disturbing to learn, this is 2004, that the CDER 
headquarters overruled almost all of the district 
recommendations for OAI classifications for foreign human drug 
facilities. Headquarters believed that only voluntary action 
was needed.
    And according to the GAO report, this pattern was also 
evident in 1996 and in 1997.
    And this was on your watch, Dr. Woodcock.
    Why are we downgrading the recommendations from inspectors 
on this? Because this then winds up in the voluntary category.
    Can you give me an answer to that, where you've got these 
recommendations for official action, enforcement action?
    Dr. Woodcock. Yes. We've looked at this very carefully, 
because we've been trying to put together a quality system for 
our inspectional program.
    And certainly where you have that amount of disagreement or 
whatever you might call it, between the investigator who goes 
out, the district recommendations, they're basically 
recommendations, that then are sent to headquarters, and then 
headquarters has a different opinion, then there's some 
misunderstandings about what the policies are amongst these 
different parties.
    And so we look at these and decide what their level of 
importance is, whether they're legally supported, which is 
something we have to do, and so forth and so on, and make a 
final determination. That is the role of our office of 
compliance.
    I have a note here from the head of our office of 
compliance, Deborah Otter, who says most of these that are 
overruled are the BIMO inspections, the inspections----
    Ms. DeLauro. Pardon?

                   CLINICAL TRIAL INSPECTION TRAINING

    Dr. Woodcock. The BIMO inspections, the inspections of 
clinical trials.
    However, I agree with you that this is a sign that we're 
not all on the same page about what the policy is.
    Now, we've had trouble, especially in BIMO, getting the 
inspectors in, getting them all trained, getting us all on the 
same page about what is a violation, what isn't a violation, 
and how we should manage this program.
    Ms. DeLauro. Is there any number about upgrading? In other 
words, upgrading the--how often do we upgrade these inspectors' 
recommendations?
    Dr. Woodcock. You mean make them more stringent? We 
certainly do that.
    We have done that recently in some cases. In some cases, 
we've actually taken regulatory actions.
    We, over the last years, we've been training our GMP 
inspectors into what's called the pharmaceutical inspectorate, 
and that's a program where they get very advanced training, 
they come into the center, they meet with our reviewers, they 
learn everything. This has been extremely positive.
    I would like to expand this to the BIMO inspector program 
as well, so that we can all get on the same page.
    Ms. DeLauro. Okay. I appreciate that, and it just seems odd 
that, once again, we are in the voluntary mode of doing what 
people have to do versus official enforcement action.
    And I don't have to regale this. I mean, I think we all 
know this always revolves around moving to voluntary 
guidelines, voluntary actions, and not any kind of enforcement 
action until, my God, we absolutely have to, and, you know, 
there is no recourse.
    This was a comment that I think I made, a question that I 
asked.
    Depending on the nature of the violations found during an 
inspection, it is FDA's practice to give individuals and firms 
an opportunity to take voluntary and prompt corrective action.
    And as I understand it, FDA does not generally go back to 
inspect to see whether the changes were made until the company 
tells FDA it is ready for reinspection.
    Again, one more time, where we are totally in the hands of 
the industry.
    And I applaud you wanting to move on this, but we 
unfortunately have a base of information that tells us that our 
priorities and our focus are less on what's good for the public 
health versus what is good ultimately for the industry.
    Let me move to a question on the domestic drug inspections, 
which resolves from what I was asking about here.
    I'm going to be very quick about this.
    This is with regard to the company that makes 65 percent of 
all generic, over the counter generic drugs in 2006.
    FDA said the plant had been inspected seven times in five 
years as recently as March 2006. These folks recalled 
11,000,000 bottles of, I'm sure I don't have it pronounced 
right, acetaminophen, because metal particles were found in 
some of the caplets.

                GLAXOSMITHKLINE MANUFACTURING VIOLATIONS

    In 2005, FDA had to have U.S. Marshals seize Paxil CR and 
Avandamint tablets at two Glaxo Smith Kline facilities because 
of severe manufacturing problems.
    There were inspections back to 2001, 2002, warning letters 
sent 2002. FDA had additional inspections in November, December 
2002, again in September, November
    Glaxo Smith Kline is not a mom and pop operation. We keep 
going back and inspecting and inspecting. In 2002, there were 
various violations.
    Thirteen inspections at four New Jersey and Puerto Rico 
facilities since 1998, where we found significant violations of 
the CG&P regulations related to the facilities.
    U.S. Marshals last year seized hundreds of thousands of 
dollars worth of drugs and dietary supplements. FDA issued a 
warning letter to the company in 1999 about serious drugs, and 
yet, seven years went before we did nothing, FDA did nothing 
between 1999 and 2007.
    Again, a plant with generic drugs, nine inspections in two 
years, a dozen recalls. FDA warning letters. Consent decree 
entered into in 1998 about manufacturing standards, warning 
letters 2002, 2004.
    And again, we got a president and CEO pled guilty to 19 
counts of distributing adulterated drugs. The new CEO in 2008 
got a warning letter for multiple serious manufacturing 
violations.
    There are lots of other examples.
    We talk about inspections. We're going back and back and 
back to places again. We're talking Glaxo Smith Kline, Shearing 
Plough. This is not some mom and pop operation someplace.
    And it's--do we have the inspectors overridden in these 
cases? Did we fail to have inspections? We didn't fail to have 
inspection.
    Why don't we take decisive action at the time when these 
events occur the first time around, which would clearly free up 
money for inspections in this area and a variety of other 
areas.
    Dr. Woodcock. David, do you have any comments on this?
    Mr. Horowitz. I appreciate the need for a strong 
enforcement program, and to do it sooner rather than later is 
always better, and it's more efficient, and if we can nip it in 
the bud, I completely agree we need to do that.
    We do get a lot of compliance by pointing out problems that 
were not otherwise known to the firm.
    That's why we do inspections, in part, is to find problems 
and make firms fix them, and in the majority of cases, we are 
able to obtain the corrective action we need by pointing them 
out, through advisory actions, through inspections, and 
sometimes through letters that point out that this has to be 
taken care of.
    When that's not done, we have to take other actions. Those 
are costly and take resources, of not just the FDA, but the 
Department of Justice, to bring judicial enforcement actions.
    Ms. DeLauro. David, with all due respect, with all due 
respect, I don't make up these issues. We're talking seven 
inspections, seven years.
    I mean, this is--there appears to be, as I said, no 
interest in taking authority and enforcing it, and in addition 
to which, getting new authorities, lest you might be forced to 
use it.
    That is unacceptable, when we're dealing with--you deal 
with life and death, and I think you know that as well as I do. 
We're dealing with life and death with some of these instances.
    A letter is nice. Corrective action is great, and if it's 
done, boom, that's finished, that's off the table. Seven years. 
Nine inspections. I don't want to go back through all this.
    I mean, I think that that rises to negligence of an 
enormous proportion.
    I thank you for your comment, but I really do believe 
that's serious negligence on behalf of the agency.
    Mr. Kingston.
    Mr. Kingston. Thank you.

                      REDUCTION IN WARNING LETTERS

    Why have the number of warning letters gone down so much, 
according to your web site?
    Dr. Woodcock. A policy decision was made to have more legal 
sustainability or support to the warning letters that were 
issued by the agency. I think that was--do you know when that--
    Mr. Kingston. Is it a good thing, or--you know, I mean, 
you're going to be charged that this shows that you're being 
lax on enforcement.
    And what I want to hear you say is no, this is a good 
thing, and here's why.
    Dr. Woodcock. David.
    Mr. Horowitz. Well, I think it's actually a complex 
phenomenon, and I and many others in the agency have concerns 
about the decrease in those numbers, because it's important 
that we maintain a credible turn, and that there is action that 
is taken promptly when there is not corrective action by the 
firm.
    But there are a number of explanations for this.
    One of them is that the compliance rate has improved in 
recent years, and so it's not surprising that, given that there 
is a smaller number of inspections classified as OAI, 
ultimately, that that would result in a smaller number of 
warning letters. But I do not believe this is the entire story.
    I also think part of the story has to include resources. 
It's not the entire story, but it is part of the story here.
    The field's resources declined significantly between 2003 
and 2006, and that had an impact on a variety of different 
activities the field engages in.
    Mr. Kingston. David, I don't want to interrupt you, but are 
you aware that the FDA commissioner refused to testify before 
this committee in 2006 until we zeroed out the funding on a 
bipartisan basis, and in fact, the chair, who was ranking at 
the time, offered the amendment to zero out the funding.
    And I just want that to be--you know, I think that's 
relevant to the record. The only way we could get the 
commissioner to testify before this hearing was to zero out FDA 
funding, and when we did have the hearing, and Rosie, I don't 
remember the date, it seemed like it was, you know, maybe 
August or----
    Ms. DeLauro. July or August.
    Mr. Kingston. Yeah. It was later on.
    So, you know, that was in 2006, and that's something to--
you know, how let me say this. I'm pro FDA. I'm not here to--
you know, I don't think there is a drug crisis, a safety crisis 
in America.
    Frankly, what I want to hear you do is do a little more 
chest pounding and say, you know, ``You guys are crazy. Let me 
give you the statistics.''
    And I guess with that, let me kind of throw the volley to 
you. That's what I want to hear.
    I mean, if I have constituents and consumer groups telling 
me that there's a drug safety crisis in America and the FDA is 
spread too thin, negligent, lax on enforcement, in bed with the 
pharmaceutical, I want to hear you tell me why that is 
absolutely positively without question wrong.

                       INDUSTRY INFLUENCE ON FDA

    Dr. Woodcock. It is absolutely not the case that FDA is 
excessively influenced by industry in its judgments about 
drugs.
    Our staff has an adversarial relationship with industry, 
and they always have. It goes up and down, over the years. It's 
probably in an up phase right now.
    We have approved multiple drugs over the past 10 years that 
have provided health advances for millions of Americans. We are 
seeing now more drug safety problems, and you can ask why.
    The reason we are is that we can find them better. The 
science has advanced. The drug development programs and post-
marketing programs that occurred 20 years ago have no 
resemblance to what we do now.
    And so we are much smarter, we're much more able to detect 
these problems, and we have developed a policy of early 
warning. So we're telling everyone about them when we find 
them.
    So the problems are discovered. If you look, you find 
things. When we find them, we get them out, so that the doctors 
and the patients are aware.
    But that doesn't mean that the benefits to patients of the 
drug supply in the United States have diminished. They have 
increased.
    Mr. Kingston. I will yield back, but Dr. Woodcock, you've 
done a good job, and David, you always do, and I just want to 
say thanks.
    But, you know, what we are up against I think is an image 
of America right now of incompetence right now.
    You know, were there weapons of mass destruction? There was 
bipartisan, it was agreed that there were. And yet it was a 
colossal intelligence failure. You know, if there were, we 
couldn't find them.
    We've spent I think $120,000,000,000 in the Gulf, and maybe 
the face of the storm is 35,000 mobile homes dripping with 
formaldehyde or emitting formaldehyde or whatever.
    And so there is this competency thing. And what I would 
love to hear more from the FDA on is, you know, ``We're doing a 
doggone good job, and here's why.''
    Now, I'll tell you, my brother-in-law is a physician, and 
he deals with lots of senior citizens. He is the biggest pro-
FDA guy.
    And he's, you know, on the road, he's very, very non-
political, but he tells me that your balance between scrutiny 
and approval is about where it needs to be.
    And this is a guy who has, to me, a lot of influence, 
because he has no political agenda.
    You can always find somebody who says you're approving too 
fast, and somebody who says you're approving too slow.
    So, you know, I guess what I'd like to see you do more of 
is just sort of talk about some of the successes, because right 
now, there's a lot of criticism out there, and we as members of 
the, you know, elected public, or representatives of the 
public, we're going to--you know, we've got to be very careful 
to make sure that the job is being done with competency.
    Dr. Woodcock. Well, I thank you, and I think there is a 
great story to be told, despite all the issues that have been 
raised, that we really have a very strong program. We are the 
gold standard, still, in the world.
    People around the world look to the FDA and the FDA drug 
program as where they want to be with their drug review 
programs, and we are continuing on that trajectory.
    Mr. Kingston. Thank you.
    Ms. DeLauro. There are going to be a couple of votes, and 
we do have a second panel.
    Mr. Rothman. Thank you, Madam Chairman. Dr. Woodcock, I 
agree with my colleague from Georgia, and I think every one of 
us here appreciates the enormity of the tasks and challenges 
before you and your colleagues at the FDA. We depend on you. 
We, as the chairwoman has said, we want to do everything in our 
power to provide you the resources and the tools to accomplish 
the very difficult tasks that you have to perform. You have 
witnessed this frustration at our inability to find out how we 
can best give you the resources that you need and encourage 
those in the administration to allow you to come to us with the 
information that we require to responsibly address our job, 
which is to be stewards of the public money as we give you what 
you need to do the work that serves our constituents. My 
question has to do with the morale at the Center for Drug 
Evaluation and Research amongst the employees. How would you 
describe the morale today?

                            EMPLOYEE MORALE

    Ms. Woodcock. Well, we have recently done a comprehensive 
survey. We hired professional contractors. They did an 
anonymous survey of the staff as to the culture of FDA, and 
this was a professionally done survey, we had nothing to do 
with it, the management, except that we received the results, 
and we looked at what people think. I would say morale is fair, 
not terrible, it is not great. The amount of ad hominem attacks 
that the members of my staff have undergone over the past 
several years has caused some of our best scientists to leave 
the agency, and it has really diminished people's ability to 
feel comfortable doing their jobs.
    Mr. Rothman. Madam Chairman and doctor, you are quoted as 
saying that the reason for low morale was the user-fee mandated 
schedules, again this is from, to be fair, apparently in an 
article you wrote in September/October 2000, it is now 2008, do 
you still attribute some of this low morale to the PDUFA Act, 
is the PDUFA Act therefore counterproductive?
    Ms. Woodcock. I would say that the workload installed by 
this Act has over time been a negative impact on morale. 
Currently, the Center is 550 people under the ceiling that was 
established by the increased resources that were provided this 
year. They were 150 people under the 2007 ceiling, and now we 
have received additional resources. If we can get that staff on 
board and trained, I think people are going to feel a lot 
better about the workload part of this. But we are an agency 
under assault, and it is going to be difficult for us if this 
continues to attract the world-class scientists that we need.
    Ms. DeLauro. I thank the gentleman. I understand what you 
are saying, Dr. Woodcock, but I think that several of your 
people have come under ad hominem attacks from the agency 
itself, that forced them to leave after having given opinions 
and given what may have seemed to be advisory opinions that 
someone somewhere at the top of the heap did not like, and they 
have been told they would be ``traded from the team,'' and that 
is a quote. Mrs. Emerson?

                          FDA MEDICATION GUIDE

    Mrs. Emerson. Thank you all again so much for being here 
today, and we just want to help, so please know that. I have 
two questions I want to make for the record if you all could 
get back to me in the next week with answers, I would be 
grateful to you. The first one has to do with the FDA 
medication guide program, those leaflets that you all require 
when we go get medication. I just would like to know what the 
status of the Agency's reformed that medication guide or 
program, I think we asked you all to give us several steps last 
year to make it more effective for patients and more efficient 
for our pharmacists to obtain. You do not have to answer these 
now.
    Ms. Woodcock. Well, we have had a public meeting on this, 
and we are moving on this, so we will be happy to get back to 
you.
    [The information follows:]

    FDA is examining its internal process to promote consistency in the 
selection, content, and format needs of medication guides. FDA is also 
implementing an enforcement strategy to ensure that sponsors are 
meeting their statutory obligations. In addition, FDA is exploring the 
means to improve electronic access to Medication Guides.
    FDA plans to collaborate with pharmacy groups, including the 
National Boards of Pharmacy, to ensure that practicing pharmacists 
understand their responsibilities and the requirements for distributing 
medication guides.
    Furthermore, under the Food and Drug Administration Amendments Act 
(FDAAA) most MedGuides will now be approved as part of Risk Evaluation 
and Mitigation Strategies (REMS). FDAAA includes enforcement 
provisions, including misbranding charges and civil money penalties, 
for failing to comply with the REMS provisions. FDAAA also requires FDA 
to provide postmarket drug safety information on a website, including a 
link to a list of all drugs with MedGuides, and to post approved 
professional labeling and required patient labeling.

                    CITIZEN PETITIONS-GENERIC DRUGS

    Mrs. Emerson. Okay, so hopefully in the next week. And then 
also, my last question has to do with the whole issue of 
citizen petitions with regard to generic drugs. I know that 
back in September the President signed the Food and Drug 
Administration Amendments Act, and we had a provision in there 
to deter the filing of the frivolous citizen petition.
    Ms. Woodcock. Right.
    Mrs. Emerson. I just wanted to know where you all are in 
that process and why these delaying citizen petitions continue 
to hold generics off the market, and you can get back to me on 
that.
    Ms. Woodcock. The lawyers tell me it is a very challenging 
provision, so we will be happy to get back to you.
    [The information follows:]

    FDA is making every effort to comply with Section 914, which added 
new section 505(q) to the Federal Food, Drug, and Cosmetic Act. This 
provision of FDAAA took effect upon enactment. Therefore, FDA is in the 
process of interpreting the new provision and developing implementing 
procedures while simultaneously addressing citizen petitions and 
petitions for stay that are subject to the new requirements. FDA has 
received at least 13 petitions subject to section 505(q).
    FDA has taken a number of steps to implement this new statutory 
mandate. We have established a working group that includes members of 
several offices within the Center for Drug Evaluation and Research and 
the Office of Chief Counsel to address questions about interpretation 
of the statute, as well as new implementation procedures. FDA has had 
to make determinations relating to the certification requirements, 
scope, and whether particular petitions should delay the approval of a 
generic drug application. The first two petitions subject to section 
505(q) were submitted on October 15, 2007. We issued our response to 
those petitions on March 24, 2008, within the required 180-day 
timeframe. We are working on responses to all the pending petitions 
that are subject to section 505(q). We note that although this 
provision may have been designed to limit the delay of drug approvals 
because of petitions submitted on behalf of innovator drug companies, 
almost half of the 505(q) petitions we have received were filed by or 
on behalf of generic drug manufacturers seeking to block or delay 
approval of other generic drugs.
    We believe that it is too soon to evaluate the effects of the new 
provisions on the citizen petition process. We note that section 914 
requires us to submit a report to Congress annually on the numbers of 
covered petitions and applications affected by those petitions, and we 
will submit that report after our first year's experience with 
implementing the law.

    Mrs. Emerson. Thank you so much.

                         RISK-BASED INSPECTIONS

    Ms. DeLauro. I just have an expanded question for the 
record, but let me just mention that there has been a mention 
of risk-based inspections and that you are moving forward with 
plans to deal with risk-based inspections of drug 
manufacturers. And, as I have said to FSIS on the USDA side, I 
have no problem with risk-based inspections but risk-based 
inspection is only as strong as its scientific base. I must 
tell you, and I will submit the question to you, I was 
concerned when I did see the science report that called into 
question the agency's basic capacity in risk assessment and 
analysis, and it said there is insufficient capacity in 
modeling risk assessment and analysis. So I believe we ought to 
be cautious in moving in that direction without establishing 
the kind of risk-based analysis that we need.
    The final question is again the Institute of Medicine, 
there was a report in 2006 that said there were problems with 
cultured FDA complex relationships between pre-approval group 
and the Office of New Drugs and the Office of Surveillance 
Epidemiology. Also, I guess in page eight or nine of your 
testimony, Dr. Woodcock, you say--and this is what is of 
concern to me, and this is Office of Drug Safety has become 
OSE, Office of Surveillance and Epidemiology, but you seem to 
be loading OSE up with tasks to relate less directly to the 
kind of work they have been doing on the safety profiles of 
drugs already on the market, such as the names of drugs and 
medication areas. And at the same time, you look as if you are 
loading up the Office of New Drugs with multiple people to take 
on a post-market safety in the very offices that have approved 
the drug for the market in the first place, and that seems to 
go back to what was said in 2006 in terms of the difficulties 
or the tension, if you will, between--this seems to be in 
opposite of what people think is needed, which is a greater 
differentiation between pre-market and post-market safety 
reviews. Could you just address that, please?

                OFFICE OF SURVEILLANCE AND EPIDEMIOLOGY

    Ms. Woodcock. Certainly, yes. First of all, your first 
issue, no, the Office of Surveillance and Epidemiology, in its 
very incarnation, has already dealt with the name confusion, 
the trademark names, the medication errors and all these 
different issues, so that has been one of their 
responsibilities all along. We are going to try and beef up 
that function and clarify the roles and responsibilities and 
give them the lead. We are making agreements between OSE and 
OND and other offices within the Center for Drugs, so that 
everybody is clear about what their roles and responsibilities 
are. And these agreements have provisions that every office 
will have an equal voice in these decisions, their voice will 
be heard. OSE will take over, as it develops the capacity----
    Ms. DeLauro. Could we get those agreements?
    Ms. Woodcock. Of course.
    [The information follows:]

    FDA is in the process of finalizing a Memorandum of Agreement (MOA) 
between CDER's Office of New Drugs (OND), the Office of Pharmaceutical 
Science (OPS), and the Office of Surveillance and Epidemiology (OSE). 
This document outlines how OND, OPS and OSE will manage significant 
postmarketing safety issues associated with pending and approved human 
pharmaceuticals. Recognizing the expertise of OSE in observational 
epidemiologic studies, pharmacovigilance activities, pharmaceutical 
risk management plans, proprietary name review, and medication error 
prevention, as currently drafted, this agreement will designate OSE as 
the lead and primary decision-maker for certain regulatory actions in 
these areas.

    Ms. DeLauro. Thank you.
    Ms. Woodcock. I would stress that we are very close to 
signing it. OSE will take the lead on the pharmacology 
epidemiology studies, that is where their expertise lies. My 
goal, say if it is a clinical pharmacology problem, such as 
Warfarin, a drug safety problem, I want the clinical 
pharmacologist to have the lead voice, okay. I want the right 
lead voice in the center. If it is an epidemiologist, fine. If 
it is a medical specialist, fine. If it is a clinical 
pharmacologist with some of the problems we are having with 
Heparin, it is our lead chemist, that is the lead in trying to 
solve this problem. So my goal is not to say this office or 
that office, my goal is to get the right person and the right 
team on each problem.
    Ms. DeLauro. I understand that, but you do have an office 
that is set up specifically to deal with the post-market 
effects of this effort. If you have charged them with that 
duty, one would presume that you have the competence and the 
capability in that unit in order to be able to react and not 
have the fox in the chicken coop.
    I have to go to vote. I have about two minutes now to do 
that. I thank you very, very much and all the folks who have 
come from the FDA this morning. Contrary to what--I begin and 
end with this, more resources, better management, less 
influence of PhRMA and more influence for your scientists. That 
is where I come out of this and that is what my goal is about. 
Thank you.
    Ms. Woodcock. Thank you.
    Ms. DeLauro. And if we could ask our next panel to take 
their seats, we will be right back.
    [Recess.]
                              ----------                              --
--------

                                      Wednesday, February 27, 2008.

                CENTER FOR DRUG EVALUATION AND RESEARCH


                               WITNESSES

SIDNEY M. WOLFE, M.D., DIRECTOR, HEALTH RESEARCH GROUP OF PUBLIC 
    CITIZEN
JOHN H. POWERS, III, M.D., FACP FIDSA, ASSISTANT CLINICAL PROFESSOR OF 
    MEDICINE, GEORGE WASHINGTON UNIVERSITY SCHOOL OF MEDICINE AND 
    UNIVERSITY OF MARYLAND SCHOOL OF MEDICINE
JOHN E. CALFEE, RESIDENT SCHOLAR, THE AMERICAN ENTERPRISE INSTITUTE
    Ms. DeLauro. The hearing will resume. Let me just thank the 
panel. I thank you for your patience. I know we said we were 
going to go to one o'clock but it is a little after 1:00 here.
    Dr. Wolfe. Pacific Time this morning.
    Ms. DeLauro. Right, okay, thank you. Let me make 
introductions, and then we will move forward. We are very, very 
pleased to have Dr. Sidney Wolfe. Dr. Wolfe is the founder and 
the director of the Health Research Group at Public Citizen. 
Dr. Wolfe is an expert on issues of drug safety, medical 
devices, health care policy and the Food and Drug 
Administration. His background includes conducting research at 
the National Institutes of Health, specializing in aspects of 
blood clotting and alcoholism and was the adjunct professor of 
internal medicine at Case Western Reserve University School of 
Medicine.
    Dr. John Powers currently is assistant clinical professor 
of medicine at the George Washington University School of 
Medicine and the University of Maryland School of Medicine. 
Prior to his current academic roles, Dr. Powers was the lead 
medical officer for the Antimicrobial Drug Development 
Resistance Initiative at the FDA.
    John Calfee, I am pleased to welcome, is a resident scholar 
with the American Enterprise Institute where he studies 
pharmaceuticals, the Food and Drug Administration health care 
policy, advertising, the tort liability system and tobacco. He 
is the author of Prices, Markets and the Pharmaceutical 
Revolution, and a book published this fall about biotechnology 
and the patent system. Mr. Calfee writes for AEI's Health 
Policy Outlook series and has taught at the University of 
Maryland and Boston University School of Management.
    I might just say I know you all have many, many, many, many 
more credentials. I am sorry to be brief, but I want us to try 
to move along and be able to listen to you. And I would also 
ask you that if you could, obviously your entire testimony will 
be part of the record, and if you can summarize in this time, 
it would be helpful, and then we would move on.
    Thank you. Dr. Wolfe.

                           OPENING STATEMENT

    Dr. Wolfe. Thank you for the opportunity to discuss what I 
think this morning confirmed is a dangerously deepening crisis 
at FDA, a crisis in management I think was illustrated this 
morning.
    Between when I left NIH in early 1972 to start the Health 
Research Group and now, about two-thirds of our work has 
focused on the FDA, particularly drugs. The situation of the 
FDA has never been worse than now in the 36-plus years, and 
this can be attributed to a confluence of three factors: First, 
terrible leadership at the FDA, including the Commissioner and 
most, not all, but most of the center directors; two, 
increasing reliance on industry to fund FDA activities with 
almost two-thirds of the drug approval budget, and as you heard 
this morning, over half of overall CDER budget coming out of 
the $400 million last year PDUFA allocation; third, relative to 
the 1970s and 1980s a perilously, and I emphasize perilously 
low level congressional oversight notwithstanding this hearing 
today and previous hearings by Congressman Durbin when he was 
the head of this committee. I was speaking to one of your staff 
people and pointing out that one Senate committee, the Senate 
Small Business Committee, had 135 days of FDA oversight 
hearings in a 10 year period in the 1970s and the 1980s. There 
is nothing remotely like that now. And, of course, this is the 
same Congress that has abdicated funding for the FDA to the 
industry. They were also abdicating too much of their 
oversight. There needs to be much more.
    So I will look at the CDER budget from funding of 
activities up through and then through approval and then post-
approval. For the pre-approval budget and function, I do not 
think that the size of the budget is inadequate but the source 
is entirely wrong. The FDA's public health mission is too 
important to be left to funding by the drug industry with all 
the concessions and negotiations that industry extracts for 
paying the majority of the bill for the FDA approval process. 
Instead, adequate funds need to be appropriated by the Congress 
as they were for the first 86 years of FDA's existence, from 
1960 to 1992, with structured regular mandatory oversight by 
appropriations and oversight committees.
    I do not have time to go through the details of these 
examples, which are serious pre-approval mistakes, each of them 
based on data available to the FDA before approval, the drugs 
got approved, and when enough additional people were killed or 
injured from the same kinds of problems that were elucidated 
before approval, the drugs came off the market. None of these 
were really breakthrough drugs, so if there was a safety 
question, the FDA should have, as they did 20 or 30 years ago, 
say, ``Wait a minute, let's answer this question before 
approval,'' and not with never-to-be-done properly post-
approval studies and with the whole population being exposed as 
guinea pigs to a drug with safety problems.
    Going to the third page of the testimony, because of a lot 
of these problems and a record number of drugs being approved 
in 1996 and 1997, 91 drugs, about twice as many as normally 
approved in a two year period, we decided to see what the 
problem was by conducting a structured survey of FDA 
physicians, medical officers. And we did that in late 1998. We 
actually got a higher response rate to that survey than FDA did 
in a subsequent survey they did for a slightly different 
reason. And I will just hit some of the highlights of the 
response from 53 physicians, who were primary reviewing medical 
officers.
    Nineteen of them identified 27 drugs in the past three 
years, which was 1995 to 1998, that they should not have been 
approved but were approved. A tiny number in comparison 
identified drugs that they thought should have been approved 
but were not, four or five drugs as opposed to 27. They felt 
the standards for safety and efficacy were getting lower. 
Twelve of them identified 25 new drugs that were approved too 
quickly, including a number of them winded up coming off the 
market. And 34 of them stated that the pressure to approve new 
drugs was somewhat greater or much greater compared with the 
earlier period, pre-PDUFA.
    Participated in part by Dr. Woodcock's own concerns about 
PDUFA, the FDA did a survey to find out why everyone was 
leaving, why they were bailing out and leaving ship, and Dr. 
Woodcock's I think now famous remark about what she felt the 
impact of PDUFA was that because of PDUFA, Woodcock, 2000, 
``The intense schedules,'' these are free mandated approval 
schedules, ``create a sweatshop environment that is causing 
high staffing turnover.'' If that does not tell you about the 
morale question. And when she was asked that this morning, she 
said, ``Well, it is sort of fair,'' and that is an outside one. 
So the second survey finding on this problem was the FDA's own 
in 2001.
    A third of the people surveyed by the FDA felt their work 
had more impact on product labeling and marketability than it 
does on public health. A third felt that the decisions, such as 
holds or refusal to file actions and non-approvals are 
stigmatized by the agency, so the idea of ad hominem attacks, 
as you pointed out this morning, is coming more from the bosses 
in the agency than from someone else.
    If that were not enough, the inspector general in 2003 did 
a study looking at the same problem again at the FDA, 18 
percent, almost one out of five, of FDA physicians surveyed 
felt pressure to recommend a drug be approved for sale despite 
the reservations about safety, efficacy or quality. Their 
conclusion five years ago was that these findings present a 
significant warning signal, Union of Concerned Scientists did a 
study a year and a half ago and then the one mentioned this 
morning also has really grim responses. She calls them ``fair 
but not terrible,'' but ``fair'' in the context of what was 
being talked about is pretty terrible.
    So that gets us to the post-approval part of the budget and 
FDA function. Post-approval safety review is so often, most of 
the drugs have been taken off the market, the removal was 
precipitated not by randomized trial as in Vioxx but by a 
number of adverse reaction reports that had no other 
explanation; the liver toxicity or whatever could not be 
explained by anything other than the drug. This practice does 
not work if the people who are raising these warning flags do 
not get paid attention to, and no amount of paper shuffling, 
safety first, to hear at 8:30 last night for the first time in 
36 years that safety is first is an insult to start out with, 
and it is really a misrepresentation of what FDA's priorities 
are. Approval first is certainly the real priority, and there 
are too many current examples at the FDA where safety is not 
first. We have been trying to get the FDA to ban these so-
called third generation oral contraceptives because the FDA 
missed they double the risk of blood clots. They are still on 
the market. Darvon, a drug that kills about 200 people a year 
because accidental deaths from its cardio toxicity is still on 
the market. So these sort of belie the idea that safety is 
first.
    Increased funding, especially with much of it coming from 
PDUFA and the absence of increased independence, and we are 
talking about drug safety post-approval, that would occur if 
the Office of Drug Safety were made independent of CDER, which 
is what we have recommended and others, Congress people, 
Senators Grassley and Dodd. So just more funding and paper 
shuffling is not likely to solve what is a dangerous imbalance 
of power between the post-market approval parts of the FDA and 
the review divisions. The funds must be directly appropriated 
from the government.
    A couple of examples of decreased enforcement, again post-
market, we have regularly been monitoring FDA's oversight over 
drug advertising, prescription drug advertising, and the chart 
we have is accounting one by one from the FDA's website. And 
what it shows is that from a peak of 157 illegal drug ads that 
were stopped by the FDA in 1998, these are ads that overstating 
the benefits, understating the risks, 157 stopped in 1998, last 
year 20 stopped. This is an 87 percent decrease and it started 
during the Clinton Administration and it has sort of plateaued 
down below 30 for the last six years. This means that companies 
can design ads, put them out there, not infrequently overstate 
the benefits, understate the risks, mislead doctors and 
patients into using these drugs thinking that they are safe or 
more effective, and the companies do not have too much worry 
about these ads being stopped as they did at least 10 years 
ago.
    The next chart I have in here is from FDA's website again, 
it is overall warning letters from FDA to regulated companies, 
not just drugs, everything else, so in case someone thinks that 
things are only bad in the CDER, in the drug area, the chart 
shows a 53 percent decrease from the peak in 1997 of warning 
letters going out to companies down to 538 in the last year 
that we have data from, 2006.
    Finally, or semi-finally, in the area of foreign drug 
inspections, as Dr. Woodcock admitted, for 10 years we have 
been finding out and knowing that there is a rocketing increase 
in manufacturing of drugs and ingredients in the foreign area. 
Why is it then that in the last five years, from fiscal 2002 to 
fiscal 2007, there has been a 25 percent overall decrease in 
the foreign inspection budget, not as great as the decrease in 
domestics but 25 percent. How many more of these drug 
disasters, whether it is coming from China or elsewhere, are we 
going to have to tolerate before the relatively small amounts 
of money compared with CDER's budget, the FDA budget, are 
expended and then some to get way more foreign inspectors and 
domestic ones as well?
    And, finally, the last issue is China, more drug disasters 
waiting to happen. And this is extracted from GAO's own 
analysis on foreign inspections. Basically, what it finds, 
again these are using FDA's own data, China was of the foreign 
countries that are manufacturing things for the United States, 
the one with the largest number of establishments, 714. India 
was second at 410. But contrast India with China, India's 410 
establishments made up about one-eighth, 12.65 percent of all 
foreign establishment and was appropriately the subject of 22 
percent of all FDA foreign inspections. China, which has 714 
establishments, made up 22 percent of all foreign 
establishments, was the subject of only 13 inspections in 
fiscal 2007 or only 4 percent of FDA inspections in foreign 
countries.
    In summary, the FDA pre-approval budget is increasingly 
coming from industry, a trend which must be reversed as soon as 
possible. The post-approval budget for inspections was not only 
grossly inadequate in fiscal 2002 but has decreased a further 
25 percent by fiscal 2007. There is an enormous amount of tough 
policing of the relatively toothless FDA in its budget needed 
by your appropriations committee. We will help you in whatever 
way we can.
    [The information follows:]

           

    
    Ms. DeLauro. Thank you very much, Dr. Wolfe. Dr. Powers.

                           OPENING STATEMENT

    Dr. Powers. Good afternoon. Thank you, Ms. DeLauro and 
members of the committee, for inviting me to testify. I am a 
practicing physician, a medical researcher, a scientist at FDA 
for almost eight years until I left a year ago, and a 
consultant for several companies. I will share with you today 
my perspectives regarding the resources needed for FDA to 
protect the public health.
    FDA cannot protect and advance public health without 
adequate resources. In 2007, the budget for the Montgomery 
County Maryland Public Schools was $1.9 billion while FDA's 
budget was $1.6 billion. Obviously, public education is 
essential, but it is important to realize that the funds 
allocated to educate 138,000 children in a single county is 
more than the funds allocated to regulate $1 trillion worth of 
food, drugs, biologics, devices and cosmetics for almost 
300,000,000 Americans across the country.
    However, if Congress appropriates more funding to FDA, 
Americans should expect something in return. The user fees paid 
by companies as part of prescription drug user fee acts come 
with negotiated expectations that FDA personnel accomplished 
certain tasks and meets specific timelines to expedite drug 
review. Likewise, it is only logical that Congress should 
require FDA personnel to develop a comprehensive plan for 
allocating appropriated funds with specific action items, due 
dates and accountability for completing non-PDUFA-related 
activities. And, in fact, this morning it seemed like a lot of 
the questions related to accountability of where the money is 
going.
    This need for accountability is highlighted in the 2007 FDA 
Science Board Report, which noted a history of excellent 
evaluations of FDA's functioning ``followed by little to no 
action to achieve the recommendations.'' Congress and FDA 
should include several action items in a plan for use of 
appropriated funds, such as updating the adverse event 
reporting system, modernizing information technology, providing 
resources to inspect manufacturing sites, ensuring the 
integrity of the data companies submit, overseeing the conduct 
of clinical trials and institutional review boards, and 
evaluating the accuracy of drug advertising in a timely manner, 
many of those things discussed already this morning.
    Recent reports by the Institute of Medicine, the inspector 
general, the GAO and the FDA Science Board that now go back 
actually for over a decade, all show a need for FDA to improve 
in these areas.
    FDA's most precious resource, however, is the people who 
work there. In the 1970s, the court clarified that the experts 
to whom Congress referred in the Food, Drug and Cosmetic Act 
were the scientists at FDA. There is no single ``the FDA,'' 
although I just said ``the FDA.'' FDA is composed of 
individuals, just like any organization, and can only function 
as well as those individuals function, both singly and together 
as a team.
    To fulfill their public health mandate, FDA scientists must 
be encouraged without censorship to be active participants in 
the scientific community. There should be sufficient funding 
and mentorship from senior FDA officials for FDA staff to 
pursue scientific activities, such as attending and presenting 
at scientific meetings and publishing articles in books and 
medical journals. FDA scientists see a vast amount of data that 
no one else has the opportunity to see and taxpayers will 
benefit if FDA scientists are able to share that knowledge with 
the scientific community, as well as gain knowledge from 
scientists outside of FDA. In fact, the purpose of clinical 
research is to acquire generalizeable knowledge, which 
obviously cannot be generalized unless you share it with other 
people.
    FDA scientists should be scientists first, not bureaucrats 
first. The evidence, however, shows that there are issues with 
morale among FDA scientists, as we have already discussed. They 
perceive that priorities other than good science are used in 
regulatory decision-making. As a result, many well-trained 
scientists choose to leave FDA. Surveys of FDA scientists in 
1998 by Public Citizen, as Dr. Wolfe just discussed, again in 
2002 by the Office of Inspector General and a third time in 
2006 by the Union of Concerned Scientists, all raise the issue 
that FDA scientists are concerned about the state of science at 
FDA.
    In regulatory decision-making, good science needs the 
appropriate explanations, consistent application and 
enforcement of the appropriate scientific standards as they are 
legally mandated in the Food, Drug and Cosmetic Act. The law 
and regulations clearly define the meaning of ``adequate and 
well-controlled trials'' for drugs and biologics. 
Unfortunately, medical devices are not held to this same 
standard. However, FDA officials do not always uniformly adhere 
to their own legally-mandated standards.
    The Institute of Medicine Report addresses issues of the 
culture at FDA, and to address these issues, there needs to be 
transparency in the decision-making process with scientific 
justification and explanation for how and why decisions are 
made, with that documentation of those decisions made publicly 
available. Public presentation of one's work is part of the 
scientific process and should not be seen as ``second 
guessing.'' Also, there needs to be individual accountability 
for the decision-making that does occur. As I said, FDA is not 
one unified body, someone makes a decision and those people 
should be held accountable for those decisions. To accomplish 
these goals, FDA needs leadership that shows in actions as well 
as in words that it is dedicated to protecting the public 
health first.
    FDA needs adequate resources to protect the public's health 
and Congress should provide oversight to make sure that those 
resources are spent wisely. It appears that the public is 
losing confidence in FDA's ability to protect citizens with a 
Harris poll showing seven out of every 10 adults giving FDA a 
negative rating. A Consumer's Union Survey showed 84 percent of 
respondents agreed that the government should ``have the 
authority to take any action necessary" to ensure drug safety. 
Therefore, it seems the public is in favor of FDA exercising 
its authority to protect them.
    We need to restore public confidence in FDA by providing 
the authority, funding and leadership FDA needs to do the job 
of protecting and advancing public health.
    [The information follows:]

           

    
    Ms. DeLauro. Thank you very much, Dr. Powers. I just want 
to tell you I have a copy of your article, and I didn't get all 
the way through it, but I promise you that I will get all the 
way through it and get back to you with some questions.
    Dr. Calfee.

                           OPENING STATEMENT

    Dr. Calfee. Thank you, Ms. Chairwoman. I am honored, as are 
the others, to testify in these hearings on drug safety. I 
would like to summarize five points, each of which are 
presented in greater detail in my written testimony.
    First, there is no systematic evidence that the United 
States faces a drug safety crisis or that drug safety is 
appreciably worse now than it was a decade or two ago. In a 
September 2006 report on drug safety, the same report that 
motivated the recent FDA Amendments Act of 2007, the Institute 
of Medicine stated, and I quote, ``The committee did not 
attempt to document whether or not a drug safety crisis exists 
and this report should not be interpreted as commenting on that 
claim one way or the other.''
    That same report emphasized that no matter how well the FDA 
does its job, some drugs will reveal unexpected safety 
problems. We may be surprised at exactly which drugs reveal 
problems but the fact that some drugs prove problematical is 
not surprising. The question is whether in dealing with these 
drugs before or after approval, the FDA staff inappropriately 
de-emphasized safety. The record has failed to reveal that 
anything like that has happened. In the case of Vioxx, for 
example, extensive research has now made clear that practically 
all drugs in the much-prescribed NSAID class, including older 
drugs such as Viclophenax along with Vioxx and other COX-2 
inhibitors probably involve elevated risk of heart attacks and 
strokes. That risk was discovered for the COX-2 inhibitors 
simply because those drugs have been researched far more 
extensively than the older NSAIDs with which they compete.
    And I recommend that the committee also pay attention to 
Janet Woodcock's remarks earlier this morning in which she made 
much the same point about the fact that we learn more about 
drug safety problems these days than we used to because we 
learn about drugs period than we used to, at least we learn far 
more rapidly.
    Second, it is extremely unlikely that the FDA staff will 
ever downplay the risk of new drugs. Over and over again, the 
FDA staff has been reminded that when an approved drug causes 
serious problems, an onslaught of public criticism is sure to 
follow, as we can see today in these very hearings. On the 
other hand, when the FDA staff gives too much weight to safety 
so that new drugs take too long to reach market, public 
criticism is far more muted. Economists call this a Type 1/Type 
2 error problem. Its effects have been well documented. And 
just as this reasoning predicts, what at first appears to be a 
dereliction of duty by the FDA usually turns out to have a far 
more benign explanation.
    Third, the constant pressure on the FDA to ratchet up its 
emphasis on drug safety must in the end upset the balance 
between risks and benefits. In the case of SSRI 
antidepressants, for example, the FDA's hasty imposition of 
strong suicide warnings seems more likely to have increased 
suicides by discouraging treatment than to have prevented 
suicides. At the same time, the FDA seems to be getting tougher 
on new drug testing and approvals even as remarkable advances 
in biological science offer a rich variety of promising new 
therapeutics for cancer and many other diseases.
    Fourth, far more attention should be paid to another potent 
force: market-driven manufacturer incentive to maintain drug 
safety. These incentives operate with powerful effect in other 
high-tech markets such as automobiles, petroleum and 
electronics. As in other industries, pharmaceutical 
manufacturers rely heavily on maintaining a good reputation 
with customers.
    Fifth and finally, there are ways to improve drug safety 
without making the FDA ever more cautious in approving new 
drugs and uses for old drugs. The FDA clearly needs more 
resources, especially for information technology and basic and 
applied science.
    And as former Commissioner Mark McClellan and others have 
pointed out, there are fruitful opportunities to collaborate 
with the private sector to make far better use of mechanized 
databases and other tools. Carefully targeted increases in FDA 
funding could open up numerous pathways to improved drug 
safety.
    Thank you.
    [The information follows:]

           

    
    Ms. DeLauro. Thank you all very, very much. I think maybe 
Congressman Kingston and myself should leave and have this 
reviewed just to sift this out with your various viewpoints. I 
think that would be quite an interesting and informative 
discussion.

                            LACK OF FUNDING

    Let me just try to move to some questions. Dr. Powers, let 
me just ask you one thing that I have become concerned about is 
the FDA using, and I stated this earlier today, using the lack 
of funding as an excuse for not accomplishing congressionally-
mandated goals? During your time at the agency, did you get a 
sense that the agency was using this excuse too much?
    Dr. Powers. I think first of all it is important to say 
that there are things that FDA cannot accomplish because they 
do not have the resources to do so, and we heard a lot about 
that this morning. I think though that when you get into the 
situation where there is something that is controversial or 
difficult that you do not want to address, it can become 
convenient to say, ``Well, we just cannot get around to this 
because we do not have resources.'' And I would like to give an 
example. We know, for instance, in that what I deal with in the 
antibiotic world that in the past people thought that the 
amount of resistance to good old penicillin was actually going 
up in an organism that causes pneumonia. We now have a body of 
information that says maybe we did not define resistance 
correctly and penicillin is still quite effective for the 
majority of people. A bunch of academics put this information 
together and actually submitted it to FDA in a citizen's 
petition and get back a response that was several sentences 
long that said, ``We still need to think about this.'' And when 
they brought it up to FDA personnel, we are told, ``We really 
do not have the resources to get around to this.'' I know 
having worked there, since resistance was what I did, that this 
is something that the microbiologists and the scientists at FDA 
are completely capable of addressing, and all that information 
was put together in that citizen's petition. So it seems like 
is this a case where really we do not have a lack of resources 
or do we have a lack of will to want to address the problem in 
that situation?

                    OUTSOURCING REGULATORY FUNCTIONS

    Ms. DeLauro. Let me just do a quick follow-up there, and 
then I have a question for Dr. Calfee as well, and then we will 
do a few rounds here. Another issue that gets brought up is 
that the lack of resources, and I would be interested in your 
view, it might lead to some inside and outside the FDA to 
suggest that regulatory functions be outsourced. My view, and I 
am not a scientist, but my view would be that that would cause 
more problems. Would it not cause more problems?
    Dr. Powers. I think the example I just gave relates exactly 
to that, and that is that when you are going to define 
antibiotic resistance, which we all agree is increasing, it is 
a public health issue, who defines resistance? Actually, it is 
the FDA scientists who do that at the time that a drug is 
approved. But unlike other classes of drugs, the effectiveness 
of antibiotics changes over time too, not just the safety 
issue. So this is how effectiveness and risk are really two 
sides of the same coin.
    The new FDA Amendments Act requires FDA to re-look at all 
these antibiotics at least every five years. During the 
discussions for that Act, there were several suggestions that 
that function be outsourced to people outside of FDA. It seems 
though that something so directly related to the conditions of 
use of a drug like antibiotics is clearly within FDA's purview. 
And then there were insinuations and letters sent to FDA that 
FDA personnel did not have the expertise to be able to do that, 
which I know is actually not true. The folks at FDA are very 
qualified to be able to do these things.
    And you can see the potential conflict of interest that 
would come trying to put these things outside of the FDA. And 
one of the things about working at FDA is that you are really 
one of the only folks that are really completely devoid of any 
kind of conflict of interest, to be able to look at this in a 
dispassionate way. So I agree with you, I think sending some of 
these things outside the agency, including the issue of 
inspections, et cetera, probably is not a good idea. It is why 
the FDA is there, to be the dispassionate arbiter of some of 
this information.
    Ms. DeLauro. I beg apologies for ignorance. In terms of the 
final amendments under PDUFA, we are not moving in the 
direction or should we be vigilant about watching to see 
whether or not any of those functions are outsourced?
    Dr. Powers. That did not happen as part of the FDA 
Amendments Act, but I think we still need to be vigilant that 
those things do not get outsourced. It is vogue to talk about 
public/private partnerships. As a part of my testimony, I 
talked about FDA does not need to be a silo, we do need to get 
information from outside. That doesn't mean you send the actual 
functions of determining safety effectiveness and appropriate 
conditions of use outside the agency for others to decide. I 
think this also relates to the use of advisory committees as 
well. In the advisory committees, really they are called 
``advisory'' for a reason. They do not make ultimate decisions 
on drug approvals and yet they are often asked if there is 
substantial evidence of safety and effectiveness. But in almost 
10 years of going to advisory committees, I never heard an FDA 
official explain what ``substantial evidence'' was to the 
committee. And that is the article that I submitted to the 
docket there on what is substantial evidence? It is very 
clearly defined in FDA's regulations what it is, but if you do 
not tell the advisory committee members what that standard is, 
how are they supposed to give the agency good advice? Instead, 
if you do not instruct the jury, they then substitute their own 
opinions, which may not actually be coinciding with what FDA's 
legally-mandated standard is.
    And I wanted to go back to what Mr. Kingston said, that the 
FDA does not taut itself enough about how good a job it does 
nor explain to people what the standards are. And they are 
actually pretty good standards when you actually look at it, 
and they are scientifically justifiable standards as well. They 
may be higher than some people might want, but that is what FDA 
is legally mandated to use, so it is not a surprise sometimes 
that there is a disconnect between what advisory committees 
advise and what FDA then ultimately does because the advisory 
committee is not told where the bar sits.
    Ms. DeLauro. That is an interest angle, if you will, on the 
advisory committees. I am glad my colleague, Mr. Hinchey, is 
here because he has been particularly concerned about the 
conflicts of interest that exist with the advisory committee, 
which should bring up another point, which is about really the 
charge to the advisory committee and our having to make sure 
what that charge is or the explanation of it in terms of those 
determinations because it is a mystery sometimes. With this 
Avastin, that there was a decision in December it was no, and 
now just about a week ago, they have now said yes. And, look, I 
do not claim to be a scientist, and I do not know what the 
basis of the decisions were but they are interesting, more than 
interesting, they are quite important in terms of overall 
efficacy and outcomes of its decisions.
    My time is up. I will move to Mr. Kingston.
    Mr. Kingston. Thank you. Dr. Powers, let me engage in a 
philosophical discussion with you about your example on the 
Maryland Public Schools $1.9 billion versus the FDA budget and 
so forth. As you know, with $1 trillion worth of food and drugs 
and so forth and medical devices, that there really would not 
be enough money under any conceivable scenario to have 
inspectors at every step of whatever process, therefore the 
reliance on the private sector is certainly tremendous, and it 
has served us well along the way. The reason, as I understand 
it, PDUFA--and how old is PDUFA?
    Dr. Powers. 1992.

                     PRESCRIPTION DRUG USER FEE ACT

    Mr. Kingston. Twenty or twenty five years old. The idea was 
to infuse a little bit more in it, and I think in terms of 
Congress and the demands for money, PDUFA was probably a good 
concept, but having worked at FDA, do the scientists there 
actually know who the contributors are, so to speak? I will 
give you an example, in our congressional offices, we are 
better served when our legislative staff, who advises us and 
reads legislation, where they do not know who your donors are. 
They might know if you are pro-life or pro-choice or some of 
the big picture stuff but 99 percent of the bills do not fall 
into a well-known category like that, and therefore it is 
better when they do not know really where the money is. Do the 
scientists who are in the lab, do they know who the 
participants are under PDUFA?
    Dr. Powers. I think the issue is actually a more subtle one 
than that, and that is that since the goals of PDUFA are 
negotiated with members of the pharmaceutical industry before 
the bill is passed, it is not that the individual staffers at 
FDA are very cognizant that their check is being signed by 
PhRMA, it is that those goals then come down to those reviewers 
and those goals are specified in PDUFA. And I will give you an 
example. For instance, when I was at FDA, we had to fill out 
regular time sheets, which calculated how much time we spent on 
PDUFA-related activities, and some of the codes that went into 
that were how much time you spent at the copy machine, how much 
time you spent emailing, things of that nature. So your every 
minute was documented as to whether it went to a PDUFA-related 
activity or not, so you were not really thinking that this is 
influencing what I am doing but in a more subtle way it does 
because you had to actually keep track of everything that was 
related to PDUFA. Now, I think actually that that 
accountability is a good thing, but I think that accountability 
also needs to be on the other side related to non-PDUFA-related 
activities and drug safety as well. It makes sense if we are 
doing it on the one hand that we should be doing it on the 
other.
    Mr. Kingston. Well, you could put in a firewall though that 
would be a better protection from the scientists, correct?
    Dr. Powers. The way I look at it is this, to get my medical 
license I have to pay a fee to defray costs. To get my driver's 
license, I have to pay a fee to defray cost, but I do not walk 
into the Division of Motor Vehicles and walk up to the counter 
and negotiate with that person how those fees are going to be 
used, so it seems to me logical that when a sponsor submits 
something to be reviewed, defraying that cost makes sense for 
people reviewing that at FDA but then to have to negotiate what 
those monies are used for, I think that is where the firewall 
breaks down that you are talking about.
    Mr. Kingston. It is a parallel study though, correct? Would 
it not be true that Pfizer or whomever has already studied this 
drug and knows a tremendous amount of the science already, if 
not all the science, but FDA is the third party objective going 
in there and saying, yes, your conclusions are right or wrong?
    Dr. Powers. Well, actually FDA follows along all during the 
development of that drug, so when a drug is first studied in 
animals, for instance, a drug sponsor will submit that 
information to FDA. FDA reviews it to see if it is even safe to 
put that drug into a human being or not. So FDA is actually 
following along all the way, it is not just at the end they say 
yea or nay. And that is why I said it is really important for 
them to publish information because they have got this great 
view of not only that drug but other drugs related to it that 
could help other drug sponsors as well to be more efficient 
about how they develop their drug.

                     UNION OF CONCERNED SCIENTISTS

    Mr. Kingston. Okay, now I am not familiar with the Union of 
Concerned Scientists. I do know that groups generally have a 
bias, can you tell me about them?
    Dr. Powers. Well, I am not speaking for them obviously.
    Mr. Kingston. But you go to them, right?
    Dr. Powers. Right, right, and they are a consumer group 
that is interested in integrity in science.
    Mr. Kingston. Well, okay, I understand everything on the 
boiler plate, I really and truly do not know, is this a purist 
group or do they have----
    Dr. Powers. It is a nonprofit group and, again, the reason 
I know about it was because I was at FDA and filled out the 
survey when it came.
    Mr. Kingston. But do you know them to be an objective 
group?
    Dr. Powers. I would say they are, yes.
    Mr. Kingston. Because I am not familiar with them, but I do 
know that many, many groups have great names and great mission 
statements and they are absolutely--they have a bias as worse 
as anybody they are pointing a finger to, and I do not know if 
this group does. Now, the reason why that is relevant is that 
the most current study, the 1998 study, which Dr. Wolfe 
mentioned, that is eight years--excuse me, 10 years old now, 
and so I am trying to find out how accurate that data is in 
terms of the pressure on scientists or the pressure that they 
feel to approve something.
    Dr. Powers. Right, I think when you look at any one of 
these things, instead of taking them in isolation, and that is 
the reason why I put three of them in there, is that you could 
make some claims about maybe they are not entirely accurate or 
maybe they should have surveyed more people.
    Mr. Kingston. But a 10 year old survey would not even be 
relevant.
    Dr. Powers. Exactly but the point is----
    Mr. Kingston. And then you also quoted a 2002 survey.
    Dr. Powers. Right.
    Mr. Kingston. The reason actually that I am really not even 
interested in the survey, here is what I am interested in the 
Type 1 and Type 2 error that Dr. Calfee mentioned because I see 
a tendency in all bureaucracies not to make a decision. Now, 
you have brought up something very important, that the FDA is 
not a ``the,'' it is a collection of scientists, and it would 
probably be a whole new dynamic to say Dr. Jones stamped this 
drug. And I know that the Chair and the whole committee, we 
would love to see the USDA, for example, have a little bit more 
accountability, but they do not make decisions because you 
cannot be wrong when you do not make a decision. And then if 
you make a decision and there is something that goes awry, the 
consequences of that are just as bad. As Dr. Calfee says, one 
of them is a public error that is well known but the other one, 
of making a decision, is private and you do not really ever 
know. Now, I know I am out of time but that is what I really 
want to head to on what goes on when the guy wearing the white 
coat in the lab.
    Dr. Powers. Right, so I think one of the issues there is 
though if you can hide behind the term ``the FDA,'' and there 
is no personal accountability, it is not like me going to a 
scientific meeting and getting up and presenting my research, 
and then other people get up to the microphone and say, 
``Excuse me, Dr. Powers, but my lab shows this, it does not 
coincide with your results.'' That kind of--I call it 
critiquing rather than criticism--is actually a good thing. And 
if you are making a decision that is going to affect millions 
of people, I do not see why you should not be able to defend 
that and the science behind what you did.
    Mr. Kingston. I agree, and I think frankly sometimes you 
have to encourage people. The transparency--and I am out of 
time, I am going to ask you about this some more and the 
transparency issue because it does touch on that, which I know 
gets into patent issues, so let me quit talking and let Steve 
talk.

                      HUMAN CAPITAL SURVEY RESULTS

    Ms. DeLauro. Well, I just thought, Jack, that you ought to 
know in terms of the surveys, FDA Human Capital Survey results, 
management at FDA, there are a lot of federal agencies, the FDA 
participated in OPM, this is OPM, 2006 Human Capital Survey. I 
think it is important that you know about that the morale at 
CDER has been documented, and this is FDA responses to this 
government-wide survey by OPM. The report found that more than 
30 percent of FDA employees disagreed with statements that, 
``Employees feel free to speak their mind about what they 
believe.'' For example, there is no fear, threat or 
repercussion for disagreeing or dissenting. They expressed 
concerns. Twenty-nine percent said that they were not satisfied 
with the policies and practices of senior leaders. Okay, you 
could say that that is disgruntled. Nineteen percent disagreed 
that their organization's leaders maintain high standards of 
honesty and integrity. Twenty-five percent said that they did 
not have high-level respect for the organization's senior 
leaders. Thirty-five percent disagreed that in my work unit 
steps are taken to deal with a poor performer who cannot or 
will not improve. Forty-two percent disagreed that pay raises 
are dependent on how well employees perform in their jobs. They 
said their workload was unreasonable, 24 percent of them did.
    Mr. Kingston. If you will yield a minute, they are saying 
that it is a problem that they are getting paid based on 
performance?
    Ms. DeLauro. No, no, but the opposite.
    Mr. Kingston. Okay, they want that, okay.
    Ms. DeLauro. They do not get paid on performance. But I 
think it is important to note that they view that there is 
fear, there are threats and repercussions for disagreeing or 
dissenting. I think that is a pretty staggering number of 
people, and that is 2006, no private group, no nonprofit group, 
this was OPM. This was the Federal Government that conducted 
this survey.
    Mr. Kingston. That is important, that is interesting. I 
wonder how that compares to other federal agencies because I 
bet you Fish and Wildlife or the U.S. Army, half of human 
resources, you would have the same kind I do not want to rock 
the boat kind of push back.
    Ms. DeLauro. What do you say if you have an agency with 
real serious matters of public health and a lot of instances 
life and death matters. This is not a park, it is not a bridge, 
it is not some sort of--but they are serious, serious--and the 
point has been made over and over again, a lot of the ad 
hominem attacks have been on people within the agency who 
resigned or left and so forth and have come back after several 
months. I think that was the case with AVNDIA and other places 
where the accusations were correct and a person was berated and 
left, maybe of their own volition, but then in fact you saw 
that there were substantial difficulties with the product.
    Mr. Rothman.

                    PROBLEMS WITH THE ADMINISTRATION

    Mr. Rothman. Thank you, Madam chairman. A question for each 
of our panelists, and thank you for being here. You each 
touched on this to some degree, but I would like you to expand 
on it a little more, are things that bad and out of whack, out 
of the norm at the FDA? And, if so, how did that come to be? 
There is a public perception that in this administration it 
might be a matter of ideology to under-fund or under-regulate 
this industry or is it a matter of poor management if in fact 
one believes that things are abnormally bad or dysfunctional at 
the FDA? Dr. Calfee, would you like to begin?
    Mr. Calfee. Well, frankly it is difficult because if there 
is anything dysfunctional at the FDA, most of that is very well 
hidden from what the rest of us can see. I was very interested 
by the things that Dr. Powers said because he has been there 
and been there relatively recently. I am the last person who 
would be surprised at learning that there are many ways in 
which this government bureaucracy operates in ways that are 
quite inefficient and which there are lots of disagreements 
among the various levels, and that there are some people who do 
good jobs and do not get rewarded, there are some people who do 
bad jobs and do get rewarded, et cetera.
    I am struck by looking at these surveys, the only one I 
have looked at carefully has been the Union of Concerned 
Scientists because that was published, and I have a lot of 
doubts about how much we can learn from that survey. As I 
recall, when you read this survey, the questions it asks are 
rather leading questions. When it explained why they were 
conducting this survey, it was made perfectly clear that they 
were conducting the survey in order to reach people who were 
upset with what was going on.
    Mr. Rothman. Doctor, can I interrupt you for a second?
    Mr. Calfee. Yes.
    Mr. Rothman. Is then the absence of objective criteria on 
which to make a judgment in and of itself a failure of the 
agency of transparency, if you will?
    Mr. Calfee. That might be a failure in the sense that it 
would be very good if the agency could get a much better handle 
on how their staff is doing, what their attitudes are and so 
on. I do not know how well they know about their staff----
    Mr. Rothman. Well, not just on staff morale but on the 
issue of----
    Mr. Calfee. Well, my experience from being in government 
elsewhere is that you are right, they really ought to know a 
lot more difficult than one might think to get really concrete 
data on----
    Mr. Rothman. So the point is you don't have really enough 
data to answer my question?
    Mr. Calfee. I think that is probably true.
    Mr. Rothman. Okay, Dr. Powers?
    Dr. Powers. I want to get back to something Dr. Calfee 
said, that even if you say there is not a crisis currently, the 
old adage that ``an ounce of prevention is worth a pound of 
cure,'' all of the reports, through the inspector general, the 
GAO, the Institutes of Medicine, the recent Science Board 
report, all point to if not we are on the edge of a big 
problem, we are going to have one very shortly, so rather than 
allow that to proceed, it makes sense to try to do something 
about it now at this point.
    I think the point I wanted to make, to get back to Mr. 
Kingston's question too, was you can poke holes in any one of 
these particular surveys but what is interesting about them is 
they are all consistent in their findings, both the ones that 
come from the government and the ones that come from the 
nonprofit organizations as well. Obviously, if some were 
showing one thing and some were showing the other, you could 
have some doubts but they all tend to point in the same 
direction.
    I think one of the other issues about FDA is not like other 
government agencies, it is like some, is that you have got this 
inherent tension between science and management, and the IOM 
report points this out, because you are a good scientist, it 
does not mean you are a good manager and because you are a good 
manager, it does not mean you are a good scientist. So you have 
to manage--somehow get those two things to jive at the same 
time.
    Mr. Rothman. I know that we are going to hear from Dr. 
Wolfe also, but this may just be part of the--not substantiated 
or substantiated goal but there is a view in some quarters that 
the ideology, in terms of the strength of intervention in the 
marketplace or this industry is in some way affecting the work 
at FDA. Do you accept that in whole or in part or do you 
dismiss it?
    Dr. Powers. Well, I think that again you cannot color 
everyone at the FDA with the same brush, but I can tell you 
from personal experiences, when you sit in a FDA meeting and 
someone says, ``Well, we cannot ask them to do this trial in 
the correct way because we are enrolling too many patients and 
the company will not want to do it that way,'' that to me says 
that there are things impacting on the decision of how--and let 
me be clear, companies do not want to have inappropriate 
advice, they want to know up-front what the right way to do 
things are. The worst thing the company wants is to be told one 
thing by FDA, go out and spend millions of dollars to do the 
study, and then FDA says, ``Oh, sorry, that did not meet our 
standards.'' So I have a friend in the drug industry that says, 
``Tears today is better than tears tomorrow.'' They want to 
know what that advice is up-front. So FDA is not doing people 
any favors by giving them inappropriate advice up-front, but 
the fact that that statement is even made about how is this 
going to impact a company--and, in fact, how can anybody at FDA 
know how it is going to impact a company financially? You have 
no data upon which to make that decision. So the fact that that 
is even said or hinted at, I think gets to the point that there 
are things other than science that are being--and I do not mean 
to say that that is across every division in FDA. I think some 
of them function very properly but the question is do we want 
an agency where everyone is on the same page.
    Mr. Rothman. Dr. Wolfe, could you just address these 
questions? Thank you, chairman. And one other aspect, do you 
have an opinion as to whether to the extent you agree with Dr. 
Powers there is any element of undo concern about industry 
sensibilities, what does exist, is that ideological, if you 
will, or a particular bias present in any greater or lesser 
extent in any other administrations that you are aware of?

                     PRESCRIPTION DRUG USER FEE ACT

    Dr. Wolfe. I do not think that, much less so than almost 
any regulatory agency, FDA staff does not turn over with a new 
administration with the exception of the Commissioner, people 
in the circle around the commissioner, the general counsel, the 
rest of the people stay the same. The problems that we focused 
on really arose during the Clinton Administration. They were I 
believe in part due in the passage in 1992, right in the 
beginning of the Clinton Administration, of the Prescription 
Drug User Fee Act. And the way we designed our questions in our 
survey, which again as Dr. Powers says, the findings are 
consistent with surveys by the FDA, by the inspector general, 
by everyone else. Things have gotten worse since PDUFA was 
passed, and they have felt in 1998 that going back to the way 
things were more or less pre-PDUFA's full impact, things had 
gotten worse. The standards were different, they were more 
under the gun of the negotiated kinds of deadlines and so 
forth, so I think that it is PDUFA more than a political 
philosophy. PDUFA itself can be looked upon as a political 
philosophy, it is the philosophy that the appropriations for 
the FDA should not be coming from the Treasury, as they have 
been, as I said, for 86 years, but the industry should pay for 
it. And, as a matter of fact, have a certain amount of say not 
on a drug by drug basis but on the overall way in which user 
fees are structured. So I think that not the administration, it 
is PDUFA. It really needs to be reversed. It is growing like 
cancer, it gets bigger and bigger every year. It started out 
with drugs, it is devices, it is a number of other things now, 
and I think that there is no question that substantial numbers 
of people at the FDA feel that impact. When the head of Drugs 
says, ``It creates a sweatshop mentality,'' and by ``it,'' she 
is talking about PDUFA, not this administration. It is a 
serious warning signal, that was several years ago, and the 
sweatshop has gotten more sweaty since then.
    Mr. Rothman. Thank you, madam chairman.
    Ms. DeLauro. Thank you. At some point, let me just leave 
this piece with regard to PDUFA because it was never meant to 
create the imbalance that it has, and I think that the Congress 
has not kept its part of the bargain in terms of the 
appropriations side. I would truly love to have a conversation 
with all of you about how we tried to address that imbalance, 
and how we can try to move forward and not deal with creating 
impasses like there were 10 years ago when folks decided that 
this was a direction to go in.

                                TRASYLOL

    Dr. Wolfe, let me, I have a question. You are currently 
investigating the drug, is it Trasylol, which is used to reduce 
bleeding during open heart surgeries. Studies in the New 
England Journal of Medicine linked the drug to an increased 
risk of death and kidney damage. According to the report, 
patients taking Trasylol were found to be 27 percent more 
likely to die a decade after surgery. Another study found that 
78 percent increased risk of death within week following 
surgery. And there were two FDA advisory committees that 
recommended that Trasylol remain on the market despite the 
concern. I also understand that the Bayer Corporation had 
information in studies which in fact the advisory committee was 
not made privy of too. And that is an issue of how do we feel 
with finding out that that is the case? And also what could FDA 
have done differently to avoid the problems with the drug 
Trasylol?
    Dr. Wolfe. Well, I think there are two issues with 
Trasylol, which is now off the market, much later than it 
should have been, after killing large numbers of people. They 
may not be as large as estimated by Dr. Mengano in this 60 
Minutes program but there are large numbers of people who have 
died needlessly from it because it should not have been on the 
market when a lot of them were given the drug. One is the 
regulatory issue, why even after FDA learned from more than one 
study that there was a problem, they did not demand that it be 
taken off the market? And the other is an issue of possible 
criminal liability. There is no question that Bayer had the 
results of the study that was published a week ago in the New 
England Journal, that they had these results in the fall of 
2006 before the committee met, and there is no question that 
they did not send the results to the committee until one of the 
people that did the study said that that is not right and 
belatedly, after the committee had met without seeing these 
results, that they were sent to the FDA. To my knowledge, the 
FDA has not initiated any criminal investigation as to why 
Bayer did not send the study in the first place and why Bayer 
basically lied during the hearing. They were specifically 
asked, ``Do you have any other kinds of studies that shed light 
on this issue?'' and they said, ``No.'' It is not likely or 
possible that the huge number of people testifying for Bayer 
that day, back in fall of 2006, did not know about this study 
because they paid for the study, and the main study purpose in 
their view was to try and neutralize their earlier study that 
showed harm. And when it did not neutralize it but it confirmed 
it, they did not like that, they did not want to talk about it 
at the hearing, they did not want to acknowledge that it 
existed. Only when pushed by someone else did they submit it. 
So a regulatory decision to ban a drug too late, the company 
initiated way later, the FDA should have initiated it sooner, 
and the company did its own internal investigation of this 
issue of lying or whatever, hired a fairly prominent Washington 
law firm to do an investigation and guess what? They were all 
exonerated. This is no way to pursue justice, to have a company 
fund a study where the answers are sort of, hey, they did not 
do anything wrong, there is just a little mistake here, a 
mistake involving a study with 78,000 patients taking this drug 
and having a substantially increased risk of death, so two 
regulatory lapses: they didn't take a drug off the market soon 
enough and, to my knowledge, they have not initiated a criminal 
investigation.
    Ms. DeLauro. Do they have the authority to do that?
    Dr. Wolfe. They certainly do, and there are laws that 
prevent companies from withholding information from the FDA and 
there are certainly laws, they were not under oath, but there 
are laws that sort of say it is not nice to lie before a FDA 
advisory committee.
    Ms. DeLauro. I am going to ask you to strike this 
conversation. This goes back to December, this article that was 
in the Wall Street Journal, ``FDA and Drug Marketers Plan to 
Tell Doctors of Off-Label Uses as Being Crafted.'' Can you just 
comment on that? Again, I am not a doctor, I am not a 
scientist.

                        UNAPPROVED USES OF DRUGS

    Dr. Wolfe. Yes, before 1997, it was illegal in way, shape 
or form for a company to promote a use of a drug that had not 
been approved. So a drug is approved for treating one disease, 
and the company was not allowed to approve it, to market it for 
a disease for which it had not been approved because by 
definition there was not sufficient evidence that the benefits 
outweighed the risks. If there were, they would have submitted 
these, and they would have been approved. There was some 
pressure from the industry in 1997 to try and change that law 
to allow companies to submit, to doctors, hundreds of thousands 
if they wanted to, copies of medical journal articles, from 
peer-reviewed medical journal articles that talked about the 
unapproved uses. And the proposal, legislatively, started out 
with just that, if you have an article, a peer review journal 
that says that this drug works even though it is not approved, 
you can send that out. The FDA then, in a much more cautious 
mode, in 1997, strongly opposed this provision. They said it is 
too dangerous because it allows information that may not in the 
final analysis show benefits outweigh risk to essentially send 
out as promotional material. A compromise was reached in 1997 
so that instead of just being able to hand out the hundreds of 
thousands of pamphlets, the companies had to first send them to 
the FDA, to have the FDA look at them and approve them in the 
context of other studies that had been done. And, secondly, the 
company had to promise within three years, they would actually 
submit a new drug application amendment to get the drug 
approved for that new use, and that is the law that passed. And 
that law, I didn't think it was a good idea but at least it was 
a reasonable compromise with more safeguards than what has been 
put forth by the industry and opposed by the FDA. The law 
expired in October of 2006, and the companies came crawling to 
the FDA, the former FDA lawyer, Dan Troy, brought some of his 
industry friends into the FDA, and they literally asked the FDA 
to do something that eventually was put forth as a proposed 
regulation two weeks ago, to go back to this original version, 
only to send out these pamphlets without having the FDA 
clearance, without having the promise to get the drug approved, 
and that is now completely opposite of what FDA's stand on this 
was 10 years ago, it is now FDA's policy. There is a serious 
question as to whether it is legal or not. The industry has 
argued, I think falsely, that there is some legal precedence 
that have occurred in between that affected that. That is 
disputed by a number of people. So the FDA has again gone 
backwards on where they were 10 years ago in proposing, with 60 
days of comment allowed, that for the first time allow 
promotion of unapproved uses without these safeguards that have 
existed for nine years.
    Ms. DeLauro. Well, fast forward to February 15th, a week 
ago, ``The FDA Seeks to Broaden Use for Drugs,'' that was in 
the New York Times. Let me just ask you this--what kind of 
tools, and I suppose I should know this but I do not, what kind 
of tools do we have to stop this? What are our opportunities? 
There is a six day comment period, how do we prevent this from 
happening?
    Dr. Wolfe. Well, what this guidance does, which is exactly 
what former FDA lawyer, Dan Troy, wanted is a promise from FDA 
that even though they, in my view, violate the existing law 
because the existing law goes back to pre-1997, cannot do any 
of this at all, the FDA promises not to prosecute them, they 
promise not to go after them as long as they follow this 
guidance, which is a pretty loosely worded guidance compared to 
what was in existence for nine years. So I think serious 
questions should be asked of FDA why they completely reversed 
the policy that the FDA had and testified on 10 years ago, what 
new things are there? And if they cite these legal cases, they 
will be very easily disputed because they do not point in this 
direction. I think they need to be asked that. No one has 
really asked them that yet.
    Ms. DeLauro. Thank you. Mr. Kingston.

                              HATCH-WAXMAN

    Mr. Kingston. Thank you. Dr. Wolfe--well, actually all of 
you, are you familiar with Hatch-Waxman?
    Dr. Wolfe. Yes.
    Mr. Kingston. Under Hatch-Waxman, do you think that it can 
be gained and do you think there is pressure on the scientists 
to believe that a drug really has changed in order to keep the 
generic off the market so that the patent gets renewed when the 
original patent is expired?
    Dr. Wolfe. Do I start?
    Dr. Powers. Yes, I am not clear on the question yet.
    Mr. Kingston. I understand that when the patent expires, 
that the drug companies have a certain amount of time to prove 
to the FDA that they have changed the drug in order to keep the 
generic off the market, and sometimes I have heard that that 
change can be as simple as a redesign of the bottle or a re-
scoring of the shape of the tablet or whatever, and I was 
wondering if that is the case, do scientists at FDA have 
pressure to extend the patent or to approve this as a new drug 
as opposed to, no, let's let the generic get out on the market?
    Dr. Powers. Actually, I think the folks in the Office of 
Generic Drugs work hard to make sure that generics are 
available to people. I think the issue has been more outside of 
FDA and that is that it is almost routine for people to file 
these things that hold up generic companies from actually 
making the drug.
    Mr. Kingston. So it just buys time?
    Dr. Powers. Right, but that has nothing to do with FDA. 
That is outside of their purview, that they file in court to 
say we are going to delay this.
    Mr. Kingston. Okay, that is a matter of the law, that is 
not regulatory.
    Dr. Wolfe. Can I just try and answer that, which is an 
additional outside FDA mechanism, which has been documented 
very well, and there are still more examples, I do not know the 
details being pursued, is that the brand name companies selling 
$50 to $100 million a year of the drug and for economic 
reasons, they do have a fiduciary responsibility to their 
stockholders, they want to keep making more money, they bribe 
literally the generic company, pay them $50 to $80 million to 
delay making the application for putting the generic drug on 
the market. This is not rhetoric, this has happened a number of 
times. Hopefully, it will be stopped but it is something--the 
issue that you are raising, whether it is really different or 
not, here it is exactly the same drug, no one is even claiming 
that it is different, but the generic company succumbs to this 
large amount of money and allows the brand name company to make 
a much larger amount of money than they are paying the generic 
company to keep selling exclusively.
    Another version, which we call ``smoke and mirrors,'' 
drugs, organic drugs, come in pairs, a left-hand and right-hand 
version, optical isomers, and frequently the first drug 
patented is a combination of the left and right, so the 
company, in order to extend their patent, will look at just the 
left, if that is the right one, which it often is, and get a 
patent just on the left-hand version. Nexxium is essentially an 
example of that. There are a number of other examples of that. 
From the standpoint of benefits and risks, there is absolutely 
no difference but by promoting it, with the FDA not enforcing 
the promotional laws, they make it appear as though the new 
left-hand version of what was a mixture is better even though 
there has really never been any evidence that they are. So 
there are a number of tricks--I could go on but I will not--
that allow brand name companies to keep their hands in an iron 
grip on their product by changing it minimally, getting a new 
patent on it. I think it is a fault, as Dr. Powers said, a lot 
of it is outside the FDA, there are serious problems with the 
patent laws that allow a new patent on something that 
functionally has no difference from the old one.
    Mr. Kingston. Dr. Calfee.
    Mr. Calfee. Yes, if I could get back to your original 
question, which is whether Hatch-Waxman can be gamed. I think 
the short answer is it can be gamed. It sometimes is. It 
fortunately is not gained very often. This is usually a matter, 
as these gentlemen have said, not of FDA law or regulation, it 
is usually either patent law or antitrust law. The FTC has 
looked at this quite carefully, and basically their conclusion 
is pretty close to what I said before, which is you can have 
situations in which people are gaming the law. It is not 
obvious. It is a fairly fact-intensive situation, especially 
these arrangements between a manufacturer of a pioneer drug and 
a generic firm, such as Dr. Wolfe was referring to, because 
sometimes there are genuine uncertainty as to when a patent 
really will lose all of its protection. In that case, there can 
be situations in which a settlement between the manufacturer 
and the generic firm does make sense from an economic 
standpoint and public policy standpoint and situations in which 
those arrangements are actually quite contrary to the public 
interest. It is being sorted out by the FTC and the antitrust 
authorities. Like I say, it is not a perfect system but is 
working actually remarkably well on the whole. We are getting 
an awful lot of very cheap generic drugs.
    Mr. Kingston. It is amazing, I never thought the generic 
drug industry would be so saturated as it is now. Ten years 
ago, it just seemed like everything was lined up against them.
    I have a question for you, Dr. Powers. In terms of PDUFA, 
and I do not quite understand the negotiation between the 
pharmaceuticals and FDA when they saying this is what we would 
like to finance or whatever, but is it a result of that that 
the higher profit drugs are approved and getting the most 
attention as opposed to something that might be a lower profit?
    Dr. Powers. I do not think that is the case.
    Mr. Kingston. Well, does it follow medical demand?
    Dr. Powers. Yes--well, in a way. So FDA already has 
guidances in place about, as Dr. Woodcock brought up this 
morning, what would result in a drug getting a priority review. 
The things about profit have nothing to do with that. It does 
have to do with though is there a medical need, is this a life-
saving drug that will be effective and safe in places where 
there is no therapy for people? So there is a guidance on what 
qualifies as priority review but it does not include how much 
money a sponsor makes on the other end.
    Mr. Kingston. Well, that might be something that we as a 
committee would like to see and could get from Dr. Woodcock 
would be what are those questions when they decide how the 
PDUFA money is going, what is the battery that it goes through. 
I think that might be helpful because you could direct some 
things through that.
    Ms. DeLauro. Well, I think you are absolutely right, and I 
think unfortunately even with the latest PDUFA agreement, which 
I had a serious problem with, but they were passed both in the 
Senate and in the House, we ought to be making, in my view, the 
determination of what we are doing there rather than having to 
respond to what the industry wants to get out of this in terms 
of approval, time frames, et cetera, so that I do think we have 
a reasonable chance at that level. It may be too late this go 
around to do something about it, but I think--I am not sure, I 
think we ought to have more to say about what happens here but 
not be listening to the industry in terms of how those 
negotiations go.
    Dr. Wolfe. Could I just comment on that?
    Ms. DeLauro. We appropriate the user's fees for God's sake 
and therefore, as an appropriations committee, we ought to know 
the terms of the agreement and if the terms of the agreement do 
not set with us, then we ought to go back and figure out what 
needs to get done. Dr. Wolfe?
    Dr. Wolfe. Just a quick comment on what you were saying, 
which is in some ways, even though you appropriate the amount 
of the user's fees in the appropriations committee, the 
appropriation is handled by the industry so you have a whole 
new dynamic going on between the industry and the FDA saying, 
``Okay, we gave you $400 million last year. CDER, these are the 
terms of it.'' And I think some of these negotiations are not 
public. I would think that it would be much more appropriate, 
the most appropriate thing would be just to repeal PDUFA and go 
back to the government funding of it, and in the interim, the 
appropriations committee really has as much or more to say than 
the industry does as to how the money is spent.
    Ms. DeLauro. If I could say, there is one effort, I do not 
know if we will get around to talking about it but the whole 
area of what we did as a subcommittee level with the consumer 
advertising user's fees is said no. And what we did, and I am 
not talking about the millions of dollars involved in the 
approval of profits, but we talked about $6 million because of 
the President saying he was going to veto the bill. We lowered 
that number to something like $5 to deal with direct consumer 
advertising, and I think sometimes we have to really push very 
hard. Well, we are not authorizers as well, and there is a lot 
of very big forces here that are addressing these issues, but I 
think we have to get more aggressive and have quite frankly 
more stomach in turning back some of these areas.
    Dr. Wolfe. Stomach and spine both.
    Ms. DeLauro. Thank you very much. Dr. Calfee? I apologize 
to you.
    Mr. Calfee. Yes, I am concerned that PDUFA is getting a bum 
wrap here that it does not really deserve. I think we have to 
remember the basic outlines, which is industry provides money 
to CDER, CDER has to meet certain deadlines, it has to make 
decisions by a certain time. It does not have to make the 
decisions for the drug, it just has to reach a decision period. 
This has generated a lot of research, and of the nice things 
about the IOM report is that it did a good job of summarizing 
the scholarly research of PDUFA, partly because one of the 
authors happened to be someone who had done quite a bit of 
research, and the research is interesting and it is impossible, 
when you read that research, you simply do not get an 
indictment of PDUFA. It has accelerated drug approvals. There 
is no evidence it has compromised drug safety. There is no 
evidence that it has done anything harmful.
    Dr. Wolfe. Other than create a sweatshop environment at the 
FDA for drug approval.
    Mr. Calfee. Well, that is not the same issue.
    Dr. Wolfe. It is the same issue.
    Mr. Calfee. It does not matter. If you have those 
deadlines, if you had the same deadlines and the same number of 
people, it does not matter who is paying for it, you still have 
the sweatshop mentality. The problem there is resources, not 
the source of the money.
    Ms. DeLauro. Well, I think one has to question, and again I 
would have the views of others in terms of those deadlines and 
are they in fact deadlines that can be met, are they deadlines 
just to deal with the industry, that they view that the 
deadline is imperative and is it a real deadline? And I for one 
am not going to say I am an expert at doing that. I would go to 
others and talk about whether or not that makes any sense and, 
frankly, I have heard from a number of folks that the 
imposition of those deadlines and some of the other demands 
have created very difficult situations within the FDA, which I 
think compromises in many respects some of what their outcomes 
can be.
    Dr. Powers.
    Dr. Powers. I think that Dr. Calfee has a point though in 
that there has to be a balance between these two things. Dr. 
Woodcock pointed out this morning that before PDUFA, that there 
were no deadlines on when you had to finish a drug review and 
let's face it, you do the things that are on your calendar that 
have to be completed, but there needs to be a balance of when 
that gets to the point of that--it is sort of like keeping the 
trains running on time at FDA, everybody has got to work based 
on these deadlines. And although you are right, you do not have 
to make a decision to approve a drug, there is an insidious 
pressure to do so, so if not for anything else than to get the 
work off of your desk, and I do not think people should have 
that attitude.
    It should be what does the evidence really show? And the 
way to really handle this is again using an appropriate 
scientific standard: does the drug measure up to what FDA has 
legally mandated standard is or doesn't it rather than trying 
to say things like do you feel comfortable that this drug is 
safe and effective, which I have heard at many advisory 
committees. It is not whether you feel comfortable, it is does 
it meet what the standard is? But the science, the science has 
moved so very, very quickly that we need to do something so 
that they are more aware of what is going on, they can interact 
better, et cetera.

                OFFICE OF SURVEILLANCE AND EPIDEMIOLOGY

    Ms. DeLauro. Let me just, I got into this at the end of our 
last panel with Dr. Woodcock, and I would love to have you all 
respond to this. This is what was the Office of Drug Safety and 
now the Office of Surveillance and Epidemiology and ONB, and 
the tension within those agencies in terms of pre-market 
approval, post-market approval, and now this new configuration, 
which the FDA is moving toward with the agencies, and, as I 
have pointed out, looking at medication errors and looking at 
some of the labeling issues, I suppose let me just put it this 
way to you, I need to have your view as to are we not going in 
the right direction with regard to pre-market and post-market 
based on what we have heard are significant problems there, but 
are we going to create more problems and is there a better way 
to try to deal? And I would welcome, Dr. Wolfe, Dr. Powers.
    Dr. Wolfe. Yes, this is the seventh or eighth time in the 
36 years that I have been doing this that they have changed the 
name of that part of the FDA, usually in response to some 
crisis, and it is essentially have form trump function. The 
function of that division, the post-marketing surveillance, any 
of these names apply to mainly the same thing, has not really 
improved at all. And the amount of energy in changing names and 
getting these kinds of people and then you say, ``Well, it is 
too early to tell whether it is working at all,'' and then by 
the time another crisis comes along, they say, ``Yes, we better 
change the name again so we will buy some more time to see 
whether it works or not.'' And I think, as I mentioned in the 
testimony, I did not get into the details at the time, is that 
there is a historic imbalance of power that has been going back 
to when I started this group in 1972. The people who are most 
funded is the Drug Review Division, now by the industry. They 
have a lot at stake, some understandable, that when they made a 
decision to approve a drug, that they were right. And in the 
face of evidence to the contrary, either before approval or 
after approval, they are more resistant to admitting that there 
is such a problem that merits taking the drug off the market or 
putting on a black box warning. The people in the Office of 
Drug Safety do not have that ``vested interest'' in the sense 
that they did not approve the drug. They are to look to see 
what happens afterwards, and there are too many instances to 
even mention where they have been right, and they have raised 
an issue where only one or two or three years later, after many 
people were needlessly killed or injured, did their suggestion 
get taken. Why was it not taken earlier? As Dr. Powers has 
said, both in the reviewing division is it safe and effective 
through randomized controlled trials and afterwards is there 
new evidence, not available at the time of approval, that 
suggests we should take it off the market or have a new black 
box warning. That is not the way it works now because the 
latter kind of evidence is poo-poohed and kicked under the rug, 
which is why again, as I said earlier, Senators Grassley and 
Dodd proposed empowering the Safety Division, leaving it in FDA 
but taking it out from under the thumb of CDER. The brief 
outline that I saw last night at 8:30, whenever they put it up, 
is to pretend that you are doing that but it is no more than a 
pretense. Ultimately, the decisions are made by the same 
industry-funded bureaucracy at CDER who have been making them 
in the past. There is a pretense of more independence and more 
power, I do not believe it because I have seen it happen too 
many times.
    Dr. Powers. So I think that when you look at--Dr. Wolfe is 
bringing up sort of the interplay between form and function. 
When you look at organizations that function properly, and I 
think the Founding Fathers got it right with our government, it 
is systems that have checks and balances built into them 
already. That is why there are three branches of government. 
Right now, the Office of New Drugs controls the decision that 
gets made before the drug gets approved, and they also control 
the decisions that get made after the drug gets approved with 
consultative input from the name of the week, Office of 
Surveillance and Epidemiology. So that is a far cry from OSE 
having the authority to do something about it.
    And to me it seems like regardless of--putting aside who 
has expertise where, that a system that has checks and balances 
built into it might function better. Now, comes the question 
of, well, do the people in the Office of Surveillance and 
Epidemiology know this drug really well like the people in the 
Office of New Drugs do? Well, but that is a form issue then. We 
can put people in both sides of that that actually understand, 
and one of the suggestions in the IOM report is to have people 
over here on the Office of New Drugs side who follow the drug 
along as it goes, but it seems to me that having sort of a 
balance of power built into the system, and that does not mean 
that the people in the Office of Surveillance and Epidemiology 
just see a small signal and take the drug off the market. The 
problem here is observational studies are more prone to 
systematic biases and error than are the randomized trial that 
get a drug approved in the first place. But Austin Bradford 
Hill in 1965 pointed out that smoking and lung cancer and got 
fought against for many years before people accepted that. That 
is what you do not want to see happen. It is when you warn, it 
is once a signal becomes available. You do not tell people this 
drug is causing this problem, you say we are seeing an 
association with this, we are still looking into it. I think 
the FDA is doing a better job of that now, and Dr. Woodcock in 
her testimony pointed out that now they are doing early 
communications and trying to get that out to people in a better 
way, but then you have got examples of like Avandia where my 
aunt landed in the hospital with heart failure on Avandia, 
thank goodness I worked at FDA at the time, and I knew about 
the problem but it had not been labeled that way yet, so you 
wonder how many other people had that kind of an issue and it 
is getting the warning out to people in a timely way. When FDA 
does do that warning, such as neurological problems with a flu 
drug, nobody is criticizing FDA. We do not know that that flu 
drug causes neurological problems but now that studies are done 
with it, people are looking into it more, so warning allows you 
to actually do the studies which figure out whether there is a 
causal relationship in the end.
    Mr. Calfee. I think there is a reason why there has been so 
much fumbling on this issue for so long, and that is when you 
get right down to it, it is impossible to really separate the 
assessment of risk from the assessment of benefits. You have to 
balance the two. Dr. Wolfe and others have argued that the 
Office of New Drugs, that they have a bias after they have 
approved a drug. That may be true. I doubt that it is a big 
bias but it may be there. And, as Dr. Powers pointed out, if 
you had a separate group whose only job is to sound the alarm 
and even perhaps have the authority to pull off a drug, you are 
going to get too many alarms and you are going to get too many 
useful drugs that are pulled off the market. You cannot really 
separate those two.
    And I would note that the Institute of Medicine in their 
investigation, it is perfectly clear from their report that 
they very, very carefully considered the idea of having a 
totally independent Office of Drug Safety, and they rejected 
that option precisely because they do not want to separate the 
assessment from risk and benefits. It is not an easy job, but 
it is not obvious to me that it is being done badly, and I am 
not sure that what FDA is doing right now is really going to 
make much of a difference.
    Ms. DeLauro. Dr. Wolfe.
    Dr. Wolfe. Just to comment, unfortunately, talking about 
conflict of interest as it was talked about before, the FDA 
funded this Institute of Medicine study and it was to me highly 
unlikely--I was asked to testify there--that they were going to 
come out with any conclusion that really offended FDA, which 
would be to make that kind of suggestion. There are certainly 
others who have made that kind of suggestion, but I think the 
number of incidences where someone in Drug Safety says there is 
a problem and something should be done about it, I am not sure 
I am aware of any really false positives, false signals. If 
anything, they have been right such an extraordinary amount of 
the time that a mechanism of having them more empowered to act 
on these things just needs to be done, otherwise you are going 
to just keep limping along, waiting one or two or three or four 
years. We told people who read our website to stop using Vioxx 
in 2001 based on a randomized control trial. The FDA got pushed 
around by Merck for several years and did not even do anything, 
never put a black box warning, as we and others advised them to 
do, so huge amount of valuable time went by, massive promotion 
and misleading by Merck, ignoring the fact of the heart attacks 
and more people got the drug, got heart attacks and died 
because the FDA's people on the side, the post-marketing, were 
pushed into the ground.
    Dr. Powers. I want to get back to something Dr. Calfee said 
and that is that there are instances in the Office of New Drugs 
though as well where a risk comes up with a drug, for instance 
there was an antibiotic that caused liver failure, at the time 
then you need to also reassess effectiveness at that point. 
When you are going to reassess safety, what do you need to 
reassess about the benefits of the drug that we did not know at 
the time the drug was approved, so there was a lot of 
discussion that no, no, there is a safety problem, we can only 
look at the safety. Well, it turned out that we knew at the 
time that the studies that were used to evaluate effectiveness 
for those antibiotics in self-resolving diseases, like sinus 
infections and bronchitis did not prove--or provide evidence, I 
should not say ``prove''--that those drugs were any better than 
a placebo but there were people internally who did not want to 
address that issue. Well, I agree, we need to readdress the 
effectiveness part as well as the safety, so even on the OND 
side, there needs to be a realization that when something comes 
up, we need to reassess both sides of the coin, the 
effectiveness as well as the risk side. It is constantly 
reassessing what you thought you knew before based on new 
evidence.
    Ms. DeLauro. Mr. Kingston.
    Mr. Kingston. Thank you. Dr. Calfee, a question on the 
empirical results of PDUFA because I guess when it started in 
1992, there was a need, presumably a backlog or something, do 
you think that FDA keeps adequate records in terms of here are 
the results of it? Because it is interesting Dr. Wolfe wants to 
eliminate it, you want to preserve it, but there ought to be 
some relatively empirical evidence that says here is what good 
it has done?
    Mr. Calfee. The easy data I think FDA does a pretty good 
job of collecting that is how long they spend reviewing drugs, 
when they make decisions and so on, it can be fairly 
complicated because, as Dr. Woodcock mentioned earlier, 
sometimes they do not actually reach a decision. They sort of 
send it back to the company, ask for more information and so 
on, and that makes it a little bit difficult to actually tally 
the times that are spent, how the review times relate to 
deadlines, et cetera. The much more difficult issue is whether 
or not when they approve new drugs, meeting these deadlines, 
whether in any sense they are pushing themselves to approve 
rather than reject a drug, whether they are in some sense 
compromising safety a little bit, and people have argued about 
that. I do not think that there is any data that that has 
actually happened. And when several economists have looked at 
this in a fairly systematic way by looking at things like the 
speed of approvals, when they were approved, how often drugs 
were removed from the market, how often you get warnings and so 
on, it is very difficult to tease out from all that data any 
tendency for the FDA to sacrifice drug safety since the PDUFA 
thing became operative. So, yes, they collect a lot of data, 
the data does not tell you everything you would want to know 
about this program.

                        CONGRESSIONAL OVERSIGHT

    Mr. Kingston. Now, on the subject of oversight, Dr. Wolfe, 
why do you think in the 1980s Congress quit having hearings?
    Dr. Wolfe. They did not quit having hearings, just the 
volume or frequency of hearings is probably just a tenth or 
less than it used to be. And I think it is related--if Congress 
is the sole appropriator of funds and all of the accountability 
is to the Congress, I think that is a whole era or spirit in 
which there is likely to be more oversight. If, as occurred 16 
years ago, Congress says, okay, now, we are sort of bringing 
the industry in on the funding and the accountability and 
everything, I think it changes the atmosphere, but that is just 
part of it. The larger part is that there were a number of 
people in the Senate and in the House then who had decades of 
history with FDA oversight and conducted hearings--particularly 
on the Senate side, there were way more staff people there with 
expertise in the FDA that could ask the questions and instead 
of the FDA making a serious mistake, of which they have made 
many, and not having to worry, as they do today, not having to 
worry about being called on the carpet. Senator Grassley's 
hearing was three years ago on Vioxx and those kinds of things, 
there have not been too many more drug-specific hearings since 
then, so I just think it is a different era of the kinds of 
people and staff in Congress, present company excepted, and a 
difference in the general attitude of the Congress as manifest 
by the fact that they passed PDUFA, those two things.
    Mr. Kingston. One of the things that is interesting about 
PDUFA is the medical device folks are telling us they cannot 
get fast approval, and there is a whole new wave, as you know, 
of technology coming out in medical devices and it is a lot 
more sophisticated stuff, and they want--and I do not know how 
to pronounce their medical equivalent of PDUFA.
    Dr. Wolfe. MADUFA.
    Mr. Kingston. They actually I think want to ramp that up. 
Similarly, the folks involved in packaging have to get approval 
from the FDA to change a package and the material used in 
packaging. And last year, I believe it was zeroed out in the 
budget, and I do not know that they want a PDUFA model but 
there could be an application for them. Do any of you guys want 
to comment on that?

               DIFFERENT STANDARDS FOR DEVICES AND DRUGS

    Dr. Powers. I just want to make a comment on devices first 
of all. There is a very clear standard, back in 1962 when the 
evidence standard was passed for FDA, for drugs and biologics, 
there is a very clear standard for that that by 1976, when the 
device legislation came along, the hearings in 1962, President 
Kennedy actually sent a memo saying that a reasonable standard 
is not good enough, we need to have very clear standards when 
in fact what it says for devices is ``reasonable evidence.'' So 
from 1962 to 1976, we have two very different standards. It has 
never been clear to me why that should be. We want just the 
same kind of evidence for devices as we do for drugs and 
biologics.
    The other issue though is that we have talked about sort of 
all the issues with what PDUFA has done in terms of timelines 
and morale at CDER, why would one want to replicate that in the 
Center for Devices and Radiologic Health? You already brought 
up the issue of putting up a firewall, so it may be that here 
is a way that you can do it in a different way that allows 
people to get timely reviews done. And I think CDRH has done a 
good job with timely reviews, so take the good things from 
PDUFA and not the bad things and maybe create a different 
system.
    Dr. Wolfe. Just a comment on devices, not only is the 
standard for approval different but if you change one atom from 
a chlorine to a fluorine for instance in a drug, you have got 
to go back and do animal studies and do human studies. If you 
change half a device and can convince the FDA that it is 
``substantially equivalent'' to an old device, you do not have 
to do pre-market studies at all. Most of the new devices that 
go on the market do not go through anything that even 
resembles, even with its lower standard, the FDA approval 
standard for drugs. There is a huge problem of the standard for 
approval at the device division as opposed to drug, which it is 
now 31 years or 32 years since the law was passed, that may 
need to be revisited.
    Mr. Calfee. And there are a lot of reasons why devices 
would be treated so very differently from drugs. You have an 
imaging device, you can improve the software so you get a 
slightly sharper images. Well, if it was a drug, you could 
never simply say to the FDA, ``Our drug is a little bit more 
potent, is that okay?'' They would not say that.
    Dr. Wolfe. But that does not go through a whole prior 
approval.
    Mr. Calfee. But devices where you have--a lot of these 
things are basically tools. If you make your tool better, it 
does not make sense to start all over.
    Dr. Wolfe. Like a heart valve, for instance?
    Mr. Calfee. Right, that is true.
    Dr. Powers. There is an incredible variety of issues, you 
take a stint and now you coat it in a drug. So I think Dr. 
Calfee is right, if you make a catheter and you just make 
another catheter and that is what you are supposed to do, but 
suppose you then take that catheter and you coat it in 
something else, and then you make an inferred claim of, well, 
all that coating is supposed to do is preserve the life of the 
catheter when in fact you coated it with an antibiotic and what 
you are really trying to do is assume that you are preventing 
infections. Well, is that substantially equivalent? I would not 
say so. Suppose you are allergic to the antibiotic that it has 
been coated in, so I think it gets to the balance of when do 
you determine when it is different enough that you need to do 
studies or similar enough that you do not?
    Mr. Kingston. Where do you decide devices need to have a 
prescription?
    Dr. Wolfe. A prescription by a doctor, is that you mean?
    Mr. Kingston. Yes.
    Mr. Calfee. I think anything that goes through the PMA 
process requires a prescription, but I am not certain about 
that, most do not but some do.
    Dr. Wolfe. The Class 1 devices are band-aids, tongue 
depressors, things like that, and those obviously are available 
over the counter in drug stores or supermarkets. There is no 
reason on earth that they should require a prescription. I 
think that is true of most if not all so-called Class 1 
devices, but when you get to the ones that have to go through 
pre-market approval, most--I think all of those really require 
a doctor's. As everyone has said, there is a huge spectrum of 
devices ranging from the simple obvious to ones that are much 
more complicated, that need to be surgically implanted. 
Obviously, anything in that category needs a physician to do 
it.
    Mr. Kingston. I have another question.
    Ms. DeLauro. Go ahead.

                  VIRTUES OF MARKET-DRIVEN INCENTIVES

    Mr. Kingston. Dr. Calfee, I want you to talk about the 
virtues of market-driven incentives, as I believe those are 
very important.
    Mr. Calfee. I will give an example at the risk of offending 
some friend I might have somewhere, the Heparin issue in China. 
Basically, the wrong ingredients were used by Baxter in 
manufacturing their brand of Heparin. The question was about 
the market-driven incentives for manufacturers, which I think 
can be quite impotent--quite potent. And when I heard about the 
issue with Heparin and China, my reaction was I am not nearly 
concerned with the FDA is doing as with what Baxter is doing. I 
would go to Baxter and say, ``We have got a problem.'' I am not 
sure that I know anyone from Baxter, but I strongly suspect 
that Baxter is going to fix their problem. They are going to 
figure out how they can put a product out there that their 
customers can trust. They have a bigger interest than anyone 
else does in figuring out where they can get good ingredients, 
whether this particular outfit China is not reliable and it is 
not reliable and so forth.
    Let's face it, half of us drove to work today in a car, 
most of them with anti-lock brakes, which rely upon incredibly 
complicated mechanisms, including a software and hardware, 
computer chips and so on, none of which--I mean all of which is 
manufactured in plants all over the world, none of them are 
inspected by anyone but the manufacturers who sell the cars 
have a huge incentive to make sure things do not get screwed 
up.

                       UNAPPROVED UUSES OF DRUGS

    Dr. Powers. To make a comment about market incentives in 
terms of at least drugs, and it relates back to Congresswoman 
DeLauro's issue about off-label usage of drugs and passing out 
reprints, one of the dangers of that is if you get your drug 
approved for a single usage, you can then pass out all sorts of 
reprints. One of the dangers of that is that if you get your 
drug approved for a single usage, you can then pass out all 
sorts of reprints about other things that have not been 
adequately studied. Maybe it has been studied in 10 people 
without an adequate control drug, et cetera. The problem with 
that is that it is very difficult to actually know whether 
those drugs are safe and effective in that setting, but if you 
infer that they are and you choose to believe it, you have got 
yourself a nice, big market there. So I think that there are 
places where the market incentive does not jive with what good 
science or good safety would tell us to do, and I think that is 
the concern. The other issue is that we know that there are 
issues in the peer-reviewed literature, and it is not perfect. 
There was a recent study in JAMA that said that many clinicians 
do not understand the basic principles of how to analyze 
clinical trials data.
    And friends of mine that are out in practice used to tell 
me when I was at FDA, ``We are relying on you guys to 
synthesize this information for us.'' And one of the things at 
FDA that you do is that you synthesize a whole body of 
information. Passing out a single study, any single study can 
be wrong. Suppose there is a single study that says something 
is effective for use but there are four other studies that say 
it is not. How would you balance that out when you are passing 
out reprints? So I think in this setting, the market incentives 
do not always jive with what is best for public health in some 
instances.
    Ms. DeLauro. I would just add to that though if you just 
take a look, and I know and maybe this is legalistic, and I 
know, Mr. Calfee, that you do liability and tort reform. Merck 
Vioxx, $4.8 billion to settle the lawsuits, Cephalon checked 
into its marketing practices. That has to do with safety. Drug 
makers, insuring products and for factory lapses, that is 
safety. Bayer agrees to pay U.S. $257 million in drug fraud. 
Yes, this is all related to safety.
    Mr. Calfee. Can I address some of those?
    Ms. DeLauro. Go ahead.

                    ABBOTT MANUFACTURING VIOLATIONS

    Mr. Calfee. For example, on the manufacturing violation, 
Abbott went through years of negotiations with the FDA, had a 
bunch of plants that shut down, eventually settled for 
something like $600 or $700 million, a really big settlement. 
There were lots of products that went through those plants. 
What is interesting is that not for a single one of those 
products, from a single plant did the FDA ever suggest that 
anyone should avoid using what came out of those plants. They 
were very concerned about how the plant was organized, 
recordkeeping and so on, but they never thought that there was 
any safety issue with any of the stuff going t through there 
but these manufacturers, when they were hit by the FDA on 
manufacturing issues and so on, they have to negotiate, they 
have to settle. They cannot go to court. They cannot go to the 
court--General Motors if they are fighting with NITSA, they can 
go to court. They can say, ``We think we are right, they are 
wrong.'' Manufacturers cannot do that because if they lose in 
court on any issue whatsoever, no matter how minor, than they 
are prohibited from selling anything to CMS and the penalties 
are gigantic, and they always settle, and usually--not always--
but usually the products involved are actually with the 
manufacturing issues, actually usually there is no safety issue 
at all. It has to do with how things are organized, 
recordkeeping and so on, but usually the products flow right 
along, they are not recalled. Heparin is unusual.
    Ms. DeLauro. How do you square your notion like in the 
Baxter incident, Baxter ought to be held accountable and not 
the agency, they just said the agency did not say anything here 
so therefore--does the agency have any responsibility in terms 
of the Heparin issue in China and to find out what they are 
doing, what the ingredients are, et cetera, and deal with 
inspections and equivalent standards, all those things, they 
are a regulatory agency. The point is like on food safety, we 
do not make food, we do not do that, but our job is to set up 
the framework that says these are the performance standards, we 
now deal with inspection of that, and we deal with 
accountability and we deal with enforcement, but there is a 
tendency that regulation has maybe such a bad connotation that 
the mission of the agency is just not--it does not hold sway 
any longer?
    Mr. Calfee. One can debate all day, I think it is clear 
from what Dr. Woodcock said and from what others have said that 
on both drugs and especially on foods, you will never have a 
regulatory agency that is on top all the factories all over the 
food, but we will have a bunch of manufacturers with brand 
names who are jealousy guarding their brand names and they have 
overwhelming incentives for things not to go wrong with their 
brands.
    Ms. DeLauro. Well, I think that that is true, I think it is 
partially true, but I also believe that I do not think that 
these folks determine that it is so bad in terms of whatever 
they are paying for or what they are doing that they will go on 
and continue, but they would rather not have a strong 
regulatory agency dealing with them ultimately. I think that 
that is what we have seen with regard to the culture, I think 
you are right in terms of your brand. And my point in terms of 
food safety, I cannot imagine the industry, I know the western 
growers have come and asked us for regulation because they are 
going out of business, but these folks are not going out of 
business. They have a ton of money, they keep making it, so if 
there are big bumps, if there are small bumps and big bumps 
along the way, they can take it. That is my personal view.

                           REGULATORY BURDENS

    Mr. Kingston. My personal view is more free enterprise on 
this, but I think it is important that as we put regulatory 
burdens on that what you end up with is only the big boys can 
play.
    Ms. DeLauro. I challenge the term ``burden.'' Our job, that 
is our responsibility is to regulate the agency.
    Mr. Kingston. Well, I believe the regulatory burden is an 
appropriate term, it might not necessarily be a bad burden. I 
might be a burden on you, but you know I am a very good one.
    [Laughter.]
    So I am a burden of your conscience for capitalism but the 
problem that I see over and over again in regulatory issue, you 
know what happens in Congress, who gives the campaign 
contributions? It is not the small companies, it is the not the 
small medical manufacturers, is it the big ones, and they will 
live all day long with more regulation because they want it. It 
will eliminate their pool of competitors and so you will have a 
oligopoly. And so one of our challenges is to keep that Steven 
Jobs working out of his garage thinking so that he can come up 
with the Apple Computer of drugs but if we say, ``You have to 
have $5 million to start,'' then what we have done is something 
we cannot measure and that is that Type 2 error where we have 
gotten hundreds of thousands of people suffering from 
something, and we do not even know that we could have had a 
cure for it. So it is very important to kind of keep this----
    Dr. Powers. I think the point you are making, and you see 
this all the time in government, is you have a layer of 
regulation and then you add another layer and then another 
layer and then you get to the end where you are right, boy, it 
takes an awful lot of money to do that. And sometimes maybe it 
takes going back and looking at this, ``Can we do this more 
efficiently?'' But efficiency does not mean--I can not drive 
here from Connecticut on an eight of a tenth of gas, I am not 
going to make it no matter way, it means getting to where you 
want to go but using less resources to get there. So sometimes 
it takes reassessing what are we doing to folks and then 
reassessing what are we doing to folks and then reassessing all 
those layers that we have laid on them and can we condense 
them?
    Mr. Kingston. Which is why I have asked a couple of times 
today about the results of PDUFA because I do remember Richard 
Kesler sitting in the chair you are sitting in a hearing 
talking about the average approval time was eight years for a 
new drug from lab to market or whatever, and in Europe it was 
three years, and our goal as a society was to reduce that so we 
could get it out. You just want it so that the entrepreneur and 
the competitiveness is out there because I think that the 
generic drug thing is a great success story but it sort of 
happened despite lots and lots of boundaries and not because 
of.
    Dr. Powers. Well, look what happens when user fees go up. 
This gets to the exact situation you are talking about. The 
more user fees go up and up, the more only the big boys can 
play because maybe a small company cannot afford to pay that 
amount of user fee to get in the door.
    Dr. Wolfe. Or if that were appropriated from the Congress, 
you would have more competition, to use your phrase.

                       PRIVATE-SECTOR INCENTIVES

    Mr. Kingston. Yes, however, I am going to give you a 
parallel. There are 74 million food-borne illnesses a year, we 
have had lots of testimony on this. It is a pretty high number, 
74 million cases, 250,000 or 260,000 people go to the hospital, 
about 4,000 to 5,000 people die. That is a lot of folks but now 
take a step back and multiply 300 million people in America 
eating three meals a day, we do not eat snacks, we are very 
careful, there is no obesity problem, and then multiply that 
times 365 days a year and suddenly you have got like 32 billion 
meals a year that are eaten and put that into 74 billion food-
borne illnesses, and you have got a success rate of 99.98 
percent in food and it is not because of FDA, it is because of 
the private sector because the FDA simply is not big enough to 
monitor all the plants. Now, I am not saying there is not a 
role of FDA or USDA in it, but I am also saying the miracle of 
the private sector is there are huge incentives in there for 
them to worry about drug safety or food safety or whatever and 
it can be pure Adam Smith ``invisible hand in search of the 
profit,'' but that is something that we always have to keep in 
mind.
    Dr. Powers. When you think about it, FDA is supposed to be 
the back stop in terms of if something gets to the point of 
where FDA inspects and it has gone wrong, it is because a 
number of risk evaluation points even in that factory have gone 
wrong. And Dr. Calfee's point, these folks do not want this to 
go wrong in their own factory, so I look at it like speeding on 
the highway, right, the police do not stop every single person 
who speeds but the fact that they stop some people is a 
positive reinforcer for people to do the speed limit, so FDA is 
really there only as a backstop. They cannot possibly inspect 
everybody but it is an incentive for people to do the right 
thing.
    Mr. Kingston. And I am in total agreement with you on that.
    Ms. DeLauro. My friend, it is almost three o'clock.
    Mr. Kingston. And I do not remember saying that Dr. Wolfe 
could excuse himself suspiciously from a minute ago maybe to 
eat or drink or to relieve himself. Was that okay, I do not 
know?
    [Laughter.]
    Dr. Wolfe. I have written permission from my doctor.
    Ms. DeLauro. I just want to say thank you, yes, for your 
patience in waiting and the amount of time you spent with us 
today, but for your testimony and the clarity in which you deal 
with these issues. There are some things that we just did not 
get to. I would very, very much like the opportunity to talk 
about how we deal with tightening up post-market surveillance, 
how we do deal with PDUFA, and what should be as part of those 
negotiations, where are the areas where additional money ought 
to be channeled and what can we do? What kind of restructuring 
can be done? This is not just about the highlighting of 
problems but are an attempt to try to move to look at, whether 
they are structural changes and whether they are management 
changes or just resources or what I talk about in terms of the 
influences, less from the industry and more from the science, 
and how to try to get that. And I understand as well that you 
do not do that overnight, and you do not do that in one year of 
a two year session of the Congress. So I would love to have the 
opportunity to meet and talk with you about how in fact we do 
try to move in this direction and what kind of legislation we 
ought to be looking at in terms of tightening up the structure.
    I mentioned to you that we have got the FDA biologics 
hearing come up in the next couple of weeks as well, and we 
will try to address some issues in those areas as well, so I 
thank you very, very much, and I know my colleagues thank you 
for all the time that you put into this hearing.
    Mr. Kingston. And I just want to go back to your opening 
statement, if the three of them want to go out and have lunch 
and work this out and come up with a list of recommendations, 
we will be very open to it.
    Ms. DeLauro. Thank you.
    Dr. Wolfe. It is almost dinner time.
    [Laughter.]
    Ms. DeLauro. I thank you.

           

    
                                     Wednesday, September 17, 2008.

              CENTER FOR FOOD SAFETY AND APPLIED NUTRITION

                               WITNESSES

DAVE ACHESON, M.D., F.R.C.P., ASSOCIATE COMMISSIONER FOR FOODS, FOOD 
    AND DRUG ADMINISTRATION
MICHAEL R. TAYLOR, RESEARCH PROFESSOR, GEORGE WASHINGTON UNIVERSITY 
    SCHOOL OF PUBLIC HEALTH AND HEALTH SERVICES
JEFFREY LEVI, PH.D., EXECUTIVE DIRECTOR, TRUST FOR AMERICA'S HEALTH
GREG MURRAY, MURRAY FARMS, GA
    Ms. DeLauro. The hearing will come to order.
    Thank you all very much and I want to say thank you to the 
subcommittee and welcome back. August seems a long way off, in 
any case, but it is the first hearing since we've been back 
after the August recess; and, I want to thank all of you for 
being here and again say thank you to you for your patience.

                      FOODBORNE ILLNESS OUTBREAKS

    We were scheduled to move before the August break, but the 
appropriations schedule took precedence and so I appreciate 
your all coming back here today. We are here today to examine 
the salmonella outbreak this year that sickened over 1,400 
people across 43 states and the District of Columbia, providing 
yet further evidence that our current food safety system is 
broken. It fails to protect consumers from unsafe foods and has 
the capacity to harm producers and growers in the process.
    My goal this afternoon is not simply to rehash this 
summer's salmonella outbreak. We are looking for bigger 
answers, searching for the solutions that will allow us to 
avoid these breakdowns in the future. Certainly in recent 
months food safety has taken center stage like never before, 
and I am encouraged to see many issues that have been on the 
back burner for years such as traceability finally make their 
way into the mainstream discussion.
    Now, it's time to put the words into action. Seventy-six 
million food borne illnesses, 325,000 hospitalizations, 5,000 
deaths occur each year because of unsafe foods, and their cost 
to our nation is great--$7 billion economic losses annually. A 
major outbreak's impact lasts long after it has faded from the 
headlines. Mr. Farr can attest to that. The spinach market 
still has not fully recovered from an e-coli outbreak two years 
ago.
    According to the California Department of Agriculture, 
spinach production in California is still approximately $60 
billion less than pre-outbreak levels. As Mr. Murray will 
discuss and our colleagues from Florida and from Georgia have 
seen first-hand, the tomato industry now faces a similar 
struggle. FDA first implicated tomatoes as the potential source 
of this summer's salmonella outbreak, before turning its 
attention to jalapeno and Serrano peppers.
    Now the FDA may be looking into the possibility that 
tomatoes caused the earlier infections and peppers were the 
source behind later cases of the outbreak. Most distressing, 
however, is that no one seemed to be in charge. And, in fact, 
no one is in charge. During a complex and constantly evolving 
food safety crisis, the public and the industry both looked to 
their government for guidance and assurance that the situation 
was under control, but with little leadership, the situation 
quickly got out of control and continued to threaten public 
health and consumer confidence for weeks.

                     FOOD SAFETY MODERNIZATION ACT

    For 15 different agencies responsible for administering 30 
laws related to food safety, it is no wonder investigations are 
mismanaged, short-sighted and stalled. Address these failings 
and prevent dangerous products from slipping through the 
cracks, I believe we need to create a single food safety agent. 
As an incremental step toward that goal, next week I plan to 
introduce the Food Safety Modernization Act, creating a food 
safety administration within the Department of Health and Human 
Services with responsibility for all food safety issues 
currently administered by the FDA.
    While maintaining the USDA's independent food safety 
responsibilities, the new law would establish a commissioner of 
Food Safety and Nutrition Policy, a presidential appointment 
requiring advice and consent of the Senate to lead the new Food 
Safety Administration designed to create a streamlined federal 
agency focused exclusively on protecting our food supply. 
Instead of having to balance food safety with competing 
priorities, it would allow food safety experts and researchers 
to do their jobs. To be sure, our ultimate goal must remain an 
independent, single food agency. But I believe in order to 
begin fixing our broken system, we must act now, and this is 
the best way forward.
    The Food Safety Modernization Act will address 
traceability, process controls, inspections, and imports. We 
have further to go to be sure, but with this first step, we 
will have come a great distance, allowing the food safety 
experts and researchers to do their jobs, provide increased 
oversight, and fulfill their regulatory responsibility.

                               GAO REPORT

    A recent GAO report outlined the critical components that 
are necessary for an effective food safety system, including 
trace-back procedures, cooperative arrangements between public 
health issues and mandatory recall authority. I believe these 
measures could be implemented most effectively under a system 
governed by a single food safety agency. While there has been 
movement on food safety reform, we are not there yet.
    Finally, it is worth noting that the GAO report highlighted 
other nations' effective farm to fork approach to food safety. 
If we want to see similar success and restore our own country's 
gold standard for food safety, we must also focus on the entire 
food supply chain, place primary responsibility for food safety 
on producers and ensure that food imports meet equivalent and 
safety standards.
    We know what is at stake, and today we will hear about the 
consequences of our inaction and the opportunity to embrace 
tangible reforms. It is time to show that we have learned these 
hard lessons and make public health our top priority. We cannot 
afford to wait any longer.
    Thank you, and before I introduce today's witnesses, let me 
turn things over to our ranking member, Mr. Kingston, for an 
opening statement.

                      PRIVATE SECTOR CONSEQUENCES

    Mr. Kingston. I thank the chairwoman for convening this 
meeting. This certainly is an important topic and certainly one 
that she and the committee feels very strongly about.
    I do have a view that's a little more grounded in the 
private sector in their actions than probably most people in 
this town. And that is basically from numbers we get in our 
hearings here. There's 74 million food-borne illnesses a year 
in America that we know of, a big number, 74 million people. 
But it is a number everybody agrees on.
    Now, if you take that number and you look at the number of 
meals we have per day in a country of 300 million people eating 
three meals a day, we have no visitors and we never eat any 
snacks. So just say that's 900 million meals a day, 365 days a 
year. When you look at the 74 million, that number becomes 
smaller in fact. The food-borne illness number comes down to 
something like .02 percent, a very, very small number.
    But, if you're one of the 74 million, certainly it is very 
significant and I would not tell you that it isn't. But here's 
why I use those numbers for this illustration is that why is 
that food system so safe. And if we can agree that it's 99.98 
percent safe, according to the statistics, which have been 
testified over and over again to this committee, then we need 
to ask ourselves why is it safe? Because one thing we do seem 
to have a constant theme of is the government is broken down. 
Indeed, in this case, the FDA added to the problem and wiped 
out the tomato production profit for this year in many states 
and many sectors.
    Why wasn't the government a voice of reason? And it wasn't 
because government is going to err on the side of caution and 
bow to the political pressure that we in the elected side of 
government always seem to add to the problem. So think about 
the private sector. Let's just say I don't really care about 
customers, but they want the customers to come back and buy 
more so they can make more money.
    Therefore, they've got to have a good product whether they 
like the customer or not. As Adam Smith said, over and over 
again, the search, the invisible hand, the individuals, the 
market force moving towards a profit incentive is a great 
mechanism. The market has served well for food safety, far 
better than the government. And so I have concerns about giving 
government increased powers or increased money.
    I'd kind of like to hear today, Dr. Acheson, who in the FDA 
was responsible for the hysteria. You know, I'm sure it was an 
honest mistake, but nonetheless it was a mistake that caused 
the private sectors and farmers like Mr. Murray millions of 
dollars--not necessarily him individually, but him 
collectively--millions and millions of dollars.
    So my job, I feel, often is to try to bring in some of 
these numbers and look at what is going on in food safety right 
now. The success that we have, I would say, is because of the 
private sector, far more than because of the government. I 
would never tell you the government doesn't have a role to play 
in it at all; and, I think that there's plenty of room for 
discussion on that and particularly doing a better job than we 
are.
    But, I would say the food you ate for lunch an hour or two 
ago is safe, largely because of the private sector, not because 
of the government, not to say the two can't have a shared, 
common interest in the friendliness of the ham sandwich and the 
tuna that you ate, but we need to keep that in mind as we go 
through this process as we continue to do so.
    And, Madam chair, would it be appropriate for me to 
introduce Mr. Murray at this time? Or are you going to do that 
later?
    Ms. DeLauro. After you do this, I will do that and 
introduce Mr. Murray.
    Mr. Kingston. Okay, great. Thank you.
    Ms. DeLauro. I thank the gentleman and let me move forward 
to introduce today's witnesses and I thank you all again for 
being here. And why we don't often hold to the five-minute rule 
here in terms of statements, we are going to ask you to make 
your statements five minutes long.

                       Introduction of Witnesses

    Dr. David Acheson is Associate Commissioner for Foods at 
the Food and Drug Administration where he provides advice and 
counsel to the commissioner on strategic and substantive food 
safety and food defense matters. Previously, Dr. Acheson served 
as chief medical officer and director of the Office of Food 
Defense, Communication and Emergency Response at FDA's Center 
for Food Safety and Applied Nutrition, leading the emergency 
response, as well as outreach and communications to industry, 
state and consumers on issues pertaining to the center.
    Dr. Steven Sundlof, who is head of the Center for Food 
Safety and Applied Nutrition, was formerly head of the Center 
for Veterinary Medicine.
    Mr. Michael Taylor is research professor for health policy 
at the George Washington University, has previously served as 
administrator of USDA's Food Safety and Inspection Service, 
Deputy Commissioner for Policy at the Food and Drug 
Administration, and FDA staff lawyer and executive assistant to 
the FDA Commissioner.
    Jeffrey Levi is the Executive Director of Trusts for 
America's Health, where he leads the organization's advocacy 
efforts on behalf of a modernized public health system. Dr. 
Levi oversees TFAH's work on a range of public policy issues, 
including its annual reports assessing the nation's public 
health preparedness and investment in public health 
infrastructure.
    Mr. Kingston, would you do the honors for Mr. Murray?
    Mr. Kingston. I thank the chairwoman, and I wanted to 
introduce Mr. Greg Murray at the same time. I wanted to co-
introduce him with Mr. Bishop, because he is actually a 
constituent of Mr. Bishop's and not mine, and so I wanted to 
yield the floor to you.
    Mr. Bishop. Thank you very much. It is really a privilege 
for us to have Mr. Greg Murray, who is the person who knows 
first-hand what the challenges are, particularly with our fruit 
and vegetable growers, and in particular, tomatoes in the last 
few months. He is very active with the Georgia Fruit and 
Vegetables Association. He was active with the Farm Bureau of 
Vegetables, and he does a tremendous job and offers tremendous 
leadership in the industry, particularly with regard to 
production quality and quality assurance, as well as food 
safety.
    And so I certainly am delighted that we have a person of 
the stature of Mr. Murray with us today and that he can bring 
us, I think, cogent information that will help us as we examine 
these very, very important food safety issues, and as we also 
reflect on the impact that mismanagement by the agency has had 
on the private sector with tremendous losses that have been 
incurred by particular tomatoes and other vegetable growers 
because of misdiagnoses of where some of these problems have 
arisen.
    So I want to welcome Mr. Murray and I want to thank Mr. 
Kingston for yielding back.
    Mr. Kingston. Thank you, and I wanted to point out that Mr. 
Murray actually farms on a farm that's 109 years in your family 
at this point. And sitting right behind him is his fine looking 
young man, grandson Zack, and Zack actually sneaked out of 
school today, Mrs. Chairwoman, so he claims he is getting 
credit. [Laughter.]
    Mr. Kingston. I am going to have to sign-off on that. I 
don't know.
    Ms. DeLauro. Welcome, Zack, and it's a joke, but 
Congressman Kingston is right. I guess Mr. Murray's great 
grandfather started the farm in 1899, so it is generational.
    So, welcome to you all, and Dr. Acheson I'm going to ask 
you to begin. And, again, I'm going to ask obviously the entire 
statement will be part of the record. And if you could keep it 
to five minutes, we would be appreciative. Thank you.

                      Dr. David Acheson Testimony

    Dr. Acheson. Thank you.
    Thanks for allowing me to appear today. Joining me is Dr. 
Steven Sundlof, Director of CFSAN, and Dr. Steven Solomon 
sitting behind me, Deputy Associate Commissioner for Compliance 
Policy in FDA's Office of Regulatory Affairs.
    As you know, on June 30th, the President signed the Fiscal 
Year 2008 supplemental into law, and thanks to the efforts of 
this subcommittee, the supplemental provided a budget increase 
of $150 million to FDA. These increased appropriations will 
allow the agency to further implement the Fruit Protection Plan 
and the Action Plan for Import Safety. The supplement contains 
$72.3 million to support the Fruit Protection Plan, and these 
resources combined with the appropriation from 2008 will allow 
FDA to launch a number of important priorities, including 
hiring more investigators, the ability to hold public meetings 
in the fall, to follow-up on traceability, establishing offices 
in five countries and different parts of the world, providing 
technical assistance to foreign countries building a database 
of information for foreign partners, conducting research to 
improve risk-based preventions, validating rapid detection 
tools, identifying food vulnerabilities, and establishing 
better assistance to inform consumers rapidly when problems 
occur.
    In 2008, the administration released the 2009 budget 
request, which proposed an additional $50.7 million for FDA, 
including $42.2 for food programs. Then on June 9, 2008, the 
administration announced a budget amendment to further increase 
the '09 request by $275 million. And we appreciate the 
subcommittee's action on June 19 to approve the President's 
amended budget request.
    The June budget amendment brings the administration's total 
proposed 2009 budget authority to FDA to $325.7 million. More 
than half of this amount supports the important food safety 
priorities. Our food protection investments for '08 and '09 
will allow the agency to increase our professional staff by at 
least 500 FTEs across public health programs. This increase 
includes 375 FTEs to support domestic and foreign inspections. 
By the end of 2010, when these individuals are trained and 
deployed, we will be conducting 850 more foreign food 
inspections on an annual basis, 2,000 more domestic food 
inspections, and 40,000 more import food field exams.
    Turning now to the St. Paul salmonella outbreak, as you are 
well aware, this was one of the most complex investigations in 
recent memory. I'd like to provide, initially, a brief 
description of a typical product tracing process, which begins 
when CDC's epidemiological investigation identifies a possible 
food associated with the food-borne illness.
    At that point, CDC notifies FDA, and then FDA begins its 
trace back process. We do this by tracing the food suspected of 
being the vehicle for transmitting the pathogen and trace back 
through the whole supply chain from the retailer or the 
restaurant, by inspecting and investigating points throughout 
the supply chain to determine where that contamination may have 
occurred.
    That includes examining documents, bills of lading, 
invoices, and other records maintained by the firm. Product 
tracing investigations for fresh produce are particularly 
difficult because the food is perishable, often no longer 
available. Fresh foods and vegetables are often sold loose 
without packing. And practices such as commingling make the 
whole process more complex.
    It was on May 31 the Centers for Disease Control notified 
FDA of a significant statistical association between the 
consumption of certain types of tomatoes and the multi-state 
outbreak of salmonella St. Paul, and in response on May 31 the 
FDA began its trace back process. On June 30, CDC advised FDA 
that the epidemiological data from the ongoing outbreak 
indicated that jalapeno and Serrano peppers might also be 
implicated, and in response to that, the agency expanded its 
investigation into peppers.
    On July 17 FDA lifted its warning to consumers regarding 
tomatoes and announced that tomatoes on the market were no 
longer considered to be a possible source of the continued 
illnesses. And it was on July 21 that FDA announced that 
jalapeno pepper samples obtained during inspection at a 
distribution center in Texas were contaminated with the 
outbreak strain. The peppers were grown in Mexico, but that 
didn't mean that the contamination occurred in Mexico. But 
based on those findings we advised consumers to avoid eating 
jalapeno peppers and foods made with them.
    Further investigation took us back towards Mexico, and 
FDA's investigation took us to farms and packing facilities and 
distributors in northeastern Mexico. And a sample of Serrano 
peppers and a sample of irrigation water collected from a farm 
in Mexico contained the outbreak strain of salmonella St. Paul. 
On August 28, the CDC announced that the outbreak appeared to 
be over.
    I would like to address FDA's efforts to improve product 
tracing and to better understand the universe of track and 
trace systems and best industry practices. FDA is reaching out 
to a variety of external entities to do this. Using this 
information, we want to develop recommendations for the fresh 
produce industry to improve its internal product tracing 
systems. We plan to hold public meetings this fall--one in 
Washington and one on the West coast--to examine the 
information technology systems best practices that will enhance 
product tracing. We have been working extensively with the 
states and the fresh produce industry to encourage 
incorporation of product tracing procedures and technology.
    Finally, I would like again to thank you for your support 
of FDA's budget. Thank you for the opportunity to discuss these 
important food safety issues and FDA's continuing efforts to 
secure the safety of the food supply in the United States.
    [The information follows:]

           

                        Michael Taylor Testimony

    Ms. DeLauro. Thank you, Dr. Acheson.
    Mr. Taylor.
    Mr. Taylor. Thank you, Madam Chairwoman, ranking member 
Kingston and members of the Committee. I thank you for the 
opportunity to testify today.
    The outbreak of illness that Dr. Acheson has just discussed 
sickened over a thousand people all across the country and did 
devastate the tomato industry, and the inability of public 
health officials to promptly and definitively identify the food 
vehicle and ultimate source of contamination has been a matter 
of great public concern. And I agree that the management of 
this outbreak must be carefully examined, both to see what if 
any breakdowns occurred and to learn lessons for the future.
    However, regardless of whether we find that this particular 
outbreak could have been managed better, one thing is crystal 
clear to me. The fundamental problem is with the system itself, 
not with how it operated in the case of salmonella St. Paul. 
Many capable people work hard and do the best they can to 
investigate outbreaks, but they work with an institutional 
arrangement and with tools that are not up to the task.
    Unfortunately, these same observations hold for the food 
safety system as a whole. Thus, I hope Congress will invest 
effort not only in fixing outbreak response and investigation, 
but also in modernizing our entire food safety system. 
Fundamental system change is badly needed to achieve a cost-
effective food safety system that does a much better job of 
preventing outbreaks and other occurrences of food borne 
illness.
    To be sure, prompt, accurate, and complete outbreak 
investigations are an essential part of an effective food 
safety system. First and foremost, they enable us to contain 
outbreaks, which prevents more people from getting sick, but 
equally important, good outbreak investigations provide 
critical information that both industry and government can use 
to prevent future outbreaks.
    As we have been reminded recently, however, large multi-
state outbreaks are inherently difficult to investigate. Time 
is of the essence, and any agencies are involved at all levels 
of government, and they come with widely varying degrees of 
expertise and resources. Data from multiple sources must be 
compiled and analyzed, and decisions with potentially great 
public health and economic impact must be made and communicated 
in the face of unavoidable uncertainty and unrelenting 
scrutiny. To perform well in these circumstances, the system 
for responding to investigating multi-state outbreaks must 
include at least 87 elements in my judgment, and they're really 
just a matter, I think, of common sense.
    The first is focused federal leadership and accountability 
for managing the overall effort. The second is well-defined 
institutional roles all across the federal, state, and local 
system. Third is necessary expertise and capacity at all levels 
in the system. We also need effective trace back systems as 
we've heard, much more seamless data collection and sharing 
across this system.
    Industry engagement is critical in coordinated public 
communication. I think these are the seven elements that are 
necessary for effective outbreak investigations, multi-state in 
particular. And, fortunately, I think we've learned that the 
current system is really lacking in various respects in every 
one of these basic elements.
    At the federal level there is no single agency, the 
chairwoman indicated, or federal official who is clearly in 
charge and accountable for the overall management of the 
effort. Collaboration among federal, state and local agencies 
during multi-state outbreaks is essentially ad hoc. The 
expertise and capacity of state and local agencies vary widely. 
The trace back system is antiquated and slow. There are no 
standardized approaches to collecting, analyzing, and sharing 
the epidemiological data and other information needed to flow 
unobstructed in multi-state outbreaks.
    And, finally, there are no established mechanisms for 
tapping the expertise and information of the food industry. And 
in some cases, there is a lack of adequate coordination of 
communications with the public.
    Madam Chairwoman, these observations are not new. They've 
been made by others before, but I hope the most recent 
salmonella outbreak will finally provide the motivation to act 
and to establish a real system for managing multi-state 
outbreaks. As I've noted, however, the problems with outbreak 
response and investigation are just a microcosm of what plagues 
the food safety system as a whole. Lack of a clear focal point 
for leadership and accountability, fragmentation of government 
food safety efforts, and a lack of adequate resources and 
modern tools, Congress needs to fix the system as a whole.
    The most fundamental step, I believe, is for Congress to 
give the government's food safety system something it has never 
had before, which is a modern, public health mandate, to 
prevent food borne illness. Our current statutes don't provide 
that basic mandate. Experts in government industry and 
academia, I think, all agree that the adoption of science and 
risk-basked preventive controls throughout the food system is 
the only way to truly protect public health and ensure public 
confidence in food safety.
    Madam Chairwoman, you have recognized for years the need 
for comprehensive reform of the nation's food safety system, 
including a modern, prevention oriented, statutory mandate and 
the unification in a single agency of all federal food safety 
programs, including those at FDA, USDA, and EPA. Over the long 
run, I agree such unification to a mandate is the only way to 
make cost-effective use of the resources the Federal Government 
invests in food safety.
    But you also realized the first major step towards 
comprehensive reform should be to address the fundamental 
problems, I should say, in the HHS, food safety programs, 
including this at both FDA and the Centers for Disease Control 
and Prevention. And I'm delighted to hear of your announcement 
of plans to introduce legislation to address this. Their 
efforts, as well, of course in the Senate and elsewhere in the 
house, address this issue of modernization of a statutory 
mandate for FDA. But, again, in my view Congress should not 
stop there.
    You have indicated organizational reform is also essential, 
and I really do believe that we've got to go all the way and 
create a structure within HHS, the cures of the fact that the 
current system at FDA is fragmented, is buried in the 
bureaucracy, and really doesn't have the cloud in the system to 
provide the necessary leadership, nationally and 
internationally on food safety that we should be getting from 
the FDA and HHS food safety efforts.
    Finally, this subcommittee is well aware of the resource 
challenge facing FDA's food safety program; and, as Dr. Acheson 
indicated, the appropriations for 2008 are I think a healthy 
step in the right direction, but further increases are needed 
in 2009, I believe, and beyond, to support the necessary 
modernization of the system.
    I would urge Congress to step back and undertake a serious 
study of how to establish an adequate, stable, and predictable 
funding base on the HHS, FDA, food safety program, for the long 
term, and to consider the full range of options for funding 
that budget. In the meantime, however, this subcommittee can 
help drive change toward the risk-basked and prevention 
oriented system to which we all aspire by funding high priority 
initiatives to implement the risk-based, prevention oriented 
approach to food safety embraced in FDA's own food protection 
plan and in the kind of legislative proposals that you're 
talking about.
    Such funding initiatives could include identifying the 
highest priority risks and devising risk management strategies 
to reduce them. It could include establishing and funding 
within HHS a real focal point with increased resources for food 
safety epidemiology the tools we need to detect and prevent 
problems, implementing preventive controls to ensure the safety 
of fresh produce, which the industry itself is calling for, and 
conducting an independent, I think, important foundation if 
we're going forward to conduct an independent compliance audit 
of FDA's seafood HACEP program to learn from experience how 
best to ensure the effectiveness of preventive control 
programs.
    Madam Chairwoman, recent events do provide strong 
motivation to improve our organizations food safety system, and 
I do applaud the efforts of this subcommittee to drive change 
and to achieve assistance, to which we all aspire.
    Thank you.
    [The information follows:]

           

    
                         Jeffrey Levi Testimony

    Ms. DeLauro. Thank you, Mr. Taylor.
    Mr. Levi.
    Mr. Levi. Chairwoman DeLauro, Ranking Member Kingston, and 
members of the subcommittee, thank you for the Specific to 
testify before you today regarding the appropriations for food 
safety activities at the FDA. Trust for America's health is a 
nonprofit, nonpartisan organization dedicated to saving lives 
by protecting the health of every community and working to make 
disease prevention a national priority, and we applaud the 
committee for continuing its examination of the food safety 
functions at the federal level.
    My written testimony describes some findings from our 
report on food safety and my oral remarks. I want to focus on 
two issues related to assuring a modernized food safety system: 
The FDA's Food Protection Plan and the funding levels needed by 
the FDA for implementing that plan. Anyone who picked up a 
newspaper in the summer of 2008 knows America's food safety 
system is broken. Too many people got sick, and too many 
millions of dollars were lost from American businesses before 
the real problem was correctly identified. More than ever, the 
American people deserve an FDA with a plan and resources it 
needs to protect them, or an independent food safety agency 
with the plans and resources it needs to protect.
    The Food Protection Plan issued in November 2007 sets broad 
goals for improving food safety in the United States. However, 
while it provides an agenda for Congress, it lacks the 
specificity about goals and objectives and implementation 
strategies that would allow the Congress and the public to 
determine what resources are needed to implement the plan and 
what milestones could be used to measure the progress of the 
FDA in making our food system safer.
    At a hearing in June, Dr. Acheson was unable to report 
exactly how much money the FDA actually needed to be more 
effective and to implement the Food Safety Plan. I fail to see 
how the FDA can go from being an agency in crisis to a modern, 
capable preventive body without clearly stating its funding 
needs.
    We would suggest that if the agency cannot identify the 
dollars that are needed to implement the Food Safety Plan that 
Congress should deny the FDA the ability to spend increased 
funds until it receives a realistic budget request for the 
FDA's long-term modernization road map. We're not asking you to 
cut the base funding, but to withhold any increases until they 
deliver that detailed plan.
    Dr. Acheson's testimony today is a good start in 
identifying how the agency plans to spend the fiscal 2008 
increases, but it is unclear how these allocations fit into the 
mid- and long-range implementation of the Food Protection Plan. 
The FDA should be able to provide similar details regarding the 
fiscal 2009 increases that have been requested. In any event, 
this doesn't answer--even that information does not answer the 
fundamental question about long-term cost of implementation of 
the Food Protection Plan and measurable milestones associated 
with funding increases.
    TFAH has always advocated for a stronger investment in the 
public health system, but we also expect accountability and 
transparency with respect to that investment. Indeed, if the 
administration is serious about modernizing the food safety 
system, each step of the implementation plan would carry with 
it a professional judgment budget number describing the 
appropriations necessary to achieve the goal, not just the 
legislative authority needed. FDA should then regularly report 
to Congress and the public with measurable benchmarks of its 
progress in implementing the plan and the funding levels to 
move it forward.
    We recommend that in the upcoming, as I mentioned, in the 
upcoming appropriation for the FDA, the committee deny the 
authority to obligate some or all of the increased funding 
contingent on the committee's receiving a detailed multiyear 
budget for implementing the Food Protection Plan, or in the 
event of a continuing resolution, the committee could indicate 
its intention to make additional funds in the final 
appropriation, conditional on FDA leadership sharing its plans 
for expenditures before the expiration of the CR.
    Let me also address the issue of specific funding levels. 
Others with far more expertise than we have identified a series 
of shortfalls within the FDA's budget overall and for food 
safety. We strongly endorse the recommendations of the FDA 
Science Board and recommend that Congress provide the requested 
funding levels in two ways.
    Congress should provide no year funding to allow FDA to 
develop a long-term plan for infrastructure transformation. The 
kind of rebuilding the FDA must undertake requires capital 
investment. The Science Board recommends increasing FDA's base 
by $450 million over the next five years for information 
technology modernization alone. Knowing that the full funding 
for a multiyear endeavor is guaranteed will facilitate this 
kind of investment. That said, Congress can and should expect 
definition of milestones and regular progress reports on 
spending that money.
    Absent specific budgetary goals associated with the Food 
Protection Plan, the committee can provide targeted funding in 
fiscal 2009 for specific policy initiatives such as those 
identified by the Science Board and by Professor Taylor in his 
testimony today.
    Congress must also assure that increases are provided in 
the FDA's base appropriation to sustain the investment that was 
made as part of the supplemental funding recently approved. We 
are pleased that the administration asked for and Congress 
approved that supplemental funding, but increased funding must 
be sustained over time to allow for effective strategic 
planning. FDA has added 1,300 professional staffers in the last 
five months, so funding must be consistent from year to year to 
sustain this level.
    Our federal food safety system is broken. The American 
people are looking to this committee and the Congress to assure 
that the FDA both has the resources it needs to fix the system, 
and provides us a clear road map for achieving a modernized 
food safety system.
    Madam Chairwoman, you and your colleagues have the 
opportunity to begin that process through the appropriations 
before you.
    Thank you for including me in this important discussion, 
and I look forward to your questions.
    [The information follows.]

           

    
                         Greg Murray Testimony

    Ms. DeLauro. Thank you.
    Mr. Murray.
    Mr. Murray. Madam Chairperson, Ranking Member Kingston, 
Congressman Bishop and other members of the Appropriations 
Committee, thank you for holding this hearing and allowing me 
the opportunity to speak with you. I'm Greg Murray of 
Bainbridge, Georgia. I farm in partnership with my brother 
Dale. We have farmed together since 1979 on the same farm that 
our great grandfather started in 1899.
    Over the years we have grown various crops, but today we 
depend on tomatoes as our primary crop. Tomatoes provide more 
than 90 percent of our farm income. In 2007, Georgia's tomato 
industry represented a value to our growers of over $60 million 
with approximately 6,000 acres of tomatoes in production. 
However, Georgia's tomato acreage is decreasing due to the 
economic pressures faced by our growers. According to a survey 
from the University of Georgia, the amount of acres planted in 
2008 is down by 20 percent from 2007.
    In the 25 years of growing tomatoes, our farm has 
experienced floods, hailstorms, freezes, droughts, poor yields, 
poor markets, disease and insect infestations and many other 
difficulties. But the one thing we have never had to face was 
the public hysteria attack caused by the media and the agencies 
of the Federal Government.
    The 2008 crop started out very good. We started picking 
tomatoes on June 2, 2008. The next day, the FDA issued a 
nationwide consumer advisory not to eat Roma red round 
tomatoes, which are the varieties that we grow, grown in 
Florida or Mexico. At first it did not appear to be a big 
problem. Tomato prices fell from $18 a box to $16 a box. Still 
a good profit.
    Shortly thereafter, the FDA issued an advisory and 
recommended retail outlets and restaurants in Texas and New 
Mexico take fresh round and fresh Roma tomatoes off their 
shelves or menu. The tomato market crumbled overnight. 
Immediately, retail and food service providers across the 
nation, not just in Texas and New Mexico, began alerting the 
consumers that tomatoes were no longer available due to the 
salmonella St. Paul outbreak as announced by the FDA.
    We are very appreciative that the FDA established a list of 
safe states that were identified as not being part of the 
outbreak. However, every day the salmonella St. Paul outbreak 
was the leading news story. New salmonella cases were reported, 
but these are from a safe state. The message was very 
confusing. This was being treated by the media as if it was a 
disease that was killing millions. The safest thing to do was 
to just not purchase retail or consume tomatoes.
    Over the next four weeks, tomato sales and prices at Murray 
Farms dropped to almost nonexistent. Even though we used good 
agricultural practices that provide a safe and traceable 
product, we left half of our crop in the field because we could 
not sell it. Of those tomatoes that we could sell, the price 
dropped to as low as $2 per box rather than a normal year at 
more than $12 a box. The fact that Georgia tomatoes were never 
implicated as having a problem did not matter. With prices at 
$2 a box, we finally threw in the towel and left over a 
million-and-a-half pounds of tomatoes in the fields to rot. 
This many tomatoes would have fed 90,000 Americans for a year.
    The University of Georgia's Center for Agribusiness 
Development released a study on July 25 estimating Georgia's 
growers suffered more than $14 million in economic losses based 
on a three-year average price of Georgia tomatoes as reported 
by the National Agricultural Statistics Service. The study also 
reported more than 41 percent of Georgia's tomato crop was not 
harvested, or the tomatoes were harvested and packed but dumped 
because the product could not be sold. The tomatoes that never 
made it to the market cost growers from 12 to 17 thousand 
dollars per acre.
    Who is to blame for this fiasco? We understand the need for 
an agency to be responsible for the safety of America's food 
supply. However, the economic disaster and loss of consumer 
confidence caused by the tomatoes and the jalapeno pepper 
announcements have been devastating to our growers. This is 
evidenced by the reduction in tomato acreage on our farm and 
other farms in Georgia now for the fall crop. We normally plant 
over 100 acres of fall tomatoes. However, this fall we cut back 
to 57 acres.
    In closing, I ask you to do three things. First, I ask for 
you to take swift action to pass mandatory food safety 
guidelines for produce that take into consideration regional 
production differences, product risk levels, and not be a one-
size-fits-all.
    Second, I ask you to require FDA to develop a plan of 
action that demands state and federal agencies to work together 
within the industry so that future responses will not become 
another false food safety awareness fiasco.
    And thirdly, I ask for swift passage of H.R. 6581, which 
will partially compensate farmers for some of the losses due to 
the food safety scare caused by the Federal Government. We 
believe we are in the same situation as growers of other 
commodities whose crops were destroyed by a natural disaster. 
In this case, our natural disaster was initiated from 
Washington.
    Thank you for this opportunity to share this with you. I 
will be happy to answer any questions.
    [The information follows:]

           

    
                            FDA AUTHORITIES

    Ms. DeLauro. I'd like to say thank you to all of you for 
your testimony. Dr. Acheson, as I said in my opening statement, 
I do not want to spend a lot of time re-litigating the 
salmonella St. Paul outbreak investigation.
    Dr. Acheson. Yeah.
    Ms. DeLauro. But given the enormity of the public health 
issue, the upheaval to parts of our produce industry, and the 
public confusion about exactly what went wrong here, I would 
like to ask you a simple, forward-looking question. Is there a 
critical piece of authority or tool that FDA currently lacks 
that we did not have that would have been helpful to you in 
getting to the bottom of the salmonella outbreak faster and 
would have lessened the problem? I would also like to ask Mr. 
Taylor, Mr. Levi, and Mr. Murray to comment on that as well. So 
I want to get your answer about what critical piece of 
authority or tool.
    Dr. Acheson. Thank you. Let me caveat my answer with 
supporting earlier comments about the need to look at the whole 
public health infrastructure. Protecting the public health 
along the lines that we're discussing is not just FDA's role. 
It involves local, states and CDC.
    But to your question, specific FDA authorities, the key 
piece is prevention. We've already requested authority to 
require preventative controls for high-risk foods, which would 
unquestionably include fresh produce of certain types, and 
tomatoes would be part of that, as would leafy greens. So 
that's one piece, prevent the problem in the first place.

                          TRACE-BACK AUTHORITY

    The second critical part to this is something that wasn't 
included specifically in our legislative proposals, is to 
consider whether a mandatory requirement for traceability would 
be appropriate. We are going down a road of examining what is 
going to work, what's the characteristics of an intraoperable 
system that is connected from one end to the other, and that 
needs more thinking, but I think if that were in place and 
everybody was adhering to it, from the very small to the very 
large, it would have an impact. If it was just the large, it 
would not be effective.
    Ms. DeLauro. Quickly, in your opinion, does FDA currently 
have the authority to mandate trace-back?
    Dr. Acheson. FDA does not have explicit authority to do 
that, although there is some legal question whether it could be 
worked in through----
    Ms. DeLauro. Former Commissioner Kessler says that you do 
have that authority.
    Dr. Acheson. Our attorneys do not believe we have explicit 
authority.
    Ms. DeLauro. Whose responsibility is it, a trace-back?
    Dr. Acheson. FDA's.
    Ms. DeLauro. It's FDA's? I'm happy to hear you say that. 
Earlier on, my understanding was that the response was the 
industry's responsibility. That was a quote from--that trace-
back is an industry responsibility. But your view--I want to 
get to the answer today, which is it's FDA's responsibility.
    Dr. Acheson. It's FDA's responsibility from a federal 
level, but it's industry's responsibility to have a system that 
will allow us to do it.
    Ms. DeLauro. But it's FDA responsibility at the federal 
level to have a trace-back mechanism?
    Dr. Acheson. I would say so, yes.
    Ms. DeLauro. Okay. Mm-hmm. Let me ask--and the question 
that I ask, because I want to hold to my five because there 
will be several rounds here today. Critical piece of authority 
or tool the FDA lacked in terms of this issue. Mr. Taylor, Mr. 
Levi, Mr. Murray, and then also ask you about the trace-back 
piece. Mr. Taylor?
    Mr. Taylor. I think we would all agree that prevention in 
the first place and the authority to require preventive 
controls and to actually go forward and do that I think is a 
critical piece of the tomato industry.
    Ms. DeLauro. Mandatory?
    Mr. Taylor. Mandatory, enforceable standards on the farm 
for preventive controls.
    Ms. DeLauro. As Mr. Murray was pointing out?
    Mr. Taylor. Yes, the same basic idea.

                        FDA AND CDC INTERACTION

    Ms. DeLauro. Okay. Mm-hmm.
    Mr. Taylor. The issue of--it's not a legal authority issue 
per se, but the separation between CDC and FDA in treating the 
CDC epidemiological investigation to identify the food vehicle 
and then turning it over to FDA to do the trace-back as though 
those aren't really the same integrated investigation is a 
serious mistake, and that's why we got off on the wrong track I 
think and didn't have the information, all the information on 
the table at the same time, including what industry could say 
about distribution patterns and so forth. And so it slowed the 
process down.
    The trace-back issue, I'll give you my take on trace-back. 
I think the government should set a standard and hold companies 
accountable for being able to give to FDA promptly the 
information about where food came from, whether you're a 
retailer or a processor. The government shouldn't be doing 
gumshoe, you know, shoe leather work, to go through records and 
trace this down. Companies need systems, but there ought to be 
a public accountability for being able to turn over that 
information quickly so then government can go and investigate 
the places where the product has been and determine what the 
problem was and to do that containment work, and also that 
discovery of root cause work.
    Ms. DeLauro. Mr. Levi.
    Mr. Levi. I would second all that and add one other piece 
to it, which is it's not just the communication between CDC and 
FDA, but also the information flow from the states to the CDC. 
CDC is in a sense dependent on what comes from the states, and 
the capacity of states to provide timely, accurate information 
is also tremendously variable. And I think there's a national 
interest given how food production occurs for the Federal 
Government to assure a minimum standard that occurs at the 
state level as well.
    Ms. DeLauro. Mr. Murray.
    Mr. Murray. Well, it has to be mandatory. I mean, I already 
do it voluntarily, but it doesn't matter, you know, if someone, 
you know, damages the food supply. But the question is, can we 
mandate what Mexico does? This problem apparently came from 
Mexico.
    The other question with the trace-back is--I mean, that's 
to me not a difficult situation. I mean, we already code our 
boxes with the date and the harvest. We should be putting, you 
know, each produce farm should have a number, an identifier 
number that's unique to that farm. I think we already have one 
with the Biosecurity Act of 2002. But, you know, it's simple 
enough. It's not rocket science, I mean.

                    PRODUCT TRACEABILITY INITIATIVE

    Ms. DeLauro. Your point is well taken, Mr. Murray. I'll 
make a couple of just quick points. The fact is, Dr. Acheson, 
and I think you know this, that the industry effort called the 
Produce Traceability Initiative has been just finalized a plan, 
timeline for implementation of case-level traceability 
standards. Industry has learned a lesson after working with 
weakened trace-back rules under the Bioterrorism Act. They're 
now being very proactive on it. I don't happen to believe that 
that ought to supplant a Federal Government regulation, but I 
applaud the work of the industry on this effort, and a comment 
I'm going to just make, FDA has come late to this issue of 
trace-back and this initiative, to the table, in my view.
    In terms of prevention, as Mr. Taylor pointed out as being 
mandatory, this prevention aspect, when you said prevention in 
your view is that mandatory as well?
    Dr. Acheson. Absolutely.
    Ms. DeLauro. Okay. Thank you. Mr. Kingston.

                     IMPORTED FRUITS AND VEGETABLES

    Mr. Kingston. Thank you, Madam Chair. Mr. Murray, on market 
share to Mexico and other countries, do you have any statistics 
on, say, fruit and vegetable and how much we're buying 
overseas?
    Mr. Murray. The last figure I've seen a year or two ago was 
we were at the point that we were soon going to be buying more 
of our food from overseas produce. We were reaching that point.
    [Interruption to the proceedings.]
    Mr. Murray. We were reaching the point about a year or so 
ago where we would be importing more of our food than we were 
exporting.
    Mr. Kingston. And Dr. Acheson, what are you going to do 
about that?
    Dr. Acheson. That's economics and consumer preferences 
that's driving that. Our role is to ensure that it's safe, 
whether it's coming from a foreign country or domestic.
    Mr. Kingston. Well, the economics may be driven by an 
inefficient, ineffective government regulatory environment, 
which we could be approaching pretty quickly. Mr. Levi made a 
very good point about lavishing money on a government agency 
without a plan, which is in fact what happened last year, $150 
million on FDA without any plan whatsoever. And we're seeing 
the plan now, but it's funny. I've never seen a plan in 
Washington that did not ask for more spending and more 
authority, because that's what government agencies tend to do. 
But it would appear to me that, you know, under the good 
intentions of food safety that the next thing we know, even 
though Mr. Murray is calling for mandatory regulatory 
environment, the next thing you know, the government is going 
to be his partner down on the farm, and might be big enough to 
afford it, but there will be others who can't afford that, and 
then we'll have less opportunities for mom and pop farms, more 
opportunities for the big farmers, not necessarily the Murray 
family, but big corporate kind of farms. And, you know, it's 
going to be great for the big guys, but it's going to run off 
the small players who often are the market mechanism that keeps 
the food supply affordable. And what you just said is that, you 
know, you don't have any authority on imported food, correct?

                         FDA BEYOND OUR BORDERS

    Dr. Acheson. That's not what I said.
    Mr. Kingston. Oh, okay. Excuse me. You said it was a 
function of market or----
    Dr. Acheson. Well, you were asking me what we're going to 
do about the fact that imports are rising.
    Mr. Kingston. Yes.
    Dr. Acheson. And there's nothing we can do about that.
    Mr. Kingston. Well, I'm talking about from the food safety 
standpoint.
    Dr. Acheson. Oh, absolutely. There's a great deal we can do 
about that.
    Mr. Kingston. And what are you going to do?
    Dr. Acheson. Well, we've developed a whole approach in 
terms of FDA beyond our borders, because philosophically, the 
agency has been focused on inspecting at the port of entry. We 
recognize that is not going to get to the production life 
cycle, which is what's key, what's going on in a manufacturer 
in China, in a farm in Mexico, and a cantaloupe grower in 
Honduras. Whatever it is, are those preventative controls in 
place? What's the production life cycle? To do that, we've got 
to understand where the risks are. To help do that, we've got 
to integrate better with industry, to understand what they're 
doing, with the foreign governments, to understand what they're 
doing to begin that process. We're establishing a presence 
overseas in a number of key areas, as I mentioned, in five 
different parts of the world, to begin that process. At the 
port of entry we are reexamining how do we use our risk-based 
approaches so that the inspections that are being done--because 
there's no way you can inspect or test your way through this. 
You can't test everything and you can't inspect everything. So 
you need a risk-based approach. How do we get there? We need 
the data from this information from overseas, from other 
sources, to help inform what should that risk-based inspection 
be, so you're actually testing the foods that are of greater 
concern, increasing your chances that there will be a problem.

                                PREDICT

    The tool that we're currently examining to do that is 
something called PREDICT. We've rolled that out. We've 
experimented with it with seafood in the Port of Los Angeles 
that looks like it's good. It needs peer reviewing. It needs 
looking at, but my belief is that that will extend to seafood 
in other ports and ultimately to other foods. To do that, 
you've got to empower that system with the risk-based 
information, because it's only as good as the information 
flowing into it and the data.
    Mr. Kingston. Why couldn't you do PREDICT on domestic food?
    Dr. Acheson. You could. You could. PREDICT was built to 
essentially focus on imports, but the concept of risk-based 
approaches to determining where you put your inspectional 
resources is a foundation of the intervention part of the Food 
Protection Plan.
    Mr. Kingston. And just so that we're all on a common 
definition of risk-based inspection, what is that?
    Dr. Acheson. It means that where an inspector goes and what 
they sample and what they inspect is determined by the 
likelihood that where they're going and what they're inspecting 
will be linked to a foodborne illness, so you're not spending 
your time going and inspecting a facility which is very likely 
to be perfectly okay.
    Mr. Kingston. Have you ever discussed that concept with our 
friends at the USDA? Dr. Raymond?
    Ms. DeLauro. Dr. Raymond.
    Mr. Kingston. Have you----
    Dr. Acheson. I have talked to Dr. Raymond about some of 
those things, yes.
    Mr. Kingston. Well, I would encourage you to pursue that 
discussion. And my time is out.
    Ms. DeLauro. A quick point of clarification, Dr. Acheson, 
and I talked about mandatory prevention. We're talking about 
mandatory prevention standards. Is that--when you talk about 
standards, performance standards, mandatory standards, is that 
what you mean by enforceable standards?
    Dr. Acheson. Absolutely. Yes.
    Ms. DeLauro. I just wanted to have clarity on that in terms 
of traceability and on the standards in the way that folks have 
been talking about here today. Mr. Hinchey.

                       INCREASE IN TOMATO IMPORTS

    Mr. Hinchey. Thanks very much, Rosa. This is a very 
fascinating subject, frankly, and I very much appreciate 
everything that you've said. All the testimony has been very 
interesting. One of the interesting things to me, frankly, is 
the way in which the downgrade in the quality of agricultural 
products imported into the country and the impact, the health 
impact that they had on even vets in a couple of cases, has not 
just on those people but on the agricultural industry here in 
the United States. Now the initial reaction was to focus 
attention on a domestic product, and then the impact that had 
on that domestic product, if I understood Mr. Murray's 
testimony, it certainly did have a very positive impact on his 
economic situation there, isn't that correct?
    Mr. Murray. Very negatively, yes.
    Mr. Hinchey. And you said that the amount of agricultural 
products is down by 20 percent over the course of the last 
year, or the tomato product, actually?
    Mr. Murray. Yes, tomatoes, yeah. Tomatoes are--we are 
receiving a lot of imports now from Canada and Mexico that's 
hurt the tomato industry greatly.
    Mr. Hinchey. And as the imports come up, our dependence on 
foreign agricultural products, our ability to oversee, though, 
the safety and security of those agricultural products is 
downgrading, isn't it, Mr. Acheson?
    Dr. Acheson. Without an increase in resources and new 
technology and new approaches, the numbers of inspections that 
are going to be done are going to be dwindling relative to the 
total numbers of shipments.
    Mr. Hinchey. They're going to be dwindling, and they have 
been dwindling.
    Dr. Acheson. They have been, yes.
    Mr. Hinchey. And that's one of the deep causes of our 
concern, because we can be pretty secure that in a lot of 
places, the oversight, the dealing with these products, is not 
going to be handled in the most effective and efficient way, 
and safety and security is going to continue to decline unless 
we do something serious about it. I think what our chairwoman 
was suggesting was the establishment of a very specific 
security operation within FDA to oversee the safety of the 
agricultural products. I think that's a positive step forward. 
Don't you think so?
    Dr. Acheson. I would question whether it's wise to focus 
specifically on agricultural products. I think we need to be 
looking at the food safety system across the board. I mean, 
look at what we're dealing with right now is melamine 
contamination of infant formula in China. We need to be nimble 
to be able to respond to anything and everything whether it's 
microbiological, chemical and wherever in the world it comes 
from
    Mr. Hinchey. Well, that's what I'm talking about. I'm not 
just saying that it's the quality of what's grown, it's the way 
the products are handled as they're developed, as they're 
grown, and then as they're marketed. That's really the problem, 
and it doesn't get nearly enough supervision. There's not 
nearly enough security. Isn't that correct?
    Dr. Acheson. Let's differentiate security from safety. I 
think when you say security, do you mean food safety?
    Mr. Hinchey. What I mean by security is securing that when 
the products come into this country that enough oversight has 
been engaged in to make sure that they're not going to be 
contaminated in some way or they're not going to have some 
negative effect on the health and safety of America.
    Dr. Acheson. Exactly. And that gets back to the requirement 
for preventative controls.
    Mr. Hinchey. Preventative controls?
    Dr. Acheson. Exactly. And that--but that's only as strong 
as the enforcement capabilities to make sure that they are 
being followed. Simply writing the legislation and putting the 
law in place is only a part of it. You've got to be able to 
enforce it.
    Mr. Hinchey. Well, yes, but what's the defect in terms of 
the enforcement, providing you have those operations in place?
    Dr. Acheson. A defect? What----
    Mr. Hinchey. What is going to undermine the ability to 
enforce it, if you have those operations?
    Dr. Acheson. Frankly, a lack of inspectional resources to 
do that.
    Mr. Hinchey. Oh, yes. Okay. So that's what this--that's one 
of the main reasons why this committee is holding this hearing.
    Dr. Acheson. Yeah.
    Mr. Hinchey. Because it has the responsibility to ensure 
that the funding is proper and----
    Dr. Acheson. Well, it's critical to link the two.
    Mr. Hinchey. Yes.
    Dr. Acheson. You require the preventative controls and you 
make sure that they are being followed.
    Mr. Hinchey. Oh, yeah. We know that very well. But we've 
had a lot of disappointments with the Food and Drug 
Administration over the course of years, seeing the inadequacy 
and the way in which they deal with their obligations and 
responsibilities, and the impact that the expression of that 
adequacy has had on the safety and health of people.
    So, it's not just the law, it's not just the funding. It's 
the seriousness of the people who are given the responsibility 
to carry out this obligation.
    Dr. Acheson. Let me assure you, we're very serious about 
FDA about ensuring food safety.
    Mr. Hinchey. Well, I like to believe that.
    Dr. Acheson. Please do.
    Mr. Hinchey. But I don't.
    Dr. Acheson. What can I do to convince you?
    Mr. Hinchey. You can continue to do something more than 
what's going on, because we have seen a lot of examples of a 
decline in food safety in a variety of ways. I mean, this is 
one example. It's a very serious example, but it's not the only 
example. We have seen a lot of examples over the course of the 
years. I don't think we've had a chance to talk to you about it 
before specifically, but we've talked to a lot of other people 
in FDA about this, and, frankly, got the clear understanding 
that in many cases, they didn't know what they were doing or 
how to do it. So that's one of the things that is of deep 
concern to us.
    What about this issue of radiation? Isn't it possible, if 
not likely, that the idea that you're going to improve the 
safety of a product by radiating it, making it potentially 
possible that that's going to downgrade the security in some 
other way, the safety in some other way?
    Dr. Acheson. Irradiation is unquestionably to FDA's view 
not a silver bullet.
    Mr. Hinchey. Pardon me?
    Dr. Acheson. It is not a silver bullet. Irradiation is not 
a fix to the critical need for preventative controls. If you 
irradiate thinking you're going to be able to forget about 
preventative controls at the farm level, you're deluding 
yourself.
    Mr. Hinchey. Right.
    Dr. Acheson. It's not going to work. It's not going to be 
effective.
    Mr. Hinchey. How much attention is being focused on 
irradiation?
    Dr. Acheson. How much attention?
    Mr. Hinchey. Yeah.
    Dr. Acheson. At FDA?
    Mr. Hinchey. Yeah.
    Dr. Acheson. We just, as you know, we just put out this 
notice about iceberg lettuce and spinach to allow irradiation. 
There is a petition submitted to FDA looking at a number of 
other products. That's working through. Dr. Sundlof could 
certainly speak to what his center is doing on that.
    Mr. Hinchey. Thank you very much.
    Ms. DeLauro. Mr. Latham.

                      MORE FUNDING FOR FOOD SAFETY

    Mr. Latham. I thank the Chairwoman and I know her interest 
in food safety and we've shared that together for many years, 
and as all members of the subcommittee, we all know we need to 
do more to insure that the safety of our food supply is at 
optimum level.
    And let me express frustration here today. Today is 
September 17, it leaves us only 13 days left in the fiscal year 
2009 budget, and we passed only appropriation bill off the 
floor of the House. It has nothing to do with food safety or 
this subcommittee. And because we're facing the CR, this means 
that the 2008 levels of funding are going to continue in the 
next year. And FDA, we may have an anomaly here as far as a 
bump in the CR, but everybody here is arguing about more 
funding for food safety, and the fact of the matter is it isn't 
going to happen under a CR.
    And it's not a fault of the Chairwoman; there's no question 
about that. It's not a fault of the administration. They don't 
pass appropriation bills. You can argue about funding levels at 
the end of it, but it's up to Congress to actually pass 
appropriation bills, and we have not done our work and woefully 
not done our work.
    But whatever we decide is the proper funding for '09 for 
FDA, we need to have an appropriation bill to make that happen. 
And I just hope with the Chairwoman that we can get this done 
some day around here. Just when?

                  TOMATOES AND THE SALMONELLA OUTBREAK

    So I ask you a question. Dr. Acheson, I just really am 
curious as to what actually happened. I mean you've got Mr. 
Murray here, who has been devastated, that it certainly 
appeared to everyone that, you know, there was the tomato 
problem, and then it's not the tomatoes. We don't know where 
they came from. I believe it's from Mexico, but let's, you 
know, wipe out the Georgia tomato producers in the meantime.
    What is the responsibility? Have you actually identified 
what it was yet?
    Dr. Acheson. Do I need to take you through the process of a 
walk-through, or----
    Mr. Latham. Well, where is your jurisdiction, and have you 
identified the cause of the outbreak?
    Dr. Acheson. The response to an outbreak is an integrated 
approach, as we've been discussing, beginning with local health 
departments, actually beginning with physicians and patients, 
and identification of a Salmonella outbreak, which starts at a 
local level. Ultimately, if it's multi-state it works up to the 
Centers for Disease Control.
    This began in mid-April, the first people started to get 
sick. It took from then until the end of May before essentially 
the Centers for Disease Control and the local and state health 
authorities implicated tomatoes through epidemiological 
studies.
    Mr. Latham. On what basis?
    Dr. Acheson. That was done through epidemiology case 
control studies. That is under the jurisdiction and control of 
Centers for Disease Control and the local and state health 
authorities. FDA has nothing to do with that, other than 
observing it and following it.
    Mr. Latham. Okay. So you were not in the loop at that 
point?
    Dr. Acheson. We're in the loop in that we know that 
something is----
    Mr. Latham. You're watching?
    Dr. Acheson. We're watching. We have liaisons at CDC. It's 
not like we don't know that something is coming. We know 
there's a Salmonella outbreak. What's it due to?
    Then on May 31 FDA is told the case control study indicates 
that this is tomatoes, with a high degree of statistical 
probability. That was the same sort of information that was 
used to go after peanut butter with Salmonella. No positives in 
any samples at that time. It's just a strong statistical 
epidemiological association with a specific brand of peanut 
butter. That was in 2007.
    Mr. Latham. No samples identified?
    Dr. Acheson. No. But that's typical. That's not unusual. At 
that point FDA on June 1 begins the trace-back process. And 
what does that mean? It means FDA goes to the restaurant or the 
retailer where that person purchased the tomato that made them 
sick, and asks, ``Where did you get your tomatoes?'' And 
they'll say, ``Well we got them from three suppliers.''
    You go to each one of those suppliers, ``Where did you get 
your tomatoes?'' Each one will send us back to three 
distributors. And it just mushrooms out into a spider web of 
complexity. And we're doing this, and every one is one-up, one-
back, one-up, one-back, inspect, get the records.
    Many of the suppliers and distributors here were small, so 
they only had paper records. There was nothing electronic. We 
have to get these paper records, get them back to headquarters, 
look at them, analyze them, connect them to the next piece.
    That essentially took us through the month of June, as we 
were working our back here. And we were implicating two growing 
areas. Because the goal here is to find out where did the 
problem occur----
    Mr. Latham. At this point, had you put out the advisory at 
that point yet to the public?
    Dr. Acheson. Yes, we had.
    Mr. Latham. So, okay. Go ahead.
    Dr. Acheson. And that advisory is put out based on the 
epidemiological association.
    And we have two choices there. We either simply stay 
silent, waiting to try to find a positive as people continue to 
get sick. Or we go out with the best information that we have 
to inform consumers. And we choose the latter, because that's 
the optimal track to protect public health.
    As was pointed out, in this particular outbreak, we tried 
to limit industry damage by developing a list of growers, which 
included Georgia, California, and other places, which were not 
implicated because they weren't in the growing season when this 
all began. And we were making concerted efforts to----
    Mr. Latham. Did you tell the public that? I mean basically 
all I remember is you told, don't eat tomato.
    Dr. Acheson. We did tell the public this----
    Mr. Latham. That it's okay if they came from Georgia or 
Florida, or no?
    Dr. Acheson. Let me rephrase this. We told the media many, 
many times about our exclusion lists. We did many media calls, 
we discussed that. What the media choose to report to the 
public is not under our control.
    The fact that FDA has an exclusion list----
    Mr. Latham. Now we have a common enemy. [Laughter.]
    Dr. Acheson. So this extended through the month of June. 
Focusing on tomatoes took us back to two places geographically, 
Florida, Mexico. We sent investigators down there. Could we 
find a problem? At the same time the outbreak was continuing, 
CDC and the locals were going back, asking new patients, ``What 
did you eat? Where did you eat it?'' And that's when Serrano 
and Jalapeno peppers began to come out as a potential problem.
    Mr. Latham. Did they ever find a trace in the peppers?
    Dr. Acheson. Yes. We were able to trace peppers back 
through originally to a distribution center in Texas; we found 
positive pepper samples at that distribution center that had 
the outbreak strain. That took us back to farms in Mexico, and 
we found the positive outbreak strain in irrigation water in 
Mexico----
    Mr. Latham. Aren't you still----
    Ms. Kaptur. Will the gentleman yield--Mr. Latham, could I 
just ask where in Mexico?
    Mr. Latham. I have very limited time is the only thing.
    Ms. Kaptur. Where in Mexico?
    Dr. Acheson. Talapuas, yes.
    Mr. Latham. Okay. But you said earlier that you're 
investigating tomatoes?
    Dr. Acheson. No.
    Mr. Latham. You're not? Tomatoes are all okay now?
    Dr. Acheson. Well, we made an announcement in the middle of 
July that tomatoes were okay.
    Mr. Latham [continuing]. Pepper--maybe, you never 
conclusively said that.
    Dr. Acheson. No, we----
    Mr. Latham. Never reported that you had completely 
eliminated tomatoes as a cause of the outbreak.
    Dr. Acheson. No, that's not what I said. Don't let me 
confuse you. In the middle of July we announced that tomatoes 
that were on the market in the middle of July were not 
associated with the outbreak and were perfectly okay to 
consume.
    Mr. Latham. Did they ever test the peppers?
    Dr. Acheson. Who?
    Mr. Latham. The CDC?
    Dr. Acheson. The CDC typically don't test the foods, we do. 
And so do other regulatory agents. We tested a lot of tomatoes 
and a lot of peppers, and we found nothing positive on 
tomatoes, but we did find positive peppers.
    Mr. Latham. Okay. The CDC--and just indulge me here so I 
can get this--but you said you were observing the CDC and the 
epidemiologist thought it was tomatoes.
    Dr. Acheson. Correct.
    Mr. Latham. Did they look at peppers?
    Dr. Acheson. In those early epidemiological associations I 
think peppers were part of the general questions, but peppers 
did not come to the surface as a likely vehicle in the first 
round.
    Mr. Latham. Even though they were found positive?
    Dr. Acheson. Even though what?
    Mr. Latham. Even though later they were found to be 
positive.
    Dr. Acheson. Yes. In a subsequent case control study, they 
did come to the top of the list, peppers, all peppers.
    Mr. Latham. Okay. Thank you, Madame Chairwoman.
    Ms. DeLauro. I just want to, just for clarity's sake, 
because I think Mr. Taylor said something early on. It's not 
the work that was done, it's not the well meaning of the people 
who were doing the work. All of that is--the people pour their 
heart and their soul and their knowledge, et cetera, into 
trying to figure it out. It is the system that is broken.
    You still do not have mandatory traceability, mandatory 
performance standards with which to gauge this.
    You're looking for a needle in a haystack, because the 
system is broken. And nor are we seeing yet today the changes, 
fundamental changes that need to be made in the system in order 
not to repeat this fiasco.
    And that is what is--what I say, and I speak for myself. We 
can go back and go back and re-litigate it. But the point is: 
How do we break what's been done? If need be, start from 
scratch and figure out the system that doesn't put this man out 
of business and doesn't send people to the hospital or kill 
them, because we can't put a system in place and design it. 
That is what is at issue.
    Mr. Bishop, I'm sorry to--you've got plenty of time. But 
let's not get caught up in the past, but let's look to the 
future, and what we need to try to do.
    Mr. Bishop?

                     NATIONWIDE FOOD SAFETY PROGRAM

    Mr. Bishop. Thank you very much, Madame Chairman.
    I certainly appreciate the passion with which you are 
attacking this issue. I also appreciate the challenges that are 
faced by all of the people sitting in front of us, particularly 
Mr. Murray.
    I want to go back to--recommendation--Mr. Murray's 
testimony. Basically Mr. Murray recommended that we do pass a 
mandatory food safety program nationwide, based on commodity 
risk. And Madame Chairman has offered the Food Safety 
Modernization Act. And I think that we are very, very 
interested in the comments that each of you have made and are 
making in response to that.
    Secondly, Mr. Murray suggested that that system needed to 
have as a part of it a much stronger interaction between the 
federal and the state agencies that are charged with food 
safety.

                               H.R. 6581

    And the third aspect which Mr. Murray brought forth is the 
swift passage of H.R. 6581, which--the compensation for the 
tremendous economic loss that was suffered.
    Now of course, we will have to address that, and of course 
legislation has been offered in the form of this authorization 
bill, as well as a request for consideration in our CR and 
supplementals that we may possibly be able to get before the 
end of the session. Request had been made for that. We don't 
know if it will be successful or not.
    But with regard to the future--forward, as Madame Chairman 
suggested--do you think as a part of our system we need to look 
at crop insurance for economic disaster, as well as--we now are 
accustomed to natural disaster? But his is a manmade, and it's 
an economic disaster, so it's no fault of your own.
    Should we not build in as a part of the system some form of 
crop insurance that would allow you to be compensated through 
some form of insurance for the risk for these economic losses? 
What kind of support would a program like that need, Mr. 
Murray? And if there are other members of the panel that would 
care to comment on that, I'd like to hear that. Because it 
seems as if it so often--I was just talking to Mr.--and he 
remembers spinach. And of course that was just a few months ago 
when we were talking about peanut butter, Salmonella in our 
area.
    And there are all kinds of economic disasters. Can we as a 
part of the system build some kind of risk assurance, as a part 
of it, that would protect you, that would keep us perhaps from 
having to do an appropriations bill every time we suffer a 
loss, if we had a system in place to address that kind of 
risk----

                    REVENUE-BASED INSURANCE PROGRAM

    Mr. Murray, and then I'd care to hear from the other 
members of the panel.
    Mr. Murray. Absolutely. We've been pushing for a revenue-
based insurance program for years, and they keep telling us 
that it's possible coming down the pipeline there are places in 
the country that do have revenue-based crop insurance on 
tomatoes. And it covers them regardless of the loss, whether 
it's low markets or low yields----
    Mr. Bishop. This is regional, it's not nationwide? It's 
just at certain locations?
    Mr. Murray. Well, it's just in certain places.
    Mr. Bishop. So we need to make that----
    Anyone else care to comment on that?
    [No response.]
    Mr. Bishop. Anyone else on the panel care to comment on the 
proposal that the Chairlady has offered? The--separate agency 
within HHS that's responsible for all of the food safety issues 
that are currently being administered by FDA.
    Mr. Acheson, do you have any comment on that? And of 
course, Mr. Murray and Mr.--and Mr. Taylor.
    Dr. Acheson. My only comment on that is to try to take it 
to a higher level and leave it up to the Chairwoman as to how 
this is done, but to agree that we need to be looking at food 
safety from a systematic perspective.
    But it requires a public health infrastructure look. It 
cannot be done at FDA alone. It needs to go all the way down 
vertically to the local health department.
    Mr. Bishop. But should we have one agency with that 
responsibility, or should we continue to have it spread out?
    Dr. Acheson. As long as the system works, I don't think it 
matters how you do it. But certainly there are advantages and 
there are disadvantages to merging. I think we'd have to look 
at it carefully.
    Mr. Bishop. Well, we got a history with Homeland Security. 
We also have the history of intelligence agencies too. So we're 
interested in your comments.
    Anyone else?
    Mr. Taylor. If I could just add a thought or two, Mr. 
Bishop. I think the thing you have to start off understanding 
is that current situation within FDA in terms of management of 
the food safety program. But Dr. Acheson is the Associate 
Commissioner for foods, and has an officer of the commission 
coordinating function and obviously he's the point person for 
purposes of exercises like this. But the actual management 
responsibility, the operational management responsibility and 
the resources are actually controlled by three different 
operating components of FDA, the Center for Food Safety and 
Applied Nutrition, the Center for Veterinary Medicine, the 
Office of Regulatory Affairs.
    There is no official in FDA whose full-time job is food 
safety, and who has line management authority over all those 
three operating components of the agency.
    And as hard as Dr. Acheson works--and I think he's doing a 
fantastic job--he's in a virtually impossible positive, quite 
frankly, to really drive the change that needs to be driven in 
the FDA program.
    And then you add to that how critical the CDC epidemiology 
function is to a preventive food safety system; that the 
knowledge that is generated through the use of epidemiology 
that happens at state and local levels, coordinated by CDC 
absolutely foundational to a preventive system. Because we 
can't prevent hazards we don't fully understand.
    But that CDC epidemiology function is again managed 
completely separately, and is not by design or by any means in 
actual practice contributing what it needs to contribute to the 
knowledge base to support prevention. That's partly a resource 
problem, but it's also a--accountability and the role of that 
in the system.
    So, you know, I think we need legislative reform, but if 
you don't fix the structure and create a leadership structure 
that's capable of driving change on a systems basis, as Dr. 
Acheson suggests, you know, the legislation will fail.
    Mr. Bishop. So you think it's a good idea?
    Mr. Taylor. Absolutely.
    Mr. Levi. I would concur with what Mr. Taylor said, but add 
two points. One is I don't think the DHS example is relevant. 
It actually is the opposite of the DHS example. If we had today 
a separate food agency and a separate drug agency and tried to 
bring them together, that would be the DHS example. And in 
fact, what we're trying to do is make sure that we have focused 
leadership and attention within a single agency to these 
issues.
    I think what gets more complex, and you know really 
requires some careful thinking, and I think that Dr. Acheson is 
absolutely correct, it's a vertical issue as well as a 
horizontal issue within the Federal Government. And that is a 
real challenge.
    And so as this new agency is put together, we really need 
to think about then, what happens simultaneously at the state 
and local level, because we are never going to create a federal 
infrastructure of the state--nor should we--state and local 
level to do some of that initial data-gathering, and 
epidemiological work and all that sort of thing, because, you 
know, garbage in, garbage out. We can have the best possible 
system at the federal level, and if the states and localities 
can't bring in a timely and effective way the information you 
need to do your job, it's still not going to work.
    Mr. Bishop. So Mr. Murray's second recommendation is, 
you're in agreement with that?
    Mr. Levi. Yes.
    Ms. DeLauro. Ms. Emerson.
    Ms. Emerson. This just gets more confusing. Thank you, 
Madame Chairman.

                             EPIDEMIOLOGIES

    Let me just ask you a silly question, Dr. Acheson. Just 
because Mr. Latham and I have been sitting here talking about 
it. How--this is not among my questions, but how could the 
epidemiology show traces of, or be tomatoes, for example, 
versus green peppers, or whatever kind of peppers they were? I 
mean are those epidemiologies similar?
    Dr. Acheson. It gets down to a series of questionnaires in 
which the local health authorities, the state health 
authorities are asking the patients who got sick, ``What did 
you eat and where did you eat it?'' And a parallel set of 
control individuals usually neighbors living in the same area, 
close associates who didn't get sick, ``What did you eat and 
where did you eat it?''
    And you will ask many, many people in these situations, 
sometimes over 100, usually more controls than patients. And 
look at that information and use that as the basis. That's a 
case control study. To make a determination that this 
particular food was more likely statistically to be associated 
with illness than that type----

                       FDA AND USDA COORDINATION

    Ms. Emerson. Oh, a statistic but not scientific?
    Dr. Acheson. It was both. Statistics is--questionably 
science.
    Ms. Emerson. Well, no. You know what I mean. I mean you 
didn't have actual trace materials or blood work or anything 
like that?
    Dr. Acheson. What you don't have is Salmonella St. Paul on 
a piece of produce to say ``This is it.''
    Ms. Emerson. Right.
    Dr. Acheson. Or ``This could be it.'' What you're dealing 
with is information from patients. ``What did they eat? Where 
did they eat it?'' And using a case control statistically 
epidemiological approach to figure that out.
    But again, emphasize that is not what FDA does.
    Ms. Emerson. Right. I understand. It's what CDC does. But 
that begs a question then, back to the consolidation of all 
functions of food safety.
    The U.S. Department of Agriculture, and if you take the 
APHIS piece out and that's what the Department of Homeland 
Security on some inspections, and then you've got USDA--at 
Tyson's Chicken, for example, I've got a chicken plant in my 
district, and so I know you've got USDA there. And I mean the 
whole coordination seems rather haphazard, and that's not 
criticism towards you; it's just rather confusing--you know, 
which is why the idea of perhaps a single agency doing all 
these functions is not a bad idea.
    But do you think it would be more efficient--I mean you say 
horizontal and vertical. All those functions have to be--in 
keeping on my course the whole government notion that oh heaven 
forbid that you would take something away from me. In other 
words, FDA has had this function and USDA has that function, 
and you know, there's this possessiveness which of course 
doesn't suit, I mean it's not something that's so important for 
the public. What's important for the public is not their egos 
but the food safety.
    Do you think it would be more efficient if there was an 
integrated approach, more efficient and more effective, so that 
perhaps we wouldn't have in this particular case a pretty well 
devastated Mr. Murray's bottom line this year?
    Dr. Acheson. There's no question that improved integration 
is key to improving food safety. Particularly when you're 
dealing with a national food safety system in the context of a 
global food market. It has got to be integrated, between those 
who are recognizing the disease to begin with--as we were just 
discussing--what's happening in that local health department? 
How is that linking out through the Centers for Disease Control 
to the regulatory agencies: If it turns out to be chicken and 
goes to USDA, if it turns out to be tomatoes, it comes to us.
    Very different approaches, very different statutes. As you 
pointed out, there's an inspector in every chicken plant. We 
don't take the same approach at FDA.
    What we do to address that at FDA is we do integrate within 
the agency and have liaisons at the Centers for Disease 
Control, and they have liaisons with us, so within the confines 
of the current system, we are doing our best to try to 
integrate approaches to----
    Ms. Emerson. But do you think--I mean why should you and 
USDA necessarily have different mechanisms?
    Dr. Acheson. I think it's because Congress set it up that 
way. [Laughter.]
    Ms. Emerson. Well, so if Congress set it up that way, 
Congress can undo it again. But all right.

                           EU FOOD REGULATION

    Now let me ask you a different question. Does the European 
Union have a better approach to food safety than the United 
States?
    Dr. Acheson. I think the EU have a different approach.
    Ms. Emerson. And how is it----
    Dr. Acheson. I mean, what's better mean? Now to me better 
means who's getting sick, how many people are getting sick, and 
from what?
    Ms. Emerson. Yes.
    Dr. Acheson. And I mean I don't think twice about what I 
eat in Europe, just like I don't in the United States.
    Ms. Emerson. Okay.
    Dr. Acheson. And I think if you look at numbers of illness, 
we're very comparable. They have a slightly different way of 
getting there than we do. But the end result is the same, and I 
think that's an important----
    Ms. Emerson. But you know, I realize that there's mandatory 
labeling and lots of things in the EU countries that does 
differ from here. But I still am not quite sure, how do you do 
mandatory traceability when we import so many foods? That's the 
part that to me, I don't how the mechanism would work. If in 
fact--we would not import tomatoes, for example, from Mexico if 
there wasn't a means by which to trace those? I mean I don't 
know how that would work.
    Dr. Acheson. You know, I think where you're going is some 
of the key questions around whatever legislative proposal this 
might look like, and what are the limitations?, and what's the 
economic feasibility?
    Ms. Emerson. Right.
    Dr. Acheson. Because you can't ignore that. Because to do 
some of this stuff it would be expensive.
    But I have spoken to firms that are growing tomatoes in 
Mexico, who have a state-of-the-art traceability system. They 
can do it, from the farm, from the greenhouse, almost to who's 
picked it, and on what day, right through to the retail store.
    So it's technically doable, and they tell me it's not that 
expensive. But I mean that's just a--of one.
    To be effective, you can't have a traceability system that 
ends at the port of LA; it's not going to work. It has to go 
beyond that.
    Ms. Emerson. Okay--I think that I'm out of time--Madam 
Chair, thank you.
    Ms. DeLauro. I would just say to the gentlelady that I'll 
be happy to share with you information about the EU and their 
traceability efforts and also some domestic efforts at this, 
where they have looked very, very carefully at it, and--but it 
appears as if the technology is there. We have to look at to 
try to make it----
    Ms. Emerson. I appreciate that, Madam Chair----
    Ms. DeLauro. And I'll get that for you.
    Ms. Emerson. Thanks.
    Ms. DeLauro. I'm sorry. Mr. Farr.

                         AGENCY REORGANIZATION

    Mr. Farr. I really appreciate you having this hearing and I 
appreciate your thought about reorganization. I think if we 
keep along the lines of the existing structure we're not going 
to be able to solve the problem.
    When we look at the Federal Government you see this great, 
big label under the Department of Agriculture called the Food 
Safety Inspection Service, and they don't inspect a damn thing 
we're talking about, so it's one with a real limited 
jurisdiction.
    It seems to me the players in this room and probably the 
most important one, is CDC, and they're not under the 
jurisdiction of this committee.
    So we beat up on FDA when they're part of the problem, but 
not the entire problem and I just want to welcome the rest of 
my colleagues to food safety and recall issues.
    I mean, when I was trying to get some help for spinach 
growers on a voluntary recall because we lost $200 million, 
which insurance didn't cover, there's no aid at all.
    And one of our problems is that when there is a, kind of a 
false start here, it is as if our airplanes were bombing people 
and we're just saying sorry, we missed the target; we really 
didn't mean to wipe out the tomato growers, we thought that 
that was the target.
    I think--well, I've learned a lot this summer. I mean, I 
had the E-coli and then I had the light-brown apple moth, 
ground zero for that; and then last summer in August, the 
forest in Big Sur caught on fire. It was the largest forest 
fire in history, and I saw how people respond and I do think 
that there is a need, as Dr. Levi talked about, for an incident 
command system here.
    It certainly is much more effective because you have 
integrated the state, local, and federal folks in being able to 
know exactly what the shared responsibilities are at all 
levels; and whoever is the first--incident command, whoever is 
first at the incident and has the skills to handle it, stays as 
the commander, whether that be a little, local fire chief who 
can put out a $100 million fire.

                          AGENCY COORDINATION

    So we have all this jurisdictional gigs and what I'd like 
to just suggest is that I think that we need a new thing. We 
need to have national protocols and standards, such as the 
California developer, the Leafy Green Marking Order. I mean, 
that is probably the best prevention protocols that we have in 
the nation right now for leafy greens, isn't it?
    Dr. Acheson. It is certainly very good, yes.
    Mr. Farr. But that only applies to California?
    Dr. Acheson. Yes.
    Mr. Farr. So the other states don't have to do that. So we 
need to standardize agreements like that as to best management 
practices. I think we need to create an incident command system 
where one can respond regardless of whether you are local 
government, state, or Federal Government as they do in fire. It 
is crazy to have these jurisdictional disputes.
    I think we need to get the CDC in the room. In both cases, 
in all these cases, the CDC has alerted the FDA. The CDC says, 
here, it is tomatoes.
    But FDA busts their tail going all over the country trying 
to find all of these tomatoes and giving these alerts and 
getting conditions. That doesn't matter. The news is out there. 
It is tomatoes, ladies and gentlemen. Don't eat tomatoes.
    Out in California we didn't grow the kind of tomatoes that 
were infected. I have one guy lose his entire business, he and 
his kids. Four million dollars of their tomato business just 
sucked under and there is no insurance for it. There is 
nothing. It was a disaster, we get disaster relief.
    So the CDC then comes along a month and a half later and 
says, oh, it is not tomatoes. We think it is now peppers.
    What I really compliment you on, you know, once you found 
out it was jalapenos and it was probably from Mexico, the 
trace-back was pretty fast.
    You went through a field in a foreign country and found the 
contaminated water. I thought it was remarkably fast that you 
could find that spot.
    So there may be some problems with trace-back, but our 
growers are telling us you can trace back to a corner of the 
field. We want to know that is was my lettuce in my field, I 
can tell you that it came right over there out of that corner. 
That is how sophisticated because they are doing all of their 
packaging now with GPS mapping. That ought to be standard in 
this country.
    There is no level playing field here. The growers that have 
to do the best management practices have to compete in a field 
where nobody else has to do that. And obviously there is not a 
fairness in the system and we've upgraded to protect health and 
safety, but we don't require everybody to abide by those rules.
    I think we need to find out how CDC is making these 
decisions, because once they blow the siren and it is the wrong 
crop, as Mr. Murray pointed out, it is too late. That crop is 
wiped out.
    So I think the Chair is really doing some good work here to 
try to figure out how do we find a system that does this: one 
that gets all parties on the same page, and I think that is an 
incident command, whether you take the CDC and FDA and Food 
Safety Inspection and growers, I think you have got to include 
the private sector in those protocols. I think you need 
national growing standards.
    You need to have, as I said, an incident command system; 
and then, as Mr. Bishop pointed out, we need to have some 
recall damage coverage. So what if you make a mistake. If you 
find disease, I understand, or if Food Safety finds this 
disease in an animal, chicken or cow, and they orders those 
animals destroyed, they can compensate them for ordering them 
destroyed. The farmer doesn't have to, the grower doesn't have 
to, the rancher doesn't have to bear those costs.
    But if you are a leafy green, unless you order it 
destroyed, and you don't because you don't have the authority, 
you have to go the states to get that, but if you said it would 
be great if you just recalled your product and they go out and 
spend all of their own money recalling their product for good 
public relations and there is huge losses there, there is no 
way to get compensated. Insurance companies don't help and the 
Federal Government doesn't help.
    So those are areas that I hope, as you design your 
legislation, that will go all the way from the people who 
analyze and blow the alarm, the CDC, to the people who end up 
having a trace-back and find out where it is actually coming 
from. I think there is a lot of work to be done.
    Ms. DeLauro. Mr. LaHood.

                       LOSSES FOR TOMATO INDUSTRY

    Mr. LaHood. Mr. Murray, thank you for being here. Could you 
tell us what your losses were?
    Mr. Murray. We estimate our losses at slightly over $2 
million.
    Mr. LaHood. Do you know what the losses were for the tomato 
industry as a result of this huge mistake?
    Mr. Murray. I know in Georgia it was over $17 million. I 
have heard different figures from other states so I would hate 
to quote those.
    Mr. LaHood. How many states grow tomatoes out of the 50?
    Mr. Murray. In the month of June you had Florida, Georgia, 
South Carolina, California, Alabama.
    Mr. LaHood. So that is five?
    Mr. Murray. Hm-mm.
    Mr. LaHood. Would you say five times $20 million would be 
an accurate figure then?
    Mr. Murray. No, I would say it is well more than that 
because Florida is much bigger.
    Mr. LaHood. Okay. Do you have any idea what Florida losses 
were?
    Mr. Murray. I have heard $200 million from Florida and $100 
million from California.
    Mr. LaHood. Did you receive any compensation for your loss?
    Mr. Murray. No.
    Mr. LaHood. Did you receive any kind of an apology from the 
Federal Government for the losses?
    Mr. Murray. No.
    Mr. LaHood. Dr. Acheson, do you think the Federal 
Government owes Mr. Murray an apology?
    Dr. Acheson. That is difficult to answer. I feel for Mr. 
Murray and I personally would like to apologize to him on my 
personal behalf because he was wrapped up in a situation that 
we are trying to avoid. I think the Federal Government in 
looking at the whole system as we discussed starts with the 
epidemiology, at the CDC local level. The FDA is then 
responding to that information. So does the FDA owe the farmers 
an apology? No.
    You know, FDA was doing what FDA is supposed to do, 
reacting to public health information to protect public health, 
to jump on a trace-back as quickly as possible. We even went as 
far as trying to develop a program in this instance to try to 
help farmers that were in Georgia or in California or in these 
other states by developing this exclusion list, which was a 
challenge.
    It was difficult. It was new. And I think there are a lot 
of lessons learned around this but fundamentally we shouldn't 
be going backwards. We need to be looking forward: How do we 
put in the systemic solutions to minimize the likelihood of 
similar situations through better integration, horizontally and 
vertically.
    Mr. LaHood. I appreciate the fact that you apologize to 
him, but I would like to know if you think the director or the 
head of some agency at least could have the courtesy to send 
Mr. Murray a letter and apologize for the fact that they 
screwed up his business. I am just asking you what you think 
about that.
    Dr. Acheson. Well, I think you have to question whether 
FDA, and I represent that agency----
    Mr. LaHood. You know, I doubt if Mr. Murray cares if it is 
FDA, the CDC, the USDA, you know, I doubt if he cares. I am 
asking you if you believe that our government at some level, 
fairly high up, at least have the courtesy to send him a letter 
and say we are sorry that you lost your entire crop and we 
ruined your business.
    Dr. Acheson. I think there is still a question that is an 
important question as to whether this, indeed, was tomatoes to 
begin with. There is no evidence that it wasn't. We are dealing 
here with a situation where we know factually we have got 
salmonella on two different kinds of fresh produce: Serrano 
peppers, jalapeno peppers.
    We know there are farms in Mexico that are growing all 
three types: Tomatoes and the two types of peppers. We know 
that all three are going through distribution centers. It is 
plausible that that original epidemiology was correct and we 
just never found a positive and we didn't find a positive on a 
farm.
    I don't think we can say that it was wrong to implement 
tomatoes back at the beginning of this. I am not seeing any 
evidence to say that that was an incorrect assumption by the 
Center for Disease Control.
    Mr. Bishop. Will the gentleman yield?
    Mr. LaHood. Of course I will yield.
    Mr. Bishop. You can't say that you were wrong but you can't 
say you were right, either.
    Dr. Acheson. You are right. That is absolutely correct. The 
only way to say we were right is to find a positive.
    Mr. LaHood. Let me--are you done, Mr. Bishop?
    Mr. Bishop. Yes.
    Mr. LaHood. Let me just say this, Dr. Acheson: I think 
that--well, I am not going to--let me say this, Madam Chair: I 
think what the committee should do is send a letter to the 
inspector general and ask for an investigation into how a whole 
industry could be ruined by people who apparently don't want to 
take the blame for it. I mean, the answer here is that no one 
really wants to take responsibility and it is unclear to Dr. 
Acheson whether tomatoes were or were not.
    I mean, it is unclear to you. That is what you just said.
    Dr. Acheson. We don't have conclusive proof either way.
    Mr. LaHood. I know. That is what you are saying. It sort of 
conflicts with what you said about 2:00 when we started this 
hearing.
    Dr. Acheson. In what way? Because if I have said----
    Mr. LaHood. Because you said pretty conclusively that 
tomatoes were----
    Dr. Acheson. Now let me clarify this. This is important.
    Mr. LaHood [continuing]. It sure as heck is important, very 
important.
    Dr. Acheson. Will you give me a moment? The point about 
this is that in mid-July FDA made an announcement that tomatoes 
that were coming onto the market in mid-July were safe to 
consume and were not implicated with the outbreak, thus 
clearing tomatoes from there forward. I did not mean to imply 
that FDA was saying that tomatoes were never responsible, and 
if I did, I apologize because that was not my intent.
    Ms. DeLauro. And they can be responsible in the future 
then, according to you?
    Dr. Acheson. They could be.
    Ms. DeLauro. The issue on tomatoes, it is open.
    Dr. Acheson. We have seen 13 significant outbreaks linked 
to tomatoes. It is not like we don't see problems with 
tomatoes. So I don't want to imply that I am saying that FDA 
thinks it never was tomatoes. We are basing this on the 
epidemiological data that we discussed followed by the trace-
backs that we did looking for the positive tomato, looking for 
source, looking for a causative point. FDA did not find a 
causative point for Salmonella Saintpaul.
    Mr. LaHood. This is the most flawed system that I have ever 
seen in 14 years of being involved in the Congress. This is a 
terribly flawed system, and for that alone Mr. Murray is owed 
an apology from you and from everybody that is involved; and 
secondly, I don't know how you ever compensate, but I am 
telling you, you all have ruined the tomato industry. You know 
that there are people in America today that won't eat a tomato, 
won't even look at one, because of some bulletin that was put 
out either by your agency or some other agency that said that 
they were contaminated. You all have ruined their industry and 
it will never recover. He will never be able to get back to 
where he once was.
    Now you and others owe him an apology, and I appreciate the 
fact that you just apologized to him, not only for ruining his 
livelihood, but ruining the tomato industry and now to sit here 
and say one thing two hours ago and something else now is a 
little bit beyond belief. My time is up.
    Ms. DeLauro. Mr. LaHood, you will recall the spinach 
outbreak--wasn't here when I said it. We are only back 60 
percent. It is the same with bagged spinach, that people won't 
pick it up because, and again, it is about the system.
    Let me just take this moment here to just to say to Mr. 
LaHood. This is the last hearing. Mr. LaHood has made a 
decision about his own life, about leaving the Congress, and 
there is probably no one finer with more integrity in the 
process than Ray LaHood. The subcommittee will miss you, but 
the Congress will miss you and the good work that you have done 
on behalf of the people who sent you here, put their trust in 
you, are going to miss that kind of representation. Mr. LaHood, 
thank you.
    [Applause.]
    Ms. DeLauro. Mr. Rothman.

                            LESSONS LEARNED

    Mr. Rothman. Thank you, Madam Chairman, and to thank you 
for holding this very important hearing.
    Dr. Acheson, I do appreciate the necessity for relying on 
statistical probability unless the American people are ready to 
pay to have an inspector inspect every single piece of food 
that enters the food chain. If that is the case and the 
American people want to pay for that, what do you think that 
would cost?
    Dr. Acheson. I dread to think what that would cost.
    Mr. Rothman. Give me an estimate.
    Dr. Acheson. Fifty billion.
    Mr. Rothman. Fifty billion. Do they inspect all of the--you 
thought the EU's food safety record was comparable to ours, 
about equal to ours. Do they inspect every single item that 
enters the food chain?
    Dr. Acheson. I don't believe they do.
    Mr. Rothman. I would love to know, and you used the words 
``lessons learned.'' What are the lessons learned? You have 
used the words ``vertical integration'' and others have said 
that the conclusion is only as good as the date that is 
provided to come to a conclusion. What would you do differently 
or what you have others do differently with the benefit of 100 
percent hindsight, or 20/20 hindsight, with regards to the 
Salmonella Saintpaul situation?
    Dr. Acheson. FDA is currently going through a pretty deep 
process to investigate lessons learned around this, both 
internally what could we have done differently internally with 
the agency to make things flow more smoothly for improved 
communication; and likewise, what could we have done better----
    Mr. Rothman. I don't have much time. Do you have an answer 
or are you still looking into it?
    Dr. Acheson [continuing]. I can tell you a couple of key 
areas that need to be improved, and that is interaction across 
the federal agencies that are involved in food safety.
    Mr. Rothman. So what happens during that incident, if you 
will, that demonstrated to you a failure of interaction between 
federal agencies, that if it had been improved would have 
stopped some of the problem?
    Dr. Acheson. I think building trust and sharing data.
    Mr. Rothman. Okay, and if data were shared and there was 
greater trust, would that have affected the CDC's conclusion 
that you relied on?
    Dr. Acheson. No, I don't believe so. Well, that is a 
question you would have to address to CDC, frankly.
    Mr. Rothman. Well, I asked your opinion.
    Dr. Acheson. No, I think CDC's conclusion was based on the 
science that they were undertaking with the local inspectors.
    Mr. Rothman. So but maybe you don't have an answer yet. So 
the problem was, perhaps, and we should ask this of the CDC, 
but you seem to imply that their conclusion was not obviously 
wrong to you.
    Dr. Acheson. It was not obviously wrong to FDA, no.
    Mr. Rothman. Okay. But you don't know whether--well, maybe 
you do. Do you know whether the CDC's procedures in analyzing 
the data was correct?
    Dr. Acheson. I don't know the answer to that.
    Mr. Rothman. Perhaps, Madam Chairwoman, at some point we 
could find that out, maybe have some representatives from the 
CDC to find out. Perhaps we should be asking them what lessons 
learned, if any, they have with regards to this incident, the 
Salmonella Saintpaul.
    And also Mr. Taylor mentioned that there--I think it was 
Mr. Taylor or Dr. Levi, I'm sorry--they said there were three 
elements to the food safety in FDA and there is not one person 
in FDA who is in charge of all those three.
    Dr. Acheson, or anyone else on the panel, quickly, do you 
believe that Congressional legislation is required to address 
that, or cannot simply the administration simply fix it? 
Appoint someone to oversee and take responsibility for those 
three areas of food safety responsibility within the FDA. Dr. 
Acheson.
    Dr. Acheson. I am not an attorney, but I would assume that 
that does not require Congress to do, although Congress could 
do it.
    Mr. Rothman. Thank you, doctor. I note that you testified 
that the FDA will be establishing, I think it is a great thing, 
a presence in five countries or regions around the world, which 
I think is terrific. Could you tell us what those five regions 
or countries will be, if you know?
    Dr. Acheson. China, India, Central/South America, Middle 
East, Europe. China, India, Central/South America, Middle East, 
and Europe.
    Mr. Rothman. And how many at this point, persons/staff 
people will you be sending to those five regions in total?
    Dr. Acheson. Approximately 40, slightly under.
    Mr. Rothman. That is probably the known world, so about 40 
to cover China, India, Central/South America, the Middle East 
and Europe.
    Dr. Acheson. It is better than zero.
    Mr. Rothman. It is a start. Thank you, doctor. Thank you, 
Madam Chairman.
    Ms. DeLauro. Ms. Kaptur.
    Mr. Kingston. Let her go.

                             SICK AMERICANS

    Ms. Kaptur. Thank you, Madam Chair and thank you, ranking 
member, Mr. Kingston, I truly appreciate that. Gentlemen, 
welcome; not an easy hearing today. Let me ask you, for the 
record, how many Americans got sick from the outbreak? Anyone 
want to put that on the record? How many Americans got sick; 
how many died?
    Dr. Acheson. The latest numbers that I am aware of from 
Center for Disease Control are 1,453.
    Ms. Kaptur. All right.
    Dr. Acheson. Known to have got sick.
    Ms. Kaptur. Do we have any confirmed deaths?
    Dr. Acheson. I believe there were two deaths that were 
associated with this but not directly causally related, but 
that is a question to direct basically to CDC.
    Ms. Kaptur. Does anybody have a calculation of the cost to 
our health system of those who became ill?
    Dr. Acheson. I don't.
    Ms. Kaptur. Who would?
    Dr. Acheson. CDC, perhaps. I don't know.
    Ms. Kaptur. All right. And Mr. Murray, thank you so much 
for your presence today. You have given us some measure of the 
cost to the agriculture industry in our country, which is 
hundreds of millions of dollars. This is something major, no 
doubt about that.
    Let me ask this question: The produce distribution center, 
Agricola Zaragoza, that was mentioned in your testimony Mr. 
Acheson, is somewhere in Texas; who owns it? How would we find 
out who owns it?
    Dr. Acheson. Can I refer that to my colleague from the 
Office of Regulatory Affairs? Do we know that? No, we don't 
know that but we can find out.
    Ms. Kaptur. Do you maintain those records of the company, 
the CEO, the profile of the company? Is it an American-owned 
company, the distribution center?
    Mr. Solomon. We can get that for you.
    Ms. Kaptur. All right. I am very interested in knowing the 
company. I am interested in knowing its assets. I am interested 
in knowing if it is a U.S.-based company; is it a Mexican 
company. What is it? I would like to know something about this 
company.
    Mr. Solomon. We can get you--we don't have----
    Ms. DeLauro. Sir, you need to just identify yourself for 
the record.
    Mr. Solomon. This is Steve Solomon from the FDA. We can get 
you the ownership information.
    Ms. Kaptur. All right, thank you very much. As much detail 
as you have on it; do they have a board of directors; are they 
publicly held; are they privately held? These are all questions 
that I have.
    Dr. Acheson. We will provide you with whatever we have, but 
we may not have all of the answers.
    [The information follows:]

           

    
                       PRODUCE DISTRIBUTION CHAIN

    Ms. Kaptur. All right. So these peppers somehow got up from 
Mexico into that distribution center so they were the recipient 
point for the contaminated material, correct?
    Dr. Acheson. One of the recipient points, yes.
    Ms. Kaptur. One of them. There could be others but we don't 
know.
    Dr. Acheson. Correct.
    Ms. Kaptur. Then, according to your testimony, the farm it 
was traced back to was, well, you said an irrigation ditch from 
a farm in Tamaulipas, Mexico. Have we traced this back to a 
specific farm?
    Dr. Acheson. We have traced the--let me be very specific 
here. The jalapenos that were positive at the McAllen, Texas 
distribution center actually trace back to a different farm 
through a distribution center in Mexico.
    When we went to the distribution center in Mexico we 
discovered they received peppers from two predominant places, 
several, but two main ones. The jalapenos from McAllen traced 
back to one of them. We went there. We sampled. We did not find 
the outbreak strain. We went back to the other farm and found 
the outbreak strain on Serrano peppers and in the irrigation 
water.
    Ms. Kaptur. All right. So can you actually go back to the 
farm itself?
    Dr. Acheson. We did. Yes, we physically went back.
    Ms. Kaptur. Who owns that farm? Is it a private family or 
is it an agribusiness?
    Dr. Acheson. I don't know.
    Ms. Kaptur. Can we find that out?
    Dr. Acheson. We will do our best to provide whatever we got 
on that.
    [The information follows:]

    As part of its investigation and product tracing process, FDA 
identified the distribution channels for peppers that were shipped to 
the U.S. These distribution channels trace back to farms in Mexico. In 
addition, as part of a sample and analysis effort, we were also able to 
identify one particular farm in Mexico that had a sample that tested 
positive for the salmonella (St. Paul) that was implicated in the 
outbreak.

                           PRODUCE TRACE BACK

    Ms. Kaptur. All right. We want the same information on the 
business on the Mexican side.

                               H.R. 2997

    I have a bill, H.R. 2997, that basically would get you 
compensation in the U.S. federal court system, Mr. Murray, 
because we have no international tort system right now that 
covers this kind of abuse. And this bill would make importers 
responsible through a certification process that would work 
through our country, the federal agency that would receive the 
commodities that are inspected on the U.S. side, we would end 
up in the federal courts of this country, because right now you 
don't have the same right that you would have to sue or to get 
damages from a company that you are doing business with in this 
country.
    And I think the food companies just love it because they 
absolve themselves of all liability. This is a great system to 
hide behind the standards of the 19th century and it is exactly 
what they are doing and they are outside the bounds of our 
court system.
    So I just want to say to anybody in the audience, pay 
attention to H.R. 2997. It is a great bill. It should pass but 
it hasn't made it out of this Congress yet because there is a 
lot of pressure against it.

                COOL--COUNTRY OF ORIGIN LABELING SYSTEM

    I wanted to ask: the COOL, the Country of Origin Labeling 
System, if that had been in place would that have made a 
difference?
    Dr. Acheson. This is David Acheson. It would have helped 
but it wouldn't have solved the problem.
    Ms. Kaptur. Okay, because the foods were blended?
    Dr. Acheson. The foods were blended and simply knowing the 
country of origin does not take you back to the farm or the 
distribution centers or anything in between.
    Ms. Kaptur. Okay, let me ask this question, Mr. Acheson: 
what is your inspection budget? What is the total budget you 
have to put these people all over the world and try to protect 
the American people's health?
    Dr. Acheson. I would have to get back to you with the 
actual number in which it includes the base and the new monies.
    [The information follows:]

    The FY 2009 Congressional Justification requested FDA with $619.612 
million for Protecting America's Food Supply. Later that fiscal year, 
in June 2008 Congress provided an additional $72.295 million for FDA's 
Food Protection Plan. This Supplement included an additional $12.2 
million in the Foods budget to establish FDA offices overseas.

                           INSPECTION BUDGET

    Ms. Kaptur. Okay, but who in the end pays for your budget? 
Where do you get your money?
    Dr. Acheson. Taxpayer.
    Ms. Kaptur. From the taxpayer. You don't get it from the 
company, do you?
    Dr. Acheson. Not in the least.
    Ms. Kaptur. Okay, so the very same people that are doing 
damage to us are then making money on the private side at 
unbelievable levels, absolving themselves from responsibility 
to operate under a rule of law in this country, as you do, Mr. 
Murray; and then they put all of their damages at the public 
trough, even in terms of the health cost to our country, 
whether it is the damage to this industry, and it is like 
nobody has responsibility. It is a system that absolutely 
abrogates responsibility to those responsible. And I am trying 
to figure out, that is why I want to know who these companies 
are.
    I want to make them pay. I will talk about them on the 
floor of Congress. I will say what they did to your industry, 
but what is interesting is that nobody here today, amazingly, 
even asks those questions.
    What is happening to the rule of law on this continent as a 
result of these trade regimes that we have gotten ourselves 
into that essentially are erasing a century of effort to build 
a society that has some level of civility and responsibility. 
Thank you very much.
    Ms. DeLauro. Mr. Kingston.
    Mr. Kingston. Thank you, Madam Chair. I wanted to submit 
for the record, this is a public health questionnaire from the 
Minnesota Department of Health, and Dr. Acheson had mentioned 
that one of the things they have to do on the front line is 
have the individual county and state health departments--I can 
pass this around. I am just assuming this is typical.
    This is a 23-page questionnaire. As you go through this, 
you can see why it is so difficult. There is so much shoe 
leather that has to be expended on it. I just thought members 
of the Committee would want to see one of those if they have 
not.
    Ms. DeLauro. Without objection.
    [The information follows:]

           

    
    Mr. Kingston. The thing that is interesting about it is I 
could see why there would be some push for uniformity on those 
things.
    Dr. Acheson, you have been great, you have taken it on the 
chin. You have been a gentleman about it. I wanted to ask you 
this.
    Ms. Kaptur and Mr. Bishop and I are on the Military 
Committee. We frequently see generals and colonels getting 
basically fired for something that happened down rank from 
them, something that they might not have had any control over, 
but it happened under their watch, and in most cases, it was 
not a malicious kind of thing but the results were the wrong 
thing.
    In the FDA, what happens from here if somebody has made a 
colossal mistake, $100 million, maybe a $200 million mistake? 
Who takes it on that? Who is the general?
    Dr. Acheson. I do not think there is any evidence that FDA 
made any errors. As we heard earlier, I think when we got the 
green light, go trace this back through a complex, one up, one 
back system, small producers, lots of paper, we went back in a 
month on the tomato side and then in the next month, we went 
back on the peppers from sick patients to a farm in a foreign 
country.
    I think FDA did an excellent job. I wish it were quicker. 
Obviously, the preventative controls are going to make it less 
likely we have to do it in the first place.
    I do not think FDA made any errors.
    Mr. Kingston. I appreciate that answer. Let me ask this 
then. Who squeezed the trigger on shutting down the tomato 
industry for the Summer and caused Mr. Murray to lose--what did 
you say?
    Mr. Murray. Enough tomatoes to feed 90,000 people for a 
year.
    Mr. Kingston. That was $2 million worth?
    Mr. Murray. No. The $2 million is also what I lost on 
produced bales.
    Mr. Kingston. I know you have already told me before this 
meeting in a private conversation, which I think it is okay to 
allude to because it just sort of clarifies, Mr. Murray said, 
you know, FDA was doing their job and I understand that. He was 
not taking pot shots at the FDA.
    Mr. Murray, would you say that it was the FDA's fault? Who 
is at fault here? In the sense that we see over and over again 
when there is a breakdown in the military order of things, they 
seem to--maybe too quickly--they do seem to find some place 
where the buck stops, somebody who is accountable. Who is 
accountable?
    Mr. Murray. When I wrote this, a lot of this, I did not 
know. It sounds like CDC just took their best guess that it was 
probably tomatoes. There has been a report out within the last 
month that there have been many shipments of peppers turned 
back at the Border because they had Salmonella on them.
    I just wonder why anybody did not look at that. Why did 
they just say tomatoes. Tomatoes are the second most likely 
consumed vegetable that there is. I guess they just assumed 
that it is probably tomatoes.
    That is like going to the doctor with a pain in your chest 
and he just takes your heart out. [Laughter.]
    Mr. Bishop. Will the gentleman yield?
    Mr. Kingston. Yes.

                         MEXICAN IMPORT SAFETY

    Ms. DeLauro. Will the gentleman yield for one second?
    I think it is important because you raise the issue of the 
Mexican peppers. This is very, very interesting because this is 
in public documents.
    FDA seemed to be ignorant of information it had in its 
hands about risk with Mexican peppers and did not act on the 
information earlier. The AP reported that FDA inspectors had 
repeatedly turned back filthy, disease-ridden shipments of 
peppers from Mexico in the months before a Salmonella outbreak 
had sickened 1,400 people, was finally traced to Mexican 
chiles.
    No action was taken. Since January alone, 88 shipments of 
fresh and dried chiles were turned away. Ten percent were 
contaminated with Salmonella. In the last year, eight percent 
of the 158 intercepted shipments of fresh and dried chiles had 
Salmonella.
    Dr. Acheson, you told reporters at the time, and it is AP, 
that ``Peppers were not a cause for concern before they were 
implicated in this Salmonella outbreak. We have not typically 
seen problems with peppers.''
    I did not make this up. I did not make this up. Ten percent 
of those rejected had Salmonella. It was likely they could have 
caused this disease.
    This is the left hand not knowing what the right hand is 
doing. Why did we not view this as a problem and something that 
ought to be looked at?
    I do not mean to impinge on your time, Jack. I think this 
is very relevant to this issue.
    Dr. Acheson. Will you allow me to respond to that?
    Ms. DeLauro. Sure. Did you take any action with regard to 
these Mexican peppers prior to this outbreak?
    Dr. Acheson. Let me explain to you the context of this 
conversation that we had with the media on this. The question 
was framed in the context of has FDA seen problems in the past 
with fresh peppers from Mexico. The answer to that was 
typically no.
    As you pointed out, we have found ten positive Salmonella 
samples from imported peppers from Mexico. Eight--seven of 
those are on fresh peppers that were part of the investigation 
that was initiated following the identification of peppers that 
were linked to this outbreak.
    Of those ten Salmonellas, seven of them were ones we found 
once we started to seriously look at imported peppers.
    Ms. DeLauro. But this goes back--my point was that in 
January, 88 shipments of fresh and dried chiles were turned 
away. Ten percent were contaminated with Salmonella.
    Dr. Acheson. No.
    Ms. DeLauro. This is a lie?
    Dr. Acheson. No. Ten percent of the total shipments were 
contaminated with Salmonella, but seven out of those ten were 
sampled subsequent to the initiation of an assignment linked to 
this outbreak.
    They were fresh and they were ones that we found as we were 
beginning to ramp up. We needed to be looking at fresh peppers 
from Mexico, because we had concerns.
    Ms. DeLauro. But you had information in January.
    Dr. Acheson. We had information that dried peppers were 
rejected at the Border because of labeling issues, because of 
lack of processing issues, some of them were designated--I have 
a breakdown of them here.
    Twenty-nine were detained as a result of sanitation issues. 
Twenty-nine were refused because of the registration process 
around the canning issue. Twenty-six were refused because of 
pesticide residues. Three were refused because of labeling 
violations. As I said, ten were refused because of Salmonella, 
and of those ten, seven were ones that came in after we started 
to intensify our investigation looking for peppers.
    The context of that conversation with the media was around 
have we seen problems with fresh peppers from Mexico before, 
and the answer was we had not.
    You are right. We have had 88 shipments of peppers refused. 
The vast majority through nothing to do with Salmonella. That 
is out of a total, in that time frame, of about 150,000 
shipments.
    Ms. DeLauro. I do not know where they got this number. This 
is August 18, 2008, Associated Press, that ten percent were 
contaminated. That is of the 88 shipments. Ten percent were 
contaminated with Salmonella. In the last year, eight percent 
of the 158 intercepted shipments of fresh and dried chiles had 
Salmonella.
    That is what is reported. It would seem to me if you have 
peppers coming in that have Salmonella, dried or fresh, I would 
say peppers. Light bulb goes off, potential problem. Eighty-
eight shipments stopped. Some percentage, Salmonella. Maybe, 
whoa, this is the cause here, so that you put the pieces 
together and you come up with something or it may not be, but 
at least it gives you a road to go down. And we had the 
information months in advance, back to January.
    That seems to me to be quite frankly a dereliction of duty. 
Jack, I would just say to you, oftentimes it is not the 
generals that go. My experience recently is it is the guys at 
the bottom and the gals at the bottom go before the generals 
go. They are blamed for the problems and not the folks at the 
top.
    In any case, Dr. Acheson, I think we have some information 
here that says CDC--we can talk to CDC--someone was asleep at 
the switch here. That is the system. The system is wrong, is 
broke.
    Mr. Kingston. Reclaiming my time. I do not know if we want 
him to have a shot at that. What do you think? Go ahead.
    Dr. Acheson. I was simply going to say that three 
Salmonella positives prior to this outbreak, out of 150,000 
shipments, is what we are talking about. That is not something 
that FDA would jump all over because we do not have the 
resources.
    Three Salmonella positives all in dried peppers, not fresh, 
prior to this outbreak. Subsequent to the outbreak, we found 
seven more because we intensified looking and we continued to 
maintain that high intensity. We are still looking and we are 
finding positives, and we are dealing with them as we find 
them.
    Mr. Kingston. How many out of those ten--what was the total 
volume? You found three before, seven after. What was the total 
volume during that period of time?
    Dr. Acheson. About 120,000/150,000 shipments of peppers, 
one sort or another. This is not just fresh peppers. This is 
canned peppers, all kinds of things.
    Mr. Kingston. Actually, that is a good record. I hate to 
say it at this meeting, I might get thrown out by members of 
both parties. That is not bad.
    However, I would say that underscores my opening statement 
that the private sector has been doing a very good job and that 
I am very hesitant to give the Federal Government more money 
and more power based on some of the dissatisfaction that we 
have been hearing today.
    For example, following a business model, somebody would 
have been accountable for this. There does not seem to be one. 
Maybe Rosa's legislation could move us in that direction. I do 
not know.
    I go back to what Mr. Levi said, have a ``no year'' funding 
before we know exactly what the money is we are investing in, 
and I feel like we should not have already appropriated that 
$150 million.
    Let me yield back.
    Ms. DeLauro. Thanks for your indulgence.
    I wanted to just--first of all, I will put into the record, 
if I can--we did have a GAO report that did look at the 
European Union and looked at several other countries. The data 
here, the European Union, and I think it is Japan, Canada, 
thinking about what they have done in terms of food safety.

                 GAO REPORT--INTERNATIONAL FOOD SAFETY

    They look at farm to table. They look at focuses on 
prevention rather than crisis management. They have created 
safeguards, separated government bodies to carry out risk 
assessment activities from those of risk management decisions. 
They have cooperative arrangements between government 
veterinarians and public health officials. They have mandatory 
recall. They have mandatory traceability.
    We cannot seem to get there for some reason. At the core of 
all of these systems is mandatory traceability. It is mandatory 
recall, and it is the cooperative relationship between the 
states.
    Rather than moving down that line, and I would ask my 
colleagues here, the FDA has come forward with ten pieces of 
new authority related to food safety.
    What I wanted to try to do, and this is a little bit 
different, is to ask our panel, Mr. Levi, Mr. Taylor, Mr. 
Murray, to comment. This is new legislative authority that you 
have asked for subsequent to this outbreak or prior to the 
outbreak.
    I would also add that in terms of that authority, there is 
nothing from farm to fork. There is no mandatory traceability. 
There are no performance, preventive performance standards. I 
do not know that it addresses these cooperative arrangements, 
et cetera.
    I would like to just read what it is, and I can do it for a 
few minutes and then come back around if people have burning 
questions, but I thought it would be interesting to get some 
commentary, Dr. Acheson, from you on this, and then from our 
panelists, on whether or not we are moving in the right 
direction for new authorities or we should be going someplace 
else and rethinking what new authorities the Agency ought to be 
given.
    I am committed to looking forward and how we can construct 
an Agency here.
    Just so you know, it is pages 21 and 22 of Dr. Acheson's 
testimony. First out of the box is ``Allow the FDA to require 
preventive controls against intentional adulteration by 
terrorists or criminals at points of high vulnerability in the 
food chain.''
    Is there anything further you want to say about that, Dr. 
Acheson, before I ask others to comment on it?
    Dr. Acheson. Only so there is clarity about what we are 
focusing on there. It is focused on food defense.
    Ms. DeLauro. Mr. Levi.
    Mr. Levi. I guess the observation I would make is that each 
of these authorities makes sense. The question is what is the 
larger context in which they are going to be framed, and that 
would be part one and part two, if we are thinking about 
integrating food safety functions, this is only addressing the 
FDA portion of what happens.
    Going back in the time line, if FDA entered the scene at 
the end of May, the problem started in the middle of April, so 
we need to make sure that not only the FDA has the authority or 
this new entity has the authority, going from the very start of 
an outbreak, whether individually or together. I personally do 
not have any issues.
    Mr. Taylor. I have a few. It is not on that first one, 
Madam Chairwoman. Two broad points. One is on the second item, 
which is to authorize FDA to issue additional preventive 
controls for certain high risk foods.
    FDA has authority now on a case by case basis to require 
preventive controls. It has done it for seafood.
    This provision as it was formulated in the food protection 
plan would actually limit FDA's authority, current authority, 
to issue preventive control regulations because it would 
require the finding of significant recurring adverse health 
consequences or death before preventive controls could be put 
in place.
    To me, that is not a preventive strategy. That is a 
reactive strategy. Most of the legislation that is pending 
would require preventive controls across the board in food 
facilities, case by case on the farm for commodities on a risk 
basis, but in terms of food facilities, processing facilities, 
it would be a comprehensive requirement.
    I think that is frankly better policy. If I could add one 
more point on that, it picks up on Mr. Kingston's observation 
about industry responsibility for food safety and the fact that 
the Government cannot make it safe, industry is responsible, 
and it is the industry that does produce a by and large safe 
food supply.
    I think there is really a lot of common ground on that 
principle. In fact, the preventive control legislation that is 
pending is really all about recognizing and codifying that 
industry responsibility for food safety.
    As Mr. Murray indicated, there are many companies who are 
using preventive controls today and are applying practices and 
standards that actually exceed current Government requirements.
    The problem is that not everybody does, and in order to 
have a system that is really fair and a level playing field, 
and that the public can have confidence in, I think there is a 
lot of agreement that we ought to have comprehensive preventive 
controls.
    Really again embracing the industry responsibility for food 
safety.
    Mr. Bishop. Mandatory controls?
    Mr. Taylor. Mandatory controls; yes, sir.
    Another point at a broad level has to do with imports, 
which I think are not addressed here strongly enough, and I 
think we have rightly had some points about that.
    FDA's authority today to oversee imports was given to it 70 
years ago, in 1938. Its only real legal hook on imports is the 
ability to inspect product at the port of entry. If it finds a 
problem, to detain it and keep it from entering the country.
    Dr. Acheson's ideas and in the import plan that the 
administration has are good concepts and good ideas, but they 
are not backed up with adequate legal authority.
    Just as we should require preventive controls for all 
facilities here in the United States, we need a legal basis for 
ensuring that foreign producers meet the same standards and 
have the same preventive controls in place.
    I think some of the legislation that is pending would make 
the importer responsible, the U.S. based legal entity that is 
bringing the food in, responsible for providing some reasonable 
assurance that the produce produced overseas has in fact been 
produced in accordance with U.S. standards and preventive 
controls and so forth.
    Again, this is just codifying and finding a way to 
capitalize on the industry's responsibility for food safety.
    We will never have enough FDA inspectors to inspect all the 
foreign food facilities. There are three times as many foreign 
facilities registered to send product here than there are 
domestic facilities. We need more overseas inspections.
    We need to have a mechanism for codifying and enforcing 
that industry responsibility.
    Ms. DeLauro. You said this has to be part of an 
overarching--can you just explain what you mean by that?
    Mr. Levi. I think as you were thinking about an uniformed 
safety agency, we have to go to the period before what is now 
the FDA steps in and look at what authorities CDC may need or 
what is now a CDC function. It is going to get very confusing 
about what we are talking about.
    What is now a CDC function and also what state and local 
governments have and what authority they have to conduct these 
inspections. I think Mr. Kingston's example was these 
investigations need to be systematized, and it is unfortunately 
true for lots of surveillance activities, not just for food 
safety, where we have 50 states and the District of Columbia, 
and each may have slightly different approaches.
    This is an instance where we need to be feeding into the 
system relatively systematic and consistent information.
    That is the sort of going further back in sort of the 
starting with the initial identification and the capacity. 
Capacity is like identifying the problem, the capacity is 
identifying the problem and then do the further inspection.
    Ms. DeLauro. Thank you. Mr. Murray.
    Mr. Murray. I do not have any problems with these at the 
time. I do not really see why FDA registrations would have to 
be over two years.
    Ms. DeLauro. I have a question about mandatory recall. What 
is the trigger? Is there a trigger? Is that immediate? Do they 
have to do a voluntary recall first, Dr. Acheson, or can you 
move to a mandatory?
    Dr. Acheson. In the current view of the FDA, it would be a 
situation where a company has refused to do a recall, which is 
rare but has occurred, or is essentially being unduly slow in 
initiating a recall.
    Ms. DeLauro. It is reliant as it currently is on whether or 
not--it is not an immediate recall that you can do regardless 
of what the company has done?
    Dr. Acheson. The concept is we need the authority to 
require a recall. How that is translated finally into 
legislative language and what caveats are put around it, I 
think, would need to be determined as part of the rulemaking 
process.
    The concept is that right now we cannot require anybody to 
do a recall except in infant formula. We need that tool in our 
toolbox to be able to require that. Exactly how it would look, 
to answer your questions, I think it would be part of the 
deliberative processes, in the rulemaking.
    Mr. Bishop. Would the gentlelady yield on that point?
    Ms. DeLauro. Sure.
    Mr. Bishop. If you finger a business or an industry as a 
potential source of contamination, that is tantamount to recall 
right there, is it not?
    Dr. Acheson. It depends on what you mean by ``tantamount to 
a recall.'' The company has to do the recall. We cannot make 
them do a recall. We can seize product. We cannot require them 
to recall it.
    Mr. Farr. Can states? State health authorities?
    Dr. Acheson. I doubt that a state has the authority to do 
it.
    Mr. Bishop. All the retailers are going to do it and the 
wholesalers, too, because nobody wants to assume that 
liability, once you make the identification. That is what 
happened to our tomato people.
    Dr. Acheson. The point is the FDA does not currently have 
authority to require a recall.
    Mr. Bishop. You need it.
    Dr. Acheson. We know. That is what I am saying.
    Ms. DeLauro. That is what he is saying.
    Mr. Farr. I just had a question. I think these 
recommendations are moving in the right direction, but I do not 
see them being isolated at the Federal level. A lot of these 
facilities that you want to inspect require inspections at the 
local and state level, some of those inspections are higher 
than the Federal standards.
    It seems to me, and I think what Dr. Levi is talking about, 
is there needs to be an integration of sort of the best 
responses that are out there. For example, highly qualified 
third parties for voluntary food inspections.

                         FDA-STATE PARTNERSHIPS

    I would think you would use the states, if they are doing 
that now, and authorize it. Set up a plan here that is really 
integrated back to that kind of incident command system.
    Dr. Acheson. We already use states a lot for inspections. 
To answer your question, part of the plan here is to build on 
those state partnerships. The states and the local health 
authorities are critical in ensuring the safety of the food 
supply, both on the preventative side as well as the response 
side. The system does not work without them.
    Mr. Farr. Your recommendations here would design an 
integrated system, not just a federalization of a lot of 
these----
    Dr. Acheson. The FDA only has authority obviously over the 
Federal part, the FDA part. Working through partnerships with 
the states, we had a 50 state meeting in August to begin to 
explore how can we build those partnerships around outbreak 
response and recalls, and how do we define roles and 
responsibilities.
    States are key. As part of the new appropriations, we are 
going to be establishing a series of rapid response teams which 
again are localized, integrated Federal/state response teams.
    I agree with you. Incident command systems are the way to 
go. One of the lessons learned for us at FDA is to find ways to 
do that more effectively through ICS.
    Mr. Bishop. Would the gentlelady yield?
    Ms. DeLauro. I just would like to make this point, Dr. 
Acheson. I am hopeful because I am future oriented, but we had 
a very similar type meeting in 1998, same groups, same cast of 
characters. 1998. Same question, et cetera.
    We are now ten years later. My hope is that I am going to 
be an optimist that we can move, but ten years is an awful long 
time to recreate the same event again.
    Mr. Taylor.
    Mr. Taylor. Madam Chair, I think the reason for that, the 
dominant force among Government agencies is centrifugal force. 
There are a lot of pressures, there are some pressures that 
push them to cooperate, but most of the pressures on them are 
to stick within their own walls and do their own thing and to 
not operate as part of an integrated system.
    If you want an integrated system, if you want a Federal 
entity to be leading the development of an integrated national 
food safety system that includes the state and local bowls, you 
need to legislate that. You need to tell them to do that and 
create legal accountability for that. It will not happen 
otherwise.
    Ms. DeLauro. It looks like what the European Union has done 
in some instances in terms of these.
    Mr. Kingston wanted to be recognized and then let me go to 
Mr. Bishop.
    Mr. Kingston. Go ahead.

                       THIRD PARTY CERTIFICATION

    Mr. Bishop. I just wanted to ask with regard to the third 
party, highly qualified third party volunteer food inspections, 
you mentioned state and local agencies. Are you also 
contemplating private contractors?
    Dr. Acheson. Absolutely. To a standard that we have 
confidence in, that you have confidence in and the American 
consumer has confidence in, utilizing third party inspections 
to essentially help inform the risk based inspection process 
that we do, it is essentially we have 200,000 foreign 
manufacturers that FDA does not get to inspect on a very 
frequent basis, to say the least. We believe third party 
inspections could help inform that process. It does not give 
them a free ride of entry, but we believe there is information 
there that if it is done right, it could be helpful.
    Mr. Bishop. We would have an industry of third party 
inspectors that are paid by the Government to do that?
    Dr. Acheson. No. We would not pay those inspectors. This is 
already going on. There is already a whole certification 
auditing industry out there.
    What I am saying is they are already doing that. Let's make 
sure that if they are doing it, they----
    Mr. Bishop. They are certified.
    Dr. Acheson. They are doing it to a standard and we can 
then use that information to help inform our risk based 
inspection process. We have a pilot underway right now with 
regard to shrimp, just to explore the feasibility of this, is 
it viable.
    Ms. DeLauro. There will be lots of questions that surround 
that and that has to be whether we are doing domestic, whether 
we are doing foreign, what kind of accreditation, who oversees 
these folks.
    Is this one more example of outsourcing of Federal 
responsibility. There are a myriad of questions around this. We 
have watched what has happened with contracting out from the 
military to you pick an area of the Federal Government, the 
food stamps, it is all contracted out. We have massive 
corruption and abuse and failure of the system.
    Mr. Kingston.
    Mr. Kingston. Here is the Immigration Service who cannot 
find illegal aliens and here is UPS that can find any package 
and move them from California to Washington.
    Ms. DeLauro. Not mine. Mine did not arrive on Saturday with 
all my material for this hearing.
    Mr. Kingston. Yes, but you know who to blame.
    Ms. DeLauro. That was Federal Express.
    Mr. Kingston. Think about the corner video store can track 
down any video that my 17 year old has not returned. I would 
like to see the Government match some of that.
    I want to say this is an important point to me. Dr. 
Acheson. In terms of this recall, you have said FDA has done 
nothing wrong, but we do agree there has been a $100 million 
loss, maybe $200 million; correct?
    We are saying that may have been the CDC. No heads are 
rolling. Nobody is in trouble. You have been a good soldier 
saying it was not your agency. [Laughter.]
    Dr. Acheson. The answer to that is can we all say that it 
was never tomatoes. Is the data to say it was never tomatoes. 
We have not found the data at our side of it to say it was, as 
I think Mr. Bishop pointed out.
    That is the problem. Could we go back and say it never was 
tomatoes, it was a mistake.
    Mr. Kingston. You also said earlier that you want to move 
on and look forward, but I could never see you guys saying that 
to Mr. Murray, ``you guys'' being the collective Government.
    Can you imagine him saying got a little environmental 
problem, I have cleaned it up, and the EPA says that is okay, 
Mr. Murray, you have been a great taxpayer, the farm has been 
in your family 110 years, let's just move on.
    The Federal Government never says to anybody move on. They 
always want--you have to defend yourself, and many times, spend 
millions of dollars to prove you are innocent.
    The Federal Government is going to be very benevolent on 
itself now, let's just move on, and by the way, we want recall. 
Frankly, I think this committee would not be making a good 
judgment to give you guys recall based on this.

                                 RECALL

    What would you have recalled and when would you have done 
it and who would have made that decision?
    Dr. Acheson. Around this outbreak?
    Mr. Kingston. Yes.
    Dr. Acheson. There was never a recall.
    Mr. Kingston. No, I am saying if you had the recall 
authority and you got all of Congress screaming at you, why in 
the heck are you not exercising it. When would you have pulled 
the trigger and who would have made the decision? What would 
you have recalled?
    Dr. Acheson. In the current situation, there never was a 
recall situation around tomatoes. There was a recall situation 
around peppers.
    Mr. Kingston. That is not what I am asking. I am saying 
hypothetical, if you had the recall authority that you want.
    Dr. Acheson. Okay, I see where you are going.
    If we had evidence that a firm has got a product that is in 
commerce that is making people sick and they are not recalling 
it, this authority would give us the authority to require them 
to recall with some penalty if they do not.
    That decision and the way it is currently being envisioned 
by the administration would be taken at a very high level, 
secretary, deputy secretary, commissioner level. That is the 
current vision.
    Like all of these authorities, these are proposals. They 
are suggestions. It is up to Congress to essentially go one way 
or the other. If you have concerns about one part, you want to 
do something different----
    Mr. Kingston. Do you think that audits are ever done on a 
political basis? That the IRS ever audits a firm politically? 
Do you think all audits are random?
    Dr. Acheson. I do not work for the IRS.
    Mr. Kingston. I know that. I am just asking you.
    Dr. Acheson. As a personal opinion, consumer, do I think--
what are you asking me?
    Mr. Kingston. Can you get me with a little Government 
conspiracy here? [Laughter.]
    Do you think that when some companies are audited, it could 
be a little politically motivated?
    Dr. Acheson. It sounds like you have an inside track that I 
do not. I have no idea.
    Mr. Kingston. I am curious. Frankly, it is something that I 
think from time to time all of our constituents accuse of us.
    What about immigration raids on farmers or on plants?
    Mr. Murray, do you ever think that is done on a targeted 
basis? You are a really big plant, you do not get raided, but 
if you are medium sized, you might get raided? What do you 
think? Anybody hear anything about that?
    Mr. Murray. I would not.
    Mr. Kingston. Good answer.
    Mr. Bishop. Great answer.
    Mr. Kingston. Do you think that any president, Republican 
or Democrat, might at some point use a recall power?
    Dr. Acheson. I hope not.
    Mr. Kingston. I would hope not, too. I do know that some 
inspections of the USDA and many on a state level, I have 
heard, have been done politically. I am not necessarily saying 
there is hard evidence. Frankly, if there was hard evidence, 
this Congress, Democrats and Republicans, would be united on 
it.
    There does seem to be some scary factor, for those of us 
that feel like a healthy distrust of Government is good for all 
of us. The more power you have, the more recall. I just cannot 
see it.
    You have a situation right now where you are saying nobody 
was really at fault, that the FDA did nothing wrong. There is 
no place where the buck stops, but we have a $100 million 
disaster result because of this. Nobody is stepping forward and 
saying you know what, I really was the one to mess up.
    Mr. LaHood said you are the only guys that apologized to 
Mr. Murray, and you are doing that because you are a good sport 
and I understand. You are doing a good job today.
    The reality is if we had an infrastructure where you could 
say look, here is what went wrong and this is the department 
that made the mistake and they made the mistake on sound 
science, not on subjective judgment, then that would make 
somebody like me feel a lot more comfortable, and I think also 
the Chairwoman, but my concern falls off, I do not know why 
just given the present situation, that the FDA reserves any 
kind of recall power.
    Mr. Bishop. Mr. Kingston, would you yield for a second? In 
addition to what Mr. Kingston said, would you be willing to 
couple your recall authority with an indemnification 
requirement if your recall is inappropriate, so that somebody 
like Mr. Murray, who was wrongfully injured, could be required 
by your agency to pay for the mistake--receive compensation for 
your mistake?
    Mr. Kingston. Out of your own budget.
    Mr. Bishop. Out of your budget. [Laughter.]
    Dr. Acheson. Congress can enact anything they wish around 
that. It is not part of our proposal.
    Mr. Bishop. I said would you feel comfortable with that. In 
other words, you have to shoulder the responsibility for the 
decisions that you make that go along with that authority that 
you are requesting.
    Dr. Acheson. I think Mr. Kingston's point and yours is 
there needs to be accountability, and I am not going to 
question that.
    Ms. DeLauro. Let me just add, the European Union, if you 
read the GAO report about the European Union countries and you 
read about the Canadians and Japanese, et cetera, you will find 
that they do have recall, a mandatory recall authority, and it 
has been used very, very sparingly. It has hardly been used. It 
is an arrow in the quiver.
    It is as much for prevention as it is--having the authority 
to move in that direction does not mean that is the first thing 
that you drop on the table. It is not a preemptive war, if you 
will.
    You always have it there. The data from the GAO and their 
examination of these countries has said it has not in fact been 
used very much.
    I just have one more question with regard to the 
authorizations. I do not know how much further my two 
colleagues will want to go. I wanted to ask some of the funding 
questions.

                        INTENTIONAL ADULTERATION

    FDA to require preventive controls against intentional 
adulteration by terrorists or criminals, and additional 
preventive controls for certain high risk foods.
    Why is it limited to ``intentional adulteration?'' Why not 
require preventive controls from farm to fork?
    That is what my concern is with regard to the 
authorizations and how far they go and with high risk, what are 
we talking about there, which high risk foods are eligible, why 
only certain high risk foods, when you are looking at further 
authorities that you are looking for.
    Dr. Acheson. The goal here was to try to divide food 
defense in terms of deliberate versus food safety 
unintentional. That is what the split is on those two.
    We know there are certain areas with regard to somebody 
doing something deliberate to the food supply, where if they 
were to do it, they could cause mass casualties. That is the 
focus of that particular language. That is what we are trying 
to do there, when we know if somebody were to put a small 
amount of an agent at one point in the food supply, they could 
contaminate large numbers of servings with a lethal dose. That 
is what that is about.
    Ms. DeLauro. We do have laws with regard to that at the 
moment, do we not?
    Dr. Acheson. No. It is against the law, sure. Of course, it 
is against the law. Let's take a specific example. FDA cannot 
require that there be a lock on a milk tanker. We know a milk 
tanker is potentially vulnerable. Many industries do that as a 
routine because it is smart.
    We want to be able when we know there are areas of specific 
risk to be able to require that. That is where we are trying to 
go with that.
    Ms. DeLauro. Okay. That is understandable. Would you 
concur, and this goes back to a long time here in terms of the 
preventive controls from farm to fork that we were trying to 
talk about earlier, that is an authority, if you will, that 
ought to be part of this lexicon, you know, added to it as we 
move forward.
    We asked you about mandatory traceability. As far as I can 
tell from looking at these--which would have been an enormous 
help in terms of the cutting down the time frame and risk here, 
but that does not show up in these ten new kinds of 
authorities.
    That is what is of concern to me. I think we need to go 
further in these areas if we are trying to get to fundamentally 
changing the system because I go back to my premise that the 
system is broken and in order to fix the system, you need 
various kinds of standards and authorities in order to be able 
to do the job properly.
    Why are they not there?
    Dr. Acheson. That list was essentially a significant step 
forward, to put that out there as a marker of some needs, and 
we regard that as a start.
    You are right, trace back is not in there. That does not 
mean that we are not saying well, we need to think about that. 
There is a limit to what you can deal with.
    Ms. DeLauro. I will make this point. Trace back. If you 
take this as a case study, this Salmonella crisis, if we had 
the trace back capability, it would have saved weeks and weeks 
and weeks of time. Is that not right?
    Mr. Bishop. And money.
    Ms. DeLauro. And money.
    Dr. Acheson. I think it probably would.
    Ms. DeLauro. When you are looking at where you want to go 
in the future, it was the two things that you mentioned.
    Dr. Acheson. Absolutely.
    Ms. DeLauro. When I asked you about the authorities and the 
tools, preventive and the performance standards, prevention and 
performance standards to deal with it, and traceability. Then 
we look at the blueprint for the future.
    I have not talked about the funding for the future. You 
have allocated pieces of money for where you want to go. That 
is real dollars. Are we spending the money properly, which goes 
back to Mr. Levi's question, if we are not designing the kind 
of system that will prevent what happened this time from 
happening again.
    Let's not leave it on the table. Let's not leave it for the 
next time.
    Dr. Acheson. You certainly know my views on the value of a 
mandatory traceability because we have already discussed that.
    I think we have to recognize that what was put out in 
November as part of the food protection plan was where we were 
in November 2007. Things change.
    We would never have predicted Melamine in pet food, it just 
was not on anybody's radar screen. That then gets you thinking. 
We have to stay nimble and we have to have the ability when 
something crops up that maybe we have not given it sufficient 
priority, maybe we have not moved in the right direction.
    It then triggers okay, let's deal with this. We are not 
going to get it all figured out ahead of time.
    Ms. DeLauro. I would only say this and then I will end this 
conversation. I understand. Maybe that is all the market 
internally would bear, to be very honest with you. I cannot 
answer that question. Only you can answer that question.
    I will go back to the traceability initiative that is out 
there. The industry looked at this. We had the Western Growers 
here last year. They said mandatory, enforceable food safety 
standards. We have to move in that direction. You are killing 
us. They picked it up.
    I am going to leave it at that, this is what the market 
will bear. I think you understand my point and I think I 
understand where you are coming from.
    Mr. Bishop. I would like to go back, if Madam Chair will 
allow me, you gave an example, you said you could not require 
locks on milk tanks, that you did not have that authority. Why 
do you not have that authority if you have authority to require 
the milk tanks to be maintained at a certain temperature?
    Dr. Acheson. We just do not have the authority. Congress 
has not given it to us.
    Mr. Bishop. You are charged with safety. If security is a 
part of safety, to make sure that it is not contaminated 
intentionally, a lock would certainly assure that, inasmuch as 
keeping it at a certain temperature would ensure the safety of 
it. What is the difference?
    Dr. Acheson. One is a food defense issue and it is around--
--
    Mr. Bishop. Both of them are food defense issues.
    Dr. Acheson. No, they are not. Food defense is defined as 
somebody doing something deliberate. The point is to prevent 
somebody from doing something deliberate.
    I am not an attorney, but I am assured by our attorneys at 
FDA that we do not have the authority, and that is why we are 
asking for it. We recognize it as a gap.
    Mr. Bishop. If somebody turns the temperature gauge down on 
the milk, they contaminate it on purpose. Causes the culture of 
some toxin to be developed. It is the same principle. I do not 
understand why your folks would say that, other than they 
probably just do not like regulations.
    Ms. DeLauro. I just have a couple more things. I want to 
try to wrap this up here by 5:00, in the next ten minutes. 
Thank you for bearing with us.
    I would just like to put on the record something that Mr. 
Levi said in terms of trying to hold up money to get 
information. While we tried to do that with the $28 million in 
food safety from last year, we still do not have a report back 
as to what the $28 million could be used for and so forth. It 
is tough to get responses in terms of--I want to spend the 
money but I want to spend it wisely.
    That leads me to just getting really a quick response, 
because the funding issues--I thank you for that, Dr. Acheson, 
were laid out on pages two through four in Dr. Acheson's 
testimony.

                     FDA PRESENCE IN FIVE COUNTRIES

    That is the $14 million FDA presence in five countries, $10 
million, et cetera. I do not know if you have any comments 
about the money, use of it in terms of the direction, future 
direction, as to where we ought to be going at the FDA.
    Twelve million for targeting risk based inspection; better 
targeting of risk based inspection of imports; the $32 million 
for inspectors to expand domestic and foreign inspectors; $27 
million for improving response capability and reducing the time 
between detection and containing illnesses.
    Any comments? Mr. Taylor.
    Mr. Taylor. I think each of these pieces is a piece of a 
risk based approach building up the base, the tools, to do it. 
I think the point that Dr. Levi was making and I think Dr. 
Acheson would acknowledge is these pieces are meaningful in the 
context of a larger going forward strategy.
    I guess that is what in this particular statement does not 
give us. There is some of that in the food protection plan, but 
for example, the investments in the ability to identify and 
assess risk, that is important capacity. It has value for food 
safety when you actually go ahead and identify the risk, when 
you publicly identify what are the significant hazards in the 
food supply, so that Government and industry can be accountable 
for addressing them.
    These are building the tool kit and then the question is 
how the tools actually are used.
    I would say the same thing about the inspection increases. 
I believe there needs to be more inspection resources and more 
inspections, both domestically and overseas. That resource is 
well used when it is used to hold the industry accountable for 
doing its prevention responsibility and meeting certain 
standards, and we do not have the preventive control standards 
in place.
    Again, I am all for investing in building up this tool kit 
but then the question is how you use it operationally in a 
strategy that is based on enforcing the duty to be preventive.
    Ms. DeLauro. This is risk based foods versus the facility, 
et cetera? Should we be looking at risk as it is attached to 
food groups? What is the work that is being done in that area 
versus going to a facility----
    Mr. Taylor. We can take you well beyond 5:00 with this one. 
A starting point should be what epidemiology, and I come back 
to epidemiology's role in this again, what epidemiology says 
are the most significant hazards in the food system, and then 
we ought to focus on particular foods, particular pathogens in 
foods.
    We know broadly that some foods are more subject to 
microbial contamination than others, like meat, seafood, dairy 
products. We also know epidemiologically what are the pathogens 
that are causing illness, and we ought to be doing the 
epidemiology to attribute those illnesses to specific foods and 
then identifying those hazards.
    That is how epidemiology can inform the preventive effort. 
The tools are good. The inputs are necessary. I think these 
investments are sound, but they have to be aimed at being used 
in a way that actually contributes to prevention.
    Mr. Levi. The only thing I would add is sort of a question 
which is how far down the road is this taking us, what does $10 
million, just to pick one of these, how much technical 
assistance is that buying us. What is the level we ideally 
would need, is this the full payment, is it a down payment, 
what is the goal.
    I think for each of these, that would be a reasonable 
question to ask, so as you are thinking about 2009, 2010, 2011, 
there is a least a trajectory down which we could go.
    Ms. DeLauro. I have a final question, Dr. Acheson, which 
has to do with the overseas offices. In June, we were going to 
start with China, have three offices open by the end of 2008. 
If you can update us, where are we in terms of getting the 
offices opening?
    The reports were Beijing, Shanghai, Guangzhou; is that 
correct?
    Dr. Acheson. That is correct.
    Ms. DeLauro. The cities have been chosen?
    Dr. Acheson. That is still the plan.
    Ms. DeLauro. What is the status? How many staff people? How 
many Chinese nationals? Is the paperwork done? Where are we in 
terms of opening these offices?
    Dr. Acheson. The director is hired. He is going over there, 
I believe, in October, to set up.
    Ms. DeLauro. In these three cities?
    Dr. Acheson. He will be based in Beijing. The applications 
for staffing this up from within FDA because we want 
experienced FDA personnel there has just recently closed. I 
believe there were over 80 applicants to staff this.
    Ms. DeLauro. Still talking just about Beijing?
    Dr. Acheson. No, about China.
    Ms. DeLauro. About China in general; okay.
    Dr. Acheson. The goal as I currently understand it is there 
would be probably eight to nine U.S. FDA type personnel and 
five or so Chinese nationals.
    Ms. DeLauro. In every office?
    Dr. Acheson. No, total China would be 13, spread around 
between the three cities. I do not actually know how many in 
each.
    Ms. DeLauro. Has China approved the necessary paperwork 
such as visas and all that?
    Dr. Acheson. Yes. We are good to go. That was one of the 
hold up's.
    Ms. DeLauro. I understand that. My understanding, and 
correct me if I am wrong, they were looking for reciprocity 
with having----
    Dr. Acheson. There were some concerns around that, but we 
are through that.
    Ms. DeLauro. We are through that?
    Dr. Acheson. We are through that. It was not approving 
individual visas. It was approving the concept of setting this 
up.
    Ms. DeLauro. Restrictions? Will there be restrictions on 
travel by staff of these offices within China and access to 
facilities?
    Dr. Acheson. I do not know, but I will get back to you with 
an answer for that. I do not know.
    We do not anticipate problems gaining access to facilities 
that we want to inspect. The Memoranda of Agreement with the 
State Food and Drug Administration (SFDA) and the General 
Administration of Quality Supervision, Inspection and 
Quarantine (AQSIQ) both require that each country facilitate 
the inspections of establishments by the other country. The 
Agreements also acknowledge that inspections may be conducted 
with or without providing advance notice to the establishment 
to be inspected.

                     ACCESS TO FACILITIES IN CHINA

    Ms. DeLauro. Secretary Leavitt has said that he did not 
view the offices as being just an inspection group. What does 
that mean? Will these folks do inspections?
    Dr. Acheson. Yes. Part of what they will do is inspections. 
It is clearly not realistic to expect 13 people to inspect 
thousands of firms in China. That is not what this is all 
about.
    Ms. DeLauro. Can you get to us when you are getting us some 
information on kind of the scope, the job description, what is 
it that we are asking these people to do there?
    Dr. Acheson. At a high level, part of it is inspection, 
part of it is being there when things go wrong, as we are just 
right now experiencing in another situation with infant 
formula.
    There is no way that we could staff up China to the point 
where we would be out inspecting every firm, to Mr. Bishop's 
point.
    Ms. DeLauro. I understand that. I want to know what is 
their job description, what are we asking them to do?
    Dr. Acheson. We have a job description. We will get you a 
copy of the job description. A high level. It is about building 
the relationships, understanding what is going on there and 
essentially establishing a presence so that when things go 
wrong, we are in a better place to respond.
    [The information follows:]

           

    
                     CHINA OFFICE JOB DESCRIPTIONS

    Ms. DeLauro. What gives me pause on this is the fact that 
this infant formula issue in China has essentially to do with 
their regulatory process.
    Dr. Acheson. Right.
    Ms. DeLauro. We continue to move stuff back and forth. We 
have had it for a very long time, evidence, that their 
regulatory process is seriously at fault.
    Babies are dying in China as a result of their lax 
regulatory process.
    We continue to have this back and forth, products coming in 
overwhelmingly relying on a very faulty regulatory process. I 
do not know where that gets addressed or how it gets addressed, 
but it has to be addressed if we are going to have to deal with 
the safety here of product coming from China.
    What other countries are you planning to open offices in 
and when?
    Dr. Acheson. India. The director has been appointed for 
India. I think he is going to take up station later this year. 
I believe there are nine people that are going to be in India.
    South and Central America. I do not know that the actual 
sites have been chosen for those yet specifically. The Middle 
East, which the current thinking was Jordan, and then within 
Europe, which is obviously a slightly different circumstance, 
within EFSA, within essentially the regulatory--I think it is 
potentially one person in Brussels. There are going to be three 
in Europe. The EMA was the other one in Europe.
    Mr. DeLauro. Mr. Kingston? No? Okay.
    Thank you all very, very much. We have been here since 
2:00. It is 5:00. I appreciate your patience. I appreciate your 
commitment and your willingness to answer the questions and to 
be candid about it.
    My hope is that we can really and truly not move backward 
but move forward in trying to design an infrastructure and an 
agency that one, protects the public health, and also I use the 
word ``protection'' because I am not afraid of the word 
``protection,'' but protects the industry and protects the 
public health.
    I think that is where we need to go. I think it is going to 
require some time to do, but I think we have to have everybody 
at the table with all the cards on the table and not be afraid 
to mix it up with one another, so we can come out with a 
product here that puts the public--gives the public--renews the 
public's confidence in our food safety system.
    I do not think anyone would disagree that the public has 
real confidence problems today, no matter what we want to say, 
and certainly a response to making sure that industry has the 
ability to grow and to thrive, have economic security. Thank 
you all very, very much. This hearing is concluded.
                                           Thursday, March 6, 2008.

                   FOOD SAFETY AND INSPECTION SERVICE

                               WITNESSES

DR. RICHARD A. RAYMOND, UNDER SECRETARY FOR FOOD SAFETY
ALFRED V. ALMANZA, ADMINISTRATOR, FOOD SAFETY AND INSPECTION SERVICE
SCOTT STEELE, BUDGET OFFICER, DEPARTMENT OF AGRICULTURE
    Ms. DeLauro. Dr. Raymond, I would like to welcome you this 
morning and thank you very, very much for being here; also to 
welcome Mr. Almanza. Good to see you, and of course our steady 
guest here is Scott Steele. So I want to apologize, Dr. 
Raymond, for not being able to meet prior to today's hearing, 
but I serve on the budget committee and with them all day until 
about 12:30, 12:45 a.m. just remarking of the 2009 budget.
    I do not have to remind anyone of this agency's mission or 
how important it is. On this subcommittee we have an obligation 
to make sure the Food Safety and Inspection Service is well-
prepared and well-supported to carry out its regulatory 
responsibility and protect our nation's food supply.
    We all share a common goal, that is to create an effective 
food safety system that focuses on prevention, not just 
reaction, ensures the public health, and makes the most 
effective use of limited resources. These are rather basic and 
guiding principles of reform, but for too long they have been 
undermined by inadequate authority, outdated oversight laws, 
and by regard for private interest that compromises the 
public--
    This past year has been an eventful one for FSIS. The meat 
recall involving Topps Meat Company in September included a 
then-record 22 million pounds of beef. When Topps closed its 
doors the following month, it was a stark reminder that every 
recall carries not only--health consequences, but significant 
economic implications for businesses and workers as well. Last 
year we also learned that the Food Safety and Inspection 
Service was underestimating the prevalence of E. coli O157:H7 
in our nation's meat supply. The Food Safety and Inspection 
Service was not analyzing all of the regulatory samples taken 
for raw ground beef to test for the presence of the E. coli 
bacteria.
    The agency had allowed companies with their own testing 
programs to divert ground beef that tested positive for E. coli 
O157H7. And the Food Safety and Inspection Service inspection 
personnel were allowed to discard samples that tested positive 
from the same lot of meat, preventing it from being sent to a 
food safety and inspection service laboratory for further 
analysis.
    Fortunately, the agency modified the policy, but we still 
have serious questions as to why it ever happened in the first 
place. The end of 2007 also saw the Office of Inspector General 
release an audit report, confirming the subcommittee's concern 
that the Food Safety and Inspection Service lacks coherent data 
to support the move forward a risk-based inspection system for 
poultry processing plant.
    I'm glad that the Food Safety and Inspection Service has 
agreed with the Office of Inspector General's recommendations 
on key steps that it must take before proceeding with its risk-
based system.
    But simply acknowledging those recommendations is not 
enough to earn the green light. The Food Safety and Inspection 
Service must actually address the problems identified in the 
report before moving forward. The Office of Inspector General 
emphasized this important distinction as well, criticizing Food 
Safety and Inspection Service for failing to achieve its proper 
commitments to the Office of Inspector General.
    The Food Safety and Inspection Service is clearly not ready 
to implement risk-based inspection; yet it appears to be moving 
forward with a so-called public health-based inspection system. 
Essentially a risk-based inspection system for poultry 
slaughtering plant, it has a new title, but the concerns remain 
the same.
    If the Food Safety and Inspection Service is not ready to 
implement risk-based inspections for processing plants, it 
certainly is not prepared to go forward with risk-based 
inspections for slaughtering facilities. The labor implications 
of these facilities faster lines--are problematic, but the food 
safety implications are even more--
    Of additional concerns about relying on company inspectors 
in place of USDA inspectors, and I hope to address all of those 
questions with you today and to discuss your plans for the 
months and the years ahead.
    To be sure this agency has not been starved for resources, 
in 2007 it was funded at $29 million above the budget request. 
For fiscal year 2008 it was spared across-the-board cuts and 
funded at the full request. And I'm happy to say, working with 
you, that we did that specifically because we did not want you 
to have the full request that we believe and you believe was 
important for you to carry out your--
    Unfortunately news on food safety hasn't improved since--
the Humane Society uncovered horrific practices--Hallmark 
Westland--plants--California were downed cattle were forced to 
answer that they could pass federal inspection. As we all know, 
the slaughtering of downer cows--present a higher risk of E. 
coli contamination, and it violates the law with regard to 
downer cows.
    This investigation led to the recall of more than 140 
million pounds of meat, setting a new record for the largest 
recall in U.S. history. Perhaps the most disturbing is the fact 
that this Hallmark Westland plant was the second-largest meat 
supplier to the national school lunch program. Thirty-seven 
million pounds of the recalled meat were originally estimated 
to have gone to the program.
    Next week the subcommittee will be hearing from the 
Department of Agriculture's Food and Nutrition Service, and I 
intend to focus specifically on the school lunch aspects of the 
recall.
    I might--here that I think what the Humane Society 
investigation pointed up what might be regarded as a perfect 
storm. We were there looking at some real fault lines, in my 
view, within the agency, and that is the inhumane 
slaughtering--the violation of the downer cow rule, the 
potential contamination of beef that goes to a school lunch 
program. It has uncovered a myriad of problems that I think 
point to the very real problems in our food safety system and 
in the food system safety as they exist at the Food Safety and 
Inspection Service.
    I should note that I'm troubled that your testimony this 
morning while addressing some topic like BSE in great depth 
fails to seriously address some of our most urgent concerns 
like the dramatic Hallmark Westland failures or the larger 
questions of E. coli threats. There's something seriously wrong 
with our system when it is the disease outbreaks that are 
catching the failures at these plants, and not the Food Safety 
and Inspection Service. That is your responsibility. It's our 
responsibility in terms of oversight, but it's your 
responsibility, and it is not the Humane Society's 
responsibility or the disease outbreak that is what is catching 
failure at these plants.
    Dr. Raymond, I thank you again for being here. I look 
forward to our discussion, so that we confront these very tough 
issues, strengthen Food Safety and Inspection Service's ability 
to meet its regulatory responsibilities and together to meet 
our commitment to the American people. And I thank you.
    And with that let me yield to Mrs. Emerson. Mr. Kingston? 
Is Mr. Kingston coming at all today? I don't believe Mr. 
Kingston will be here today.
    Speaker. He is coming.
    Ms. DeLauro. Okay, but is he here for opening remarks? Ms. 
Emerson will proceed with opening----
    Ms. Emerson. I just would like to thank you, Dr. Raymond, 
Mr. Almanza, and Mr. Steele, for being here. I know that we 
will have a very interesting and hopefully very productive 
meeting today. With that, Madam Chair, I think I'll just save 
any remarks and/or questions until Dr. Raymond has finished his 
testimony.
    Ms. DeLauro. Thank you, Dr. Raymond, and you know, please 
proceed with your testimony, and you know the entire testimony 
will be made a part of the record, so you summarize in the 
fashion you care to.

                           Opening Statement

    Dr. Raymond. Right. Thank you, Madam Chairwoman, and 
Ranking Member Kingston and members of the Subcommittee, I am 
pleased to appear before you today. I would like to thank you 
and other members of the Subcommittee for your ongoing efforts 
to provide FSIS with the resources to improve the safety of 
meat, poultry, and processing products.
    I would first like to address the ongoing investigation of 
the Hallmark Westland Meat Packing Company in Chino, 
California. I want to assure you that I am deeply concerned 
about the inhumane handling of non-ambulatory disabled cattle 
in that facility. As soon as we learned of the problems at 
Hallmark Westland, we did take immediate steps to determine if 
the allegations made public by the Humane Society of the United 
States were accurate. The FDA's Office of Inspector General is 
leading the investigation at this time with support from FSIS 
and AMS.
    At the conclusion of the investigation, the Secretary 
announced last week that we will be implementing a series of 
interim actions to verify and thoroughly analyze humane 
handling activities at all Federally inspected slaughter 
establishments.
    The Federal Government has an interlocking system of 
controls to protect against BSE. The FDA's ruminant-to-ruminant 
feed ban, which began in 1997, is the most significant step 
that the Federal Government has taken to protect animal health.
    The single most important thing we can do to protect human 
health regarding BSE exposure is the removal from the food 
supply of specified risk materials, or SRMs, those tissues 
that, according to the available scientific evidence, could be 
infective in a cow with BSE. According to the Harvard Risk 
Assessment, the SRM removal alone reduces the risk to consumers 
of BSE by 99 percent.
    The USDA has conducted targeted BSE surveillance testing 
since 1990, which has detected only two animals with the 
disease out of over 759,000 high-risk animals tested to date, 
and both of those animals were born prior to initiation of the 
feed ban and neither entered the food supply.
    The rule that prohibits non-ambulatory cattle from entering 
in the food supply is another one of the multiple measures that 
are in place to protect us. Because of these measures, we can 
be confident of the safety of our beef supply in regards to 
BSE.
    I'd now like to highlight some efforts that we have made to 
protect human health from other foodborne pathogens. Based on 
the Centers for Disease Control and Prevention's annual Food 
Net data report, we know that we are making some progress 
towards the Healthy People 2010 goals regarding the incidence 
of foodborne illness. However, we also know that we still have 
work to do to further reduce the foodborne illnesses.
    Following an increase in positive product test results and 
recalls for E. coli O157:H7, which I'll just refer to as E. 
coli from now on, last fall the FSIS announced several new 
ongoing actions to further protect the public against the risk 
of E. coli, which includes expanded testing.
    It is important to keep things in perspective, however. 
Although we ended 2007 with 21 recalls due to E. coli, which is 
an increase, and the percentage of E. coli-positive samples 
from 2007, which was 0.24 percent, while being slightly higher 
than the 0.17 levels that we saw in 2004-2006, is still well 
below the percentage of positives that we saw in 2001, when we 
announced our new guidelines, which at that time was 0.87. And 
I think the graph does illustrate there is a definite increase, 
we acknowledge it, but is still better than it had been at the 
start of this decade.
    FSIS also collects and analyzes samples of raw meat and 
poultry product for Salmonella. Because of the increase in 
Salmonella-positive product tests that we were seeing early in 
this decade, FSIS did announce an 11-point risk-based strategy 
for Salmonella reduction in raw products in February 2006.
    We can easily see the positive results in this risk-based 
strategy already. The percentage of plants that fall into the 
best-performing category has increased dramatically from 35 
percent to 74 percent over that two-year period of time. On 
March 28, 2008, this agency will begin posting on its Web site 
the completed verification test results from establishments 
with Salmonella rates in the other two categories, beginning 
with young chicken slaughter establishments.
    In addition to strengthening our policies to reduce 
foodborne pathogens, FSIS has been proactively building its 
data infrastructure for the last few years, based on internal 
FSIS assessments and also audits by the Office of Inspector 
General. We were pleased that the OIG agreed that our responses 
to all 35 of its recommendations from the December 2007 OIG 
audit addressed their concerns. We acknowledge the need 
identified by OIG in this audit for FSIS to have an integrated 
system and an infrastructure in place to support a robust risk-
based inspection system that we do need to further improve the 
safety of the food products that we regulate.
    FSIS has already initiated or completed a number of 
actions, and we have milestones to measure our successes in 
this area.
    Because our employees are on the front lines, enforcing our 
food safety and food defense policies and monitoring 
establishment controls of foodborne pathogens, they do remain 
our greatest asset. When FSIS received its final appropriation 
from Congress last year, including the budget increase of $27.4 
million that we requested to help reduce vacancy rates and meet 
increased demand for front-line personnel, an aggressive effort 
was already underway to hire a significant number of new 
inspectors.
    I'm pleased to let you know that on October 27 of 2007, 
FSIS did achieve the goal of an additional 184 in-plant front-
line personnel, including food inspectors and consumer safety 
inspectors, which the President had requested the budget 
increase.
    As of February 16, 2008, our vacancy rate in slaughter 
establishments is now at 4.25 percent, our vacancy rate in 
processing plants is 2.23 percent, and our total overall 
vacancy rate in front-line inspection is 7.4 percent today.
    Because our workforce is so important, FSIS is requesting 
$952 million for fiscal year 2009, an increase of $22 million 
above the fiscal year 2008 level. This appropriation request 
includes funding for an increase in pay and benefit costs, an 
increase for costs of the State meat and poultry inspection 
programs, and an increase to support Federal responsibilities 
added due to the takeover of the New Mexico State Inspection 
Program.
    The appropriation of the full amount requested is paramount 
because of the importance of FSIS's mission, that is, 
protecting the public's health. If we are not appropriated the 
full amount of our request, the salary and benefit cost for 
FSIS's statutorily mandated workforce will have to be fulfilled 
using the budget of other FSIS initiatives and programs.
    The Administration also proposes legislation to provide the 
USDA with the authority to collect new user fees, including a 
licensing fee and a performance fee.
    Madam Chairwoman, Ranking Member Kingston, Mrs. Emerson, 
and members of the Subcommittee, thank you for the opportunity 
to testify today, and Mr. Almanza and I will be very happy to 
try and answer all of your questions as best we can.
    [The information follows:]

           

                         FOODBORNE ILLNESS DATA

    Ms. DeLauro. Thank you very much.
    Do you want move first because you have to----
    Ms. Emerson. Madam Chair, I'll let you go on and go first, 
and then I'll just pick up right afterwards.
    Ms. DeLauro. Thank you.
    Dr. Raymond, in your testimony before this committee last 
year, the numerous speeches including your presentation at the 
USDA Agricultural Outlook Conference recently and again in your 
testimony today you claimed that USDA FSIS, the Food Safety and 
Inspection Service, is making great progress in reducing 
foodborne illness, and we have the charts, and the charts that 
are up there. There is little data to back up that assertion, 
and I wonder why you keep making it.
    First you continue to cite the regulation verification data 
for Salmonella and E. coli collected by the agency as though 
the numbers reflect a reduction in the national prevalence of 
these two pathogens in FSIS-regulated foods. I have a chart 
here as well, in which we're looking at the increases. I didn't 
get it blown up here, but we're looking at increases in whether 
it's Campylobacter, E. coli, Salmonella, or Listeria 
monocytogen.
    You've been told by the Office of Inspector General and the 
National Advisory Committee for Microbiological Criteria for 
Food that the regulatory verification data do not represent a 
national sample. They reflect only what is happening in a 
particular plant on the day that it was tested. The reductions 
in positive tests for E. coli, O157:H7, may show only that the 
companies tested had no E. coli on that day of testing. It's 
less appropriate to use Salmonella verification data as 
reflecting improvements in public health protection.
    First, these are only reflective of what is happening in 
one plant on the day that it was tested. The data have no 
national significance. Second, the Salmonella performance 
standard is not a public health standard. It was established 
based on an industry standard a decade ago; it represents only 
what the top half of companies were able to achieve then. It is 
entirely possible that every company in the country could pass 
the Salmonella test and Salmonellosis cases from USDA-regulated 
products would not decline.
    Let me just ask you this. Do you understand that the 
verification data do not reflect the prevalence of the 
pathogens in the meat supply?
    Dr. Raymond. We've made changes in the way we collect that 
data to try to make it more representative. For instance, we 
used to sample for Salmonella at the very start of the first 
shift in plants, and we recognize with input at the Safe Food 
Coalition that that probably is not a representative sample. 
And so we do samplings throughout the day to make it more 
representative.
    Ms. DeLauro. But I'm saying is we posit information and 
data here is if it gives the public the sense that we're moving 
in a direction, and a very positive direction, when in fact 
that's not the case. I think honesty, quite frankly, requires 
that you stop suggesting that the numbers reflect a national 
prevalence or reductions in the national prevalence of 
Salmonella and E. coli. Quite frankly, I would like your 
commitment here this morning that you're not going to misuse 
these data to support the national changes in the inspection 
system.
    Can you just answer us ``yes'' or ``no'' about whether we 
have representative samples here that lead us to what appear to 
be erroneous conclusions about reducing foodborne illness?
    Dr. Raymond. Well, Madam Chair, two years ago when we 
started the initiative, we had approximately 17 percent of 
chicken carcasses positive for Salmonella, and last year it was 
7.4 percent.
    Ms. DeLauro. Can you answer ``yes'' or ``no,'' Dr. 
Raymond?--dealing with information--what's the answer to his 
question? This is data that is being--you've been told by the 
OIG. You've been told by the National Advisory Committee for 
Microbiological Criteria for Food that the regulatory 
verification data do not represent a national standard. I 
didn't make this up. I am neither this National Advisory 
Committee, nor am I the Inspector General. Now they say it is 
not representative, isn't a national sample.
    Dr. Raymond. We do believe that trends over time do show, 
the data over time do show trends in prevalence in the products 
that we test.
    Ms. DeLauro. I probably should have blown this chart up or 
enter this chart into the record, which demonstrates that in 
fact while early on between 2001 and 2005 we were looking at 
minor reductions, but in every measure here we are looking and 
going further forward in terms of the cases of foodborne 
illness.
    So, again, honesty requires. We're not going to address 
this problem and deal with what you talked about in terms of 
prevention versus reaction unless we know what our set of 
circumstances is. And--appear to me that not we, but that you, 
that the agency is burying its head in the sand and not really 
focused in on the dimension of the problem and then how we work 
together in order to be able to address it--sure that we 
reducing foodborne illness in this nation, and not increasing 
it.

                        HALLMARK/WESTLAND RECALL

    Ms. Emerson. Thank you, Madam Chair.
    Dr. Raymond, first let me ask you with regard to the 
Hallmark incident, is there a quantifiable level of BSE risk 
that USDA has been able to measure for the Hallmark meat which 
improperly entered the food supply?
    Dr. Raymond. An analysis that we just recently completed 
and had peer reviewed, showed that if this plant had allowed 
every downer cow that presented--let me take the most 
conservative viewpoint here--if every downer cow that was at 
that plant--and by the way, 5 percent of animals at that plant 
were condemned--and if all of those had been allowed to enter 
the food supply, because of all the other measures in place 
that we have, the risk would have increased by 0.13 percent. 
And I must point out that we don't have a quantifiable baseline 
risk, but it is extremely small because of the interlocking 
steps that we have to prevent BSE from entering the food 
supply.
    Ms. Emerson. Okay.
    The information regarding the downer animals entering the 
food supply obviously as you mentioned came to light after 
undercover work by the Humane Society. Does USDA utilize 
similar investigative techniques? And if you don't, do you 
think you should consider it?
    Dr. Raymond. We do use some--undercover perhaps is the 
right way to describe it--some observation of pens when the 
plant is not aware that we are observing them. For instance, it 
could be from off-premise instead of just on-premise. Whether 
we should do more of that is a question that we will consider, 
once this investigation is complete as to how we can better do 
our job.
    Ms. Emerson. Can you outline for us the time lines for when 
the video was taken when USDA learned of it and steps leading 
up to the recall and effectiveness checks? Do you believe that 
the video was released in timely fashion, and also--I've got 
another follow-up to that. So go ahead.
    Dr. Raymond. I believe the video was obtained over about a 
six-week period of time, probably all of October and maybe half 
of November, and I believe we became aware of it on--Al, 
correct me if I'm wrong--I think it's January 31? January 31 is 
when we became aware of the video. Thirtieth. I've been 
corrected, January 30.
    Ms. Emerson. Can you estimate how many pounds of food were 
produced between the film's production in October and its 
release to the agency? Do you know?
    Dr. Raymond. Well, that would be over a four-month period 
of time, which would be one-third of a year, and we know over 
the two years it was 143 million pounds produced over two 
years. I guess we divided by six, it would be approximately 
270,000 pounds. Yeah, that would be about right. No, it would 
be about 220,000 pounds. I'm sorry.
    Ms. Emerson. Okay. You know, I think it was at least clear 
to Hallmark or their employees when the improper handling of 
animals was possible without being detected by USDA. Tell all 
of us, if you would, how you all plan to address this glaring 
concern.
    Dr. Raymond. Well, as you know, and as I said, the OIG is 
conducting and leading an investigation right now with our 
support, and once that investigation is done, we will sit down 
and have serious conversations about what the investigation 
shows and what we need to do differently.
    Ms. Emerson. Do you anticipate that study taking several 
months, several weeks, or is it just impossible to know?
    Dr. Raymond. You know, I cannot predict how long the OIG 
will take in its investigation, and we will move as quickly as 
we can once that is done.
    Ms. Emerson. In the meantime, though, are you taking more 
precaution?
    Dr. Raymond. Yes. We have taken, instituted several steps, 
beginning with the 19 slaughter plants that do supply products 
to the school food supply system. Following that, we'll focus 
on old cow plants and veal plants, and then from there to the 
rest of the slaughter plants, over a 60-day period of time. 
This includes increased time doing humane handling, and 
surveillance activities. It would include some increased 
undercover surveillance activities.
    Al, help me out. What else? There are several points I'm 
forgetting.
    Mr. Almanza. Utilizing other departmental--parts of the 
agency, APHIS, and packers and stockyards and some of those 
other----
    Ms. Emerson. Their personnel to assist so that you----
    Mr. Almanza. Yes.

                          INTERSTATE SHIPMENT

    Ms. Emerson. Okay.
    Let me just switch subjects really quick. Last year, Dr. 
Raymond, our colleague, Sam Farr, raised the issue of 
interoperability, increased coordination between state 
inspectors and FSIS, and this question unfortunately was 
dismissed on the basis of, one, Federal law prohibits 
interstate shipment of meat produced, state inspected at 
facilities. And two, I think you all said it was FSIS's 
intention to bring common sense to bring common sense to 
federal inspections through risk-based inspection.
    On the other hand, FDA has kind of taken this whole idea 
and run with it, and have proposed standards for manufactured 
food regulatory program, which would allow them to coordinate 
and utilize state inspectors, so FDA can focus its limited 
resources elsewhere.
    Both the Senate and House versions of the Farm bill 
contained provisions that allow expanded interstate shipments 
of state-inspected meat. So my question would be: Has FSIS 
revisited the agency's relationship with potential state 
partners, and what is your all's current position?
    Dr. Raymond. We don't have a position on interstate 
shipment at this time on the Farm Bill. We have provided 
technical assistance to both the Senate and the House--both 
from a fiscal standpoint and also from an FTE standpoint. And 
either one of those versions or a compromise of the two would 
require more increased cooperation between FSIS and State 
inspection programs and perhaps increase supervision, depending 
on which model was used.
    Ms. Emerson. And would that be helpful?
    Dr. Raymond. Again, we don't have a position on those 
subjects. We will certainly follow whatever is passed.
    Ms. Emerson. Well, let me just say, though, Dr. Raymond, 
that you know I know you're on the science side, but USDA 
doesn't generally hesitate to make drastic proposals for the 
Farm bill, I have to say, and certainly USDA has been to think 
outside the box on occasion when it has wanted to.
    Anyway, let me thank you very much, and Madame Chair, thank 
you.
    Ms. DeLauro. Mr. Hinchey.

                     INSPECTION PERSONNEL VACANCIES

    Mr. Hinchey. Thank you very much, Madame Chairman. Under 
Secretary, thank you. Nice to be here with you again, and you 
know talk about a subject that is really important to the 
health and safety of people of our country. And I think that 
based on the information that I have and the interaction that 
we've had over the last few years, it seems to me that you try 
to do a good job. But it's not always easy to do.
    One of the issues that you have to deal with is the number 
of inspectors that you have around the country to look at these 
food production facilities, and to make sure that the food that 
is being sold is safe, it's not going to have adverse 
consequence.
    I understand the number of inspectors now is down by about 
10 percent, is that right?
    Dr. Raymond. The number of inspectors today compared to a 
year ago is actually up, Mr. Hinchey, by 100.
    Mr. Hinchey. I'm not talking about compared to a year ago.
    Dr. Raymond. Okay.
    Mr. Hinchey. The number of inspectors that are supposed to 
be in your agency I understand is about 8,000. And you have now 
something in the neighborhood of 7,300, or something like that. 
So, based on those numbers, the number of inspectors is down 
from where it ought to be by about 10 percent. Is that correct?
    Dr. Raymond. The numbers right now today are 7.4 percent. 
They were 10 percent, and we've been able to bring those 
numbers down somewhat.
    Mr. Hinchey. Oh, so it's a little over 9 percent, then? Not 
by 10 percent?
    Dr. Raymond. 7.4 percent is the overall vacancy right now 
of our front-line inspection workforce.
    Mr. Hinchey. 7.4 percent?
    Dr. Raymond. Yes. 3
    Mr. Hinchey. But you have less than 7,400 inspectors. Or do 
you? Well, how many inspectors do you have? You're supposed to 
have 8,000. How many do you have?
    Dr. Raymond. As of the first pay period, the first week in 
January we had 7,310 inspectors in the establishment.
    Mr. Hinchey. 7,300? Okay.
    Dr. Raymond. Yes, sir.
    Mr. Hinchey. That's what thought originally. So you're down 
about 10 percent, close to 10 percent. And the question arises, 
you know, what is the quality of inspection that is being 
administered since we don't have enough inspectors? Why is it 
that we don't have the full number?
    Dr. Raymond. There are several reasons, and probably the 
biggest one is that we just have trouble recruiting for some 
geographical areas in the country. We have been very aggressive 
in offering signing bonuses and moving expenses, et cetera, 
trying to fill those vacancies. But it is difficult in some 
parts of the country to find----
    Mr. Hinchey. Well, I would encourage you to be more 
aggressive in that regard, because I think that this is very, 
very important. And if we don't have enough inspectors out 
there, then this job is not going to get done.
    Ms. DeLauro. Will the gentleman yield for a second? It's my 
understanding, and just for verification, that in the Alameda 
District, which is where Hallmark Westland is, that the vacancy 
rate in that area was at about 11 percent.
    Mr. Hinchey. Okay. The vacancy varies. It varies sometimes 
up as high as 11 or 12 percent, down in some areas by less. But 
across the country, the vacancy rate is somewhere in the 
neighborhood of 9, close to 10 percent.
    There's a request in the budget from the president to 
increase the amount of funding by $22 billion. [Clerk's note--
The Department subsequently clarified the number is $22 
million] I would just say that we've got to focus more on this 
issue of the number of inspectors, because the inspections 
aren't being done. They're not being carried out properly.
    Last month, for example, we saw that the largest beef 
recall in U.S. history took place at the end of February, and 
you know I think it's pretty shocking for the American people 
to see that kind of thing happening. They expect that their 
government is going to be doing everything it can to protect 
their health and safety.

                       RETAIL DISTRIBUTION LISTS

    Now to your credit, as I understand, going back a couple of 
years, to 2006, you recommended that whenever there is a beef 
recall, people should know where that food that was being 
recalled was sold from. Am I right about that?
    Dr. Raymond. Yes, sir.
    Mr. Hinchey. But that hasn't happened. In spite of the fact 
that you made that recommendation, which is to your credit that 
you did so, that hasn't happened. So in the case of this beef 
recall, the largest recall of food in the history of the United 
States of America, people across the country who are subject to 
exposure to that adverse food weren't able to learn from where 
they bought it. I would like you to tell us the names of the 
retail establishments that that food was sold from. And to the 
best of your ability, give us an indication as to how many 
people actually purchased that food from those specific retail 
stores. Now can you do some of that right now?
    Dr. Raymond. Congressman, I can tell you there is nearly 
10,000 retail establishments, and I cannot give you each 
individual----
    Ms. DeLauro. What was the number? I'm sorry?
    Dr. Raymond. Just short of 10,000 retail establishments.
    Mr. Hinchey. There are 10,000 retail establishments?
    Dr. Raymond. Nearly 10,000.
    Mr. Hinchey. Some fraction of that 10,000 was engaged in 
the sale of this beef product, which was recalled, and I assume 
recalled because of the work that you do in your operation, 
because you were responsible for that recall, and I 
congratulate you on that. But I think that you are confronting 
some adverse circumstances in the context of the overall 
situation in which you work, in spite of the fact that I've 
cited two examples of how you as the Under Secretary for Food 
Safety Inspection, have done those two very important things in 
recent years, nevertheless the effect of what you are trying to 
do is not where it ought to be.
    So there are 10,000 retail stores, a fraction of those 
10,000 was responsible for selling this adverse food that was 
recalled. I would like you to tell us where those retail stores 
were, what the names of those retail stores were, and where 
those retail stores obtain the product that they sold which was 
recalled; and to whatever extent you can, also tell us to what 
extent they knew that the product that they were buying was 
under the quality that it should be, and that it might in fact 
be recalled. Can you do that?
    Dr. Raymond. First of all, if I might, I'd like to clarify. 
It's 10,000 consignees, not 10,000 retail stores. I assume that 
means consignees could have several retail stores.
    Mr. Hinchey. Okay.
    Dr. Raymond. So it's more than 10,000. I'm sorry for that 
misstatement.
    Mr. Hinchey. So, 10,000 retail companies----
    Dr. Raymond. Consignees, yes.
    Mr. Hinchey. Yeah. So they're companies, and they may have 
a number of outlets, which many of them do.
    Dr. Raymond. That would be correct.
    And to answer your last question, no, of course they had no 
idea they were buying meat that had not been produced under 
full compliance with our regulations at the time.
    Mr. Hinchey. How quickly can you provide us with the 
information that I just asked for?
    Dr. Raymond. I'm not sure that I can at this point in time, 
because it's considered proprietary.
    Mr. Hinchey. Now, wait a minute. I'm going to strongly 
object to that.
    Dr. Raymond. Okay.
    Mr. Hinchey. And I don't want you to say that. This is not 
proprietary information. This is information that is directly 
engaged in the health and safety of the American people, for 
which we have a responsibility, along with you, to protect.
    Dr. Raymond. Yes.
    Mr. Hinchey. And if we have stores that are selling bad 
products, we need to know about it. So if we can't get this 
information from you by the first of next week, then we're 
going to start pressing you very hard in whatever way we can in 
order to obtain that information.
    So I hope that you will provide it to us by Monday or 
Tuesday of next week.
    Dr. Raymond. I will check with legal counsel and do what I 
can, sir. I do agree with you. That's why we're pushing to get 
this rule, retail rule.
    [The information follows:]

    On April 4, 2008, FSIS sent separate letters to House Agriculture 
Appropriations Subcommittee Chairwoman Rosa DeLauro (D-CT) and Ranking 
Member Jack Kingston (R-GA) providing them with a list of consignees 
who received meat from the Hallmark/Westland Meat Packing Company.

    Mr. Hinchey. I thank you very much.

                              RETAIL RULE

    Ms. DeLauro. I will make a comment on that. I tell you, I 
wrote to Secretary Schafer. What's the date? Two weeks ago. Two 
weeks ago. Asked for a list of the retail outlets. I also asked 
for the list of schools that was--to date, no reply, no reply. 
And to your credit, Dr. Raymond, as my colleague Mr. Hinchey 
has pointed out, you are for making public these retail 
outlets. This is a rule, as I understand it, that was proposed 
on March 7, 2006. Tomorrow will be two years. Two years. The 
public comment closed down? We don't have a list. We can't get 
this rule out. Who is holding up the rule? Tell us.
    Dr. Raymond. The rule----
    Ms. DeLauro. If it's not you, we don't want to continue 
badgering you. We will go and move to deal with OMB, or 
whomever else is involved in this effort.
    Dr. Raymond. And I know you're not going to like this 
answer, but it is in the very final stages of clearance.
    Ms. DeLauro. This agency is in its final stages, Dr. 
Raymond, and on this issue you have been forthright. But we 
can't for two years produce a rule that says let's get a list 
of where the contaminated product was sent? The list of 
schools? That's unacceptable, Dr. Raymond.
    And if you find it unacceptable, you should then work with 
us. And I don't know what our--you're going to check with your 
legal counsel. I don't know what our legal possibilities are.
    And then, you know, that may be the direction that we have 
to go, to tell an agency, or an OMB, or a USDA that this is 
unacceptable. Is it OMB? Who's sitting on it? Tell us. Where is 
it? On whose desk does this lie? In what office or cubby does 
this rule lie? And where is it being discussed?
    Dr. Raymond. We're in discussions with OMB at this time.
    Ms. DeLauro. So, it's at OMB?
    Dr. Raymond. It has not been formally sent to OMB yet. 
We're having informal discussions with OMB at this time.
    Ms. DeLauro. Is it in your office? Is it USDA? Somebody has 
to know where this stuff is.
    Dr. Raymond. It is at the USDA.
    Ms. DeLauro. The USDA?
    Mr. Steele. Yes.
    Ms. DeLauro. Yes, Mr. Steele.
    Mr. Steele. Are trying to work out--OMB before we actually 
send it over there. So when we get it over there--but we had 
some informal comments coming back from them, which we're going 
to try to build into the final rule before we submit it back to 
them, so we don't have this back and forth. We'd rather get it 
all done, wrapped up before we send it over there, so we don't 
have a long delay after it's submitted.
    Ms. DeLauro. Thank you for the clarification, but I make my 
point. Two years. Two years tomorrow. And that really is not 
acceptable. It's not acceptable----
    Mr. Hinchey. Everybody out the door.

                         FOODBORNE ILLNESS DATA

    Ms. DeLauro. Yeah. Let's go.
    Well, let me just pick up on a couple questions for my last 
round, and then I'll move to Mr.--and I don't know what time--
but I wanted to go back if I might--but I'm going to get the 
charts, our charts--bone up. This is infection rates for E. 
coli, which in fact--2001 were pretty high, came down. But 
again----
    Dr. Raymond. Yes.
    Ms. DeLauro. Moving back up again, and with Listeria, you 
know, up and down, and now really again on the rise. So my 
question to you, Dr. Raymond, is with regard to--and I really 
do want a yes or no answer--do you understand that the 
verification data do not reflect the prevalence of the 
pathogen?
    Dr. Raymond. Yes, I do, Madam Chairwoman.
    Ms. DeLauro. Thank you very much.
    Mr. Hinchey.

                       RETAIL DISTRIBUTION LISTS

    Mr. Hinchey. Well, I think that a very important subject 
has been raised here, and as we pointed out, we very much 
respect the work that you specifically have done, your 
operation, Dr. Raymond. And none of this is personal toward you 
because it seems to me, based on all the information that I 
have, that you've approached this in the right way. In fact, 
there's an article recently that says that there's a February 
14 letter in which you urged Secretary Schafer to quickly 
approve a 2006 proposal, your 2006 proposal, that would make 
public the list of the supermarkets involved in the recall.
    So obviously this is something that the most important 
office in the government of the United States which oversees 
the issue of food safety and carries out inspections in order 
to provide that food safety to the highest level, understands 
the need to provide the safety of the purchasers by letting 
them know the stores from which they purchased agricultural 
products, food products, and in the particular case that we 
mentioned here, beef products that were recalled. The largest 
recall in the history of the country.
    So I'm just basing my assumption, which I'm about to state, 
on the interaction that we've had here, and that assumption is 
that you're being impeded, you're being impeded by the 
Secretary of Agriculture. And the Secretary of Agriculture is 
probably to some extent being impeded by the Office of 
Management and Budget. And the Office of Management and Budget 
is probably to a major extent being given direction by the 
White House.
    So we have a situation here where the highest level of 
government is acting in a way that is making it less safe for 
people to walk into a store where they have every reason to 
believe that what they're going to buy is going to be safe. 
They get home, feed it their children, the rest of their 
families, and suffer the consequences of that, which could be 
illness and substantial illness, and even worse than that, 
deaths of people.
    So this is a very, very critically important issue, which 
you have attempted to address. And we are now urging to provide 
us as quickly as possible with this information, have it to us 
by next week. Because we would like to become even more 
directly engaged in this activity. People of the United States 
have got to know this, got to know what's going on. And when 
they know what's going on, then the impediments that you're 
confronting from OMB and elsewhere will be alleviated. Because 
when that information is put out, the response is going to have 
to be proper and appropriate, very positive.
    So this is a critically important issue, and I trust that 
you will be able to join in and continue what you've been 
trying to do. But now do it with us. Give us that information. 
You have the information. I know that. You have that 
information. So I'm asking you to just give that information to 
the Congress, so that the Congress can deal with this issue in 
the appropriate way.
    I've just been given this question. I'm going to ask it, 
even not having read it. [Laughter.]

                           PLANT SURVEILLANCE

    Mr. Hinchey. What are your thoughts on putting permanent 
video cameras inside and outside of plants?
    Dr. Raymond. That's a proposal that many people have asked 
us to consider, and we will consider it when the investigation 
is done as we come up with potentially new policies and 
directives on how we can do a better job of observing animals 
to make sure----
    Mr. Hinchey. When is that direction going to be done? See, 
what's going to happen here is that all of the harm that's been 
done in the context of this administration is just going to 
drag out over the course of the remaining months of this year. 
So my fear is that this issue is not going to be addressed 
until sometime in February or March or April of next year in 
the context of a new Administration. It will be much wiser and 
much more responsible to deal with it now, though I hope that 
you will do everything you can to get these issues moving as--
and positively as possible, knowing that you really want to do 
it--you've done this kind of thing in the past.
    Thank you.

                       RETAIL DISTRIBUTION LISTS

    Ms. DeLauro. Thank you. I just would harken back to tie up 
this conversation. In my opening remarks I said that we all 
share a common goal, to create an effective food safety system 
that focuses on prevention, not just reaction.
    Dr. Raymond. Right.
    Ms. DeLauro. Ensures the public health and makes the most 
effective use of limited resources. These are basic and guiding 
principles reform. But I think that what we're seeing here, Dr. 
Raymond, and in some regards I think you concur, but they've 
long been undermined by inadequate authority, outdated 
oversight laws, and by a regard for private interest that 
compromises the public. And that I say directly related--
proprietary information. Don't have to belabor that--know what 
your view is. And we are going to continue to press on this 
issue with the tools that are available for us, so that we can 
give people the information that they need. It is their right 
to know, it is their right to know.
    I am going to--we have--coming up. I believe Mr. Farr is 
back--

                        HALLMARK/WESTLAND RECALL

    Dr. Raymond, with regard to Hallmark, and we'll just get 
started on Hallmark--you say in your testimony on page 6 that 
our evidence demonstrates that over the past two years this 
plant did not always notify the FSIS Public Health Veterinarian 
when cattle became non-ambulatory antemortem, prior to 
slaughter inspection, as is required by FSIS regulation. When 
was this evidence discovered by USDA? After the Humane Society 
video, or before?
    Dr. Raymond. After.
    Ms. DeLauro. After the video?
    Dr. Raymond. Yes, ma'am.
    Ms. DeLauro. After the video. How was this evidence 
developed, through what methods was it developed?
    Dr. Raymond. Through our investigations, interviews of our 
employees, plant employees, cattle buyers, et cetera.
    Ms. DeLauro. How many times over the past two years did the 
plant notify FSIS--the public health veterinarian in such 
circumstances? What about before the last two----
    Dr. Raymond. Our investigations at this time show that this 
was a practice that occurred very rarely, for that two year 
period.
    Ms. DeLauro. I'm sorry. I--go ahead, please.
    Dr. Raymond. I said our investigations showed that this was 
a practice that occurred on rare occasions--going back two 
years. We have no evidence that it went back further than the 
two years at this time, and it was very rare----
    Ms. DeLauro. What occurred? What occurred at that time?
    Dr. Raymond. What occurred was an animal would be passed 
ante-mortem or before slaughter by our Public Health 
Veterinarian or other specially trained inspectors, that had 
saw this animal both at rest and in motion, saw no evidence of 
any chronic diseases or illnesses, and passed it fit for human 
consumption. And then at some point in time between that 
inspection and it entering into the slaughter facility the 
animal went down and refused to get back up. And no one was 
notified, and it was allowed to go into slaughter.
    Ms. DeLauro. Do you have the number of times? Is there a 
record of notification of when this did happen?
    Dr. Raymond. Al, can you answer that?
    Mr. Almanza. Yes, ma'am. There were a number of times that 
were documented where the Public Health Veterinarian was 
notified that an animal went down between the pens and the 
knocking box.
    Ms. DeLauro. And the knocking box----
    Mr. Almanza. It's an alley.
    Ms. DeLauro. Yes, sure. No, I, yeah, I've been there.
    Mr. Almanza. Okay. So have I plenty of times.
    Ms. DeLauro. I know.
    Mr. Almanza. And so we do have documents that demonstrate 
that that did occur periodically, a couple. I think the last 
number we got was a couple of times a month where they would 
actually call.
    Ms. DeLauro. Do you have a record of all of the 
notifications within the last two years?
    Mr. Almanza. Actually every time it occurs.
    Ms. DeLauro. Before----
    Mr. Almanza. Yes, ma'am. We have a record of it every time 
he's called back up.
    Ms. DeLauro. Okay. Well, I'm going to ask the question, but 
we have to go to vote and come back, and so we will do that.
    Why do we only have this information now, after the Humane 
Society--did their undercover video? I'm going to leave you 
with that, and----
    Mr. Almanza. I've got an answer for you.
    [Recess.]
    Ms. DeLauro. Hearing will come to order. I'm going to try 
to finish up on some of the questions we were looking at. Dr. 
Raymond, and then I'll yield to my colleagues. We're talking 
about why we don't have this information until now, after we 
had an undercover investigation by an outside group, not by the 
Agency. And then we found out that we have a lot of data here 
that demonstrates that there have been problems. And people 
have been notifying the Agency of the problems. And maybe one 
of the issues that comes up here is about closing this 
loophole. This is a loophole in the law that says that you have 
to go this extra step here. And that was dealt with after the 
fact, after--I think it was Secretary Veneman who came forward 
and laid it out: cows, and we had the interim and then we came 
back with this. So maybe this is a mistake. And we can address 
that issue as well, and we will address that issue as to 
whether or not it was a mistake. Because I think we do have to 
go down that road. But tell us why we don't have the 
information until now, why you're telling us it now, and why 
didn't we know about this before the fact.
    Mr. Almanza. Okay. The records--case. I may have--or maybe 
I misspoke. What I intended to say was that we do have records 
of when the Public Health that day was called back out. In 
other words, when ante-mortem was performed and then an animal 
went down in that alley area. Those are--we have records of 
that. Obviously we don't have records of when they didn't call 
us back, otherwise----
    Ms. DeLauro. Nobody informed you of that, which then leads 
us to this loophole issue of what we should do about that. Let 
me just ask you. Do you think we should shut down that 
loophole? Yes or no?
    Dr. Raymond. No.
    Ms. DeLauro. We should leave the loophole there. Can you 
explain why?
    Dr. Raymond. Yes. I think there are a couple reasons. I can 
explain why. We have a rule. The rule wasn't followed. And when 
the rule is not followed, I don't think that's a good reason to 
change the rule. We enforce the rule, and we take immediate 
action like we did, and that plant is probably out of business. 
One offender of the rule should not make 800 other plants 
change the way they do business. This is an avenue for getting 
these cattle into slaughter that had passed ante-mortem 
inspection that were deemed to be healthy; they were fully 
ambulatory, showed no signs of chronic disease. And if they do 
break a leg, there's no reason that that meat is now unfit for 
human consumption.

                         ENHANCED SURVEILLANCE

    Ms. DeLauro. And do we know that this was just in one 
plant?
    Dr. Raymond. We do not know that for certain, and that's 
why we're doing this enhanced surveillance over the next 60 
days.
    Ms. DeLauro. Is that part of this investigation? You're 
looking at this as part of the investigation? That you're 
looking at----
    Dr. Raymond. Absolutely.
    Ms. DeLauro. You're not waiting for the completion of the 
investigation to act. The FDA is taking a number of steps to 
strengthen our inspection. You were asked about the 
investigation. But this piece is included as well as whether or 
not other plants may have been involved in the same kind of 
activity. Is that part of the investigation?
    Dr. Raymond. It's probably not part of the OIG's 
investigation at this plant. It's part of our increased 
auditing and surveillance in the next 60 days in all of the 
slaughter plants.
    Ms. DeLauro. So you are doing an investigation in all of 
the slaughter plants on this particular issue of whether or not 
this loophole in the law, which allows the potential for a 
downer cow to go into the food supply, as to whether or not 
that's happening. What's the nature of that investigation? I 
mean what are you looking for there?
    Dr. Raymond. I think I would refer to it as probably 
enhanced surveillance. We're going to spend up to twice as much 
time out in the pen area where humane handling is an issue, and 
humane handling would include a downer cow being dragged into a 
slaughter facility.
    Ms. DeLauro. Do you have any--before Hallmark came to light 
did federal personnel do any observations on the handling of 
animals after the veterinarian completed the ante-mortem 
inspection?
    Dr. Raymond. Yes. That's done as a routine in all slaughter 
facilities.
    Ms. DeLauro. But did they talk about their observations? 
Because those reports have suggested that it's relatively easy 
for a plant employee to ``gain the system.'' Because they know 
the schedules of the veterinarians and the inspectors. Is that 
what you're trying to--it sounds like this is part of what 
you're trying to address with your surveillance activities.

                     HUMANE HANDLING NONCOMPLIANCE

    Dr. Raymond. It is part of what we're trying to address. 
Yes. To see how we can do our job better, but I do feel a need, 
Madam Chairwoman, to point out to you that last year there were 
between 600 and 700 noncompliance reports written by our 
inspectors for inhumane issues that were not egregious enough 
to pull suspension. And of the 66 plants last year that we did 
pull inspection, 12 of those were for egregious humane handling 
errors. Now that's way too many, but we are there. We took 
action, and we closed 12 plants because of humane handling 
issues, and wrote over 600 noncompliance reports.
    Ms. DeLauro. Can we get access to that information?
    Dr. Raymond. Absolutely. Absolutely.
    Ms. DeLauro. Okay. That would be good to do. Because I--
yeah. I mean I applaud that effort. I didn't see anywhere that 
any place was closed down because of noncompliance in this 
area, and honestly this is the first time that I have heard 
that information if that was the case.
    Dr. Raymond. I could tell you that in 2003 it happened nine 
times, there was suspended inspection. In 2004, eight times; 
2005, 13 times; 2006, 14 times; and then last year, 12 times.
    Ms. DeLauro. I suggest to you that we have a problem here 
with this issue. It continues. It gets worse. Maybe we do need 
to look at this process and see what it needs to have to 
strengthen it.
    Dr. Raymond. As I said, that's way too many times to 
suspend a plant.
    Ms. DeLauro. Yeah. And I think that that's where we have to 
go in terms of strengthening that. And it may include, though 
you disagree at this juncture, closing down that rule, because 
it's not one plant, obviously. That there are a number of them, 
by virtue of the information that you have. So that it may be 
that the rule is a problem, but there may be some other areas 
where there are problems as well. But we clearly have a flawed 
system at the moment, which is creating a public health 
problem. I think we can agree on that.
    Dr. Raymond. A potential public health problem. Yes. Yes. 
If I might, for clarification, the plants that we pulled 
suspension from--that was for egregious inhumane handling 
issues that were not necessarily reflective of the downer cow 
thing.
    Ms. DeLauro. No. Did not necessarily deal with the downer 
cow moving into the supply.
    Mr. Kingston. Thank you, Rosa. I'm going to yield, Mr. 
Latham, because I've been----

                 BSE AND NON-AMBULATORY DISABLED CATTLE

    Mr. Latham. Just kind of on the same subject. What would be 
the ramifications, as far as food safety, if in fact these 
downer cows were not brought into the system? And I know we've 
had a lot of debates over the past several years about not 
having sick animals or whatever brought into the system. And 
I'm worried about mad cow disease and things like that. What 
would happen to those animals if in fact there were no 
potential market for them?
    Dr. Raymond. They would probably all go to rendering.
    Mr. Latham. Rendering? Or would they be buried out on 
somebody's deal someplace or in the back 40, which then in fact 
would--we would never know if we had mad cow disease in the 
system somewhere?
    Dr. Raymond. I would assume that probably does happen on 
occasion. And as long as that animal, even if it's dead, has 
some potential value to the farmer or rancher I think they're 
going to try to get it to rendering, as long as there's some 
cash value.
    Mr. Latham. I mean that's my concern. If you're really 
concerned about potential diseases that could destroy, 
obviously confidence in food safety, but also our markets 
overseas, things like that, if we're not staying on top of the 
situation the one way that we have to do that is to have those 
animals brought in to be inspected at the packing mills. Isn't 
that correct?
    Dr. Raymond. That's correct.
    Mr. Latham. Is there any information of what would --any 
way to quantify how many animals that would not be brought in, 
or what the potential food safety issues there would be if we 
did not have inspections at packing houses?
    Dr. Raymond. I can give you some numbers, Congressman that 
I think might help. At this particular plant that we're talking 
about, in the last three years it slaughtered 371,000 head of 
cattle. In those three years we did condemn 17,000 head; a 
little over 4 percent were condemned because of inspection. And 
if we did not have inspection at that plant, that 17,000 cattle 
go right into the food supply.
    Mr. Latham. Right. And those 17,000 I would assume are 
tested for things like Mad Cow. Is that correct?
    Dr. Raymond. Yes. Yes. Not 100 percent tested for Mad Cow, 
but those that show certain symptoms of some of the dead--a lot 
of the condemnations refer to other illnesses.

                   VETERINARY LOAN REPAYMENT PROGRAM

    Mr. Latham. One issue, I know, Mr. Kingston and I, we 
appropriated a couple million dollars over the last few years 
for veterinary grads to serve in underserved areas, and some of 
the money basically was not--shifted over to you folks I think 
to hire more vets and inspections, and not used for the purpose 
as intended by Congress. I just wonder if you have any 
knowledge about the loan repayment program or what--is this an 
ongoing practice, or is there any kind of program actually 
being done?
    Dr. Raymond. Yes. There is. And it's--I can apologize, but 
it took too long to get it going. But the $750,000 that has 
been given to FSIS to use for loan repayments to encourage 
veterinarians to come and work for us, $150,000 of that has 
been obligated to new Public Health Veterinarians that are 
working for us at this time. We just recently----
    Mr. Latham. Not necessarily to vet students who are going 
into private practice in underserved areas. Is that correct?
    Dr. Raymond. That is correct.
    Mr. Latham. Which was the intent of the legislation.
    Dr. Raymond. I don't have the legislation in front of me, 
so I can't----
    Mr. Latham. Well, that was what the program was all about. 
It's to have vets go into areas where they cannot--a lot of 
vets want to go into small animal practice, things like that 
today, and their critical need is out in the country, so it's 
somewhat frustrating I think to several of us that those 
dollars that we appropriated for a specific purpose are not 
being used for that purpose.

                            STATE INSPECTION

    You assist states or brought in training, technical 
assistance, provide states with about 50 percent reimbursement 
accounts for their functions. Is that--that's what it's been in 
the past. Is that about the same as what it has been, and can 
you--is there any change or modernization going on as far your 
training of the inspection services at the state level?
    Dr. Raymond. The first part of your question. We are 
funding up to 50 percent at this time. Two years ago, we were 
unable to fund up to that level, because of some fiscal issues 
we had across the whole budget, which Congress fortunately has 
rectified for us. So we're back up to the 50 percent level. As 
far as training, we're always looking at new ways to train. And 
actually, tomorrow we'll be announcing a new reorganization 
within FSIS that will address training specifically, or elevate 
the importance of it, and, I think, the visibility of our 
training and outreach programs.

                                RECALLS

    Mr. Latham. Okay. Kind of getting back to where we were 
before, but you have been working supposedly, or have been, I 
assume, on plants as far as the recall to make them faster, 
more efficient in the last year. What changes have you made, or 
are we doing better as far as faster recalls? Just tell us what 
the status is.
    Dr. Raymond. Sure. I'd be glad to. And thank you for that 
question. It's an area where I have a particular high-degree of 
interest in, coming from State health.
    Mr. Latham. Right.
    Dr. Raymond. I think sometimes recalls, they just take too 
long to get out in the public's eye and to get that product off 
the shelves. One of the things that we have initiated this year 
is to use epidemiological evidence more aggressively. Instead 
of--I don't know how to phrase this exactly--but instead of 
everything having to line up perfectly in a row so you know--
you know--that that had to be recalled, I would rather err to 
the side of protecting the public's health, and say, ``It sure 
as heck looks like it came from this plant. We're going to do a 
recall.''
    And a couple specific examples would be where if one person 
is ill, and the PFG for that particular--we'll use E. coli--the 
PFG, the pattern for that matches the pattern of frozen 
products in the person's freezer, historically, we would not do 
a recall, because of the possibility that person took the 
frozen patty out and contaminated another frozen patty, and 
they all had E. coli, and I think that--from a public health 
standpoint and from my position standpoint--I'm saying odds are 
that was contaminated in the plant, and we're going to do a 
recall. We did that twice last fall. That's part of the reason 
for the increased recalls, a very small part. But that's one 
example. We're not going to wait until we have other people get 
sick, so we can check 16 different refrigerators.
    Mr. Latham. Is the system of notifying you of people 
getting sick--is that any better than what it has been?
    Dr. Raymond. It's better, but there's a tremendous amount 
of room for improvement. And because of that, I've actually 
formed a committee within FSIS, and FDA, and CDC, and our state 
and local health officers, and our state public health labs and 
state epidemiologists. We've got representatives from all those 
organizations putting together a two-day summit that will be 
held--I don't know if we have an exact date yet--probably May, 
mid-May. We'll gather state health officials and city and 
county health officials and state epidemiologists, and 
representatives of us, and CDC and FDA. And I expect this 
conference to expose some warts. I want to know what we can do 
better as a Federal Government, but at the same time I'm going 
to tell state and locals where you can do better as far as 
notifying us. That has been an issue.

                     REPORTING FOODBORNE ILLNESSES

    Mr. Latham. Something I probably should know, but are the 
doctors required to report----
    Dr. Raymond. There are certain communicable diseases that 
reporting is required, but they do vary state by state. For 
instance, in your state of Iowa, influenza is a reportable 
disease. In my state of Nebraska, it's just if it's in a 
pediatric population is it reportable.
    Mr. Latham. Okay. I've gone well over five minutes. Thank 
you, Madame Chairwoman.
    Ms. DeLauro. Thank you, gentleman. Congresswoman Kaptur.

                  SMALL AND VERY SMALL ESTABLISHMENTS

    Ms. Kaptur. Thank you very much, Madam Chair. Welcome, 
gentlemen. Glad to have you here today. Dr. Raymond, I wanted 
to link the recent situation with the recall of beef, the 
largest in U.S. history, to a trend I see in your Agency and 
invite you out to Ohio to help me deal with a problem I'm going 
to describe to you here. Let me talk about protecting small 
producers.
    Between 1998 and 2003 there were over 2,200 federally 
inspected establishments that produced ground beef. 2,200. Then 
in 2005 your Web site reported there were 1,700 such 
facilities, so we're moving downward. And then the current 
version of the Web site, updated in February of 2007, reported 
there were 1,400. So we're almost halving the number of 
federally inspected establishments.
    Meanwhile, here's a letter I'm going to read--it's very 
brief--from a constituent of mine in northern Ohio. ``Dear 
Congresswoman Kaptur, I'm a small farmer. We've been producing 
locally grown food for my family and for the local community. 
In the last seven years of our operations we've not been 
allowed by USDA to sell our products, such as fresh milk or 
dressed poultry or small areas at our farms or in many local 
stores. In order to be compliant with USDA regulations, we 
would need over a million dollars of stainless steel facility 
to butcher just a small number of our poultry and livestock. It 
is strange that many small operations with all the goodness of 
fresh, locally produced products, and I might say identifiable 
origins to the buyer, free of commercial influence of chemicals 
and hormones have not been able to serve in local communities. 
I hope you can help change this to accommodate the little 
farmers to grow local foods that in turn help us decrease the 
carbon footprints and also prevents such large national crisis 
of contaminated food product.''
    In working with our extension service in Ohio over a number 
of years, we've been trying to help our producers--we are a 
major corn producing region and soybean producing region--to 
bring beef to market. And here's what they tell me. And I've 
asked the secretary, by the way, to come to Ohio as well to 
work this problem out and meet with our small producers. A 
constituent writes me, ``We as a small family packer must cover 
the cost of travel per diem and a $68.50/hour labor charge for 
grading product. This works out to cost exceeding $20 per head 
at some of our participating locations.'' You know, there are 
some who would argue that the destruction of small and family 
agriculture and smaller producers and the rise of these very 
large concentrated organizations that don't procure locally and 
then provide us with contaminated products that get into our 
school programs, that there's a relationship here. So my 
question to you is: What can USDA do to make these small 
producers that we know--we drive by them in our cars when we go 
to work and go back home, who are accountable locally, they 
label their product, they want to sell--what can USDA do to 
help us let them move their product to market without such 
difficulty. What is going on with the regulatory process that 
allows these large conglomerates to contaminate the food chain, 
and these local people not to be able to get to shelf?
    Dr. Raymond. Congresswoman Kaptur, I would be more than 
happy to accept your invitation to come to Ohio and meet with 
those. You duly noted that, right?
    Ms. Kaptur. Thank you.
    Dr. Raymond. We will be there. We have traveled around the 
country on the issue of small and very small plant viability. I 
come from a very small town myself. I believe strongly that 
rural economic development sometimes can start with a business 
of four people. We have instituted at FSIS a very aggressive 
outreach program for small, very small plants to help them 
comply with approvals, etc. When I came here, we found that 
they were less vigorous asset plants, because they did have a 
full-time person for quality assurance and asset. They wrote 
their asset plans on their kitchen tables at night, as they 
worked during the day at the plant. And that's one of the 
stars, I think, or one of the jewels in our crown, of something 
that we have done very aggressively and very well. And then 
small or very small plant establishments and their respective 
organizations have lauded us many times. And tomorrow the 
announcement we will be making will be talking about creating 
this new program area within FSIS totally dedicated to outreach 
and to education and training. Instead of just being something 
that someone's doing over here, it's going to rise in 
elevation. Now, that doesn't address all of your issues. But 
what it does address is those that are under federal 
inspection, and we help keep them viable, instead of writing so 
many noncompliance reports that they eventually close their 
door.
    Ms. Kaptur. But what about all this investment they say 
have to make? Millions of dollars. I mean these are not large 
enterprises.
    Dr. Raymond. I said this addresses those that have 
already--have made that investment. We want to keep them 
operating and viable. Your issue is slightly different: Those 
that haven't made that investment that want to be able to sell 
locally. I will look into that. I will have to learn a little 
bit more about that. And I will come up. And we will contact 
you, and we'll work on that.
    Ms. Kaptur. We can start with the lead extension agent who 
handles beef marketing for our extension service. Maybe you can 
call him before you come out, and we'll work on a really good 
session.
    Dr. Raymond. We would love to do that.
    Ms. Kaptur. Thank you.
    Ms. DeLauro. Mr. Kingston.

                        HALLMARK/WESTLAND RECALL

    Mr. Kingston. You had said that on that particular plant, 
Hallmark, that there were 571,000 slaughters, and there were 
17,000 that you had condemned this year?
    Dr. Raymond. No. 371,000 slaughters over three years, and 
17,000 condemned over three years time.
    Mr. Kingston. Is that a high number or a low number? 
Average?
    Dr. Raymond. Compared to the national average--it is higher 
than the national average. For this particular type of cattle--
you've got to remember we're talking dairy cows here too, not 
fat cattle.

                         RISK-BASED INSPECTION

    Mr. Kingston. Would risk-based inspections have been 
helpful, if that was a plant that had a higher number?
    Dr. Raymond. The risk-based inspections conversations that 
we've had in the past have been primarily on processing, and 
this is a slaughter plant. So if we had done risk-based 
inspection, it would not have been active in this particular 
plant, other than maybe in the further processing where they 
ground the beef.
    Mr. Kingston. Well, let me just get theoretical then. Had 
it been process and not slaughter, would RBI have been helpful?
    Dr. Raymond. In this particular plant, it would not have 
been. The issues with humane handling and allowing a downer cow 
to go into the food supply that did get re-inspected--it would 
not have helped that.
    Mr. Kingston. Okay. Next question. On--I just--it might get 
you to go on record of saying anything positive about RBI. 
Despite my best efforts Dr. Raymond----
    Dr. Raymond. I'm trying to be honest. RBI I believe 
strongly in. I still believe----

                    HUMANE HANDLING AND FOOD SAFETY

    Mr. Kingston. You can still accomplish both. But, I know 
you are a very scientific guy. Straight shooter, so I don't 
want to put words in your mouth, even through I'm trying to 
help you load your own gun.
    In terms of humane violations versus food safety--I want 
you to talk about that a minute. Sam Johnson, our distinguished 
colleague, who is a Vietnam POW, he tells a story about having 
a pet dog in the prison camp, which the Vietnamese decided it 
was time to eat the pet dog. And they threw it in a hole. And 
they threw sticks at it, and they tormented the dog for five or 
six days with the idea that this enhanced the dog meat. Now as 
inhumane as that is, it probably did not affect the quality of 
the meat. So there are two different issues I believe in terms 
of the quality of the meat for food safety and the humane 
treatment of the animal. And what I want to ask you is--talk to 
me a little bit about that. In this case I understand that the 
cow was not really mobile, but there was nothing wrong with the 
meat. Is that right or wrong? And you can use this as an 
example, or go broader than that. But I'm trying to figure out 
where there's a violation for one issue, but doesn't 
necessarily get into the other.
    Dr. Raymond. They are for the most part very separate 
issues. The humane handling was the egregious handling that we 
saw on film: night after night after night of cattle being 
prodded with forklifts, et cetera. Most of those--maybe none of 
those animals ever passed ambulatory examination. They did not 
go to the food supply for the most part if not 100 percent. 
They were not ambulatory cattle. The other issue is the cow 
that was ambulatory and passed inspection and then went down. 
And I would like to tell you that there was absolutely no 
health risk to that animal going into the slaughterhouse. But I 
cannot. I can't load this gun, because we have a regulation 
that says that animal must be re-inspected by the Public Health 
Veterinarian, and he or she must determine that it went down 
because of an acute injury. And if that had been done, then I 
would sit here and say, ``No. There's absolutely no health risk 
of that animal entering the food supply.'' But that step wasn't 
done.
    Mr. Kingston. So that's an important thing though. Because 
what you're saying is if there's a treatment issue, then it's 
possible that that could lead to a food safety issue. But you 
really don't know the answer to the second one until you've 
inspected it because of the first one.
    Dr. Raymond. That's correct.
    Mr. Kingston. Okay. And then often when you look into 
humanitarian issues, cruelty, how often does that lead to an 
overlap in food safety?
    Dr. Raymond. I can't give you a number. It obviously can, 
because inhumane handling causes stressed animals. Stressed 
animals causes animals to defecate and other things that change 
in terms of the risk factors. So, besides cruelty to animals, 
there is a health issue here.

                      FOREIGN-OWNED ESTABLISHMENT

    Mr. Kingston. Okay. All right. Another question. Smithfield 
has been bought out by a Brazilian company. Is that correct? 
Smithfield Ham? They're a part of the division?
    Dr. Raymond. Terri says the news report said that. I hadn't 
seen that news report. I know National is being bought out, but 
I was unaware of Smithfield.
    Mr. Kingston. I think it's Smithfield. How big is 
Smithfield. I don't think it was very, but I'm not sure. Mr. 
Latham says Smith. Okay. All right. How many of you think it 
was Smith? Raise your hand. [Laughter.]
    But my question is when you have--and this is something 
that Ms. Kaptur and I are kind of more and more interested in, 
in terms of the international issue, when you have a large 
domestic producer like that, and they're bought out 
internationally, how does that change the food inspection? 
Because I know that the quick answer is going to be ``no,'' but 
is that really the same? Because management is different.
    Dr. Raymond. It does change the inspection a bit. If it is 
an international buyer or if it is a domestic buyer, whenever 
there is a change in ownership, we will be doing increased 
inspections of that plant for a certain time period to make 
sure that the policies and the regs are being followed and have 
not changed.
    Mr. Kingston. Does that include management practices back 
in Brazil on maybe machine processing or anything like that? 
What would be some of the differences that you could find?
    Dr. Raymond. There are lots of differences. The robustness 
of their own testing, for instance. We will take beef slaughter 
in this case and how much testing are they doing for E. coli. 
Did they cut it in half to save money when the new owner took 
over or did they double it because the new owner believes even 
more strongly in food safety. It can go either way.
    In part of our E. coli initiative that we announced this 
Fall, we are looking at corporate practices, so this would 
involve an international buyer also. Instead of just looking at 
individual plants, we are going to look at corporate practices 
because if the corporate practice allows plants to be sloppy, 
we want to know that.
    We will be looking at the buyers of these companies.
    Mr. Kingston. Is that a growing challenge to you with 
domestic companies selling?
    Dr. Raymond. I do not know. Al, do you know if that has 
increased?
    Mr. Almanza. No. We do not have any information that is the 
case.
    Mr. Kingston. Let me yield back. I wanted to raise that 
issue.
    Ms. DeLauro. Thank you very much. Mr. Bishop.

                               USER FEES

    Mr. Bishop. Thank you very much, Madam Chairman.
    I have a question regarding the President's 2009 budget. 
The 2009 budget again proposes a series of user fees, including 
country of origin labeling to help the Agricultural Marketing 
Service implement country of origin labeling, the Grain 
Inspection, Packers and Stockyards Administration, $27 million 
in new fees in 2009 for GIPSA to fund the development, as well 
as packers, stockyards and other meat and poultry disciplines.
    For APHIS, a new fee to help cover the costs associated 
with the Animal Welfare Act, the Virus Serum Toxin Act and the 
Plant Protection Act.
    I would like to ask you what the impact of these user fees 
are going to be on the basic consumer as well as on the 
industry as a whole. It seems to me that it would definitely 
increase the price of food and the production of food.
    It seems to me that the food inspection issue and food 
safety is such a benefit to all consumers, everybody who eats 
food, that it ought to be a cost that would be paid for from 
the general fund rather than an user fee that places the burden 
of food safety on a small number or small segment of the 
industry.
    It seems to me that food inspection ought to be an 
important enough function to warrant a direct appropriation 
rather than nickel and diming off a fee.
    Would you comment on that, please?
    Dr. Raymond. I would be glad to, Congressman.
    Part of what we are asking for is a performance fee or a 
cost recovery fee, depending on how you want to phrase it.
    When a plant has a problem and we have to go in and do a 
food safety assessment or we have to do another Salmonella test 
or we have to do 16 more E. coli tests because they had a 
positive E. coli, whatever, if they have done something that 
put the food supply at greater risk for meat or poultry, and we 
have to expend extra resources to go in there and make sure 
this is not rampant throughout the plant or make sure they have 
corrected whatever it is, we do feel they should pay that fee.
    Make that analogous perhaps to our State patrolmen. They 
are out there to protect us. They are paid with tax dollars. 
When you get caught speeding, you are going to pay a fine to 
pay for that extra inspection, that extra time that patrolman 
took.
    We do feel it is fair to ask for recovery for extra costs 
that we incur so the taxpayer does not have to incur that cost.
    Mr. Bishop. I will grant you that. What about country of 
origin labeling? It does not seem like that would fall under 
that category.
    Dr. Raymond. That would be an AMS issue rather than an FSIS 
issue, I believe.
    Mr. Bishop. The Grain Inspection, Packers and Stockyards 
Administration fee?
    Dr. Raymond. Unless Mr. Steele wants to answer, that was on 
behalf of USDA, I am going to defer.
    Mr. Steele. Mr. Congressman, there are fees in the budget, 
user fees, and we have traditionally put fees in over time in 
the budget. Some of these are new fees, some of them are 
repeats from last year again.
    Mr. Bishop. Did we fund them last year?
    Mr. Steele. You did not fund them; no.
    Mr. Bishop. You did not get the message though?
    Mr. Steele. Yes, we have a learning curve on that that we 
have to get over, I guess.
    In any case, those fees, we would not collect money until 
the fiscal year 2010 budget. We would propose them in terms of 
2009 as a proposal. It is for you to consider.
    Mr. Bishop. Would it not be more effective and would we not 
get a much higher product, I should say, a result, if we went 
on and funded the measures necessary to make America's food 
safe and save the consuming public from problems with 
infrastructure and proper investment could be addressed rather 
than waiting for 2010 to start collecting fees, which will come 
in on a piecemeal basis?
    Would it not be the responsible thing for the Department to 
go ahead and request that the Congress invest in the food 
safety infrastructure so that the American public would be safe 
and have the most innovative processes possible to make sure 
that our citizens have safe food to eat, rather than doing it 
on a piecemeal basis, one item at a time, starting in 2010?
    Mr. Steele. I will let Dr. Raymond comment on the food 
safety part of that. I think those fees would provide some 
extra services. I do not think they would endanger the safety 
of the food supply, whether or not we had the fees. They are 
for re-inspection and other activities that we would like to 
enhance our ability to inspect in these terms where we have 
problems at the plants.
    The question is we already have user fees in FSIS right 
now. We already do fund some of the programs through existing 
user fees. User fees for FSIS is not necessarily a new concept. 
Congress has approved those fees in the past.
    Mr. Bishop. You are supplementing your budget request. Are 
you supplementing your income while not requesting adequate 
funds to really do the job, and we raised the same questions 
last year, and you come back with these fees.
    Why not just ask for enough money to do what needs to be 
done to make sure food is safe? It is clear that you do not 
have the infrastructure you need. You do not have all of the 
things that are necessary to adequately on a periodic basis 
inspect all of the facilities that need to be inspected.
    Why not just tell us what you need? That is what we are 
here for.
    Dr. Raymond. Our budget request is telling you what we feel 
we need, and part of the request would be to replace some of 
the tax dollars in fiscal year 2010 with the user fees. The 
amount of money we would be requesting would not change as a 
total.
    Mr. Bishop. Basically, when you come before us, what you 
tell us is what OMB has told you to say and not necessarily 
what you independently or personally might think is needed for 
the process; is that correct?
    Dr. Raymond. We submit our budget request. It goes through 
the Department and gets modified somewhat, up or down, 
depending on what discussions we have, and then it does go to 
OMB for their approval; absolutely.
    Mr. Bishop. Your submissions inside the Department are not 
necessarily passed onto us. We do not have any idea of whether 
or not what you submitted was in this case, lowered, when it 
got up to OMB.
    Dr. Raymond. What we do is submit the President's budget to 
you, of course.
    Mr. Bishop. I know that. You also inside your department 
submit something to OMB before the President prepares his 
budget.
    Dr. Raymond. Absolutely.
    Mr. Bishop. What I am talking about is that intra-agency 
preparation, from agency to the executive, OMB.
    Ms. DeLauro. Mr. Bishop, just to let you know what this 
committee did in 2007, we provided all the funds that the 
budget raised from user fees, $105 million we took from our 
302(b) allocation, as well as an additional $29 million on top. 
This was done on a bipartisan basis.
    When you have budgets that come up here, and my colleague, 
Mr. Bishop, is correct, we know that the user fees have not 
been authorized, and they continue to come up.
    In fact, it casts some doubt on the budget and its 
accuracy. We have spent our own funds in this committee to 
address shortfalls.
    Mr. Latham.

                       COUNTRY-OF-ORIGIN LABELING

    Mr. Latham. Thank you. Maybe just for a point of 
clarification, the country-of-origin labeling has never even by 
the advocates been a food safety issue. It's a marketing issue. 
Is that your understanding?
    Dr. Raymond. I think there are some people that believe it 
is a food safety issue.
    Mr. Latham. It is not under your jurisdiction because it is 
a marketing issue.
    Dr. Raymond. Right.

                        FOOD SAFETY ASSESSMENTS

    Mr. Latham. The inspections are done no matter what. If you 
are talking about food safety, that is a different issue.
    In the past, you have been criticized for lack of 
transparency on carrying out the food safety risk assessments. 
First, maybe explain why do you think that criticism has arisen 
and what steps have you taken to address the transparency 
problem.
    Dr. Raymond. I am sorry. I am not quite sure I understand 
the question about the food safety assessment.
    Mr. Latham. There has been a lot of concern by a lot of 
folks, GAO or whatever, as far as how you actually go through 
the process as far as transparency, what actually you are doing 
out there. We have talked about it in past hearings also.
    I just wondered if there are any changes as far as an open 
process.
    Dr. Raymond. We strive to be as open and transparent as we 
can, Congressman. Besides the two advisory committees whose 
meetings are open to the public, we have monthly meetings with 
industry and we have monthly meetings with the Safe Food 
Coalition, and oftentimes in the last year and a half, we have 
had joint meetings with our employees, the Safe Food Coalition 
and the industry and scientists to discuss proposed changes 
within our inspection system.
    Of course, with the Federal Register and directives and 
notices and postings, I really do not know how we could be more 
open and transparent.

                           FOODBORNE ILLNESS

    Mr. Latham. Is there any effort--I think the public in some 
ways is kind of out of the loop--as to how safe our food is 
maybe compared to other parts of the world or any way to 
quantify that so the American people know the kind of job you 
are doing?
    Dr. Raymond. We have, of course, CDC's report each spring 
which gives us the overall known rate of foodborne illnesses 
for the common pathogens. We have to keep in mind that does 
reflect illnesses from all foods, not just meat, poultry and 
egg products that we inspect, also from the environment, water 
and other things that are not regulated.
    We have those trends we look at. We have seen positive 
changes over the first part of this decade. I have said openly 
at the start of this hearing and other hearings that we seem to 
have plateaued and in a couple of instances, as the Chairwoman 
brings up, we actually unfortunately last year saw a slight 
rise.
    To put it in perspective, I tried to look at the rates were 
for 2007 compared to the rates of 2000, 2001 and 2002, both for 
product samples and also for foodborne illnesses, and we have 
shown tremendous improvement that way.
    BSE has never been diagnosed in this country by someone 
eating American beef. I think that is an indication of the 
interlocking steps we have put in place to protect the American 
public, and perhaps the headlines are the bad news and the good 
news does not make the headlines as frequently.
    Mr. Latham. I just think our story in agriculture is not 
told enough. We have the most abundant, safest food supply 
anywhere in the world.
    Because when we have the recalls like this, things like 
that get a great deal of publicity, people get concerned, but 
the fact of the matter is there are many parts of the world 
where that would not even have been an issue, unfortunately, I 
believe.
    We do have the safest and most abundant food supply in the 
world. Would you agree?
    Dr. Raymond. Yes, I would, sir.
    Mr. Latham. Thank you. Thank you, Madam Chairwoman.
    Ms. DeLauro. I thank the gentleman. People do not get BSE, 
cows do. The infection rate for E. coli is going up. I talked 
about Listeria a while ago. There seems to be some real 
difference between what Dr. Raymond, you talk about with regard 
to foodborne illnesses, and even what CDC talks about, if you 
take a look at that. I am not going down that road again.
    We have all kinds of documents from CDC, and they really 
outline the differences between your characterization of the 
data and CDC's characterization of the data.

              SURVEILLANCE/INCREASED INSPECTION ACTIVITIES

    One question and then I want to move to the Topps' recall 
issue. You were talking about the surveillance activities to 
observe the handling of animals outside the approved hours of 
operation from vantage points within and adjacent to the 
official premises.
    If you increase the time per shift for these activities, 
what does this mean for the other responsibilities? Are you 
proposing to add inspectors to cover the other responsibilities 
or will those tasks just be done less thoroughly?
    You are proposing to add inspectors. How will the 2008 
budget or the 2009 request accommodate this?
    Dr. Raymond. The increased activities that you have 
described will be going on for the next 60 days. It will not be 
necessarily going on in all plants at the same time. We will be 
prioritizing these extra resources.
    Some of the resources will be coming from the district 
office itself, supervisors, deputy district managers, the 
DVMSs, the humane handling specialists.
    Ms. DeLauro. What are ``DVMSs?''
    Dr. Raymond. District Veterinary Medical Specialists. These 
are the humane handling experts. There is one in each district.
    Some of the eyes and ears will be out there watching, as 
Mr. Almanza already mentioned, will be coming from sister 
agencies that are in there doing grading, for instance. AMS 
grades meat. They are also there in these establishments that 
are producing food for the schools. We will be using those 
resources also.

                    TRAINING AND INSPECTION COVERAGE

    Ms. DeLauro. All the people that you have talked about, and 
you know the various categories, we had a question about 
training, are these folks trained to do the task that they are 
being asked to perform?
    Dr. Raymond. Yes.
    Ms. DeLauro. AMS graders?
    Dr. Raymond. The AMS graders will receive that training 
before they do this task. We will be bringing them on more 
towards the end of the 60 day period. The ones that are being 
done today are being done by our own investigators and 
inspectors.
    To answer your concern, and we do have that concern, yes, 
they will be doing less of other services while they are doing 
more humane handling observations, and to decrease that impact, 
we are working with Under Secretary Knight and his staff to 
provide a different set of eyes and ears, or an additional set.
    Ms. DeLauro. In essence, we are going to look at some other 
responsibilities that are not going to be covered as well as 
they might be in order to move to this function?
    Dr. Raymond. To a degree, that is true; yes.
    Ms. DeLauro. You said 60 days. My concern, quite frankly, 
is how do you sustain this with the other responsibilities that 
you have? That seems to me to once again be walking down the 
road where we are going to see what I call the fault lines in 
the agency, in areas that are not going to be covered 
thoroughly. I do not know what those are.
    You are going to make internal decisions about what you are 
going to do. Maybe you would share those with us. How you 
deploy your personnel and what the priorities are, I think, is 
a big issue, and where do we go with the future of that, do we 
have enough personnel or do we not have enough personnel to do 
the kinds of jobs that need to get done to protect public 
health.
    Dr. Raymond. I agree----
    Ms. DeLauro. You tell me now you have what you need. You do 
not need anything else and it is not going to impact the 2008 
budget or the request for 2009.
    Dr. Raymond. Based on what our enhanced surveillance 
reveals to us and based on the investigation, we may come up 
here and have a conversation with you, Madam Chairwoman, if we 
do need to make additional requests.
    The request at this time is for the current staffing 
levels, but we may need to have further discussions based on 
what we find.

                        HALLMARK/WESTLAND RECALL

    Ms. DeLauro. I have another question with Hallmark and the 
school lunch program. It is a very quick question, if I can. 
They placed an administrative hold on the Hallmark/Westland 
Meat Packing Company, on their products that were destined for 
the food and nutrition programs.
    The administrative hold prevents program operators from 
using the product until further notification from USDA.
    I will tell you where I am puzzled. FNS put a hold on the 
product, but I have a copy of a notice on the State of 
California website that quotes USDA guidance on this as 
follows.
    It says ``Any Hallmark/Westland Meat Packing Company 
products in Federal food and nutrition programs or its 
derivatives must be destroyed and cannot be used or 
reconditioned for human consumption.''
    Did we have an administrative hold or were we destroying 
the product? Are we holding it or destroying it? What are we 
doing with it?
    Dr. Raymond. I'm getting into Under Secretary Johner's turf 
just a little bit here, but I think I can answer that question 
because we worked so closely on this.
    We had a hold as of January 30. They were instructed to 
hold the product at that time pending further investigation, 
and then as a result of further investigation, when we found 
out that on rare occasions these down cattle were allowed to go 
into the slaughter house after they passed inspection but then 
went down, that is in violation of their contracts with the 
school lunch program, and they were instructed then to destroy 
the product or return it to us. I am not sure exactly what the 
instruction was.
    Ms. DeLauro. I read it carefully. I think your testimony 
does talk about ``hold.'' That is when you made your decision 
actually to deal with the recall. You talked to the company.
    We continue to go back to the issue of recall and mandatory 
recall. We are going to get there. I promise you we are going 
to get there.
    That is when you made your decision that in fact this had 
to be the recalling of the 143 million pounds; is that correct?
    Dr. Raymond. We were in charge of the decision for recall, 
yes. Under Secretary Johner or FNS would have been in charge of 
the destruction of the school lunch program product.
    Ms. DeLauro. I actually saw this in the Wall Street Journal 
on February 26. ``As food companies become frustrated with meat 
recall,'' it actually has some of them quoted saying they were 
going to hold the product and so forth.
    I do not know what our system is in order to be able to 
make sure they are doing what we want them to do. They just 
said--one company said Costco has not yet destroyed the beef it 
has removed from the shelves, with the hope that the regulators 
may allow it to be used.
    This is taking your decisions into their own hands and kind 
of doing what they want with it.
    Again, I do not know what your system is here, if you can 
let us know. If you can let us know who has destroyed product, 
who has not destroyed product. What is our system for finding 
out whether or not when we say something that it has happened?
    Dr. Raymond. I am going to have Mr. Almanza help me on this 
one. To start out, your quote from that Wall Street Journal is 
correct, where some companies held the product. They pulled and 
held the product in hopes, as the quote says there, that the 
regulators would change the recall rules. We have not.
    They have been instructed that all product is to be 
destroyed.
    Ms. DeLauro. Do we know if it has been destroyed?
    Dr. Raymond. That is where I am going to have to ask Al, 
Mr. Almanza.
    Ms. DeLauro. Mr. Almanza, has the product been destroyed in 
all these places?
    Mr. Almanza. Some has. The process is that----
    Ms. DeLauro. Are they holding it or are they going to 
destroy it?
    Mr. Almanza. They are going to destroy it. That is what I 
was going to explain, the process. What our process is, we go 
to the consignees, which is the number Dr. Raymond gave you 
earlier, and we do a percentage of plants, where we go out and 
do some verification activities to be sure that is what is 
occurring. It will be somewhere in the number of 200 to 300 
locations where we will go and look and be sure that those 
products have in fact been destroyed.
    Ms. DeLauro. What do you think gives this company or other 
companies the sense that they can say in a very reputable 
newspaper, in the press, that they are going to hold the 
product and not destroy it, hoping that the regulators will let 
it move? That is pretty audacious.
    Dr. Raymond. Or wishful thinking, but it did not happen. 
The regulators said you will pull and destroy all that product. 
We did not budge.
    Ms. DeLauro. Do you have a list of the places where it was 
destroyed?
    Mr. Almanza. We are in the process of getting that 
information; yes, ma'am.
    Dr. Raymond. If I might, Madam Chair, you realize with 
nearly 10,000 consignees, it will take us time to confirm that 
it has all been destroyed. We cannot just do it overnight.
    Mr. Kingston. If the gentlewoman will yield, in the event 
that they did not destroy it, do you have a mechanism to 
determine that, and then if they did not destroy it, is there a 
penalty?
    Dr. Raymond. We do not have the authority to assess fines, 
but we do have the authority to cease and detain that product 
and destroy it ourselves.
    Mr. Kingston. If the gentlewoman would yield.
    Ms. DeLauro. Please.
    Mr. Kingston. Then there is no down side in them keeping 
the product.
    Dr. Raymond. If I might, I would like to ask the guys 
behind me that are in charge of the recalls, because there may 
be penalties. It is a prohibited activity, which leads to 
criminal----
    Mr. Kingston. That answers the question.
    Ms. DeLauro. We could move on these things a lot quicker 
and a lot faster with a lot more protection of public health if 
we had real enforcement authority. That is an issue of putting 
those authorities in place. I do, but the agency does not have 
the stomach to put those enforcement rules in place or the 
penalties in place.
    It goes back to what I said at the outset, and that is 
dealing with an agency that is dealing with an industry, quite 
frankly, that is compromising our public health.
    I am way out of time.

                         FOODBORNE ILLNESS DATA

    Mr. Kingston. Dr. Raymond, how many foodborne illnesses are 
there a year?
    Dr. Raymond. The CDC estimates 75 million.
    Mr. Kingston. How many people go to the hospital?
    Dr. Raymond. The CDC estimates about 500,000.
    Mr. Kingston. How many die?
    Dr. Raymond. I believe the number is about 35,000, but I am 
not certain.
    Mr. Kingston. That is wrong.
    Dr. Raymond. Okay.
    Mr. Kingston. It is about 5,000. I want to make sure Dr. 
Raymond knows, 260,000 actually go to the hospital. I do not 
think it is 500,000.
    Dr. Raymond. The one thing I do know is those numbers have 
not changed for a long, long, long time. The estimate is an old 
estimate. It may be a lot less than that.
    Ms. DeLauro. We have not re-estimated it.
    Dr. Raymond. That is right. That is correct.
    Mr. Kingston. How many people are there in America?
    Dr. Raymond. 300 million.
    Mr. Kingston. How many meals a day do they eat?
    Dr. Raymond. I hope three.
    Mr. Kingston. Do they eat more? We are a pretty health 
conscious nation.
    Dr. Raymond. Some more, some less.
    Mr. Kingston. How many visitors are there?
    Dr. Raymond. I do not know that answer.
    Mr. Kingston. That number could be as high as 50 million a 
year. I am not sure. If you multiply that, that would be 900 
million meals a day.
    Mr. Steele. That is correct; yes.
    Mr. Kingston. Scott, I am going to have to turn to you 
because you are the numbers guy. What is that number times 365 
days a year?
    Mr. Steele. I do not know. Probably in the billions.
    Dr. Raymond. If you took the 900 million and rounded it up 
to a billion, then you would have 365 billion. That would be an 
easy way to do the math.
    Mr. Kingston. We are talking 75 million divided by that 
number; right? This is only a math question.
    What is the USDA budget? He has an $8 calculator. 
[Laughter.]
    There are not enough zeroes on there. Here is my question. 
That number, 75 million divided by the other number, 32 billion 
or whatever it is, that is going to give you the foodborne 
illness rate; correct?
    Mr. Steele. I guess it would; yes.
    Mr. Kingston. You guess? Can we all agree that is right? I 
do not know any other way to describe it.
    Do you agree with that, Dr. Raymond?
    Dr. Raymond. Yes, I do. Trying to do the math while we 
talk.
    Mr. Kingston. I would love to see you do the math. I think 
I know what it is, but I would love to see how good you are 
just as an intellectual exercise.
    Dr. Raymond. 0.0002.
    Mr. Kingston. Okay. What is the foodborne illness rate for 
the American public? That is what we are trying to determine; 
right? You do not know where to put the zero, do you? I have 
finally stumped the expert.
    Dr. Raymond. What you are saying is for every meal we eat 
in this country, there is a chance of 0.0002 of coming down 
with a foodborne illness. I think that is where you are going.
    Mr. Kingston. That is a pretty safe food supply, it would 
appear to me, numerically speaking, without any question; 
right?
    Dr. Raymond. Absolutely.
    Mr. Kingston. In your testimony, do you give any kind of 
state of the food supply or the safety of the food supply 
statement? Is the food supply safe?
    Dr. Raymond. I believe the food supply is safe; yes. I 
believe that 0.0002 can be made even safer with proper handling 
and cooking.
    Mr. Kingston. That number, you would say, has integrity; 
correct?
    Dr. Raymond. We did the math pretty fast, but yes, I think 
it does.
    [The information follows:]

           

    
    Mr. Kingston. For the record, I would love for you to 
follow back up with that math to make sure. I would love to 
have you send me a letter, just in my own thinking, but the 
reason is in a country of 300 million people, you are going to 
have some illnesses, but if you look at that percentage, it is 
a pretty remarkable percentage.
    That being the case, what do you attribute that to?
    Dr. Raymond. I think there are multiple things to attribute 
it to. One is the passage of the Federal Meat Inspection Act 
way back in 1906. Another one is passage of the Poultry 
Products Inspection Act. One is the Egg Products Inspection 
Act. They have all directed how we do our business on a day to 
day basis at FSIS and USDA.
    That plus we have moved from an inspection workforce that 
was organoleptic, they were looking for tainted meat that they 
could either see or smell, and we changed that focus to looking 
for things that we cannot see and smell and touch, the 
pathogens that cause foodborne illnesses, E. coli, Salmonella, 
Listeria, and we have re-vamped how we do our inspections on a 
daily basis, still following the Federal laws and statutes, but 
bringing more public health into it.
    Mr. Kingston. Would you also give credit to the private 
sector for not wanting to poison their own customers?
    Dr. Raymond. Absolutely. A classic example is with E. coli 
O157:H7, after the outbreak in Northwest and further studies 
that were done, and E. coli declared an adulterant, and in 
2002, we put out guidelines to help companies understand how 
they could markedly reduce E. coli, and the numbers we saw 
dropped that year to the next year to the next year. It was 
just short of fantastic.
    They declared public health not to be competitive, and they 
have done a terrific job.
    Mr. Kingston. You did not comment on this.
    Dr. Raymond. I did not but I have seen it and I know it, 
and that is one of the reasons we have our E. coli 157 
Initiative that we announced this Fall, because we need to 
address that.
    Mr. Kingston. Do you have any idea as to why the number 
went up? Do we have any ideas, Madam Chair?
    Dr. Raymond. I do. I believe there are multiple factors to 
that also. One is there was a large spinach outbreak that 
involved E. coli O157:H7. That number is not all of our 
product. I cannot tell you what part of that graph is ours for 
sure and what part is something else. It is shared.
    The spinach outbreak did affect those numbers, and the CDC 
has said that in their report.
    I think what has also happened because we saw an increase 
in our product that we sampled and we saw an increase in 
recall's from foodborne illnesses attributed to ground beef and 
tenderized steaks, we know there was an increase to our 
product, and I believe there are multiple factors even there.
    It is what we feed our animals that has changed. Studies 
have been done that show that does affect the amount of E. coli 
shedding in these animals. The weather patterns changed in our 
large beef producing states last year from very dry, almost 
drought conditions for five years, to very wet conditions last 
year, and that stresses cattle, and that causes more shedding.
    I do not know this but I believe there is research going on 
to see if this pathogen itself has changed. Maybe the nature of 
the bug has changed so that the intervention procedures we have 
in place in our plants are no longer as effective as they used 
to be.
    It is just like Penicillin is no longer as effective 
against Staphylococcus as it used to be. It may be that we need 
to change our interventions in the plants.
    Mr. Kingston. You have some lab types studying that very 
question?
    Dr. Raymond. The ARS' Animal Meat Research Center in 
Nebraska is all over this trying to look at the bug itself to 
see if the pathogen has changed. They are also doing feeding 
studies with the animals.
    Yes, we have top scientists looking at this along with 
several of our state institutions.
    Mr. Kingston. I appreciate that.
    Ms. DeLauro. I just might add, this is where we get into 
all well and good, Dr. Raymond, but not too long ago, and Mr. 
Kingston, before you were here, where I talked about what the 
Inspector General and the National Advisory Committee on 
Microbiological Criteria stated, that what Dr. Raymond speaks 
about is it does not represent national samples.
    As we have to sign affidavits saying that we have no 
financial interest in a particular earmark or whatever it is, I 
have no dog in this hunt with the Office of Inspector General 
or the National Advisory Committee on Microbiological Criteria.
    It says that they reflect only what is happening in a 
particular plant on the day it was tested, and Dr. Raymond, in 
response to my question, says that the data is not 
representative.
    In the same hearing, we are talking--we say one thing 
earlier on and another thing later on. The data is a 
misrepresentation of what is in fact actually occurring in this 
country in terms of an increase in infection rates for E. coli.
    I have to address, Mr. Kingston, your point about 5,000 
people dying every single year. Let me see if I can give you a 
parallel.
    September 11, 2001, 3,000 people were killed at the World 
Trade Center. Got up that morning, went to work, and lo and 
behold, the Trade Center was attacked and they died.
    This nation went to war because of those deaths. I will 
distinguish between going to war with Afghanistan versus going 
to war in Iraq. I voted to go to war in Afghanistan. I suspect 
you did the same thing. I did not vote to go to war in Iraq. I 
do not remember what you did.
    We have 5,000 people every single year dying in this nation 
from foodborne illness. Do we not believe that in fact, we 
should go to war against the system that is allowing that to 
happen.
    Those folks who went to the World Trade Center that 
morning, we could not stop that. We have it within our 
jurisdiction and the jurisdiction of this committee to stop 
5,000 people dying every single year.
    Mr. Kingston, if you do not think that ought to be our 
priority, I can hardly fathom that because I believe you do 
care about that, but I do believe that this agency has not 
taken on that responsibility to put in place the mechanisms and 
the infrastructure to go to war against 5,000 deaths every 
single year for foodborne illnesses.
    Mr. Kingston. Let me reclaim my time for a minute. Number 
one, as passionate as my friend is, and I certainly agree with 
her, I do not know how that is relevant because nobody is 
saying dismiss the 5,000 deaths a year.
    My point----
    Ms. DeLauro. The point is it was infinitesimal, why should 
we concern ourselves with it.
    Mr. Kingston. My point was to underscore the math. 
Secondly, very relevant, CDC or any health care provider will 
say that the 5,000, unfortunately, had other illnesses going 
on, an immune system problem. Very rarely did somebody eat a 
piece of meat and they were totally healthy and they died from 
it. That is relevant.
    Thirdly, Dr. Raymond has said repeatedly in his testimony 
that it is still too high and he wants to achieve it.
    I do not think anybody is debating that. I am trying to put 
some perspective in in terms of the numbers.
    Ms. DeLauro. One out of four people in this nation get sick 
with foodborne illness. If that is not a cause for concern, I 
do not know what is.
    Mr. Kingston. Where did that number come from?
    Ms. DeLauro. 75 million.
    Mr. Kingston. That does not mean the same people over and 
over again. I have not seen that number.
    Ms. DeLauro. To be quite frank with you, I dismiss your 
premise because I think 5,000 deaths every year on that basis, 
we ought to be dealing with this issue, and it is my intention 
to deal with this issue.
    Mr. Kingston. Let me say this to my friend. Certainly, we 
all agree the number is there. My point is to put it in 
mathematical context and it is interesting, I did not even 
editorialize on it, but I did detect a little passion on your 
part.
    Ms. DeLauro. Children dying from E. coli, if you had a 
chance to talk to their parents, you would be passionate about 
it as well.
    Mr. Kingston. Are you saying I am not?
    Ms. DeLauro. I do not know.
    Mr. Kingston. I think my friend knows. I have to say 
unfortunately I have to go to an appointment, so I am going to 
leave.
    I would have to tell you I am disappointed. I would say 
that. I have been a member of this committee for a while. I do 
not dismiss that.
    I think part of our job is to look at the broad 
perspective, but at the same time, I would have to say that 
nobody is saying that is not a real issue, if 5,000 people are 
dying, but I think we always have to say in reaching the 
political conclusion and the grand standing what did the 5,000 
die of.
    There is an immune system issue, and there are still 
remarkable success stories in the American food supply that I 
think we should all be pleased about, and underscoring.
    Dr. Raymond, as frustrated as he is, is a witness to me and 
to you, he is a man who always gets back to let us focus on the 
food safety, let's try to get something done about it.
    I cannot build a case for him because he will not let me.
    Ms. DeLauro. You did not hear what I said at the outset. I 
think we have a system where the disease outbreaks are catching 
the failures at the plants, and it is not the Food Safety and 
Inspection Service. I want to reverse that.
    I want to do everything I can with you and the other 
members of this subcommittee, with Dr. Raymond, with the 
agency, to reverse that.
    I want FSIS to be able to have the systems in place where 
we are preventing these incidences and these recalls. That is 
the goal of the Committee. It is not political. That is where 
we are.
    We have a recall. We have an outbreak. Then we uncover 
evidence that points out, as I said earlier, the fault lines 
within the system. Let's correct the fault lines. I believe 
that we have the capability. I believe we do not have all of 
the resources but we have some of the resources to address that 
issue, and we should figure out together how in fact we put 
this agency on a path to prevention and not reaction.
    Ms. Kaptur.

                        HALLMARK/WESTLAND RECALL

    Ms. Kaptur. Thank you, Madam Chair, very much, and thank 
you for your passion. America needs that. We need people that 
care and do not offer excuses and try to make things better.
    I wanted to ask Dr. Raymond, with this latest recall, the 
largest in history, could you just state for the record again 
how many pounds that was? Am I recalling correctly, 143 
million?
    Dr. Raymond. Yes, you are.
    Ms. Kaptur. Of that, what percent will actually be 
recovered in hand and destroyed?
    Dr. Raymond. If historical patterns follow, it will be a 
very small percentage because it was a recall over a two year 
period of time, and we do have reason to believe that most of 
that product has already been consumed.
    Ms. Kaptur. Let me tell you an experience I had in our 
Toledo Public School System, the largest system I represent, 
with USDA senior officials a couple of weeks ago.
    The meat recall came up during the discussion with food 
bank directors and school lunch people, and the school 
officials informed us that they indeed had some of that meat on 
hold, but did not know what was going to happen to it.
    USDA said at that time they would be asked to destroy the 
food, and the school officials looked at us puzzled, wondering 
why they did not already know that important point. That is the 
Toledo School System.

                       MANDATORY RECALL AUTHORITY

    Since USDA lacks mandatory recall authority, could you 
please explain to the Committee why the agency does not seek 
that authority?
    Evidently, this meat is still out there, but if you are 
telling us the majority of the meat will not be recovered, it 
was recalled, so we just say it is out there. USDA cannot 
provide us with the list of places, 10,000 retail consignments. 
You do not have a list of that.
    I happen to know one of those is the City of Toledo School 
System.
    Here you had a situation where this meat was sitting there, 
probably in their freezers or something, and they did not know 
what was going to happen.
    Why does not the agency want the mandatory recall 
authority?
    Dr. Raymond. Again, I am not sure of the time frame when 
you were at the schools. There was a hold until an 
investigation was done. At the time, we had allegations of 
inhumane handling, and that was it.
    The school lunch program felt that was in violation of 
their contract, so they put it on hold until they had 
confirmation. Once they had confirmation there were other 
issues, then they instructed the schools to destroy it.
    It should not be misconstrued when I said we probably would 
get a very small amount of this product back. It is not because 
it has not been recalled. It is because there was not that 
much--of the 143 million pounds, there was not that much out 
there recalled because it was over a two year period of time.
    A lot of this is fresh raw ground beef. People buy fresh 
raw ground beef and they eat it. I did not mean to imply in any 
way, and I am sorry if I did, that the recall would not be 
effective. I think the recall would be effective in that 
product that is out there.
    The reason we do not support mandatory recall is because we 
have never had a company turn us down or refuse to do a recall 
when we have asked them to do one. The system works well for 
us.
    We do have the statutory authority to cease and detain that 
product should a company not cooperate with us. We have never 
had to invoke that policy.
    We would really prefer not to see a system that we feel 
works very well for us changed.

                        HALLMARK/WESTLAND RECALL

    Ms. Kaptur. Of the 143 million pounds that you said were 
technically recalled, are you saying 143 million pounds could 
have been consumed because the recall was over a two year 
period, so the vast majority was eaten? Am I hearing this 
right?
    Dr. Raymond. I did not say 143 million. I will say I 
believe the vast majority has been eaten; yes. I don't know 
what the amount would be.
    Ms. Kaptur. Then what good does the recall do?
    Dr. Raymond. Again, some of this product was put into 
canned products or frozen products that may have been produced 
two years ago and is still sitting in a grocery store on the 
shelves or in the freezer, whatever.
    We always do a recall back to the point of where we feel 
the product was either unfit or adulterated.
    Ms. Kaptur. Can you provide a list for the record of 
companies that have recalled the meat?
    Dr. Raymond. As I said earlier, we will check with legal 
counsel whether we can do that or not. I do not want to make a 
commitment that I cannot keep.
    [The information follows:]

    On April 4, 2008, FSIS sent separate letters to House Agriculture 
Appropriations Subcommittee Chairwoman Rosa DeLauro (D-CT) and Ranking 
Member Jack Kingston (R-GA) providing them with a list of consignees 
who received meat from the Hallmark/Westland Meat Packing Company.

    Ms. Kaptur. It should be upsetting to every American who 
hears that, that the vast majority of what could have been bad 
out there or was declared bad was consumed; right?
    Dr. Raymond. We did not declare the meat bad. We did the 
recall because of regulatory non-compliance with our regs and 
rules. It was more of a technical recall because the meat was 
produced without going through the final step of inspection. 
Therefore, it is declared unfit for consumption, but it was 
more of a regulatory matter than an adulterated meat matter.
    Ms. Kaptur. You really do not know because you do not know 
which downed animals were in the food chain; right?
    Dr. Raymond. We do not know with 100 percent certainty; you 
are correct.

                     RETAIL DISTRIBUTION LIST RULE

    Ms. Kaptur. Let me just ask one final question, Madam 
Chair. On March 6, 2006, FSIS proposed a rule in the Federal 
Register to permit the agency to list in its recall press 
releases the names of retail consignees so that consumers could 
be better informed about the scope of the recall and expedite 
the recovery of these products that are out there.
    We understand that you and perhaps others have endorsed the 
promulgation of such a rule. What is the status of it and is 
anything holding it up?
    Dr. Raymond. The rule, as you know, has gone through the 
normal process of rule making, which is lengthy, allowing for 
public input and others, and then we have to respond to all 
this input and make sure they have all been addressed.
    At the current time it is in the final stages of clearance. 
It is still in the Department, but we are having conversations 
with the Office of Management and Budget--they have had an 
informal opportunity to look at it. It has not formally gone to 
OMB.
    What we are trying to do, as we do many times, is work out 
any differences so that when the final product goes to OMB, it 
can be signed off on very quickly and become a functioning 
rule.
    Ms. Kaptur. On record, which industry groups have been 
opposed to this rule?
    Dr. Raymond. I do not know the answer to that, 
Congresswoman. I know during the comment period, I believe we 
had 19 comments that were opposed to it, but I have not looked 
at those comments individually myself, but there are people 
here who have.
    Ms. Kaptur. Would those be able to be provided for the 
record, Madam Chair?
    Dr. Raymond. They are on our Web site. They are available 
to your staff to look them up and get you that answer, if you 
would like.
    Ms. Kaptur. I would ask the agency to provide those for the 
record, please.
    Dr. Raymond. Again, I assume we can do that unless counsel 
tells me for some reason I cannot. It is on the Web site. I 
assume we can provide it as part of the record.
    [The information follows:]

           

    
    Ms. Kaptur. All right. I thank you very much. Thank you, 
Madam Chair.

                            E. COLI TESTING

    Ms. DeLauro. I will get this information to my colleague, 
Mr. Kingston. The economic cost of E. coli illnesses, and this 
comes from CDC, the annual cost, $405 million, which includes 
$370 million for premature deaths, $30 million for health care, 
$5 million for lost productivity, just for E. coli.
    If you sometimes do not want to deal with the humanity of 
the issue, you deal with the economics of the issue.
    Let me just ask a couple of questions with regard to the 
Topps recall. This was in the New York Times, Dr. Raymond, last 
October.
    You said ``We haven't shut the door on mandatory standards 
for E. coli testing and prevention.''
    Could you just speak to that issue for a moment?
    Dr. Raymond. Yes, ma'am. As you know, right now, it is not 
mandatory that every company that makes ground beef must test 
their product at any frequency.
    It is one of the issues with the survey that we are doing 
of the companies that do deal with beef, and in this case, 
particularly those that deal with ground beef.
    We are going to take a look and see how many do test and at 
what frequency they test, and the agency, along with many other 
things found on the survey, will have some very serious 
discussions about whether we need to change policies, 
directives, even perhaps go through rule making to do things 
that will help protect the food supply.
    Ms. DeLauro. I like to give people the benefit of the 
doubt, but what makes you believe in the accuracy of the 
information that you will get back about the testing or how 
much, when, et cetera?
    You have concerns about the flaws in the system where it is 
not reported. How then does that become the basis for future 
decisions when our ability to verify--this is about trusting 
and verifying--how do you address that?
    Dr. Raymond. For this particular issue, I believe we have a 
great deal of confidence because the survey was completed and 
the information was gathered by our own inspection workforce 
out there, and then was confirmed by the plant after the 
inspector gathered--the inspectors also have access to these 
testing results on a regular basis in these plants. They know 
which plants are testing and at what frequency they are 
testing.
    Ms. DeLauro. I would be anxious to follow up on that with 
you to find out how that really is working. I was really 
pleased because you said we have not shut the door on mandatory 
standards for E. coli testing and prevention.
    Dr. Raymond. Right.

                              TOPPS RECALL

    Ms. DeLauro. You know what my views are on that.
    Further with regard to Topps, Topps cut its microbial 
testing on fresh ground beef from once a month to three times a 
year. The Department considers that inadequate, and we 
discovered that after an eight year old girl in Albany, New 
York was sickened by the ground beef.
    The Agriculture Department scrutinized the Elizabeth plant 
and said the plant had few problems, then we find out that they 
were testing once a month and now it is three times a year, and 
that level, you find inadequate.
    Federal investigators said they had recently learned that 
the company failed to require adequate testing on the raw beef 
they bought from domestic suppliers.
    The Agriculture Department acknowledged that its safety 
inspectors who were in the Topps' plant for an hour or two each 
day never cited the company for these problems.
    The Agriculture Department investigators found that 
something had changed. Dr. Raymond said a lot of policies they 
had in place were not followed.
    They were not cited for any of these problems. This is a 
plant that had been subject to review. Presumably, it was or 
should have been on some sort of a watch list.
    I was not here earlier but I understand, Dr. Raymond, that 
you said when there is a change of ownership of a plant, that 
you have a change as well in infection of the meat.
    Did that happen at Topps?
    Dr. Raymond. That policy was not in place at that time. It 
is partly as a result of Topps that we took a look at that.
    Ms. DeLauro. That was last fall?
    Dr. Raymond. Topps was in September; yes.
    Ms. DeLauro. This is a new policy?
    Dr. Raymond. Yes.
    Ms. DeLauro. I also believe, Dr. Raymond, and correct me if 
I am wrong, you blamed Topps for changing their policies. It 
sounds like at least you have talked about a policy that I 
would have guessed was in place for a long time, a long 
standing time, so when you change ownership, you then go 
through the protocol again. You know, what is the testing 
regime. You did this just recently.
    What does that say about the management of FSIS that things 
went so far off course in this plant, and in fact, it was not 
discovered until a child got sick.
    Dr. Raymond. Topps, to me, I do not want to call it a 
watershed moment or anything else, but there were things with 
Topps that convinced me that we can and we must do a better job 
and we must start immediately, and that is when we looked at 
our whole E. coli initiative programs that we have announced, 
partly because of Topps.
    We looked at if the plant changes ownership or management, 
should that invoke increased inspections. It was not being done 
as routine before, but we have worked on policy for that so it 
will be. We can learn.
    It also showed me, and I will just say it very publicly, it 
showed me that some of the critics of what we were trying to do 
with risk based inspections were more right than I gave them 
credit for.
    Ms. DeLauro. I appreciated that comment, Dr. Raymond. I 
believe the genuineness of your comments on that issue.
    Dr. Raymond. On that issue, again, I know we can and we 
must and we will do better. Topps should not have happened but 
it did. Because of Topps, I hope we have measures in place now 
that there will never be another Topps.
    Topps and Hallmark are totally different situations and 
scenarios about how they happened. We have to address them both 
so that neither one of them ever happens again. We can learn.

                         INSPECTION ACTIVITIES

    Ms. DeLauro. I would just say to you, and please do not 
misunderstand, I believe that this points out--I value the 
sincerity of your comments. That is very, very important.
    What I also believe is true, and I have not come to this 
conclusion lightly, the same way I did not come to the 
conclusion on the risk based, that FSIS, and I am not 
individually pointing at individuals, I really believe that 
FSIS does not have a handle on what is actually happening.
    That is what is of serious concern to me, and I believe it 
is a serious concern to you, in terms of putting in place a 
structure that allows it to have a handle on what is happening.
    Again, like risk-based, unless we know what is happening, 
we cannot move forward. Everything that we do cannot be the 
fundamental change that is necessary for us to be able to move 
forward.
    I do not know if you concur.
    Dr. Raymond. I do concur. When we get to where we are ready 
to talk to you about rolling out risk-based inspections, I 
think you will be very pleased with what you are going to see 
with what we have done because of your direction and the 
amendments and the OIG's audit.
    I think we will have something that instead of driving a 
beat up old Ford, perhaps we will have a Cadillac. I think you 
will be very proud of it. I think it will make the food supply 
safer.
    As far as your comments about not having a handle on what 
is happening in these plants, I do not know that I would go 
quite that far, but I do know that we have difficulties in each 
and every one of these 6,200 plants that we do inspect.
    We do not have consistency across the board. That is very 
problematic and troublesome to me, and the new public health 
information system will help us tremendously with that. Topps 
showed me that lack of consistency. It should not have 
happened. We need consistency.
    The last thing I will say is because of my concern with 
what is happening out in the field, it is one of the reasons I 
asked Mr. Almanza to come and join us on our management team, 
with the rest of our very fine management team that we have in 
place, that have been working in the field office for a long 
time.
    Al grew up in the plants, spent his life. I needed that 
ability for someone who grew up in a plant and was on the line, 
and over the 30 years of his working with the agency, showing 
he could do more than just work on the line.
    Al brings that leadership to us to help us get a better 
handle on what is going on in the plants along with Dr. 
Peterson, and Mr. Smith, and Judy Riggins and all the other 
ones working in these areas.
    Ms. DeLauro. Again, I thank you. I must tell you honestly I 
still am not deterred from my view that I think in order to 
focus our attention truly day in and day out on food safety, 
that ultimately we need to make sure the singular focus is on 
food safety, and whether those activities lie within the USDA, 
FDA, or one of the other 13 or so agencies that are out there.
    I believe part of this difficulty is the missions and the 
blurring of the missions. Sometimes it may not be avoided. I 
was borne out again with the Wall Street Journal on February 
26.
    This is trade and public health. I believe in trade. Public 
health in my view ought to trump the trade issue. I think some 
things have gotten out of hand because of the industry and 
their product.

                         RISK-BASED INSPECTION

    Let me just ask a question on the risk-based. Can you tell 
us as of today, when you expect the public health information 
system to be fully operating?
    Dr. Raymond. The third quarter of calendar year 2009.
    Ms. DeLauro. Does the budget request accommodate the costs?
    Dr. Raymond. Yes, it does.
    Ms. DeLauro. I have a concern, which I expressed when FDA 
was here the other day, and this was on drug safety, so we were 
not talking about food responsibilities.
    It is about agreeing to the recommendation and the 
implementation. To be very honest with you, what I discovered 
with the FDA, and this was drug safety, that they have agreed 
to a lot of recommendations. Ten years or 15 years since 
anything was done. That is unacceptable.
    My concern is that when are we implementing these 
recommendations in fact, so that we can move forward to a risk-
based system. I do not believe we can move forward before we 
put these recommendations in place and implement them.
    Dr. Raymond. I agree with you. Of the 35 recommendations, 
there are two things that are probably key to our time line, 
and one is we have to have the public health information system 
running.
    That answers many of the recommendations that the OIG made, 
many of the recommendations are answered by saying we will do 
the public health information system, and they are in agreement 
with those answers.
    The other one that is time limited, we cannot do this, 
because we must meet the OIG's recommendation, is to do food 
safety assessments in those plants that produce 85 percent of 
the meat and poultry products in this country. We must have 
completed a food safety assessment using the new objective 
criteria as opposed to the old criteria.
    We always wanted to use food safety assessments and our 
risk-based algorithms, but it was not objective, it was 
subjective, and I did not know how to incorporate that in.
    We have changed the way we do the food safety assessments, 
and that is time-consuming also.
    I do not know. Do we have any kind of projection? May of 
2009 is when we anticipate we will have those food safety 
assessments done.
    Those are two key factors that are very measurable and we 
cannot do risk-based inspections until we have those done.
    Ms. DeLauro. We are not moving towards risk-based 
inspections until we have these recommendations implemented?
    Dr. Raymond. You are correct.
    Ms. DeLauro. We are talking about 35 recommendations, in 
place, with actions?
    Dr. Raymond. Of the 35 recommendations, there are about 
eight or so that are definitely linked to risk-based 
inspections. The others are definitely linked to having a 
better food safety inspection system. They all kind of 
interconnect and inter-correlate; yes.
    Ms. DeLauro. I truly do want to know what is being regarded 
as imperative before we try to move to a risk-based system 
versus what are the items that are the key ones.
    Dr. Raymond. The two keys are getting the food safety 
assessments done and having an up and running functional public 
health information system.
    Ms. DeLauro. You said that there were about eight or so. I 
want to know how you have delineated what you view and whether 
the OIG concurs that you can or cannot move before the eight or 
the remainder can be implemented.
    Dr. Raymond. May we get back to you on that one?
    Ms. DeLauro. Yes, please. That is for the record.
    [The information follows:]

    Since FSIS began to talk publicly about risk-based inspection (RBI) 
in processing in November 2005, the agency has ensured an open and 
transparent process involving all public health and food safety 
stakeholders and will continue to do so.
    Of the 35 recommendations, eight directly address the proposed RBI 
processing establishment algorithm (#3-#10). Seven recommendations, 
however, also directly addressed the conduct of food safety assessments 
(FSAs), which USDA's Office of Inspector General feels must be expanded 
and improved before RBI can be implemented.
    FSIS had always planned to include FSA results in the RBI 
algorithm, but initially planned to test RBI prior to quantifying FSA 
results for inclusion in the algorithm.

    Dr. Raymond. Thank you.

                      POULTRY SLAUGHTER FACILITIES

    Ms. DeLauro. Talk to me about what you are doing with the 
poultry slaughter facilities and what your intentions are.
    Dr. Raymond. Our intentions with poultry slaughter, young 
poultry slaughter, is to go forward with rule making to allow 
us to change the way we do inspection in those facilities based 
partly on what we have learned from the HIMP projects and make 
it a better system throughout.
    We will go through formal rule making. We have taken it to 
the National Advisory Committee for Meat and Poultry Inspection 
and have given them our proposal, and it is on our Web page.
    Ms. DeLauro. You said earlier this was potentially--you are 
looking for this information service piece to be in place 
before you can do anything.
    Dr. Raymond. Correct.
    Ms. DeLauro. That is May of 2009?
    Dr. Raymond. The information piece is the third quarter 
actually of calendar year 2009, so July to September.
    Ms. DeLauro. Nothing is going to happen on this issue of 
the poultry slaughter facilities until you have this other 
piece in place; is that right?
    Dr. Raymond. I think it is right because I do not think we 
can do rule making in less than two years, the way the rule 
making process is. I certainly do not see any way to have it--
--
    Ms. DeLauro. Have you started the rule making process?
    Dr. Raymond. We are in the process of writing a proposed 
rule. It has not gone through any kind of clearance or anything 
like that yet. We are just in the early, early stages.
    Ms. DeLauro. What consideration was given to eliminating 
the maximum line speeds at poultry slaughter facilities and how 
could this in any way contribute to public health?
    Dr. Raymond. The line speeds will be part of the 
consideration, and line speeds are part of the consideration 
based on the Salmonella Initiative also. Those plants that 
consistently come in at very low positive rates on the 
Salmonella sets will be allowed the opportunity to propose to 
us different ways they can bring about increasing efficiencies 
within their slaughter systems.
    That is half the question. I am sorry, I forgot the other 
half.
    Ms. DeLauro. It had to do with public health.
    Dr. Raymond. The HIMP plants that we currently have, and I 
think I had a slide or a poster last year at this hearing, and 
I would be glad to make it available to you, the Salmonella 
rates on carcasses in the plants that are in the HIMP Program 
are dramatically lower than the rates in the traditional ultra 
slaughter plants, having more off line inspection services, we 
do believe, helps drive down Salmonella contamination rates on 
those carcasses.

                             WORKER SAFETY

    Ms. DeLauro. Has FSIS given any consideration to worker 
safety?
    Dr. Raymond. We always consider worker safety when it 
relates to our workforce. I do not believe any of this impacts 
our workforce. As far as the workers on the lines, that is a 
CDC or OSHA issue.
    Ms. DeLauro. Are you aware of any studies on this issue?
    Dr. Raymond. I am not aware of any studies that have ever 
been done; no.
    Ms. DeLauro. Has FSIS directed inspectors to report worker 
safety concerns relating to line speed to OSHA?
    Dr. Raymond. Do you know, Al?
    Mr. Almanza. Actually, we have a mechanism in place where 
we have a reporting mechanism for fatigue, for illnesses, for 
injuries.
    Ms. DeLauro. Is there a Memorandum of Understanding between 
OSHA and USDA on line safety? Is there anything that exists out 
there?
    Mr. Almanza. Not that I am aware of. I would be glad to 
look into it.
    Ms. DeLauro. Yes, would you?
    Mr. Almanza. Yes, ma'am.
    [The information follows:]

           

    
                        UNITED FOOD GROUP RECALL

    Ms. DeLauro. Thank you very much.
    Let me just ask another question about the United Food 
Group recall. I think that was last July of last year.
    Dr. Raymond. Close; yes.
    Ms. DeLauro. 5.7 million pounds of beef.
    The Inspector General said ``FSIS inspection personnel do 
not always follow instructions in linking NRs identifying 
recurring sanitary deficiencies.
    However, even when the NRs were linked, FSIS inspection 
personnel did not have the guidance on when to take further 
enforcement action when addressing repetitive non-compliance 
violations.
    This occurred because FSIS did not issue the necessary 
criteria for evaluating a repetitive non-compliance violation 
and to establish when further enforcement action must be taken 
as recommended in a prior OIG audit report.''
    The IG indicated that these prior audit reports were issued 
previously. Can you explain why FSIS did not get around to 
doing this?
    Dr. Raymond. Do you want to try? I cannot.
    Mr. Almanza. In fact, we did issue guidance to do that, and 
we incorporated that into our training. We are still in the 
process of doing that. The changes were articulated in our 
Directive 5000.1.
    Ms. DeLauro. This goes back to previous years' IG reports. 
I told you on drug safety, they told us it had not been done 
for the last 10 to 15 years. I am worried about 35 
recommendations and where they are going.
    This is 5.7 million pounds. You are committed to doing 
this. You said you were going to do it. You did not do it.
    Mr. Almanza. Yes, ma'am. This Directive 5000.1 was issued 
in 2004.
    Ms. DeLauro. I am going to take a look at a document I have 
here. This was the IG report on RBI, the recent report.
    ``The official stated that in his view the average 
inspector did not have the technical expertise to develop that 
type of NR because they lack sufficient training and 
expertise.''
    This is the most recent report from the IG. You do not know 
what to say. I do not know what to say. You did not do it.
    Mr. Almanza. I would say we are still in the process of 
making changes. In the survey and the checklist that we 
developed, and I know you have been provided copies of that, it 
helps us to look at the level of comprehension as far as the 
guidance that we are giving, and I certainly understand what 
you are reading there.
    We are doing a better job at changing those, and we are 
going to make some regulations and policies based on the survey 
and checklist that we did.
    Ms. DeLauro. Again, this is the IG. ``In the months 
preceeding large recalls by two establishments on ground beef 
potentially contaminated with E. coli, the FSIS inspection 
personnel listed multiple NRs and sanitary deficiencies.''
    We have United Food Group. Then we have Topps. Then we see 
Hallmark/Westland.
    Nothing gets done in the interim here with the OIG 
recommendations to then prevent. The operative word is 
``prevent'' and not react.
    All we are in the business of doing is reacting. Even with 
data, and even with information, and even with the IG, I am 
beginning to wonder maybe why we fund the IG or the GAO because 
they make all these recommendations and they do all this work 
and apparently nobody is paying attention to any of it.
    You did not pay attention to what they said to do. 
Therefore, we keep having these things occur.
    Dr. Raymond.
    Dr. Raymond. Yes. I share your frustration. With the OIG 
recommendations----
    Ms. DeLauro. President Clinton used to say that all the 
time, I share your pain.
    Dr. Raymond. I will not touch that one. [Laughter.]
    Not on the record.
    The December audit report that came out, we knew what it 
was going to say, because we were working closely with the OIG, 
so we could begin to move.
    We have timelines and milestones set to address this 
particular issue, and the PHIS will address this issue to a 
good degree. It will help us link, instead of relying on 
individual inspectors or their supervisors to do these 
linkages.
    You are right. We keep hearing about if you would have done 
the linkage, perhaps you would not have had the recall. I could 
not agree with you more.
    I did not come here to supervise recalls. I came here to 
drive down the number. Unfortunately, it has gone in the wrong 
direction. I will do everything I can before I leave to help 
drive down that number again or get the things moving right, 
and I do believe strongly in this public health information 
system, and that it will help us do that linkage, and we will 
rely less on individuals, but we will have flags that will go 
up, and then we can say let's go take a look at why that flag 
popped up.
    I do believe you will be very pleased with what we are 
going to produce. If we need to come up some time and give you 
a very detailed summary of what we are doing, I would be glad 
to do that.
    Ms. DeLauro. If you can get to us like in five days or so, 
before the due date of one of these actions, if you will, if 
you can let us know what is happening, if we are going forward, 
what it is, et cetera, so we have some idea of how this is 
progressing.
    Dr. Raymond. You want that by the end of the next week for 
the record?
    Ms. DeLauro. What I want to do, it is a dynamic process 
here. When these due dates occur, you have four or five of 
them, I think, coming up on March 15. We really want to know 
what is happening with these efforts before the date comes or 
may go, what has been put in place.
    Dr. Raymond. We will go back and start working on that this 
afternoon.

                            CHINESE CHICKEN

    Ms. DeLauro. That is great. I think I have just one more 
comment and that is about one of the issues that I spent a lot 
of time on, and that is Chinese chicken.
    We have had so many scandals involving China over the last 
several months. You can put the list together as well as I can. 
Heparin is on the front page of today's Washington Post and the 
New York Times. It looks like it has caused more than 20 
deaths.
    You have had several meetings, as I understand it, with the 
Chinese Government representatives. You were quoted as saying 
that the U.S. wants to ``get back to business as usual with 
China.'' I am not sure there are a lot of people in the nation 
who share that view.
    We now read that China is the largest growing export market 
for U.S. chicken and that getting its poultry products from the 
U.S. is China's top agricultural export goal.
    There again, you are a public health official, Dr. Raymond, 
and not a trade promoter.
    Dr. Raymond. Correct.
    Ms. DeLauro. You know the kinds of issues we have. With 
China, we do not know. We have no idea what we would consider 
an acceptable level of government regulations.
    How can we possibly think we can?
    Dr. Raymond. We have a very robust system, and we deal with 
countries who do want to import to the United States, of which 
there are currently 34, and we have determined them to have 
equivalent systems.
    Before we give them that status, we will do paper audits to 
make sure they have rules and regulations and laws and statutes 
in place that are similar to ours or at least equivalent to 
ours, and then once that has been satisfied, we will do in-
country audits.
    In the case of China, we did three in-country audits before 
we finally determined their inspection system to be equivalent, 
including daily inspections by Federal inspectors.
    At that point in time and in addition, for whatever product 
they do want to export, of course, we will work with APHIS to 
make sure there are no animal health issues, and in this case 
with China, APHIS tells us that as long as the chicken is 
cooked, there will be no animal health issues.
    We began that rule making process to allow China to export 
domestic poultry products that have been slaughtered and 
further processed and cooked in China.
    We do annual audits in every country that does export to 
the United States, and we do inspection at the border, re-
inspection. Every product that comes from China would be re-
inspected at the import houses, and ten percent, once it was 
down to a normal routine fashion, ten percent of that product 
would be more closely inspected, including pathogen and residue 
testing.
    Obviously, when a new country comes on board, we are going 
to increase that level of testing until we have developed a 
level of comfort with them.
    Ms. DeLauro. I have two or three questions and then we are 
going to wrap this up and let you go do your business.
    If the Chinese violate the rules, do you honestly think you 
will catch them?
    Dr. Raymond. The annual audits, we may not catch it that 
day, but the annual audits should very definitely be able to 
track where the poultry product came from.
    Ms. DeLauro. I just want to refresh your memory that FDA 
and DOT have failed to stop some of these problems. Have any 
plants in China expressed an interest in being approved to 
export to the United States?
    Dr. Raymond. I am sorry. I could not hear your question.
    Ms. DeLauro. Have any plants in China expressed interest in 
being approved to export to the United States?
    Dr. Raymond. First of all, the other agencies that you 
mentioned do not do annual audits in these countries. They do 
not do equivalency evaluations, and they do not re-inspect all 
products that come into this country and do the robust 
microbiological and residue pathogen testing that we do.
    As far as any specific plants, I do not know for sure. I 
have been in one plant that I know has an interest in exporting 
to the United States, but I do not know that any plant has 
raised their hand.
    Bill, can you help me out, when we do the audits, are those 
plants that specifically want to export?
    Dr. James says we have four plants that expressed interest 
in exporting to the United States.
    Ms. DeLauro. Has FSIS or anyone else in USDA sent any staff 
to China to help them prepare for possibly exporting poultry to 
the United States?
    Dr. Raymond. Not recently, but when we were doing our in-
country audits, yes, we worked with them to help make certain 
their system would be at least equivalent to ours.
    Ms. DeLauro. We are preparing for this export of poultry to 
the United States? If so, when would staff go and to what cost 
to the taxpayers?
    Dr. Raymond. I will get that for you, but I will assure you 
that no one has gone since the amendment was put on our bill 
last year that did not allow us to expend any of the funds for 
implementation or further movement of the rule. We have sent no 
one over there for this purpose since then.
    [The information follows:]

    FSIS employees performed three in-country equivalence audits of 
China's food safety system before Congress barred the use of funds to 
establish or implement a rule to allow poultry products to be imported 
to the United States from China. In May 2004, five FSIS employees 
visited China, at a cost of approximately $25,000. In December 2004, 
five FSIS employees visited China, at a cost of approximately $25,000. 
In July 2005, two FSIS employees visited China, at a cost of 
approximately $18,000. A few of the employees who went to China in May 
2004 and December 2004 were FSIS lab technicians who stayed in China 
for only a few days. The two employees who went to China in July 2005 
stayed for the full duration of the audit. Therefore, the cost per 
person of the third trip was higher.

    Ms. DeLauro. I want to just say thank you for being here 
today. I want to say a particular thank you to my colleagues. 
We do work across the aisle. It is wonderful.
    I do very, very much appreciate your time and your efforts.
    We will have additional questions for the record, and what 
information we have requested, it will be helpful if you will 
provide it.
    Dr. Raymond. We will.
    Ms. DeLauro. Thank you. This hearing is adjourned.

           

    
                                          Thursday, April 10, 2007.

                 FARM AND FOREIGN AGRICULTURAL SERVICES

                               WITNESSES

MARK E. KEENUM, UNDER SECRETARY, FARM AND FOREIGN AGRICULTURAL SERVICES
TERESA A. LASSETER, ADMINISTRATOR, FARM SERVICE AGENCY
MICHAEL W. YOST, ADMINISTRATOR, FOREIGN AGRICULTURAL SERVICE
ELDON GOULD, ADMINISTRATOR, RISK MANAGEMENT AGENCY
W. SCOTT STEELE, BUDGET OFFICER, DEPARTMENT OF AGRICULTURE

                       Introduction of Witnesses

    Ms. DeLauro. The hearing will come to order. I want to 
welcome Mr. Keenum, Mr. Gould, Ms. Lasseter, Mr. Yost, Mr. 
Steele. Thank you all for being here this morning. And let me 
just say in terms of my own timing, I found out late yesterday 
that I have been made a conferee on the farm bill, and it would 
appear that there is going to be a conference and that is going 
to occur sometime this morning or about 10:15 or so forth. So I 
will ask one of my colleagues to take the chair so I wanted to 
try to move us along if we can.

                      Chairman's Opening Statement

    Today will be the last budget hearing this subcommittee 
will hold for the administration, a special request before we 
embark on drafting the fiscal year 2009 agriculture 
appropriations bill. We intend to move full steam ahead in 
passing all of the appropriations bills out of the House by the 
recess. I am not sure of the markup or floor schedule for the 
Ag appropriations bill yet, but I will be sure to keep my 
colleagues apprised as soon as possible.
    I also intend to hold additional oversight hearings during 
the year to provide the subcommittee members with the 
opportunity to learn more about programs under the bill and the 
impact on the American people.
    While this is the final budget hearing, we have indeed 
saved one of the most important subjects for last. The Farm 
Service Agency is a large agency with over 14,000 employees 
that administers farm credit, commodity, conservation and 
emergency assistance programs for farmers and ranchers. It 
operates an extensive network of local county offices and 
service centers.
    The Foreign Agricultural Service is such an important 
agency to this committee that we decided to convene a separate 
hearing last year covering just the issues under its purview.
    And finally we have the Risk Management Agency which 
administers the critical Federal Crop Insurance Corporation 
Fund.
    When we held our hearing covering the Farm Service Agency 
last year, we had a very extensive discussion about the 
computer problems. It appears that we may be continuing that 
discussion today. I am concerned that the plan that FSA has 
developed for its computer system is flawed and will not 
stabilize or modernize its program delivery system. The 
subcommittee has tried to address this problem for many years 
during many hearings, and I am sure that the Agency is just as 
frustrated as we are. I hope that we can find a way to resolve 
this issue at some point once and for all.
    Another important issue I would like to focus on today is 
the international food aid. Everyone is aware of the soaring 
commodity prices around the world, and since it does not appear 
that these prices will be coming down anytime soon, a dangerous 
shortfall in key food aid commodities is emerging. According to 
USAID, prices for key food aid commodities have increased over 
40 percent in just the past 6 months. USAID also reports the 
shortfall will force the program to reduce its emergency food 
aid operations. And to make matters worse, the Food for Peace 
program also is facing increased transportation costs to ship 
commodities overseas because of the high fuel prices.
    It is critical that we try to resolve this emerging global 
food crisis, and I look forward to discussing how we can work 
together to do that. There are other important topics to cover 
today.
    Let me stop there and let me recognize Mr. Alexander who 
was here at the outset. Would you care to make opening 
comments?
    Mr. Alexander. Not at this time.
    Ms. DeLauro. Ms. Emerson.
    Mrs. Emerson. Thank you. We have a lot of important things 
to discuss, and you will have to forgive me because I am going 
back and forth between Energy and Water and here. But we 
welcome you, we thank you very much.
    Ms. DeLauro. With that, Dr. Keenum, as you know, your 
testimony and everyone's testimony is part of the record, and 
have you proceed with your testimony and summarize as you see 
fit.

                  Under Secretary's Opening Statement

    Mr. Keenum. Thank you, Madam Chair, and members of the 
committee. I am pleased to appear before you to present the 
2009 budget proposals for the Farm and Foreign Agriculture 
Services Mission area. With me today I have the administrators 
of these three agencies: Teresa Lasseter, Administrator of the 
Farm Service Agency; Eldon Gould, the Administrator of the Risk 
Management Agency; and Michael Yost, Administrator of the 
Foreign Agricultural Service. I also have Scott Steele who is 
the director of our Office of Budget and Program Analysis 
accompanying us as well.
    I would like to begin with the Farm Service Agency, which 
is the Department's lead agency for delivering farm program 
assistance. FSA has had a total discretionary budget for 
salaries and expenses of $1,522,000,000, an increase of $91.6 
million from fiscal year 2008. This increase is necessary for 
pay and other necessary personnel compensation, and covers 
increases in operating expenses and inflation.
    FSA has been working to address the challenges of 
maintaining program delivery effectiveness through its field 
office structure, while also sustaining its aging and 
increasingly costly IT systems. Concerns about office structure 
and accountability highlight the crucial role of IT for FSA's 
capacity to continue to deliver adequate service to its farm 
clientele. Consequently, the 2009 budget requests an increase 
of $8 million for operational costs for the current IT systems.
    Similarly, the supplemental appropriations of nearly $38 
million provided by this committee last year was critical to 
supporting and stabilizing the operations for FSA's Web-based 
computer systems that were suffering from severe performance 
problems last year.
    Turning now to the Risk Management Agency, the Federal Crop 
Insurance program represents the main risk mitigation program 
available to our Nation's farmers and ranchers. RMA has a 
discretionary budget of 77.2 million, of which 95 percent, or 
73.2 million, covers salaries, benefits, rent, shared services 
and information technology. The remaining 5 percent, or $4 
million, covers other adjustable operating expenses. RMA is 
requesting a $1.1 million increase above fiscal year 2008 to 
cover increased operating costs.
    In 2007 the crop insurance program provided about $67 
billion in risk protection to over 271 million acres. Our 
current projection is that indemnity payments to producers in 
2007 will be about $3.3 billion on a premium volume of over 
$6.6 billion.
    RMA's most critical need in the coming years is the 
modernization of its aging IT systems. IT modernization is 
critical to RMA's ability to continue operating and improving 
the Federal Crop Insurance program. The budget includes a two-
pronged approach which will allow RMA to proceed with IT 
modernization in a budget-neutral manner.
    I will now like to return to the Department's international 
programs and activities. The Foreign Agricultural Service is 
the lead agency for the Department's international activities. 
It is in the forefront of our efforts to expand and preserve 
overseas markets. We have seen unprecedented increases in the 
levels of U.S. agriculture exports, which are projected to set 
another record during 2008 at $101 billion.
    The agriculture trade balance is also improving and is 
expected to reach a $25 billion surplus this year, the highest 
level since 1996.
    To accomplish these goals the budget provides increased 
funding for FAS. FAS has a total discretionary budget for 
salaries and expenses of $173 million, an increase of $10 
million from fiscal year 2008. This additional funding is 
needed to cover increasing personnel costs, to fund higher 
overseas costs, and activities that are mandated such as the 
Department of State's shared expenses for International 
Cooperative Administrative Support Services or ICASS, and also 
for mandated funds for the Capital Security Cost Share Program. 
Also, the overseas value of the U.S. dollar adds to our 
challenge in meeting the costs that are inherent with FAS 
activities.
    USDA continues to provide vital assistance and global 
efforts to address humanitarian relief and promote economic 
development through international food aid programs. For the 
McGovern-Dole International Food for Education and Child 
Nutrition program, the budget includes appropriated funding of 
$100 million. This program is expected to provide assistance to 
nearly 2 million children and mothers throughout the developing 
world.
    I would like to highlight for the subcommittee members 
action we have taken during the past year to improve the 
delivery and effectiveness of our food aid programs. Last July, 
USDA announced an initiative under which uncommitted CCC-owned 
commodities would be exchanged for food products that can be 
programmed under the Department's foreign and domestic food 
assistance programs. This new program is referred to as Stocks-
for-Food. The Stocks-for-Food program was designed to make 
productive use of existing CCC stocks, while enhancing the 
level of food assistance that could be provided during a period 
of higher commodity prices and fuel prices.
    To date, ownership of all existing uncommitted stocks have 
been transferred. The program is expected to provide about $120 
million of food products to our domestic and foreign food 
assistance programs.
    In the case of the McGovern-Dole program, over $20 million 
in additional processed commodities will be made available, and 
those commodities are expected to provide assistance to as many 
as 650,000 program recipients.
    Also The Emergency Food Assistance program, TEFAP, is 
expected to receive nearly $100 million in additional funding 
to augment this vitally important domestic food assistance 
program. And at this time of high commodity and food prices the 
Stocks-for-Food program is helping to meet the nutritional 
needs of numerous individuals both domestically and 
internationally.
    In conclusion, Madam Chair, I would like to express our 
sincere appreciation to you and to this subcommittee for the 
support that you all have provided to our mission area. I look 
forward to working with you as you review and consider our 2009 
budget proposal, and I am pleased to provide whatever 
assistance you may require. Thank you Madam Chair.
    [The information follows:]

           

    
    Ms. DeLauro. Thank you very, very much, Dr. Keenum. I 
apologize for not mentioning the Stocks for Food program in my 
opening remarks. It is something I think is very interesting. 
It is a unique idea, and I commend you for looking at all of 
the areas in which we can continue to address and look at what 
we have that we might be able to engage in, in order to meet 
both the domestic and international food aid crisis that we 
have.
    Let me move to the computer.
    Mr. Keenum. Yes, ma'am.

                       FSA INFORMATION TECHNOLOGY

    Ms. DeLauro. The subcommittee has asked for many years and 
at many hearings what long-term plans to modernize FSA's 
delivery of the farm programs, including requests for funding. 
In fact, the long-term project called MIDAS has been in the 
planning stages since 2004. GAO just briefed the subcommittee 
staff--and there is a report in March of 2008--they briefed the 
subcommittee on their review of FSA's plans for stabilizing and 
modernizing its farm program delivery system.
    This is what GAO pointed out:
    Several serious flaws in how FSA has been proceeding and 
stabilizing and modernizing the systems. Plans you have 
developed do not adequately assess cost and schedule estimates 
by using key information such as MIDAS's business requirement, 
which you are just now in the process of developing.
    GAO further states that you have not addressed key 
managerial issues, such as there are no clearly defined 
organizational roles and responsibilities between FSA's chief 
information officers and the Department's chief information 
officer, and no tracking system for users to report problems 
with the system.
    In your testimony, you have suggested to Congress a 
proposal requesting authority to assess farm program 
beneficiaries in order to secure accurate resources to 
implement the needed technology. Your plan currently estimates 
a 2-year implementation schedule and that the cost of MIDAS 
will be $454 million, of which $62.5 million was provided in 
2007 through supplemental funding and redirection of salaries 
and expenses funding. What basis did you use for coming up with 
this cost in the schedule estimate?
    Mr. Keenum. Madam Chair, we have been working very closely 
with our Chief Financial Officer at the Department who as taken 
on the responsibility of leadership for our MIDAS program. It 
has been a program that we have been working on, as you 
mentioned, for some time. We have had to engage the Office of 
Management and Budget to get their approval for us to be able 
to submit our proposals to the Congress. As you pointed out, it 
is a $455 million initiative, of which around $60-some-odd 
million has been made available through, again, supplemental 
appropriations and other redirecting of funds within the 
Agency.
    All told, to get the program implemented, we will need 
about $392 million, and we have looked to the authorizing 
committees, Madam Chair, to assist us in identifying ways to 
come up with those funds. This is a long-term initiative. As we 
talked about earlier, our computers are outdated. We are using 
1980s-era computer systems, and we are in desperate need to 
upgrade and modernize our computer systems. And it is a 
tremendous challenge to FSA in meeting our delivery obligations 
to farm clientele because of the outmoded and outdated computer 
systems that we are operating with.
    Ms. DeLauro. I think we are looking at estimates almost 
after the fact. Shouldn't they have been based on actual 
business requirements for MIDAS to build a reliable cost and 
time estimate? Can you give us an example of a modernization 
project of the same size as MIDAS that was able to be completed 
within 2 years? In your plans you assumed it would take 10 
years to complete MIDAS, so----
    Mr. Keenum. If you don't mind, I will ask our Administrator 
to respond to that specific inquiry.
    Ms. Lasseter. I would just say that technology has changed 
so much, FSA has gone from writing many of our own programs and 
developing--to moving to more off-the-shelf software. We are in 
the process of reviewing our business processes to see how we 
can streamline, and we have indeed hired an SES project manager 
for MIDAS who is working on this full time with the Chief 
Financial Officer for the Department in OCIO and our FSA OC, 
our financial officer and the computer specialist. So it is all 
tied together.
    And Dr. Keenum and I get a report from the senior 
management oversight committee, so we feel like we are using 
our resources as best we can to make sure that we do what we 
should do.
    Ms. DeLauro. I understand. I still don't get a sense, I 
don't get a sense of the basis that you use for coming up with 
cost and schedule of estimates and what are the business 
requirements for MIDAS so that you could build in this cost in 
a time estimate. Two years. What is the reality of 2 years 
versus prior information that said 10 years? There is a big 
gap.
    You also made a proposal you say you are suggesting to the 
Congress. Have you submitted proposed legislation or a budget 
amendment to pay for MIDAS? What is the proposal?
    Mr. Keenum. We worked with the authorizing committee to ask 
the committee as they put forward their farm bill to include an 
assessment on farmers. We have identified mechanisms on how we 
can do a very nominal fee assessment on producers. We have 2 
million farmers in this country----
    Ms. DeLauro. Was this in the farm bill?
    Mr. Keenum. Farm bill?
    Ms. DeLauro. What you are talking about, is this in the 
farm bill?
    Mr. Keenum. We are still working with the authorizing 
committees on this very topic. We are working with them and 
communicating with them. We have made numerous presentations, 
numerous presentations to the Members, to the Chairman, the 
Ranking Member and our members of the committee and senior 
staff. Yesterday, we were talking with the committee staff on 
this very initiative.
    Ms. DeLauro. What is the proposal?
    Mr. Keenum. Well, the proposal is that we do an 
assessment--we proposed assessing a $50 fee on all producers 
who are recipients of farm program benefits. And that fee would 
be used to help----
    Ms. DeLauro. A user fee?
    Mr. Keenum. A user fee, that is correct.
    Ms. DeLauro. What is the likelihood of getting a user fee?
    Mr. Keenum. Well----
    Ms. DeLauro. Is it slim and none, and slim left town? I 
mean I don't know. Proposals for user fees----
    Mr. Keenum. I wouldn't characterize it as that, Madam 
Chair, because the members of the authorizing committees, the 
chairmen of both committees, really understand the needs and 
the challenges we are facing because of our IT situation. Will 
they do a user fee? I don't know. And we have told them and we 
are working with them and we have provided language to them on 
this topic. We have told them we are willing to negotiate, work 
with them to find a reasonable way to assess farmers in a way 
that really is so nominal that when a farmer gets a $40,000 
payment, a direct payment--and we are talking about as much as 
$50--it is not a very big assessment to a farmer.
    But having said that, there are opportunities to look to 
other ways through offsets and spending and other areas to come 
up with the needed moneys that we are looking at.
    Mr. Boyd. Madam Chair, would you yield?
    Ms. DeLauro. Go ahead.
    Mr. Boyd. What about a farmer that gets a $500 payment, is 
he going to pay $50 just the same as the $40,000 or----
    Mr. Keenum. Congressman Boyd, that is a good question. Part 
of our negotiation is we have identified the fact that there 
are farmers who get very small payments, and we were looking at 
doing a de minimis exemption or waiver that farmers who make 
small payments should not be required to make this kind of a 
contribution.
    Ms. DeLauro. But none of this is sorted out. What happens 
with the farm bill? The deadline is not in there. I am hopeful 
that by the 18th we will have a bill; but at the moment, it is 
not here. What happens? Are you coming back? What is your plan 
if it is not in the farm bill?
    Mr. Keenum. Well, Madam Chair, that is a very good question 
and----
    Ms. DeLauro. And it needs a very good answer.
    Mr. Keenum. Well, we are working with the authorizers to 
try to get the funding. And to come to you all to say we need 
$392 million, we know the challenges that that presents. And so 
our hope is that we will be able to prevail upon----
    Ms. DeLauro. Well, that is why--right, hope is wonderful, 
we all--I am from a place called hope, but hope is not reality. 
But the very fact of the matter is that this is--it is 
critically important, and that is why I asked my prior 
questions about what the estimates were based on and what the 
costs were based on, because if you are going to come to this 
committee with the $392 million request, I think I can speak up 
for both sides of the aisle here, saying you better have it 
nailed down, chapter and verse, as to what it is about, what it 
is based on, what are the estimates, have you looked at other 
systems. All of the questions that we are going to ask because 
of due diligence.
    We know that this is a problem, but what I don't get a 
sense of--and I just say this before you come before this 
subcommittee asking for a go-ahead here--you really need to be 
dealing with a business plan that is a business plan and not 
just, you know, some hope.
    Mr. Keenum. Well, I agree with that. We feel that the 
business plan that has been prepared by our Chief Financial 
Officer, working with our officials in FSA clear through the 
Office of Management and Budget, is very detailed. And it has 
been provided. I know it has been provided to members of this--
committee staff have been briefed on this, but I will turn to 
our Administrators to add additional comments.
    Ms. Lasseter. We actually have been working on the business 
plan for 2 years. It was approved by OMB in November of 2007. 
It was not in time to be in this budget. And in putting 
together that plan, this team did review comparable projects at 
RAS, at USDA and at Department of Defense.
    Ms. DeLauro. Are NRCS and RMA going to be able to 
communicate with these systems with what you are doing, or are 
we going to wind up with a situation where we have agencies who 
can't communicate because of the nature of the software or 
whatever. I am going to wrap up, my friends here, but I want to 
get to the end of this conversation.
    Ms. Lasseter. I cannot answer to you today the extent of 
the communication. I don't know exactly if you are talking 
about us just communicating or actually sharing all of our----
    Ms. DeLauro. No, the related systems are going to be able 
to communicate with what you are doing--the interoperability, 
which is a wonderful word we have used for Homeland Security. 
Are all these agencies and their computer systems going to be--
I am coming kicking and screaming into the 21st century here, 
so I am not a maven in the technology, but there are others 
here who are. You know, are we stovepiping here, and then we 
have this one over here that we spent a ton of money on, and 
the other agencies, RMA or NRCS, can't communicate with you.
    Ms. Lasseter. I am told no stovepipe. We will communicate.
    Ms. DeLauro. Final question. Are you addressing the 
managerial issues raised in the GAO report, because that will 
be critical as to whether or not we deal with serious funding.
    Ms. Lasseter. Yes. And there were indeed nine pages of 
comments given back to GAO on that report. Of course, we don't 
agree with everything they said, and we made comments.
    Ms. DeLauro. We also will be looking at what the timetable 
is as to readdressing the problems that GAO laid out. So we 
know if we move in this direction we are standing on solid 
fiscal ground. Thank you.
    Mr. Alexander.
    Mr. Alexander. No.
    Ms. DeLauro. Ms. Emerson.

                        FOOD AIR COST INCREASES

    Mrs. Emerson. Thank you, Madam Chair.
    I am not going to talk about computers, although one wants 
to after that discussion.
    Dr. Keenum, the administration managed in its budget to 
actually budget for higher commodity prices, so you all showed 
sharp decline in marketing assistance loans and countercyclical 
payments. Tell me how you all have budgeted for the impact that 
the same commodity prices will have on the effectiveness of our 
food aid programs.
    Mr. Keenum. Well, I think as Madam Chair mentioned earlier 
about the increases that we have seen in our food commodities 
according to USAID and challenges that they face and are 
facing--and we are all facing in our food aid programs--the 
biggest increases that we have seen in and these commodity 
prices have occurred since the beginning of this fiscal year, 
October of last year. We have seen a huge surge or spike in 
commodity prices that really no one could foresee, particularly 
in putting together the budget for fiscal year 2009.
    When we submitted our budget earlier, we did look at 
challenges that we are facing. Particularly when we looked at 
our farm bill proposals, we did take into consideration the 
challenges that we face in anticipation of higher shipping 
costs. This is an issue that is a big issue with us: meeting 
our food aid obligations as the commodity price increases. We 
have seen the average shipping costs for shipping our food 
products increased by over $30 a ton, and that is for our bulk 
commodities. And products we see under McGovern-Dole, we have 
seen the shipping costs increase by nearly $50 a ton. So those 
have big impacts on all of our food aid programs and our 
ability to meet our humanitarian obligations.
    Mrs. Emerson. Obviously, higher prices just in general from 
whatever means that we are going to have less food for 
emergency programs. So you know, the decisions about where do 
the cuts come from, do we cut rations, cut participants, or the 
aid intended to prevent emergencies from happening in the first 
place? Those are tough questions.

                        STOCKS-FOR-FOOD PROGRAM

    Mr. Keenum. Those are tough questions. And I think when we 
were looking at last summer our situation with our surplus 
commodities in CCC inventory, one of the things we did realize 
is that we were going to have more demands on our food aid 
programs and challenges because of these higher costs of 
shipping and also higher commodity prices. That is one of the 
reasons we did get so engaged in trying to meet those needs 
with our Stocks-for-Food program by providing over--actually, 
since July, will have provided and committed over $20 million 
of assistance. And our technical staff that worked with the 
McGovern-Dole program has informed me that that will help us 
mitigate these added costs for food and transportation so that 
we will not have to cut rations, as you mentioned, or have to 
take participants off the rolls for the McGovern-Dole program.

                INTERNATIONAL HUNGER RELIEF SUPPLEMENTAL

    Mrs. Emerson. And I appreciate all that you have done to 
try to mitigate some of the challenges that we face.
    Recently the Chairwoman and Congressman LaHood, me, and 
several of our colleagues wrote a letter to the President 
seeking additional resources for international hunger relief. 
We have received the traditional $350 million supplemental 
budget request, but there is that funding gap that still 
remains. And I think the last request I saw was about $500 
million that we were short.
    In regard to that supplemental request, what rule do you 
all have at USDA as compared to USAID or OMB in deciding what 
the size of that might be?
    Mr. Keenum. Well, obviously USAID is the lead agency for 
making recommendations for supplemental requests, working with 
OMB. We do have an interagency Food Assistance Policy Council 
that we participate in. We rely on the leadership of USAID to 
make the determinations, because these moneys are going to the 
Title II Program, which is a program that they have oversight 
over, and they know best what their international needs and 
obligations are going to be.
    Mrs. Emerson. In our letter to--let me just mention that we 
suggested the possible use of the Bill Emerson Humanitarian 
Trust in fiscal year 2008. How do you all, who obviously 
administer that trust, view its use to meet any projected 
current food aid shortfalls?
    Mr. Keenum. Well, just to give you a perspective, the Bill 
Emerson Trust today has 915,000 metric tons of wheat; that is 
33.6 million bushels. It has a current value of around $326 
million. Plus we have $117 million of cash in the Bill Emerson 
Trust, so that is almost $450 million of value that is in the 
Bill Emerson Trust right now that could be used for any 
supplemental humanitarian food aid needs. And one thing about 
that is that any commodities that are drawn out of the Bill 
Emerson Trust for the purposes of humanitarian aid, Title II, 
the shipping cost is paid out of CCC. We estimate that to be 
about $500 million.
    Mrs. Emerson. So the shipping U.S. Made it 500 million?
    Mr. Keenum. Five hundred million for shipping costs. So the 
total value of the Bill Emerson Trust is just shy of a billion 
dollars in value that could be used for humanitarian food aid 
needs. And as you mentioned, there is a $350 million 
supplemental before the Congress. We are going to continue, if 
we receive those funds, working with USAID, to monitor the 
needs that we are facing. And we do have this Emerson Trust, 
and characterize it as somewhat of a safety blanket that we can 
draw from. Since 1985, we have tapped the Emerson Trust 12 
times. So it is a wonderful resource to have at our disposal if 
it is determined to be in fact needed.
    Mrs. Emerson. I appreciate that. I am embarrassed to admit 
that I don't know--are there minimal levels that we are 
required to keep in the trust?
    Mr. Keenum. It is 4 million metric tons. That is the cap. 
It is not the minimum, it is the maximum.
    Mrs. Emerson. Okay. But we don't have a minimum?
    Mr. Keenum. No, ma'am.
    Mrs. Emerson. So we do have the ability to tap into 
whatever we need from that if the need arises?
    Mr. Keenum. That is correct.
    Mrs. Emerson. Thank you. Thank you, Madam Chair.
    Ms. DeLauro. Mr. Jackson.

                    P.L. 480 LOCAL PURCHASE PROPOSAL

    Mr. Jackson. Thank you, Madam Chair, and thank you, members 
of the panel. Last year the panelists discussed a proposal by 
the administration that will allow up to 25 percent of Title II 
funding to be used for the purchase of foreign agricultural 
products. Instead of giving food, the United States will give a 
check. While I understand both sides of the argument, I am very 
concerned about potential job loss in the city of Chicago. The 
Port of Chicago has a major involvement in the food aid 
program. Approximately 25 percent of all Title II food is 
loaded onto shipping containers at that port. These are very 
labor-intensive and very good paying jobs. As many as 250 
workers are employed at the Port of Chicago to handle cargo, 
operate forklifts, and provide trucking and rail service.
    If the administration's proposal is adopted, those 250 good 
paying jobs are at risk. While I am aware of reports of 
wasteful spending and inefficient practices, the food aid 
programs are successful because of the broad support from 
agriculture and the maritime industries. If these jobs are lost 
and money given in place for food, support for these critical 
programs will obviously dwindle.
    I ask the panelists to consider these good paying jobs that 
are at risk when they discuss potential changes to the food aid 
program.
    Would you care to share with the panel what is the status 
of the administration's recommendation of changing Title II or 
using up to 25 percent of Title II funding for the purchase of 
foreign agricultural products? Instead of giving food we are 
now giving a check.
    Mr. Keenum. Thank you. You described the situation very 
well. The status is that this was a proposal that we made to 
the authorizing committees for consideration in the farm bill, 
and the farm bill that passed the House of Representatives did 
not include the local purchase provision.
    And the bill that passed the Senate had a pilot project 
that was far less than the 25 percent that we had recommended. 
It is in the conference. As you know, they are meeting this 
morning--conferees.
    I don't know what will come out of the conference on this 
particular provision, but I would like to address a couple of 
points that you made and to put a little bit in perspective the 
magnitude of the 25 percent and the rationale behind why it was 
proposed to start with.
    If you consider the fact that commercially the United 
States, we export in the commercial markets about 146 million 
metric tons of grains and cereals and oilseeds. That is what is 
in the commercial pipeline that is exported. It creates the 
jobs for export trade that you alluded to.
    We as a country contribute to international food aid from 
grains and cereals and oilseeds about 3 million metric tons. 
The commercial environment is 146 million. We contribute 3 
million, and we were talking about up to 25 percent of that 3 
million. So if you put it in a commercial perspective, we are 
talking about one-half of 1 percent of all the grains and 
cereals and oilseeds that we export would be affected by that. 
One-half of 1 percent.
    So from the effects on industry and trade and commodity 
farmers it is very minuscule, and we are only proposing up to 
25 percent local purchase. When there is an emergency, when 
people's lives are at stake--the local purchase would only 
occur if commodities are in that region or in that area. And so 
we look at it as an option and an opportunity to help us 
address humanitarian needs to help save lives. Just as simple 
as that.
    Also, another advantage of this is with the higher shipping 
costs and fuel costs we are faced with, that is a portion that 
we would not have to ship; we would be able to go in and buy 
locally to address those humanitarian needs.
    Mr. Jackson. Thank you, Mr. Chairman
    Mr. Hinchey [presiding]. Mr. Latham.
    Mr. Latham. Thank you.
    Mr. Hinchey. Did you say, Madam Chairman?

              FSA OPERATIONS UNDER A CONTINUING RESOLUTION

    Mr. Latham. I did not, but if you put a skirt on, I'll 
gladly--anyway, it has become very evident I think to everyone 
around here that, while the House is going to do their work 
this year as far as passing appropriation bills, the Senate has 
publicly announced, basically leadership over there, that they 
are not going to do anything. And you had a long discussion 
about the changes as far as information technology and your 
needs on that, but I would be curious if you had done any 
preparation for a continuing resolution that would freeze 
everything going forward; you are talking probably at least 
until March of next year. What does that do to your program?
    Mr. Keenum. Well, needless to say, Congressman, that is a 
good point. I mean we have had to deal with continuing 
resolutions, obviously, many times in the past and we will find 
a way to get through the process and meet our obligations, but 
it will have a tremendous drain.
    As you know, our fiscal year 2008 budget for FSA is about 
$98 million less than what was requested by the President. That 
has caused a strain on our operating ability for FSA and we 
have asked for increases. That is why we asked for a $96 
million increase just to cover our increased cost, expenses 
that we will be incurring in this coming fiscal year. And to 
not be able to get the additional funding that we need to meet 
our personnel, our pay obligations, to pay our rents, you know, 
we have a lot of fixed expenses that we have to pay just to 
operate the Agency.
    And then if we get a farm bill implemented and we are 
hopeful again--use the word ``hope''--then that is all we have 
right now is hope. We can request and present the facts and 
outline why we have the needs, but the actual decisions rest 
with you, the Members of the Congress, members of the 
authorizing committee, as to whether or not they will provide 
additional moneys for us to implement the new farm bill. We are 
going to have more challenges and, obviously, to not be able to 
get any increases for whatever period of time we operate under 
a continuing resolution will put a strain on all the agencies.
    Mr. Latham. Ms. Lasseter, say hi to Willard for me, please.
    Ms. Lasseter. I will do that.

                 CROP INSURANCE PROVISIONS OF FARM BILL

    Mr. Latham. I don't know if you have any other comments as 
far as the effects of the CR. If you do, fine. If not, I have a 
question as far as that proposals in the farm bill are to make, 
in my mind, draconian cuts to profit-sharing.
    I just wondered, Mr. Gould, if you have studied those 
proposals, the crop insurance program, obviously, with the 
higher value of crops today, with what we have seen certainly 
in history, the effect that that is going to have and what--
have you studied and can you give us some insight as to what 
you see the effects of those cuts will be in the farm bill?
    Mr. Gould. Well, we have looked at those. As you said, in 
the last 2 years commodity prices have increased by a factor of 
2 and it looks like our insured liability is going to be 
similar to that. The liability has doubled in the last two 
years.
    About half of the risk management program is in the heart 
of the Midwest, with corn, soybeans and wheat, where the 
increased commodity prices are the most dramatic. At the same 
time, the companies are paid--or because of those higher 
commodity prices, premium prices have gone up dramatically. We 
not only insure yield, but price. And in the last 2 years, 
volatility has been a large factor in the pricing of the 
premiums. As the premiums go up, companies' compensation goes 
up and so the companies will be generating more income.
    The other side of that is the companies are going to have 
huge price risk. In fact, being back in Illinois two weeks ago, 
farmers and lenders alike were talking about at that time 
soybeans being ``in the money.'' So it is a dramatic risk.
    Back to your question of the cuts being draconian, I think, 
at least the last report that I saw, they were less than 
draconian, at least some of them were. At the same time, we are 
concerned about the financial stability of the companies, and 
while they are making good money today I think in any insurance 
program you have to look at the long-term perspective. And 
while things are rosy for the 2006 indemnity payments, and 2007 
was even better, it is hard to predict what 2008--and now we 
are talking about the 2009 budget--will predict, will come to 
fruition.
    Mr. Latham. Are you saying that the financial stability of 
insurance companies could be put in jeopardy with the cuts?
    Mr. Gould. We don't think so. We take an in-depth look at 
the financial health of the companies. They have to be able to 
withstand huge loses for 2 years before we approve their plan 
of operations. Some of the companies came forth as recently as 
the first of the year, looking for ways that they could 
increase their capacity as they saw the increase in commodity 
prices affect their capacity. Again, the financial health of 
the companies is something we take seriously, and at least the 
last cuts that were proposed in the farm bill that I saw I 
would not consider draconian, and today would probably be 
acceptable; and from what we have heard from companies and 
agents alike would be palatable to them.
    Mr. Latham. Thank you, Mr. Chairman.
    Mr. Hinchey. Thank you.
    Mr. Boyd.

                           FARM BILL FUNDING

    Mr. Boyd. Thank you, Mr. Chairman. Dr. Keenum, Ms. 
Lasseter, Mr. Yost, Mr. Gould, welcome. Thank you for your 
service to farmers and to our country.
    Dr. Keenum, you have been around this process for a long 
time. I think you know as well as everybody sitting at the 
table that the user fee proposal won't fly. Never has. It 
probably didn't with your previous bosses when you were in the 
other body, and you know it is a non-starter over here. And we 
get somewhat amused, and I guess cynical, when we see these 
proposals.
    And you know, I think, I like many others who have to deal 
with the farm community understand the IT issue, how important 
it is and how we have to solve it. So I hope we can come to 
some solutions.
    I want to remind the committee that the farm bill is bogged 
down in many ways because of this administration's persistence 
on not finding ways to pay for the proposals that the House and 
Senate have put forward and even some the administration has 
put forward. And I hope that we can get past that, because some 
of those offset proposals are--we are using some pretty onerous 
loopholes in the current Tax Code. That is an argument for 
another day, but I just want to remind us where we are.

                          USDA REORGANIZATION

    Now, I want to get to a pertinent question about the future 
of the Department of Agriculture, particularly the Farm Service 
Agency and the other agencies in the USDA that serve our 
farmers.
    Dr. Keenum, your staff on your right has a wealth of 
experience, life experience that serves I think all of our 
farmers and the Nation very well. Ms. Lasseter has spent all of 
her career in FSA and in a rural community; by the way, not too 
far from where I live. I've known Ms. Lasseter and her husband 
for a long time, and Mr. Yost and Mr. Gould with their 
experiences in the farm community using the FSA programs and 
the farm programs, USDA programs.
    My question really goes to--I would like to draw on that 
wealth of experience to answer this question. There are some 
folks here in Congress, particularly the authorizing chairman 
here in the House, Collin Peterson, talking a great deal about 
reorganization and restructuring.
    Maybe if I could ask Ms. Lasseter to answer this question: 
Has the USDA on the FSA side begun to think about 
reorganization restructure; and given your life experience, Ms. 
Lasseter, what would your recommendations be for that 
restructure as it relates to FSA, NRCS and how we do some of 
these things.
    Ms. Lasseter. You are right, I have worked for the Agency 
out there in the county office when we had some shared 
responsibilities, or more shared responsibilities than we do 
today, and whatever we have been given out there, the county 
office people have been able to make it work.
    I have not been a part of discussions for the 
administration as to whether or not reorganization should or 
should not happen. I guess we would have to see exactly what we 
are talking about in the reorganization to know if it would be 
a better plan. I have been focused on FSA and what our present 
operations are today, our responsibilities and how we can do a 
better job of delivering to those of you who use our offices 
out there. I really believe that in the last 2 years we have 
made significant progress with our delivery.
    Mr. Boyd. Well, I understand your reluctance maybe to step 
out in front. And maybe it is an unfair question, but I thought 
maybe I would ask permission for Dr. Keenum, for these folks 
who have spent their entire life using the farm program system 
and now have a chance to make a difference, how are we drawing 
on their experience?
    And I would like for them to tell the committee the FSA and 
NRCS are two distinctly different groups, agencies, when it 
comes to the way they operate. One is from the top down and the 
other is from the bottom up, and they operate differently as a 
result of that.
    Mr. Yost, you have spent a little time in the FSA and spent 
your life as a beneficiary of these agencies. Would you care to 
comment?
    Mr. Yost. Congressman Boyd, in the last year we have 
completed our reorganization on Agricultural Service, and it 
takes an enormous amount of time developing the concepts, 
talking to employees, talking to stakeholders. It is a 
relatively small Agency compared to the Farm Service Agency.
    Mr. Boyd. Right. I know you served some FSA time also. I 
really wanted to see you speak to that more than FAS.
    Mr. Yost. There is a lot of work that needs to be done. 
There is a lot of discussion with employees across the country, 
farmers across the country about what needs to be done. What we 
are trying to accomplish takes a lot of buy-in so that everyone 
realizes what the end goal is. I just want to make that 
statement because I think it is critically important. We felt 
strongly that the Foreign Agricultural Service needed to be 
reorganized to reflect 21st century agriculture.
    I think there needs to be some work done in the Farm 
Service Agency to also reflect 21st century agriculture. What 
that exactly is I wouldn't really care to comment, but mindsets 
have to change, people that work there and people that use the 
services. They have to think about how we can incorporate 21st 
century technology in our structure top to bottom, what we are 
going to do for producers to improve service by doing anything 
of that magnitude, what we are going to do for employees.
    I throw those issues out because I think you have to start 
at the very highest level thinking about what needs to be done 
before you can get down to any details, and, quite frankly, 
take a lot of input from a lot of people.
    Mr. Boyd. Mr. Chairman, I know my time has run out. I 
apologize to the panel for asking them to step out into an 
area, and obviously I didn't get very far with the answers, but 
I think it is important to highlight. Mr. Gould I see you 
pulling----
    Mr. Gould. Well, as long as your time ran out, I want to 
end this on a positive note. At the Agency level, I don't know 
if I have any comments on reorganization. But I would like to 
comment on the cooperation just by the nature of the programs 
at the Risk Management Agency and the Farm Service Agency; 
cooperate together on disaster payments, linkage between 
disaster and crop insurance.
    We do cooperate with FSA and RMA dramatically.
    The common information management system is coming on board 
and has been implemented at a minimal level. It will come forth 
with more States on board sometime this summer, hopefully by 
the 1st of June, and that will increase information sharing 
between the two agencies.
    And then in addition, a lot of our programs depend upon the 
information that comes from the Statistics Service, NASS. We 
are exploring opportunities to work with them to build a more 
robust data set that combines information that each agency has. 
So, again, I want to leave you with the impression that--maybe 
``reorganization'' is not the right word, but an opportunity of 
cooperation. And increasingly so.
    Mr. Boyd. Mr. Chairman, there is a lot of work to be done 
to bring us into the 21st century and the way we deliver our 
services to our customers--and that is the farmer--and be 
accountable to the taxpayer. We need to draw--and I hope in the 
9 months that are left in this administration that there will 
be some discussions about what kind of recommendations we leave 
for the next administration in terms of how we reorganize these 
agencies. Thank you.
    Mr. Hinchey. Thank you. Mr. Kingston.
    Mr. Kingston. I wanted to say, Mr. Gould and Mr. Yost, you 
talk about there will be cooperation. The taxpayers have to--
that is the bottom line. Certainly there is going to be 
cooperation. That is not what we hope, that the Federal 
bureaucracy cooperates. It is damn right you will; that is your 
job.
    And so to me it is not a matter of tiptoeing around the FSA 
offices and asking these people, hey, we have a new law out; 
will we follow it? I think Mr. Boyd touched on something very 
important. But to me the only question is will it be more 
efficient to the farmers.

                         FARM PROGRAM DELIVERY

    And I wanted to ask my friend, Ms. Lasseter--and you are my 
friend--she is a constituent so I have to underscore it a 
little bit more--the question really is: With this 
administration pushing payment limitations on conservation 
programs and so forth and the NRCS and FSA both having a 
paperwork role, is that going to be inefficient and cumbersome 
to the farmer?
    By the way I want to say, Mr. Gould, I am not picking on 
you at all for that, but I just want to make sure that we in 
the Ag family know that cooperation isn't the issue here; it is 
efficiency ineffectiveness. And you weren't saying that it is 
either. Okay, I am tired of being nice to you.
    Ms. Lasseter. Congressman, I would hope that we can make 
things work, that it is not cumbersome to the farmer. They 
presently use the FSA office to file their plan of operation 
and to give us their certification as to their gross income. 
And FSA is the face for the Department now for gathering that 
information and making the determination on that information. 
So I would say we can make it work.
    I am not sure if this question is leading back to once upon 
a time FSA administered conservation programs as far as taking 
the application, making the payments, and that change was made 
and there are questions as to whether or not it would work.
    Mr. Kingston. As you know, the ones out in the field are 
ready to resume that role again and are certainly capable. I 
just think the real question is no matter what comes out of 
this conference committee, is we have to make it work for 
efficiency and effectiveness for the farmer.
    Ms. Lasseter. I think we are all for that.

                   HARVESTING PINE STRAW ON CRP ACRES

    Mr. Kingston. I do want to say I think you guys have done a 
great job on patiently waiting in mid-air to see. I know the 
FSA particularly has a lot of balls in the air since last year, 
but waiting on this farm bill, I know, has been frustrating.
    We have had some conversations, and I know Dr. Keenum you 
and I have had conversation about CRP and the idea that under 
CRP you can only get rental for taking the land out of 
cultivation. And yet there is a growing push that utilize 
profit centers, if you will, on the farm. And a lot of 
landowners have asked us after 10 years, when it is not a 
nutrition for the tree issue, could they opt out of the rental 
portion of CRP and sell their pine straw? Not cut the trees or 
anything, but sell their pine straw; or would that be seen as 
hey, you know, we paid you for one thing, and now you want to 
switch to another?
    I do think there is a potential market out there. I know 
there is for the farmers. It could be a way to save money as a 
government. It could be a way to help the farmers of the rural 
economy.
    Mr. Keenum. Thank you, Congressman. I tell you, with your 
encouragement, we have had several conversations on this topic, 
and I know it is of significant importance to you in 
particular. And based on the dialogues that we have had, and 
our offices have had, and discussions you had with the 
Secretary of Agriculture on this topic, we have engaged on this 
and we are beginning to work with University of Georgia----
    Mr. Kingston. That is a great choice.
    Mr. Keenum. I was hoping you would think so.
    To look at how we can address those very points that you 
outline. It is our policy to be able to effectively utilize our 
CRP lands without hampering the environmental benefits and the 
wildlife benefits that have occurred from the conservation 
program, CRP.
    And that is why we need to reach out to the technical 
people, to scientists, researchers in this field, to understand 
wildlife and the environment.
    So the point is we engaged in dialogue with the University 
of Georgia to initiate a research project to address this very 
point. We have also implemented or begun to work on addressing 
NEPA requirements that will have to be addressed on this as 
well. And our hope is that we can have the research and the 
review done on pine straw harvest on CRP land--done within 3 to 
6 months. And again, this is because of your leadership and 
what you have brought, bringing this issue to our attention, 
that we have been focused and engaged on this very important 
topic.
    Mr. Kingston. Thank you. I am out of time. I did have some 
other questions. Maybe the next round.
    Mr. Hinchey. Continue if you would like.
    Mr. Kingston. I want to thank you for doing what you are 
doing--you are doing it very slowly and very carefully for 
environmental purposes, and also for the spirit of what CRP is 
really about. And we also need to be able to answer to 
constituents, We didn't pay these folks to take land out of 
cultivation to maximize profit in a different way; we have to 
address the subsidy. I think you guys are doing a very good job 
of walking that line.

                             CROP INSURANCE

    Mr. Gould, just for my own background purposes, how many 
insurance companies are involved in crop insurance and how many 
reinsurance companies, do you know?
    Mr. Gould. We have 16 proved insurance providers. I am not 
sure how many reinsurance companies there are. I want to guess 
a half a dozen, but that is only a guess. That is a handful.
    Mr. Hinchey. A handful, five to start with.
    Mr. Kingston. The subsidy, is it on the premium or on the 
underwriting cost or on the underwriting loss?
    Mr. Gould. Are you talking about the approved insurance 
companies or the reinsurance?
    Mr. Kingston. I know it is not actuarially sound. Would 
that be an accurate description?
    Mr. Gould. No.
    Mr. Kingston. If it was, the Federal Government could get 
out of it completely, correct? If the private sector could 
consistently make a buck selling crop insurance then we would 
have no need for a Federal program.
    Mr. Gould. Oh, I see. If you do not have to subsidize the 
producer premium.
    Mr. Kingston. Yes.
    Mr. Gould. Our history shows that if we, the Federal 
Government, don't do that, we have a limited participation from 
the farmer level.
    Mr. Kingston. But after we subsidize their premium, there 
is no further subsidy on the crop end in terms of paying an 
underwriting loss or in terms of the underwriting cost of 
acquisition of the account and processing the paperwork.
    Mr. Gould. No. That is all provided by the insurance 
companies to the reinsurance companies, and there is a 
gazillion different arrangements that they have. At the same 
time, I don't want to mislead you and say that--there is 
further subsidy to the insurance companies in the fact that the 
Federal Government pays the insurance providers an 
administrative and operating expense for delivery of the 
program.
    Mr. Kingston. Okay. So that is a second.
    Mr. Gould. That is a second item.
    Mr. Kingston. And then if there is a disaster that goes 
beyond the value of the insured land, how does that work? Do 
you have a--can you give me----
    Mr. Gould. Well, without getting into a lot of detail, 
there are three different funds that approved insurance 
providers can place their risk with the Federal Government to 
the extent that we share--typically we expect to get the high-
risk funds, and they keep the good--the good business. So 
obviously that enhanced their rate of return on their book of 
business. Ironically for the 2007 crop year, and we just 
learned this this morning, that, in fact, the Federal 
Government had more gains on reinsurance than the companies 
did. Again, it was a result of a good crop year, and the bad 
book of business that we inherited from the companies turned 
out to be a good book of business.
    Mr. Kingston. If I just heard what you said, there is a 
quasi-reinsurance mechanism to the Federal Government.
    Mr. Gould. Yes. We have a 5 percent quota share at the 
moment, and hopefully through our administration proposal in 
our farm bill to increase that quota share so the government 
would be a bigger player in the reinsurance business.
    Mr. Kingston. All right. Then last question I hope, Mr. 
Chairman. On an acre of insured cropland, if there is a 
disaster, is that producer eligible for any payment from the 
disaster outside of insurance at all?
    Mr. Gould. Well, it obviously would depend on how the 
disaster bill is written. For the most part--at least certainly 
in recent disaster bills, there is a linkage between crop 
insurance and disaster. So if, in fact, the producer has crop 
insurance, then he is entitled to some level of disaster 
coverage.
    Mr. Kingston. Okay. But if he doesn't have insurance, he 
doesn't get anything, is that----
    Mr. Gould. That is correct.
    Mr. Kingston. Except for other----
    Mr. Gould. And as a producer, I think that is the way it 
should be.
    Mr. Kingston. Because, frankly, the disaster bills are so 
murky over the years that, you know, even on the committee that 
is doing it, you often just need to reclarify that and 
reeducate yourselves. So, thanks.

                           WORLD FOOD SUPPLY

    Mr. Hinchey. Thank you. It has been a very interesting 
discussion. And I just want to express my appreciation for all 
of you for not just the discussion today, but for all of the 
work that you do.
    We have some votes coming up now, but I think I am the last 
one to ask a question or two. So if you don't mind.
    Again, thank you. It has been an interesting discussion. I 
appreciate the response to the questions. I think you are 
engaged in one of the most fascinating and one of the most 
significant issues that we have to confront not just as a 
Nation, but as a species globally.
    Circumstances around the world on food are getting more and 
more difficult almost every day. There was an interesting 
editorial in The New York Times today, which, among other 
things, talks about how the World Bank president has just 
estimated that there are at least 33 countries in the world 
that are on the edge of social unrest because of the increasing 
price of food and, one has to assume, that in addition to the 
increasing price, the decline in the availability of food. We 
know that hunger is growing, and it is growing fast.
    We are not one of those 33 nations yet, but it is 
interesting that we have such a dramatically increasing number 
of people on food stamps in our country, almost 28 million 
right at the moment, and that number is going up. And when you 
look at the situation in schools, school lunch programs, school 
breakfast programs, growing demand for that and the ability of 
the schools to deal with that is also going down. Very, very 
difficult.
    We have a complex set of circumstances here to confront. 
There is nothing more important for our species to deal with 
than food and fiber. That is one of the reasons why we all sit 
on this committee, because it is--you know, it is the basic 
ingredient of life. Without it, you can't continue.
    So this farm bill that is coming up has been very 
contentious, and I think that a lot of the contention has to 
deal with a lot of these complex circumstances, situations in 
which we are dealing with. And there is a lot of ways people 
are trying to answer these questions, and you get a lot of 
answers depending on who you are talking to.
    So one of the responsibilities of this committee, of 
course, is to look out for big producers of agriculture in our 
country, farmers, but at the same time we are facing some 
interesting situations in that regard. For example, the amount 
of corn that is now being used in biofuel is estimated to--
somewhere in the neighborhood of have doubled price of various 
elements of food not just here in the United States, but around 
the world because of the huge amounts of corn that are being 
put into biofuel and the large amounts of other food products 
that are now not being produced. People are rushing to try to 
start planting corn because there is a lot bigger profit to be 
made from the corn.
    So I am wondering if you might have any ideas about this 
set of circumstances, what we might be doing more 
constructively. What are the things that we should be engaging 
in? There is no question because of--the ability of people to 
get adequate nutrition in our own country is going down, but in 
a lot of countries, like Haiti, for example, which is very 
close to us, most of the countries in sub-Saharan Africa and a 
number of other countries around the world, including Vietnam 
and other places where dangerous, difficult circumstances are 
beginning to prevail because of the lack of food.
    What do we have in terms of storage? I used to take note of 
the huge storage amounts that we had for various kinds of food. 
What is the storage situation now?

                        STOCKS-FOR-FOOD PROGRAM

    Mr. Keenum. Well, Congressman Hinchey, in my earlier 
comments when we were talking about our Stocks-for-Food 
Program, I made a point that we no longer own any CCC surplus 
stocks. We have converted all of our CCC surplus stocks into 
food to address many of the points that you just highlighted. 
And I appreciate your comments.
    Mr. Hinchey. You turned the stocks into food?
    Mr. Keenum. That is correct.
    Mr. Hinchey. What does that mean?
    Mr. Keenum. Well, we----
    Mr. Hinchey. Stocks were food. They always were food or 
potential for food.
    Mr. Keenum. Right. For example, we took a bale of cotton 
that we own in our CCC inventory.
    Mr. Hinchey. Pardon me?
    Mr. Keenum. Cotton. We own I don't know how many thousands 
of bales of cotton.
    Mr. Hinchey. Let's just talk about wheat and corn and 
soybeans.
    Mr. Keenum. Sure. We own wheat and corn and soybeans and 
peanuts and rice and cotton.
    Mr. Hinchey. Who owns those stocks now?
    Mr. Keenum. Well, the U.S. Government had those stocks.
    Mr. Hinchey. Now they are in private hands? They are in 
corporate hands now?
    Mr. Keenum. Rather than sell those commodities and have the 
proceeds--
    Mr. Hinchey. When was that change made, back in the 1980s?
    Mr. Keenum. July of last year. We are responding to those 
points that you highlighted. What we tried to do was say that--
you know, we have got these surplus commodities. When a farmer 
takes out a loan from the government, and he puts his crop up 
for collateral, and so rather than pay back the government, a 
lot of farmers just forfeit their commodity to us, and we own 
it.
    Mr. Hinchey. Who are the main owners of those stocks now?
    Mr. Keenum. Well----
    Mr. Hinchey. Which corporations own them?
    Mr. Keenum. Well, sir----
    Mr. Kingston. Dr. Keenum, if you don't mind me interjecting 
myself.
    Mr. Hinchey. I do mind you interjecting yourself. Wait a 
minute, wait a minute, Mr. Kingston. Just relax. Your time is 
up.
    Mr. Kingston. This is such a friendly comment, you will be 
so happy.
    Mr. Hinchey. Your time is up. Don't interrupt me. Your time 
is up.
    Mr. Kingston. I don't think you can have a hearing with one 
person here. Your hearing is over because you can't have a 
hearing without anybody here.
    Mr. Hinchey. Thanks very much. Thanks for leaving.
    So what were you saying?
    Mr. Keenum. Well, with the commodities that we obtain 
through a farmer forfeiting his commodities to us, our job is 
to dispose of those commodities because we have to pay storage 
on those commodities that we own. That is the way the program 
is structured. But rather than selling those commodities, what 
we do was we looked at the law and we determined that we could 
swap or barter those commodities for processed foods. We could 
take bushels of wheat and exchange them for canned vegetables 
or canned meats, stews.
    Mr. Hinchey. Who do you exchange them with?
    Mr. Keenum. Food companies that come in who want to--
    Mr. Hinchey. Which are the major food companies that own 
the major foodstocks in the country now?
    Mr. Keenum. These are major companies. ConAgra, Cargill, 
Louis Dreyfus are just some of the major companies that come to 
mind. But it is an opportunity we saw----
    Mr. Hinchey. Why aren't those companies dealing with the 
growing problem of malnutrition in America?
    Mr. Keenum. Hmm, I can't----
    Mr. Hinchey. What kind of intervention could we engage in 
to ensure that those corporations, which now control the 
surplus agricultural commodities for America, begin to look at 
the situation and begin to deal with it in ways that are not 
just in corporate interests, but in the interests of the 
country?
    Mr. Keenum. Well, Congressman, I don't know the answer to 
that. You pose somewhat of a philosophical question.
    Mr. Hinchey. Do you think it might be reversing that 
process of getting the corporations out of the ownership of 
those huge stocks and putting it back in the hands of the 
Agriculture Department so that decisions like that can be made 
on the basic interest of the population of the country rather 
than corporate interests?
    Mr. Keenum. Again, we are talking about dealing with 
farmers, farmers who have forfeited their commodities to us. 
And rather than just simply sell these commodities, we have 
tried to put them to a constructive use to address our 
international humanitarian needs and our domestic food 
programs.
    You mentioned about the humanitarian needs in this country, 
TEFAP, which is The Emergency Food Assistance Program. But 
TEFAP, which is a very important program, has a budget of $140 
million, and by these actions that we took as an initiative, we 
are putting more than $100 million into TEFAP. Again, it is a 
$140 million budget. We are taking our commodity, a bulk 
commodity, and converting it into a food that a needy American 
can utilize for their families. And we have a lot of families 
in need in this country. We saw some of the points that you 
outlined in your comments, and we took an action to address 
those concerns and those needs both here domestically and 
internationally, as you pointed out about a lot of countries 
that are on the verge of very serious problems. And this is an 
attempt by the Department of Agriculture to address all of 
these humanitarian needs. We are obviously, as you can tell, 
very pleased with this program.
    Mr. Hinchey. Yeah. Well, thanks very much. We have some 
votes on now, and I think maybe we will try to keep this open, 
if you don't mind staying with us for a little while.
    Mr. Keenum. Absolutely.
    Mr. Hinchey. Appreciate it.
    Mr. Keenum. Yes, sir.
    Mr. Hinchey. I think these issues that you have been 
talking about, I think, are very critical, and they are 
critical not just domestically, but they are critical 
internationally. And the set of circumstances that are 
prevailing around the world and growing are increasingly 
dangerous.
    Mr. Keenum. I agree.
    Mr. Hinchey. And thanks. Thank you very much.
    Mr. Keenum. Thank you, Congressman.
    [Recess.]

                          FARM BILL CONFERENCE

    Ms. DeLauro [presiding]. Again, my apologies. I will report 
that there was the opening session of the conference, House and 
Senate. It is the largest conference I think I have ever seen. 
It is in the Russell Building, 345. So there was opening 
statements, and the House made its formal proposal to the 
Senate. The Senate is taking a look at that. And then obviously 
there will be the deliberations amongst the finance people, Mr. 
Rangel, Mr. Baucus, Mr. McCrery. And actually, the leadership 
of the conference laid out its positions, and there isn't 
anything different than any of us in this room know about. So 
that is where we are, and we are recessed subject to the call 
of the Chair. There we are.

                     FARM BILL IMPLEMENTATION COSTS

    Let us get back under way. Thank you again for your 
patience here. Let me just--this goes actually to the farm bill 
again. In order to implement--the budget request or the farm 
bill proposal doesn't include funds to implement the 2008 farm 
bill. And the testimony says, Secretary, then I quote, we will 
evaluate the necessary administrative resource requirements and 
work with the appropriate authorizing committees to implement 
the new and reauthorized programs and policies once the 
specific provisions and operational requirements have been 
determined.
    I am trying to get a sense here of how you would expect to 
know what funding is necessary to fix your IT problems and to 
implement the new farm bill. When you put together your farm 
bill proposals, why did you not include an estimate at that 
time of what administrative expenses would be necessary to 
implement your own proposal? And when do you plan to work with 
the appropriate authorizing committees after the farm bill has 
passed? It seems a little late in that context of doing that.
    And then again, this isn't the first agency or agencies 
that I have asked this question. You know, you never get 
everything you want out of a conference. It always winds up 
being less than you anticipated. And again, our hope is that we 
will have a farm bill in the next week or so. So, you know, did 
you include an estimate at the time of your administrative 
expenses and what it was going to take to implement your own 
proposals? And what is the status of your working and your 
continued work with the authorizing committees? Where are we?
    Mr. Keenum. Yes, ma'am. To my knowledge, we did not submit 
an implementation budget proposal when we submitted our farm 
bill policy ideas to the Congress, but we have subsequently--
since presenting our policy ideas to the Congress, we have 
followed up with the leadership of both committees and their 
pertinent staff to inform them of what we would need to 
implement the farm bill. And what we did was we waited until 
the House actually passed their farm bill, and we had a chance 
to evaluate the bill. And our estimates on implementing the 
House-passed farm bill would be roughly $217 million. We have 
since evaluated the Senate bill. And just the Senate bill 
itself, without a disaster component, our staff has informed me 
and we have informed the committees that it would cost $320 
million to implement the Senate farm bill. And if you have the 
disaster provision that was in the original Senate bill, the 
total cost would be about $360 million.
    Now, when we put that in perspective, when the 2002 farm 
bill was enacted, the authorizers provided $50 million to the 
Department to implement the farm bill. We wound up spending 
about $157 million to implement it. But the appropriators came 
back in fiscal year 2003 and provided the Department with 
another $60 million. So all told in the 2002 farm bill, the 
Department received from the Congress $110 million for 
implementation. But an actual----
    Ms. DeLauro. It is hard to get the money if you don't 
request it. You know, I mean, I just think that----
    Mr. Keenum. But we are requesting it, Madam Chair.
    Ms. DeLauro. Then you didn't put anything----
    Mr. Keenum. We have given it to the authorizing committee 
members and their staff, and we have made it very clear what 
our needs are.
    Ms. DeLauro. Okay. We will have to figure it out. As far as 
I know, we do not have copies of what your--what you listed and 
what they are, et cetera. So actually that----
    Mr. Keenum. Madam Chair, I think it would be very 
appropriate for us to provide that information to you, 
absolutely.

                  NATIONAL AGRICULTURE IMAGERY PROGRAM

    Ms. DeLauro. Let me ask a quick question about the NAIP. I 
have got other questions, but we will go back and forth here 
for a while.
    Let me just say, fiscal year 2007 FSA did not spend the $24 
million for NAIP even though under the continuing resolution 
terms and conditions of the 2000 conference report were 
applicable in 2007, not the National Agriculture Imagery 
Program. Some of those funds were redirected to pay for the 
stabilization of the farm program delivery systems. Fiscal year 
2008 House report also contained language; $24 million was 
provided for NAIP, and this language was not contradicted in 
the conference report.
    How much did you spend on NAIP in fiscal year 2007? How 
much do you plan to spend in 2008? And what amount is assumed 
in the fiscal year 2009 budget request? And the other piece is, 
are you redirecting the funds in 2008 from NAIP to stabilize 
the farm program delivery system?
    Mr. Keenum. Madam Chair, in 2007, the FSA provided $6.3 
million to NAIP. As you recall, last year when we were facing a 
lot of challenges with our IT system, we had to come up with 
some additional funds to make sure that our computers at the 
time did not completely collapse, and we had to make a very 
difficult decision to redirect moneys. And the only moneys, 
working with our budget office, that we could identify that we 
could fill those needs for our IT systems was out of the NAIP 
funds. That was a decision we made internally to fulfill our IT 
commitments.
    For fiscal year 2008, we are projected to spend $10.1 
million. And we have partners with us that will contribute 
another $2.4 million, and we are negotiating another $1.5 
million from a partnership.
    Ms. DeLauro. When you talk about partners, who are these 
partners?
    Mr. Keenum. Partners are the ones on the ground who are 
actually implementing the NAIP program. The State of Missouri, 
for example.
    Ms. Lasseter. Geological Survey, State government, the 
Forest Service, NRCS.
    Mr. Keenum. So we are expecting this year to spend roughly 
around $14 million on NAIP. And the 2009 budget has $10.1 
million in the budget request for NAIP.
    Ms. DeLauro. So are you redirecting the funds in 2008 from 
NAIP to stabilize the farm program delivery system? Are you 
going to take any money from that program again to do----
    Mr. Keenum. No, ma'am. That is not what our intentions are 
this time, no.
    Ms. DeLauro. Well, what I need to do is to see--because it 
was $24 million. You used $6 million in 2007. You used the 
balance of that for the IT system?
    Mr. Keenum. Yes, ma'am.
    Ms. DeLauro. But you used the $24 million; 6 of it was for 
the NAIP program. Is that right?
    Ms. Lasseter. Well, we used the $20 million----
    Ms. DeLauro. Twenty-four.
    Ms. Lasseter. Okay. But that was not all of our money that 
we had, that we were going to use for NAIP. So we still used 
the 2007; it was $6.3 FSA contributed or spent on NAIP. And my 
records show $4 million from our partners. So it was a total of 
$10 million in 2007.
    Now, in the 2008 budget, there is the earmark. But the 
President's Budget, as I understand, did not have that much for 
NAIP.
    Ms. DeLauro. Can somebody get to me what we did here on the 
numbers with the NAIP program, 2007, 2008? We have got a 
request for 2009 for $10.1. I mean, we had 24. How much went to 
the IT program? There has got to be some accounting here 
someplace.
    Ms. Lasseter. Can we give you that?
    Ms. DeLauro. Sure. In a timely way. I don't want to wait. I 
really do want to find out.
    Mr. Keenum. Sure.
    [The information follows:]

           

    
    Ms. DeLauro. If you bear with us again? And I promise you 
if we cannot finish up today, I am committed to try to finish 
up by 1:00, and we will have to ask you to come back. But if 
you just bear with me for a few minutes.
    [Recess.] 
    Ms. DeLauro. Ladies and gentlemen, let me just tell you 
what I have concluded is that we are going to reschedule. And 
there are a number of questions that I have. I think other 
Members do as well. And it actually may in the long run serve 
us well because many of the committees are finishing up today 
with what they are doing. And there are some areas that we 
didn't get an opportunity to cover that I know are important 
areas. I know some of the food aid efforts have been covered, 
from, you know, my point of view. It is about, you know, again 
FSA and NCRS working together, and some other areas which I 
think merit a conversation with folks, and where we are with 
some of the crop efforts, crop insurance, et cetera.
    So I thank you again for your patience and apologize 
because I know your schedules are busy as well. So we will 
reschedule at another time. And the hearing is concluded. Thank 
you very, very much.
    Mr. Keenum. Thank you, Madam Chair.
    Thank you, Congressman.
    Mr. Hinchey. Thank you very much.

           

    
                                         Thursday, July 10, 2007.  

              COMMODITY FUTURES TRADING COMMISSION (CFTC)

                               WITNESSES

WALTER LUKKEN, ACTING CHAIRMAN, CFTC
MARK COOPER, DIRECTOR OF RESEARCH, CONSUMER FEDERATION OF AMERICA
TOM DEVINE, INDEPENDENT CONNECTICUT PETROLEUM ASSOCIATION AND THE NEW 
    ENGLAND FUEL INSTITUTE
MICHAEL GREENBERGER, LAW SCHOOL PROFESSOR AND DIRECTOR, CENTER FOR 
    HEALTH AND HOMELAND SECURITY, UNIVERSITY OF MARYLAND
JOHNATHAN SHORT, SENIOR VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE 
    SECRETARY, INTERCONTINENTAL EXCHANGE, INC.
    Ms. DeLauro. The hearing will come to order. Thank you to 
Ranking Member Kingston and the members of the subcommittee for 
taking part in this important hearing this morning.
    Actually, this is the first oversight hearing on the 
Commodity Futures Trading Commission that this subcommittee has 
held in 9 years.
    I also want to say thank you to today's witnesses for 
sharing their testimony and for answering our questions today.
    We are here to address the concerns of millions of 
Americans, families and farmers who simply feel powerless at 
the gas station and at the grocery store, sensing that 
something more than supply and demand is going on to produce 
breathtakingly high prices.
    The goal of this hearing is to take a hard look at the 
Commodity Futures Trading Commission to examine its mission and 
its funding to determine whether excessive energy speculation 
is driving up energy prices, making it harder for so many 
families just to get by.
    Let me give a brief definition of excessive speculation. It 
occurs when market price for a given commodity no longer 
accurately reflects the forces of supply and demand. This is 
basically the definition of excessive speculation that CFTC is 
charged with policing and preventing under the Commodities 
Exchange Act.
    This is a complex issue, but our responsibility as a 
Congress and a Nation is serious. We are in a crisis, and as 
such, we need to look at every aspect that could potentially 
affect energy prices.
    Of course, we must take into account factors such as a weak 
dollar, strong demand from an emerging economy, geopolitical 
tensions in oil-producing regions and supply disruption. But we 
must also do everything in our power to protect consumers from 
improper market manipulation and excessive energy speculation.
    It has not even been 7 years since Enron filed for 
bankruptcy, the lives of thousands of workers and retirees 
devastated, and the so-called ``smartest guys in the room'' 
shown to have taken advantage of special influence and 
deregulated energy markets.
    Now the American people wonder if it is deja vu all over 
again. Today we will hear from people on the front line, like 
Tom Devine of the New England Fuel Institute, who suggest that 
we can no longer have faith in the power of our energy futures 
markets to provide realistic pricing or manage risk. Instead, 
loopholes and exceptions have grown, and experts point to 
interested parties with special access or information 
improperly speculating on the price of energy without much 
oversight.
    Of course, the American people have seen this movie before, 
and they know how it ends. From the savings and loans, the dot-
com bubble, from the Enron debacle to an ongoing subprime 
mortgage crisis, speculative bubbles emerge. Regulators do 
nothing in the name of letting markets do their magic. The 
bubble bursts, and the consumers and the taxpayers pay the 
bill.
    We go from one financial crisis to another but do not ever 
seem to learn from the lesson.
    Today the consequences are as grave as they have ever been. 
Our most basic needs are at stake, fuel and food. We know that 
soaring gas prices are shattering everyone's budget, killing 
middle class families trying to make ends meet, farmers 
harvesting their crops, truckers battling on our highways.
    To be sure, this Congress is not going to be uncovering 
every intricacy of the marketplace during one hearing, but I do 
believe that the marketplace has a whole host of problems. And 
we have a responsibility to investigate and to respond, to 
bring oversight and enforcement to our market.
    Again, no one wants to see wholesale price controls or the 
elimination of strong market incentives to deal with long-term 
issues of supply and demand. But when one sees prices weaving 
down the road as erratically as they have been, it may make 
sense to give the market a sobriety test. The amplitude of 
these swings does not appear to make sense. Ultimately, the one 
thing we know for sure is that we do not know enough.
    With so much at stake, transparent and efficient trading 
systems are essential, and, yet, we may not have the data to 
make that possible. According to a July 2007 Government 
Accountability Office report, some observers, and I quote, 
believe that higher energy prices were the result of supply and 
demand fundamentals, while all others believe that increased 
futures activity may also have contributed to higher pricing.
    But the effect on energy prices on individual change in 
these markets is unclear. At that time, the average price for a 
gallon of regular self-serve gas was $2.97. Just this Monday, 
with the price of gas now at $4.11 a gallon, the Congressional 
Research Service reported that, and I quote, Very little 
information is available about over-the-counter commodity 
markets, end quote.
    How much longer are we going to wait? So this is where we 
turn to you, the Commodity Futures Trading Commission, the 
agency charged with ensuring that our markets run effectively 
and our consumers are protected.
    According to its mission, the CFTC's primary function is 
to, and I quote, Protect market users and the public from 
fraud, manipulation, and abusive practices related to the sale 
of commodity and financial futures and options, and to foster 
open, competitive and financially sound futures and options 
market, end quote.
    But a regulatory agency cannot do its job without adequate 
resources and staff. The Agriculture Appropriations bill, the 
subcommittee's recommendation included greater resources than 
the President's proposal to help the CFTC make the needed down 
payment and begin recovering from years of underinvestment.
    I also understand the agency has already taken on a series 
of initiatives in order to meet these basic regulatory 
responsibilities: requiring ICE Futures Europe to match the 
current U.S. reporting requirements and to provide daily 
position reports; requiring traders in the energy markets to 
provide monthly reports of their index rating; and three, 
reviewing the trading practices for index traders in the future 
markets to determine the impact of futures trading on the price 
discovery process.
    But, I must wonder if all of this is too little, too late. 
I am glad the CFTC is moving aggressively to investigate the 
issue of swaps. But when the agency promises to present its 
report to Congress by September 15 of this year, it begs the 
question, how high will the price of oil have climbed at that 
point?
    We have more to do to ensure excessive speculation is not 
distorting energy prices. Since 2000, the Commodity Futures 
Modernization Act placed large segments of the commodities 
future market outside the CFTC jurisdiction and allowed for 
virtually unregulated over-the-counter and electronic trading 
of many commodities.
    We must bring transparency to the over-the-counter markets 
and foreign boards of trade, which today remain so obscure, and 
fully close the so-controlled Enron loophole. For too long, the 
CFTC has acted only when pushed hard by Congress. Another 
example, like the FDA, OSHA and the Consumer Product Safety 
Commission, of this administration's failure to meet its 
regulatory responsibilities.
    Ultimately, this is part of something bigger, and our 
response must be bigger as well. The U.S. dollar is threatened, 
and people do not have confidence in the U.S. economy. 
Speculators are landing in commodities because they see few 
other places to go, and we are paying the price for neglecting 
our economic fortunes at home for 8 long years.
    Getting back on track will require broad and wholesale 
change, and the American people agree that we cannot afford to 
do anything less, and we can begin immediately and empower the 
CFTC to do its regulatory job.
    With that, let me turn the microphone over to Congressman 
Kingston before we move on to our first witness.

                           OPENING STATEMENT

    Mr. Kingston. I thank the Chairwoman for having this very 
important hearing. I think it is serious. It is something that 
is on the mind of the American people.
    And thank you, Mr. Lukken, for being here today.
    I do have an opening statement.
    The speculation is the target today, as it has been in the 
past, with plenty of history to support the philosophy. There 
have been a number of times that speculation has resulted in 
manipulation and collapse followed. We need to look no further 
than in the 1970s, when the Hunt brothers cornered the market 
on silver.
    The point here is not that speculation in itself is bad. It 
is that speculation is bad when speculators illegally 
manipulate the prices. And this is the question with the Hunt 
brothers. They were able to hoard silver physically in 
warehouses.
    Is someone doing that with oil? Is that possible to do it 
with oil? Does somebody have tanks and tanks that they are 
sitting on in the manner that the Hunt brothers were sitting on 
silver? I would like to know that.
    I am for finding out if a few speculators have bonded 
together in collusion to manipulate the price and impose great 
harm on our consumers. So far I have heard about pension plans 
administered by unions and State and city government; Fairfax 
County, Virginia, being an example. I understand that they have 
done well by buying some of these future contracts. I don't 
know that they were colluding with each other. It would be 
interesting to know if they were colluding with each other. 
Maybe some of the witnesses today could enlighten us on that.
    I am opposed to attacking perfectly legal and essential 
speculation, including buying and selling of future contracts. 
Future contracts are essential ways that hedge risk and ensure 
the availability of a commodity at set price. They are bought 
and sold for people that actually have a stake, such as oil 
producers and the airlines.
    I want to read from an article about onions in Fortune 
Magazine that was just published this June 30th by Jon Birger, 
that he points out that onions do not have future contracts on 
it. And I am just going to a quote part of that, and it says: 
With no traders to blame, the volatility in onion prices makes 
the swings in oil and corn look tame. It diminishes the belief 
that future trading diminishes price swings.
    Listen to this: 2006, since 2006, oil prices have risen 100 
percent; corn is up 300 percent. You can buy futures on those. 
But onions went up 400 percent, and you can't buy futures on 
onions. And that was just since October of 2006 and April of 
2007 when weather reduced the crops, according to the USDA. 
Then they crashed by 96 percent in March of 2008 because of 
overproduction and then rebounded this past April 300 percent.
    So, speculation can stabilize prices, and that is why there 
are future contracts. Onions don't have it. Corn does, but both 
of them swing a lot. Onions, though, probably more than them.
    The future of market is about the future, months and years 
down the road. It is not about the spot price of today or 
tomorrow. Speculators are on the movement of price, either it 
goes up or down, and they do not have any interest in buying or 
selling quantities of oil or narrowly--if they do, I want to 
know that again. They own barrels only on paper, as I 
understand it.
    Whatever the outcome of speculators, speculators have no 
impact on the price of spot oil, as I understand it. That oil 
is set by those who have the oil physically and sell it only to 
people who actually use the oil. Importantly, speculators lose 
money if they bet the wrong way, so absent any physical control 
over oil, they do not have an incentive to move the price of 
oil upward.
    The only way that speculators can influence the price of 
oil is to directly turn their papers into real barrels, take 
the oil off the market entirely, for example, and try to force 
prices to rise like the Hunt brothers did when they started 
hoarding silver. This is what I understand, and I may be wrong 
in that, but I would like to know more about it.
    So as we move forward to ferret out the bad guys, we also 
should look to see if there are any other reasons for the rise 
in price. It is hard to imagine, but perhaps the demand for oil 
has risen 9 million barrels per day, and the supply has not 
kept up; that maybe we have a supply and demand issue here.
    More importantly, and I will say this, interestingly, I was 
in Saudi Arabia with Chairman Nick Rahall of the Natural 
Resources Committee, and we asked the folks over in the Middle 
East about the prices. And their reply to us, one of the oil 
ministers said, How dare you come to the Middle East to whine 
about oil prices when you won't drill and you won't build 
refineries?
    And having traveled all the way to the Middle East, it is 
true; why should we blame our oil prices on somebody else? We 
are unwilling to drill, unwilling to build refineries, 
unwilling to use our own resources.
    People need to remember that the number one producer for 
American oil is America, and then Canada and then Mexico. It is 
not Saudi Arabia and Venezuela and all the bad guys. They are 
on the list, but they are further down than we think. We need 
to look at long-term supply and long-term production since it 
is clear that the price of oil today is based not only on the 
supplies of today but what expectations there are for future 
supplies. We need to move immediately to increase in supplies 
in America.
    We can take a big step forward in doing this by restarting 
the appropriations process. Recently we had a motion to bring 
up the Interior Appropriations bill, which would have given 
Members an opportunity simply to vote on offshore drilling. 
That is something that I think we should be doing. We may be 
ending this session of Congress, going into an August recess, 
without moving one Appropriation bill on the floor because of 
the fear of the Speaker that we could bring up offshore 
drilling.
    I feel strongly that that should be debated vigorously in 
Congress, but it needs to be on the House floor, not just 
something that we talk about in talk shows.
    The price of oil is also, though, because of the weak 
dollar. There is also evidence to show that the rise in prices 
in the U.S. has been greater and faster than other countries 
with healthier currencies, the dollar to the euro, for example. 
This is a big factor. The Chairwoman mentioned it. I don't know 
that we have anything that we can talk about today that would 
control that, but it is something that we need to keep in mind.
    We should also look at the fundamental economic issues that 
actually make the difference. If the futures markets were 
sending the correct prices about the future, eliminating 
speculation could actually make matters worse in the market by 
not allowing us to adapt to the future and making markets more 
volatile than they are today.
    With that, Madam Chair, I pass.
    Ms. DeLauro. I thank the ranking member.
    Now we will move to testimony and to our first this 
morning. We are pleased to welcome our first witness. Walter 
Lukken--the acting chair--I thought he had been confirmed 
yesterday, so I am sorry, acting chair of the Commodities 
Futures Trading Commission. Mr. Lukken was appointed as acting 
chair in June 2007 and was first appointed commissioner in 
2002.
    He has testified several times before Congress, represents 
the agency as part of the President's Working Group on 
Financial Markets. He also represents the commission before 
international organizations and forums, serves as the chair of 
the CFTC Energy Market Advisory Committee, which was created by 
the commission in 2008 to address regulatory issues connected 
to the role of the futures market, for discovering prices and 
managing energy price risks.
    Prior to joining the CFTC, Acting Chairman Lukken served 
for 5 years as counsel on the professional staff of the U.S. 
Senate Agriculture Committee under Chairman Richard Lugar, 
specializing in futures and derivatives markets.
    Chairman, please, understand that the full testimony will 
be made part of the record, so you are free to summarize it. 
Thank you.

                           OPENING STATEMENT

    Mr. Lukken. Thank you, Madam Chairwoman and Congressman 
Kingston and other distinguished Members of the Committee. 
Thank you for inviting me to testify on behalf of the CFTC and 
its role in overseeing the futures markets.
    The CFTC's mission, as the Chairwoman mentioned, is 
twofold. First is protecting the public and the market users 
from manipulation, fraud and abusive trading practices; and 
second is promoting open, competitive, and financially sound 
markets for commodity futures and options. These mandates are 
crucial because prices in the futures markets impact the cost 
of a loaf of bread, the price of a gallon of gas and the 
interest rate on a student loan. If the futures markets fail to 
work properly, all consumers will be impacted.
    We are quite aware that prices in these markets have been 
reflecting high, putting a considerable strain on American 
families, farmers and businesses. Although the Commodity 
Exchange Act does not give the agency the ability to set 
prices, our people work extremely hard to ensure that the 
futures markets are working properly, and that prices are 
reflecting economic factors rather than manipulative forces.
    As you know, the futures markets have changed dramatically 
in the last decade. Since 2000, volume on U.S. futures 
exchanges has grown sixfold as traders increasingly seek the 
price certainty and clearing benefits of the regulated futures 
marketplace.
    The growth in the regulated marketplace has been 
scrutinized lately, and appropriately so, as prices in crude 
oil and agricultural commodities have climbed. Specifically, 
concerns have been raised recently regarding the role of 
speculators and index traders in commodity markets.
    Speculation has played a crucial role in the functioning of 
the U.S. futures market since their founding more than 150 
years ago. Without speculators, the futures markets would not 
be able to work properly. Commercial participants cannot hedge 
their activities without someone willing to take the other side 
of that transaction. In the futures markets, this opposite role 
is often taken by speculators.
    The liquidity provided by speculators has tended to lower 
the costs of hedging to the benefit of the commercial 
participants in the markets. Nevertheless, our agency 
recognizes that any participant in the markets with enough 
power, including speculators, can detrimentally affect the 
functioning of the markets.
    Accordingly, our act requires all traders of sufficiently 
large size to report their futures positions daily to the CFTC. 
This information enables our surveillance economists to monitor 
large traders, to ensure that no one is attempting to 
manipulate the futures markets.
    The amount and detail of the trade data collected by the 
CFTC is unique among regulatory agencies, and this system has 
proven very effective in the proper policing of our markets.
    As the futures markets have changed, the CFTC has evolved 
to meet new challenges. In light of the recent developments and 
the impact of high prices on consumers, the CFTC has embarked 
upon a series of steps to ensure greater transparency, 
implement tighter controls and gather more energy market 
information. The commission recently announced an agreement 
with the U.K. Financial Services Authority to expand 
information sharing concerning crude oil contacts on ICE 
Futures Europe and London that is linked to the U.S. NYMEX 
crude oil benchmark.
    The CFTC also has required the imposition of position 
limits and accountability levels on these products that are 
equivalent to U.S. standards. Additionally, we called for 
additional information from swaps dealers regarding their index 
trading and a review of whether additional controls or 
classifications of these traders are needed. And the agency 
also announced the existence of an ongoing 7-month old 
nationwide crude oil investigation.
    More recently, the CFTC formed an interagency working group 
with the Federal Reserve, the Department of the Treasury, the 
SEC, the Department of Energy and other agencies to study 
investor practices, fundamental supply and demand factors and 
the role of speculators and index traders in the commodity 
markets. This group is making significant progress on 
completing a report to Congress, and we hope to provide an 
interim report on the crude oil markets in the coming weeks.
    Regulatory evolution and informed responses to market 
conditions are keys to effective market oversight and these 
challenging global conditions. The CFTC and its regulatory 
approach have evolved along with the futures markets, and the 
agency has pursued its mission while operating at historically 
low staffing levels.
    Over the last year, the CFTC worked with Congress to 
legislatively close the so-called ``Enron loophole'' as part of 
the Farm Bill that provides the agency with the data and the 
authority to oversee these electronic energy markets.
    This is clearly a busy and challenging time for the CFTC, 
and I believe the agency has risen to the occasion, but we 
simply cannot sustain the current work load, let alone what is 
likely in the future, without some budgetary limitations being 
changed.
    I am appreciative of this Subcommittee approving an 
appropriation of $135 million for the CFTC in fiscal year 2009. 
This is a strong step during these tight budgetary times.
    With the passage of new authorities over exempt markets and 
additional responsibilities currently being considered for the 
agency, the Senate Appropriations Subcommittee yesterday 
approved a mark of $157 million to meet these growing oversight 
needs.
    I look forward to working with this Committee and Congress 
to ensure the proper functioning of these important markets, 
and I appreciate being asked to come here today, and I 
certainly want to answer any questions that you may have.
    Thank you very much.
    [The statement of Mr. Lukken follows:]

           

    
    Ms. DeLauro. Thank you.
    What I am going to do with the questioning, because we have 
a full subcommittee here today, is hold myself and others to 
the 5-minute rule so we can have an opportunity to get in 
several rounds of questioning, and everybody gets an 
opportunity to raise questions, and you have an opportunity to 
respond.

                                 BUDGET

    Let me, first of all, let me just review a bit of budget 
history quickly. During this administration through the House 
mark 2009, Congress has provided 98.6 percent of the funding 
requested by the President. In and of itself, this is fairly 
remarkable because we have had a tight budget every year, and 
there are many priorities; more remarkable when you consider 
that this includes providing discretionary funding in 2007, 
when the President's budget proposed to fund the agency 
entirely through user fees. Since the fees were not enacted, we 
had to come up with the funds ourselves.
    The funds you received last year were nearly 14 percent 
higher than your 2007 level, and the 2009 request as submitted 
by the President is another 14 percent over that. You have told 
the Senate that you need more for 2009, and, yesterday, in 
their mark, they talked about $157 million this year. This was 
about a 29 percent increase over 2008.
    However, we have not received, this subcommittee has not 
received any kind of an official request for this, despite your 
having testified before the Senate asking for the increase.
    I have two questions with regard to this. Also, why now? 
Why is the CFTC coming to us in this last year of the 
administration seeking such a massive increase in 1 year? What 
is the sudden urgency that demands a 29 percent increase in 
your budget? You claimed that flat funding, you know, over the 
years, has resulted in an erosion in the staffing. You say the 
workforce shrunk by 4 positions, over 16 percent of the 
commission's workforce, in 2002 and 2007.
    The flat budget requests, they have apparently, they have 
resulted in erosion in your staff. Why have you not come 
forward earlier in coming to us? And you haven't come to us yet 
to ask us for the funding. The administration has not come to 
us asking for additional funding.
    This committee has no official request for additional funds 
for the CFTC.
    Mr. Lukken. Well, the CFTC, under its law, submits its 
request to the OMB for funding. This year, we submitted a 
request for $151 million, which we did, and under our law, we 
are also required to share that with our Appropriations staff, 
so we did share the $151 million request with this subcommittee 
last fall.
    And in addition to that, in the meantime, the farm bill was 
passed, and we shared with these committees that we need an 
additional $6 million as part of implementing the farm bill, 
which gets us to our $157 million request. OMB did come back 
with a $130 million mark and provided that to this Committee 
and to the Senate Committee. And that certainly is a good 
increase over last year's mark. But this is the original mark 
that we have shared with this committee--of $151 plus the $6 
million for the farm bill, and gets us to the $157 million.
    So we felt that this was something that was shared with 
this Committee, and, certainly, over the last several months, 
with increases in commodity prices and the workload 
exponentially increasing at the agency, we felt it was 
important to, again, reiterate those requests with the Senate 
Appropriations Committee recently.
    Ms. DeLauro. I just might, for the record, note, that with 
regard to the $6 million from the farm bill, we received an e-
mail request, nothing terribly formal, just an e-mail, you 
know, and the issue is, why, why now? All along you have talked 
erosion; it doesn't occur overnight. Where have you been in 
addressing the serious mission that your agency has in letting 
us here know on both sides of the Capitol of the need to be 
able to address these issues? What is moving you and pressing 
you now to do that, and when--what would you deal with in terms 
of cuts? The Senate did $157 million.
    What should we cut in our bill to pay for the additional 
funding that you seek, the FDA, WIC, agricultural research, 
rural, water, sewer programs? What's your view of how we 
address your need?
    Mr. Lukken. Well, again, this is something that we have 
been requesting since several years back. The President's 
budget request was at $127 million in 2007. We received $98 
million that year as part of the CR, so we have that gap of $30 
million----
    Ms. DeLauro. As I understand that, that was going to be 
funded totally by user fees; so that was the user fee number, I 
have just been informed.
    Mr. Lukken. Correct, but there was a request for needs for 
the agency, and we supported those needs for the agency of $127 
million.
    Again, this last year, we asked for $151 million, and then, 
in the meantime, we had the farm bill passed with additional 
authorities.
    So those have been our requests over the years. We have 
been asking for more money, but we certainly appreciate this 
subcommittee making a strong step in getting us these 
additional funds in tight budgetary times.
    Ms. DeLauro. Mr. Kingston.
    Mr. Kingston. Thank you, Madam Chairman.
    Mr. Lukken, you are a smart guy. You graduated from 
business school with honors. You have a law degree. You have 
worked for the Senate Ag Committee, and you have been serving 
in this capacity since 2002.

                              PRICE OF OIL

    So based on what you know, do you believe that the price of 
oil is being set fairly on the market, supply and demand, or do 
you believe that there is illegal activity or just plain old 
price manipulation going on? Some say that speculators have 
added between $15 and $70 to a barrel of oil. To what extent do 
you believe this occurred? Is it true, or is it not true?
    Mr. Lukken. Well, the CFTC looks at this in two ways. First 
we look at the data we receive from our market participants, 
and you talked about this earlier in your opening statement. We 
are trying to see if people are colluding together to illegally 
manipulate the markets, and we do see that on occasion. We have 
brought cases against Amaranth, and the Hunt brothers, as you 
mentioned, in the past where they have tried to corner and 
squeeze the market by holding on and hoarding supply.
    So that is what our mission is, to prevent that from 
occurring. We don't see systematically, in the current 
environment, people trying to drive up prices, working all 
together. I don't think that has been the allegation of 
anybody.
    I think the concern is whether somehow new money coming in 
from the financial markets has somehow created an asset bubble. 
But we certainly have not seen it being manipulation.
    We work closely with our sister agencies, like the 
Department of Energy, to look at the data that they have. Just 
Tuesday they came out with a report showing that the markets 
are very tight, that production over the last 3 years has been 
flat. There is basically no spare capacity, 1.2 billion or 
million barrels a day. That is all held by Saudi Arabia in very 
sour crude. A lot of it is stuff that is not useful for our 
refineries.
    At the same time, we have non-OECD, China, India, growing 
at 1.3 million barrels a day, even though there has been some 
decline in the developing world. We see about 660,000 or 
760,000 barrels less a day from the developing world.
    But demand is still growing while supplies are flat. So our 
markets are reflecting that, and we feel very comfortable--we 
have not seen market participants driving this, but we do see 
supply and demand causing all of these price changes.
    Mr. Kingston. Are there any suppliers that are hoarding 
inventory, maybe overseas, or any buyers hoarding inventory, 
and would that be possible to hoard inventory? I mean, I can 
see where Saudi Arabia might be able to do that, but they are 
really not, I don't think they are choking off the flow right 
now.
    Mr. Lukken. We do have a nationwide crude oil investigation 
that we look for people who try to hoard oil or for people who 
try to take oil off the markets, so this is something we also 
try to work with the Department of Energy on if we see any 
evidence of hoarding. We haven't seen that to date, but we will 
certainly continue to look whether somebody is doing that, but 
we have no evidence that people are hoarding oil.

                             OFFSHORE DRILL

    Mr. Kingston. If the President made an executive decision 
to drill for oil offshore, what would happen, in your opinion, 
to the price of oil immediately?
    Mr. Lukken. Well, it is difficult for us to tell, but our 
markets are predictive markets. So they take future decisions 
in mind in determining what the prices may be, so it is not 
just simply a current supply-demand; they look to the future. I 
will give a good example. The carbon markets, we have a carbon 
futures market right now, the Chicago Climate Exchange. The day 
Super Tuesday happened, and the only candidates left were 
Senator Clinton, Senator Obama and Senator McCain, all in favor 
of cap-and-trade carbon market systems, the price of carbon 
shot up, not because there was less carbon or more demand for 
carbon but because they knew it was reflecting future events 
that may happen in those markets. It shot up from $2.50 to near 
$7 for a unit.
    So these markets are reflecting future events, and 
certainly drilling would be a part of that.
    Mr. Kingston. But if I am hearing you right, speculators 
drove up the price of carbon, and that would be just betting on 
the come.
    Mr. Lukken. Well, there are commercials in those markets, 
too, just like the futures markets. There are people who are 
hedging, and there are commercial businesses.

                            PRICE OF CARBON

    Mr. Kingston. Perfectly legal, and it is not out of 
control. It is not a run-away train. What is the price of 
carbon now? Has it come back down----
    Mr. Lukken. I think it has come off slightly, but we can 
check for you where the price of carbon currently is.
    Mr. Kingston. All right, I have got about 10 seconds, I 
think, but your energy group, the Energy Markets Advisory 
Committee, did you guys get behind the ball on that? Should you 
have been doing that 5 years ago? I think you just started 
that; it was created in February.
    Mr. Lukken. Well, it is something that came out of our 
recommendations. We held a hearing in September to talk to 
industry groups about energy markets, and that was a 
recommendation of Congress that we would form that, so that 
developed as a result of that. But that shouldn't mean that, I 
don't want anybody to misunderstand that we haven't been on top 
of energy issues. We talk about this every week in our 
surveillance meetings. We have other advisory committees that 
deal with energy and have in the past, but we felt this was so 
important that we needed to distinguish and have a separate 
group in looking at these issues.
    Mr. Kingston. Well, thank you, I am out of time.
    Ms. DeLauro. Mr. Hinchey.
    Mr. Hinchey. Thank you very much, Madam Chairman.
    Mr. Chairman, it is nice to have you here.
    There is a lot of speculation about the amount of the price 
of energy that has been driven up by conspiratorial speculation 
out in the market, and if I am correct, I have heard you say 
that that isn't really a significant part of the issue here, 
that that kind of speculation isn't having much of an effect.
    Mr. Lukken. Well, we are certainly looking to see if it is.
    Mr. Hinchey. I know you are, and you have mentioned a 
couple of things way in the past, but you haven't mentioned 
anything recently, so I am assuming that you are not doing 
anything recently to look into this.
    There are a number of operations called bilateral trades, 
foreign boards of trade, swaps loophole, the bona fide hedging 
exemption. All of those are involved in these kinds of 
speculation.

                            BILATERAL TRADES

    For example, the bilateral trades, they are made between 
two individuals and are not negotiating on a trading market, 
and have no oversight. Foreign boards of trade, the petroleum 
contracts offered on the Intercontinental Exchange. This is the 
largest dark market, and they are cleared by a farm board of 
trade in London, completely in the dark.
    You have got bona fide hedging exemption, an exemption that 
allows businesses to hedge their legitimate anticipated 
business need.
    So the fact is, you have got a number of transactions 
involving oil futures. For example, on the New York Mercantile 
Exchange, which is the biggest market for oil, and almost 
triple since 2004, and the price of oil has tripled over the 
same period. I am sure that is just not a coincidence. There is 
a direct relationship to the way in which this financial 
operation is being manipulated and the way in which the price 
of oil is being driven up.
    Let me give you a couple of examples. There is the director 
of the Public Citizens' Energy Program on May 7th of this year, 
just a short time ago, he estimated roughly $0.70 of the price 
of a gallon of gasoline is the direct result of investor 
speculation on the unregulated market. Well, you might 
anticipate that the director of Public Citizens' Energy 
Programs might say something like that, but he is backed up by 
the IMF. The IMF has said, meaning, speculation has played a 
significant role in driving up the price of energy. Producers, 
in particular, argue that fundamental would yield an oil price 
of about $80 a barrel. Now, this is dated March 14, just a few 
months ago, yield an oil price of about $80 a barrel with the 
rest being of speculative activity.
    In summary, in this IMF report, which came out on May 14th, 
it appears that speculation has played a significant role in 
the run-up in oil prices as the U.S. dollar has weakened and 
investors have looked for a hedge in oil futures.
    So, it is very clear, when this is being looked at 
objectively and openly, a lot of this big price increase in oil 
is driven by speculation. So why aren't you driving into this 
to tell us who these speculators are and what the effect is as 
it is being done?
    Mr. Lukken. Well, certainly we have been looking at this 
since I became the chairman a year ago, first starting with 
exempt commercial markets, and you mentioned bilateral 
transaction, swap contracts. This is something that concerned 
us, whether these transactions were actually price discovering 
or whether they were influencing the price of natural gas, in 
particular.
    So we held a hearing last September, and Congress held 
hearings about this, and we made recommendations to Congress to 
close this loophole.

                             ENRON LOOPHOLE

    Mr. Hinchey. Close the loophole that you made a 
recommendation on?
    Mr. Lukken. This is the so-called ``Enron loophole.'' So 
this is ensuring that these types of swap, energy swap 
transactions, when they start to influence prices, that is when 
we will put certain regulations on them, reporting 
requirements.
    Mr. Hinchey. So then you are agreeing that there is 
speculation, that there is this kind of conspiratorial 
speculation out there, and that is helping to drive up these 
prices significantly?
    Mr. Lukken. Well, I am saying that we are addressing 
concerns there were with certain markets. You mentioned foreign 
boards of trade.
    Mr. Hinchey. But how are you addressing them? You are not 
addressing them in any real way. You said you held a hearing, 
and you said the Enron problem should be addressed, that is 
being addressed by this Congress, this House of Representatives 
has been addressing it very aggressively.
    But the fact is that we need your operation to be much 
clearer about this, and the investigations that you are capable 
of carrying off, with the huge amount of money that you are 
being given, should be informing this Congress how much 
speculation is driving up the price of oil.
    Mr. Lukken. And we provided legislative language to our 
authorizing committees to close the ``Enron loophole'', and 
they did, as part of the farm bill. And we are also asking for 
additional information about swaps, you mentioned. We have 
asked for additional information for foreign boards of trade. 
We have imposed position limits on those foreign boards of 
trade. We have been taking action on all the issues that you 
have raised.
    Mr. Hinchey. Well, my time is up, but I don't see any 
result of your allegation of taking action. There hasn't been 
any assertion. In fact, you have denied that there is any 
impact on speculation driving up the price. Now I know that you 
are driven by the administration, because the administration 
doesn't want to admit that the speculation is driving up the 
price either.
    So I know that your statements today are directly 
influenced by the administration, but there is a direct 
inconsistency between that and what you are just trying to tell 
us and make us believe.
    Ms. DeLauro. There is a significant difference of opinion 
as to whether or not the Enron loophole has been closed, so we 
will get to that.
    Mr. Alexander.
    Mr. Alexander. Thank you, Madam Chairman.

                             COTTON MARKET

    I wanted to talk just a little bit about cotton. Of course, 
oil is important to the State of Louisiana, but back in the 
early part of the year, there was some disturbances on the 
cotton market. So my question is, is CFTC conducting a thorough 
investigation of the events in the cotton market in early 
March?
    Mr. Lukken. We disclosed in, I guess it was in early June, 
that we have an open investigation of that price run-up in 
March, an enforcement investigation.
    Mr. Alexander. So would you be issuing some kind of report 
to us at some point?
    Mr. Lukken. At some point, if we find criminal activity, we 
will make charges in that area. And if we don't, we may, we 
have the option of providing a report of what actually happened 
during that price run-up, just as we did when natural gas 
spiked a few years back. So we will certainly keep Congress 
informed of that situation.
    Mr. Alexander. Do you think there will be a recommendation 
of any legislative action that needs to be taken?
    Mr. Lukken. Well, I can't get into the details of the 
enforcement action, but one of the concerns, I think, at the 
time was what the influence of index trading may have been 
during that run-up. And so we are certainly looking across the 
board at the role of index traders at all commodities, so that 
would influence the cotton situation, what our recommendations 
will be there. But we will certainly keep you informed as far 
as the enforcement investigation as well.
    Mr. Alexander. Is there any evidence that traditional 
hedgers are returning to the futures market?
    Mr. Lukken. We have seen, of late, commercials, yes, during 
price run-ups because they need to hedge their risk. It depends 
on the markets, but certainly we have seen commercials 
returning to the markets in order to hedge their risk.
    Mr. Alexander. Okay.
    That is all.
    Ms. DeLauro. Mr. Bishop.
    Mr. Bishop. Thank you very much.
    Following up on Mr. Alexander's questions regarding the 
cotton industry. There remains concern about the volatility in 
the market and the disconnection between cash and futures 
markets. For example, in the past few weeks, December futures 
have fallen from a low of $0.80 range to a low of $0.70 range 
with no significant change in the market fundamentals. Have you 
or your staff any insight about the reasons for the continued 
volatility and the lack of convergence between the cash and the 
futures markets?
    Mr. Lukken. Well, we closely, we have economists that 
follow that in the cotton markets. I can't tell you 
specifically what caused that fall, but we can certainly have 
our economists follow up with you on the economics, the 
specifics of what is happening there.
    I do know that the New York Board of Trade, ICE Futures 
U.S., the trades, cotton, recently took some action to try to 
stabilize how they set margins in that area. I believe that 
they are no longer going to set it against the synthetic 
futures price, which is something I think the cotton merchants 
were supportive of, and so I think they are taking steps to 
ensure that the clearing house is protected through the use of 
margins but that there is also certainty of how margin is set.
    And so this is something we have been working with the 
merchants and the Exchange to try to promote.
    Mr. Bishop. Thank you.
    One of my primary interests in today's hearing is to learn 
if there are any substantive ideas on potential solutions to 
the challenges that we face as a result of the out-of-control 
commodity market.

                REGULATION OF SECURITIES AND COMMODITIES

    As you know, in March, Secretary of the Treasury Paulson 
proposed a new Federal role and a plan for regulation of the 
securities and commodities.
    His plan will combine the Securities and Exchange 
Commission, which regulates equities and debt markets, with the 
Commodity Futures Trading Commission, the CFTC, which regulates 
exchanges, trading commodities and financial futures. The two 
commissions have very different regulatory approaches, with the 
SEC favoring direct regulation and a rules-based approach and 
the CFTC favoring a principle-based approach that relies 
heavily on self-regulation by the commodities and future 
exchanges.
    Given our experience, that is Congress's experience and our 
government's experience with the Department of Homeland 
Security in measures, our track record is not very good.
    What is your position on this proposal?
    Mr. Lukken. The blueprint that the Treasury Department 
proposed, certainly recognized that there is need for 
additional collaboration between regulatory agencies, both 
domestically and abroad. My worry with the blueprint was that 
somehow our expertise, the role that we provide in what we are 
talking about here today, would be lost in that transition, 
that somehow the commodity markets would not be, wouldn't be 
the top priority of that organization that might come out of 
the unification.
    So we have had a good successful track record over our 
existence to ensure the markets are being protected. And 
certainly we want to make sure that these markets have a front-
line regulator going forward. And that was my concern when that 
proposal came out.
    Mr. Bishop. The CFTC has traditionally delegated much of 
its regulatory oversight to its Designated Self-Regulatory 
Organization, the DSRO, of which the most prominent of the 
National Futures Association are the Chicago Board of Trade and 
the New York Mercantile Exchange. Has this self-regulatory 
process really been effective in working, and should we, given 
what we are facing today, now move to a more direct oversight 
and more direct control with more regulatory examples such as 
the CFTC does?
    Mr. Lukken. Well, we have two layers of regulation. I 
wouldn't say it has been delegated, because there are several 
things that we actually duplicate with the exchanges. For 
example, surveillance of the marketplace, what we are talking 
about today, the exchanges do this on their own, and it is 
because they are the front line of trading. They get to see it, 
they know their participants. They know who is trading, so they 
do this. But we also get the data and do this as well.
    There is duplication there, because this is important to 
ensure that manipulation is not occurring. There are certain 
functions we do delegate to the NFA and to others, including 
registration of traders and certain administrative functions.
    But certain things we want to make sure that we keep to 
ourselves and that there is duplication of effort. I think it 
has been a good balance of ensuring that the exchanges are 
doing the front-line regulating, but we are overseeing them and 
duplicating areas in a certain way.
    Mr. Bishop. Well, you know, we are complaining now that we 
are seeing what is actually happening, and it appears that it 
is not really working.
    Mr. Lukken. But, again, the things that we have delegated, 
like registration, aren't really what we are talking about here 
today. We certainly could register and audit firms more as an 
agency, that doesn't really affect sort of the manipulation and 
the price issues that we are dealing with today.
    That would require more resources, so we would have to come 
talk to this committee about how many additional resources that 
might require. So it is trying to find that balance.
    Mr. Bishop. Thank you.
    My time is up.
    Ms. DeLauro. Ms. Emerson.
    Mrs. Emerson. Thanks, Chairman.
    I appreciate you being here today, Mr. Lukken.
    Thanks, Chairwoman DeLauro, for scheduling this hearing 
today.
    The high energy price that Americans are faced with today 
certainly demands our attention, and I believe that we have got 
to look at every possible cause, every possible solution.
    I think that we may end up finding out, you never know, 
that this is a supply-and-demand issue, and with some 
manipulation, or we don't know. But one thing is clear, that we 
need to have a long-term national energy policy in this 
country.
    But with that being say, I am going to take this first 
round of questions and deal with agriculture, if that is all 
right with you.
    You know, Chairman Lukken, I generally agree with your 
thermometer analogy. However, in regard to the grain markets, I 
would also ask whether that thermometer might be broken.

                            FUTURES MARKETS

    Just as an example that I am sure you are aware of, Toledo, 
Ohio, is the delivery point for the Chicago Board of Trade 
wheat contracts, and under the thermometer analogy, the price 
of wheat in Toledo should, not necessarily perfectly, mirror 
the futures prices on the Chicago Board of Trade at the end of 
the contract month.
    Now, the basis yesterday, the difference for those of us 
who aren't aggies in here, the difference between the price a 
farmer receives at the grain elevator in Toledo and the price 
set for the July contract on the futures market was negative 
$1.20 to $1.30. Now put that pretty simply, the thermometer 
seems to be reflecting the actual temperature.
    So, do you have an explanation for the lack of convergence?
    Mr. Lukken. This is something that the convergence between 
the cash and futures price, which, then, again, is a separate 
issue with sort of what we are talking about, the high prices 
today, but----
    Mrs. Emerson. Well, except for the fact that the prices are 
high on grain, and our basises are inflated.
    Mr. Lukken. Right. It depends on where you are delivering 
the contract. Sometimes we have weak basis sometimes, we have 
strong basis, depending on where you are delivering. But as you 
said, a well-functioning futures market is when the prices 
converge at delivery. And that ensures that people who want to 
hedge can properly hedge in the markets.
    And so this is something we have been trying to figure out 
over the last year of why there has been a divergence and 
convergence on those agricultural products.
    On April 22, we held an agricultural forum in Washington. 
And we brought in people from the University of Illinois that 
have studied this and others to try to figure out, is there 
some way, either in product design or other ways, that we can 
try to address this?
    Commissioner Mike Dunn who heads up our Agricultural 
Advisory Committee, went out to Chicago recently and met with 
the exchanges and others to try to get at the root of what is 
causing this lack of convergence.
    He is also holding a hearing on this at the end of July. So 
I wish there was a simple answer of why the futures and cash 
markets aren't converging as they have prior to 2006. We are 
looking into it. We are trying to figure out if product design 
or load-out fees may have to be exchanged in order to help with 
this proposition.
    Mrs. Emerson. So you would have to admit that there is some 
kind of a problem here, correct?
    Mr. Lukken. With convergence, absolutely.
    Mr. Boyd. Would the gentle lady yield?
    Mrs. Emerson. I certainly will.
    Mr. Boyd. Just to follow up, because it relates to your 
point, in certain parts of the country, are you aware that 
farmers can't even get a cash contract, for instance, in my 
part of the country? And I wanted to ask if you might respond 
to that.
    Mrs. Emerson. Please, go ahead, because that was the case, 
that has been the case in our neck of the woods as well.
    Mr. Lukken. Well, we have been talking with a lot of farm 
groups recently. It sounds like some forward contracting is 
starting to happen again, but part of this was due to the rise 
in margins as a result of high prices, that there was 
uncertainty as a result of not being, having the credit lines 
in place to forward hedge on some of this, of these issues. 
Some of it, again, gets to the convergence issue that, how can 
you lend money when you don't know if this is converged and 
this hedge is going to work or not?
    So we are trying to bring that certainty back to the market 
so that there can be forward contracting. Some of it is coming 
around, is my understanding from talking to farm groups, but we 
are working on that exact issue.
    Mrs. Emerson. You say, you say, Mr. Lukken, that, on July 
29th, when you have this next Agricultural Advisory Committee 
meeting, that Commissioner Dunn will be leading, that you will 
need to continue to develop solutions to this agricultural 
situation.
    And so I am hopeful that the solutions will happen, and we 
are not going to continue to study and study and study.
    Mrs. Emerson. Because I will tell you that my producers, I 
must get 20 calls a day at not only in my district office, but 
here from producers who, number one can't afford contract, or 
it is spotty whether they can depending on where they are. And 
so gathering of information analyses are all great. But we need 
some kind of solutions. And so I'm hopeful that we will be 
getting some, but ultimately, I think that the fact that we're 
having trouble on this end, which is a little bit more 
explainable worries me and doesn't inspire a whole bunch of 
confidence in CFTC's ability to regulate other markets, such as 
energy.
    And so I just I hope that we are going to see some 
conclusions here, and I am out of time, but we will get back to 
this on the next round, thanks, Madam Chair.
    Ms. DeLauro. Mr. Rothman.
    Mr. Rothman. Thank you, Madam Chairman. I would like to 
thank you, Madam Chairman, for holding this very important and 
timely hearing. I think I would like to thank you, Mr. 
Chairman, for being here and subjecting yourself to our 
questions.

                              PRICE OF OIL

    Mr. Chairman, it has been said by people in the 
administration who have testified for the Senate that 
speculation in oil was currently adding as much as 10 percent 
to the price of oil, others who have testified from the private 
sector before the Congress have said that speculation in oil 
could be adding inflating the price to consumers by as much as 
100 percent. What is your view on the amount of speculation 
that oil, that the effect of speculation in terms of the cost 
of gasoline and oil to consumers?
    Mr. Lukken. Well, we have tried to talk to those people 
with their estimates. I think we have called all of them, in 
fact, our economists, to try and figure out if this is based on 
certain models or data that they have and tried to reach out, 
because we want the best information available to understand 
where they are getting their estimates and to date, we have not 
gotten any new information or different information from what 
we currently have as we look at this.
    So we get all the participant data to see what speculators 
are doing, what swap dealers are doing, who are bringing in 
this index trading. We are trying to run analysis on whether 
they are driving prices or following prices. So far, we haven't 
seen evidence that seem to be driving prices. The fundamentals 
seem to explain these price moves. But we are going to start 
getting additional over-the-counter data now from swap dealers 
to see if that is potentially having an influence on prices. So 
we are looking, but to date, we have not seen evidence that 
speculation is broadly driving these prices.
    Mr. Rothman. So it is your view as of today there is no 
speculation driving these prices or distorting the market?
    Mr. Lukken. Distorting the market. You know, speculators 
are a part of our markets and certainly on a day, they take 
positions but it is important to remember too----
    Mr. Rothman. Mr. Chairman, forgive me. I only have 5 
minutes. If I think I got your gist, I will move to to my next 
question. So you disagree with those who have testified before 
the House and Senate who said that the price of oil has been 
raised by these speculators?
    Mr. Lukken. Yes.
    Mr. Rothman. But you continue to look into it?
    Mr. Lukken. Absolutely. It is our job.
    Mr. Rothman. That is also your testimony.
    With regards to, so then the, Mr. Kingston's question about 
the hoarding is not one perhaps then that resonates with you 
because you don't see anything untoward going on out there, 
just normal market fluctuations, is that right?
    Mr. Lukken. Well, we look at to look for evidence of 
hoarding. That would be a key determinant on whether there is a 
speculative bubble occurring. So that is something we are 
looking for. We have an open nationwide crude oil 
investigation, and our economists look for this, and DOE looks 
for this and, so far, though, we haven't seen evidence of 
significant hoarding.
    Mr. Rothman. I did want to point out then, specifically, 
Guy Caruso, the administrator of the energy information 
information testified on March 4, 2008, before the Senate and 
he was the one who had said that 10 percent of the price of oil 
was affected as, increased by speculation, and you specifically 
disagree with that as well?
    Mr. Lukken. Well, Guy is a part of our Energy Market 
Advisory Committee, so we want his input on what is going on in 
the markets. He is also a part of our interagency task force 
that we are conducting with the DOE and other organizations, 
the Fed and the SEC and Treasury, so his input will be a part 
of those reports and those discussions. I am not familiar with 
that statement, but certainly we have not, at the CFTC, found 
evidence that speculation is----
    Mr. Rothman. With regards to the models and other bases 
upon which the individuals who testified that there was a 
significant price effect coming from speculation in oil 
markets, have you found their models or other bases to be 
without merit or are you still analyzing them?
    Mr. Lukken. Well we haven't gotten significant data from a 
lot of these individuals. Most of the reaction is ``this is 
based on 35 years of experience'' or ``this is sort of gut 
feels'' or ``it is that'' sort of evidence that we are getting. 
We haven't, we are still looking through some of the 
organizations, we are still looking through some of their data.
    Mr. Rothman. With regards to a proposal that would allow 
you to say that one couldn't speculate in oil, for example, 
without showing an ability to take delivery, would that be 
something you would be interested in pursuing or do you have an 
opinion on that?
    Mr. Lukken. Well, no one, hardly any of our traders, 99 
percent of our traders never take delivery. Again, they are 
transacting on the expected price of crude oil. They are not 
trading physical oil, so that would significantly limit who 
could participate in our markets. And many of them, commercial 
businesses, that don't necessarily take delivery of these 
products. Recent months, we have had some months where no one 
has taken delivery of crude oil products. So I think it is 
important to remember that these markets are financial paper 
markets, they are not physical crude oil markets.
    Mr. Rothman. Would you be taking a position today to oppose 
that or you just want to point out those elements of for 
consideration?
    Mr. Lukken. I would just say that that would be--
significantly limit the liquidity of the marketplace which 
could potentially harm the price discovery function.
    Mr. Rothman. I understand that, but does that mean you 
would be opposed to it or you just want us to consider----
    Mr. Lukken. Yes, I think that would be problematic. Yes.
    Mr. Rothman. Thank you, Madam Chairman, thank you, Mr. 
Chairman.
    Ms. DeLauro. I think in later conversations what we need to 
do is talk through what the critics see that you don't see with 
regard to speculation, because there is a substantial amount of 
information from the IMF and other very reputable organizations 
who do believe that speculation is playing some role in this 
effort, and it really is quite disturbing that you don't even 
make that commentary in your testimony. You don't address that 
issue at all. And nor do you, and, that potentially begs the 
question as to whether or not you really are looking at that 
issue in a way that others are. Sorry, Mr. Latham.

                        PRICE DISCOVERY PROCESS

    Mr. Latham. Thank you, Madam Chairman, and welcome, Mr. 
Chairman. This is an issue I think that cumulatively Congress 
knows less about than any other issue that I have ever seen 
around here in my 14 years and it is just incredible some of 
the statements that are being made. Can you just give us kind 
of a first grade level, what makes price, is it supply demand 
inflation?
    Mr. Lukken. Well fundamentally, people are trading on 
information, all sorts of information, supply, demand, 
expectations of inflation, value of the dollar, all these 
things come into the price discovery process.
    Mr. Latham. And we all want an open totally transport 
marketplace out there, and I will tell you in my background, 
maybe it is because I grew up in agriculture and had a family 
business where we could not have existed if it were not for the 
ability to hedge because as in the seed business, you buy from 
your growers, and if you haven't sold that to your customer 
already you have to find a way to lay off that risk. And 
without a speculator in the market, I would not be able to 
hedge my risk. Is that normally the case? A true hedge, a 
speculator normally is on the other side of that?
    Mr. Lukken. Absolutely.

                            OIL SPECULATION

    Mr. Latham. Can you tell us in the oil market what side the 
speculators are on today?
    Mr. Lukken. Well, surprisingly they have been almost 
equally long and short. We came out with this data recently 
that they are about 4 percent net long, which means there is 
slightly more longs than there are shorts in the futures 
markets, so there as many that would benefit from the price 
going down, I mean in crude oil as they are with the price 
going up.
    Mr. Latham. And that normally is the case with an open 
transparent market you have people in that and speculators are 
part of making price?
    Mr. Lukken. They make money going up or down.
    Mr. Latham. Right, and also if you are going to hedge as we 
have to in our business, or if an airline has to in their 
business to cover theirs, their costs to know what their costs 
are going to be for the future and work on a margin and not 
speculate on those things you have to have the speculators in 
the market?
    Mr. Lukken. Yes.
    Mr. Latham. If in fact we were to shut out in our U.S. 
market speculators, where would the marketplace go? Would it be 
to unregulated markets like to Dubai and places like that?
    Mr. Lukken. Potentially, there is a vibrant crude oil 
market in London as we have talked about on the foreign boards 
of trade.
    Mr. Latham. Which is not as regulated as ours is.
    Mr. Lukken. Well it is regulated by a different regulator 
but it would be outside of the CFTC's surveillance. We would no 
longer get to see, if the Brent crude oil contract all of a 
sudden became the benchmark and not the WTI contract, we would 
no longer see that as a regulator or it could go to unregulated 
over-the-counter markets or as you mentioned to other 
jurisdictions.
    Mr. Latham. There is a very good article today in the Wall 
Street Journal if anybody in opinion section that talks about 
what we need to do on a bipartisan basis around here to 
actually address the issue that is out there. On the one side, 
certainly and our feeling is that we need to drill, we need to 
go out and explore and get the resources we have here, and also 
on the our side, the other side we need to put a huge new 
investment as far as basic research, as far as trying to find 
alternatives for the future, things like that but we need to 
work together. And one interesting point in here is that in the 
past, any kind of spikes in oil prices, at the pump, whatever, 
obviously affects that, has been a short-term interruption in 
the marketplace where the futures out 3 or 4 years were not 
affected because it was a short-term spike.
    It is today's spot price. What is different today is that 
the futures market out 3 or 4 years is the same as what the 
spot market is today. And could you tell us if, in fact, we 
were to tell the world today that we are going to have energy, 
much more energy supply in this country in 3 or 4 years, what 
would that do to those markets out 3 or 4 years from now as far 
as the futures market, and what affect would that have on the 
spot market today?
    Mr. Lukken. Well, it would likely come down and the futures 
market predict, are predictive in nature, so any sort of 
additional certainty of supply in the future or conservation on 
the demand side would be reflected in those markets. And I 
think what is lost in sort of the debate about the additional 
speculators you mentioned coming into the markets, they are 
also providing longer term the ability of hedgers to go out 
longer term. It used be you could only hedge a year or 2 in the 
futures markets. You can now go beyond 8 years, so we can lock 
in prices as a business far down the road and that is very 
helpful for businesses for planning purposes. So this has been 
useful, this additional liquidity, but it still requires us to 
keep looking into it.
    Mr. Latham. But the point is if we would start today and it 
wasn't going to come on until 5 years from now, it would have 
an affect on price today?
    Mr. Lukken. Absolutely.
    Mr. Latham. Thank you.
    Ms. DeLauro. Mr. Jackson.
    Mr. Farr.
    Mr. Farr. Thank you very much, Madam Chair, I am just 
struck by the fact that, Mr. Lukken, you have created a whole 
new interest in Congress. We have had exchange under our 
jurisdiction for a long time, but I can never remember having a 
hearing that gets as substantively involved in this. And I 
would like to thank the Chair for doing this. It is an 
upgrading of our experience in a rather esoteric field and I 
was just reading a little bit about the history here, the 
number of just the activity in the exchange over the last few 
years. I mean, this is essentially involved with the electronic 
capability of being a global community, and your job is to 
protect the public and the markets' users from manipulation, 
fraud, abuse in practice, at the same time, to promote open 
competitive and financially sound markets for the commodities 
futures options. As I understand it, approximately $5 trillion 
of transactions flow through the U.S. exchanges daily.

                        LONDON LOOPHOLE PROBLEM

    And I don't understand the system much. But how do you--and 
you have ability and there are other markets around, there are 
other exchanges around the world, and you allow those exchanges 
to be, or we allow them to bid on our exchange, what is the 
essentially the London loophole problem? How do you protect the 
public and market users from manipulation, fraud and abuse 
practices that go on in other exchanges? And how do you, I 
think, part of this hoarding you are talking about you are 
looking at whether people are hoarding supply, how do you know 
that that, how do you look at that? How do you understand that 
particularly when these actions can go on in other exchanges 
which we give electronic terminals in the U.S. so people can 
get access to those exchanges?
    Mr. Lukken. In the United States and this dates back about 
since about 1996 the CFTC users in the markets, institutions, 
wanted access, electronic direct electronic access to foreign 
exchanges. These were some of our registrants. They were able 
to get access by picking up the phone or going through foreign 
affiliates, but they wanted to actually put a trading screen in 
the U.S. to allow them access to those foreign exchanges. And 
so the CFTC, since 1996, has allowed these institutions access 
to those markets but they required certain things.
    They required us to do an analysis of the regulatory 
authority to make sure that they were comparable, regulatory 
objectives, and we do that whenever somebody asks for access to 
those markets. But we also then look at the exchange itself to 
make sure that it has the rules in place, the controls in place 
that we normally look for in our exchanges. And once that is 
done, we would allow U.S. participants access to that market.
    Mr. Farr. But there is not a common playing field around 
the globe of information--
    Mr. Lukken. These were normally foreign products, so if I 
was a U.S. institution and I wanted to trade the German bond 
interest rate contract, bond contract, I could trade these 
foreign products by placing a screen in the United States. What 
recently happened in 2006 is that somebody started to list a 
product in direct competition with our crude oil benchmark, and 
they linked it off of our benchmark, and in 2006 we realized--
well that had the ability to influence our price, our 
regulatory authority.
    And so at that time, we held a hearing, we went to the 
Federal Register for comment, and we decided that it was 
necessary to get additional information on the traders in those 
markets, not just U.S. traders but foreign traders as well that 
we normally would not see. And so we started to get that 
information in 2006. Since then, we have decided to improve on 
that information and make it equivalent to the information we 
get for our traders, and that was done in conjunction with 
negotiations with the U.K. Regulatory authority and then 
recently we applied position limits on those participants as 
well.
    So now we have the equivalent position limits and 
information in order to surveil the marketplace so we can 
protect our pricing structure and that is the policy going 
forward for this agency.
    Mr. Farr. How about hoarding?

                                HOARDING

    Mr. Lukken. Hoarding, this is something, hoarding is a cash 
market, we have jurisdiction in the futures markets but our 
manipulation authority allows us to go out and investigate 
hoarding wherever it may be so our manipulation authority goes 
to the cash market, the over-the-counter markets, if people are 
manipulating overseas. We went after Sumitomo overseas a few 
years back for manipulation, so we have ability to police for 
hoarding that leads to manipulation.
    Mr. Farr. Thank you, Madam Chair.
    Ms. DeLauro. Mr. LaHood.
    Mr. LaHood. Mr. Chairman, what do you tell common ordinary 
citizens or simple-minded Members of Congress or your own 
family members, how do you answer the question, why are gas 
prices high? Why are they $4 or more a gallon? What do you tell 
them? What is your answer?
    Mr. Lukken. Well, my Mom calls me up and asks me those 
questions too.
    Mr. LaHood. I wasn't referring to your mother as simple-
minded.
    Mr. Lukken. I know. I know she is the smarter one of the 
family. We look closely like everybody is looking to try and 
find whether it is supply and demand or whether this is market 
participants that are driving this. And so we see production as 
flat around the world. Demand is growing, while production 
remains flat, and that is driving up prices. So again, at the 
same time, we are looking at market participants to ensure no 
one is artificially driving prices up.
    Mr. LaHood. Give me a much simpler answer. I can't believe 
you are telling your mother about all these technical terms. 
What do you, is that really the way you explain it to her?
    Mr. Lukken. We are not, we are consuming more than we are 
producing.

                    EFFECT OF DRILLING ON GAS PRICES

    Mr. LaHood. And your answer to Mr. Latham very 
specifically, if the Congress passed a bill that allowed for 
drilling somewhere in this country, you name the place, we will 
just name a place, and the President signed it, would that send 
a loud message to these speculators and that would that then 
drive down the cost of a gallon of gasoline almost immediately?
    Mr. Lukken. Well, there is--it would be a factor in the 
price discovery process.
    Mr. LaHood. Do you think gasoline would come down if the 
Congress and the President enacted a law like that pretty 
immediately?
    Mr. Lukken. It is hard for me to tell, but certainly those 
signals are helpful to drive down prices.
    Mr. LaHood. So it is quite possible that a gallon of 
gasoline might come down if Congress took that kind of action?
    Mr. Lukken. Quite possible.

                                BIOFUELS

    Mr. LaHood. Do you believe that the enormous influx of 
biofuels, primarily ethanol, has driven up the cost of 
gasoline?
    Mr. Lukken. It certainly had impact on the price of corn 
and other agricultural products. Our economists have looked at 
this.
    Mr. LaHood. I know that. I know that I am not talking about 
the price of food or the price of corn. I am asking you, if you 
think that ethanol has driven up the price of a gallon of 
gasoline because some people have said that.
    Mr. Lukken. I don't think so. Actually it probably had some 
bearish factors on gasoline, in that I think it is helping with 
the supply of fuel. Alternative fuel. Thank you.
    Mr. LaHood. Those are my questions. Thank you. Thank you 
for your answers.
    Ms. DeLauro. I will just make one point. It would take a 
lot of years for that drilling to come on line and refiners are 
not dealing are what they already have and we are sitting on 68 
million acres of land for which there are leases and where 
there hasn't been any drilling today. And maybe that is a piece 
of this hoarding effort in which we are just sitting on it and 
continuing to drive the price and continue to drive price. Is 
that possible?
    Mr. Lukken. Well, all these factors would be a part of the 
price discovery process.
    Ms. DeLauro. Mr. LaHood did a very interesting thing, and 
Mr. Latham said something as well before, it is a very complex 
issue, very complex and a few people who understand it. On the 
other hand, we have agencies that are supposed to understand 
and are supposed to do something about it, and the fact of the 
matter is that the agencies charged with doing something about 
it and understanding it and being able to explain it and bring 
the kind of people together that we need to address the issue 
are not doing the job. Are not doing the job. That is your 
responsibility. And it was those smart guys at Enron who put us 
into the place we are now, with what happened there, and we are 
beginning to look at some very similar situations and as that 
Enron situation was all about. And get behind closed doors.
    Get behind closed doors, figure it out in a matter of 24 
hours. They figured out the Treasury and others that Bear 
Stearns needed to be build out and we took care of that. The 
American public needs to get bailed out. The taxpayers and the 
consumers are on their backs and we sit and do nothing. Your 
agency is not addressing the issue. And for the first time in 9 
years, we have begun to ask some questions. And the fact of the 
matter is we may not have all the right terminology, and be 
able to ask those questions but we better, we are going to ask 
them and we better get some answers and we better get some 
action very, very quickly. Mr. Jackson.

                     STATISTICAL ANALYSIS PERSONNEL

    Mr. Jackson. Thank you, Madam Chair, and I apologize for 
having to step out of the hearing. In the CFTC's division on 
enforcement, Mr. Chairman, how many personnel are designated to 
perform statistical analysis on possible collaboration, and 
other illegal speculative behavior in the energy sector?
    Mr. Lukken. Well, our division of enforcement, I think 
professionals are roughly around 100 individuals. These are all 
litigators, so these are people who are bringing actions to 
court based on manipulation. They utilize, however, our chief 
economists' office for analytical use to ensure that when they 
are trying to prove manipulation that they have the Ph.D 
economists working on these issues, so they have access to the 
six or seven individuals that are doing the economic modeling 
for that type of activity.
    Mr. Jackson. Six or seven individuals are responsible for 
the entire energy sector in the country?
    Mr. Lukken. No. Absolutely not. We have a whole division of 
market oversight and surveillance. Economists are looking at 
these markets daily, these are, all of our economists are 
looking at this, this is just--you referenced the enforcement 
division, the people who are litigating these matters. Once we 
find evidence of manipulation, we will go after that 
aggressively and we use economists to help prove that.
    Mr. Jackson. How much money is provided to the division on 
enforcement for these tasks?
    Mr. Lukken. I don't know specifics of how much goes 
directly, but it is sizeable. These are our largest division 
and they get the largest chunk of our budget.
    Mr. Jackson. I am also concerned that the emergence of 
commodity index funds are making commodity purchases far easier 
for a wide range investors, including hedge funds, investment 
banks, pension funds and university endowments. Many will argue 
that the index funds are contributing to the rapid rise in 
commodity prices and possibly creating a bubble. Mr. Chairman 
do you believe that the increase in trading by pension funds 
are having a negative effect on the price of commodities.
    Mr. Lukken. This is something we are trying to study and 
figure out. We had our energy markets advisory committee 
hearing and we invited several index pension funds to come and 
testify. Calpers came, for instance, and others, they pointed 
out, look, our average person at Calpers is making $42,000 a 
year, 46-year-old individual that is looking for better returns 
on their retirement. And so I think it is important to note 
that although there is concern about how much money is coming 
in, this is benefiting retirees as a result of this. But we 
have asked in late May, we are using our special call 
authorities to get additional information from swap dealers 
that bring this pension money into the markets, we are 
gathering that information that is coming in right now, and we 
are hopeful to get that information to Congress as quickly as 
possible so they can make informed decisions about its impact 
on the markets.

                   FUNDS' IMPACT ON COMMODITY PRICES

    Mr. Jackson. Do you believe the increased trading by the 
funds are having a negative impact on the price of commodities?
    Mr. Lukken. Do you mean that it is driving down prices?
    Mr. Jackson. That is correct.
    Mr. Lukken. We are not sure it is having any impact. In the 
futures markets, there are zero sum games, there are just as 
many longs as shorts, so for every participant that enters, 
there is somebody on the other side of that, and it is 
important to remember too that these never get to delivery the 
index funds. They are always selling before there is physical 
delivery of the product. So we have not seen, in looking at 
these products, people with commodities with high percentages 
of index trading such as live cattle, have had very weak prices 
over the last year. So some with no index trading have had high 
prices over the years. We have no direct correlations that 
index trading is impacting rises, but we are continuing to get 
this data from the swap dealers.
    Mr. Jackson. How about the possibility of increasing the 
price of commodities as a result of the index trading?
    Mr. Lukken. Increasing or decreasing, we haven't seen 
evidence.
    Mr. Jackson. Thank you, Mr. Chairman.
    Ms. DeLauro. Ms. Kaptur.
    Ms. Kaptur. Thank you, Madam Chair. Chairman Lukken, you 
used to work for a man I have great admiration for, Senator 
Lugar of Indiana, who long ago told America that our greatest 
strategic vulnerability was our dependence on imported 
petroleum. I happen to agree with him coming from adjoining 
Ohio. And I love to drive to South Bend and see that big 
smokestack up there, many years ago beginning to process 
ethanol. Everything he has written, everything he said is right 
and we are suffering from not listening to people like Senator 
Lugar and many people on this subcommittee.
    I wanted to read something from the Globe and mail and put 
it in the record for this hearing, an article from June 26th of 
this year basically says the focus of world investment activity 
is rapidly shifting from the established markets of the West to 
the emerging financial markets and I underline financial 
markets, in the Gulf and Far East. And we are all caught in 
this. And the question is whether we can see our way forward 
clearly and help our country and our citizens fast enough. A 
woman from my church came up to me a couple weeks ago after 
services and said, you know, Marcy, our country really doesn't 
belong to us anymore. And let me ask you this for the record. 
Which company, to your knowledge, made the most profits last 
year, which company operating in our marketplace would you 
guess? Do you know?
    Mr. Lukken. I don't know.

                              EXXON MOBIL

    Ms. Kaptur. The answer is Exxon Mobil. Do you know how much 
they made in profits last year?
    Mr. Lukken. I don't.
    Ms. Kaptur. It was $40 billion, the largest profits of any 
corporation in our history. Do you happen to know the largest 
privately held corporation in the world?
    Mr. Lukken. I don't.
    Ms. Kaptur. It is Saudi Aramco in Saudi Arabia. Do you 
happen to know the percent of oil that this country imports 
approximately? Do you know what percent of what we use we 
actually import?
    Mr. Lukken. I don't know those exact figures.
    Ms. Kaptur. It is almost 70 percent now. We are totally 
dependent. Totally dependent, and those petrodollars that we 
spend here are being recycled in the very markets that this 
article talks about. And one of my concerns because you are 
involved in regulation, but powers moving away from this 
country in the financial markets, because we are now the 
victims, we are moving into an economy, we are in an economy in 
this country, where we no longer produce as much as we used to, 
in terms of manufacturing and agricultural, we import we have 
$1 trillion trade deficit this year, and we have become the 
victims of finance capitalism. I agree with a Republican on 
this, a man named Kevin Phillips wrote a great book called 
Borrowed Prosperity. We are living in this era. And what 
concerns me about the agency that you operate is that you are 
being drawn into deals with Dubai and London and God knows 
where else that are causing you to provide exemptions in your 
regulations.
    And I want you to talk to us a little bit about that 
because the standards that we have used to historically to 
manage the economy of this country are being undermined because 
we are no longer carrying our own weight, and we are borrowing 
from the very instrumentalities that do not share our political 
point of view. And for me, this is a fight for freedom and for 
freedom's institutions.
    Now, it is my understanding the CFTC exempted London and 
the Dubai exchanges from certain strict rules that you had 
historically used in your own regulation, and could you please 
outline for us a little bit about that because you know they 
had these words. Now we are going to harmonize our patents with 
Japan. That is crazy. We have the best patents system in the 
world under our Constitution. Now it sounds like we are 
harmonizing our regulatory process with the very places that we 
are literally in competition with and not on the good end of 
the teeter totter here for the moment, could you outline for us 
what kind of exemptions you have provided in your current 
regulation?
    And I want to know what other places other than London and 
Dubai have you provided these exemptions? And finally, what 
other steps are you taking to so-called internationalize your 
regulatory structure? Could you talk to us a little about this, 
please.
    Mr. Lukken. I think it is important to recognize that we 
don't permit the trading of these types of contracts on other 
foreign boards of trade. For example, Hong Kong recently listed 
a WTI contract with no approval or access granted by the CFTC. 
There is another exchange in Dubai that has no access from the 
CFTC, the Dubai commodity and gold exchange, and they are 
listing a WTI contract that is linked to our contract. So they 
are allowed to trade and U.S. participants can access those 
markets through phones or foreign affiliates of theirs. They 
can trade in those markets. What we have done as an agency is 
try to, in granting direct participation in those markets, gain 
our leverage to condition that direct access of our U.S. 
participants on this access.
    And so what we have done since 1996 is we go in and we look 
at the regulatory structure of these foreign jurisdictions. We 
go through to make sure that they are comparable with our 
regulatory structure. We also look at the exchange itself and 
since, and any of these linked contracts we are not harmonizing 
down to them, they are coming up to us, that we are going to 
get the same information that we get from NYMEX on the London 
exchange and the Dubai exchange. Dubai, by the way, is not 
listing a contract yet. And we also require the exact same 
position limits as our markets on those markets as well and so 
those are the issues that we felt so strongly about that we 
required them to abide by our standards.
    So I think it has been helpful to recognize the global 
marketplace. We are not trying to go down to the lowest common 
denominator here; we are trying to make sure that people raise 
up to the proper global standards. That is reinforced, by the 
way, by our membership in the International Organization of 
Securities Commissions with which sets global standards. And 
all these organizations, Dubai and London and others, are 
active members in there that are making sure they are abiding 
by high global standards and we try to encourage that.
    Ms. Kaptur. Madam Chair, I know that my time has expired. I 
did want to place one other statistic on the record. It was the 
year 1998 that the United States began to import over half of 
the petroleum it consumed. The teeter totter began to swing the 
other way. These are very important moments in history we 
should all be aware of because we have to get out of this hole 
together. Thank you.
    Ms. DeLauro. Mr. Boyd.
    Mr. Boyd. Thank you, Madam Chair. And I want to thank you 
also for holding this hearing. This has been an intriguing 
hearing, and obviously from the interest you can tell that it 
is one that we all should know more about. I think, Madam 
Chair, also, I want to thank you for holding it because if it 
helps us understand this very important part of our economy and 
about how commodity producers and commodity end users interact 
with each other and create some sort of stable market, an 
economy, then that is a good thing, and I think there is a lot 
of confusion like Tom Latham said amongst Members of Congress 
about how this indeed works: How a farmer in Ames, Iowa who is 
producing 100 acres of corn and a cattle grower somewhere in 
Nebraska that is going to buy that corn agree ahead of time on 
what the price would be and it gives them great certainty in 
the operation of their business.
    And not only that it goes beyond that what the end producer 
of that cow is at the producer level or at the slaughter level. 
So it is a market that works. It is a market that I know that 
some sitting on this committee have used and understood and 
certainly there is a lot, there is some psychology in that 
market. Would you agree with that.
    Mr. Lukken. Absolutely.
    Mr. Boyd. There is a psychology. And I think one of the 
things that is disturbing, a couple of things disturb me about 
the hearing this morning, and one is there is consistent going 
back to this oil thing and about what drilling may or may not 
do. Now, if there is some action by Congress on drilling, there 
will be a short term psychological effect on the oil market. 
But it won't last long. Once the hedgers figure out that, it is 
going to be 10 years before that has any effect and you know 
what may or may not be found there, it will have very little 
effect. So I don't want us to overstate that. I want to ask, 
because ultimately you would agree, Mr. Lukken, that the 
fundamentals of supply and demand are what sets the market?
    Mr. Lukken. Yes.

                             INDEX TRADING

    Mr. Boyd. Now, I want to ask you one question about your 
business and it hasn't come up much today, but in your 
testimony, you said that the Commission recently announced 
several energy initiatives, including index trading and a 
review of whether additional controls or classifications for 
those traders are needed. Have you completed that study, and if 
so, what did it show? If not, do you think index trading of 
these commodities is a problem that relates to what we have 
been discussing here today?
    Mr. Lukken. Index traders have been a new--there has been a 
new influx of index traders in our markets, and these are 
pension funds and endowments that are looking for long-term 
sort of ``buy and hold'' strategy in the commodity markets. We 
certainly recognize that and that is where we are trying to get 
better information. Most of them don't come directly to the 
futures markets. I think there is confusion about that. Most of 
them go through intermediaries, what we call a swap dealer. And 
a swap dealer such as Goldman Sachs or Morgan Stanley sells 
Calpers a product and says we are going to give you exposure to 
commodities. And they do this with lots of clients. And at end 
of the day, they take all those clients positions, but they 
also work with airlines and railroads and others and they bring 
all of that net risk to the market in the futures markets.
    Right now, swap dealers are flat the market, interestingly 
enough, there are just as many long swap positions as there are 
short swap positions, meaning there is as much pressure that 
the prices will go down as go up in the swaps markets. But we 
are looking at the step beyond that to what the index funds, to 
what the over-the-counter index funds are bringing to the 
marketplace. We are getting that information started this week. 
This is coming in. These are complex books. We are trying to 
unravel all these things and get a better understanding of it. 
But we hope to, as soon as practical, get recommendations to 
Congress on this so we can tell you what is going on.
    Mr. Boyd. If I could, when that Calpers, for example, goes 
to that broker at Goldman Sachs and says he wants to be long in 
the market Goldman Sachs doesn't hold that risk. They go into 
the market and hedge that risk so actually you have a buyer on 
one end and a seller on the other so----
    Mr. Lukken. Exactly. And that is why we treat them as 
hedgers. As you said, they are hedging their price risk. Now we 
are revisiting that. We are looking to see whether that still 
makes sense. This was done in 1991, a determination of the 
Commission at the urging of Congress to do this, but we are 
looking to see are they really a commercial participant like we 
think of a farmer or a grain elevator or United Airlines or 
something along those lines. So that is something we are 
reviewing. But they certainly are exposed to price risk. And if 
we put limitations on that, we don't want to expose them to 
systemic risk as we saw with Bear Stearns. So there is a 
balance there making sure they have access to transparent 
markets.
    Mrs. Emerson. Allen, can you yield to me for a quick 
second?
    Mr. Boyd. Certainly, I yield.

                                 SWAPS

    Mrs. Emerson. Can you kind of explain when you talk about 
swaps, you are throwing out all these terms, I sort of 
understand what you mean by a swap, but perhaps it would be 
helpful to you know more fully explain how Lehman Brothers or 
whomever take all these different orders, if you will, and then 
does a swap with it and kind of explain.
    Ms. DeLauro. Like the subprime market.
    Mrs. Emerson. Let's talk about if you can just, in first 
grade talk, like Ray asked, explain that. If you don't mind, 
Mr. Boyd.
    Mr. Lukken. A swap is just a transaction, a contract, so 
two individuals or entities, institutions sitting down and 
writing a contract based on potential risks. So let's say I am 
Delta Airlines, and that I am going to be consuming fuel for 
the next year and I want to lock in a price and this is how 
much I need. And so I can go to individually tailor to Delta's 
needs, how much risk they want to off-load, how much 
potentially they can even be involved in the physical 
transaction of the commodity.
    So you write these individually tailored contracts for 
these people. At the end of the day, they have a lot of these 
contracts, Goldman Sachs does, and they bring them all together 
and through their risk management, they find out, you know, we 
are subject to this amount of price risk in crude oil, for 
example. And so how do we offlay that price risk at the end of 
the day? Well, they do it by coming to the standardized futures 
markets. So swaps are individually negotiated contracts. 
Futures markets are contracts too, but they are standardized.
    And so you are converting individuals, individualized 
product to a standardized product and offsetting this risk. And 
it is helpful because, you know, Bear Stearns, they weren't 
able to offset the credit default swaps in the futures markets 
and if they had access to a clearinghouse and a transparent 
market that may have been averted. But so that is we don't want 
to cut off access of these institutions to our markets in 
whatever we do here.
    Mr. Latham. Is there a difference in margin, margin 
requirements?
    Ms. DeLauro. Yes.
    Mr. Latham. Between what a speculator would do on swaps to 
hedge those.
    Mr. Lukken. Because we don't directly regulate swaps but 
they are also making sure that whatever, it is the same idea as 
making sure that on a 1-day price move that margin is able to 
cover those 1-day price moves. So they are similar, but I am 
not sure they are exactly the same.
    Mr. Boyd. Madam Chair, if I could briefly follow up the 
example you use of Delta Airlines, for instance, they could go 
into the futures market themselves, they wouldn't have to go 
into the index fund because they get an exemption and can trade 
for whatever they might actually use, can't they?
    Mr. Lukken. Absolutely.
    Mr. Boyd. But the swaps related to the index funds trading, 
aren't they generally just a combination of several commodities 
that now just are used to hedge against inflation generally?
    Mr. Lukken. They are broad----
    Mr. Boyd. Not users.
    Mr. Lukken. Right. They are not commercials. Swap traders 
are bringing both. They are bringing passive sort of these 
endowment funds, these index trading as you referred to them, 
but they are also bringing in lots of commercial business as 
well.
    Mr. Boyd. Thank you, thank you, Mr. Chairman, and Madam 
Chair, for your time.
    Ms. DeLauro. One of the things we are going to try to do 
is, we have got several votes. And we want to go into a second 
round and I am going to ask the other panel to come up. And Mr. 
Lukken, I want to have you stay so we have an opportunity to 
get some more questions in. But there is a point that I wanted 
to try to make here which is that in 2000, as I understand it, 
that the Intercontinental Exchange became one of the exemptions 
entities. And so that, in fact, is not regulated by you. I 
think it is important to note and for the record, that when 
Enron failed and took its private unregulated energy exchange 
that went to the grave, another rose to take its place, 
something called the Intercontinental Exchange. It was the 
brain child of Morgan Stanley, Goldman Sachs, British 
Petroleum, Deutsche Bank, Dean Witter, Royal Dutch Shell, S.G. 
Investment Bank and Total Fina. 2001, ICE purchased the 
international petroleum exchange in London, renamed it ICE 
futures, it now operates as an exempt commercial market under 
section 2(h)(3) of the Commodity Exchange Act. Now, I think it 
is important also to note that on your energy advisory board 
here, that both Goldman Sachs and Morgan Stanley sit as 
advisers to the CFTC.
    It is my concern, I don't know if it is the concern of 
others, that they are primary or they really are major 
beneficiaries of what the activity is here in terms of their 
personal gain and their profit and the speculation.
    Does that not provide, does that not indicate to you that 
there is some major conflict of interest here in terms of, I 
mean, when I listen to Morgan Stanley or Goldman Sachs say the 
price of oil is going to go up to $200 a barrel, well, they 
know something maybe that the rest of us don't know. I think 
that we have a very serious issue here in terms of conflict of 
interest which is one of the reasons why a number of us want to 
really bring back if you will, this exempt market under the 
regulation of the CFTC and speculation, yes.
    But to be at the core of this unregulated market and be 
making substantial amounts of money, yes, you take risks but 
they are making substantial amounts of money, and we see the 
costs in oil and prices going up, that it would just appear to 
me that that is your job is to protect the public from that 
kind of conflict and to be investigating that, not 2 weeks ago, 
not in May, not in June, but for the last several years when we 
have been watching this increase, and so I don't know if you 
want to comment. I am happy to have you comment.
    Mr. Lukken. The advisory committee we set up, we set it up 
so that we got everybody's voices so we have the airline 
industry as part of that. We have consumer groups as part of 
it, we have----
    Ms. DeLauro. You don't have consumer groups. You have 
industrial groups. I have the list of people that are on your 
advisory board.
    Mr. Lukken. Petroleum marketers association, we have the 
Industrial End Users Association.
    Ms. DeLauro. Talk to me about--well----
    Mr. Lukken. So we try to----
    Ms. DeLauro. Is the Consumer Federation on the board? And 
who represents consumers?
    Mr. Lukken. Well, we have the people, that petroleum 
marketers are on your next panel, they are a part of our 
advisory committee and these are all held in open public 
meetings so we try to get as much as information as we can 
from----
    Ms. DeLauro. Goldman Sachs, Morgan Stanley were founders of 
the Intercontinental Exchange, which is now an exempt entity 
out of the purview off the screen of regulation by the CFTC and 
there are differences of opinion as to how effective the FSA in 
London is with regard to their own oversight of these areas, 
lots of different opinions, they also overseeing Northern Rock 
and what happened in Britain when Northern Rock which finally 
got nationalized. So we have serious deficiencies. Yes, Mr. 
LaHood.
    Mr. LaHood. Sir, can you just respond to her question about 
is there a conflict of interest for these people to be sitting 
on your advisory committee?
    Mr. Lukken. No. We followed the Federal Advisory Committee 
Act to, by the letter of the law to get people who are involved 
in these markets. And Goldman Sachs is involved in these 
markets so----
    Ms. DeLauro. You are not subject. You are not subject to 
the Federal conflict of interest requirements that is something 
that we have learned from CRS.
    Mr. Lukken. We follow the Federal Advisory Committee Act to 
the letter of the law to make sure that we are getting the 
right people on our advisory committee and this was approved by 
a bipartisan commission, these people who are involved on this 
commission.
    Mr. Hinojosa. Have they advised you that there is no 
relationship between the increase in the price of gasoline and 
heating oil and the outrageous speculation engaged in this 
industry?
    Mr. Lukken. We have a variety of opinions on that, 
including the petroleum marketers believes it is speculation, 
and so does the airline industry, so we have heard from both 
sides of that committee.
    Ms. DeLauro. We have about 4 minutes to vote. I would like 
to go to vote and I ask the panel to come back and we will 
bring up the panel and including yourself, Mr. Lukken, if you 
can stay a while longer we appreciate that because I believe 
there are other people who have questions for you.
    Thank you.
    [Recess.]
    Ms. DeLauro. Thank you all. I know some other members of 
the subcommittee are coming back, and I appreciate your 
waiting.
    And again, Chairman, I appreciate you staying and being 
able to answer some more questions.
    I am very pleased to introduce our second panel today.
    And Mr. Tom Devine, who is a small business owner of a full 
service biofuel and heating fuel company in southwestern 
Connecticut, Devine Bros., Inc. He manages the day-to-day 
operations of the Heating Fuels Department. And he is also here 
today representing the Independent Connecticut Petroleum 
Association and 549 independent and locally-owned-and-operated 
motor fuels and heating fuels distributors in Connecticut as a 
board member of the New England Fuel Institute, a 60-year-old 
trade group and public policy advocate representing well over a 
thousand heating-related services companies in the northeastern 
United States.
    Dr. Mark Cooper is the director of research of the Consumer 
Federation of America and president of Citizens Research, an 
independent consulting firm. At the Consumer Federation, Dr. 
Cooper is responsible for energy, telecommunications and 
economic policy analysis, and is a frequent guest lecturer. As 
a consultant, he has provided expert testimony in over 250 
cases on behalf of People's Counsels, attorneys general, and 
citizen intervenors before State public utility commissions in 
over three dozen jurisdictions. Dr. Cooper holds a Ph.D. from 
Yale University and is a former Yale University and Fulbright 
fellow.
    Michael Greenberger is director of the Center for Health 
and Homeland Security at the University of Maryland and is a 
professor at the School of Law. Professor Greenberger teaches 
courses focused on counterterrorism and emergency response as 
well as constitutional law and a seminar on futures options and 
derivatives at the law school. Professor Greenberger has served 
as the Justice Department's Principal Deputy Associate Attorney 
General and as counselor to the United States Attorney General. 
Prior to entering government service, he spent 20 years in 
private practice before becoming director of the Division of 
Trading and Markets at the Commodity Futures Trading 
Commission. In that capacity, he was responsible for 
supervising exchange-traded futures and derivatives.
    Finally, Johnathan Short is a senior vice president and 
general counsel of the Intercontinental Exchange, Inc., or ICE, 
and in his role as general counsel, he is responsible for 
managing ICE's legal and regulatory affairs. As corporate 
secretary, he is responsible for issues of corporate 
governance. Prior to joining ICE, Mr. Short practiced in a 
corporate law group of McKenna, Long and Aldridge.
    We welcome you back, Chairman Lukken, and thank you all 
very much.
    We will start, Mr. Devine, with you.
    As I mentioned at the earlier panel, your full testimony 
will be part of the record, so you may feel free to summarize 
in whatever way you would like.
    Mr. Devine. Thank you.

                           OPENING STATEMENT

    Thank you, Chairman DeLauro, for having me here today, and 
distinguished members of the committee, thank you for the 
invitation to appear before you on the issue of excess 
speculation and inadequate oversight of the energy commodities 
market and its impact on independent, small business energy 
distributors and their customers.
    Thank you for your introduction. I appreciate that.
    A little bit about Devine Bros. Devine Bros. is a 90-year-
old family-owned business, a heating oil retail business in 
southwestern Connecticut. We retail bioheat as well as heating 
oil. We service lower Fairfield County, a full-service 
conservation service department and the heating oil. We are the 
largest facility between Stamford, Connecticut, and Bridgeport, 
Connecticut. We are located on the Long Island Sound. That is 
where our terminal is.
    I serve the family as corporate secretary of the company, 
and as you said, I manage the day-to-day operations of the 
heating oil department.
    Friday, June 6th, we refer to as Black Friday in the 
heating oil industry. On June 6th, the price of heating oil 
nearly went up $0.30 a gallon. I am totally amazed that the 
Chairman of the CFTC could not believe that speculation was not 
involved in something like that. The cost of crude hit almost 
$140 a barrel. Heating oil at that point was roughly $4 a 
gallon for the homeowners; 99 million barrels of heating oil 
traded that day, half of the United States' consumption in a 
year.
    I am no longer confident that the markets are doing the job 
that they were set up to do. I can no longer use them as a 
risk-management tool. And if I had not purchased oil a day 
before the run-up, I wouldn't be in a better position, as my 
competitor down the street. If I bought oil just the beginning 
of this week, I would have been about $0.30 out of the money 
compared to my competitor. In 2 days, the price of heating oil 
moved $0.30 a gallon. If I bought a million gallons, I would 
basically have been out of $300,000 in 2 days.
    A company like Devine Bros. cannot consistently lose that 
kind of money. Now, one could argue that I can get involved in 
options and buy call options, but that would add another $0.50 
a gallon to my consumer. My consumer can't afford that. My 
consumer can't afford to spend an extra $0.50 a gallon to heat 
their homes when they are already paying $4 a gallon now. It 
just does not work.
    It is easier to believe that there is no speculation in the 
market, but I feel that it is there. It is very volatile right 
now. There has been an awful lot of statistics thrown out 
earlier, I am sure you are going to hear more.
    What I would like to focus on, if I could, is some of the 
stories that I have from customers that I am dealing with. They 
are actually bearing the burden of these high oil prices. And 
the fact is they can't afford it.
    I am trying to collect the money from last year, which was 
a very high year for individuals. Next year is going to be 
double what it was last year. I am afraid to speculate and say 
what I think the price of oil per gallon may be next year 
because I might read it in the papers tomorrow, and it might 
drive the price up to where I think it might be, and that is 
due to the speculation that I believe is in the market.
    I have a customer that actually has two sons that are 
fighting in Iraq, and he, basically, he fought in Vietnam. He 
is about 70-years old, and he can't afford to buy his oil for 
next year. He has been a 20-year customer of mine. And I don't 
know what I am going to do with him. I have to borrow an awful 
lot of money to pay for the inventory to deliver to my 
customers, and I have to be much stricter than I have been in 
the past.
    At my level, there is going to be very cold people this 
winter unless something is done about the train that is totally 
out of control. I hear that speculation is good for the market; 
it brings liquidity into the market. After sitting here and 
listening today, I do agree with that, but I am swimming in 
liquidity. I mean, we are drowning in liquidity. There is too 
much. I believe personally that we have to see the margins 
increased on noncommercial speculators. I think there is 
something to that, so I can deliver oil and trade with other 
commercials and see the supply and demand come back to this 
market.
    I deliver oil to a senior center that houses about 180 
senior citizens. There are about 180 rooms. I had a meeting 
with them yesterday. I told them what the price of oil was 
going to be. They do get money from HUD, but he does not know 
how he is going to afford to pay for my heating oil that I have 
to deliver to him. He just does not know how to do it.
    I talked to him on Monday morning, and by Wednesday, I was 
able to tell him that the prices of oil are coming down. It 
came down $0.30. It was a beautiful thing to see, but the price 
was still so high he couldn't figure out what he was going to 
do.
    My customers ask me if I am running out of product. They 
don't see gas lines at the gas station. I say, no, I am not 
running out of product; I can get product. But the high 
speculation makes me jittery about buying any product. I don't 
want to buy product and all the sudden have this thing dump and 
me hold a lot of high, expensive product, because then I won't 
be able to make what little margin I need get by as a company.
    Today, in the Wall Street Journal, I read that there is a 
fellow by the name of Gregory Mocek that is leaving there, and 
I would just like to quote it if I may: ``The sheer volume of 
trading in these markets increases the occurrence of illegal 
conduct.'' That is his quote. I don't know if there is any 
illegal conduct. But I do know that there is an awful lot of 
conduct, a tremendous amount of speculation, a tremendous 
amount of money in the market.
    I have heard the question regarding hoarding. I don't 
believe there is any hoarding, and I am just an oil dealer. But 
I don't believe there is any hoarding, but I believe the amount 
money that is in the market is creating the same type of 
outcome that hoarding would cause. And unfortunately, it is on 
the backs of my customers that are not going to be able to 
afford oil this winter, and they are going to be basically 
freezing, as far as I can see.
    In Connecticut, we are very unique. We have set up the Fuel 
Oil Conservation Board to make our customers as conservative as 
possible in using heating oil. It is amazing how an industry 
can work so hard to make their customers be more conservative. 
We are the forefront State I think in New England in terms of 
bioheat. We do believe in bioheat. It is a cleaner-burning 
product. It helps retain the efficiency into the winter, which 
will help the consumer. But even though we have made steps, 
taken steps to reduce through the efforts of national oil heat 
research grants to reduce the amount of oil used in the average 
household from 1,100 to 700 gallons a year, the pricing of oil 
is still making it very difficult for these consumers to buy 
the product.
    And that is why I believe that the trading system at this 
point is not working. I think it is broken, and I think the 
efforts that you are doing here I commend, and I think you 
ought, you should keep on the heels of the CFTC, because I 
think that you alluded to a good point, and that is, why wait 
until this year to do something? And I think that with your 
efforts and staying on the heels of the CFTC and making them do 
something with the type of passion that I have seen here today 
may perhaps do something in the future. And I commend that.
    Thank you.
    [The statement of Mr. Devine follows:] 

           

    
    Ms. DeLauro. Thank you very much, Mr. Devine.
    Dr. Cooper.
    Mr. Cooper. Madam Chairman, members of the committee, I 
appreciate the opportunity to appear before you today.
    Mr. Kingston, you asked for an alternative account. There 
is one in my testimony. And here is a brief alternative view of 
what is going on out there in detail.
    Market fundamentals indicate both an upward trend in price 
and a huge speculative premium. They can both coexist. The 
supply-demand balance has been tight but steady for the last 6 
years, as has OPEC's spare capacity. The global reserve-to-
production ratio has been rising slightly not falling. The 
world refinery industry is adapting to the heavier crudes that 
the world is producing.
    Market models based on fundamentals at the U.S. Energy 
Information Administration and the Japanese Ministry of 
Economy, Trade, and Industry show a premium of $40 to $60 a 
barrel above fundamental. Analysis of the cost of crude suggest 
a premium of a similar magnitude, as does a simple trend line 
from 2002 to 2006 extended to today.
    And last and probably least, oil company executives and 
OPEC oil ministers say there is a premium of $40 to $60 a 
barrel that is not explained by fundamentals. Everybody knows 
that there is a speculative premium out there, and that premium 
of $40 to $60 indicates a burden on the U.S. economy of $285 
billion since January 2006. That is a direct bite out of the 
household budget of $1,200.
    If not fundamentals, then what might account for this 
premium? We believe excessive speculation epitomized by a 
sixfold increase in exchange trading in the past 4 years has 
created a vicious price spiral. We identify specific policy 
decisions--and you have heard a lot about 2006; that is when it 
went bad--we identify specific policy decisions that have 
invited new players, new money, and new practices into the 
market. And we demonstrate a close association between the 
growth of open positions and the skyrocketing of profit. So we 
have correlation. We have temporal sequence. We also provide 
the link, the explanatory link, between these two.
    We observe, and it is a fact, that as price rises and 
volatility increases, it becomes more and more difficult and 
expensive to get people who have oil in the ground to part with 
it. That observation is supported by statistical and anecdotal 
evidence. This is not about hoarding oil in tankers and tanks. 
It is about holding oil in the ground until you get bribed with 
a high enough price to bring it up.
    Now, why would anybody profit from a rising price? Yet 
there are people on both sides, we are told? Let's be clear, 
traders profit from the upward spiral of prices because traders 
and exchanges benefit from transaction fees that grow with 
volume and value. Moreover, as account values rise, excess 
margins and special miscellaneous accounts allow the traders to 
take their money out of the market or leverage more trading to 
keep the upward spiral going.
    Moreover, as long as there is new money coming into the 
market, then the old money that was there first benefits by the 
rising price. And let's be clear, major trading houses can 
promote that spiral and the inflow by advising the money, the 
new money, what to do. They go to the pension funds and stay 
hey, bring the money in here. And then, of course, they benefit 
when they predict an ever-increasing price spiral.
    So we have all of the elements here of an alternative 
explanation that fits the facts an awful lot better than the 
baloney that you have heard from the other side.
    Now opponents of prudential regulation invoke phrases like 
``when unexpectedly high demand strains existing production'' 
or ``after years of ignoring the rather obvious fact that oil 
is a finite resource.'' Oil tripled in price from 2002 to 2006, 
and ultimately, they give me psychology, with a statement like, 
and I am reading from a New York Times opinion piece: 
``Everyone in the oil market is attuned to every little twitch 
that has the potential to damp supply increase demand. That is 
why, for instance, when Libya announced that it might cut oil 
production, oil jumped by $5. Meanwhile, when Brazil discovered 
a huge new oil field the market shrugs. That is not speculation 
at work,'' they say, ``that is psychology.''
    Well, even if it is just psychology, we suggest that 
Congress is not obliged to let the psychos run wild in a market 
as vital as oil. If the traders in this market have become 
irrationally attuned to every little twitch that might increase 
price but disregard facts that might lower price, it is hard to 
conclude that the market is functioning properly. Congress can 
and should act to restore prudential regulation which will 
quell excess speculation and calm irrational exuberance by 
sedating the cycles.
    I say ``restore'' prudential regulation because, let's be 
clear, the financial instruments, trading practices, and 
loopholes that are the target of the current policy debate did 
not exist or were rarely just utilized a decade ago. Commodity 
markets performed just fine without any of these contrivances 
which has opened the door to excessive speculation and the 
stampede of the psychos.
    Bad policy and lax oversight created the problem. Good 
policy and effective oversight can burst the bubble, returning 
these markets to their proper role in society.
    I would ask you, Madam Chairwoman, to provide me with a 
list of every question that was posed to Chairman Lukken in the 
last session. I will provide you with an alternative set of 
answers that gives you a very different view of what is working 
and what is not working in these markets.
    Thank you.
    [The statement of Mr. Cooper follows:]

           

    
    Ms. DeLauro. Professor Greenberger.
    Mr. Greenberger. Thank you, Madam Chairwoman, and I also 
want to thank you for the leadership you have taken on this 
issue, not only in seeing what the resources are of the CFTC 
but also in the substantive side of these issues. Your bill, 
6341, which I think you have introduced with Congressman Van 
Hollen, I think is a very, very good piece of legislation, 
which I support.
    And I also know that you were very involved in getting H.R. 
6377 passed in the House on June 26th. It was introduced in the 
morning and passed that night by a vote of 402 to 19. And I 
hope the Senate takes the same bipartisan approach.
    The reason I think that bill is important is because what 
it essentially does is having Congress declare an emergency in 
these markets. And it asks for the CFTC, who could have 
declared their own emergency under their statute, to do an 
investigation across the markets and answer the questions that 
have been posed.
    I am in support of what Dr. Cooper says, that I do believe 
there is a speculative premium. I don't discount for a second 
that we have a supply-demand problem, and everybody has a 
solution for supply-demand, but I think the United States' 
energy-consuming public, including some of our most important 
industries, are paying a speculative tax that has nothing to do 
with supply-demand. And I think, within a matter of weeks, we 
are going to see some very serious dysfunctions--I would look 
to the airlines first--if we don't provide relief in this 
regard.
    The reason I say H.R. 6377 in its immediate effect and the 
kind of legislation that you have supported in a long-term 
effect is important is, I would say let's forget about trying 
to answer in the dark whether this is supply-demand or 
speculation. Let's get the information. Let's do a thorough 
investigation of these markets. If that thorough investigation 
shows that those of us who think speculation is at the heart of 
this shows we are wrong, God bless. But it is not healthy for a 
lot of people, and I would imagine a lot of your constituents, 
to walk around believing that this is a speculators problem if 
it is not.
    So I think whichever side of this argument you are on, you 
should be in favor of transparency. Now we don't have 
transparency because of the Enron loophole and the so-called 
London loophole, which I would be happy to talk about at 
greater length, we switch, from December 20th, 2000, to 
December 21st, 2000, we allowed these energy futures contracts 
to be traded off-exchange, over-the-counter markets that don't 
have the same transparency that our regulated exchanges have.
    Now it is true that Mr. Lukken since May 29th has been 
trying to get more information from one of these exchanges, but 
we don't have the kind of information and the tools to get it, 
and the kind of oversight to be sure about what we are dealing 
with here and to answer the fundamental questions. We are in 
the middle of a terrible economic emergency here, and I think 
we are only halfway down the slope. And I think when we get to 
the bottom of it, there is going to be some very serious 
consequences.
    I would also say that your attention that you are paying to 
the CFTC, I believe, is important because it is not just energy 
futures. We have got agriculture futures problems, too, which 
fall on the same line, and I can talk about that. But even more 
important, the subprime meltdown goes, in my view, to, is 
premised on an instrument, credit default swaps, which were 
deregulated by the December 20th, 2000, legislation. Swaps were 
excluded from State and Federal oversight. And I can elaborate 
on that, but the New York Insurance Superintendent who is 
trying to hold up an insurance company that has insured the 
banks against their losses took the position, why are these 
credit default swaps? These are nothing more than insurance 
contracts. And had they been insurance contracts, Bear Stearns 
would have had to have a adequate capital reserve to pay them, 
but they didn't because they thought housing prices would 
always go up, and they would never be called on their bets. We 
are now holding those instruments as United States taxpayers.
    So the CFTC is a very, very important agency. I was there 
for 2 years. I have watched it. As far as I am concerned, if 
you wanted to pick out one financial regulator who has more to 
say about where our economy is today, it is the CFTC. When you 
are talking about deregulated energy futures, poorly managed--
and I can explain that; I don't fully blame the CFTC for that--
but the ag markets are not supposed to be deregulated and yet 
there are deregulated products out there, and the credit 
default swaps.
    If we had not passed the Commodity Futures Modernization 
Act, I think Bear Stearns would still be here today. In fact, I 
think Enron would still be here today. So I congratulate you 
for focusing attention on this important agency. And I think 
this is going to be, wherever we end up legislatively, the 
silver cloud I see here is that we are beginning to understand 
as an American constituency what the futures market is and how 
vitally important it is to the United States economy.
    Thank you.
    [The statement of Mr. Greenberger follows:]

           

    
    Ms. DeLauro. Mr. Short.
    Mr. Short. Madam Chairwoman DeLauro, Ranking Member 
Kinston.
    I am Johnathan Short, senior vice president and general 
counsel of Intercontinental Exchange, or ICE. I very much 
appreciate the opportunity to appear before you today to 
provide our views on the energy futures markets, regulation of 
energy futures trading, and the role of speculation in these 
markets.
    ICE is and always has been a strong proponent of 
transparent and properly regulated markets. As a public company 
our business depends upon it. ICE operates four separate lines 
of business, an OTC exempt commercial market through its parent 
holding company, and three regulated futures exchanges through 
three independent subsidiaries. Each of these regulated futures 
exchanges was an existing marketplace prior to its acquisition 
by ICE, and each of them has a separate governance and 
regulatory infrastructure mandated by their regulator in order 
to maintain their regulatory status.
    Focusing on ICE's energy markets, ICE's ECM market, or 
exempt commercial market, was introduced in 2000 as the anti-
Enron. It was a mini-to-mini marketplace that provided 
transparent electronic trading. Enron was a mini-to-one 
marketplace where Enron was the market. You traded with Enron; 
Enron traded with someone else. Enron also controlled the 
physical assets, and if you look at the California energy 
crisis, that is how Enron manipulated the California energy 
market, by withholding physical assets.
    This is very important and ironic because the founder of 
ICE, Jeff Sprecher, was a California power plant developer who 
actually saw California's deregulation and saw that it was ripe 
for manipulation and thought that the better way to do this was 
on a mini-to-mini transparent platform like ICE. And he went 
out. He bought a company to prove his point. And I would note 
with some pride today that ICE is the only transparent part of 
the OTC market, and we take absolutely no positions in our 
market and do not control any physical assets.
    Turning to our futures business, energy products are traded 
through ICE Futures Europe, which is formerly known as the 
International Petroleum Exchange. It is a fully regulated 
exchange headquartered in London, and it is a leading futures 
exchange outside of the United States.
    ICE Futures Europe trades the benchmark Brent crude futures 
contract, which forms part of the complex that prices two-
thirds of the world's crude oil, along with a West Texas 
Intermediate or WTI crude oil futures contract that is a 
financially settled derivative of the NYMEX futures contract.
    ICE Futures Europe is a recognized investment exchange, and 
it is overseen by the U.K. Financial Services Authority, which 
is the equivalent of the CFTC in the United Kingdom.
    Much has been said in the preceding weeks about the role of 
speculation in the crude oil futures market and what role 
trading in ICE's markets may be playing in determining crude 
oil prices. Some have improperly characterized ICE's markets as 
dark markets and have suggested that closing supposedly 
regulatory loopholes is the key to dramatically decreasing oil 
prices. Unfortunately, much of what has been said in this 
regard is factually inaccurate and unsupported by economic 
evidence, and furthermore, it is inconsistent with the 
following basic facts.
    First, ICE Futures is a fully regulated exchange and, 
importantly, has been providing trading information regarding 
its WTI contract to the CFTC since April 2006, shortly after 
the launch of our WTI contract. As recently as June of this 
year, the director of enforcement of the CFTC publicly stated 
that the CFTC has seen no evidence of manipulative activity in 
ICE Futures WTI markets.
    Second, trading in ICE Futures WTI contract comprises only 
15 percent of the broader WTI trading market compared to the 85 
percent of trading that considers on the NYMEX and has been 
steadily declining since prices began to spike last year, 
suggesting that there is little evidence that a London loophole 
is the root cause of recent increases in crude oil prices.
    In any event, to the extent that there is concern that a 
London loophole ever existed, I think everyone would have to 
concede that it has been closed by the recent actions of the 
CFTC in modifying ICE's no action letter to impose 
accountability and position limited.
    Third, ICE over-the-counter or OTC markets comprise 
approximately zero percent, I want to emphasize, again, zero 
percent of the OTC market for oil products, which are still 
predominantly traded through so-called voice brokers. 
Furthermore, the so-called Enron loophole for electronic OTC 
markets has been closed through provisions of the farm bill.
    To be clear, Congress is right to examine trends in oil 
prices and to leave no stone unturned here. Unfortunately, 
however, we believe that the culprit here is an economic one. 
With markets driven by strong global supply and demand 
fundamentals and macroeconomic issues, such as the devaluation 
of the United States dollar, this view is supported by a 
plethora of economists and energy market experts, whom I cited 
in my written testimony.
    In considering the proper level of speculation in futures 
markets, it is important to understand that futures markets are 
inherently speculative. They are attempting to predict the 
future price here of a global commodity anywhere from 1 month 
to 8 years into the future. Importantly, in trading futures 
contracts, speculators are not taking any physical crude oil 
off the market. They are simply attempting to predict what the 
future price may be based upon the best information available 
at the time, thereby serving as a very important early warning 
system for consumers and businesses alike about what the future 
may actually hold.
    One of my co-witnesses here mentioned Friday, June the 6th, 
and the run-up in oil prices on that date. I just would like to 
point out that three separate events occurred on that date that 
were very significant. One was the European Central Bank raised 
interest rates, thereby further depressing the U.S. dollar. 
Another event, there was a Nigerian platform outage on that 
date. The third event was an Israeli government official said 
that war with Iran was inevitable.
    When you want to think about properly operating markets and 
whether prices should rise on that news, consider what would 
have happened if Israel had actually bombed Iran the next day 
and the Straits of Hormuz had closed. People that hedged their 
price risk at $138 that day would have been very pleased having 
done so because the price of oil would have shot through the 
roof.
    In closing, ICE believes that Congress should proceed 
carefully in this area. If, as we contend, markets are 
accurately reflecting fundamentals, legislation aimed a 
diminishing speculative activity in the market could have the 
opposite of its intended effect, potentially making markets 
more volatile, driving energy prices higher, and making the 
cost of hedging more expensive.
    I thank you. I would be pleased to answer any questions.
    [The statement of Mr. Short follows:]

           

    Ms. DeLauro. Thank you, Mr. Short.
    And thank all of you for your testimony.

                             ENRON LOOPHOLE

    I am going to see if I can open with several folks here. 
What I want to do is look at the Enron loophole.
    And Chairman Lukken, let me just start with you.
    And Mr. Short, both you and Acting Chair Lukken believe 
that the loophole has been closed.
    But to the Chair let me just say this, critics of the farm 
bill alleged that the act has not sufficiently closed the 
loophole because it requires the CFTC to make determination of 
which contracts on ECMs need to be regulated on a case-by-case 
basis. Therefore, what happens is the burden of proof winds 
upon being on the CFTC and not on the industry.
    Under the farm bill, you have up to 6 months to issue a 
proposed rule to implement the new provision, another 3 months 
to issue a final rule, then up to 6 months to complete reviews 
of electronic trading facilities that may have contracts 
performing significant price discovery functions. The farm bill 
was enacted May 22nd this year. So we could be looking at 14 
months until you really make your findings that would lead to 
an actual closure of the loophole.
    This is a year and a half until we get to some sort of a 
conclusion. What are you doing to expedite this? When will your 
proposed rule be published in the Federal Register for public 
comment? What target date have you set for issuing the final 
rule?
    I will repeat those because I want to get in another piece 
here. There appears to be public statements by CFTC that say 
that the language would apply only to ICE's natural gas 
contracts. And further, well, if you are going to work with the 
farm bill on a contract-by-contract basis, sounds to me like an 
overwhelming task you are dealing with here, and can you tell 
us about how many contracts that we are talking about?
    And then with regard to the farm bill, it is my 
understanding that you made it clear that you will not cover 
any U.S. future contracts relating to the price of U.S.-
delivered commodities traded on the U.S. terminals of foreign 
exchanges operating pursuant to your no-action letters.
    So if you would just talk about the rule, when you plan to 
do that, and if you could just talk about the, you know, your 
comments with regard to what you will cover and not cover.
    Mr. Lukken. Certainly, we are trying to beat congressional 
deadlines in this area. Congress did provide us 180 days to 
come out with a proposed rulemaking. We are working feverishly 
to try to expedite that. Hopefully it is much quicker than 
that. I wish I could give you a certain date, but these are the 
same people that are also looking at the swaps information that 
is coming in, trying to put the foreign boards of trade 
information that is coming in. This is all being handled by our 
Division of Market Oversight. So we are working to try to do 
this in a very expedited manner so that we don't have to wait 
the 14 months, as you outlined.
    Ms. DeLauro. Five months? Six months? Eight months? Ten 
months?
    Mr. Lukken. Again, this is congressional timetables, but we 
are trying to beat this so that we are able to do this much 
more quickly.
    I think the contract that was of concern when this was 
developed was the look-alike natural gas market that is listed 
on ICE's exempt market in Atlanta. We are certain this is 
something that is going to be a part of this new regime. And so 
we are looking at ways to expedite those that we are certain 
that these contracts are going to be part of this new oversight 
regime.
    But it is not limited only to natural gas. Any product that 
is traded on an exempt commercial market that is either linked 
or somehow a price-discovery market that develops, we will 
regulate in this manner. So it is neutral in regards to any 
type of exempt product.
    Ms. DeLauro. Professor Greenberger, again, Mr. Lukken and 
you just heard Mr. Short testify that the farm bill closed the 
Enron loophole. You maintain that it is still open, and you 
have two main criticisms, as I understand it from your 
testimony of the bill, that it puts the onus on the CFTC to 
regulate and that the 15-month issue is of concern.
    Why are you concerned about the CFTC using its discretion 
to identify appropriate contracts of ECMs?
    Mr. Greenberger. Well, when the Enron loophole went into 
effect on December 21st, 2000, the rule was that all energy 
futures contracts had been to be traded on a regulated 
exchange. So I would have thought, if you were going to close 
the Enron loophole, that you would go back to where you were on 
December 20th, 2000, and say that all energy futures contracts 
are going to be traded on a regulated exchange.
    That is not what happened. What happened is the close the 
Enron loophole on the farm bill says that the CFTC in its 
discretion can re-regulate an energy futures contract if it can 
show that it has a, quote, significant price discovery 
function.
    So ICE, when it testified in front of the CFTC, said they 
have thousands of contracts. Now my understanding is, I have 
read two statements by Mr. Lukken, and I read what Mr. Sprecher 
said before Mr. Lukken said anything, and they said the Henry 
hub contract on their unregulated United States exchange should 
be subject to significant price discovery--should be 
significant price discovery and re-regulated. Well, natural gas 
has nothing to do with petroleum.
    Now, Mr. Short says, oh, but there are zero petroleum 
contracts being traded under the Enron loophole. I would 
dispute that from a general thing, but there are lots of 
bilateral standardized contracts being negotiated on a daily 
basis. As we sit here, there are hedge funds in investment 
banks in New York using standardized agreements to trade energy 
futures. On December 20th, 2000, those would have been 
regulated. Today they are not.
    So we went from a posture of all futures contracts; what 
did that mean? That means position limits. That means large-
trader data reporting. That means they have to have their own 
self-regulatory organizations, which is very important because 
they police wrongdoing. That means the CFTC would have had 
clear emergency authority over them.
    But now we are going through, and my reading of the 
legislation is they have 270 days to do their general rule and 
then 180 days to apply it. I came up with a 15-month period. If 
I am wrong about that, I certainly want to know about it. But 
anyway it is going to be a long time. That is September 2009. 
What is Mr. Devine's people going to do until September 2009? 
And then it won't affect heating oil.
    Mr. Short. Could I----
    Ms. DeLauro. Yes, you can.
    I also want to get Dr. Cooper in here.
    Go ahead, Mr. Short, go ahead.
    Mr. Short. A couple of points. First, ICE is actually not 
even awaiting the final rules that are going to be promulgated 
by the CFTC on this issue. We are actively working on 
implementing the systems today so that when the rules come out, 
we won't be in a situation where we are waiting for 15 months. 
That is the first point.
    The second point about the coverage of contracts traded on 
ICE, trading in the contracts that we expect to be significant 
price discovery contracts will cover about approximately 90 
percent of our traded volumes. The other contracts that we are 
talking about are illiquid swap markets for which we compete 
with telephone voice brokers and other people in the bilateral 
markets that don't serve a significant price discovery 
function. They are not linked to a designated contract market, 
or the cash markets aren't basing their prices off of them.
    I think that is a very important distinction that Professor 
Greenberger has overlooked. I would also point out that his 
suggestion that we go back do the status quo ante of, what 
happened before the CFMA, I think there were plenty of people 
trading these contracts pursuant to exemption letters before 
the CFMA. And I also think that the CFMA has brought very 
valuable market benefits. Exempt commercial markets are 
electronic. They are transparent. There is a digital record of 
every trade that occurs on them. The CFTC can call in that 
information and look at it any time they want. They get weekly 
transaction reports from us on trading information.
    To suggest that the CFMA was a bad thing I think was wrong 
because it has led to some positive things like the 
introduction of clearing for OTC swaps, and that is one of the 
problems that Mr. Lukken alluded to previously about Bear 
Stearns. If there had been a market where there was a clearable 
credit default product, maybe Bear would not have gone down. 
These are all very positive attributes that I think Professor 
Greenberger is overlooking.
    Mr. Greenberger. I would just like to respond, Madam 
Chairwoman.
    First of all, which ICE are we talking about here? Are we 
talking with ICE United States? Are we talking about ICE 
Futures Europe? Are we talking about ICE Futures United States? 
When Mr. Short says, oh, ``we,'' he is talking about the 
Atlanta headquarters and their natural gas contracts. What 
about the WTI contracts on ICE Futures Europe?
    Mr. Short. Absolutely, let me address that.
    Mr. Greenberger. Mr. Short, if you would let me finish, I 
will let you talk.
    If you the let me finish, Madam Chairwoman.
    ICE Futures Europe a wholly owned subsidiary of ICE, which 
is located in Atlanta. It is run by ICE. It has U.S. Trading 
terminals in the United States. Its trading engines are in the 
United States. It is trading 30 percent of our West Texas 
Intermediate contract. It took 30 percent away from the 
regulated exchange. It is trading them in U.S.-denominated 
dollars, and the close the Enron loophole does not address 
that.
    Now, when Mr. Short says, oh, we are providing all of this 
information to the CFTC, I wonder is it ICE U.S., or is it ICE 
Futures Europe? ICE Futures Europe, because of Mr. Lukken's 
actions on June 17th, will now start providing. I don't know 
where the information was in 2006, if Mr. Lukken is asking for 
it on June 17th. But even more important, Mr. Lukken had to 
negotiate--that is the words I believe that were used--with the 
United Kingdom's Financial Services Authority to get this 
information about our trading terminals wholly owned by a 
United States subsidiary with trading engines in Chicago 
trading 30 percent of our West Texas Intermediate contract.
    Now, is that a wholly transparent situation? Up until June 
17th--and by the way, the FSA has not agreed that they will do 
this--that information was not coming to our customers. I think 
we have to be clear which of these ICE subsidiaries we are 
talking about.
    Mr. Short. I would absolutely like to answer that 
factually, because Professor Greenberger is again 
mischaracterizing the facts. First, I was, in fact, referring 
to ICE's OTC markets when I just spoke, but there is a separate 
market, ICE Futures Europe, as I indicated in my testimony. It 
is a fully regulated U.K. Futures exchange, independent 
governance, mandated by the Financial Services Authority. That 
market does come into the United States for direct market 
access pursuant to the no-action regime, and we are providing 
additional information to the CFTC on an expanded basis 
pursuant to the modifications they made to the CFTC no-action 
letter.
    But factually, there are mischaracterizations that are 
occurring here, and if you don't believe me, please look at the 
Senate Permanent Committee staff rebuttal on the factual 
inaccuracies that we have had in the----
    Ms. DeLauro. I have--I have, I have, Mr. Short. I have read 
it carefully, and I also read Professor's Greenberger's 
response to each of those questions.
    So I am going to ask my colleague, Mr. Kingston, I would 
just like to get Dr. Cooper here for a second. And then, Jack--
--
    Mr. Cooper. Let me pick up on a different point.
    I mean, they have debated this question--it is quite clear 
the CFTC did not have enough information for years and years, 
and in the last month, they discovered that the FSA is not 
properly regulating that market. They want them to have a 
speculative limit and accountability, which they did not have 
before. Let's be clear. So for years when they said, hey, they 
have equivalent regulation, they did not have it.
    Let me make a different point. Enron was the darling of the 
traders because they were an asset-lite corporation. They loved 
the idea that you did not have to have any assets in order to 
play this humongous game. They had a book with three-quarters 
of a trillion dollars with nothing behind it.
    Bear Stearns, it turns out, as Mr. Greenberger suggested, 
might have been an asset-too-lite corporation. They were 
selling insurance without the backing of the necessary capital 
reserve. So one of the things that we talk about is capital 
reserve requirements here and margin limits, which are sucking 
money into this market and sucking it out of the stock 
exchange.
    Let's be clear. Money goes where it is easy, where it is 
not regulated, where it is not asked to do much. And that is 
what has happened in these commodity markets. It is too easy 
for money to get there, so they don't have to try and work hard 
to build real productive assets. It is all paper, and it is 
sucking the money out of the rest of the economy.
    Ms. DeLauro. Quick question. Is it 15 percent or 30 percent 
of the WTI?
    Mr. Short. It is approximately 15 percent when you consider 
options and their convertibility into futures. I don't think 
Mr. Greenberger's statistic took into account options that 
ultimately, on an as-converted basis, would determine the 
overall market share. It is approximately 15 percent.
    Mr. Greenberger. I have cited the information. I have cited 
the 30 percent figure. Everybody is operating, and ask Dr. 
Newsome of NYMEX what the figure is. This business was taken 
away from his regulated exchange. He uses the figure 30 
percent. They have 50 percent, 47.8 according to their last 
10(k), of all the world's futures markets. And how many people 
do they have surveilling that? Ten people. How many does Dr. 
Newsome have surveilling that on his exchange? Forty people. He 
spends $6.5 million to surveil trading ahead of customers, wash 
trades.
    The FSA, which regulates ICE Futures Europe, wholly owned 
by ICE, has never brought an energy futures enforcement action 
since it began being a regulator.
    Mr. Short. Again, Mr. Greenberger is just wrong.
    Mr. Kingston. You know, this is very interesting.
    I will say I am--I join Mr. Short being disturbed about Mr. 
Greenberger's testimony. I mean, this is a bipartisan rebuttal 
of your testimony. Bipartisan. And it is very specific on 
statements that you made and very thorough saying why it is not 
true.
    Mr. Greenberger. This is my response to it, and I will tell 
you Mr. Kingston----
    Mr. Kingston. I have not seen it.
    Mr. Greenberger. No, I know you have not, but I will tell 
you----
    Mr. Kingston. I am not yielding quite yet to you, but I 
will yield to you.
    Have they accepted that response.
    Mr. Greenberger. Chairman Peterson of the Agriculture 
Committee asked me to give him a response today.
    Now, let me tell you, Mr. Kingston, go look for that 
bipartisan thing on their Web site. It is not there. I 
understand what you are saying. My, what I understand is, that 
there are feelings that maybe that should not have seen the 
light of day. It is not on their Web site, and I certainly 
didn't want to join in the thing. But I would encourage you to 
look at what I say.
    Mr. Kingston. Let me say this. I will do that, and I would 
not say putting something on the Web site is the gold standard 
either. But this is not just a page or two; this is pretty 
thick.
    Mr. Greenberger. Well, this is a pretty thick response.

                      SPECULATION IN PRICE OF OIL

    Mr. Kingston. And you know, the thing I think we have kind 
of gotten away from in this hearing because there are so many 
technical things. You guys have built careers learning this 
stuff. What my question is, is clarity on are speculators 
driving up the price of oil?
    And I wanted to say one thing, that I read an article in--
well, it was on the Web, from CNN Money, and it said today the 
number of paper barrels of oil traded on the NYMEX is over 
three times the number of physical barrels consumed worldwide.
    And I was wondering if Mr. Short, Mr. Lukken, or anybody 
wants to respond to that.
    Mr. Lukken. In risk-management markets, anybody who handles 
one barrel of oil has risk potentially from the person that is 
bringing it out of the ground, to the person who is shipping 
it, the person who refines it, to the person who consumes it 
ultimately. All of those people, those four or five people have 
risk involved with the price of that one barrel of oil. So 
naturally you are going to have multiples of the physical 
market. And certainly these are financial markets. They are not 
consuming. They are not taking a single barrel of oil off the 
marketplace.
    So lots of information comes into the market through 
speculators and other participants to make sure that we are 
trying to find the right price. But the natural tendencies of 
these markets are to be a larger factor than the underlying 
crude oil markets.
    Mr. Kingston. Let me ask this question, because I want to 
tie it to Mr. Devine on the Black Friday situation, which you 
gave three reasons, Nigeria's platform and so forth, tie this 
into that, because it does seem to me that he is so vulnerable 
now. Why wasn't he so vulnerable 5 years ago?
    Mr. Short. I think what you saw on so-called Black Friday 
was a properly operating market. I think you did see the market 
come back down after the market had digested the news. But 
importantly and in particular, if one of those events had 
played out, you would have had a situation where the price 
would have probably gone up in the market, and you know, the 
ability to hedge at that price on that day, not withstanding it 
was $12 higher than the prior day, was good.
    I wanted to circle back on the issue of overall trading 
volumes. I think when you cite a statistic like, look the at 
overall trading volumes compared to the underlying barrels of 
oil consumed in the country, it does not get at the issue, 
because a lot of that trading volume is intraday, making 
markets tighter. It is making markets tighter for commercials 
to come into the market and hedge at the cheapest price. It is 
not directional driving the prices up.
    You may have a bunch of speculators going between $136.10 a 
barrel and $136.12 a barrel, constantly shrinking that market 
and making it as tight and liquid as possible. So I would hope 
no one would take that statistic and say, ipso facto, there 
must be a directional correlation in the price of oil.
    Mr. Cooper. There is a directionality there. Let's be 
clear. Every one of these transactions costs money. Because 
these guys don't trade this stuff for free. They get a vig. 
They want a percent of that. When they increase the risk, they 
want their risk covered. So let's be clear, all of those 
transactions are not free. They increase costs. Liquidity ain't 
free. It is very expensive.
    And that ends up--that is where Morgan and Goldman Sachs 
make their money. They charge for all these transactions, and 
they get it as a percentage of the total price. And darn it, 
the higher the price, the more they make. That is a heck of a 
coincidence.
    Mr. Kingston. Madam Chairman, I want to get back to the 5-
minute rule, but we have some very spirited witnesses here. So 
I hate to--I think it would be nice to have Mr. Short respond 
to that, but I do want--if you could do it in 20 seconds.
    Mr. Short. Just very quickly, ICE does not get paid on the 
value of the underlying asset. I want to make that clear. It 
gets a flat fee. So whether the value of the underlying goes 
up, down, it does not make any difference to us. I would say 
that there are a lot of speculators out there who are pure 
liquidity providers. They are trying to capture those price 
increments, and it is not always Goldman Sachs or Morgan 
Stanley. It is true; I mean, if you are working with an 
investment bank, it is true they are making a profit off of 
this. But they are providing a service for that profit.
    Ms. DeLauro. Mr. Bishop.
    Mr. Bishop. Thank you, very much.

                   CONSOLIDATION OF THE SEC AND CFTC

    I have enjoyed this very spirited discussion. And I would 
like, Mr. Cooper, all of the witnesses, with the exception of 
Mr. Lukken, who I have already asked a question regarding the 
consolidation of the SEC and the CFTC, I would like to address 
it to the other four witnesses to find out how you feel about 
it as well as the self-regulation question.
    That is, Mr. Paulson's plan to combine the SEC, which 
regulates equities and debt markets, with the Commodities 
Future Trading Commission, which regulates trading commodities 
and financial futures, with the different regulatory approaches 
that they have, what would your position be on the mergers? I 
would like to ask each of the four panelists other than Mr. 
Lukken's position.
    And I would also like to ask whether or not, as I asked Mr. 
Lukken earlier, the CFTC, whether that traditional delegation 
of its regulatory oversight has really worked? Or whether or 
not we should move to more direct regulatory and oversight 
control?
    Mr. Short. I don't profess to be an expert on the Treasury 
blueprint. I mean, certainly you can make a pretty strong 
argument that you do see convergence in financial markets. I 
think the real problem here is that we have probably had an 
underfund CFTC strained for resources. And I would in 
particular be afraid of losing some of the CFTC's expertise in 
these very complex derivative markets, because I think one 
thing that has been shown today by the testimony before this 
committee is, this is a very kind of inside baseball type area. 
And I would be afraid, if they were subsumed within SEC, some 
of that expertise might be diluted.
    Mr. Bishop. So you agree with Mr. Lukken on that?
    Mr. Short. I do.
    Mr. Bishop. Professor Greenberger.
    Mr. Greenberger. I want to make clear that I have studied 
Secretary Paulson's recommendations, and his recommendation--I 
think I am right about this, Walt--is that the CFTC be merged 
into the SEC but the SEC follow the principles-based regulation 
of the CFTC. As far as I am concerned, that is pushing the SEC 
into the CFTC and not the other way around.
    Now, this principles-based regulation comes out of the 
thesis of the way the Financial Services Authority in England 
operates. And in March 2007, there was a lot of push from Wall 
Street that the United States should regulate the way the 
Financial Services Authority regulates in London. Now that 
agency, and I have got it in my thing, they basically regulate 
by conversations. For example, in the energy markets, they have 
not brought since 1997 an enforcement action. Mr. Lukken 
proudly says that his agency has brought 39 and referred 35 to 
the Justice Department in that same period.
    Wall Street would love to be regulated by the Financial 
Services Authority. Now the Financial Services Authority is in 
a big hole right now, and this is the reason why. They oversaw 
the need to nationalize the fifth largest bank in the United 
Kingdom, Northern Rock. The Financial Services Authority is the 
equivalent to the Treasury, the SEC and the CFTC. Northern Rock 
had billions of U.S., in equivalency, U.S. dollars poured into 
it to save it from its subprime crisis. And finally, they had 
to nationalize the bank.
    The FSA has done a self-regulatory study and said, we 
dropped the ball. The European Union has started an 
investigation of the FSA. So when Mr. Short says, our ICE 
Futures Europe, our wholly owned subsidiary, which really isn't 
here but is in London, is, quote, fully regulated, they are 
fully regulated by the FSA. I think with those terminals in the 
United States trading 30 percent of our product, they should be 
fully regulated by the CFTC.
    So I am not supportive of these recommendations because the 
bottom line is, it is to deregulate, not to have further 
regulation, in my book.
    Mr. Cooper. Frankly, now is the moment to restore 
prudential regulation across a number of sectors. Neither of 
the agencies you talked about have done a very good job in the 
last few years. We have a mess here. Merging them will not 
solve the mess. It will simply make it harder to see what is 
going on.
    That does not mean they shouldn't cooperate. Certainly in 
our analysis of the natural gas spiral that I did for four 
attorneys general in 2006, we concluded that the ability of 
certain entities to straddle all of these markets made it very 
difficult for regulators to know what was going on, so they 
should cooperate.
    But, frankly, we think each of them should be individually 
strengthened, and absolutely we need a return to direct 
regulation. Because each of these little loopholes that have 
been mentioned here, which were created in the 1990s and 
expanded dramatically in 2000, have now swollen to overwhelm 
these markets.
    So the indirect regulation, the self-regulation, is where 
all the action is. That is where all the money goes. We have to 
squeeze that bubble back down and get back to solid, sound 
prudential regulation of these commodities.
    Mr. Bishop. Mr. Devine.
    Mr. Devine. Thank you.
    I, too, believe that we don't need too much regulation, but 
I do believe, and I do believe that the CFTC should be funded 
and have the authority for direct regulation. And I believe, 
unfortunately, it is at this point in time, after sitting here 
and following what is going on for quite a while now, I think 
it is up to you to put the pressure on the CFTC to exert their 
authorities. Because I fail to see that it is happening. I 
don't see that it is happening. But I do believe that they 
ought to be a stand-alone organization. I don't believe that 
there should be too much oversight of them.
    Mr. Bishop. You don't believe that there should be too much 
oversight of them?
    Mr. Devine. Of the CFTC. I think the CFTC ought to exert 
the authorities that they have. But I do believe that you, 
Congress, need to look at them and say, you guys have got to 
step up.
    Mr. Bishop. So you don't think the merger is a good idea?
    Mr. Devine. I do not. No.
    Mr. Bishop. Thank you.
    My time is up.
    Ms. DeLauro. Mr. Farr.
    Mr. Farr. Thank you, Madam Chair.

                              OIL FUTURES

    Mr. Lukken, I was interested in your earlier comment about 
the--in exerting your authority and the budget that we have 
approved for that, and the new additional responsibilities in 
the farm bill, of the $5 trillion, approximately $5 trillion, 
that flows through the exchange daily, what percent of that 
flow goes into the oil futures?
    Mr. Lukken. I think, on a percentage-wise, our markets are 
85 percent financial. I think roughly 10 percent--let me make 
sure I have this right. I think 85 percent are financial 
products. And roughly 7 percent are agricultural, and the 
remaining are energy. If that adds up. Is that about right, 8 
or 9 percent energy? I think that is approximately about the 
right percentages.
    Mr. Farr. Is 10 percent all energy, or is that--I mean how 
much of that is natural gas, electricity? Are they all lumped 
together?
    Mr. Lukken. They are all lumped together. So I think crude 
oil is the largest of those contracts. Natural gas is probably 
second.
    Mr. Farr. And if the mission is to protect the public from 
manipulation, do you also look into whether, for example, the 
oil companies are manipulating by keeping the oil in the 
ground?
    Mr. Lukken. In May, we announced an ongoing enforcement 
investigation into crude oil products which includes us looking 
at physical storage, pipelines, and all the cash over-the-
counter as well as the futures markets.
    Mr. Farr. What about just sitting on the leases that they 
have, the Federal leases, offshore and onshore leases?
    Mr. Lukken. We haven't limited ourselves in what we are 
looking at.
    Mr. Farr. So you are looking at that, at whether--they have 
paid for these leases. They have 38,000 acres of leased land 
that they are not doing anything on.
    Mr. Lukken. We are certainly looking at whether people are 
hoarding oil or keeping oil off the markets to intentionally 
manipulate the markets.
    Mr. Farr. When will you know that?
    Mr. Lukken. It is ongoing. We hope to have results as 
quickly as possible.
    Mr. Farr. How about the impact of the things like the Arab 
oil embargo and other kinds of hoarding or withholding?
    Mr. Lukken. I don't think we have the ability to go after 
government entities; the CFTC does not.
    Mr. Farr. No, but you have the ability to discuss--maybe it 
isn't your responsibility, maybe it is the Energy Department, I 
don't know where it comes from--but the information about how 
much oil would be on the market if there wasn't this embargo.
    Mr. Lukken. We certainly talk with DOE about what we are 
seeing and what they are seeing. They are part of this task 
force that is looking into the supplies of crude oil as well as 
other commodities. We are always in discussions about that. And 
the participants in our markets are trading futures contracts.
    Mr. Farr. You are looking at refining capacity, oil line 
capacity, infrastructure capacity to see whether that is being 
fully utilized?
    Mr. Lukken. We are looking to see if anybody is 
intentionally utilizing any movements of oil to manipulate 
prices.
    Mr. Farr. We have this dentist mentality around there that 
everybody is talking about drill, drill, drill. And I wonder if 
in fact there is manipulation of oil not being drilled that 
could be, of refining capacity that is not being used that 
should be, of pipeline capacity that is not being utilized. We 
ought to get that information out before we just lose it.
    Mr. Lukken. I think that is something that DOE closely 
follows but certainly something that we would be interested in 
as part of this investigation.
    Mr. Farr. I am just curious as to how much time it is going 
to take to get that information. It is the mantra of some 
people here in Congress. I would like to refute that mantra 
with some good data. So?
    Mr. Lukken. Certainly. We are working as fast as we can. 
These are complex cases. They require resources, and if we find 
something, we will bring it as quickly as we can.
    Mr. Farr. Well we have another call.
    Thank you.
    Ms. DeLauro. I am going to try to see if we can get through 
a round here with the three of us before we have to go to vote. 
I think there will be four votes so what we will do, I am going 
to try to move quickly. I actually have three questions.

                           NO-ACTION LETTERS

    One has to do with the no-action letters. I think they are 
rather odd. The letter on June 17th to ICE says: The no-action 
position taken herein is taken by the Division only and does 
not necessarily reflect the views of the Commission or any 
other unit or member of the Commission's staff.
    That seems to be boilerplate language. But then when you 
take a look at what the director of enforcement for CFTC says 
about ICE in particular: A foreign board of trade listing for 
trading a contract which settles on the price of a contract 
traded on a CFTC-regulated exchange raises very serious 
concerns for the Commission. In the absence of certain 
preventive measures at the foreign boards of trade, these 
circumstances could compromise the Commission's ability to 
carry out its market surveillance responsibilities, as well as 
the integrity of the prices established on CFTC-regulated 
exchanges.
    Aren't the commissioners of the CFTC nominated, confirmed 
and paid to make decisions like this? Why are these letters 
done on such an arm's length basis by staff? And why don't the 
commissioners vote to approve or disapprove requests for no-
action letters?
    Mr. Lukken. This is something that started in 1996, I 
think, prior to Michael coming down to the agency. But we have 
limitations in our law that says that any individual can 
trade--must trade a futures contract on a U.S.-designated 
exchange unless it is located outside the United States. We 
also have a provision in our act that says we cannot regulate 
foreign boards of trade. So the discussion has been whether we 
can develop some policy to ensure that we are not regulating 
foreign boards of trade but we are allowing access to those 
foreign boards of trade. And this is the process that 
developed, but it was processed fully with the Commission's 
input.
    We held, in 1999, there was significant discussions about 
this issue. Eventually they adopted the no-action policy. In 
2006, again, when ICE linked a contract to one of our regulated 
contracts, the Commission again held hearings and put out for 
Federal comment on the issue of what we should do in this area.
    Ms. DeLauro. The process seems to be flawed.
    Mr. Lukken. Well, certainly, we have limitations as a 
result of our law. But also all of these no-action letters that 
come through the agency come through the Commission; they are 
fully aware of it. They have the ability to object to these as 
they come through. We could stop any of these as they are 
coming through. But it has worked well to ensure that global 
markets are properly regulated, but the CFTC is getting the 
right information to protect its marketplace.
    Ms. DeLauro. That it does not reflect the view of the 
Commission or any of the Commission's staff. I think it is a 
flawed process.
    Dr. Greenberger, I will give you a second.
    I want to ask a question of Dr. Cooper and maybe even Mr. 
Devine.
    Mr. Greenberger. Yes, I am the villain of the peace who 
drafted the template for the no-action letters, and 
essentially, the Commission could not reach--the commissioners 
could not agree on what to do, and they said, you take care of 
it. And we did.
    Now, that was supposed to be a temporary process in 1999 
until the commissioners enacted a rule. There is no rule today. 
Mr. Lukken is right. In 2006, they held a 1-day meeting to 
decide, and they re-endorsed the process of the staff making 
these decisions.
    Now one other point I just want to make quickly, because I 
know you are running, as you pointed out, in the no-action 
letter that Mr. Lukken's staff issued, on June 17th, they say, 
look, here are four new conditions, guys. If you don't meet 
them, we are going to bring enforcement action against you to 
register as a U.S. exchange. There is no doubt in that letter 
about the jurisdiction of the Commission that they can't deal 
with these people.
    I briefed this in my testimony elaborately. They are--this 
isn't located outside the United States. They are in the 
United, States. Trading our West Texas Intermediate contract in 
U.S.-denominated dollars. When they enter the United States--
and I dealt with these guys--they did not say, you can't 
regulate us. They said, please, grant us an exemption from 
regulation. We understand you can regulate us.
    Now the bargain that was struck was that they were foreign 
exchanges, not wholly owned by a U.S. corporation, and that 
they would not trade U.S. contracts in competition with U.S. 
exchanges. That changed in 2006, and that is why I believe 
these letters should be terminated.
    Ms. DeLauro. Dr. Cooper, let me ask you, you make some 
suggestions about what we should do. Your recommendations about 
how we ought to address these issues, can you just briefly kind 
of summarize those? I would love to get some sense----
    Mr. Cooper. There are five categories of things, and you 
have heard them already. And this comes primarily from our 
analysis of natural gas. One, we have to close the Enron 
loophole definitively, effectively. The presumption should be 
regulation, and the exception should be self-regulation. So 
everyone has to report, register, report, be certified, and you 
have to prove to the Commission that you don't need to be, not 
vice versa. Change the burden of proof.
    Second of all, we have to eliminate this funny money. The 
margin requirements, the capital requirements, have made it too 
easy to go there. Those are thing that the CFTC could actually 
effect that if it so desires by declaring an emergency and a 
problem of excess speculation.
    We have to reduce the ability to push up prices. Position 
limits are too low. The settlement window on natural gas is too 
short. We have to ban these conflicts of interest, where 
Goldman Sachs tells their pension funds, buy this stuff, buy 
the index, and then issues the report that says the price is 
going up, and then goes back and says, see the price is going 
up. That is a conflict of interest.
    We also, in a broader sense, have to restore the 
profitability of productive investment. We need to rebalance 
the attractiveness of making long-term investments in steel in 
the ground, assets, not asset-lite corporations, versus this 
flipping of paper which is basically sucking up our assets in 
this country.
    Ms. DeLauro. A quick question to you, Mr. Devine.

                             CREDIT ACCESS

    How might companies like you get credit access that you 
need to purchase the product for the coming winter should there 
be no market relief present? What are you going to do?
    Mr. Devine. What am I going to do? Right now, we are 
actively engaging with our banks to make sure we have the 
proper amount of credit that we need. We are lucky enough to 
have assets that we could leverage to get that kind of money 
that we think we need at this point in time.
    We are also working closely with our wholesalers to make 
sure that we have a kind of credit limit with them. However, 
they are becoming extremely tight as well. And that is becoming 
more difficult. In Connecticut, the Independent Connecticut 
Petroleum Association is working with the Small Business 
Administration to look into perhaps getting loans from them as 
well. There is no question about it that the fuel oil dealers 
in Connecticut are going to need a lot more money.
    Ten years ago, I would need about maybe $2 million a year 
to capitalize what I needed. This year, I am looking at $10 
million, perhaps $3 million in 1 month, probably January. For 
my company, that is pretty big, to wait sometimes 45 to 60 days 
for the money because my customers can't pay for it.
    Ms. DeLauro. I am going to bring the hearing to a close. I 
do know that Mr. Kingston wanted to come back. I have to bring 
the formal hearing to a close.
    Mr. Kingston, I believe, will be coming back, if you could 
for 5 or 10 minutes, I think there may be a question that he 
would like to ask, and I would like to afford him the 
opportunity to be able to do that.
    Let me just conclude with this comment. I do something 
called office hours every week in some town or city in my 
district. I was in a place called Naugatuck, Connecticut, a 
working, blue-collar middle-class community. A woman came to 
see me and she said, Rosa, and as she started to talk tears 
welled up. And she said, I don't know what to do. Tell me what 
I should do. Do I starve? Do I freeze? Do I not take my 
prescription drug medications?
    She said, I have worked hard all of my life. I raised two 
kids. I just can't make it.
    I went in to purchase a product and the gentleman said to 
me, Rosa--he wasn't angry. He said, what I think what I have to 
do is shut down my second floor, bring my kids downstairs. We 
can all sleep in the same place. It would be crowded, but that 
is the only way that I am going to make it.
    That is the reality. That is the reality. And we have to 
respond. We come to people who have the obligation and the 
jurisdiction to do something about what is happening out there. 
We look to experts for information from all perspectives to do 
this. This is a national crisis.
    And I hate to go back to the analogy again, but Bear 
Stearns appeared to be a national crisis as it was. We went 
with all deliberate speed to sort it out, to fix it, and so 
whether people liked it or did not like it, and they did 
something to keep the financial markets from crashing.
    Please, please, let's keep the American people from 
crashing and burning this winter. That is why we are holding 
this hearing. And we are going to continue to ask these 
questions. And we are going to continue to look at what the 
solutions are in order to turn this around. That is the reason 
why we came here. And it ought to be the reason why the 
governmental agencies responsible for doing this are doing 
their job as well.
    Thank you all very, very much for your patience, for your 
candor.
    I can yield to Mr. Kingston, so I will go to vote.
    I do have to come back. Mr. Kingston cannot close the 
hearing. There are rules and regulations around this 
institution.
    Mr. Greenberger. Get a no-action letter.
    [Recess.]
    Mr. Kingston [presiding]. Actually, I wanted to ask Mr. 
Greenberger a question, but Mr. Cooper, I will switch to you.
    You had talked about the hoarding of oil is in the ground.
    Mr. Cooper. Yes.
    Mr. Kingston. What ground would you be referring to?

                                HOARDING

    Mr. Cooper. Well, this is a global question, because they 
keep telling me about the global market. And so over the past 
decade, you have had a very, very vigorous effort by OPEC to 
manage supply. It is an illegal cartel that we have never 
challenged on legal grounds, but clearly, there is strategic 
underinvestment in production capacity in OPEC.
    Mr. Kingston. Let me ask you this, because I was recently 
over there and talked to them, and they said you come over here 
and whine about oil, but you will not build refineries and you 
will not drill on your own land. And when you talk about 
hoarding oil, the U.S. Government may be leading the way with 
85 percent of our offshore tied up and 65 percent of our land 
resources. And so, well----
    Mr. Cooper. In the U.S., you do have this immense number of 
idle leases. And so those are leases that, you know, maybe they 
were not economic at $30 a barrel when they were let, but at 
$100 a barrel or $80 a barrel, they are awfully economic. So 
the question of--and the minute you let the leases for these 
other environmentally sensitive areas, you are going to hear 
all kinds of other complaints why they can't go there. They 
don't have the rigs. An industry that does not have the rigs is 
clearly telling you that the supply side is not responding to 
increases in price. The question here is, you have got these 
idle leases and----
    Mr. Kingston. Let me say what the oil companies say about 
these idle leases. You know, they are saying--first of all, 
they have paid a lot of money for it. Then they pay a lot of 
money to research to see what you just said, how expensive is 
it to extract the oil from that particular piece of land. And 
then these leases do expire. So I don't know what the 
definition of ``idle lease'' is. I know what ``idle'' really 
means, but I think it has become a political term which we need 
flesh out and say what is idle?
    Mr. Cooper. They have them, and they ain't working them. 
That is a pretty good definition.
    Mr. Kingston. Well, but they are working them.
    Mr. Cooper. Well, but there is a lot of them that they are 
not working.
    Mr. Kingston. How do you know that? Because I got to tell 
you, I don't know that they aren't working them, but I know 
they tell me that they are working them.
    Mr. Cooper. They are working some of them.
    Mr. Kingston. Maybe Mr. Lukken's committee, in response to 
what he just told Mr. Farr, is the answer here. Are they 
working those leases or not? Do you know? Are we finding out? 
Is anybody finding out? We are throwing around a term, ``idle 
lease.''
    Mr. Lukken. Right, but we are looking at illegal 
manipulation, so----
    Mr. Kingston. A little bit out of your realm.
    Mr. Lukken. This is out of our lane a bit, but if they are, 
for business purposes, either developing or not developing, 
those are legitimate business purposes and are not a part of 
our manipulation investigation.
    Mr. Cooper. But they are a part of the strategic 
underinvestment in resources, which is clearly evident in OPEC.
    Mr. Kingston. Let me tell you this, Dr. Cooper, as a Member 
of Congress, people say to me, well, I guess the oil companies 
are a big presence up there. I don't think they are. I think 
they are fat, dumb, and happy exactly in this situation. I 
don't have Exxon Mobile knocking on my door to drill in ANWR or 
offshore. I do have lots of people who are paying $4 a gallon 
at the pump who are saying do that.

                                  ICE

    Let me ask Mr. Greenberger a question. On the London market 
that you have raised some concern about ICE, what is the 
difference between the U.K. Regs and the CFTC regs? Are they 
better? Are they worse? Are they inferior?
    Mr. Greenberger. Well, I am sure Mr. Short will disagree 
with me, but I think they are much inferior. I mean, I think 
that is the whole reason people are so upset that this big bank 
failed over there, and the European Union is saying, hey, 
guys--there is an article I cite in my testimony from Jeremy 
Grant in the Financial Times where he described their 
regulatory techniques, and it is really dialoguing with people 
who are not doing what they should be doing. And that might 
have been fine when London was a little city--when I say 
``city,'' the city is like Wall Street, and they all knew each 
another--but now it is a world market.
    Mr. Kingston. Well, let me stop you right there. You know, 
we are in this global situation, and markets tend to follow 
countries with less regulatory environment for good reasons and 
perhaps for some reasons that aren't so good. But let's say 
that Congress, through some act, closed down ICE Atlanta. You 
know, just decided, because I think Congress can be very 
dangerous on things they don't understand. And if you watch the 
ridiculous debate we had on horse meat last year, you would 
know what I mean.
    But Mr. Short, suppose that happened, if the regulatory 
burden became too much on you, what would you guys do?
    Mr. Short. First of all, the reason we are sitting down at 
this table and working with Members of Congress and working 
with the CFTC is, you know, we want access to the United States 
and we think that the U.K. is an equivalent regulator. I 
think----
    Mr. Kingston. Well, I guess, here is what my question is: 
Wouldn't it be the case that if ICE did not move to London, 
somebody else would pick up your mantle and move to London or 
Dubai or Singapore or Shanghai?
    Mr. Short. I think there is a real risk of having too heavy 
a hand here and driving business offshore. That is not ICE. I 
mean, we are here at the table doing everything we have been 
asked to do. But I think there are some risks.
    And just to circle back on the issue of FSA regulation, it 
is different, but these telephone calls that Professor 
Greenberger talks about, they happen with a high degree of 
frequency. You have kind of the equivalent of handlers, unlike, 
you know, in the U.S. So while they may not be, I guess, as 
prescriptive or have brought as many enforcement actions, they 
are sitting there with you.
    I can't sit here and say that the FSA was a model of 
regulatory sanctity in the bank failure, but I don't think our 
regulatory system is perfect either. And we have had plenty of 
black eyes that we would be called to account for.
    Mr. Kingston. Go ahead.
    Mr. Greenberger. Well, I was just going to say, I think 
your question about whether they will go abroad is a really, 
really good one, and it is a fundamental one. And I am pleased 
to hear ICE will not go abroad. And I don't want ICE to go 
abroad. I believe ICE should be more regulated, but I think 
they are a valuable contributor to these markets. There is some 
consolidation on these exchanges that people are not happy 
about.
    But for whatever it is worth, and I have this in my 
testimony, look, I was sitting in the Division of Trading and 
Markets--Mr. Lukken was right. In 1996, Germany came before I 
got there and said, we want to bring our terminals in the 
United States, and we are not going to be trading U.S. products 
in competition, but we want to have our terminals in. And I 
think nobody thought, well, what difference does it make? We 
will get them in. We will get some assurances from them. Well, 
it jumped into the number-one world exchange just because they 
had terminals in the United States. I arrived on the scene, and 
I have foreign regulators down my hallway saying, hey, you let 
Germany in, let us in, too. By that time, the Commission says, 
oh, this is a really big deal, and we do a dance; should there 
be a rule? And they settled on the no-action letters.
    Now, my reading of the Web site is there are 15 exchanges. 
I think I heard Walter say at one point there are 20. But they 
are all coming this way. This is where the liquidity is. This 
is where the markets are. After all, ICE could have said, we 
will set up shop up in London.
    Mr. Kingston. But at the same time, your fear and my fear 
seems to be the same, that they really don't have, since they 
don't have the commodity; they are a paper exchange. They are 
mobile. They could move anywhere they want if we over-
regulated.
    Mr. Cooper. Let me jump in here, if you assert the 
jurisdiction over U.S.-designated commodities on U.S. soil, 
okay, and you intend to regulate and you say, we will regulate 
all of that stuff, they will come and register. They will 
succumb, submit to our regulation. They need to be trading in 
legal tender; that is U.S. dollars.
    Mr. Kingston. You are talking about any country?
    Mr. Cooper. The exchanges will come, absolutely. Because 
they want to be able to trade in this product legally.
    Now what are the traders going to do? And I get a little 
flamboyant here, because you heard about the phone call. If you 
are sitting in America and you place that phone call to a 
foreign exchange trading in a U.S.-designated commodity that 
has not registered, you broke the law. And let's enforce that 
law. And I believe most traders in America don't want to live 
in Bangladesh or Sing Sing. They will obey the law, and they 
will not trade illegally. And countries that have agreements 
with us, that is extradition agreements, will in fact say, we 
want an exchange, we will register.
    So, therefore, this is about U.S. authority, U.S. 
jurisdiction, and clearly, our product is very attractive. So 
you can in fact make the world conform to your regulatory 
scheme, not reduce your standards to theirs.
    Mr. Kingston. Okay.
    Mr. Short.
    Mr. Short. I just wanted to clarify something. ICE will not 
come to the United States to register as a designated contract 
market, and let me explain why. You can't have duplicative 
regulation. You need a lead regulator with a lead regulatory 
system. There can be regulatory equivalency. ICE is all about 
the dialogue that we have had with the CFTC about the need to 
have regulatory equivalency, but there has to be a read 
regulator.
    It would be like somebody standing up and saying, the New 
York Stock Exchange has screens in the United Kingdom, and 
someone in Parliament standing up and saying, well, you have 
got to become a recognized investment exchange here. That is 
not the way global electronic trading will ultimately work. And 
there are some very real problems with regulatory overlap and 
regulatory burden that I don't think anybody here at this table 
is talking about.
    I think the proper way through this thicket is to look for 
regulatory equivalency. And by all means, if you don't think 
there are important regulatory steps being taken, there should 
be regulatory dialogue, and perhaps the screen-based access 
letter should be modified. But the idea of coming and 
registering as a DCM is just a terrible idea, because you are 
going to have CME registering in China. NYMEX registering 
around the world.
    Professor Greenberger is talking about the past, about the 
United States being the be all, end all. I am talking about the 
future. We won't be in that position for long if we do that.
    Mr. Kingston. Well, it does worry me, as somebody who just 
came back from Dubai and saw the largest building in the world, 
and the e-mail that goes around and tells you that 15 percent 
of the cranes in the world are in Dubai. I think that is 
accurate. If anything, probably under. I wonder what is going 
on in the Middle East when you have an emir making the laws 
with no regulation, and I just think it could be wide open.
    Mr. Greenberger. I was just going to say, Mr. Kingston, one 
of the things is also, you know, Dubai has gotten a no-action 
letter to have U.S. trading terminals and trade West Texas 
Intermediate and the principal regulator--now, Mr. Lukken is 
tightening that up. I am going to concede that. He just sent a 
letter the other day. But the principal regulator will be the 
Dubai Financial Services Authority.
    Now, I want to make it clear, I don't want to regulate 
every foreign exchange. I don't know whose figure is right, and 
I will take Walter's word. It is 20 foreign exchanges are here. 
Only two of them are trading U.S. West Texas Intermediate. 
Well, let me be clear. ICE Futures Europe is trading West Texas 
Intermediate. Dubai has permission to do so and says it will do 
so soon. My view is I don't want to--and I am a minority on 
this because some of the people who are supportive of my views 
would say, let's regulate everybody. I don't want to regulate 
Germany. They are not competing with us. They came in and are 
following the rules. It is a German exchange trading German 
product. But if you come in and put U.S. trading terminals in 
the United States and trade our West Texas Intermediate, they 
should register.
    Now also, do they have to register and have dual 
regulators? Why can't they do what ICE has done and set up a 
U.S. subsidiary and have that subsidiary be regulated rather 
than the whole exchange?
    Mr. Short. I will answer that question directly if I could. 
We have European and U.K. customers that feel very strongly 
about U.K. regulation, U.K. bankruptcy law, keeping capital in 
a U.K. clearinghouse. In the U.S., if we came, we would have to 
split out our energy commodities across different exchanges. 
They would be cleared in different clearinghouses, and these 
are real regulatory obstacles. Our customers may not follow us.
    Now I think that would be a great result in some people's 
mind, but it is one, from an operational standpoint, is just 
not the right result if you can get there through regulatory 
equivalency.
    Mr. Kingston. I yield back.
    Mr. Cooper. Let the FSA recede to CFTC for U.S. 
commodities. If U.K. customers don't want to be regulated by 
U.S. regulators for U.S. commodities, let them trade Brent. 
They can trade Brent. We won't regulate Brent. We will regulate 
WTI traded in the U.S.
    Mr. Short. I would just add one point there. The idea that 
WTI is a, quote, U.S. commodity is--it has a U.S. delivery 
point, but if you really scratch the surface and you look, it 
is just a grade of light sweet crude oil. And there are a 
laundry list of substitutes for that grade of crude oil, and we 
import most of it in this country.
    Mr. Cooper. How much WTI is exported?
    Mr. Short. I didn't say any WTI was exported.
    Mr. Cooper. There is a physical reality here we ought to 
remember. WTI is drilled here, produced here, and consumed 
here.
    Mr. Short. Check the NYMEX contract spec.
    Mr. Kingston. So it is not?
    Mr. Short. Substitutable grades under the NYMEX contract 
include Brent, Nigerian, Bonny, Forties. You are just factually 
wrong.
    Mr. Cooper. How much is exported? I ask you--I will tell 
you. Zero.
    Mr. Short. I don't think----
    Mr. Cooper. It goes into American refineries.
    Mr. Short. If you are talking about something----
    Mr. Cooper. Well, there is a physical reality.
    Mr. Short. If you are talking about West Texas, the actual 
stuff that comes out of the ground in Texas, I doubt much of 
any. But that really isn't the question. We are talking about 
markets that are priced on the margin, and we are importing 
most of this into our country. And I think we have got to face 
the fact that we have got an energy problem here, and that is 
being reflected in the markets. And this isn't any effort to 
lay blame at anyone's doorstep, but we have got a problem. And 
regulation is not going to solve that, I am afraid, in terms of 
bringing down the price of oil.
    Mr. Greenberger. The other thing, Mr. Kingston, because 
your question is really, as you can see, a provocative one and 
a good one, but what we are arguing about here is the 
speculation, speaking of the speculation, that people will go 
abroad. I am sure your constituents are like everyone else's 
constituents; they are being hurt real hard.
    Mr. Kingston. You know, one of the things that I don't get, 
why does the price of gas at the pump go up $0.08 in 1 day, and 
then it crawls back down. And you may see it yourself, Mr. 
Devine. But the spikes are always like that, and then it just 
kind of----
    Mr. Cooper. It is a theory called rockets and feathers. A 
series of articles analyzing the oil price, and basically, it 
goes up like a rocket and comes down like a feather because 
there is market power there. And so you hold on to every penny 
you can for as long as you can. And it has been in the 
literature for 30, 40 years, and the last round said, yeah, it 
does look like rockets and feathers, and that is a result of 
market power.
    Mr. Kingston. Madam Chairman.
    Ms. DeLauro. This has been a great hearing.
    As it turns out, I do have one more question, which has to 
do with Mr. Lukken. We did pass legislation on June 26th in the 
House, a remarkable margin, 402 to 19. By those numbers, it is 
a bipartisan piece of legislation. It directs the CFTC to use 
all of its authority, including its emergency powers, to curb 
excessive speculation in the energy markets.

                   SPECULATION IN THE ENERGY MARKETS

    I wanted to get your view of the legislation, and would you 
use that emergency authority if you were to find such 
speculation?
    And I guess the third piece is, because of your inability 
in terms of regulating these exempted entities, does this in 
any way compromise the legislation in terms of what you are, 
does this compromise your ability to carry out the legislation?
    Mr. Lukken. Certainly, in my written testimony, what we 
have been doing over the last year is trying to look for 
evidence that speculation is driving these price. Whether that 
is looking into the swaps markets to seeing if the swap dealers 
are bringing excessive speculation that is driving prices; 
whether it is happening on exempt commercial markets as part of 
the farm bill; whether it is happening on foreign boards of 
trade, we are looking for that. So certainly we are using every 
existing authority that we have now.
    Ms. DeLauro. So you would use the emergency authority if 
you found such speculation?
    Mr. Lukken. Well, we have a broad range of emergency 
authority. And certainly, if we felt it was necessary--
emergency authorities traditionally have been used in very 
distinct short-term situations. We have used it four times. Not 
really in the last 25 years have we used it. But it has 
typically been either an active manipulation of the markets, so 
we see somebody illegally manipulating the market, and we have 
to get them out of positions; or a huge disruption in supply, 
such as the Russian grain embargo. So we used it four times 
over the last 33 years.
    Raising margins is one of the issues that I think has been 
discussed as part of getting speculators out of the markets. I 
think my personal concern is that there are speculators on both 
the short and long side of the market.
    Ms. DeLauro. Yes or no? Would you use the emergency 
powers--we passed a piece of legislation in this body. The 
House did. The Senate may be doing that in the next couple of 
weeks, presuming it is the same piece of legislation. I don't 
know whether or not the President has any intention of signing 
such a piece of legislation. But we passed a piece of 
legislation that directs--it says it directs. It was not a 
Sense of the Congress. It was not a resolution. It was 
specifically saying, directing you to use it. If you were to 
find--I am just asking, and this is if, would you use the 
emergency authority if you did find the speculation? And this 
is an if.
    Mr. Lukken. Certainly, if we find that excessive 
speculation is driving prices, we will use all authorities in 
order to stop that.
    Ms. DeLauro. Okay. Thank you.
    Mr. Kingston. I have another question.
    Mr. Lukken, I really would like you to explore this idle 
versus active lease definition. You said to Mr. Farr that you 
are looking at everything. So the leasing question has to come 
under some of your subcommittee work or your committee on it. I 
think it would be very interesting for us to have a definition 
of idle versus active.
    Mr. Lukken. I think, in reference to Congressman Farr, I 
was talking about our manipulation investigation, and we are 
looking at all aspects of how crude oil is transported, stored, 
looked at. So we haven't ruled out any way. If somebody is 
intentionally holding back oil from the markets, that is 
something we would be interested in. It is for legitimate 
business purposes, whether they don't think there is oil there 
or there is other reasons not to drill, that would not be 
something that we would be investigating.
    Mr. Kingston. Well, I do not support windfall profit taxes 
and punitive measures on that. But I think what Ms. Kaptur said 
reflects the view of so many millions of people that Exxon 
Mobil had a $40 billion profit. And my question would be, is 
there anybody out there who is handling these leases to say, 
you are not drilling here? Because I can tell you, Ms. DeLauro 
don't agree probably on a lot of this energy issue, but I don't 
ever get lobbied by an oil company asking for more drilling 
area.
    Do you?
    I mean, so to me, they are fat, dumb, and happy in this 
current market. I have been a Member of Congress for 16 years, 
and I remember one time there was some lease issue off the Gulf 
that some oil company wanted to talk to me about, but I--to me, 
they like this market as is. And so you could be that thin line 
between the consumer, you know, to make sure that you are not 
kind of looking at, well this is capitalism, and is not--you 
know, just steady hand at the wheel here.
    Mr. Greenberger.
    Mr. Greenberger. Just quickly, I would say that the FTC was 
also asked to look into these markets in the December 
legislation, so you should also be--your question is an 
excellent question. They are also looking, and they should be 
asked the same thing you are asking of Mr. Lukken.
    Mr. Kingston. Well, let me ask you--do I have more time?
    I want to close with Mr. Devine but only after asking the 
other four panelists a question. Candidate forum. You guys are 
all running for Congress.
    Dr. Cooper, you are going to go first. We are going to ask 
you, are oil prices being driven up by speculators?
    Mr. Cooper. $40 to $60 a barrel. That is $1 to $1.50. And 
think about it, if oil were $3 today, would we be having this 
hearing? We probably would not be. We had adjusted. So I 
believe there is a premium there. Everything I look at says 
there is a premium there. The fundamental models and whether it 
is excessive speculation or cycles, we can fix it.
    Mr. Kingston. Hold on one second, I am going to add a sub 
question to this.
    Why, Mr. Short, particularly for you and Mr. Lukken, why is 
this happening now? Say 5 years ago, Mr. Devine did not have 
this problem. Why suddenly is it happening now? Because I think 
Dr. Cooper is going to tell me it is because of the speculators 
using the loopholes and the trading volume; people have found 
out another way to make a buck. And so the supply and demand 
curve really isn't that out of whack; it is the speculation.
    So I will start again with my friend Dr. Cooper who has 
probably a very unpassionate answer to this.
    But would you----
    Mr. Cooper. If you look at the curves, January 2006 was the 
key date when we began to make these changes to--and I have now 
learned about the swaps guys coming in and saying, now we want 
to be treated--it is the explosion of value, of dollars in 
those markets at that time. With ICE coming in, WTI came in at 
the same time. If you look the at curve----
    Mr. Kingston. I saw your charts. I want to get Mr. Short to 
look at those.
    Mr. Cooper. That is a causal and temporal relationship to 
which we put the theory around about how that trading pulls the 
price up.
    Mr. Kingston. Okay.
    Candidate Greenberg.
    Mr. Greenberger. Oh, boy, would I love to do it?
    Look, I have come to the view that I would like to be able 
to tell my constituents is that there is a debate going on now. 
I have one view. My personal view as a candidate is that there 
is speculation. But, by God, we have people looking into this 
market, and in 45 days, we are going to have answers. I will 
tell you then. And by God, if there is speculation, I will do 
everything I can to stop it.
    But what you do not have is this kind of aggressive, full 
court investigation.
    Now look, one thing I will say about the CFTC, they are 
being asked to do an awful lot. They are short staffed. Walter 
is making a lot of things. And I think they could say--and I 
know your committee is trying to give them more--look this is a 
lot to ask us to do.
    But the acting chair has set up an interagency task force. 
I think the Bush administration, what I would say is, you know, 
45 days, get us an answer. Get Greenberger to shut up. I want 
to show him it is supply-demand. And by God, if you do, I will 
go back to teaching counterterrorism law.
    But that is what I really feel now. We need answers, and I 
just came from the House Ag Committee, and there is 
speculation, where is the money going? Here, there, and 
everywhere. And all I say is, give me an answer.
    Mr. Short. I guess, first of all, I wouldn't run for 
anything. I couldn't do your jobs.
    So I will note that I think markets largely work in an 
efficient manner, and we are talking about the future price of 
a very scarce commodity with a lot of different factors at 
play. I don't think this is a loophole question.
    With all due respect to Dr. Cooper, if you look at the 
actual statistics of when we launched our WTI contract and 
actually started building our market share, the price of oil 
was going down. I want to emphasize that; it was going down. 
And we have been losing our market share as it is going up. So 
I don't think it is a loophole issue.
    I think there are a lot of different fundamentals at work 
here, including the devaluation of the dollar. And look, people 
are jittery given the very tight, you know, supply-demand 
situation we find ourselves in today. I couldn't hazard a guess 
as to, you know, if there is any type of speculative premium 
built into it.
    What I will say is that I am a believer in markets and that 
if, in any market, speculators can, you know, impact a price 
for a short period of time. But they can't do it for a long 
period of time out of balance with physical supply and demand 
fundamentals.
    Mr. Lukken. Certainly supply and demand factors are 
significant in the price of crude oil and other commodities. 
But as a candidate, I would do exactly what you are doing, 
which is holding the agency accountable for doing its job. And 
we are trying to do as best we can, the employees at CFTC, with 
historically low staffing levels, to do everything we can to 
ensure that speculation is not occurring. We have not found 
evidence that it is, but we all understand that we have to keep 
looking under every rock possible to ensure that it is not 
happening. And we owe that to the American public.
    So we are doing that through fixing the foreign boards of 
trade issue, exempt commercial markets in the farm bill, 
speeding up implementation of that. We are doing that with 
regards to swap dealers. I think we are trying to address that.
    I agree that, as candidates, you are doing the right thing. 
I have been up here six times to talk to Members of Congress to 
try to educate and inform so that people can make educated 
decisions as policymakers.
    Mr. Kingston. Mr. Devine, I don't want to make you the 
voter and you choose one of them. But what I would like you to 
answer, I mean, you have been sitting here. You are an 
intelligent businessman. You have been listening to all of 
this. You are on the front line of these fuel prices. You know, 
what did you think today? We have some really smart people 
here.
    Mr. Devine. Yes, and I am actually very honored to be here.
    I would get involved in speculation that if the margin 
rates were increased, the price of oil would probably be 
decreased. I think that, in answering Chairman DeLauro's 
question earlier a little bit more, regarding what oil 
companies need to do going forward, is cut back on employment, 
which we have done. And it is going to happen more, which means 
the unemployment rate is going to go up. I think that stop 
investing in growing markets, which we have done in bioheat 
unfortunately for this year. We put off a major piece of work 
that we were going to do to our terminals. That is all going to 
stop, which is going to slow the economy.
    But I think that we have a huge challenge on our hands. I 
do think we need an energy policy, but I think that we have to 
find out if the speculators are moving this market. And I think 
they are. I think that the speculators--I think there is 
speculation in this market. I am not a professional. I am not a 
trader, but the markets are moving very, very volatilely, and 
they are very, very high which creates in my industry just-in-
time inventory, which when we do get to a cold winter, unless 
that oil is there, it is going to be extremely hard to get. So 
not only will we have a difficult price to deal with, we are 
going to have a difficult time getting product, because my 
wholesalers right now are telling me, if you don't have a 
contract for July, don't bother coming and picking up oil 
because you are not going to get it because we are not going to 
invest in it now, because if it drops tomorrow by 30 or 40 
cents and we are holding a million gallons, then we are out 
400,000 bucks. That is the reality of it. That is a scary 
thing.
    And it is energy. It is energy. Natural gas is up 86 
percent since January. It is going to be a tough, tough winter.
    Thank you very much.
    Ms. DeLauro. [presiding]. Again, thank you all very, very 
much for being here.
    And again, I can't pass up this one point, though. And I 
think Professor Greenberger said, get us some answers. And I 
appreciate--I think it has been important for Members of 
Congress to take this issue on, as tough and as complex as it 
is, to begin to learn some things about it.
    I will speak for myself, we are, you know--I am not an 
economist, and I am not an academic here, but trying to get 
hold of this very, very serious issue. But we do have 45 days 
or less. Let's get some answers, whatever the outcome is going 
to be. So that we can move forward.
    Again, thank you. This hearing is concluded. I appreciate 
it.

           

                           W I T N E S S E S

                              ----------                              
                                                                   Page
Acheson, Dave....................................................   213
Almanza, A. V....................................................   363
Calfee, J. E.....................................................   134
Chappell, M. A...................................................     1
Cooper, Mark.....................................................   915
Devine, Tom......................................................   915
Goodman, J. L....................................................     1
Gould, Eldon.....................................................   739
Greenberger, Michael.............................................   915
Keenum, M. E.....................................................   739
Lasseter, T. A...................................................   739
Levi, Jeffrey....................................................   213
Lukken, Walter...................................................   915
Malarkey, M. A...................................................     1
Murray, Greg.....................................................   213
Pellett, N. C....................................................  1063
Powers, J. H., III...............................................   134
Raymond, Dr. R. A................................................   363
Short, Johnathan.................................................   915
Steele, Scott..................................................363, 739
Taylor, M. R.....................................................   213
Wolfe, S. M......................................................   134
Woodcock, Janet..................................................    69
Yost, M. W.......................................................   739

 
                               I N D E X

                              ----------                              
                                                                   Page
Center for Biologies Evaluation and Research.....................     1
    Biologics................................................11, 59, 66
    Biotechnology Products, Regulation...........................    58
    Blood Donations..............................................    36
    Blood Donor Restrictions..................................... 33-34
    Blood Shelf Life.............................................    38
    Blood Supply.................................................52, 65
    Critical Path................................................    56
    Drug Recall Process..........................................    51
    Drug Safety Plans............................................    51
    Emergency Preparedness.......................................    62
    Emerging Science.............................................    61
    Facility Inspections.........................................    57
    Global Health................................................    18
    Hereditary Hemochromatosis...................................    41
    Human Tissue, Inspection of Firms that Recover...............    60
    Inspection of Foreign Biologics Firms........................    29
    Pandemic Influenza...........................................    64
    Pandemic Preparedness........................................    12
    Patent Protection............................................    42
    Questions Submitted by Representative Bishop.................    42
    Questions Submitted by Representative Farr...................    41
    Questions Submitted by Congressman Kingston..................    56
    Questions Submitted by Congressman Latham....................    64
    Questions Submitted by Representative Kaptur.................    52
    Safety.......................................................    14
    Tissue Recipient Tracking....................................    28
    Tissue Recovery..............................................    26
    Tissue Regulation.........................................22-23, 27
    Tissue Retrieval.............................................    39
    User Fees.................................................... 24-25
    Written Statement, Jesse L. Goodman, Director, FDA Center for 
      Biologics Evaluation and Research..........................     9
Center for Drug Evaluation and Research..........................    69
    Abbott Manufacturing Violations..............................   200
    Additional Funding...........................................    97
    CDER Budget, User Fees.......................................    98
    Center for Drug Evaluation and Research......................85, 98
    Citizen Petitions--Generic Drugs.............................   131
    Clinical Trial Inspection Training...........................   125
    Clinical Trials, Database....................................   120
    Clinical Trials.............................................86, 120
    Congressional Oversight......................................   196
    Counterfeit Drug Web Sites...................................   117
    Counterfeit Drugs............................................    93
    Critical Path................................................    72
    Database Cost................................................   122
    Different Standards for Devices and Drugs....................   197
    Downgrading Enforcement Action Recommendations...............   125
    Drug Approval Time...........................................    90
    Drug Establishment Database..................................   118
    Drug Regulation, Value.......................................    76
    Drug Safety Funds............................................    99
    Drug Safety..................................................    79
    Employee Morale..............................................   130
    Estriol......................................................   204
    FDA Funding Sources..........................................    94
    Foreign Counterfeit Drugs....................................   116
    Foreign Drug Establishments..................................    85
    GlaxoSmithKline Manufacturing Violations.....................   126
    Globalization................................................78, 92
    Hatch-Waxman.................................................   189
    Human Capital Survey Results.................................   182
    Human Drugs Program, Funding.................................    75
    Imported Drugs...............................................   111
    Imports and Re-importation..................................92, 118
    Improving Inspections........................................   112
    Industry Influence on FDA....................................   129
    Inspection of Foreign Manufacturing Facilities.............111, 120
    Inspectors.................................................119, 122
    Lack of Funding..............................................   178
    Medication Guide.............................................   131
    Neurontin/Gabopentin.........................................    94
    Office of Surveillance and Epidemiology....................133, 193
    Official List of Drugs.......................................86, 87
    Opening Statement, Dr. Calfee................................   163
    Opening Statement, Dr. Powers................................   146
    Opening Statement, Dr. Wolfe.................................   135
    Outsourcing Regulatory Functions.............................   178
    Post-Marketing Study.........................................86, 89
    Prescription Drug User Fee Act.............................180, 185
    Private-Sector Incentives....................................   202
    Problems with the Administration.............................   183
    Questions Submitted by Representative Farr...................   204
    Questions Submitted by Representative Hinchey................   209
    Reduced Funding for Inspections..............................   113
    Reduction in Warning Letters.................................   128
    Regulatory Burdens...........................................   201
    Request for Investigators....................................   114
    Risk-Based Inspections.......................................   132
    Safety First.................................................    72
    Trasylol.....................................................   186
    Unapproved Uses of Drugs...................................187, 199
    Union of Concerned Scientists................................   181
    User Fees....................................................    98
    Virtues of Market-Driven Incentives..........................   198
    Written Statement, Dr. John E. Calfee, American Enterprise 
      Institute..................................................   165
    Written Statement, Dr. John H. Powers, Assistant Professor, 
      George Washington University...............................   148
    Written Statement, Dr. Sidney M. Wolfe, Public Citizen's 
      Health Research Group......................................   139
    Written Statement, Janet Woodcock, Chief Medical Officer, FDA    74
Center for Food Safety and Applied Nutrition.....................   213
    Access to Facilities in China................................   334
    Agency Coordination..........................................   283
    Agency Reorganization........................................   283
    China Office Job Descriptions................................   361
    Country of Origin Labeling System (COOL).....................   294
    Epidemiology.................................................   280
    EU Food Regulation...........................................   282
    FDA and CDC Interaction......................................   268
    FDA and USDA Coordination....................................   280
    FDA Authorities..............................................   267
    FDA Beyond Our Borders.......................................   270
    FDA Presence in Five Countries...............................   332
    FDA-State Partnerships.......................................   326
    Food Protection Plan.........................................   232
    Food Safety Modernization Act................................   214
    Food Safety, More Funding for................................   274
    Foodborne Illness Outbreaks..................................   213
    Fresh Produce..............................................226, 231
    GAO Report--International Food Safety........................   322
    GAO Report...................................................   214
    Import Safety................................................   232
    Imported Fruits and Vegetables...............................   269
    Inspection Budget............................................   294
    Intention Adulteration.......................................   330
    Lessons Learned..............................................   287
    Mexican Import Safety........................................   320
    Nationwide Food Safety Program...............................   277
    Opening Statement, Dr. David Acheson.........................   217
    Opening Statement, Greg Murray...............................   259
    Opening Statement, Jeffrey Levi..............................   248
    Opening Statement, Michael Taylor............................   235
    Private Sector Consequences..................................   215
    Produce Distribution Chain...................................   293
    Produce Trace Back...........................................   293
    Product Traceability Initiative..............................   269
    Product Tracing..............................................   227
    Recall.......................................................   328
    Revenue-Based Insurance Program..............................   278
    Salmonella............................................225, 263, 274
    Sick Americans...............................................   289
    Third Party Certification....................................   326
    Tomato Imports, Increase in..................................   271
    Tomato Industry, Losses......................................   285
    Tomatoes and the Salmonella Outbreak.........................   274
    Trace-Back Authority.........................................   267
    Written Statement, Dr. David Acheson, Associate Commissioner 
      for Foods, FDA.............................................   220
    Written Statement, Greg Murray, Murray Farms, GA.............   261
    Written Statement, Jeffrey Levi, Executive Director, Trust 
      for America's Health.......................................   250
    Written Statement, Michael Taylor, Research Professor, George 
      Washington University......................................   238
Food Safety and Inspection Service...............................   363
    Antemortem Inspections.......................................   723
    Athens Facility..............................................   703
    Bovine Spongiform Encephalopathy (BSE)................376, 407, 446
    Chinese Chicken..............................................   589
    Codex Alimentarius...........................................   679
    Condemned Product............................................   656
    Consumer Information.........................................   703
    Country-of-Origin Labeling (COOL)............................   455
    Domestic Inspections.........................................   599
    E. Coli Testing..............................................   571
    Egg Products.................................................   700
    Emergency Response...........................................   423
    Enforcement..................................................   705
    Exempt Establishments........................................   669
    Food Emergency Response Network (FERN).......................   674
    Food Safety Assessments......................................   455
    Food Safety Research.........................................   593
    Food Safety................................................451, 708
    Foodborne Illness Data................................433, 440, 460
    Foodborne Illness............................................   456
    Foreign Inspection and Imports...............................   606
    Foreign-Owned Establishment..................................   452
    Hallmark/Westland..372, 404, 434, 442, 450, 458, 467, 468, 721, 724
    Homeland Security............................................   715
    Humane Handing Noncompliance.................................   445
    Humane Handling..............................................   451
    Humane Methods of Slaughter Act..............................   722
    Import Safety..............................................394, 419
    Information Technology.......................................   647
    Inspection Activities......................................573, 731
    Inspection Personnel Vacancies.............................436, 728
    Inspector Training...........................................   690
    Inspectors...................................................   681
    Interstate Shipment..........................................   436
    Lab Accreditation............................................   667
    Mandatory Recall Authority...................................   467
    Natural Claims...............................................   720
    Non-Ambulatory Disabled Cattle...............................   446
    Opening Statement, Dr. Richard A. Raymond....................   365
    Plant Surveillance.........................................442, 444
    Poultry Slaughter Facilities.................................   575
    Public Health Data Infrastructure............................   410
    Questions Submitted by Chairwoman DeLauro....................   592
    Questions Submitted by Representative Hinchey................   728
    Questions Submitted by Representative Kingston...............   720
    Questions Submitted by Representative Kaptur.................   731
    Recall Authority.............................................   727
    Recalls...............................................447, 659, 734
    Reporting Foodborne Illness..................................   448
    Retail Distribution Lists........................438, 441, 442, 469
    Retail List Rule.............................................   728
    Retail Rule..................................................   439
    Risk-Based Inspection......................................451, 574
    Small and Very Small Plants...........................449, 698, 725
    Small Producers, Protecting..................................   734
    State Inspection...........................................447, 653
    Surveillance/Increased Inspection Activities.................   457
    Tests........................................................   671
    TOPPS Recall.................................................   571
    Trade Issues.................................................   646
    Training and Inspection Coverage.............................   457
    United Food Group Recall.....................................   587
    User Fees..................................................453, 717
    Veterinary Loan Repayment Program............................   447
    Worker Safety................................................   576
    Written Statement, Alfred V. Almanza, Administrator, FSIS....   401
    Written Statement, Dr. Richard A. Raymond, Under Secretary 
      for Food Safety............................................   369
Farm and Foreign Agricultural Services...........................   739
    Administrative Expenses......................................   829
    Administrative Support.......................................   772
    Agricultural Knowledge Initiative with India.................   837
    Agricultural Trade Offices...................................   840
    Bi-national Agricultural Research and Development Fund (BARD)   842
    Buyout Authority.............................................   846
    China........................................................   846
    Cochran Fellowship Program...................................   846
    Commodity Credit Corporation...............................747, 766
    Compliance Activities........................................   804
    Conferences..................................................   849
    Conservation Programs........................................   748
    Conservation Reserve Program.................................   767
    Continuing Resolution, FSA Operations Under..................   813
    Crop Insurance.............................................813, 819
    Dairy Export Incentive Program.............................792, 853
    Dairy Indemnity Program......................................   771
    Disaster Assistance..........................................   763
    Emergency Conservation Program...............................   770
    Emerging Markets Program.....................................   853
    Employee Management Retreats.................................   854
    Export Enhancement Program...................................   855
    Export Incentive Program.....................................   887
    Export Promotion and Market Development Programs......758, 790, 854
    Facilities Guarantee Program.................................   855
    Farm Bill Conference.........................................   824
    Farm Bill Implementation Costs...............................   824
    Farm Loan Programs.........................................748, 768
    Farm Program Delivery........................................   817
    FCIC Fund....................................................   796
    Federal/State Loss Adjuster Licensing and Rebating 
      Enforcement Initiatives....................................   802
    Food Air Cost Increases......................................   809
    Food For Progress............................................   898
    Food Shows...................................................   856
    Foreign Agricultural Service.................................   753
    Foreign Market Development...................................   859
    Grassroots Source Water Protection Program...................   771
    GSM Program..................................................   904
    Harvesting Pine Straw on CRP Acres...........................   818
    Information Technology, FSA..................................   806
    Information Technology................................750, 761, 797
    International Food Assistance.........................755, 791, 810
    Language Training............................................   883
    Livestock Gross Margin (LGM).................................   802
    Livestock Risk Protection (LRP)..............................   801
    Market Access Compliance.....................................   883
    Market Access Program (MAP)..................................   884
    McGovern-Dole................................................   888
    National Agriculture Imagery Program.........................   825
    Office of Capacity Building and Development..................   880
    Opening Statement, Mark E. Keenum............................   740
    Overseas Offices...........................................837, 888
    P.L. 480...................................................811, 891
    Pasture, Rangeland, and Forage Pilot Programs................   801
    Performance and Accountability...............................   762
    Provincial Reconstruction Teams..............................   899
    Quality Samples Program......................................   900
    Questions Submitted by Chairwoman DeLauro....................   829
    Reconstruction in Afghanistan and Iraq.....................757, 792
    Remote Sensing...............................................   880
    Risk Management Agency.......................................   749
    Risk Management Education and Outreach.......................   803
    Salaries and Expenses......................................747, 754
    Sanitary and Phytosanitary (SPS) Issues....................778, 903
    Section 416(b)...............................................   904
    State Mediation Grants.......................................   770
    Stocks-for-Food Initiative............................765, 810, 821
    Technical Assistance.......................................777, 910
    Tobacco Transition Payment Program...........................   764
    Trade Capacity Building......................................   912
    Trade Development............................................   776
    USDA Reorganization..........................................   815
    USTR and USAID...............................................   913
    World Food Supply............................................   820
    Written Statement, Teresa C. Lasseter, Administrator, Farm 
      Service Agency.............................................   760
    Written Statement, Eldon Gould, Administrator, Risk 
      Management Agency..........................................   793
    Written Statement, Mark E. Keenum, Under Secretary for Farm 
      and Foreign Agricultural Services..........................   743
    Written Statement, Michael W. Yost, Administrator, Foreign 
      Agricultural Service.......................................   774
Commodity Futures Trading Commission.............................   915
    Bilateral Trades.............................................   937
    Biofuels.....................................................   950
    Consolidation of the SEC and CFTC............................  1046
    Cotton Market................................................   939
    Credit Access................................................  1052
    Effect of Drilling on Gas Prices.............................   949
    Enron Loophole............................................938, 1040
    Exxon Mobil..................................................   952
    Funds' Impact on Commodity Prices............................   952
    Futures Markets..............................................   942
    Hoarding..................................................949, 1053
    ICE..........................................................  1054
    Index Trading................................................   955
    London Loophole Problem......................................   948
    No-Action Letters............................................  1050
    Offshore Drilling............................................   936
    Oil Futures..................................................  1048
    Oil Speculation...........................................946, 1045
    Opening Statement, Johnathan Short...........................  1026
    Opening Statement, Mark Cooper...............................   971
    Opening Statement, Michael Greenberger.......................   999
    Opening Statement, Ranking Member Kingston...................   917
    Opening Statement, Tom Devine................................   959
    Opening Statement, Walter Lukken.............................   920
    Price Discovery Process......................................   946
    Price of Carbon..............................................   937
    Price of Oil.........................................935, 944, 1045
    Regulation of Securities and Commodities.....................   940
    Speculation in the Energy Markets............................  1058
    Statistical Analysis Personnel...............................   951
    Swaps........................................................   956
    Written Statement, Johnathan Short, IntercontinentalExchange, 
      Inc........................................................  1029
    Written Statement, Mark Cooper, Consumer Federation of 
      America....................................................   973
    Written Statement, Michael Greenberger, University of 
      Maryland School of Law.....................................  1001
    Written Statement, Tom Devine, Independent Connecticut 
      Petroleum Association......................................   963
    Written Statement, Walter Lukken, Acting Chairman, CFTC......   923
Farm Credit Administration.......................................  1063
    Corporate Activities.........................................  1066
    Farm Credit System, Condition of.............................  1067
    Federal Agricultural Mortgage Corporation....................  1067
    Regulatory Activity..........................................  1065
    Written Statement, Nancy C. Pellett, Chairman and CEO, Farm 
      Credit Administration......................................  1063