[Senate Hearing 112-]
[From the U.S. Government Publishing Office]



 
   AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND 
          RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2012

                              ----------                              


                        THURSDAY, MARCH 10, 2011

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 2:05 p.m., in room SD-124, Dirksen 
Senate Office Building, Hon. Herb Kohl (chairman) presiding.
    Present: Senators Kohl, Nelson, Pryor, Brown, Blunt, 
Cochran, Collins, Moran, and Hoeven.

                       DEPARTMENT OF AGRICULTURE

                        Office of the Secretary

STATEMENT OF HON. TOM VILSACK, SECRETARY
ACCOMPANIED BY:
        KATHLEEN MERRIGAN, DEPUTY SECRETARY
        JOSEPH GLAUBER, CHIEF ECONOMIST
        MICHAEL YOUNG, DIRECTOR, OFFICE OF BUDGET AND PROGRAM ANALYSIS


                 opening statement of senator herb kohl


    Senator Kohl. The subcommittee will come to order.
    This is our first hearing on the President's fiscal year 
2012 budget.
    First, I want to welcome our new ranking member, Senator 
Roy Blunt.
    I'd also like to recognize the new members of this 
subcommittee, Senator Brown, Senator Moran, and Senator Hoeven. 
We look forward to working with each and every one of the new 
members of this subcommittee.
    And, Mr. Secretary, it's very good to see you again.
    I also want to welcome Deputy Secretary Merrigan and U.S. 
Department of Agriculture (USDA) Chief Economist Joseph 
Glauber. Also, we have with us today Mr. Mike Young, who is the 
new USDA Budget Director.
    Mr. Secretary, it's obvious that we are faced with 
tremendous challenges. The Nation is still struggling through 
economic recovery, while Government spending is being reduced 
by a big margin.
    Here at home, we feel the economic throes of unrest in 
distant parts of the world as oil supply lines are being shaken 
and our cost of energy rises hugely from 1 week to the next. On 
top of all this, the Federal Government is still operating on a 
continuing resolution for the current fiscal year. These are 
the realities.
    We all recognize that Government exists for a reason and 
there are some things that Government must do because it is the 
job of Government to do. Our food must be safe, our people must 
not go hungry, our farm and rural economies must remain strong, 
and we must never lose sight of the impact they have on our 
national economy. On the other hand, we are going to have to 
let go of some of the things that, while popular, are not 
essential. These are indeed days of hard decisions.
    The President's budget makes a good start in that 
direction. Some programs are cut and some are eliminated. At 
the same time, new initiatives are brought forward and the 
President is requesting increases in some programs. Our job is 
to review all of these priorities and make the hard decisions.
    The American people rely on USDA every day. The American 
people also rely on us to make sure their tax dollars are spent 
wisely. As Government spending declines, the need for wisdom in 
setting priorities has never been more acute. Mr. Secretary, we 
will look forward to your guidance on that very important task.
    As we continue, I'd like to take note that we have a vote 
scheduled for 3 o'clock, and so, if we all are brief in our 
comments, we'll have an opportunity to ask the Secretary the 
relevant questions.
    Mr. Secretary.


               SUMMARY STATEMENT OF SECRETARY TOM VILSACK


    Secretary Vilsack. Mr. Chairman, thank you very much. I 
appreciate the opportunity to be with you this afternoon.
    I will be very short. We have a written statement we'd ask 
to be part of the record. I'd just simply make two points.
    First, we recognize the responsibility to reduce our 
budget. We started that process last year. We continue it with 
the budget we propose to you this year, both in the 
discretionary and on the mandatory side. The reality is that 
there has to be shared sacrifice, as well as shared 
opportunity.
    The second point I would make is that, in addition to 
cutting our way to a more balanced fiscal approach, we also 
have to grow the economy. We have to be focused on jobs. That 
is certainly true in rural America, where we have had, 
historically, a much higher unemployment rate than in other 
parts of the country. Interestingly enough, as a result of the 
strong agricultural economy, we're seeing the unemployment rate 
coming down in rural America at a faster rate than the rest of 
the country. We'll obviously want to continue the momentum.
    So, we do indeed focus on an effort to not only reduce our 
spending, but also to focus it in a way that will advance, 
strategically, a growth agenda, as well in rural America, and 
continue the momentum.


                           PREPARED STATEMENT


    I understand that you've got a vote. I understand that you 
really need to have questions directed to us. With that, I will 
simply conclude and look forward to your questions.
    [The statement follows:]

              Prepared Statement of Secretary Tom Vilsack

    Mr. Chairman and distinguished members of this subcommittee, I 
appreciate the opportunity to appear before you as Secretary of 
Agriculture to discuss the administration's priorities for the U.S. 
Department of Agriculture (USDA) and provide you an overview of the 
President's fiscal year 2012 budget. I am joined today by Deputy 
Secretary Kathleen Merrigan, Joseph Glauber, USDA's Chief Economist, 
and Michael Young, USDA's budget officer.
    In his State of the Union Address, the President laid out some of 
the challenges America faces moving forward as we compete with nations 
across the globe to win the future. We need to be a Nation that makes, 
creates, and innovates so that we can expand the middle class and 
ensure that we pass along to our children the types of freedoms, 
opportunities, and experiences that we have enjoyed. We also need to 
take some serious steps to reduce the deficit and reform Governmentt so 
that it's leaner and smarter for the 21st century.
    The fiscal year 2012 budget we are proposing reflects the difficult 
choices we need to make to reduce the deficit while supporting targeted 
investments that are critical to long-term economic growth and job 
creation. To afford the strategic investments we need to grow the 
economy in the long term while also tackling the deficit, this budget 
makes difficult cuts to programs the President and I care about. It 
also reflects savings from a number of efficiency improvements and 
other actions to streamline and reduce our administrative costs. It 
looks to properly manage deficit reduction while preserving the values 
that matter to Americans.
    In total, the budget we are proposing before this subcommittee is 
$130 billion, a reduction of $3 billion less than the fiscal year 2011 
annualized continuing resolution. For discretionary programs, our 
budget proposes $18.8 billion, a reduction of $1.3 billion less than 
the fiscal year 2011 level. These decreases are achieved through 
reductions and terminations in a wide range of programs as well as 
proposals to achieve savings through streamlining our operations. These 
actions will allow us to focus limited resources on programs where we 
can achieve the greatest impact.
    Further, we are proposing legislative changes to target reductions 
in farm program payments, which would save $2.5 billion over 10 years, 
while only affecting 2 percent of participants. The savings would come 
in addition to savings we have achieved through administrative 
improvements that reduced the error rate in farm program payments from 
2 percent to less than 0.1 percent as well as a partnership with the 
Internal Revenue Service to eliminate improper payments to wealthy 
individuals who exceed income eligibility criteria. In addition, 
legislation will be proposed to reduce premiums for the catastrophic 
coverage option under the crop insurance program providing a savings to 
taxpayers of $1.8 billion over 10 years.
    These and other reductions must be made if we are serious about 
deficit reduction and being able to support the critical investments we 
need to make to secure our future.
    At USDA, we haven't waited to begin reducing our expenditures. Last 
year, we saved $6 billion through the negotiation of a new agreement 
for crop insurance, $4 billion of which will go to pay down the Federal 
deficit. Agencies across the Department have looked for ways to reform 
the way they do business--from reducing the number of visits a farmer 
has to make to our offices to get conservation services, to saving 
taxpayer dollars by operating our nutrition assistance programs with 
historic levels of accuracy.
    I would now like to focus on some specific highlights in each of 
our major goals.

            ASSISTING RURAL COMMUNITIES TO CREATE PROSPERITY

    Agriculture has generally fared well during the recent economic 
downturn, with farm income expected to be at almost record levels this 
year largely due to the productivity and hard work of American farmers 
and ranchers and growers. Further, agriculture continues to be one of 
the major sectors of the American economy that has a trade surplus. Our 
budget preserves a strong farm safety net, including a $4.7 billion 
farm credit program, about $150 million more than the fiscal year 2011 
level. As I mentioned earlier, we are also proposing to better target 
farm payments by reducing the cap on direct payments and reducing over 
a 3-year period the adjusted gross income eligibility limits. These 
actions would save $2.5 billion over 10 years.
    Rural America offers many opportunities, but it also faces a number 
of challenges that have been experienced for decades. Rural Americans 
earn less than their urban counterparts, and are more likely to live in 
poverty. More rural Americans are older than the age of 65, they have 
completed fewer years of school, and more than one-half of America's 
rural counties are losing population. In addition, improvements in 
health status also have not kept pace, and access to doctors and health 
services has been a key challenge in rural areas.
    Within the context of a reduced total funding level, our budget 
proposes to focus resources on the most effective means to address the 
long-term challenges facing rural communities and the Nation. A 
critical element is engaging with public and private partners to 
revitalize rural communities by expanding economic opportunities and 
creating jobs for rural residents.
    For Rural Development programs, our budget proposes a total program 
level of roughly $36 billion supported by $2.4 billion in budget 
authority, a reduction of about $1.6 billion in program level and $535 
million in budget authority. It also reflects the administration's 
efforts to utilize funding in the most cost-effective manner to achieve 
our goals.
    A number of difficult decisions were made, including a reduction of 
$390 million in budget authority from the fiscal year 2011 level in 
housing programs. The budget eliminates funding for a number of loan 
and grant programs, including Self-Help Housing grants and low-income 
housing repair loans. We are also reducing funding for direct single-
family housing loans and focusing on maintaining support for single-
family housing loan guarantees at a program level of $24 billion. This 
level of assistance can be provided with no budget authority by 
continuing a fee structure that fully supports the subsidy cost of the 
program. We are also reducing the water and waste loan and grant 
program by $62 million in budget authority. Associated with these 
program reductions, we are reducing administrative funding and staffing 
levels. These and other actions allow us to focus limited resources on 
meeting priority investment needs in rural America.

Regional Innovation Initiative
    One of these priority investments is in a new approach we have 
developed to ensure USDA supports rural communities who choose to 
engage in regional economic strategies. This approach recognizes that 
attempting to address the challenges faced by rural communities through 
a generic approach will not be sufficient. Instead, USDA needs to 
respond to grassroots local priorities and recognize that each rural 
region needs a distinctive strategy that reflects its unique strengths, 
its particular mix of industry clusters, and which integrates its 
regional economic assets.
    In 2010, to support rural communities' efforts to collaborate 
regionally, USDA used the Rural Business Opportunity Grant program to 
provide funding to seven identified regions to support plans focused on 
supporting job creation, local, or regional food systems, renewable 
energy, capitalizing on new broadband deployment, and the utilization 
of natural resources to promote economic development through regional 
planning among Federal, State, local, and private entities. Funding has 
been provided to multijurisdictional regions in California, Iowa, North 
Dakota, Oregon, South Carolina, Vermont, and Washington to develop 
regional plans to enhance economic opportunities. USDA is working 
department-wide to determine how it can support the priorities of the 
people in the region. USDA is also working with other Federal partners 
to ensure that these rural regions have access to other Federal 
programs that support their regional strategies. By creating a regional 
focus and increasing collaboration with other Federal agencies, 
resources can be leveraged to create greater wealth, improve quality of 
life, and sustain and grow the regional economy.
    For 2012, USDA proposes a Regional Innovation Initiative that works 
through existing programs to fund regional pilot projects, strategic 
planning activities, and other investments to improve rural economies 
on a regional basis. USDA would target up to 5 percent of the funding 
within 10 existing programs, approximately $171 million in loans and 
grants, and allocate these funds competitively among regional pilot 
projects tailored to local needs and opportunities. The approach will 
support projects that are more viable over a broader region than 
scattered projects that serve only a limited area. It will also help 
build the identity of regions, which could make the region more 
attractive for new business development, and provide greater incentives 
for residents to remain within their home area.
    The fiscal year 2012 budget specifically provides an increase of $5 
million for the Rural Business Opportunity Grant program to foster 
regional collaboration that encourages regions to engage in strategic 
regional economic planning that identifies the needs of a defined rural 
region. In addition, an increase of $2.1 million is included for the 
Rural Community Development Initiative to provide technical assistance 
to communities to develop housing or community facilities projects.

Facilitating the Development of Renewable Energy
    A major administration priority is continuing to make investments 
in building a green energy economy. Last year, the President laid out 
his strategy to advance the development and commercialization of a 
biofuels industry. At the center of this vision is an effort to 
increase domestic production and use of renewable energy. Advancing 
biomass and biofuel production that holds the potential to create green 
jobs is one of the many ways the Obama administration is working to 
rebuild and revitalize rural America. By producing renewable energy--
especially biofuels--America's farmers, ranchers, and rural communities 
have incredible potential to help ensure our Nation's energy security, 
environmental security, and economic security. Through investments in 
energy efficiency and renewable energy sources, farms and rural small 
businesses across the country can reduce their energy consumption and 
energy expenses. In 2009 and 2010, USDA has helped nearly 4,000 rural 
small businesses, farmers, and ranchers save energy and improve their 
bottom line by installing renewable energy systems and energy 
efficiency solutions that have produced or saved a projected 4.3 
billion in kWh--enough energy to power 390,000 American homes for a 
year.
    In 2012, USDA plans to invest more than $900 million in 
discretionary and mandatory funding to improve the entire supply chain 
of biofuels and bioenergy, from research and development, to production 
and commercialization. In addition, the budget includes $6.1 billion 
for electric loans, which will be used to support renewable energy and 
the development of clean-burning low-emission fossil fuel facilities to 
support renewable energy deployment and clean energy technology.

Promising Market Opportunities
    Developing and supporting market opportunities and outlets for 
agricultural producers helps to promote jobs and prosperity in rural 
America. Over the past year, we have supported efforts to build and 
strengthen regional and local food systems through the ``Know Your 
Farmer, Know Your Food'' efforts. Our goal is to build a link between 
local production and local consumption, which is particularly 
beneficial to small- and mid-sized farmers.
    In fiscal year 2012, USDA will continue to support efforts to 
expand promising market opportunities with $9.9 million in funding for 
the National Organic Program, which will be used to strengthen 
oversight and enforcement and $7.7 million for transportation and 
market development activities that will stimulate development of 
regional food hubs and marketing outlets for locally and regionally 
grown food.
    Furthermore, USDA, working together with the Departments of Health 
and Human Services and the Treasury will implement the Healthy Food 
Financing Initiative (HFFI) to provide incentives for food 
entrepreneurs to expand the availability of healthy foods by bringing 
grocery stores, small retailers, and farmers markets selling healthy 
foods to underserved communities. HFFI will make available more than 
$400 million in financial and technical assistance to community 
development financial institutions, other nonprofits, public agencies, 
and businesses with sound strategies for addressing the healthy food 
needs of communities. For USDA, the budget requests $35 million to 
support local and regional efforts to increase access to healthy food, 
particularly for the development of grocery stores and other healthy 
food retailers in urban and rural food deserts and other underserved 
areas. In addition, USDA will make other funds available by encouraging 
and rewarding relevant grant and loan applications through existing 
Rural Development and Agricultural Marketing Service programs.

Broadband
    In his State of the Union Address, President Obama established a 
goal to deploy the next generation of high-speed wireless coverage to 
98 percent of all Americans. In the last one-and-a-half years, with 
funding from the American Recovery and Reinvestment Act (ARRA) we have 
done more to bridge the digital divide for rural Americans than many 
ever thought possible. ARRA funding will enable around 7 million rural 
Americans to connect to 1 of 285 last-mile, 12 middle-mile, or four 
satellite projects funded by USDA. On top of that, more than 360,000 
businesses and 30,000 community service organizations such as 
hospitals, schools, and public safety agencies will be connected to a 
high-speed digital future. USDA will continue to build on the success 
of funding provided through ARRA by making loans and grants under the 
authorities provided by the farm bill. Our budget continues to provide 
support for these important efforts with $17.9 million for grants to 
support local broadband access in rural communities and funding for 
loans with balances available from prior-year appropriations.

Trade Expansion
    Expanding access to global markets makes a critical contribution to 
our efforts to enhance rural prosperity by providing opportunities for 
increased sales and higher incomes. During the past year, we have 
worked diligently to remove trade barriers and open new markets. 
Through our efforts, we were able to regain access for our poultry 
exports to Russia, after Russia introduced a ban on the use of chlorine 
washes in the processing of poultry. Similarly, we worked to expand 
market access for pork in Russia and China by addressing residue and 
disease issues, and we continue to engage China on reopening that 
market for our beef exports. Also noteworthy, we entered into a 
memorandum of understanding with China that addresses quality and 
sanitary and phytosanitary policy issues that will help to facilitate 
our soybean exports. This is a very significant step as China is now 
our largest overseas market for soybeans, and the significant growth we 
have experienced in that market--in soybeans and many other products--
has helped China to emerge as our largest agricultural export market.
    Our trade promotion activities support the National Export 
Initiative (NEI), a Governmentwide effort to double U.S. exports over 
the next 5 years in order to spur economic growth and employment 
opportunities. Every $1 billion worth of agricultural exports supports 
an estimated 8,000 jobs, so we know that when we succeed in expanding 
markets we are creating real benefits for our workforce. To bolster 
these efforts, the budget proposes an increase of $20 million for the 
Foreign Agricultural Service to support an expansion in trade 
monitoring and enforcement activities, exporter assistance and 
education efforts, support for State-organized trade missions, and in-
country market access and promotion activities.

            Ensuring Private Working Lands Are Conserved, Restored, and 
                    Made More Resilient to Climate Change, While 
                    Enhancing Our Water Resources
    USDA continues to be a major partner in advancing the 
administration's conservation and environmental agenda through support 
of the conservation partnership and the strategic targeting of funding 
to high-priority regional ecosystems. The budget request will ensure 
that the conservation partnership remains strong among Federal 
agencies, State and local governments, tribes, industry, and farmers. 
This broad partnership has proven to be a resilient and effective 
mechanism for meeting the administration's water policy goals and 
helping protect the Nation's 1.3 billion acres of farm, ranch, and 
private forestlands.
    The budget requests nearly $900 million in discretionary funding 
for conservation activities, primarily technical assistance that 
provides comprehensive conservation planning for the Nation's farmers, 
ranchers, and private forest landowners. This reflects a reduction of 
$168 million and related staff-years for the elimination of the 
watershed operations and rehabilitation programs, conservation 
operations earmarks, and the Resource Conservation and Development 
program.
    The fiscal year 2012 budget advances resource protection by 
strategically targeting funding to high-priority regional ecosystems 
and initiatives. This includes $15 million to implement the Strategic 
Watershed Action Teams Initiative, which will enhance targeted 
technical assistance in priority watersheds for a period of 3-5 years 
with the goal of reaching 100 percent of the landowner base in each 
watershed eligible for farm bill conservation program assistance. The 
goal of this initiative is to hasten environmental improvement while 
keeping production agriculture competitive and profitable.
    To improve the delivery of conservation technical assistance, which 
is a field staff-based activity, the budget includes $11.3 million to 
fund the Conservation Delivery Streamlining Initiative. This initiative 
will develop new business processes designed to simplify the planning 
process and maximize the amount of time USDA technicians spend in the 
field helping farmers. These funds will improve how we deliver 
conservation planning and financial assistance and help farmers with 
practice installation.
    Finally, the budget includes an increase of $7 million for the 
Conservation Effects Assessment Project, to enhance the scientific 
understanding of the environmental effects of conservation practices on 
agricultural landscapes. This knowledge will help us improve the design 
and implementation of conservation programs.
    The fiscal year 2012 budget also includes $5.8 billion in mandatory 
funding to support cumulative enrollment of more than 302 million acres 
in farm bill conservation programs, an increase of nearly 8 percent 
more than fiscal year 2011, for conservation programs authorized in the 
2008 farm bill, such as the Wetlands Reserve Program, Environmental 
Quality Incentives Program, and the Conservation Reserve Program.

 PROMOTE AGRICULTURAL PRODUCTION AND BIOTECHNOLOGY EXPORTS AS AMERICA 
                    WORKS TO INCREASE FOOD SECURITY

    USDA works to improve global food security through a wide variety 
of activities, such as providing food and technical assistance that 
supports the development of sustainable agricultural systems in 
developing countries, by facilitating the adoption of biotechnology and 
other emergent technologies that increase agricultural production and 
food availability, and by working to advance internationally accepted, 
science-based regulations that facilitate trade. These efforts are 
important because more than 1 billion people worldwide face hunger and 
malnutrition every day, and we know that failing agricultural systems 
and food shortages fuel political instability and undermine our 
national security interests.
    USDA is an active partner in the administration's global food 
security initiative --Feed the Future--and we have been working closely 
with the State Department, the U.S. Agency for International 
Development (USAID), and others to further its objectives. As an 
implementing partner, USDA can offer expertise in basic and applied 
research that benefits both the United States and developing countries; 
in-country capacity building and technical assistance; and market 
information and economic analysis. For example, during the past year, 
USDA has worked with USAID to develop the Norman Borlaug Commemorative 
Research Initiative, a mechanism designed to increase cooperation and 
collaboration between our two agencies in managing research strategies 
and their implementation. Through this mechanism, we will collaborate 
on targeted, high-impact research priorities, such as wheat rust, 
legume productivity, livestock diseases, mycotoxins, and human 
nutrition, which can have far-reaching benefits to farmers worldwide.
    An important means to assist developing countries to enhance their 
agricultural capacity is by providing training and collaborative 
research opportunities in the United States, where participants can 
improve their knowledge and skills. The budget provides increased 
funding for the Cochran and Borlaug Fellowship programs, which bring 
foreign agricultural researchers, policy officials, and other 
specialists to the United States for training in a wide variety of 
fields. Under our proposal, as many as 600 individuals will be able to 
participate in these programs and bring this knowledge home to benefit 
their respective countries.
    Foreign food assistance programs remain a core component of our 
efforts to enhance global food security. The fiscal year 2012 budget 
includes more than $2 billion of funding for both emergency and 
nonemergency international food assistance programs carried out by USDA 
and USAID. Although funding for the McGovern-Dole International Food 
for Education and Child Nutrition Program is reduced by $9 million, the 
program will assist as many as 5 million women and children during 
2012.
    As the world population grows and the demand for food with it, we 
must look to new technologies for increasing production, including 
biotechnology. Biotechnology can expand the options available to 
agricultural producers seeking solutions to a variety of challenges, 
including climate change. However, prudent steps must be taken to 
ensure that biotech products are safely introduced and controlled in 
commerce. For 2012, the budget includes increased funding to strengthen 
USDA's science-based regulatory system and ensure that we can provide 
timely, sufficient review of the expanding volume and complexity of 
biotechnology applications. During the past fiscal year, USDA continued 
to see an increase in workload due to this expanding industry. Notably, 
USDA received 44 percent more requests for field testing of genetically 
engineered plants than were received in fiscal year 2009.

     ENSURING THAT ALL OF AMERICA'S CHILDREN HAVE ACCESS TO SAFE, 
                     NUTRITIOUS, AND BALANCED MEALS

Nutrition Assistance
    The budget fully funds the expected requirements for the 
Department's three major nutrition assistance programs--the Special 
Supplemental Nutrition Program for Women, Infants, and Children (WIC), 
the National School Lunch Program, and the Supplemental Nutrition 
Assistance Program (SNAP).
    National School Lunch Program participation is estimated to reach a 
record-level again in 2012, 32.5 million children each school day, up 
from about 31.6 million a day in 2010. The budget proposes an increase 
of $9 million to ensure USDA makes progress to decrease the prevalence 
of obesity among children and adolescents, and to improve the quality 
of diets. The increase will allow USDA to continue implementing the 
scientific, evidence-based nutrition guidance and promotion of the 2010 
update of the Dietary Guidelines for Americans.
    The budget includes $7.4 billion for WIC, which will support the 
estimated average monthly participation of 9.6 million in 2012, an 
increase from an estimated 9.3 million participants in 2011. The 
request is $138 million more than the 2011 annualized continuing 
resolution. This includes an increase for the breastfeeding peer 
counseling program and a doubling of the breastfeeding program 
performance bonus funding. WIC State nutrition services and 
administrative activities are funded at a level sufficient to ensure 
effective program operations along with increased emphasis on 
information technology (IT) and electronic benefits transfer (EBT).
    Participation in SNAP is estimated to average about 45 million 
participants per month in 2011, and is projected to fall slightly in 
2012. The budget includes more than $85 billion, including ARRA 
funding, to fund all expected costs. Legislation will be proposed to 
extend the ARRA provision that waives time limits for able-bodied 
adults without dependents for an additional fiscal year. In total, this 
change would add about $92 million to recipient benefits and SNAP 
program costs in 2012. In addition, the fiscal year 2012 budget 
proposes to maintain the increase for SNAP benefits authorized by ARRA 
for 5 months, increasing outlays in 2014 by $3.3 billion.

Food Safety
    The budget includes $1 billion for the Food Safety and Inspection 
Service, a reduction of about $7 million less than 2011. The requested 
level is adequate to fully fund inspection activities and including an 
increase of $27 million to improve our capability of identifying and 
addressing food safety hazards and preventing foodborne illness. These 
increases are more than offset by reductions due to streamlining agency 
operations, reducing lab expenses, and recognizing that implementation 
of a catfish inspection program will not occur in 2012.

Minimizing the Impact of Major Animal and Plant Diseases and Pests
    To protect agricultural health by minimizing major diseases and 
pests of food crops and livestock, the budget includes $837 million, a 
reduction of $76 million, in appropriated funds for the Animal and 
Plant Health Inspection Service (APHIS). We have taken a close look at 
the APHIS budget and have proposed a number of program reductions and 
redirections to ensure that scarce resources are being used prudently. 
The budget achieves savings through a variety of means. It includes 
decreases for activities where eradication campaigns have been 
successful, such as cotton pests, pseudorabies, and screwworm, and for 
pests and diseases where eradication is not likely, such as tropical 
bont tick. Savings are also possible in the avian health program 
without affecting overall performance. Further, the budget achieves 
other savings by acknowledging the role of the producer to engage in 
best management practices to reduce certain diseases, such as Johne's 
disease. These savings allow us to propose increases for selected 
pests, including the light brown apple moth and the European grapevine 
moth.

                                RESEARCH

    Scientific research is essential for our prosperity, health, 
environment, and our quality of life. By investing in the building 
blocks of American innovation, we will help ensure that our economy is 
given all the necessary tools for new breakthroughs, new discoveries 
and the development of new industries. While progress will not come 
immediately, our investments today will be a catalyst which leads to 
answers to problems of national importance, including developing 
alternative energy sources, improving the nutrition and health of 
America's children, and developing solutions to the most urgent 
environmental problems.
    The fiscal year 2012 budget requests approximately $1.2 billion in 
discretionary funding for the National Institute of Food and 
Agriculture (NIFA), a decrease of $141 million from 2011. The budget 
eliminates $141 million in congressional earmarks as well as makes 
selective reductions in ongoing programs, including a reduction of 5 
percent in formula funding for 1862 Land Grant Institutions and the 
elimination of the animal health and disease formula program. The 
budget continues to move toward the use of competitive grants to 
generate the solutions to the Nation's most critical problems. A major 
element in NIFA's research budget is an increase of $62 million for the 
Agriculture and Food Research Initiative (AFRI)--the premier 
competitive, peer-reviewed research program for fundamental and applied 
sciences in agriculture. This increase, which brings the total AFRI 
funding to $325 million, will focus on sustainable bioenergy, global 
food security, food safety, human nutrition and obesity prevention, and 
global climate change, while still supporting foundational research.
    The fiscal year 2012 budget for the Agricultural Research Service 
is approximately $1.14 billion, a net decrease of $42 million. This 
reduction is achieved through the elimination of congressional earmarks 
and other lower-priority projects that total about $101 million. These 
reductions help fund program increases totaling approximately $59 
million for high-priority research. Major initiatives include improved 
genetic resources and cultivars leading to better germplasm and 
varieties with higher yields, enhanced disease and pest resistance, and 
resilience to weather extremes such as high temperature and drought. 
The budget will also fund several initiatives to support research on 
breeding and germplasm improvement in livestock which will enhance food 
security and lead to the development of preventive measures to combat 
diseases and thereby increase production. These initiatives have great 
potential to help ensure an abundant, safe, and inexpensive supply of 
food to meet global demand. Additionally, the budget funds research 
initiatives that will accelerate the development and deployment of 
dedicated energy feedstocks, thereby reducing dependence on foreign oil 
and expanding the opportunities for American farmers. Finally, the 
budget supports projects that focus on food safety, human nutrition, 
and obesity prevention.
    The fiscal year 2012 budget request for the National Agricultural 
Statistics Service includes an increase of nearly $12 million in 
initiatives, which is offset by $8.3 million in terminations of low-
priority programs. This includes the elimination of a land tenure 
survey largely comprised of farm operators that are accounted for in 
the Agricultural Resource Management Survey. The fiscal year 2012 
budget includes full funding to support the third year of the 2012 
Census of Agriculture's 5-year cycle and to improve the data quality of 
the County Estimates program which is used within the Department to 
administer crop insurance programs, as well as crop revenue support 
programs, emergency assistance payments, and the Conservation Reserve 
Program.
    Finally, $8.4 million is included for initiatives within the 
Economic Research Service, including an initiative for behavioral 
economics that will yield information and analysis that enhances 
decisionmaking on economic and policy issues related to agriculture, 
food, farming, natural resources, and rural development. These 
increases are partially offset by a $4.9 million reduction from lower-
priority projects.

                         MANAGEMENT INITIATIVES

    To reform USDA so it is leaner, more efficient and ready for the 
21st century, we will support efforts to better streamline operations 
and deliver results--at lower cost--for the American people. The budget 
reflects the Department's commitment to increasing program delivery 
effectiveness by implementing management improvements, administrative 
efficiencies, and IT systems that modernize the USDA workplace.
    A significant streamlining and efficiency measure being proposed is 
a structured buyout of 504 Federal headquarters and related employees--
10 percent--of the Farm Service Agency (FSA). This restructuring effort 
is expected to result in net savings of $27 million in 2012 and total 
savings of $174 million through 2015. In addition, we are proposing a 
further savings of $14.4 million in FSA administrative expenses through 
efficiencies related to advisory contracts, travel expenses, printing 
and supplies. It is also critical that we continue to invest in 
modernizing the FSA IT system to provide a secure, modern system 
capable of supporting Web-based program delivery.
    One of the key components for increasing USDA effectiveness is 
focused on creating a high-performing and diverse workforce across the 
Department. Through USDA's Cultural Transformation Initiative, the 
Department and its workforce are being revamped to increase job 
satisfaction, training opportunities, and career development 
possibilities. USDA will focus on improving leadership development, 
labor relations, human resources accountability, and veterans and other 
special employment programs. These efforts will greatly improve the 
productivity of the Department, resulting in better service to USDA 
constituents and more value for American taxpayers. A $3 million 
increase is proposed to strengthen our human resources transformation 
initiatives and veterans hiring efforts.
    USDA also strives to improve the efficiency with which it purchases 
more than $5 billion in goods and services annually. These acquisitions 
support USDA program delivery, including food purchases for the 
nutrition programs and IT purchases in support of business operations. 
Regardless of what is being purchased, USDA relies upon a workforce of 
acquisition professionals to efficiently and effectively procure the 
goods and services needed to ensure continued service delivery by the 
Department. As part of a Governmentwide initiative pursuant to the 
President's Memorandum on Government Contracting, USDA is requesting 
funding of $6.5 million for training, workforce development activities, 
and supporting IT systems. Such efforts will greatly improve the 
workforce's ability to negotiate more favorably priced contracts and 
manage contract costs more effectively. These improvements will support 
USDA's actions to implement its acquisition savings plan that includes 
a projected 7-percent reduction in noncommodity acquisitions in fiscal 
year 2011, with additional reductions in the out-years.
    We are also taking additional steps to address the unfortunate 
history of civil rights in USDA. As you know, since coming into office, 
this administration has made great strides in resolving claims of 
discrimination by reducing the backlog of complaints and by working to 
settle lawsuits brought against the Department by Black and Native 
American farmers and ranchers. USDA has worked closely with the 
Congress to secure the funding necessary to address the Pigford II 
class action lawsuit. The Department has also been working to resolve 
other discrimination claims such as those being brought by women and 
Hispanic farmers and ranchers. In fiscal year 2012, we are requesting 
funding under the FSA to pay the administrative costs of resolving 
existing civil rights claims, and to provide settlement for 
discrimination claims filed under the Equal Credit Opportunity Act 
where the statute of limitation has expired. The Department remains 
committed to taking these actions as part of our commitment to create a 
New Era of Civil Rights in USDA.
    Ensuring that the Department and its programs are open and 
transparent is also a key component of the transformation effort. As a 
result, USDA is proposing to expand the Office of Advocacy and Outreach 
(OAO), which was established by the 2008 farm bill, to improve service 
delivery to historically underserved groups and will work to improve 
the productivity and viability of small, beginning, and socially 
disadvantaged producers. The outreach efforts led by OAO will help to 
ensure that all persons eligible to participate in USDA programs will 
have the opportunity and the information necessary to benefit from the 
services delivered by the Department.
    The President told us that winning the future will require a lot of 
hard work and sacrifice from everyone. The President's budget reflects 
sacrifice, but provides the funding to achieve his vision for a strong 
America. I look forward to working with this subcommittee to help build 
a foundation for American competitiveness for years to come so that we 
pass on a stronger America to our children and grandchildren.
    I would be pleased to take your questions at this time.

    Senator Kohl. All right. We'll begin our questioning. Thank 
you so much, Mr. Secretary.

            FOOD SAFETY AND INSPECTION SERVICE FUNDING LEVEL

    As you are aware, we're still in negotiations regarding the 
fiscal year 2011 bills. H.R. 1 proposes an $88 million cut to 
the Food Safety and Inspection Service (FSIS). I've been told 
this proposed cut would seriously limit FSIS's ability to 
maintain its inspection force. At what point, Mr. Secretary, 
would budget cuts at fiscal year 2011 result in a furlough of 
FSIS inspectors? If that is so, do you have a contingency plan?
    Secretary Vilsack. Mr. Chairman, we are obviously hopeful 
that this matter gets resolved without significant reductions 
in the FSIS budget. As you probably well know, that budget is 
predominantly personnel. Any significant cut and reduction in 
that budget would obviously lead to a very difficult set of 
decisions we would have to make, relative to our workforce. 
Most of what our workforce does in that area is to provide 
inspection services to a number of processing facilities. We 
would be concerned, obviously, about the impact it would have 
on those processing facilities and on the markets that are 
impacted and affected by the work that they do.
    We have proposed, in the fiscal year 2012 budget, a 
reallocation within FSIS. I would simply say that the key here 
is to give the Department sufficient time to manage difficult 
choices that you all have to make. If you attempt to squeeze, 
in a relatively short period of time--i.e., a set of months--a 
solution to a budget problem that has accumulated perhaps over 
decades, I think you're going to have difficulty, and I think 
you're going to make it very difficult for us to manage it 
properly without someone being hurt. This is one area, in 
particular, that we have concerns about.
    Senator Kohl. All right.

             GAO REPORT ON DUPLICATIVE GOVERNMENT PROGRAMS

    Mr. Secretary, the Government Accountability Office (GAO) 
recently released a report on duplicative Government programs, 
which I'm sure that you are aware. Duplication in food safety 
efforts across Federal agencies was a major theme in the 
report. Can you please respond to the findings of the report 
regarding overlap in food safety activities? Do you believe the 
current food safety system is adequately serving the American 
public? And, how do you believe it can be improved?
    Secretary Vilsack. Mr. Chairman, we engaged, at the 
beginning of the administration, in a workstudy group with the 
Department of Health and Human Services. It has, in a sense, 
jurisdiction on food safety issues, as you well know. We handle 
roughly 20 percent of the food needs of this country. The Food 
and Drug Administration (FDA) handles the other 80 percent.
    What we wanted to be able to do, and what I think you 
accomplished with the food safety legislation passed last year, 
was to begin to create parallel tracks, for both the FDA and 
the USDA, focused on a philosophy of prevention rather than 
reaction. I think that the food safety proposal that you passed 
is a very good, significant step forward. We are working with 
the FDA as they begin the process of implementing that. We've 
provided staff to assist them in rulemaking, and we'll make 
sure that we parallel as best we can.
    We've also, Mr. Chairman, improved our communication 
between the two Departments so that we're in a position to know 
what FDA knows and they're in a position to know what we know, 
so that we do a better job of regulating the safety of the food 
supply, particularly as it relates to school lunch purchases 
and the school lunch program, where we had a problem early in 
the administration. So, I'm confident that we will be able to 
do a better job of protecting the food safety concerns of 
Americans.
    There's still work to be done. We are proposing in the 
budget additional support for the Public Health and Information 
System, which will provide us data that will allow us to do a 
better job, within USDA, of determining where there may be 
potential problems, and address those problems before they 
manifest themselves into difficulties.
    We are also continuing to work on the Uniform Incident 
Command structure, which will allow us to do a better job of 
communicating with State and local public health officials. In 
the event there is a concern or a problem, we'll try to contain 
it and mitigate it, as best as possible.
    We will continue to work, within USDA, on better testing, 
and more appropriate testing, to ensure that we are catching 
and identifying pathogens. As the science evolves, so must our 
testing.
    Senator Kohl. Thank you.
    We'll turn now to Senator Collins, and then Senator Moran.
    Senator Collins. Thank you, Mr. Chairman.
    First, let me thank you for holding this hearing.
    Also, a warm welcome to the Secretary and the members of 
this panel.
    The Department's budget request for the year 2012 is a 
source of great interest to many Mainers. Farmers across my 
State, including blueberry growers, potato farmers, and dairy 
producers, all look to USDA for assistance in the areas of crop 
research, farm management, and agricultural marketing. But as 
we know, the Department's mission is much broader than that, 
than simply fostering agricultural production. And it also 
plays a key role in spurring economic and infrastructure 
development in rural communities around the country. I believe 
that most people would be surprised to learn that roughly 
three-quarters of USDA's budget actually goes to providing 
nutrition assistance. That is why I want to take the time today 
to talk about policies in the Department that appear to be 
headed toward limiting access to fresh white potatoes within 
our Federal nutrition programs.
    Let me concede a certain bias here. I grew up in northern 
Maine, and my first job was picking potatoes on a farm during 
the school recess, for a couple of years, when I was very, very 
young.
    So, I do want to talk about the fact that the white potato 
is the only vegetable excluded from the Special Supplemental 
Nutrition Program for Women, Infants, and Children (WIC)-
approved food list. And the Department is proposing to place 
strict limits on the use of potatoes for the national school 
breakfast and lunch programs.
    So, I have a visual aid here that I want to use to 
illustrate my point, because if you compare the nutritional 
content of iceberg lettuce, which is on the WIC list and is not 
proposed for limitations for the school lunch or breakfast 
program, with that of the fresh Maine potato, there is quite a 
difference.
    For example, one medium white potato has nearly twice as 
much vitamin C as this entire head of iceberg lettuce. Per 
serving, potatoes contain more than four times the potassium as 
iceberg lettuce, and more potassium than bananas, a fruit that 
we think of when it comes to potassium. Per serving, potatoes 
contain twice as much dietary fiber as the iceberg lettuce, and 
three times more iron than iceberg lettuce, which we know is so 
important to pregnant women.
    So, my question, Mr. Secretary, is, what does the 
Department have against potatoes?
    Secretary Vilsack. Absolutely nothing, Senator. The reality 
is that when you take a look at the WIC program, it is 
absolutely supplementing the purchases by the mom or the dad 
that's using the WIC program. And what we know from research is 
that moms and dads understand what you have outlined, which is 
the significant nutritional value, and the dollar value, of 
purchasing potatoes. And for that reason, they are already 
purchasing potatoes in great quantity. So, what the WIC program 
is doing is, it's essentially supplementing those potato 
purchases with purchases of other vegetables that are not 
normally purchased or not purchased in the quantity that 
potatoes are purchased. So, in other words, it's not 
discriminating against potatoes, it's recognizing that potatoes 
are already being purchased by WIC recipients.
    As it relates to the school breakfast and school lunch 
programs, we are working--I had a meeting with the Potato 
Council just recently, and we're willing to take a look at 
opportunities to look at potato consumption in the school 
breakfast and school lunch programs. What we want to do is, 
obviously, move away from the fried nature of what most schools 
are preparing. That's essentially the equipment that they have. 
We obviously want to take a look at ways in which we might be 
able to provide other alternatives for producing those potatoes 
so that they are not as caloric--high in caloric content and 
fat content, because, as you know, we're trying to deal with a 
significant obesity issue.
    So, it's not the potato, it's the way in which the potatoes 
are being produced or being provided.
    Senator Collins. Thank you, Mr. Secretary. I hope you will 
take a look at that.
    I would suggest, since my time has expired, that the 
Government sends a signal when it lists every other vegetable 
except the potato for the WIC program and when it proposes to 
limit the use of potatoes in the school lunch or breakfast 
program. That signal can be perceived as a negative one. I know 
that's not your intent, but it can be perceived as saying that 
potatoes are not healthy, when, in fact, when we do that 
comparison--and I have nothing against iceberg lettuce----
    Secretary Vilsack. High value of vitamin K, by the way, 
that head of lettuce.
    Senator Collins. I'm sorry?
    Secretary Vilsack. It's a high value of vitamin K.
    Senator Collins. K. Yes, but when you compare it with the 
fiber, vitamin C, and potassium, it doesn't stack up. I'm not 
saying this should be banned. I'm saying that neither should 
this be.
    Secretary Vilsack. Right.
    Senator Collins. So, I do appreciate the fact that you're 
willing to work with the industry about what you would perceive 
as more helpful ways of preparing the potato.
    Thank you.
    Thank you, Mr. Chairman.
    Senator Kohl. Thank you very much, Senator Collins.
    Before we turn to Senator Moran, I'd like to ask our 
ranking member to make his statement and ask for questions.
    Senator Blunt. Thank you, Mr. Chairman. I think I'll take 
my questions in order. Thank you. Sorry to be late for the 
meeting. I certainly look forward to working with you on this 
subcommittee, and was pleased to get a chance to visit with the 
Secretary just a few days ago.
    But I am pleased to be here. And I'll take my questions in 
the order that I arrived. Maybe Mr. Moran will ask better 
questions than I might have asked, anyway.
    So, thank you, Chairman.
    Senator Kohl. All right. Very good.
    Senator Moran.
    Senator Moran. Mr. Chairman, thank you very much. And thank 
you, Mr. Blunt.
    I'm honored to be a member of the agricultural 
appropriations subcommittee. I spent the bulk of my time, in 
the House of Representatives, as a member of the authorizing 
Committee. Certainly, the jurisdiction of our subcommittee is 
of great interest to many, many Kansans, and has a huge 
consequence upon American producers, as well as American 
consumers.
    I welcome the Secretary and look forward to working with 
him in my current capacity.
    And I just want to direct my questions in a couple of 
areas. First of all, agricultural research. I believe that 
agricultural research is a significant component of what we can 
do to be of assistance to agriculture, as well as those who 
purchase agriculture commodities. USDA has a significant role 
to play. I think, generally, we've fallen behind in regard to 
the resources going into agriculture research, as compared to 
other research. And in particular, I wanted to focus on the 
competitive grant research program, Agriculture and Food 
Research Initiative (AFRI). I've tried to find out, in my short 
6 weeks of being a Member of the Senate, how that money is 
spent.
    So, Mr. Secretary, my hope is, either today or at an 
appropriate time, you could give me a list of the Department's 
priorities, how that money is categorized, and what your 
suggestions are for increasing or decreasing funding within 
those various categories, so I can get a better understanding 
of what the priorities of the Department are, and to, from my 
perspective, make sure that you continue to focus, or that you 
again focus, upon production agriculture in the research 
concepts that you pursue.
    Secretary Vilsack. Senator, if you want, I can provide you 
some background about that today, and supplement it if it's not 
satisfactory.
    We have increased our commitment to competitive grants. We 
believe this is one way of leveraging additional resources. 
There are a number of key areas in which we focus these 
competitive grants.
    First, I would say that we have grants that are focused on 
both commodity and livestock production and protection. That 
has to do with how do we make farms more efficient, in terms of 
their capacity to create more production? And how do we protect 
them against pests and diseases, invasive species and the like, 
that could potentially cut down on productivity? So, that is 
one key area.
    We are also spending some time and some resources on 
biofuels, ways in which we might be able to use a wide variety 
of crops, crop residue, and waste products to be able to 
produce biofuels to supplement what we're doing with a corn-
based ethanol process, to expand beyond that. As we know, the 
Renewable Fuel Standard requires us to get to 36 billion 
gallons by the year 2022. To do that, we need substances other 
than corn, so we're doing some research in that area.
    We are obviously focused on food security issues, in terms 
of our capacity to meet the growing need that we not only have 
in this country, but, as well, the global need. As you well 
know, the world population is scheduled to grow to 9 billion-
plus by 2050. The question is, how are we going to feed those 
folks? What is America's role in feeding those folks? How do we 
maintain security--food security? That's part of the research 
that is underway with the AFRI grants.
    We are also taking a look at ways in which agriculture will 
have to adapt or mitigate the consequences of climate change 
that may impact itself in less water, higher temperatures, more 
opportunities for drought, more flooding conditions, what we 
can do to make sure that we don't see a significant decline in 
productivity.
    We are also taking a look at resources in the area of 
nutrition and obesity, given the very significant impact that 
we have with a third of our children being obese, and the 
consequences of that to our national security and educational 
achievement. We think that's an appropriate place for some 
resources to go, in terms of our competitive grants.
    That gives you a general overview. There's probably more 
specifics that you'd like, and we'll be happy to provide those.
    [The information follows:]

                              AGRICULTURE AND FOOD RESEARCH INITIATIVE--FOCUS AREAS
                                             [Dollars in thousands]
----------------------------------------------------------------------------------------------------------------
                                                                              Fiscal year 2011  Fiscal year 2012
                        Focus area                          Fiscal year 2010         \1\               \2\
----------------------------------------------------------------------------------------------------------------
Bioenergy.................................................           $40,000           $40,000           $48,239
Global climate variability................................            55,000            55,000            60,058
Global food security......................................            15,000            15,000            31,980
Nutrition and health......................................            25,000            25,000            33,520
Food safety...............................................            20,000            20,000            28,520
Foundational areas \3\....................................            80,773            80,773            89,605
NIFA fellows..............................................             6,045             6,045            11,480
Legislatively authorized set-asides.......................            20,664            20,664            21,253
                                                           -----------------------------------------------------
      Total, AFRI.........................................           262,482           262,482           324,655
----------------------------------------------------------------------------------------------------------------
\1\ Fiscal year 2011 annualized level as presented in the fiscal year 2012 President's budget.
\2\ These numbers reflect redirection of funding for the Institutional Challenge Grants and the Graduate
  Fellowships programs into AFRI. Institutional Challenge Grants funding has been equally allocated across the
  AFRI Challenge Areas. The Graduate Fellowships funding has been added to the NIFA Fellows program.
\3\ These are considered investments in each of AFRI's congressionally established priority areas, as follows:
  --plant health and production and plant products;
  --animal health and production and animal products;
  --food safety, nutrition, and health;
  --renewable energy, natural resources, and environment;
  --agriculture systems and technology; and
  --agriculture economics and rural communities.

    Senator Moran. Mr. Secretary, I would love to see the 
breakdown, in dollars, in each one of those areas, and kind of 
the trend in which I see the Department going.

      GRAIN INSPECTION, PACKERS AND STOCKYARDS ADMINISTRATION RULE

    I'm going to try to ask a very brief question, which the 
answer can be yes or no. I asked the Department, last 
September, to do economic analysis--Mr. Glauber, to make 
economic analysis available in regard to Grain Inspection, 
Packers and Stockyards Administration rules. I'm pleased to 
know that you're doing that. And I am asking whether or not--
once that economic analysis is complete, whether the Department 
will allow for public comment.
    Secretary Vilsack. Senator, if I can, that's not as easy of 
a question to answer with a yes or no. And the reason is that 
in order to explain how we went about this process--we 
solicited comments, as you know, it generated a substantial 
amount of comments. We're taking those comments into 
consideration, categorizing them, and they will help to inform 
the analysis that Joe and his team will do. I've instructed 
them to do a thorough analysis, a complete analysis. Obviously, 
we want to make sure that, once we present the final rule for 
review and for implementation, that it's a solid rule, one that 
we can justify. And given the extent of the comments, I'm 
confident in Joe's team, that they'll be able to provide an 
analysis that can pass muster and that will lead to a good 
product that we can support and defend.
    Senator Moran. I would encourage you, Mr. Secretary, to 
allow a very transparent post-economic analysis process at the 
Department.
    Thank you, Mr. Chairman.
    Senator Kohl. Thank you, Senator Moran.
    We'll turn to Senator Brown, and then Ranking Member Blunt.
    Senator Brown. Thank you very much, Mr. Chairman.
    Secretary Vilsack, nice to see you.
    Mr. Chairman, I know that Wisconsin produces more cheese 
than any State in the country, but you should know that Ohio 
produces more Swiss cheese than any State in the country, and 
that I grew up on a dairy farm, working on a dairy farm, 
milking Guernseys and Holsteins. So, if you want to know more 
about Swiss cheese, I'm your guy, right?
    I chose this subcommittee, on the Appropriations Committee, 
for a couple of reasons. One is that one out of seven Ohioans 
are employed in agriculture--not too different from many other 
States in this country--but also because of the priorities of 
this Committee, the subcommittee, under Chairman Kohl's 
leadership, had been pretty much exactly right--putting food on 
the table and fighting hunger in America and abroad, about 
ensuring families don't have to worry about the quality and 
safety of the food that we buy in supermarkets; about ensuring 
that our Nation's children grow up strong and healthy, and 
their mothers have the support and nutritional foundation they 
need to succeed; and about cutting-edge research to bear on our 
Nation's most difficult problems. And this subcommittee has 
pursued those as priorities, and I'm appreciative of that and 
laud that.

                               BROADBAND

    I have a couple of questions, Mr. Secretary. During the 
2008 farm bill, several of us worked--in the Agriculture 
Committee--to rewrite the broadband section of the bill to 
ensure wider access for communities that are underserved. And 
you were in Ohio, and worked on that and discussed that and 
helped to begin the implementation. I understand USDA, today, 
announced the implementation of the new language for broadband. 
Could you just briefly give us your thoughts about that?
    Secretary Vilsack. Sure. Senator, we certainly agree with 
the observations contained in the 2008 farm bill, that there 
needed to be a more focused effort on broadband expansion in 
unserved and underserved areas. You all basically instructed us 
to take a look at how to define ``rural'' with respect to 
broadband expansion. And the interim rule, the final rule, that 
we proposed today, we're talking about communities of 20,000 or 
less that are not located adjacent to, or near, an urban area. 
We have instructed our folks to take a look at giving priority 
to unserved and underserved areas.
    Our hope is that there are sufficient resources for us to 
continue the good work that was done with ARRA. ARRA allowed us 
to fund 330 projects, impacting 7 million Americans in rural 
areas, potentially 320,000 businesses having access to 
broadband, as well as 32,000 anchor institutions, like schools, 
libraries, and hospitals.
    We obviously want to continue that, because the Department 
of Commerce recently put out a map of the United States, 
showing some of the holes, if you will, in terms of coverage. 
We want to try to address those with these rules.
    So, we've put the rules out. We've put out an application 
process that will be on the Web, and we're encouraging folks to 
get comments in, before May 14, on the structure we proposed, 
and to begin the process of applying for resources.
    Senator Brown. Thank you.
    I will submit several questions for the record on topics 
important to Ohio, especially something we've talked about, the 
Agricultural Research Station in Wooster, and what we can do on 
that.
    [Senator Brown's questions were not available at press 
time.]

                           BEGINNING FARMERS

    Senator Brown. And the other question I'd like to ask now 
is--comment and question, Mr. Secretary--the average age of 
farmers, as we know, in all of our States, is now 57, and going 
up--and we all are concerned about what that means, attracting 
young people into agriculture. How do we better target Farm 
Service Agency (FSA) loan programs and other USDA assistance, 
to help launch careers for beginning farmers?
    Secretary Vilsack. Senator, we're cognizant of that issue. 
Thirty percent of our farmers are older than the age of 65, as 
well. We saw a 30-percent increase in the number of farmers 
older than 75, and a 20-percent decrease in the number of 
farmers younger than 25. There are a couple of things.
    No. 1, focusing our Beginning Farmers and Ranchers Loan 
Program, which we have been doing. We've got the Office of 
Advocacy and Outreach, that is focused on strategies for 
beginning farmers.
    No. 2, I would say that we are doing a better job of using 
our direct loan capacity. I may be wrong on the percentage of 
this, but a substantial percentage, maybe up as high as 50 
percent of our loans, on the direct loan side, have gone to 
beginning farmers, as well as about 19 percent going to 
socially disadvantaged farmers. So, we are making an effort to 
direct our credit efforts in a way that helps beginning 
farmers.
    But I think there has to be, as we begin the debate and 
conversation about the 2012 farm bill, I think this is one area 
that we really need to focus on. We've got some ideas and 
thoughts. I know my time is up, but I'd be happy to share them 
with you or the subcommittee, at a later date, relative to how 
we can identify young people who are interested in farming, how 
we might be able to use the tax code to encourage farmers who 
have no relatives to pass the farm on to, to get young people 
engaged, to get sweat-equity opportunities. There are a whole 
series of things that need to be done.
    Senator Brown. Thank you.
    Thank you, Mr. Chairman.
    Senator Kohl. Thank you very much, Senator Brown.
    Senator Blunt.

                           PREPARED STATEMENT

    Senator Blunt. Thank you, Mr. Chairman. Again, I look 
forward to working with you on this subcommittee.
    I'll have a statement for the record and some written 
questions, I'm sure, as well.
    [The statement follows:]

                Prepared Statement of Senator Roy Blunt

    Good afternoon. Thank you Chairman Kohl for holding today's hearing 
on the U.S. Department of Agriculture's (USDA) fiscal year 2012 budget 
request, and thank you to our witnesses for being here today.
    This is my first hearing as ranking member of the Agriculture 
subcommittee, and I look forward to working with the chairman and other 
members of the subcommittee as we determine funding levels for the 
Department during an era where we must show restraint, and everything 
must be on the table.
    While we are still working to get our fiscal house in order for 
fiscal year 2011, we are looking forward to fiscal year 2012. The task 
that has been placed before us, Mr. Chairman, is not ideal. How we 
respond to this responsibility is important for the taxpayers and our 
economy as a whole. We're at a crucial moment in our Nation's history, 
and the decisions we make now will define who we are going to be as a 
country.
    We are all aware of the current state of our economy. Americans are 
gravely, and rightfully, concerned about the size of the national debt 
and the budget deficit. As we begin to formally review the 
administration's budget request, we have to recognize that every $1 we 
appropriate will be borrowed and must be repaid with interest. The 
Government must start operating under the same rules that families 
across America face every day when balancing their checkbook.
    Last week, the Government Accountability Office released a report 
on duplicative efforts throughout the Government that highlighted more 
than 30 programs at USDA. The President's budget also proposes a series 
of program consolidations and terminations at the Department. Both of 
these proposals should be thoughtfully and seriously considered.
    While tackling these difficult funding decisions, we do so with an 
understanding of the important role that agriculture plays in our 
economy. We should invest taxpayer dollars wisely in agriculture 
programs that will increase our agricultural communities' 
competitiveness here and abroad because agriculture is a leading driver 
in our economic recovery.
    For example, research supports more efficient, higher-quality 
agricultural production and the continued development of new and 
existing biofuels. That same research also supports American farmers 
and rural communities by giving them the tools to be more competitive 
in the global economy.
    Agriculture products remain the one highlight in our export 
portfolio. The Secretary notes in his written testimony that every $1 
billion worth of agricultural exports supports an estimated 8,000 jobs. 
Agriculture exports from Missouri alone support more than 37,000 jobs.
    We have to continue to expand access to foreign markets because a 
thriving agriculture industry is key to our economic recovery. It's 
time to move forward with the free trade agreements with South Korea, 
Columbia, and Panama.
    Mr. Secretary, I look forward to hearing your thoughts on these 
important issues. Again, thank you Chairman Kohl for holding today's 
hearing.

                            CROP PRODUCTION

    Senator Blunt. I may have missed it, but, in your response 
to Senator Moran's question about agricultural research, I 
didn't hear as much as I would hope to hear about plant 
research, about having better results from less and less 
acreage, or on the same amount of acreage as we struggle to 
feed a growing world. I know that's one of your priorities, but 
I'd like to hear your thoughts on that.
    Secretary Vilsack. Senator, I did--I actually started with 
the first area of emphasis, in terms of our competitive grant 
program, is on crop and livestock production and protection, 
which is precisely to your point of how----
    Senator Blunt. Actually, I thought that was more the 
implementation of things we thought might work than trying to 
develop what might work, which was my point.
    Secretary Vilsack. No, no--the question was about 
competitive research grants. And this has to do with developing 
new ways to produce, to become more efficient, more effective. 
It's precisely the point that I'm making.
    Senator Blunt. Good.
    Secretary Vilsack. As well as on the food security side, 
how do we learn from our experiences in other countries that 
may be drought-stricken, may be struck with floods? How can we 
create, potentially, new products that would be more inclined 
to be productive in very adverse weather conditions? That's 
part of the research, as well.

                            TRADE AGREEMENT

    Senator Blunt. Good. On the ``other countries'' front, we 
have three trade agreements. I understand they could mean an 
additional $2.3 billion in meat and poultry exports alone. That 
could add almost 30,000 new jobs in our economic recovery. What 
is the position you and the Department are taking on each of 
those three agreements?
    Secretary Vilsack. We are very supportive, obviously, and 
hope to have quick ratification, of the Korean Free Trade 
Agreement, which has been completed. That will basically allow 
60 percent of the tariffs on about $5 billion of agricultural 
products to be removed immediately; the other 40 percent, over 
a period of years. You're correct, it will increase 
opportunities for us and make us far more competitive. We want 
it to be done quickly, because, obviously, we risk the 
possibility of Korea making a deal with Australia and other 
countries, where we could potentially lose market share.
    It's my understanding that Ambassador Kirk has been 
instructed to complete the discussions and negotiations on the 
Colombian and Panama Free Trade Agreements, and we're excited 
about that opportunity, as well. We hope that the Korean Free 
Trade Agreement's passage will provide momentum for the passage 
of the other two free trade agreements.
    It's not just those bilateral agreements, it's also the 
multilateral discussions that are taking place--the 
Transpacific Partnership, which the President is very 
interested in embracing--as well as our efforts at USDA in the 
Foreign Agricultural Service to reduce barriers to trade. We've 
seen a lot of that happen, in part because of the growing trade 
surplus that we're experiencing in agriculture. We project it 
to be $47.5 billion this year, which will be a record, in terms 
of sales, by almost a $20 billion increase more than last 
year's record. Every $1 billion of agriculture sales creates 
8,000 to 9,000 jobs. So, we are certainly supportive of this, 
and encouraging quick action.
    Senator Blunt. Very good.
    On the other two agreements, not for today, but I'd like to 
know what you think, for Colombia and Panama, the best markets 
are. For example, wheat or other markets that might benefit.
    Regarding the beef market, and again, I think your point is 
well made, that if we don't get to those markets before other 
people do, you allow patterns to establish that are often hard 
to reverse. And I think the beef area still needs some work, 
but it's moved some since Ambassador Kirk has worked on it, as 
he has.

                   GAO REPORT ON DUPLICATIVE PROGRAMS

    There was a GAO duplication report that came out after you 
submitted your budget, and I wonder if that's given you a 
chance to go back and look at things to find some savings by 
bringing programs to your Department that would be better done 
there than somewhere else, or figuring out how to better 
accomplish some of the programs that are duplicative.
    Secretary Vilsack. I had a conversation with the President, 
earlier today, about the whole issue of trade--as you well 
know, that there are a number of agencies that are involved and 
participate in trade. The challenge is to make sure that the 
opportunities and the tremendous advantage that we have in 
agriculture, in whatever structure, whatever ultimately comes 
about, in terms of restructuring or reorganization, is not 
impacted negatively. This is a good-news story. This is a 
positive story. It's one we want to build on, we want to 
continue. We've got really good people working at Foreign 
Agricultural Service, breaking those barriers down. We want to 
continue that.
    We are constantly looking for ways in which we can 
restructure and reorganize within the USDA. We have a Process 
Improvement Program underway, which is identifying efficiencies 
and savings. As we deal with difficult budgets, as we deal with 
decisions you all will make, they will obviously impact 
personnel. Our only request is that you give us sufficient time 
in which to manage it properly.
    As I said earlier, if we try to shoehorn in a solution to 
budget problems that have accumulated over a number of years 
into a short period of time, it makes it much more difficult 
for us, as managers, to do an effective job and to minimize the 
negative impact that it may have on the American public. We 
don't want that. You don't want that. We just simply need 
appropriate time.
    I haven't had a chance to look at the GAO report in its 
totality. I know that there are issues concerning food safety. 
And as we are working with the FDA to make sure that we are 
coordinating our efforts so that we have, in a sense, a virtual 
food safety agency, in terms of its capacity, in terms of its 
philosophy, focused on prevention, as opposed to just reacting. 
We want to be able to be proactive. We want to prevent problems 
from occurring before they happen.
    Senator Blunt. I remember one point in that report was that 
FDA is responsible for the safety of shell eggs, and USDA is 
responsible for the safety of processed eggs.
    Secretary Vilsack. That is a good example, Senator, but, 
maybe a better example is the pizza example, that, if it's a 
cheese pizza, with respect to Senator Brown or the chairman----
    Senator Blunt. Particularly if it's a Swiss cheese pizza.
    Secretary Vilsack. That might be tough. But if it's a 
cheese pizza, basically, FDA does it. But if there's one 
pepperoni slice on it, it's ours. And I think that there are, 
obviously, ways.
    But in order to do this, I think the first thing is, you've 
got to build a foundation. And the way you build a foundation 
is to make sure that the philosophies are the same. I think 
what we had was a philosophy, because of the quantity that FDA 
had, of being reactive to circumstances, to try to mitigate the 
impact. And we at USDA--because of our niche, we were looking 
more to preventative measure. I think preventative is now what 
you all have been able to do with the food safety legislation 
that passed last year. You've got us all on the same track, 
which I think is very, very important, and I think it's going 
to result in improved food safety.
    Senator Blunt. I did ask the Housing Secretary the other 
day, at a hearing like this, if they had the infrastructure to 
handle the rural housing component. They may or may not have. 
And what we don't want to do is eliminate programs if your 
Department can uniquely serve a purpose that others would have 
to create additional infrastructure to do. So, we want to be 
careful about it, but we also want to be sensible about it, in 
trying to eliminate duplication wherever we can.
    Secretary Vilsack. Also, I think that there's a real desire 
to avoid--we had this with the U.S. Agency for International 
Development, in terms of overlapping jurisdiction and 
responsibilities and confusion.
    There's a difference, if I can, between rowing and 
steering. Steering is the policymaking aspect of this. There 
should be consistency. There should be, clearly, somebody in 
charge of the steering apparatus. But the implementation--it's 
a different set of skills, and somebody ought to be--that ought 
to be a separate lane. And if you start confusing the steering 
and rowing, you end up not going anywhere.

                               BROADBAND

    Senator Blunt. That is absolutely true. Not for an answer 
today, but on broadband, which we're all interested in seeing 
that people have access to, I'd like you to come back to me 
with a definition of what ``underserved'' means. I know what 
``unserved'' means. I don't know what ``underserved'' means, 
and I think you get into a really interesting competitive 
environment, where you go in and assist somebody to compete 
with someone who has gone in and already put infrastructure in, 
themselves, without taxpayer help.
    Secretary Vilsack. I think the answer to that may be in the 
interim final rule that we presented today. We'll get you and 
your staff a copy of that.
    [The information is available as follows:]

    See Federal Register, Monday, March 14, 2011, Vol. 76, No. 49, pgs 
13770-13796, Rules and Regulations at http://www.gpo.gov/fdsys/pkg/FR-
2011-03-14/pdf/FR-2011-03-14.pdf

    Senator Blunt. Good. I'd like to see it.
    Thank you.
    And thank you, Mr. Chairman.
    Senator Kohl. Thank you, Senator Blunt.
    We'll listen, now, to Senator Nelson, then Senator Hoeven, 
and then Senator Cochran.
    Senator Nelson.
    Senator Nelson. Thank you, Mr. Chairman.
    And, Mr. Secretary and your colleagues, it's good to have 
you here. We appreciate this opportunity to go over some very 
important issues.

                   NATIONAL DROUGHT MITIGATION CENTER

    Mr. Secretary, as you know, the National Drought Mitigation 
Center at the University of Nebraska, Lincoln, performs a 
number of valuable services: monitoring and forecasting 
drought, planning for drought, and developing means of 
mitigating drought. It's extremely important for farmers and 
ranchers for understanding trends that affect food production 
and for planning by a number of businesses and individuals. And 
the widely used Drought Monitor is published on Thursdays, I 
believe. As we all know, these are extremely important.
    For a number of years, a number of these beneficial 
programs were supported by earmarks. In the absence of 
earmarks, do you have any plans for sustaining the National 
Drought Mitigation Center through--and its activities--in your 
fiscal year 2012 budget?
    Secretary Vilsack. Senator, what we have suggested is that 
there really does need to be a priority-setting process. There 
are a number of projects that have received earmarks over the 
course of a number of years. All of them have, I'm sure, 
appropriate justification, including the one that's located in 
your area, in Nebraska.
    I think it would helpful for us to, basically, do a review 
of all of those proposals and all of the existing facilities to 
determine, what are the highest priorities? When we are dealing 
with difficult budgets, it is, at the end of the day, about 
choices and priorities. We want to make sure we can justify 
whatever decisions are made.
    So, there is a priority-setting process in place. I can't 
tell you, today, where the Nebraska project is, specifically, 
in that process, because it hasn't been completed.
    Senator Nelson. I might point out that the project might 
exist in Nebraska, but it's nationwide in its implications, and 
is used by a number of other entities, as well. Unfortunately 
or fortunately, depending upon your point of view, drought is 
not just unique to Nebraska. So, others have focused on it, and 
I think it's, obviously, a worthwhile project. And I want to 
make a pitch for it. Perhaps we can follow up after the 
hearing.
    And relating to trying to find a way to make a budget work 
in difficult and trying economic times, I understand the 
challenge that you face. I think it's important for the 
American people if we--consider it this way, that if you like 
importing 70 percent of your oil, you'll love importing 70 
percent of your food.

                        AGRICULTURAL PRODUCTION

    What I'm getting at is, your agency and the programs under 
your agency and programs--new farm program and everything we 
move forward on, will be designed to try to sustain American 
agriculture so we can continue to produce, here at home, our 
own food for our own needs: food, fuel, fiber, and feed.
    So, I hope that, as we look at cuts, we'll be judicious 
and, as you say, prioritize, so that, at the end of the day, 
agriculture is not left hanging without a safety net. In 
anticipation of bad times, we need to be sure that we are 
protecting against those bad times. And it's harder to do it--
in good times, in terms of commodity prices. But in tough 
budget times, as we do that, we have to be very judicious and 
have very strong prioritization so that we don't end up having 
people talk us out of continuing to support agriculture in 
advance of the bad times.
    Secretary Vilsack. I'm not sure if I have time to respond 
to that, Mr. Chairman.
    Senator, we obviously agree. We're certainly pleased with 
the fact that we have a strong agricultural economy today, but 
recognize full well the nature of agriculture could be 
difficult tomorrow. There does need to be a strong safety net. 
We do have to have shared--as the President says, shared 
sacrifice and shared opportunity, and it has to be 
proportional. We think our budget reflects those--that balance. 
We think it maintains a strong safety net, through a variety of 
mechanisms: additional market opportunities, crop insurance, as 
well as the payment structures that are in place. We are 
suggesting some changes to the payment structure which we think 
are legitimate. But we're happy to tell the agricultural 
community that we are aware of the need for a strong safety 
net.
    Senator Nelson. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    Senator Kohl. Thank you, Senator Nelson.
    Senator Hoeven, Senator Cochran.
    Senator Hoeven. Thank you, Mr. Chairman.
    Secretary Vilsack, good to see you again. You've been up 
here a lot, and I know how demanding your schedule is. So, it's 
good to have you here.

                         AGRICULTURAL RESEARCH

    First thing I want to touch on, for just 1 minute, is a 
follow-up to both my colleagues, Senator Moran and Senator 
Blunt, in emphasizing the importance of ag research. I think it 
pays incredible dividends. And obviously, we're going to have 
to tighten up on these budgets. We have a spending issue. And 
from what I've seen, agriculture will certainly take its share 
of the load. Some of us may feel it's even taking more than its 
share of the load. And I think that's borne out by some of the 
percentages I've seen so far.
    But good farm policy is important to every single American 
and people all over the globe, as you well know. We have the 
lowest-cost, highest-quality food supply, not only in the 
world, but in the history of the world, thanks to our farmers 
and ranchers.
    But I'm wondering if there's some flexibility that we could 
give you, in your budget, that would help. And a couple 
different areas. Ag research. I think that's incredibly 
important. If you have some ability to move dollars around, 
that might help us do more through our universities and 
extensions, so forth, to do a good job on ag research. Biofuels 
development. Also, even in the area of, with the Rural 
Utilities Service (RUS), some of the new clean coal 
technologies, which actually comes under your purview through 
RUS.
    Is there something we can do with flexibility, in these 
times when there are going to be less dollars, that can really 
help, in terms of doing the job--make your budget go further 
for agriculture?
    Secretary Vilsack. On the research side, Senator, we're 
trying to do that by increasing, over what we had last year, 
the competitive grant program. We think that that is a way in 
which we can more effectively leverage scarce Federal resources 
to partner with private resources and the land grant 
universities to extend our research opportunities.

                            ENERGY PROGRAMS

    You mentioned RUS. We are proposing, in this budget, the 
capacity to use a portion of $6 billion in loan authority to be 
able to better assist existing facilities that might be fossil 
fuel-based, as they look for new renewable opportunities for 
peak production, for efficiencies and improvements, and more 
flexibility in being able to use those resources to help assist 
in the development of those improvements. That would be 
something that could be helpful.
    Senator Hoeven. So, that is something we could work with 
your people, in terms of your budget, that--clean coal 
technology, the RUS loan program is a great example. How do we 
make sure--same thing in biofuels--second-generation cellulosic 
development for ethanol, other--and biodiesel.
    Secretary Vilsack. Well, the biofuels----
    Senator Hoeven. We need to get that creativity going in the 
private sector.
    Secretary Vilsack. You're right.
    Senator Hoeven. We need to get your dollars into those 
projects.
    Secretary Vilsack. On the biofuels side, I think the 
Congress and the President have been of one mind, in terms of 
getting the energy title of the farm bill implemented. And we 
are attempting to do that with new biorefineries that are being 
financed with the Biomass Crop Assistance Program, with 
advanced biofuel producer assistance. All of that is underway. 
So, I think we're doing a pretty good job on that. But we're 
certainly willing to work with you in other ways.
    I will tell you that I have a deep concern--this is a 
little far afield from your question, but I have a deep concern 
about the cliff that some folks want to create, in terms of the 
incentives that are currently in place for the biofuel 
industry. I think, if you create a cliff, what you're going to 
see is a drop in production. You're going to see a loss of 
jobs. I think it would be much better to have a glidepath 
towards ultimate elimination of those incentives--but, a 
glidepath. And perhaps a redirection of those incentives in a 
way that helps blender pumps, helps build greater demand with 
flexible fuel vehicles. That kind of thing could be very 
helpful to us.
    So, I think there are a number of ways in which we can 
help.
    Senator Hoeven. Blender pumps, flex-fuel vehicles, higher-
blend standard, working with the Environmental Protection 
Agency--I think we can transition to some of those measures 
that can still help the industry grow, but that don't create a 
cost, necessarily, for the Federal Government.
    Secretary Vilsack. Right. Or reduce the cost that we've 
been incurring over time.
    Senator Hoeven. Right. Thank you.
    Senator Kohl. Thank you, Senator Hoeven.
    Senator Cochran.
    Senator Cochran. Mr. Chairman.
    Mr. Secretary, welcome to the subcommittee. We appreciate 
your cooperation with us in attending the hearing.

                       CATFISH INSPECTION PROGRAM

    While we understand that the Department has been 
considering releasing some catfish inspection regulations and 
beginning to implement a program, we've not seen any final 
action taken, or specific requests for funding, for enforcement 
of the program. What is the status of that issue, if you know, 
particularly as it relates to aquaculture activities?
    Secretary Vilsack. Senator, we just recently put forward 
for comment and consideration, specifically as it relates to 
catfish, a responsibility that was given to us statutorily, a 
new inspection program. We expect and anticipate that there'll 
be quite a bit of comment, relative to precisely how extensive 
that inspection process should be, in terms of the varieties of 
catfish that should be included.
    I didn't know how many different varieties of catfish there 
were until I got this job. I just thought there was one kind, 
out in the Mississippi River. But I find that that's not the 
case. There are quite a few more.
    So, our view is that it's going to take some time for us to 
sort of get our hands around precisely what we will be 
regulating. Therefore, it would be a bit premature this year to 
ask for resources for an inspection process, or enforcement 
process, when we don't have the program in place. We anticipate 
it will take us a little time to get it in place.
    Senator Cochran. We would encourage you to move ahead on 
it. We hope you don't do like we do here in the Senate 
sometimes, and just kind of filibuster, talk, talk, and nothing 
really happens. We hope the administration will cooperate with 
this subcommittee, and collaborate on defining a new regime, 
and then let us provide the funds to pay for it.
    Thank you, Mr. Chairman.
    Senator Kohl. Thank you very much, Senator Cochran.

                   FARM SERVICE AGENCY LOAN PROGRAMS

    Mr. Secretary, for the past 2 years, private credit markets 
provided insufficient credit to support farmers and ranchers, 
due to the recession. As a result, this subcommittee had to 
increase support for FSA loan programs. Wisconsin is the 
largest user of these programs, with a loan portfolio of more 
than $1.3 billion. And they are particularly important for the 
dairy industry. This budget cuts those programs by 6 percent. 
Can you give us some assurances that private credit markets 
will provide adequate credit for farmers and ranchers in fiscal 
year 2012?
    Secretary Vilsack. Mr. Chairman, I think the most 
significant reduction in the loan programs is a program that 
provided not just a loan, but also interest assistance. Given 
the difficult times, our feeling was that there obviously are 
priorities, and our priorities should be on the direct loan and 
the guaranteed loan programs without interest assistance.
    We are seeing a better credit circumstance, in terms of the 
capacity to get credit. That's probably in part because farm 
prices are better. It's in part because we're seeing fewer 
defaults. We're seeing fewer efforts to restructure or ask for 
additional time in which to pay. Therefore, we're fairly 
confident that the numbers we've provided should be adequate to 
meet the credit needs of our farm community, given the 
circumstances as they exist today. But as you know, things 
could change in the next 3 or 4 months. We're keeping an eye, 
obviously, on energy costs. That may have an impact on all of 
this. But at this point in time, we're confident that we'll be 
able to meet the need with what we proposed.

                        GOVERNMENT SPENDING CUTS

    Senator Kohl. Mr. Secretary, as we've all been trying to 
find ways to reduce Government spending, we received from the 
Office of Management and Budget (OMB) a list of suggested 
places to cut spending across the entire Government. That list 
included 38 items, of which 12 out of the 38 were from USDA. 
Those USDA programs included cuts of $1.5 billion, from a total 
of $6.5 billion on the entire OMB list.
    So, can you explain why OMB seems to be focused so much on 
USDA spending? Are these USDA programs really not that 
important? Does USDA simply have too much money these days, or 
does the administration have huge amount of regard and respect 
for your ability to create efficiencies?
    Secretary Vilsack. I'd like to think it's the latter, Mr. 
Chairman. But in all seriousness, we at USDA recognize the 
responsibility because of the people that we work with and 
represent and work for--the folks in rural America, who I 
think, themselves, understood something about that long ago, 
which is one of the reasons why the ag economy is probably a 
little bit stronger than other parts of the economy, because 
there wasn't quite as much debt. We're seeing, right now, an 
11.3 percent debt-to-asset ratio in farm country, which is a 
solid ratio.
    So, we stepped up last year, with a $4 billion savings on 
the crop insurance. We were asked to identify, consistent with 
the President's instructions, a number of reductions that would 
take place within a reduced discretionary spending number. 
We've provided those to OMB. And I think what you see is a 
reflection of OMB's efforts to accelerate what we have 
identified in the fiscal year 2012 budget as a way of assisting 
the Congress in trying to finalize the fiscal year 2011 budget.
    Will these reductions be easy? No. If I had my druthers, 
I'd like to live in a world where we had unlimited resources 
and we didn't have to deal with these issues. But the reality 
is, American families are dealing with them, and they expect 
their Government to do the same. And we want to be reflective 
of that value.
    Senator Kohl. All right.
    Senator Pryor, we'll turn to you.
    Senator Pryor. Thank you, Mr. Chairman.
    Secretary Vilsack, always good to see you. Thank you for 
being here today.
    Let me start by picking up on something that Senator 
Cochran said just a few moments ago. And that is that catfish 
is an important industry, of course, but even more than that, 
it's an important food source for people, and it's important 
that consumers know what they're eating and can be assured that 
it's safe to eat. So, I hope that the USDA will continue to 
move down the tracks with your new catfish rule.

               NATIONAL INSTITUTE OF FOOD AND AGRICULTURE

    Let me, though, ask a question about the National Institute 
of Food and Agriculture (NIFA). I have a question, generally, 
about the administration's decision to recommend some of these 
cuts, because as some of my colleagues have said already, 
agriculture is a fairly strong sector of the U.S. economy. I 
think you just mentioned that. And we are not doing well, when 
it comes to exports. We have a huge trade deficit. The 
President has come out and said he wants to double exports 
within so many years. It seems to me that we're a world leader 
in exporting of agriculture products, and so I'm not sure why 
we should be cutting that. We want to see economic recovery. We 
want to see a more stable, more robust economy in this country. 
And really, the foundation of rural America's economy is 
agriculture.
    So, I was going to ask about NIFA. But just generally, why 
are you recommending some of these cuts? And particularly with 
NIFA, which is agricultural research and is doing great things 
all over the country. Why are we cutting now? I understand 
we're in a difficult budget environment, but tell me the 
administration's thought process.
    Secretary Vilsack. I would say two things.
    First of all, as it relates to exports, I want to make sure 
I make our budget clear, Senator. We are proposing, actually, 
in that area of the budget, an increase of $20 million. And we 
believe that that increase--based on experience, every $1 we 
spent on export assistance last year netted $35 of trade. So, 
that's actually an increased item on our budget.
    Senator Pryor. Right.
    I think it's great. That's why we need the product in the 
pipeline.
    Secretary Vilsack. It can create economic opportunity.
    As it relates to NIFA's budget, basically, we are 
increasing the competitive grant program within NIFA. Our 
belief is that, by increasing that part of NIFA, of AFRI, we 
will be able to leverage an equal or greater amount of overall 
dollars within research. So, while it obviously is, in total, 
less money, we think by increasing a part of that budget, we 
can make up for whatever reductions may take place in other 
parts of the research budget.
    And it's primarily in the areas of formula funding, a small 
reduction in formula funding, an increase in competitive 
grants, because competitive grants, we believe, have the 
greater potential for accessing additional dollars into 
research. This administration has been a supporter of research, 
and has been proposing additional resources for research, over 
the last couple of years.
    Senator Pryor. Thank you, Mr. Chairman.
    Senator Kohl. Thank you very much, Senator Pryor.
    Senator Blunt.
    Senator Blunt. Thank you, Chairman.

                      DISCRETIONARY FUNDING LEVELS

    What is the fiscal year 2010 number that you're working 
under now, the fiscal year 2012 number, and the fiscal year 
2008 number? If somebody could give me the bottom line. I don't 
expect you to know that, without looking it up, but you might.
    Secretary Vilsack. I know that the net discretionary 
appropriations for fiscal year 2010, enacted, was $26 billion. 
In the fiscal year 2011 budget, what we proposed was a little 
more than $25.5 billion. And the fiscal year 2012 number is 
less than----
    Senator Blunt. This is net discretionary, right, Secretary?
    Secretary Vilsack. Yes.
    Senator Blunt. The other number I'd like to know is what 
the 2008 number was for net discretionary.
    Secretary Vilsack. The fiscal year 2012 budget number is 
almost $24 billion--$23.8. The fiscal year 2008 number is $21 
billion.
    Senator Blunt. Okay, that's helpful. Thank you.

                           BUDGET PRIORITIES

    What are the three top priorities that you have for the 
year for the Department? And why would those be your three top 
priorities?
    Secretary Vilsack. That is a really difficult question, 
given the scope of what we do at USDA.
    First and foremost, we obviously want to continue the 
momentum that's been building in rural America, in terms of job 
growth and economic opportunity. We've got a strong ag economy. 
We want to continue to build on that. We have a strategy of 
expanding broadband, of making sure the biofuels industry is 
supported, of doing a good job of using our conservation 
resources in a way that builds outdoor recreational 
opportunities, which we think can help build the rural economy. 
And the ability to build local and regional food systems 
creates job opportunities. So, that's one.
    Second, we've got a good trade story to tell. We obviously 
want to increase the momentum there.
    Then we have a responsibility to make sure that safe and 
nutritious food is available to every American. So, that gets 
into the food safety area. It also gets into the nutrition 
programs that are important, with particular emphasis on 
implementation of the recently enacted Healthy and Hunger-Free 
Kids Act of 2010, a historic opportunity for us to improve, 
significantly, the school lunch and school breakfast programs, 
given the obesity and hunger issues we face.
    Now, there are a multitude of other responsibilities we 
have. Invasive species are a big issue, often not discussed in 
a context of this budget, because, in terms of dollars, it may 
not be the largest part of our budget, but it's extraordinarily 
important to crop production and productivity.
    There are issues relative to homeownership, that we 
discussed briefly earlier. That's an issue.
    The credit needs of farmers is an issue. The beginning 
farmer. I mean, there are just a lot of issues that you deal 
with in this Department.
    And asking which of those, of all my priorities, is sort of 
like asking which of my two sons I love the most. I love them 
all. And we want to work hard to try to advance all of these 
priorities.
    Senator Blunt. Thank you, Secretary.
    I think that is it for my questions, Mr. Chairman.
    Senator Kohl. Senator Cochran.
    Senator Cochran. I have no further questions.
    Senator Kohl. Senator Hoeven.
    Senator Hoeven. I have one other question, Mr. Chairman.

                             CROP INSURANCE

    Mr. Secretary, crop insurance is incredibly important for 
our producers. It's going to be incredibly important in the 
next farm bill. I see, in the budget proposal you put forward, 
you're reducing funding for crop insurance by $1.7 billion. 
That follows about a $4 billion reduction this past year. But I 
think crop insurance is really going to be a cornerstone of our 
safety net. It will be a cornerstone of our safety net for our 
producers in the new farm bill. How do we improve crop 
insurance?
    Secretary Vilsack. If I can, let me explain why we're 
proposing the reduction. The $4 billion reduction was, in part, 
a result of us doing a historical study of appropriate returns 
on investment for the insurance industry to provide stability 
in the crop insurance arena. What we determined was, a 12-
percent return on investment would be sufficient to promote and 
ensure stability. What we did with the crop insurance agreement 
was to come down from the 17-percent to a 14-percent return. 
So, we think that there is stablility and security.
    The proposal we're making this year is in one narrow area 
of crop insurance: catastrophic insurance. And the reason we're 
doing this is because the loss ratio, not the premiums, but the 
relationship with the insurance industry was based on a 1.0 
loss ratio. When in reality, historically, it's been far less 
than that. So, there are ways in which we can reduce the 
exposure to the taxpayers, not increase the cost to producers, 
and make the product still available. That's what we're 
proposing.
    We are expanding crop insurance. We have 14,000 additional 
customers in our crop insurance program, as a result of the 
program improvements we made last year in range and pasture and 
forageland areas. We're looking at a series of organic crops 
that could potentially be covered, as well. We're reducing 
surcharges on a variety of citrus products, which may not 
impact North Dakota, but----
    Senator Hoeven. That's funny.
    Secretary Vilsack [continuing]. Are obviously important to 
folks in the South. So, there are steps that we are taking.
    We are also creating a premium refund program for good 
producers, those who have historically good records. We've 
identified about $75 million that could be returned, if you 
will, to producers.
    So, I think we're looking--always looking for ways in which 
we can expand coverage and create a better program.
    Senator Hoeven. I think it's going to be absolutely key 
that we work together, particularly as we go into this next 
farm bill, on crop insurance. I think that's going to be just a 
key, key component. And we have such a good case to make with 
it, too, for our producers.
    Secretary Vilsack. You're right, Senator. I don't disagree 
with that.
    Senator Hoeven. Thank you.
    Senator Kohl. Senator Pryor, you have a question?
    Senator Pryor. I do, Mr. Chairman. Thank you.

                  THE NATIONAL AGRICULTURAL LAW CENTER

    This may seem like a parochial matter, but it really isn't; 
it's of national importance. And that is, University of 
Arkansas School of Law has the National Agricultural Law Center 
housed there. It offers a master of laws in agricultural law, 
which I think is the only program in the country that does 
that. But even more than that, it is really a clearinghouse for 
all kinds of information. Last year, they had 430,000 visitors 
to their Web site, wanting to know about agriculture law.
    It reminds me--I just finished a book on healthcare--
there's now a new field of economics, called ``healthcare 
economics.'' Agriculture is complicated enough, where there is 
a legitimate field of agriculture law.
    But the Web site also had well more than 1 million hits. 
And 20 percent of those--this is just last year's numbers--20 
percent of those were Federal employees.
    So, this is a real resource that's available to everybody. 
Even our own Federal Government relies on it heavily. There's a 
lot of very constructive and positive things I could talk about 
with the National Agricultural Law Center. In fact, in your 
shop, Janie Hipp and Doug O'Brien are former directors of the 
center.
    Nonetheless, I'm curious to hear your explanation about why 
the program is proposed to be terminated and how we might 
overcome the adverse effects of a termination.
    Secretary Vilsack. Senator, this is just a reflection on 
the concern that has been expressed by the President and 
others, in terms of specific earmarks. This is a process that 
we need to undertake within the USDA, that we are undertaking 
within USDA, to establish a priority listing of things that 
need to be maintained and things that need to be continued, and 
to be able to explain and justify why they need to be 
continued. We're undertaking that. And in lieu of that, our 
budget reflects an elimination of all of those earmarks.
    Senator Pryor. Mr. Chairman, I'm not sure I agree with 
y'all's definition of ``earmark,'' but that's something that we 
should talk about further, and maybe not in this context. But I 
do think it does provide a national service.
    Thank you.

                     ADDITIONAL COMMITTEE QUESTIONS

    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

                Questions Submitted by Senator Herb Kohl

                               BROADBAND

    Question. A recent Washington Post article called the U.S. 
Department of Agriculture (USDA) Rural Broadband Loan Program one of 
the ``worst ideas in Washington.'' The loan program is eliminated in 
your fiscal year 2012 budget, but there will still be money available 
from previous years to carry it out.
    How do you respond to criticism that the program hasn't focused on 
rural America?
    Answer. The program is focused on rural America. The issues raised 
in the Washington Post article addressed concerns from the USDA 
inspector general that the program did not reach the most rural 
communities. USDA has used the statutory definition of ``rural'' for 
its Broadband program that was enacted through the 2002 farm bill and 
then revised the Broadband program in 2008. USDA had no authority to 
change the statutory definition and was pleased that the Congress 
enacted the inspector general's recommendation to amend the definition 
of ``rural'' in 2008. This new definition of rural was used for the 
American Recovery and Reinvestment Act's (ARRA) Broadband Initiatives 
Program (BIP) and is used today in our revised farm bill Broadband Loan 
program. I am also pleased to report that no farm bill broadband 
infrastructure loans to new borrowers were made under this 
administration using the old definition of ``rural.'' I am also pleased 
to report that the Rural Utilities Service (RUS) has addressed all 
Office of Inspector General (OIG) recommendations on the farm bill 
Rural Broadband Loan Program and as of March 24, the OIG has now closed 
the audit. If the Congress has concerns with the current statutory 
definition of rural for our Broadband program, we would be pleased to 
work with the subcommittee to draft a new standard.
    Question. When will rural America truly be served by high-speed 
broadband, which is important for economic development?
    Answer. Under ARRA, USDA received more than $28 billion in 
applications for BIP. With our $2.5 billion in budget authority, we 
were pleased to leverage these funds into 320 awards totaling in excess 
of $3.5 billion. In Wisconsin, USDA made 15 BIP awards totaling in 
excess of $90 million. For example, USDA provided a $15.5 million loan 
and $15.5 million grant to Chequamegon Communications Cooperative, Inc. 
(CCC) to offer high-speed broadband to 31 rural communities in northern 
Wisconsin. CCC's network will bring high-speed fiber to more than 3,000 
new customers including several community anchor institutions. To 
further leverage this BIP award, CCC partnered with the State of 
Wisconsin on another ARRA project to bring high-speed Internet to 
schools and libraries in the area. The project will create or save 66 
jobs.
    Regrettably, we did not have sufficient resources to reach every 
unserved area in rural America. To help reach families and business in 
areas unserved by BIP or the Department of Commerce's Broadband 
Technology Opportunities Program (BTOP), USDA made $100 million in 
awards to satellite service providers to lower the cost of installation 
and monthly broadband service to areas that remain unserved after all 
BIP and BTOP awards were made.
    Finally, USDA has other broadband programs to assist with bringing 
broadband to rural areas. Our Community Connect Grant program is 
specifically targeted to rural communities that have no broadband 
service. The 2008 farm bill Rural Broadband Loan Program offers loans 
to bring broadband to underserved and unserved communities. Both 
programs are operating under carryover funding this fiscal year and 
were part of the President's fiscal year 2011 budget request. The 
President's fiscal year 2012 budget did not request funds for the farm 
bill loan program but did request an additional $17.8 billion for the 
Community Connect Grant program. The fiscal year 2012 budget did not 
request additional funds for the Broadband program because it 
anticipated sufficient carryover funding would be available.

                            RENEWABLE ENERGY

    Question. USDA was given a clear and urgent mandate to promote the 
development and expansion of renewable energy, to help diminish the 
Nation's dependence on fossil fuels. Recent oil price volatility has 
caused us to refocus on this charge. Substantial mandatory funding was 
included in the farm bill for this purpose. This subcommittee needs to 
know what USDA has done with this mandate and the funding you received. 
Specifically:
    Please describe the current state of implementation of USDA's 
renewable energy programs.
    Answer. The interim rules for the Advanced Biofuel Payment Program 
and the Repowering Assistance Program were published in the Federal 
Register on February 11, 2011. The interim rule for the Biorefinery 
Assistance Program was published in the Federal Register on February 
14, 2011. Notices of funds availability and a notice contract of 
proposal for these programs were published in the Federal Register on 
March 11, 2011. The interim rule and Notice of Funds Availability for 
the Rural Energy for America Program (REAP) are expected to be 
published in the Federal Register by April 14, 2011. The Rural Energy 
Self Sufficiency Initiative was not implemented because no funds have 
been appropriated for this program.
    Question. What are the timelines you envision for bringing new 
energy sources on line to reach consumers?
    Answer. New energy supplies from biofuels currently being developed 
by the Biorefinery Assistance Program will take 3-5 years to allow for 
plants to be built, ramped up, and for supplies to reach consumers. 
Less complex renewable energy and energy efficiency projects involving 
known technologies are being completed anywhere from a few months to a 
few years.
    Question. What challenges are slowing achievement of your goals?
    Answer. Interest in our programs has never been greater. In terms 
of market concerns: the availability of private-sector capital and 
investments necessary to develop new biofuels and biorefineries is a 
challenge. Some lenders are risk averse and the Department has worked 
closely with the industry and the investment community to address this 
issue.
    Question. We need to know which of these programs work and which do 
not. How are you measuring success and what can you tell us about 
successes and failures?
    Answer. All of our programs are working, very popular, and in the 
case of REAP, producing measurable results. While awards have been 
made, none of the construction projects have been completed. In terms 
of applicants: REAP had 2,400 successful applicants in 2010; it helped 
to provide an investment of $159 million in renewable energy and energy 
efficiency projects in rural America with less than $84 million of 
Government grants and helped to produce or save more than 2,900 
megawatt hours of energy. The Bioenergy Program for Advanced Biofuels 
is providing incentive payments for the production of advanced 
biofuels. The program made payments of $19 million to 140 recipients 
that produced advanced biofuel during fiscal year 2010. We measure 
success of our programs by the geographic diversity of the program 
funds, funding a wide range of project technologies, jobs creation, 
energy production, energy conservation, leveraging other funds with 
program funds, and by providing loan guarantees for the development of 
new fuels that will meet the energy demands of our Nation. Upon 
request, the Rural Business Service (RBS) will provide summary data for 
all of the title 9 RBS programs.
    Question. Please describe how you are coordinating the energy 
initiatives within USDA, and with land grant universities' research 
efforts.
    Answer. USDA is working within the Department and with other 
Federal departments and organizations, including the land grant 
universities, on furthering renewable energy initiatives and programs. 
Efforts include the following intra-/inter-governmental panels, 
councils, working groups, and boards.
    As an extramural research, education, and extension agency, the 
National Institute of Food and Agriculture (NIFA) works directly with 
land grant universities and others to implement sustainable bioenergy 
strategies. These extramural groups carry out the needed work to 
advance programs. This is further coordinated with NIFA review of the 
State plans of work for noncompetitive funding. Competitive funding 
typically brings together university faculty, Federal scientists, 
industry, and others to meet national needs related to advancing 
bioenergy. This leverages and coordinates Federal, State, and private 
funding in most cases.
    The USDA Energy Council mission is to advance the contribution of 
agriculture and forestry in rural America in promoting the Nation's 
achievement of energy security through the efficiency and effectiveness 
of the Department's numerous energy-related programs and initiatives. 
Chaired by the Secretary of Agriculture and consisting of the Under 
Secretaries and other senior managers, the Energy Council leads the 
Department in policy development and efforts to reach all audiences to 
inform them about USDA energy programs and regulations. The council 
ensures that these audiences are aware of the Department's 
comprehensive energy program and also understand how it fits into the 
United States' overall energy policy.
    The USDA Energy Council Coordinating Committee consists of staff 
from all USDA mission areas who work on energy issues, coordinates 
energy-related activities among USDA agencies and performs duties as 
assigned by the Secretary as the Energy Council chair, or the Energy 
Council as a whole.
    The Biomass Research and Development Board is co-chaired by USDA 
and the Department of Energy (DOE). The board coordinates the 
Governmentwide research initiatives and activities for the purpose of 
promoting the use of bio-based products, power, and biofuels. Members 
of the board also include the National Science Foundation (NSF), the 
Environmental Protection Agency (EPA), the Departments of the Interior 
and Defense, and the Office of Science and Technology Policy.
    The Biomass Research and Development Advisory Committee is a group 
of approximately 30 individuals from industry, academia including land 
grant universities, and State government. The committee is responsible 
for providing guidance to the Biomass Research and Development Board on 
the technical focus of the Biomass Research and Development Initiative.
    The National Agricultural Research, Extension, Education and 
Economics Advisory Board's Renewable Energy Committee was created by 
the Congress in 2008. This committee annually submits to the advisory 
board a report that contains its findings and any policy 
recommendations to the USDA in preparation for the annual budget. The 
committee also consults with the Biomass Research and Development 
Technical Advisory Committee.
    Question. How is USDA coordinating efforts with other Federal, 
State, and private entities to make sure the most efficient use of 
public dollars is taking place?
    Answer. We coordinate with DOE, using their environmental reviews 
when available for biorefinery assistance projects and we are working 
with DOE grant recipients, where we guarantee loans to build 
biorefineries that will help to end our dependence on foreign sources 
of petroleum. The USDA works closely with DOE to provide the best 
energy expertise to our field staff and ensure that all of our project 
loans and grants are awarded in accordance with the highest 
professional standards. We work closely with EPA to ensure that their 
expertise is utilized as well as their efforts to promote anaerobic 
digester technology. We ensure that applications for assistance are 
selected on a basis of competition using priority scoring so that 
applicants selected have a project that is meritorious. REAP provides a 
grant for no more than 25 percent of eligible project costs, up to a 
maximum amount to an eligible applicant; and the majority of funds are 
invested by the applicant who put their own money into the project. Our 
programs succeed by utilizing State incentive programs, renewable 
portfolio standards, utility incentives, and local and national lenders 
making solid investments in partnership with applicants throughout the 
Nation.
    Question. What is your evaluation of the Department's success in 
meeting its renewable energy mandate?
    Answer. Based on the purpose of the program and the results 
tracked, we determine whether the program is successful. In fiscal 
years 2009 and 2010, REAP helped nearly 4,000 rural small businesses, 
farmers, and ranchers save energy and improve their bottom line by 
installing renewable energy systems and energy efficiency solutions 
that will save a projected 3 billion in kWh--enough energy to power 
390,000 American homes for a year. In 2010, the Biorefinery Assistance 
Program provided a conditional guaranteed for $55 million private loan 
to the advanced bioenergy producer Sapphire, once completed the 
facility is expected to generate 72 million kWh in renewable energy, 
once the biorefinery is built. In 2010, the Bioenergy Program for 
Advanced Biofuels provided $18.5 billionin support of the generation of 
53 billion BTUs, and the Business and Industry Guaranteed Loan program 
provided $43.4 billion in support of renewable energy infrastructure.

                          PLANT/ANIMAL HEALTH

    Question. More than $830 million is requested for protection 
against invasive species, pests, and diseases. However, there is no 
indication in the budget what the real costs of these various threats 
are, in terms of market disruption, lost income, diminishment of 
producers' capital, etc. It is also unclear what the value is of the 
Department's strategies implicit in this request. This budget asks the 
subcommittee to make decisions regarding allocating discretionary 
resources absent any cost/benefit framework.
    This subcommittee needs to know what are the costs facing the 
economy of these different threats.
    Answer. Invasive pests and diseases can cause huge losses and 
control and eradication costs. For example, we estimate that a half-
week delay in finding an animal disease outbreak can increase cleaning, 
disinfection, depopulation, and quarantine costs by $70 million per 
incident (on average). The light brown apple moth (LBAM) attacks more 
than 2,000 types of plants and trees found throughout the United States 
and we estimate that it has the potential to cause production losses 
ranging from $700 million to $1.6 billion annually if it spreads. The 
Asian long-horned beetle's total potential economic impact on 
industries in New York and New England is estimated at $1.1 billion in 
annual losses.
    Question. In addition, what are the benefits that accrue from 
expenditures on the various programs?
    Answer. The benefits of Animal and Plant Health Inspection 
Service's (APHIS) pest and disease programs generally include the 
prevention of damage to the commodity or resource at risk, reduced 
control costs over time, and continued trade opportunities. For 
example, the Asian long-horned beetle (ALB) program protects forest 
resources and urban trees nationwide, as roughly 30 percent of U.S. 
trees are potential ALB hosts. If urban areas across the United States 
were infested with ALB, the estimated potential national impact would 
be a loss of 35 percent of the canopy cover and almost $815 billion in 
compensatory value. The benefits of the program include protecting 
these trees in neighborhoods and parks across the country as well as 
preventing the spread of the pest into New England's hardwood forests, 
which support the timber, tourism, and maple syrup industries. The LBAM 
program prevents the spread of the pest through regulatory and control 
efforts. Without the regulatory program to prevent LBAM from spreading, 
U.S. trading partners would restrict, if not ban, imports of U.S. 
fruits, vegetables, and nursery stock into their countries.
    Question. What basis did the administration use to determine the 
priorities implicit in the request?
    Answer. Our main focus was to determine those programs where we 
could have a positive impact on the health of American agriculture and 
where we could best contribute to reducing losses caused by pests and 
diseases. Recognizing the need to restrain Federal spending, we 
reviewed our programs to determine where we could do things 
differently. In some areas, the agency was able to take advantage of 
program successes to realize savings (examples include the decreases 
requested for the cotton pests, screwworm, pseudorabies, and avian 
influenza programs). APHIS also identified programs that could be 
reduced since eradication or control of agricultural pests or diseases 
are no longer considered feasible (such as emerald ash borer), or where 
we will request greater contributions from partners or those that 
directly benefit from program efforts (such as the potato cyst nematode 
program).
    Question. Please identify the administration's priorities within 
these components.
    Answer. Ensuring our ability to prevent the entry of exotic pests 
and diseases, quickly detect those that do enter the United States, and 
respond in a timely way remain our highest priorities. Our budget 
proposes to maintain our strong infrastructure of highly skilled 
employees and cooperative relationships with States and industry. 
Additionally, there are several emerging needs for which we request 
more funding.
    APHIS developed the National Animal Identification System in 2004 
to enhance the United States' capability to minimize the spread of 
foreign and domestic animal diseases of concern. Since then, USDA has 
obtained input from stakeholders to develop a more efficient 
traceability system. Detecting a disease before many animals have been 
exposed to it limits the spread and allows for more timely eradication 
and management efforts. The proposed funding level for fiscal year 
2012, which includes an increase of $8.85 million for a total of $14.15 
million, more accurately reflects how much the program needs to carry 
out essential activities and retain advances made to date.
    APHIS faces a growing workload in the area of genetically 
engineered (GE) plants. The requested increase for our Biotechnology 
Regulatory Services (BRS) program, while significant, is needed to 
implement improvements, expand our regulatory program for 
biotechnology, and resolve the challenges currently faced by the 
program.
    The agency is responsible for enforcing the Animal Welfare Act 
(AWA). APHIS' Animal Welfare program carries out activities designed to 
ensure the humane care and treatment of animals. USDA's Office of 
Inspector General (OIG) recently conducted a review of APHIS' 
inspections for AWA compliance, specific to problematic dog dealers who 
have committed repeat and serious violations. OIG concluded that APHIS 
should shift its compliance efforts from an education focus to an 
enforcement focus, improve inspection performance, and seek legislation 
regarding the Internet sale of dogs. APHIS is responding to the audit 
and needs additional resources to address the improvements noted in the 
OIG audit.
    The fiscal year 2012 budget also includes increases for programs 
that target specific pests, such as the Asian long-horned beetle (ALB) 
and the European grapevine moth (EGVM). The ALB program has eradicated 
two ALB outbreaks (in Chicago, Illinois, and Hudson, New Jersey) and 
has successful tools and strategies to attack this pest. The program is 
now addressing a large outbreak near Worchester, Massachusetts, that 
threatens New England's hardwood forests. With adequate resources, the 
program can prevent ALB from spreading into the valuable forests and 
ultimately eradicate it. APHIS is also addressing EGVM (detected in 
fiscal year 2009) in California. With a strong early response, APHIS 
and State and industry cooperators have greatly reduced EGVM 
populations. Continued resources are necessary to ensure that the pest 
is eliminated.
    Questions. In the future, this subcommittee requests that this 
segment of the budget (at least) be supported by a rigorous cost-
benefit analysis, to better focus the Department's plans and 
strategies, and to equip this subcommittee with adequate tools to make 
the most effective decisions.
    Answer. We will make every effort to provide this information with 
our budget request in the future.

                     GENETICALLY MODIFIED ORGANISMS

    Question. GE or genetically modified organisms (GMOs) were in the 
news again last week--specifically, GMO alfalfa and GMO sugar beets. 
Obviously, there are a variety of concerns surrounding the 
proliferation of genetically modified (GM) species.
    What assurances can you provide that new GM crops will not result 
in drift-related problems, contaminating nearby species?
    Answer. Before a GE crop can be commercialized, APHIS thoroughly 
evaluates it to ensure there is no plant-pest risk, thereby enhancing 
public and international confidence in these products. Crops being 
field tested must be grown under a permit or notification depending on 
the type of crop and its potential risk. APHIS imposes confinement 
measures for field trials of regulated GE organisms to safeguard 
against the unintended release of GE materials into the environment and 
also limit gene flow. Safeguards can include surveying for local wild 
relatives; removing plant reproductive structures (detasseling); 
cleaning equipment; and bagging flowers to contain pollen. APHIS also 
conducts thorough inspections of field trials to ensure that 
biotechnology organizations are adhering to APHIS regulations and 
permit conditions. Once APHIS has made a determination of nonregulated 
status, the GE organisms do not fall under APHIS regulatory purview and 
can be moved and planted freely in the United States.
    Question. Does this budget request, for instance for BRS, provide 
sufficient resources for the Department to meet marketplace demands and 
ensure public safety regarding GMOs?
    Answer. The fiscal year 2012 budget request for the BRS program 
includes an increase of $12,072,000 to, among other things, enhance 
APHIS' compliance program and improve the petition process for 
nonregulated status. Specifically, the increase will allow BRS to 
inspect additional field test permit acreages, develop emergency 
response plans for APHIS to rapidly respond to incidents involving 
regulated GE organisms, enhance port of entry inspection procedures and 
processes, increase the ability to respond to emerging technologies, 
and fully implement the Biotechnology Quality Management System, a 
voluntary program that helps participating biotechnology researchers 
and companies develop sound management practices that enhance 
compliance with regulatory requirements for field trials and movement 
of regulated GE organisms. APHIS has also requested funding in the 
fiscal year 2012 budget to begin a multiyear gene flow status and 
trends monitoring program. This program will develop information about 
the extent, scale, and measurement of gene flow in major agricultural 
regions in the United States.

                                RESEARCH

    Question. Mr. Secretary, the budget proposes to decrease funding 
for the two USDA research agencies, the Agricultural Research Service 
and NIFA, by $180 million. In NIFA alone, nearly 20 programs are 
eliminated.
    I understand and appreciate the need to consolidate or eliminate 
programs, especially in this budget environment. How did you determine 
which programs to eliminate and which to protect? Are you trying to 
steer people towards competitive funding?
    Answer. The administration strongly believes that peer-reviewed 
competitive programs that meet national needs are a more effective use 
of taxpayer dollars than earmarks that are provided to specific 
recipients. The fiscal year 2012 budget proposes to eliminate these 
targeted earmarks. Within necessary budget constraints, it is critical 
that taxpayer dollars be used for the highest quality projects, those 
that are awarded based on a competitive peer-reviewed process to meet 
national priorities. Therefore, some broad aspects of many research 
topics currently addressed by earmarked projects can be included in the 
scope of the Agriculture and Food Research Initiative (AFRI) program in 
fiscal year 2012. Other topics will be addressed under other broader 
based, competitively awarded Federal programs supported with non-
Federal funds administered by State-level scientific program managers.

                AGRICULTURE AND FOOD RESEARCH INITIATIVE

    Question. In AFRI specifically, over the past few years, have you 
received more qualified applications than you have been able to fund? 
How do you coordinate with other Federal and State research agencies to 
prevent duplication?
    Answer. There are always more qualified applications for AFRI than 
we are able to fund. In fiscal year 2009, the first year of the AFRI 
program, NIFA received 2,424 applications, of which 835 ranked well 
enough in the peer review process to qualify for funding. Funds were 
available to support 470 of those applications. For fiscal year 2010, 
funds are available to support the applications processed to date.
    NIFA has increased discussions in recent years with agencies such 
as NSF, the National Institutes of Health (NIH), and others to ensure 
coordination and lack of duplication. NIFA is actively partnering with 
these agencies to offer joint programs in areas of common interest, 
creating greater visibility and impact for agricultural issues. For 
example, NIFA has recently partnered with NIH to offer a program 
entitled, ``Dual purpose with dual benefit: Research in biomedicine and 
agriculture using agriculturally important domestic species.'' This 
program allows NIFA to leverage its scarce dollars while engaging a 
broader research community in work relevant to NIFA's mission.

                                RESEARCH

    Question. Is there concern about the long-term effects that occur 
from stopping or significantly reducing agricultural research projects 
mid-stream? Typically, do the researchers stay in agriculture research, 
or do they move on to something else?
    Answer. While the administration proposes to eliminate earmarks and 
emphasize peer-reviewed competitive programs, we do expect earmark 
projects funded in fiscal year 2010 to fully meet research goals and 
objectives outlined in the proposals submitted to and approved by the 
agency. The majority of these projects included multiyear funding that 
would allow for the orderly completion of the specific research 
outlined in these proposals. The agency has encouraged recipients of 
earmarked projects to submit proposals to the competitive grant 
programs of the agency. Researchers generally continue to stay in 
agricultural research but may also look to alternative sources to 
support their work.

                  SETTLEMENTS OF DISCRIMINATION CASES

    Question. Recently the Department announced settlement processes 
for discrimination cases involving Hispanic and women farmers and 
ranchers.
    Please summarize the current status of the Pigford, Love, Garcia, 
and Keepseagle cases.
    Answer. On February 18, 2010, USDA worked with the Department of 
Justice (DOJ) to enter into a settlement with Black farmers for $1.25 
billion, known as Pigford II. And on December 8, 2010, President Obama 
signed legislation that will provide $1.15 billion in funding for this 
settlement beyond the $100 million provided for in the 2008 farm bill. 
When this settlement receives final approval by a Federal court, we 
look forward to bringing closure, once and for all, to the long-
standing litigation brought by Black farmers against USDA.
    On October 19, 2010, USDA and DOJ announced the settlement of a 
class action lawsuit filed against USDA by Native American farmers 
(Keepseagle) alleging discrimination by USDA. The settlement, which 
received preliminary approval by a Federal court, ends litigation 
concerning discrimination complaints from Native Americans generally 
covering the period 1981-1999. Under the settlement agreement, $680 
million will be made available from the Judgment Fund to eligible class 
members to compensate them for their discrimination claims, and tax 
relief. An additional $80 million will be provided by USDA for the 
forgiveness of existing farm loan program debt.
    On February 25, 2011, USDA and DOJ announced a unified claims 
process for Hispanic and women farmers and ranchers who allege 
discrimination that occurred between 1981 and 2000. Under the plan, the 
United States will make available at least $1.33 billion from the 
Judgment Fund to eligible claimants to resolve their discrimination 
claims. USDA will provide an additional $160 million in debt relief to 
successful claimants with eligible farm loan program debt. USDA is 
presently conducting outreach across the country regarding the claims 
process and is in the process of procuring an independent administrator 
and adjudicator to carry out the claims process. Once the administrator 
and adjudicator are in place, the opening of the 180-day period for 
filing claims will be announced.
    Question. Are there other situations involving groups of aggrieved 
applicants that remain unresolved?
    Answer. On March 15, 2011, a group of Garcia plaintiffs filed a 
complaint challenging the voluntary claims process. This complaint has 
been referred to the judge presiding over Garcia and the Government 
will argue for its swift dismissal. We are moving forward to fully 
implement the Hispanic and Women Farmers and Ranchers Claims Process 
and the new lawsuit has no impact on our outreach and preparation. USDA 
is confident that the court will uphold the legality of the voluntary 
claims process.
    Question. What processes have you implemented to ensure equal 
public access to all farm credit programs?
    Answer. The Farm Service Agency (FSA) has more than 2,400 offices 
located throughout the country. While not all of the offices have 
credit officials permanently stationed in them, FSA employees are cross 
trained to provide basic information on credit programs and arrange an 
appointment with the credit official if needed. Each FSA office 
delivering credit programs has developed a marketing/outreach plan to 
ensure programs are marketed to all sectors of the served communities. 
FSA credit forms have been streamlined to make the application process 
less daunting. Currently FSA is working on a ``plain language guide to 
FSA loans'' that when completed will provide for a layman's guide to 
obtaining credit.

                            RENEWABLE ENERGY

    Question. REAP has been in existence, in some form, since the 
fiscal year 2002 farm bill. Substantial mandatory and discretionary 
funding has been spent on this program over the years. This budget 
seeks to supplement the $70 million of mandatory funds available in 
2012 with an additional $37 million of discretionary dollars.
    Why is additional funding needed for this specific program?
    Answer. The demand for REAP far exceeds the funds available in this 
program. In 2010, more than 300 eligible applications did not receive 
funding. This program encourages investment; and successful applicants 
make tangible investments in more energy conservation, more renewable 
energy production, and a more productive economy.
    Question. In the past, the bulk of this funding was used for on-
farm activities such as grain dryers. Is this the best use of this 
funding?
    Answer. Through the interim rule the agency is limiting equipment 
replacement to similar size or capacity equipment. The change is 
designed to provide an equitable distribution among a range of 
technologies and balance our portfolio without giving any project type 
an undue advantage.
    Question. Would utilizing these funds in alternative energy 
programs be more effective in moving the United States toward energy 
independence?
    Answer. REAP is geared towards rural areas and small businesses. 
Achieving energy independence is a goal that requires a comprehensive 
effort and will involve every community in America, rural and urban. 
Energy efficiency has played a major role in reducing our demand for 
energy and most experts predict we will continue to do more with less 
energy in the future. Providing the mechanisms for energy efficient 
rural communities must be part of achieving energy independence. While 
we aren't going to totally replace fossil fuels in the near term, we 
need to rapidly grow our ability to use alternative advanced biofuel 
and rural communities are on the frontlines of that effort. The 
investment in REAP and other USDA Energy programs is a sound investment 
with real dividends for America.

                    WATER AND WASTE DISPOSAL PROGRAM

    Question. The second largest source of budget authority 
expenditures in the USDA Office of Rural Development (RD) is the Water 
and Waste Disposal program. Projects are typically funded through loan/
grant combinations, with the loan component averaging 65-70 percent of 
the project cost.
    Have you given thought to requiring communities to rely even more 
heavily on loans?
    Answer. RD Water and Waste Loan and Grant activities are 
exclusively focused on rural water and waste infrastructure needs, 
working with only rural areas with populations of 10,000 or less. Most 
RD projects serve areas well less than a 10,000 population. Applicants 
must demonstrate that they need Federal assistance because they cannot 
obtain credit from commercial lenders or investors, and they have 
urgent needs for water or wastewater improvements. While some 
communities are able to take on additional loan debt, many of our 
applicant communities are not. The average cost for water and waste 
disposal service in rural America has increased as the cost of 
construction, operation, and maintenance of water and waste disposal 
systems has increased. The average cost per equivalent dwelling unit 
was $43 per month for water service and $45 per month for waste 
disposal service for the projects we funded in fiscal year 2010.
    The program is a needs-based program, where loan and grant funds 
are combined based on a strict underwriting process to keep rates 
reasonable for rural residents. That underwriting process considers the 
cost of the project, the current ability of a community to take on 
additional debt, and the level of reserves that are needed for 
replacement of short-lived assets (i.e., motors, pumps, etc), as well 
as other factors necessary to ensure that the project is feasible.
    In fiscal year 2010, RD obligated 1,052 loans of which 315 (30 
percent) were cases where the loan component was greater than 70 
percent of the funding provided.
    Question. Can this be done such that grant funding is conserved for 
the most remote and low-income rural communities?
    Answer. Grant funding is currently conserved for the communities 
with the greatest financial need. We continue to implement our funds 
through an underwriting process that determines the loan and grant mix 
needed to fund the project. Grant levels are subject to the 
availability of funds and we are not always able to provide the level 
of grant funding a community has requested. Therefore, we encourage and 
often facilitate the partnering of our funding with that of other 
Federal, State, and local programs to keep the user rates as reasonable 
as possible.

                                HOUSING

    Question. This budget announces a fee change in administration 
policy regarding rural housing support. Many long-standing rural 
housing programs are eliminated, and the flagship Single-Family Housing 
Direct Loan program is slashed. The following housing programs are 
eliminated: Very Low-Income Housing Repair Loans; Multifamily Housing 
Guaranteed Loans; Credit Sales of Acquired Property; Self-Help Land 
Development Loans; Mutual and Self-Help Housing Grants; Housing 
Preservation Grants; and the Multifamily Housing Revitalization and 
Preservation Program. And the Single-Family Housing Direct Loan Program 
is reduced from an historic annual level of $1.1 billion to $211 
million. This loan program, for very low- and low-income rural 
households, will fund fewer than 1,700 houses nationwide.
    What is your vision of the future role the Federal Government will 
play regarding providing support for rural housing?
    Answer. Housing is a vital economic pillar in rural America for 
creating wealth for communities and homeowners. USDA realizes that 
rural populations tend to be more economically challenged with lower 
incomes and fewer housing choices than their suburban and urban 
counterparts, and therefore we continue to offer a no-down payment 
homeownership program through both the Single-Family Housing Guaranteed 
and Direct programs. Providing credit in areas that lack private 
investment is a critical function of USDA RD. To address the need for 
credit--particularly in the rural housing market--RD has dramatically 
increased the Single-Family Housing Guaranteed Loan Program in recent 
years, doubling the Government's investment from $12 billion in 2010 to 
$24 billion in 2011. A fee structure that is consistent with other 
Federal housing agencies has eliminated the requirements for additional 
budget authority.
    Question. What evidence do you have that private housing credit 
markets have recovered sufficiently to meet credit needs in rural 
America?
    Answer. RD's section 502 guaranteed loans have taken on a greatly 
increased role in providing adequate housing credit in rural America. 
The program increased from 31,000 guarantees for $3 million in fiscal 
year 2006 to 133,000 guarantees totaling nearly $12 billion in fiscal 
year 2010. The market has clearly demonstrated a need for USDA's home 
loan program as lenders have increased activity in rural areas. We 
expect this growth to continue.
    The private housing credit markets have never fully met the needs 
in rural America. These credit markets have changed, with RD stepping 
in to play a crucial role to help assure adequate credit will be 
available to rural Americans and stabilize mortgage availability. The 
situation would be worse without the USDA program.
    The private housing credit markets for affordable rental loans 
guaranteed through the section 538 program have not changed the past 
several years. RD has maintained its relationship with the Government 
National Mortgage Association (Ginnie Mae) to secure loans guaranteed 
under the section 538 program. Through this relationship the vast 
majority of the loans guaranteed under the section 538 program prior to 
the credit crisis and after the crisis have been purchased by private 
investors as pooled loans in Ginnie Mae securities.
    Question. Does it make sense to have a nationwide housing loan 
program that serves fewer than 1,700 families?
    Answer. The Single-Family Housing Direct Loan Program provides 
subsidized mortgages to low- and very low-income families, who cannot 
obtain credit elsewhere, so that they can own modest, decent, safe, and 
sanitary homes in rural areas. In some instances, qualified borrowers 
can reduce the interest rate to 1 percent. The fiscal year 2012 budget 
provides funding to support the needs of rural America's neediest 
homeowners. The funds are targeted to very low-income borrowers who 
would not be eligible for private-sector financing. The Direct Loan 
program enables these borrowers the opportunity to purchase a home.
    While it's true that the Single-Family Housing Guaranteed Loan 
Program performance from 2010 shows that 30 percent (more than 40,000) 
of the loans were to low-income home buyers, there will always be a 
segment of the population that will not qualify for the guaranteed 
program because of the need to qualify for private-sector credit. It is 
USDA's intent to meet that need, however large or small, to the extent 
possible given our budget constraints.
    Question. In the face of eliminating the multifamily revitalization 
program, how does USDA plan to protect the Government's interest in its 
large multifamily housing portfolio?
    Answer. The USDA plans to protect the Government's interest in its 
large multifamily housing portfolio through a proposed budget increase 
in the Section 515 Direct Rural Rental Housing Program for fiscal year 
2012. Traditionally, the way to fund revitalization has been though the 
section 515 program with rehabilitation loans. The fiscal year 2012 
budget proposes to increase the section 515 program from $69.5 million 
to $95 million.
    Question. For years USDA has cultivated the expansion of Self-Help 
Housing grantee organizations across the country. What assistance can 
the Department provide to these organizations now that you are 
eliminating grant funding?
    Answer. USDA intends to continue a partnership in the immediate 
future with the Self-Help Housing Technical and Management Assistance 
(T&MA) contractors to provide guidance to Self-Help Housing grantees. 
As we transition out of a program that we recognize has made major 
contributions to rural housing, we will no longer have the ability to 
fund the administrative costs associated with Self-Help Housing due to 
budget constraints. Together with the grantees and T&MA contractors, 
USDA will identify other means for grantees to garner fees for their 
services and address regulations that will accommodate new ideas.

                           RENTAL ASSISTANCE

    Question. Please describe in detail the forecasting methodology 
used to develop contract renewal estimates (number of contracts and 
costs) for the President's budget.
    Answer. In 2004, the RD Program Office and Chief Information Office 
developed a rental assistance forecasting tool that incorporated the 
Office of Management and Budget's (OMB) inflation rate to forecast the 
exhaustion of funds from all the rental assistance contracts. The 
forecasting methodology reviews actual rental assistance usage over the 
last 3 years, develops an average usage rate, and applies the inflation 
factor to determine the amount needed in the contract based on the 
number of units with rental assistance. The methodology was reviewed by 
the Government Accountability Office (GAO), which provided comments on 
the inflation adjustment that were incorporated in the tool in 2005.
    Question. How do you determine inflation factors for utility 
increases, etc.?
    Answer. Inflation factors are determined within the forecasting 
tool using the OMB inflation rate.
    Question. Is the same methodology used for section 515 and farm 
labor housing?
    Answer. The same methodology is used for section 515 and farm labor 
housing.
    Question. Has this methodology been reviewed by either OIG or GAO?
    Answer. This methodology was reviewed by GAO in 2005.
    Question. If so, what were their comments and what changes were 
implemented based on those comments?
    Answer. GAO suggested a change in the inflation adjustment to add 
the inflation factor one time, rather than for each year in a contract. 
The change was incorporated.
    Question. Please provide, by year since 2008, the total President's 
budget request, including the number of contracts and average costs.
    Answer. [The information follows:]

----------------------------------------------------------------------------------------------------------------
                                                                                      Amount
           Fiscal year            Budget request   Appropriation   No. of units      obligated      Average per
                                     (millions)     (millions)    under contract    (millions)         year
----------------------------------------------------------------------------------------------------------------
2008............................            $567          $478.7         121,568          $478.7          $3,937
2009............................             997           997.0         210,618           902.5           4,285
2010............................             897           980.0         219,231           980.0           4,470
2011............................             966           980.0         211,111           252.8           4,340
2012............................             906  ..............         204,500  ..............  ..............
----------------------------------------------------------------------------------------------------------------

    Question. Also provide the appropriated amount, the number of 
contracts actually funded and the average cost.
    Answer. [The information follows:]

----------------------------------------------------------------------------------------------------------------
                               Budget request    Appropriation   No. of units   Amount obligated    Average per
         Fiscal year             (millions)       (millions)    under contract      (millions)         year
----------------------------------------------------------------------------------------------------------------
2008........................            $567            $478.7         121,568            $478.7          $3,937
2009........................             997             997.0         210,618             902.5           4,285
2010........................             897             980.0         219,231             980.0           4,470
2011 continuing resolution..             965             980.0          58,237             252.8           4,340
----------------------------------------------------------------------------------------------------------------

    Question. For each year since 2008 please provide the average 
actual duration of contracts funded.
    Answer. Starting in fiscal year 2008, Rental Assistance contracts 
were funded for a 1-year period. In fiscal year 2009, of the contracts 
funded in fiscal year 2008, approximately 9.5 percent of the contracts 
exhausted funds prior to the end of the 1-year period. In fiscal year 
2010, of the contracts funded in fiscal year 2009, approximately 3 
percent of the contracts exhausted funds prior to the end of the 1-year 
period.
    Question. Please describe how RD controls the escalation of rental 
assistance costs.
    Answer. The Housing Act of 1949 requires that borrowers under 
Section 515 Rural Rental Housing and Section 514 Farm Labor Housing 
programs submit a budget annually to demonstrate the costs associated 
with operating rental housing. This includes requests for rent 
increases, which must be justified by the borrower. Since rental 
assistance provides some of the operating income to support operations, 
the Rural Housing Service (RHS) field staff work closely with borrowers 
and management agents in reviewing the budget and determining 
appropriate costs.

                 MULTIFAMILY REVITALIZATION INITIATIVE

    Question. Please describe in detail all of the tools available in 
the Multifamily Housing Revitalization Initiative toolbox, and how RD 
utilizes this mix of options to sustain affordable housing in rural 
areas.
    Answer. The Multifamily Housing Revitalization Demonstration 
Program uses four tools to financially restructure these affordable 
rural rental properties. These tools are a modification of the existing 
section 515 loan, a zero-interest rate section 515 loan, a soft second 
section 515 loan (a second loan that has its interest and principal 
deferred to a balloon payment) and a revitalization grant. In addition, 
there are two other programs which, although not technically 
revitalization, are funded from the same account. They are the 
Preservation Revolving Loan Fund and RD vouchers. The properties are 
reviewed and underwritten to determine the property's financial needs, 
after which a combination of tools are used to ensure the property is 
financially sound and remains in the affordable housing portfolio for 
many years. In addition to these section 515 revitalization tools, 
direct loans are available to support revitalization activities of the 
portfolio as well. The section 538 loan guarantee has also been used in 
the past to address immediate capital repair needs; however, funding 
for section 538 is not requested in the fiscal year 2012 budget. Many 
revitalization projects also use third-party funding, such as low-
income housing tax credits, as additional leverage for revitalization 
of section 515 properties.
    Question. By year, for the life of the initiative, please provide 
the President' budget request, the appropriated amounts, and how those 
funds were used.
    Answer. [The information follows:]

                                                                  [Dollars in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                  Budget
                                  request     Appropriated  Number of    Soft 2nd                             Zero-percent   Preservation
         Fiscal year              (budget       (budget       deals        loans        Grants    Deferrals   section 515     revolving       Vouchers
                                authority)     authority)                                                         loan        loan fund
--------------------------------------------------------------------------------------------------------------------------------------------------------
2006.........................       $214.00        $18.976         76         $4.5          $0.2        $48         $0.280         $6.415         $0.620
2007.........................         74.25         18.853         87          2.8           0.5         56          2.561          9.151          3.000
2008.........................         27.80         27.804        135         13.0           0.4        100         12.649         13.793          6.205
2009.........................  ............         27.714         94          5.3           0.2         50         15.021         15.398          6.751
2010.........................         26.62         43.191        142         21.5           0.3        117          5.057         20.897          7.595
2011.........................         18.00         43.191          8          3.7   ...........  .........          0.391          7.061          4.557
                              --------------------------------------------------------------------------------------------------------------------------
      Total..................        342.67        179.730        536         50.8           1.6        371         51.030         80.820         28.730
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Question. For vouchers specifically, please provide by year the 
President's budget request, the amount appropriated, the number and 
amount of vouchers offered (distinguishing between new and renewals), 
the number and amount of vouchers accepted (also distinguishing between 
new and renewals), and how surplus voucher funding was utilized.
    Answer. [The information follows:]

                                                            RURAL DEVELOPMENT VOUCHER PROGRAM
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          Vouchers issued
                       Fiscal year                          President's    Appropriated       Dollars    -----------------------------------------------
                                                              budget                         obligated          New          Renewals      Total issued
--------------------------------------------------------------------------------------------------------------------------------------------------------
2006....................................................  ..............     $16,000,000        $620,000             211  ..............             211
2007....................................................     $74,250,000      15,840,000       3,000,000           1,098  ..............           1,098
2008....................................................      27,800,000       4,965,000       6,205,375           1,013           1,088           2,101
2009 \1\................................................  ..............       4,965,000       6,751,534             811           1,251           2,062
2010....................................................       4,965,000      16,400,000       7,595,644             764           1,481           2,245
2011 \2\................................................      18,000,000      16,400,000       3,610,843             563             577           1,140
                                                         -----------------------------------------------------------------------------------------------
      Total.............................................  ..............  ..............      24,783,396           4,460           4,397           8,857
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Indicates the President's budget did not request funds for this program and proposed a $20 million rescission from carryover balances.
\2\ Fiscal year 2011 obligations are as of March 31, 2011.

    Carryover funding that was not used for vouchers in the 
appropriated fiscal year was used to fund the Multifamily Preservation 
and Revitalization Program, for voucher administration contracting 
payments, and for information technology upgrades.
    Question. What percentage of voucher recipients move from their 
original place of residence?
    Answer. RHS experience in the program as of October 2010 is that 
12.6 percent of the former section 515 tenants receiving vouchers move 
from their original apartment after the property leaves the section 515 
program.
    Question. Please describe the information systems RD utilizes to 
manage the voucher initiative. What socioeconomic data do you collect 
on voucher recipients?
    Answer. USDA maintains a database system on all tenants in section 
515 and section 514 housing developments. As a borrower prepays the 
section 514 or 515 mortgage, or a foreclose action occurs, tenant 
information is used to advise tenants of the availability of the 
voucher program. Once a tenant chooses to accept a voucher, USDA 
utilizes the services of a contractor, who has developed a Workflow 
Management System that houses landlord and voucher holder information. 
In addition, RHS is currently in the process of replacing and upgrading 
its current accounting database, which will manage the voucher 
certification and payment processes.
    The agency collects demographic and income data on voucher holders 
at the time of issuance of the voucher. The tenant characteristics are 
captured in the Multifamily Information Systems database.
    Question. Are vouchers always renewed for the same amount or have 
you instituted procedures whereby voucher amounts can be increased?
    Answer. Generally, vouchers are renewed for the same amount. There 
are exceptions where the original amount of the voucher may have been 
reduced from the maximum amount available because the voucher amount 
exceeded the amount of the voucher holder's rent. If the voucher holder 
moves to another apartment where the rent is higher, the voucher amount 
is adjusted upward, not to exceed the maximum amount available. USDA 
has not instituted a cost of living or annual adjustment increase.

                        MICROENTERPRISE PROGRAM

    Question. What is the status of implementation of the 
Microenterprise Program?
    Answer. Rural Development, Rural Business-Cooperative Service 
published a final rule in June 2010 and began funding loans and grants 
during the fourth quarter of fiscal year 2010. Additionally, on July 
19, 2010, the agency published a technical correction to the interim 
rule (1 CFR, park 4280, subpart D).
    Question. Is this program showing success as you expected?
    Answer. Yes, in fiscal year 2010, the Rural Business-Cooperative 
Service funded 63 direct loans in the amount of $24,982,500, 62 
automatic technical assistance grants in the amount of $5,356,349, and 
12 technical assistance only grants in the amount of $1,289,500. It is 
anticipated that the intermediary will revolve the Rural 
Microentreprenuer Assistance Program loan funds twice in the 20-year 
term; and each ultimate recipient loan will assist one business and 
save a minimum of one job. Each loan to an ultimate recipient is 
expected to average $15,000 to $20,000. This equates to an estimated 
minimum 40 businesses assisted and 40 jobs created/saved per $100,000 
of Loan Budget Authority.
    Question. At this stage of implementation, isn't it premature to 
request additional discretionary funding to supplement the mandatory 
funding that is available?
    Answer. The program has already experienced success based on the 
overwhelming interest in the program, as a result of the 2010 Notice of 
Funds Availability (NOFA). The majority of available discretionary and 
mandatory funding has been provided during the first round of 
solicitation in 2010. To date, $34.9 million has been awarded to 82 
microlenders in 38 States.
    The reduced level of funding included in 2011 will be fully 
utilized when the 2011 NOFA is published. Already, there are 60 
applicants requesting $17.1 million in programmatic funds in the 
funding cue. This compares to the approximate $16 million program level 
provided for 2011. If the Congress determines that additional 
discretionary funds are needed, it would meet the demand of rural small 
businesses.
    Question. How are you measuring success?
    Answer. We measure success of our programs by the number of jobs 
created/saved, businesses assisted, geographic distribution, and 
addressing communities with the greatest need.

                          AGRICULTURAL EXPORTS

    Question. The budget request includes an increase of $20 million 
for the National Export Initiative (NEI). According to USDA, 
agricultural exports are forecast to hit a record of $135 billion, this 
is $9 billion more from the November forecast and higher than the 
previous record set in 2008.
    Given the current budget atmosphere and ever shrinking resources, 
please explain why you believe this request is justified at this time.
    Answer. The $20 million request for NEI in fiscal year 2012 
supports additional activities and staff positions that are necessary 
to reach the President's goal of doubling U.S. exports by the end of 
2014. The Foreign Agricultural Service (FAS) will use these funds to 
enhance our activities in defending market access as well as expanding 
market access for U.S. agricultural products. Competitive opportunities 
around the globe are rapidly changing, as more and more countries enter 
into trade agreements and preferential arrangements. Although U.S. 
agricultural exports are currently strong and increasing, these 
changing international relationships will pose ever-increasing 
challenges to U.S. export competitiveness. We must also help educate 
more agricultural businesses on the benefits of exporting and provide 
technical assistance on reaching foreign customers.
    To expand FAS export assistance efforts, $18 million will be used 
to provide technical assistance and trade facilitation, both in the 
United States and in overseas markets, in order to strengthen the 
ability of U.S. producers and related agribusinesses to increase 
exports to a wider range of foreign markets. Domestic outreach efforts 
will include a special outreach to educate and support small- and 
medium-sized enterprises, which are a key focus of NEI. The remaining 
$2 million will be used to bolster FAS's trade monitoring and 
enforcement efforts. This work will focus on key countries such as 
China, the European Union, Indonesia, Canada, Mexico, Japan, as well as 
on prospective Free Trade Agreement partners such as South Korea, 
Colombia, and Panama. With continued growth in exports come new and 
more complex opportunities for trade barriers and irritants, especially 
on sanitary and phytosanitary issues, and other technical issues. The 
additional resources will enable FAS to better support U.S. challenges 
to foreign actions that harm U.S. agricultural interests, as well as 
support U.S. defenses against trade cases brought against us, such as 
under the World Trade Organization.

                      HUMANITARIAN FOOD ASSISTANCE

    Question. News events daily remind us of a chaotic world where 
chronic and acute hunger threatens the lives of millions of people. As 
we have seen over the past few months, rising food prices around the 
world have caused instability in some of the most vulnerable places. 
Your budget includes level funding for Public Law 480 title II grants, 
which often provides the only meal a person will have during the day.
    Given the current worldwide economic situation, do you believe your 
request is sufficient to meet the ever increasing demand for food 
assistance?
    Answer. Although USDA is not responsible for administering the 
title II program, we understand the importance of food aid programs and 
appreciate the Congress' support in our efforts to alleviate hunger. 
Rising food prices do have an impact on hunger and certainly lead to 
political and economic instability worldwide.
    Given competing priorities and current deficit-reduction 
strategies, we believe that amounts requested for fiscal year 2012 are 
sufficient. If unanticipated emergencies arise, the Bill Emerson 
Humanitarian Trust is available to supplement title II resources.

                             FARM BILL CUTS

    Question. The farm bill provides mandatory spending for a number of 
programs. Over the last several budget cycles the administration has 
proposed to limit several of these programs.
    Can you discuss why the administration believes these limitations 
are needed and how you decide which programs to target?
    Answer. The President believes that if we are to promote economic 
recovery, invest in our long-term competitiveness, and create 
opportunities for all Americans a comprehensive, balanced deficit 
reduction framework must be part of that strategy. The President's 
vision of ``shared sacrifice'' requires that mandatory programs be 
included in the comprehensive deficit reduction framework. There are a 
number of factors that have influenced which mandatory programs have 
thus far been targeted for reductions in the President's annual budget 
requests as well has how those reduction have been proposed. For 
example, President Obama made a campaign promise to eliminate farm 
program payments to wealthy individuals. Accordingly, since taking 
office, the President's budget requests have consistently proposed 
reductions to mandatory farm programs to eliminate payments to wealthy 
individuals and better target the farm safety-net payments to 
individuals who need the assistance. These proposals have provided 
budgetary savings consistent with the President's campaign promises 
while preserving the basic structure of the farm safety-net programs so 
that the future of the farm program policies can be debated in the 
context of the next farm bill.

  THE SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS, AND 
                                CHILDREN

    Question. Mr. Secretary, the budget request includes an increase of 
$138 million for the Special Supplemental Nutrition Program for Women, 
Infants, and Children (WIC). According to the Economic Research 
Service, food prices are expected to increase 3-4 percent this year. 
Often times, when we see food prices rise, we also see a corresponding 
rise in WIC participation levels. Food becomes more expensive and so 
more people need assistance.
    In light of food price increases, do you believe your request of 
$7.4 billion is sufficient to cover the demand for this program?
    Answer. The amount requested for WIC in the President's budget was 
based on estimates for the program derived from the most current data 
available at that time. However, the Food and Nutrition Service (FNS) 
recognizes that circumstances can change, and we constantly monitor 
food costs and participation in the program.
    Question. The budget does not include new monies for the 
contingency fund. What is the current availability in the contingency 
fund? Given the current economic situation, do you envision the need 
for the contingency fund?
    Answer. FNS constantly monitors program performance in WIC, 
including participation trends and food costs, and would consider 
seeking apportionment of the $125 million in WIC contingency funds if 
needed to support participation because program costs are unexpectedly 
higher than anticipated.

                    PUBLIC HEALTH INFORMATION SYSTEM

    Question. For fiscal year 2012, the budget proposes to decrease 
funding for the Food Safety and Inspection Service (FSIS) overall 
slightly, but includes significant increases for the Public Health 
Information System (PHIS), which will help FSIS track information in a 
more streamlined, real-time manner.
    Can you discuss how the testing of PHIS went and what benefits you 
expect it to provide when fully implemented.
    Answer. FSIS conducted multiple rounds of user acceptance testing 
with field personnel as well as several extensive dry-run training 
sessions with District Office representatives from around the country 
in order to make PHIS the best possible tool for FSIS personnel. They 
provided critical feedback that was utilized to refine the system for 
implementation and finalize clear and concise training for inspection 
program personnel.
    The goal of the PHIS is to improve the agency's ability to collect, 
analyze, and communicate data to protect public health. The system will 
integrate FSIS' data sources to support a comprehensive, timely, and 
reliable data-driven approach to FSIS inspection, auditing and 
scheduling. This system will be flexible, user-friendly, and Web-based. 
It refines and replaces many of FSIS' stove-piped legacy systems (e.g., 
Performance-Based Inspection System (PBIS)), automates paper-based 
business processes (e.g., export certification), and can accommodate 
changing needs.
    PHIS will better identify food safety risks to help prevent 
outbreaks or recalls. Using multiple FSIS data sources, analysts will 
be able to identify trends and anomalies, including the relationship 
between pathogen test results and inspection findings.
    Using PHIS' predictive analytics component, the agency will be able 
to monitor establishment data in near real time and have built-in 
alerts for anomalies such as a large number of incomplete inspection 
activities or high rates of noncompliance in an establishment.
    PHIS will also streamline the agency's export program by automating 
paper-based processes, including establishment applications for 
approval for export, applications for export certificates, and the 
issuance of export certificates. The system will enable automatic edit-
checks to ensure that certificates properly reflect a foreign country's 
import requirements.
    Finally, the system will allow for faster and more effective 
communication between FSIS personnel at headquarters and the more than 
8,000 FSIS personnel protecting public health nationwide in 
approximately 6,200 federally inspected establishments and elsewhere on 
the front lines. It will also allow for improved collaboration with 
stakeholders and Federal, State, and local public health partners to 
improve contaminant tracing and prevent foodborne illness outbreaks.
    Question. What will the effects be if the Congress is unable to 
provide the level of funding you are requesting for PHIS?
    Answer. The agency will seek to manage the effects in such a way as 
to minimize the impact on PHIS. FSIS considers PHIS a critical food 
safety regulatory tool for inspection program personnel.
    The goal of the PHIS is to better protect public health by 
improving the agency's ability to collect, analyze, and communicate 
data. The system will integrate FSIS' data sources to support a 
comprehensive, timely, and reliable data-driven approach to FSIS 
inspection, auditing, and scheduling. Through improved data quality, 
more consistent reporting, enhanced management controls, and efficient, 
effective use of FSIS data, PHIS will enable FSIS to respond more 
quickly to threats. Integration and analysis of the data will also help 
us to predict negative public health outcomes and pinpoint 
vulnerabilities so that FSIS can rapidly respond to the hazards at all 
points and prevent problems. The system will also allow FSIS to 
coordinate effectively within FSIS and with stakeholders and other 
agencies, improving investigations and contaminant tracing.
                                 ______
                                 
               Questions Submitted by Senator Tom Harkin

                   FOOD SAFETY AND INSPECTION SERVICE

    Question. For fiscal year 2011, the administration requested an $18 
million increase more than fiscal year 2010 levels for the Food Safety 
and Inspection Service (FSIS) to support initiatives to improve public 
health infrastructure, speed up investigations and response to 
outbreaks, conduct a baseline study on the prevalence of pathogens, and 
expand sampling. Rather than this increase, FSIS would suffer an $88 
million cut over the remainder of the year if H.R. 1, passed by the 
House of Representatives becomes law.
    Please describe any progress you were able to make on the 
initiatives described in the fiscal year 2011 budget and describe how 
the fiscal year 2012 budget builds on that. If no progress was made, 
did we in fact lose a year of progress on improving public health?
    Answer. In addition to inspection, verification, enforcement, and 
other activities directly related to FSIS' food safety mission, during 
fiscal year 2011, FSIS has continued to develop its Public Health 
Information System (PHIS). The agency conducted multiple rounds of user 
acceptance testing with field personnel as well as several extensive 
dry-run training sessions with District Office representatives from 
around the country, who provided critical feedback that was used to 
make PHIS the best possible tool for employees. FSIS refined the system 
based on this feedback; began training inspection program personnel on 
March 14; and plans to launch the system on a staggered basis, as 
employees are trained, in April 2011. FSIS will continue implementation 
and enhancement of PHIS into fiscal year 2012.
    During fiscal year 2011, FSIS has also implemented policy 
initiatives, such as revised salmonella performance standards and new 
campylobacter performance standards aimed at reducing the prevalence of 
these pathogens in young chickens and turkeys. However, FSIS did not 
fund these initiatives as they were proposed in the President's fiscal 
year 2011 budget, since FSIS is operating with an annualized fiscal 
year 2011 continuing resolution funding.
    Question. What impacts would the proposed $88 million cut have on 
food safety programs, and how would those impacts be addressed in 
fiscal year 2012--even assuming the Congress provides at least the full 
FSIS budget request for fiscal year 2012?
    Answer. Under the proposed plan to mitigate an $88 million 
reduction, the agency would seek to manage the effects in such a way as 
to minimize the impact on the agency's regulatory responsibilities, on 
industry, and ultimately the consumer.
    If FSIS funding for fiscal year 2011 were reduced further, we would 
have to review our options for achieving efficiencies for fiscal year 
2011 and fiscal year 2012. I would point out, however, that 85 percent 
of the FSIS budget is for personnel; therefore, a reduction of this 
magnitude would likely have an effect on the FSIS workforce.
    Question. Can you describe what is new in the food safety 
initiatives proposed for fiscal year 2012 and what is a carryover from 
last year's request?
    Answer. For fiscal year 2012, the FSIS request totals 
$1,011,393,000, a net decrease of $7,127,000 (0.7 percent) compared 
with the annualized fiscal year 2011 continuing resolution amount of 
$1,018,520,000.
    The fiscal year 2012 budget for FSIS includes the following 
increases for food safety initiatives:
  --$16.6 million to continue the deployment and enhancement of the 
        FSIS public health information infrastructure, including $13 
        million to allow for the purchase of critical equipment and 
        improvement of information gathering systems to enhance access 
        of inspection personnel to centralized, mission-critical 
        systems (fiscal year 2011 request); and $3.6 million to pay for 
        staffing requirements associated with the implementation of 
        PHIS (fiscal year 2012 request).
  --$700,000 to support regulatory testing for strains of non-O157 
        Shiga-toxin producing E. coli, motivated by increasing 
        awareness that these strains are causing human illnesses 
        (fiscal year 2012 request);
  --$5.5 million to expand regulatory sampling for key pathogens and 
        conduct an additional baseline study. Expanded sampling will 
        help FSIS better estimate food safety risks and focus its 
        resources most effectively and efficiently (fiscal year 2011 
        request);
  --$4.3 million for strengthening the Public Health Epidemiology 
        Program, which will support the agency in responding more 
        quickly to the current public health needs, including rising 
        frequency of multijurisdictional foodborne illness 
        investigations (fiscal year 2011 request).
    Increases in the fiscal year 2012 budget request for FSIS are 
partially offset by reductions in funding for:
  --The Catfish Inspection Program, given the investment to date and 
        the need for considerable stakeholder engagement and regulatory 
        development before adoption and implementation of the program 
        (-$15.3 million) (combined fiscal years 2011-2012 request);
  --Cooperative agreements with the 25 State and local partner 
        laboratories in the Food Emergency Response Network (FERN). In 
        conjunction with the capabilities of the FSIS laboratories, 
        this funding will maintain surge capacity throughout the FERN 
        laboratory system should a terrorist attack on the food supply 
        involving meat, poultry, or egg products take place (-$4.1 
        million) (fiscal year 2011 request); and
  --FSIS laboratory capacity-building. Since fiscal year 2002, FSIS has 
        worked to improve the overall security and capacity of its 
        three regulatory sampling laboratories. We have completed the 
        capacity-building phase of these efforts and have begun the 
        maintenance and operational phases, which require considerably 
        fewer resources (-$5.6 million) (fiscal year 2011 request).
    In addition, FSIS will achieve significant savings by streamlining 
agency operations (-$4.5 million), achieving broadband efficiencies 
(-$3.5 million) and laboratory sampling efficiencies (-$1 million), and 
reducing laboratory sample shipping costs ($400,000) (fiscal year 2012 
requests).
    Question. The inspector general for the U.S. Department of 
Agriculture (USDA) found that the current sampling program lacks a 
statistical precision that is reasonable for assuring food is safe. 
Would you describe how the program in your budget for fiscal year 2012 
addresses the concerns raised by the inspector general?
    Answer. FSIS agrees that a strong sampling program is an important 
part of inspection activities performed by the agency. We believe that 
to ensure food safety, FSIS must verify that establishments have 
identified hazards likely to occur and have put in place processes to 
minimize or eliminate those hazards. Verification includes a variety of 
inspection activities, of which sampling is just one example.
    The focus of the Office of Inspector General (OIG) report is the 
sampling method that FSIS uses to test for E. coli O157:H7 in beef 
products. Overall, our current beef sampling strategy appears to be 
working, because ground beef is no longer the leading source of 
foodborne-based E. coli illnesses.
    Still, the agency is continually considering new approaches to 
further reduce the incidence of E. coli O157:H7, testing being one of 
our many strategies. Testing alone will not ensure the safety of 
products in the marketplace. Food safety is achieved by ensuring that 
the appropriate safeguards are in place at every step along the 
process.
    That is why the agency is working to ensure that our sampling 
programs have the greatest possible impact on public health. We want to 
explore what improvements can be made in our sampling programs, and the 
OIG report will inform and help drive our efforts.
    As referenced in the report, FSIS will develop a plan for 
prioritizing and performing E. coli O157:H7 baseline studies of beef to 
improve our verification systems, and will develop new verification 
tasks for inspection program personnel to perform as part of their 
hazard analysis verification and their verification of sanitary 
dressing.
    Question. The fiscal year 2012 budget request estimates savings of 
$34 million from restructuring, eliminating positions, and introducing 
efficiencies. If FSIS inspection is inadequate, we risk massive 
recalls, plant closures, and of course, heightened food safety risks to 
consumers.
    Please describe what safeguards would be in place with respect to 
the proposed savings to ensure that they don't result in inspection 
failures with serious adverse consequences?
    Answer. The proposed $34 million in savings for fiscal year 2012 
from restructuring, eliminating positions, and introducing efficiencies 
will not affect our front line inspection workforce. For example, FSIS 
has identified 37 full-time equivalent positions that can be eliminated 
by refraining from backfilling open positions resulting from attrition, 
restructuring functional areas to streamline operations, and 
consolidating staff and resources to eliminate redundant positions, 
saving the agency an estimated $4.5 million. However, none of these 
positions are in the field.
    The agency does not anticipate a change in its regulatory 
requirements and activities, and would seek to minimize any effect on 
the enforcement of its regulatory responsibilities. For example, FSIS 
inspection program personnel will continue to be present at all times 
for slaughter operations and once-per-shift per day for processing 
operations. In addition, FSIS personnel will continue to perform humane 
handling verification and enforcement activities at all slaughter 
plants.

                           SCHOOL FOOD SAFETY

    Question. The Healthy, Hunger Free Kids Act sets some new 
requirements for USDA to improve food safety in America's schools. 
Specifically, the bill requires you to improve the communication and 
effectiveness of communication from the Federal level to the States 
about food safety holds and recalls.
    How do you intend to improve that communication? Have you 
considered a Rapid Alert System similar to the one used in Europe, 
which uses technology to ensure rapid dissemination of critical 
information?
    Answer. The Food and Nutrition Service (FNS) currently uses a Rapid 
Alert System to communicate with State Agencies about food safety 
recalls that affect USDA foods. The Rapid Alert System uses telephone, 
email, text message/SMS, and fax to repeatedly contact the State recall 
coordinators until they acknowledge receiving the message.
    USDA has conducted an evaluation of the needs of State agencies 
during food emergencies such as recalls, and is setting criteria and 
exploring means to improve their capabilities. The President's fiscal 
year 2012 budget request proposes $1.75 million to fund State 
information technology enhancements to assist State agencies in 
fulfilling their responsibility to quickly identify and inform 
recipient agencies that receive recalled product. These enhancements 
would provide for improved communication with recipient agencies about 
recalled foods; enable Web-based information posting; and include both 
a rapid alert notification system and a self-registration notification 
service. Currently, FNS communicates with State agencies through the 
Electronic Commodity Ordering System (ECOS), but a similar system 
reaching from State agencies to local school districts and schools is 
not widely available. Provided funds are available, phase two of this 
initiative would enable the same rapid communication between State 
agencies and recipient agencies.
    Question. Are you considering reorganizing responsibility within 
the Department for oversight of food safety in schools, which is now 
shared among FSIS, the Agricultural Marketing Service (AMS), and FNS, I 
understand?
    Answer. No, at this time the Department has no plans to reorganize 
the oversight of food safety activities within schools.
    Ensuring safe food for our school children is a collaborative 
effort among a number of USDA agencies which have unique authorities 
that span the farm to table food safety continuum, from inspecting the 
product when it is produced, to setting procurement standards, managing 
the distribution of the product to schools, and inspecting the school 
cafeterias in which the product is served.
    In February 2010, Secretary Vilsack announced several new 
initiatives to assure the safety and quality of food purchased by USDA 
for the National School Lunch Program and these initiatives have moved 
forward. For example, in July 2010, after a detailed, ongoing review by 
USDA's FSIS and the Agricultural Research Service (ARS), AMS finalized 
tougher new standards for ground beef purchased for Federal food and 
nutrition assistance programs including the National School Lunch 
Program. The new standards guaranteed that USDA purchase standards meet 
or exceed major private-sector buyers of ground beef.
    In addition, USDA has increased its information sharing between 
agencies to better monitor vendor performance and identify potential 
food safety issues in the process. For example, information on FSIS in-
plant enforcement actions, positive pathogen test results, and recall 
notifications are being shared directly with AMS.
    Also, as Secretary Vilsack had requested, the National Academy of 
Sciences completed a review of the testing procedures and requirements 
of USDA purchased ground beef for the National School Lunch Program. 
The review confirmed America's school children are receiving a safe 
ground beef supply.
    Collectively, these changes and ongoing scientific reviews of AMS 
commodity procurement specifications is ensuring, and will continue to 
ensure, that the food USDA distributes to school children and others 
meets the highest quality and safety standards.

                     DAIRY POLICY REFORM PROPOSALS

    Question. There is a significant amount of work being done to 
develop proposals for modifying and reforming Federal dairy policy. The 
Congress will consider a number of important considerations relating to 
the ramifications of any changes to Federal dairy policy. In addition 
to the key objective of enhancing income protection and prospects for 
dairy farmers, the Congress will also be examining expected impacts of 
policy on milk and dairy product markets and prices, consumer prices, 
and costs to the Federal budget both for the dairy programs and for 
nutrition programs such as the Special Supplemental Nutrition Program 
for Women, Infants, and Children (WIC).
    Will you ensure that USDA includes all of these considerations and 
potential impacts in its analysis and review of proposals for dairy 
policy reform and that the Department completes and provides to the 
Congress such review and analysis in time for it to be available to the 
Congress in its examination of legislative options for dairy policy 
reform?
    Answer. The USDA looks forward to working with the Congress in 
evaluating proposals for dairy policy reform. We will strive to provide 
comprehensive information on the impacts of significant reform 
proposals in a timely manner.
                                 ______
                                 
            Questions Submitted by Senator Dianne Feinstein

                                 DAIRY

    Question. Years 2009 and 2010 were catastrophic for our Nation's 
dairy farmers. Over supply and chronically low prices led to an 
unprecedented loss of farm equity and the closure of more than 4,500 
dairies nationwide. In response, the U.S. Department of Agriculture 
(USDA) spent more than $1 billion on dairy support programs and the 
Congress appropriated an additional $350 million to help farmers 
weather the hard times. These private-sector losses and public-sector 
expenditures were untenable, and the lesson was clear: Federal dairy 
programs must be reformed.
    What is the Department doing to facilitate meaningful reforms in 
the dairy support system?
    Answer. The Secretary formed the Dairy Industry Advisory Committee 
(DIAC) which was made up of 17 milk producers, processors, retailers, 
and academic members. The DIAC has worked over the past year to develop 
a set of recommendations for dairy policy reform. The Department is 
currently reviewing those recommendations. The recommendation of the 
DIAC can be found at: http://www.fsa.usda.gov/Internet/FSA_File/
diac_final_rpt_0302.pdf.
    Question. Do you believe that a supply management system will help 
stabilize dairy prices? And if so, will the market stabilize at a level 
that is sustainable for both producers and processors?
    Answer. Developing and administering a supply management system to 
stabilize dairy prices at a level that is sustainable for both 
producers and processors could prove to be a tremendous challenge. 
Finding the correct balance between producer and processor price 
desires in an ever changing domestic and international marketplace 
could be difficult. While the DIAC recommended that the Federal 
Government should adopt a growth management program by a narrow margin, 
the subcommittee was not prepared to endorse a specific plan or agree 
on whether better coordinating milk marketings with milk usage over 
time in order to reduce milk price volatility should be a public or a 
private endeavor.

                        DAIRY INSURANCE PROGRAM

    Question. Crop insurance has been a great asset to row crop farmers 
across the country looking to manage their risks, but to date the dairy 
insurance program, Livestock Gross Margin for Dairy (LGM-Dairy), has 
not seen the same successes.
    Is a new dairy insurance program needed to ensure that farmers have 
a bona fide safety net and a sound financial management strategy?
    Answer. The Risk Management Agency (RMA) has administered the LGM-
Dairy pilot program since 2009. Until this year, the pilot program 
experienced very low participation. During summer 2010, the Federal 
Crop Insurance Corporation Board of Directors approved two program 
changes that have had a significant impact on participation. The board 
revised the date that premium is due from the producer until the end of 
the coverage period, and instituted a graduated producer premium 
subsidy. These changes went into effect for the December 2011 sales 
period, and RMA saw a significant jump in participation. Participation 
in the LGM-Dairy policy has continued to grow each month since then, 
until program funding was exhausted during the March 2011 sales period. 
(The Federal Crop Insurance Act limits funding to not more than $20 
million for administrative costs to cover all livestock pilot programs, 
which generally include any premium subsidy and administrative and 
operating expenses. There are currently eight livestock pilot programs 
available, and LGM-Dairy was allocated approximately $16.2 million with 
the remaining amount left to fund the other livestock programs based on 
their historical rate of spending.) During this short period of sales 
time reflecting the new program changes, private companies wrote and 
RMA will reinsure about 44 million cwt. of milk, representing about 2.5 
percent of the market. Thus, dairy producers have responded to these 
changes indicating they believe the LGM-Dairy program has become a 
viable risk management strategy.
    Question. If every dairy farmer in the country were to opt in to 
the existing LGM-Dairy program, what would be the annual expected cost 
to the Federal Government? If we found a way to reduce the volatility 
of the dairy market, how would this annual expected cost change?
    Answer. If every dairy farmer were to use the LGM-Dairy product, 
USDA estimates it would need approximately $715 million to support this 
program, based on the recent market conditions and purchasing patterns 
of dairy producers. If the volatility in the dairy market were reduced, 
both the cost to dairy producers and the amount of premium subsidy paid 
to dairy producers would decrease, but it is not possible to provide 
any meaningful estimates as to how much savings that might entail given 
the wide range of potential scenarios to consider.

                             INVASIVE PESTS

    Question. California farmers, unlike farmers in many other States, 
pride themselves on receiving very little by way of Federal subsidies. 
But what I do hear is that they need assistance in finding ways to 
control invasive pests that come across the border from Mexico or 
through our international ports. The European grapevine moth, just 
discovered last year, already has the potential to devastate the $3.2 
million California grape and wine industry. The red palm weevil, just 
discovered this year, threatens the date industry and poses a serious 
public safety threat. And of course, the Asian citrus psyllid, which 
has been found in San Diego, Imperial, Orange, Riverside, and Los 
Angeles counties is poised to overwhelm citrus producers in California, 
just as it overwhelmed the Florida producers only 3 years ago.
    Simply put, U.S. agriculture is facing threats from foreign pests 
and diseases like never before, and the USDA must do more to help 
growers address these bugs.
    The Congress included section 10201 in the 2008 farm bill which 
authorized funding for States and localities to address invasive pest 
problems in new and unique ways, but the funding for this program is in 
question because the Commodity Credit Corporation (CCC) will not 
release the funds to pay for these activities. What are you doing to 
ensure that this funding goes out in a timely manner?
    Answer. We recognize your concern about the threats that U.S. 
farmers face from invasive pests and diseases and the potential for 
section 10201 programs to help with early detection and control of new 
infestations. The Animal and Plant Health Inspection Service (APHIS) 
has taken steps to improve the process for allocating section 10201 
funds and worked with a variety of stakeholders, including the National 
Plant Board, specialty crop stakeholder groups, State partners, and 
others, to develop criteria for evaluating proposals for the funds.
    The Commodity Credit Corporation Charter Act (15 U.S.C. 714i) 
limits the availability and use of section 11 CCC funds for salaries 
and related expenses, including technical assistance, associated with 
the implementation of farm bill programs. Language was included in the 
American Recovery and Reinvestment Act of 2009 that allowed APHIS, and 
certain other USDA agencies, to utilize the funds of CCC to administer 
certain 2008 farm bill programs in fiscal year 2009 and fiscal year 
2010. However, this authority expired at the end of fiscal year 2010 
and without this authority to use CCC funds to administer farm bill 
programs going forward, APHIS and other agencies would have to reduce 
discretionary program funding and use appropriated funds to carry out 
mandatory farm bill programs.
    For fiscal year 2011, USDA requested language be included in the 
full-year appropriations bill that would allow section 11 funds of CCC 
to be available for salaries and related administrative expenses 
associated with the implementation of certain farm bill programs 
without regard to the limitation contained in section 11 of the CCC 
Charter Act. The fiscal year 2012 budget includes $50 million for 
section 10201.
    Question. What authorities and resources can APHIS use to address 
emerging pests and diseases prior to congressional approval of the 
action?
    Answer. Under section 442 of the Plant Protection Act, the 
Secretary of Agriculture may transfer funds from other appropriations 
or funds available to the agencies or corporations of the USDA in 
connection with emergencies in which a plant pest or noxious weed 
threatens any segment of U.S. agriculture. For example, USDA released 
$16.9 million from CCC for the European vine moth in fiscal year 2011. 
APHIS can also use its appropriated Contingency Fund to address small-
scale outbreaks.
    Question. I was pleased to see that the President's budget included 
$44.8 million for the Citrus Health Research Program because this 
program is critical to ensuring that the citrus industry has a future 
in our country. Can please update me on what progress has been made in 
developing citrus trees that are resilient to the Huanglongbing disease 
carried by the citrus psyllid?
    Answer. Industry-led research to develop citrus greening-resistant 
trees began in 2007. The company that developed the trees is currently 
conducting field trials under a permit from APHIS on genetically 
engineered (GE) trees that have shown disease resistance in a 
laboratory setting. If the trees perform well in the field, the company 
will likely petition APHIS to determine the GE trees' regulatory status 
so that they can be commercialized.
    APHIS is working to coordinate and accelerate research efforts to 
identify tools that can assist producers with sustainable management of 
citrus greening, including development of disease-resistant trees. USDA 
has established the Citrus Research Coordination Group, a collection of 
representatives from USDA agencies, universities, States, and citrus 
industry organizations. This group is coordinating the comprehensive 
research being conducted by more than 150 scientists dedicated to 
finding the necessary tools and solutions for citrus greening. The 
research efforts focus on several critical areas, including: crop 
improvement by developing disease-resistant trees; horticulture 
management strategies designed to maintain productive trees, even if 
they are infected with citrus greening; early-detection technology to 
find the disease; and tools to track infectious citrus psyllid 
populations and limit their encroachment into citrus production areas.

                              ANTIBIOTICS

    Question. I remain concerned about the routine use of antibiotics 
in the food and water of animals that are not sick. While I understand 
that these antibiotics may improve feed efficiency, it also facilitates 
the development of antibiotic-resistant bacteria.
    The President's fiscal year 2012 budget request announces that the 
Agricultural Research Service (ARS) plans on launching a biotherapeutic 
discovery program to find alternatives to antibiotics in animal 
agriculture. Can you provide more details on this initiative and when 
you plan on implementing this program?
    Answer. The incidence of antibiotic resistance in pathogenic 
bacteria is rising. This presents one of the greatest threats to human 
health in the 21st century. Public health concerns with antibiotic 
resistance are driving new proposed regulations and policies to 
restrict the use of antibiotics in animal production. Developing 
alternatives to antibiotics is therefore becoming a critical issue for 
food animal medicine. The ARS Animal Health Research Program is using 
new information emerging from the rapidly expanding ``omic'' 
technologies (e.g., animal genomics, metagenomics, transcriptomics, 
proteomics, metabolomics) to discover new molecules with antimicrobial 
activity that can be developed as alternatives to antibiotics. The ARS 
Animal Health National Program plans for fiscal year 2012 include 
launching a biotherapeutics discovery program that will focus initially 
in the following strategic areas:
  --innate immune molecules with antimicrobial function;
  --bioactive phytochemicals (herbal extracts and volatile oils); and
  --demonstrated synergistic approaches that could both reduce costs 
        and increase efficacy while reducing the risk of drug 
        resistance development.
    This animal health initiative cross-cuts other national programs, 
such as the ARS Food Safety Research Program, which includes research 
on alternatives to antibiotics, microbial ecology, and the effect of 
processing environments on antibiotic resistance prevalence.
    Question. Should the USDA and ARS receive funding less than the 
President's fiscal year 2012 request, will this inhibit the program?
    Answer. If ARS receives funding less than the fiscal year 2012 
request, this will prevent the launch of the proposed animal health 
alternatives to antibiotics research program.
    Question. Are you working with the Food and Drug Administration 
(FDA) in relation to its proposed draft guidance regarding the use of 
antimicrobials in food-producing animals? When can we expect to see 
this guidance implemented on the farm?
    Answer. ARS provided significant input to the development of the 
draft guidance document. USDA has collectively drafted a response plan 
to FDA's latest guidance document on the voluntary reduction of growth 
promoters in agriculture. APHIS is the lead agency for USDA 
interactions and any timeline for on-farm implementation.

                                ORGANIC

    Question. Organic agriculture is one of the fastest growing 
segments of the rural economy. It creates nearly 150,000 jobs and 
provides farmers with lucrative market opportunities.
    But Federal investment in organic research and market data has 
lagged behind its fair share--organic agriculture makes up about 3.7 
percent of the total industry, but research in this new and promising 
area only makes up 2.6 percent of the total USDA research budget. I was 
pleased to see the agency's plan to spend $20 million in the Organic 
Agriculture Research and Extension Initiative (OREI) and an additional 
$5 million in the Organic Transitions program, but I believe more must 
be done to help ensure the continued growth of this industry.
    What additional resources can be made available to help organic 
farmers discover and understand the best ways to address invasive pests 
and diseases?
    Answer. In the 2011 OREI, research and extension to develop and 
improve systems-based Integrated Pest Management (IPM) programs for 
organic crops was one of the seven priority areas. Specifically, we 
requested systems-based evaluations that could include the safety and 
efficacy of allowable pest management materials and practices. Special 
emphasis was given in the 2011 request for applications to research 
relating to management of diseases, insect pests, and weeds in specific 
regions where organic acreage is increasing, and yet remain deficient 
in terms of numbers of certified and exempt organic farms, as compared 
to nationwide averages. For example, the southern region lags behind 
the northeastern and north central regions in organically certified 
acreage. Additional research and extension on pests, weeds, and 
diseases that may limit production in those regions should help 
overcome barriers to the growth of organic farming in these 
underrepresented regions. The southern region is often the first place 
that invasive plants, diseases, and pests are noticed. Controlling them 
in the region in which they first appear can help reduce the spread to 
other regions, as well as making additional management tools available 
as they are needed. Research in organic systems is particularly 
valuable, because organic farmers rely on a systems approach that 
includes rotation, cover crops, tillage, biological controls, and less 
toxic materials. Thus resistance is less likely to develop to a 
specific material.
    Invasive pests, weeds, and diseases also can be a problem in animal 
agricultural systems. An additional priority in the 2011 OREI was to 
develop or improve systems-based animal production and pest management 
practices, especially in the areas of nutrition, grazing, pasture, and 
confinement requirements, to improve animal productivity, health, and 
welfare, while retaining economic viability. Thus two of the seven 
priorities in OREI pertained directly to pest, weed, and disease 
issues. In addition, plant breeding and animal selection for pest and 
disease resistance comprised two additional priorities of the seven. 
Therefore, more than one-half of the priorities for this program deal 
with some aspect of research and extension on management of pest, 
weeds, and diseases in organic farming systems. Compiling extension 
resources is another priority, and these resources could also address 
pest, weed, and disease management.
    The Sustainable Agriculture Research and Education (SARE) program 
is another source of competitively awarded funding for improved pest 
management in organic production systems. Historically, approximately 
20 percent of the SARE program awards have been for applied research in 
organic systems and pest control has been one of the predominant focus 
areas for the proposals that we receive. The SARE program had a funding 
line in 2010 of $14.5 million for research and education and a funding 
line of $4,705,000 for professional development and training. Together 
these funds allow SARE to provide a seamless continuum that links 
research with outreach and implementation. The fiscal year 2012 budget 
proposes increases of $10.8 million for SARE, including $10 million for 
the creation of a new Federal-State matching-grant SARE program to 
assist in the establishment and enhancement of State-sustainable 
agriculture research, education, and extension programs. These 
increases will bring the total SARE funding to $30 million in 2012.
    In fiscal year 2012, total ARS and NIFA funding will provide more 
than $38 million for direct organic research. ARS spends an additional 
$32.5 million on research which indirectly contributes to organic 
production.
    Question. What internal work is being done by ARS or other USDA 
entities that reduces the need for harsh chemical pesticides and 
improves the effectiveness of greener and organic alternatives?
    Answer. ARS organic farming research is focused on understanding 
the scientific basis of biological and physical processes innate to 
plants, soils, invertebrates, and microbes that naturally regulate pest 
problems and soil fertility. ARS organic research emphasizes whole-
system preventative solutions, rather than one-for-one substitution of 
conventional production materials and practices with organic ones. 
Results from ARS organic research can also benefit conventional 
agriculture by reducing the need for purchased synthetic agricultural 
chemicals. ARS organic research activities are coordinated with other 
agencies through the USDA Organic Working Group. In March 2011, three 
Research, Education, and Economics agencies (ARS; the Economic Research 
Service (ERS); and the National Institute of Food and Agriculture 
(NIFA)) together with the Office of the Chief Scientist and the Office 
of the Secretary hosted a very successful USDA Organic Research 
Conference in Washington, DC. Feedback from participants indicated that 
many were pleasantly surprised by the breadth, depth, and level of USDA 
support for organic agriculture research. Some specific examples of ARS 
internal research objectives and activities are:
  --Identify genetic plant growth efficiency mechanisms and combine 
        with soil fertility management strategies to increase crop 
        productivity with improved cultivars suited to organic 
        production conditions.
  --Develop whole-system biological-based management strategies for 
        weed, insect pest, and disease control using preventive 
        approaches as first defense, and therapeutic controls as rescue 
        practices.
  --Develop whole-system biological-based management strategies for 
        prevention of parasites in small ruminant grazing animals.
    NIFA is engaged with a wide range of research, education, and 
extension programs that develop and help agricultural producers adopt 
IPM approaches on their farms and ranches. IPM provides a sustainable 
approach to managing pests by combining biological, cultural, physical, 
and chemical tools in a way that minimizes economic, health, and 
environmental risks. These approaches encourage the use of the most 
environmentally friendly and sustainable methods for managing pests. 
NIFA programs support the development of IPM strategies and bio-based 
methods like biological control methods, microbial pesticides, mating 
disruption tactics, genetic manipulation of pests, and improving plant 
resistance to pests and diseases. The adoption and implementation of 
these science-based IPM methods helps reduce the need for pesticides on 
conventional and organic farms and ranches.
    The National Organic Program (NOP) strictly regulates the 
pesticides that can be utilized in certified organic production. In 
most cases, these materials are less toxic and have reduced potential 
for an adverse environmental impact. In certified organic production, 
many of the allowed pesticides are restricted to use as a ``last 
resort'' in an overall approach that relies first and foremost on 
biologically based materials and cultural management practices. These 
practices include tillage, rotation, and cover cropping as a preferred 
alternative to herbicide usage. Very few herbicides are allowed in 
certified organic production. All these practices utilized by organic 
farmers reduce the potential for the development of resistance in pest 
and weed populations and the necessity for increasingly harsh and 
frequent application of pesticides.
    Question. Organic products receive a substantial premium at market, 
and this has helped many farmers increase their income and improve 
their living conditions. But along with this premium comes the 
possibility that some farmers may seek to cheat the system and make 
false ``organic'' claims.
    Please explain how $10 million for NOP is sufficient to regulate 
and enforce a set of complex standards on more than 16,000 certified 
organic operations. What assurances can you give me, and all consumers 
of organic goods, that the USDA ``Organic'' label really means that the 
product was grown without pesticides or hormones?
    Answer. NOP accomplishes its main mission by accrediting private 
and public entities as certifying agents to conduct organic 
certification of production and handling operations. There are 
currently 94 accredited certifying agents located around the world, 
certifying about 27,000 operations, about 17,400 of which are U.S. 
domestic operations. NOP authorizes the State of California to handle 
compliance and investigative activities for agents and operations 
located in the State. NOP also recognizes six foreign governments 
(United Kingdom, Denmark, Israel, New Zealand, India, and Japan) to 
exercise oversight for products certified to the NOP standards in their 
countries. The United States-Canada Organic Equivalency Arrangement 
allows products certified to each country's standards to go to the 
other country with minimal additional conditions.
    NOP currently has a budget of $7 million which supports 32 staff 
members. NOP staff members manage a comprehensive accreditation 
program, handle complaints and take enforcement actions on violations 
of the regulations, develop and revise standards and policy guidance, 
as well as coordinate the activities and implement the recommendations 
of the National Organic Standards Board.
    NOP ensures organic integrity and consumer assurance through a 
rigorous accreditation and certification process. The accreditation 
applicants are first assessed through a comprehensive desk audit. Upon 
satisfactory completion, an onsite audit of personnel and system is 
then conducted. Subsequently, regular audits are conducted at every 2.5 
years for all certifying agents, domestic and foreign. NOP 
certification is a process-based system that establishes proactive 
control measures through the development, approval and implementation 
of organic system plans (OSP). The OSPs describe detailed practices and 
procedures for production and handling, all inputs used and their 
source/composition/application, monitoring practices and procedures, 
record-keeping system, and management practices to prevent 
contamination and commingling. Implementation of the OSP is verified 
through annual onsite inspections.
    NOP regulations require pre- or post-harvest tests based on 
suspected use of prohibited materials or excluded methods. Such tests 
are often conducted in the process of complaint investigation and 
utilized as a tool to verify compliance. The program is presently 
considering additional measures to further deter the use of prohibited 
materials.
    The program accomplishes these tasks by collaborating with other 
entities and leveraging resources to manage this complex global program 
within available resources. However, many areas could be enhanced to 
increase organic integrity of products shipped to the United States 
from around the world. To that end, a $2.9 million increase has been 
proposed in the NOP budget for 2012 to conduct additional surveillance 
of foreign accredited certifying agents; increase the program's 
capacity to investigate complaints and violations (both domestic and 
foreign); educate certifying agents worldwide to ensure the organic 
regulations are consistently applied; and respond to requests for 
international equivalency agreements.
    Question. Could you please provide me with a report on all 
enforcement actions taken by NOP in 2010, and with an enforcement 
strategy for the remainder of 2011 and beyond?
    Answer. Responsibility for enforcement of the NOP regulations is 
shared by the certifying agents and NOP. Certifying agents ensure the 
correct implementation of NOP standards through annual inspections and 
require corrective actions by operations when noncompliances are 
identified. NOP takes enforcement action as part of its complaint 
investigation and accreditation audit processes.
    NOP has increased its enforcement activities, not only in the 
United States but also in foreign countries, through monitoring 
recognition agreements and certification activity of foreign certifying 
agents. During fiscal year 2010, NOP conducted compliance assessments 
in Canada, Egypt, Israel, Denmark, Ghana, and China. AMS auditors also 
conducted organic audits in Argentina, Italy, Germany, Bolivia, and 
Mexico.
    During fiscal year 2010, NOP closed 123 complaints. As a result of 
investigating these complaints, NOP issued 10 civil penalties, totaling 
$64,000; and issued 52 cease-and-desist letters that stopped 
inappropriate use of the NOP logo or label.
    Through the enforcement activity of NOP, three certifying agents 
have lost their accreditation status (Guaranteed Organic Certification 
Agency, California; California Organic Farmers Association, California; 
and Certified Organic, Incorporated, Iowa). Those certifying agents are 
no longer permitted to certify organic producers or handlers.
    For the remainder of 2011 and beyond, NOP's No. 1 priority is to 
protect organic integrity through enforcement activities. NOP's plan is 
focused on the following 10 points:
  --clear, enforceable standards;
  --timely notification to certifiers, organic producers, and handlers 
        concerning changes/clarifications to the standards;
  --transparency of suspensions, revocations, adverse actions, and 
        sanctions;
  --quality certification program;
  --effective and efficient complaint handling process;
  --penalties for willful violations;
  --market surveillance inspections;
  --unannounced inspections;
  --periodic pesticide residue testing; and
  --continual improvement.

            SECTION 502 AND MUTUAL SELF-HELP HOUSING PROGRAM

    Question. The administration's budget proposes to reduce funding 
for affordable housing for low-income families and improving housing 
conditions in smaller, poorer rural communities. The Department's 
Section 502 Single-Family Housing Direct Loan Program was funded at 
$1.02 billion, but the administration has requested $211 million for 
fiscal year 2012. This is a cut of nearly 79 percent to a program that 
small towns and rural communities rely on for affordable housing. In 
addition, the Mutual and Self-Help Housing Program, which was funded at 
$43 million in fiscal year 2010, has been eliminated in the 
administration's request.
    How will the Department continue to offer affordable housing to 
low-income families in rural areas despite the elimination of the 
Mutual and Self-Help Housing Program and a major budget cut in the 
section 502 program?
    Answer. Housing is a vital economic pillar in rural America for 
creating wealth for communities and homeowners. USDA realizes that 
rural populations tend to be more economically challenged with lower 
incomes and fewer housing choices than their suburban and urban 
counterparts, and therefore we continue to offer a no-down payment 
homeownership program through both the Single-Family Housing Guaranteed 
and Direct Loan programs.
    Providing credit in areas that lack private investment is a 
critical function of USDA Rural Development. To address the need for 
credit--particularly in the rural housing market--Rural Development has 
dramatically increased the Single-Family Housing Guaranteed Loan 
Program in recent years, doubling the Government's investment from $12 
billion in 2010 to $24 billion in 2011. In these austere fiscal times, 
we are investing more than ever in rural housing at no cost to the 
taxpayer, because the Single-Family Housing Guaranteed Loan Program has 
a negative subsidy rate and does not require budget authority.
    The need to address the state of the current housing stock, in 
particular for very low-income seniors, and in areas of persistent 
poverty like tribal lands and border communities, will be met through 
the Section 504 Home Repair Grant Program. There are fewer affordable 
housing options in smaller and more rurally remote communities and we 
continue to grow the Section 515 Multifamily Direct Program to address 
needs in these communities. Often the section 515 program is the 
critical element in making a low-income housing tax credit deal work in 
rural communities that are starved for private investment. We already 
serve hundreds of thousands of very-low and low-income tenants through 
our multifamily housing programs, and we intend to continue to invest 
in new properties and the revitalization of existing units.
    USDA intends to continue a partnership in the immediate future with 
the Self-Help Housing Technical and Management Assistance (T&MA) 
contractors to provide guidance to Self-Help Housing grantees. As we 
transition out of a program that we recognize has made major 
contributions to rural housing, we will no longer have the ability to 
fund the administrative costs associated with Self-Help Housing due to 
budget constraints. Together with the grantees and T&MA contractors, 
USDA will identify other means for grantees to garner fees for their 
services and address regulations that will accommodate new ideas.
                                 ______
                                 
              Questions Submitted by Senator Mark L. Pryor

                             FORMULA FUNDS

    Question. Over the last three decades, formula funds (land grant 
institutions) as a percentage of the U.S. Department of Agriculture 
(USDA) extramural funding have declined in both absolute and relative 
amounts. To rectify that drop, the Congress filled in the gaps with 
special grants--earmarks--that are no longer available. With inherent 
limitations on the scope and effectiveness of competitive-funded 
research and extension, do you believe it is wise to reduce our formula 
fund investment by 5 percent?
    Answer. Although we are proposing modest cuts in formula funds, the 
National Institute of Food and Agriculture (NIFA) has proposed 
significant increases in the Agriculture and Food Research Initiative 
(AFRI) competitive grants program that includes increased investments 
in the integrated programs of AFRI. These integrated programs provide 
significant opportunities for support of multidisciplinary and 
multistate extension programs. Strong extension components within the 
integrated programs of AFRI will help ensure that research findings are 
accessible to agriculture producers and other key stakeholders. In 
addition, NIFA proposes to continue support for our electronically 
based initiative, eXtension, to ensure broad access to peer reviewed 
research-based information.

                                RESEARCH

    Question. Why did the administration decide to cut funding to the 
Agricultural Research Service (ARS) at a time when we are depending on 
our leadership in science and technology to help our economy recover 
from the recession?
    Answer. The President's fiscal year 2012 budget request for ARS 
proposes a net decrease of $41.9 million. The budget proposes an 
increase of $58.7 million, including $55.7 million for new and expanded 
research initiatives in food safety, child and human nutrition; crop/
animal breeding and protection; bioenergy/biomass; plant, animal, and 
microbial collections; production systems for sustainable agriculture; 
global climate change; and the National Agricultural Library. 
Investments in these high-priority programs will be critical to keeping 
the food and agriculture sector of the economy strong. These increases 
are offset by the proposed reduction or termination of ongoing ARS 
programs. The proposed net reduction in the fiscal year 2012 budget for 
ARS is achieved through the elimination of earmarked and other lower-
priority projects.

                            HOUSING PROGRAMS

    Question. Can you explain why the administration has sharply 
reduced funding for the Section 523 Mutual Self-Help Housing Program 
and the Section 502 Single-Family Housing Direct Loan Program which 
have been both successful and important in rural America?
    Answer. The Department believes that the Section 502 Single-Family 
Housing Guaranteed Loan Program is the most cost-effective approach to 
providing a large number of housing loans. With a $24 billion level, at 
a negative subsidy rate, the program provided more assistance and 
served more families in rural areas by far than any other housing 
program at the Department. For example, more than 30 percent of the 
loans made last year, were made to low-income families, the target 
population of the Section 502 Single-Family Housing Direct Loan Program 
(commonly known as the section 502 direct program). In fact the 30-
percent figure represented 43,708 loans to low-income families, more 
than have ever been made in a single year by the section 502 direct 
program. While both the section 502 direct program and the Section 523 
Mutual Self-Help Technical Assistance Grant programs have assisted low-
income families, they are much more costly than the Section 502 Single-
Family Housing Guaranteed Loan Program.

                         FOREST LEGACY PROJECTS

    Question. I understand that the administration ranks Forest Legacy 
projects. Can you explain a little bit about that process? And can you 
explain to me how the projects will be funded? Will you go straight 
down the ranking list and fully fund project No. 1, No. 2, No. 3, and 
so on until you run out of funds?
    Answer. Program priorities are developed in consultation with 
participating State-lead agencies. Each summer, the Forest Service 
sends a call letter to States asking them to provide a prioritized list 
of up to three projects. These projects always involve willing sellers 
who voluntarily seek to participate in the Forest Legacy Program. In 
many cases, there are other partners from the local community and 
forestry and conservation organizations who support the projects.
    The call letter includes the scoring criteria that details how the 
projects will be ranked. In January, a panel convenes for 2 days to 
rank the projects and develop a prioritized list. The panel is composed 
of 10 members: 6 Forest Service employees and 4 representatives from 
State agencies responsible for implementing the Forest Legacy Program. 
Each member arrives at the panel having reviewed and scored the 
proposed projects based upon the scoring criteria. Once the prioritized 
list is developed, it is cleared through the Forest Service and the 
USDA and becomes part of the President's budget proposal to the 
Congress.
    The intent is to follow the prioritized list as developed and fund 
as many projects as funding allows. The Forest Legacy prioritization 
process is well-developed and understood by our State partners and 
other conservation interests and we believe it is important to adhere 
to the competitively developed list.

                        CHINA FOOD SAFETY SYSTEM

    Question. Can you please bring the subcommittee up to speed on how 
things are progressing with the implementation of section 743 of the 
fiscal year 2010 appropriations bill? Are the Chinese cooperating with 
efforts to establish the equivalency of their food safety laws with 
those of the United States?
    Answer. From December 1-21, 2010, FSIS conducted two separate but 
simultaneous audits of China's poultry inspection system: one for 
poultry processing and one for poultry slaughter. FSIS continues to 
analyze materials provided by China during the on-site audits, and 
sought published information on China's food safety system from various 
domestic and international agencies, as part of its equivalence 
evaluation of China's poultry inspection system.
    FSIS will submit two separate audit reports to China. China will 
then be responsible for working with FSIS to address any concerns that 
may be raised in the reports.
    To date, FSIS has obtained from China's primary food safety 
authority all of the information necessary to conduct the equivalence 
audits.

      GRAIN INSPECTION, PACKERS AND STOCKYARDS ADMINISTRATION RULE

    Question. Can you tell the subcommittee the status of the new 
analysis of the Grain Inspection, Packers and Stockyards Administration 
(GIPSA) rule, and explain how the administration is working to improve 
the rulemaking process at USDA?
    Answer. GIPSA provided 150 days for the public to comment on the 
rule. The agency received 61,000 comments, and it is currently 
reviewing and analyzing the comments that were received. The Department 
will take the following steps in developing the final rule:
  --Conduct a content analysis of comments and identify those requiring 
        additional legal and policy analysis;
  --Evaluate the proposed cost-benefit analysis in light of comments 
        and revise as necessary;
  --Draft a regulatory workplan and submit to the Office of Management 
        and Budget (OMB);
  --Revise the rule as necessary;
  --Enter the rule into Departmental clearance;
  --Submit the rule for OMB clearance; and
  --Publish the rule.
    The cost-benefit analysis that is being conducted will be guided by 
the comments that we received during the comment period. Further, 
officials within the Department and OMB will clear this rule before the 
rule is promulgated. USDA's Chief Economist, Joseph Glauber is taking 
the lead in coordinating a team of economists across the Department to 
provide rigorous review of the comments.
                                 ______
                                 
              Questions Submitted by Senator Susan Collins

             RESOURCE CONSERVATION AND DEVELOPMENT FUNDING

    Question. The U.S. Department of Agriculture's (USDA) Resource 
Conservation and Development (RC&D) program provides important 
resources for many rural communities in Maine and around the country. 
RC&D-sponsored activities have led to more sustainable communities, 
better informed land use decisions, and sound natural resource 
management practices.
    Maine's five RC&D councils have proven their effectiveness through 
a number of accomplishments. During fiscal year 2010, 79 RC&D projects 
were actively worked on and 35 projects were completed. Maine RC&D 
councils participate in a variety of successful projects that range 
from providing technical assistance for the development of community 
wind projects to helping build and sustain agricultural businesses.
    One of the main benefits of the RC&D program is the promotion of 
local economies through the leveraging of Federal dollars. According to 
the National Association of RC&D Councils, the RC&D program returns 
$5.60 for every $1 the Federal Government invests to support economic 
development and resource protection in rural areas. For some RC&D 
councils the leverage is even greater.
    In fact, the administration's budget document cites the program's 
history of success and ability to attract non-Federal dollars as a 
reason why Federal funding is no longer necessary. I appreciate that 
these are difficult budget times, and difficult decisions must be made 
as to where to allocate limited Federal dollars. I wonder, though, 
whether it makes sense to eliminate funding for successful programs. 
Shouldn't we be supporting programs that have a proven track record of 
being able to attract and leverage non-Federal funds?
    Answer. President Barack Obama's budget proposal eliminates Federal 
technical assistance to the 375 RC&D councils, the majority of which 
have received Federal support for at least 10 years. Given the current 
budget situation, we have had to make some difficult funding decisions. 
As nonprofit organizations, RC&D councils will still exist and we 
believe that most have the capacity to identify, plan, and address 
their identified priorities without the need for continued Federal 
support. The RC&D program is not being targeted due to poor performance 
or lack of effectiveness. RC&D has been a remarkable program since 1964 
and it is expected that many councils will continue to provide services 
to their communities.

                       INTEGRATED PEST MANAGEMENT

    Question. Mr. Secretary, the science-based principles of Integrated 
Pest Management (IPM) have proven to be valuable tools for American 
agriculture. IPM has allowed American agriculture to address food 
safety issues by maintaining crop quality, avoiding crop losses, 
improving pest management strategies, and minimizing negative impacts 
to the environment. The four regional IPM centers have been invaluable 
in their effort towards increasing IPM programming breadth and depth 
throughout the United States. Many of these programs funded via USDA 
have demonstrated excellent cost-benefit ratios. For example, the 
University of Maine Cooperative Extension Potato IPM Program showed in 
2009 that for every USDA $1 invested, $58 in benefits were returned. 
The UMaine's IPM program Web site is visited thousands of times per 
growing season, showing how integral it is to the potato industry. 
Farmers use the program to more appropriately treat their crops, to 
lessen the impact of chemicals to the environment, and to catch 
troubling diseases, like late blight and pests sooner.
    Given the importance of these IPM programs, how does USDA plan to 
not only maintain but enhance these valuable IPM programs?
    Answer. The National Institute of Food and Agriculture (NIFA) 
recognizes the importance of IPM in our science portfolio and will 
continue to provide national leadership for IPM research education, and 
extension programs. NIFA will continue to support IPM research, 
extension and education efforts through the Agriculture and Food 
Research Initiative (AFRI) and other NIFA programs. The consolidation 
of funding authorities into broader programs such as AFRI enhances 
NIFA's ability to address issues confronting U.S. agriculture in a more 
holistic way, and with a scale of investment that is large enough to 
make a real difference. Consolidation will also reduce transaction 
costs and improve the efficiency of program management in a climate of 
limited resources.
    In fiscal year 2010, AFRI was restructured so that investments 
could be focused on five societal challenge areas: global food 
security, climate change, food safety, sustainable bioenergy, and 
childhood obesity prevention. The development of IPM methods for plant 
and animal production systems is a key element of efforts to ensure 
global food security, respond to climate change, and develop 
sustainable bioenergy production systems. AFRI supports the development 
and implementation of IPM approaches that help us address these 
challenge areas and contribute to the sustainability of U.S. 
agriculture.
    For fiscal year 2012, NIFA will seek to expand the role and 
influence of science in agriculture through focused, problem-solving 
research, education, and extension activities related to IPM challenges 
in plant and animal production systems. The proposed budget 
consolidates funding for the Expert IPM Decision Support System, Pest 
Management Alternatives, and IPM and Biological Control into a single 
program to improve the efficiency of program implementation resulting 
in research investments with greater focus, more appropriate scale, and 
enhanced impact. The proposed budget maintains funding for the Smith-
Lever 3(d) Pest Management Program, which addresses many challenges 
facing agriculture and the environment by delivering science-based IPM 
methods to producers and agricultural professionals. Supplemental 
programs like the IPM Potato Late Blight project with the University of 
Maine Cooperative Extension Potato IPM Program further address 
significant issues and are closely aligned with the Smith-Lever 3(d) 
program.

                  FOREIGN MARKET DEVELOPMENT PROGRAMS

    Question. Programs that increase market access for American 
agricultural products are important to increasing exports and market 
share for our farmers. In 2008, at the height of the economic downturn, 
Maine's wild blueberry industry was beginning market development work 
in China. Although it often can take 5 or 6 years to fully develop a 
new export market, Maine's wild blueberry industry was able to grow its 
market in China by 73 percent between 2009 and 2010.
    Given the importance of such efforts and the President's National 
Export Initiative (NEI), why has the administration only provided a 1-
percent increase for such programs?
    Answer. The administration fully concurs that programs to increase 
market access for American agricultural products are important to 
increasing exports and market share for American farmers. To that end, 
the President's fiscal year 2012 budget includes full funding for the 
Market Access Program, Foreign Market Development Program, Emerging 
Markets Program, and Technical Assistance for Specialty Crops Programs 
consistent with the provisions of the 2008 farm bill; total funding for 
those programs is $253.5 million. In addition, the fiscal year 2012 
request includes an increase of $20 million to provide additional 
funding for Foreign Agricultural Service market development efforts in 
support of NEI.

                             FOREST LEGACY

    Question. Maine has the largest private forest ownership in the 
country--some 18 million acres of diverse forest covering roughly 90 
percent of its land area. These private landowners are the stewards of 
our forests and the caretakers of the natural resources that are vital 
to Maine's forest-products industry. In addition, they are the hosts 
for our increasingly important recreation economy.
    One of the most important Federal programs to help forested 
landowners preserve working forest, protect natural resources, and 
promote outdoor recreation is the Forest Legacy Program. I appreciate 
your commitment to this program, and hope we can keep it going for the 
remainder of fiscal year 2011, as the House's decision to deeply cut 
Forest Legacy funding will directly affect Maine.
    Maine's West Grand Lake Community Forest project, for example, was 
ranked the No. 1 Forest Legacy project in the Nation for 2011 through a 
competitive scoring process. This project will ensure sustainable 
forest management and public recreational access. It will also preserve 
and enhance Maine's timber economy and Grand Lake Stream's 180-year 
outdoor recreation heritage. It is a project led by the local community 
and accomplished in partnership with community, State, Federal, and 
nonprofit partners. West Grand Lake is a shining example of how the 
Forest Legacy Program works with local communities to prevent the 
conversion of forest land to nonforest uses while sustaining and 
improving both our local timber and recreational economies.
    I understand that there is a great deal of uncertainty right now as 
to what the Department's budget will look like for the remainder of the 
fiscal year. And beyond fiscal year 2011, there are many worthy 
projects being proposed for fiscal year 2012. Recognizing that things 
are still very much in the air, has the Department considered how it 
might allocate funding within the Forest Legacy Program at a reduced 
funding level? It is my understanding that the fiscal year 2012 request 
assumes that the projects that were priorities for fiscal year 2011 are 
funded this year. How will Department allocate funding among the fiscal 
year 2011 and fiscal year 2012 priorities should full funding not be 
provided this year?
    Answer. Currently, the intent is to adhere to the prioritized list. 
We are aware that the funded list may be a short one. The Forest Legacy 
Program prioritization process at the national level is undertaken 
without a known funding level. The intent is to identify the most 
important forestland for conservation funding. The relative importance 
of the projects does not change because of funding levels and we intend 
to adhere to the prioritized list.
    It is true that there are projects on both the fiscal year 2011 and 
fiscal year 2012 priority lists. Due to the uncertainty of the fiscal 
year 2011 funding at the time of the fiscal year 2012 call for 
projects, some States chose to submit, as their priority, projects on 
the fiscal year 2011 list for consideration in fiscal year 2012. Each 
funding year represents a distinct national competition of projects. 
Fiscal year 2011 projects will not be prioritized in fiscal year 2012 
as only projects submitted in response to the call for proposals for 
fiscal year 2012 will be on the fiscal year 2012 project priority list.

                          SUBCOMMITTEE RECESS

    Senator Kohl. Thank you, Senator Pryor.
    And thank you very much, Secretary Vilsack.
    We have about 5 minutes left in the vote.
    But you've done a great job, been very complete. You've 
offered a lot of information, and we very much appreciate your 
coming here today. We're all looking forward to continuing to 
work with you.
    Secretary Vilsack. Thank you.
    Senator Kohl. Thank you so much.
    The hearing is adjourned.
    [Whereupon, at 3:05 p.m., Thursday, March 10, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]


              MATERIAL SUBMITTED SUBSEQUENT TO THE HEARING

    [Clerk's Note.--The following testimony was received 
subsequent to the hearing for inclusion in the record.]

    Prepared Statement of Hon. Leland A. Strom, Chairman and Chief 
             Executive Officer, Farm Credit Administration

    Mr. Chairman, members of the subcommittee, I am Leland A. Strom, 
chairman and chief executive officer of the Farm Credit Administration 
(FCA). On behalf of my colleagues on the FCA Board, Kenneth Spearman of 
Florida and Jill Long Thompson of Indiana, and all the dedicated men 
and women of FCA, I am pleased to provide this testimony.
    Before I discuss FCA's role, responsibilities, and budget request, 
I would like to thank the subcommittee staff for its assistance during 
the budget process. Also, I would respectfully bring to the 
subcommittee's attention that the funds used by FCA to pay its 
administrative expenses are assessed and collected annually from the 
Farm Credit System (FCS) institutions we regulate and examine--the FCS 
banks, associations, and service corporations, and the Federal 
Agricultural Mortgage Corporation (Farmer Mac). FCA does not receive a 
Federal appropriation.
    Earlier this fiscal year, FCA submitted a proposed total budget 
request of $62,299,787 for fiscal year 2012. FCA's proposed budget for 
fiscal year 2012 includes funding from current and prior assessments of 
$62,000,000 on FCS institutions, including Farmer Mac. Almost all this 
amount (approximately 82 percent) goes for salaries, benefits, and 
related costs.
    The fiscal year 2012 proposed budget is driven largely by two 
factors:
  --stress on FCS caused by conditions in the agricultural and the 
        general economy; and
  --the large number of retirements that FCA anticipates in the coming 
        5 years.
    Although FCS remains safe and sound overall, risks have increased 
across FCS, and conditions in several institutions have deteriorated. 
As a result, we are hiring additional staff members to provide more 
intensive examination and oversight. We are also hiring employees to 
fill the positions of those who will be retiring soon. The funding 
we've requested for fiscal year 2012 will allow us to provide the 
additional supervision and oversight required in challenging economic 
times and to ensure that we maintain a staff with the skills necessary 
to properly examine, oversee, and regulate FCS.

               MISSION OF THE FARM CREDIT ADMINISTRATION

    As directed by the Congress, FCA's mission is to ensure a safe, 
sound, and dependable source of credit and related services for 
agriculture and rural America. FCA accomplishes its mission in two 
important ways. First, FCA protects the safety and soundness of the FCS 
by examining and supervising all FCS institutions, including Farmer 
Mac, and ensures that the institutions comply with applicable laws and 
regulations. Our examinations and oversight strategies focus on an 
institution's financial condition and any material existing or 
potential risk, as well as on the ability of its board and management 
to direct its operations. We also evaluate each institution's 
compliance with laws and regulations to ensure that it serves all 
eligible borrowers, including young, beginning, and small farmers and 
ranchers. If an FCS institution violates a law or regulation or 
operates in an unsafe or unsound manner, we use our supervisory and 
enforcement authorities to take appropriate corrective action. Second, 
FCA develops policies and regulations that govern how FCS institutions 
conduct their business and interact with customers. FCA's policy and 
regulation development focuses on protecting FCS safety and soundness; 
implementing the Farm Credit Act; providing minimum requirements for 
lending, related services, investments, capital, and mission; and 
ensuring adequate financial disclosure and governance. The policy 
development program includes approval of corporate charter changes, FCS 
debt issuance, and other financial and operational matters.

   EXAMINATION PROGRAMS FOR FARM CREDIT SYSTEM BANKS AND ASSOCIATIONS

    FCA's highest priority is to maintain appropriate risk-based 
oversight and examination programs to ensure the safety and soundness 
of FCS institutions. Given the increasing complexity and risk in FCS 
and human capital challenges at FCA, we have undertaken a number of 
initiatives to improve operations, increase examination effectiveness, 
and enhance staff expertise in key examination areas. FCA bases its 
examination and supervision strategies on institution size, existing 
and prospective risk exposure, and the scope and nature of each 
institution's business model. FCA also performs nationally focused 
examinations of specific issues and operational areas to monitor the 
condition and operations of FCS as a whole. On a national level, we 
actively monitor risks that may affect groups of FCS institutions or 
the entire FCS, including risks from the agricultural, financial, and 
economic environment.
    The frequency and depth of examination activities vary based on 
risk, but each institution receives a summary of examination activities 
and a report on its overall condition at least every 18 months. FCS 
institutions are required to have effective loan underwriting and loan 
administration processes, to maintain adequate asset-liability 
management capabilities, and to establish high standards for governance 
and transparent disclosures for shareholder oversight. Because of the 
recent increased volatility in the agricultural and credit sectors, FCA 
has increased its on-site examination presence. Also, FCA is closely 
watching rapidly rising real estate values in certain sections of the 
country to ensure that FCS lending practices remain prudent.




    In certain cases, FCA will use its enforcement powers to effect 
changes in the institution's policies and practices to correct unsafe 
or unsound conditions or violations of law or regulations. FCA uses 
FIRS as a key method to assess the safety and soundness of each FCS 
institution (see chart above \1\ ). The FIRS provides a general 
framework for evaluating significant financial, asset quality, and 
management factors to assign component and composite ratings. FIRS 
ratings range from 1 (for a sound institution) to 5 (for an institution 
that is likely to fail). Overall, FCS remains financially strong and 
adequately capitalized. The FCS does not pose material risk to 
investors in FCS debt, the Farm Credit System Insurance Corporation, or 
to FCS institution stockholders.
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    \1\ Source.--FCA's FIRS Ratings Database. The above chart includes 
only the five FCS banks and their affiliated direct-lender 
associations. The figures in the bars reflect the number of 
institutions by FIRS rating.
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    Although FCS's condition and performance remain satisfactory 
overall, a number of FCS institutions are experiencing stress and now 
require special supervision and enforcement actions. These actions 
reflect the weaknesses in the Nation's economy and credit markets, a 
rapidly changing risk environment in certain agricultural segments, 
and, in certain cases, management's ineffectiveness in responding to 
these risks. We have increased supervisory oversight at a number of 
institutions and dedicated additional resources in particular to those 
14 institutions rated 3 or worse. Although these 14 institutions 
represent less than 4 percent of FCS assets and do not meaningfully 
impact FCS's consolidated performance, they require significantly 
greater FCA resources to oversee. As of December 31, 2010, five FCS 
institutions were under formal enforcement action, but no FCS 
institutions are in conservatorship or receivership.

                  REGULATORY AND CORPORATE ACTIVITIES

    Regulatory Activities.--The Congress has given the FCA Board 
statutory authority to establish policy, prescribe regulations, and 
issue other guidance to ensure that FCS institutions comply with the 
law and operate in a safe and sound manner. FCA is committed to 
developing balanced, flexible, and legally sound regulations. Some of 
FCA's current regulatory and policy projects include the following:
  --Revising regulations to implement the requirements of the Dodd-
        Frank Act;
  --Revising regulations to ensure that FCS funding and liquidity 
        requirements are appropriate and to ensure that the discounts 
        applied to investments reflect their marketability;
  --Revising regulations to require that each FCS institution's 
        business plan includes strategies and actions to serve all 
        creditworthy and eligible persons in the institution's 
        territory and to achieve diversity and inclusion in its 
        workforce and marketplace;
  --Enhancing our risk-based capital adequacy framework to more closely 
        align it with that of other Federal banking agencies and the 
        Basel Accord;
  --Revising lending- and leasing-limit regulations to ensure that FCS 
        institutions maintain effective policies to measure and manage 
        exposure to single counterparties, industries, and market 
        segments, and to large complex loans;
  --Revising regulations to allow FCS institutions to purchase eligible 
        agricultural loans from the Federal Deposit Insurance 
        Corporation;
  --Revising regulations to enhance FCS disclosures of senior officer 
        compensation and supplemental benefit programs; and
  --Strengthening investment-management regulations to ensure that 
        prudent practices are in place for the safe and sound 
        management of FCS investment portfolios.
    Corporate Activities.--While the number of FCS institutions has 
declined over the years as a result of mergers, their complexity has 
increased, which has placed greater demands on both examination staff 
resources and expertise. Generally, these mergers have resulted in 
larger, more cost-efficient, and better-capitalized institutions with a 
broad, diversified asset base, both by geography and commodity. Thus 
far in fiscal year 2011, two mergers of associations have become 
effective. In addition, two banks have submitted a plan of merger for 
FCA Board consideration. As of January 1, 2011, FCS had 84 direct-
lender associations, five banks, five service corporations, and two 
special-purpose entities.

                  CONDITION OF THE FARM CREDIT SYSTEM

    FCS remained fundamentally safe and sound in 2010 and is well 
positioned to withstand the continuing challenges affecting the general 
economy and agriculture. Total capital increased to $33.3 billion at 
December 31, 2010, up from $30.0 billion a year earlier. In addition, 
more than 81 percent of total capital is in the form of earned surplus, 
the most stable form of capital. The ratio of total capital to total 
assets increased to 14.5 percent at year-end 2010, compared with 13.9 
percent the year before, as strong earnings allowed FCS to continue to 
grow its capital base.
    Loan growth picked up in 2010, especially in the second half of the 
year when commodity prices increased sharply. In total, loans grew by 
6.4 percent in 2010 compared with 2.1 percent in 2009. Nonperforming 
loans decreased modestly to $3.4 billion as of December 31, 2010, and 
represented 10.2 percent of total capital at the end of 2010, down from 
11.8 percent at the end of 2009. However, although credit quality is 
satisfactory overall, the volatility in commodity prices and weaknesses 
in the general economy have increased risks to some agricultural 
operators, creating the potential for future declines in asset quality.
    FCS reported significantly higher earnings in 2010, with a combined 
net income of $3.5 billion, up 22.6 percent from 2009. Return on assets 
remained favorable at 1.60 percent. FCS's liquidity position equaled 
173 days at December 31, 2010, which was essentially unchanged from the 
178 days a year earlier and well in excess of the 90-day regulatory 
minimum. The quality of FCS's liquidity reserves also improved in 2010. 
Further strengthening FCS's financial condition is the Farm Credit 
Insurance Fund, which holds more than $3.2 billion. Administered by the 
Farm Credit System Insurance Corporation, this fund protects investors 
in FCS-wide consolidated debt obligations.
    Farm income is expected to be very strong in 2011. The U.S. 
Department of Agriculture forecasts $98.6 billion in farm net cash 
income--the highest since 1974, after adjusting for inflation. The high 
prices that grain, soybean, and cotton farmers will receive for their 
products will largely account for this increase. High feed costs, 
however, will present challenges for livestock producers. Already tight 
supplies of corn and soybeans in the United States could lead to 
significantly higher feed costs in 2011 and 2012 if growing conditions 
are unfavorable. High grain prices combined with extremely low interest 
rates are also propelling farmland values to record highs in parts of 
the Midwest. Although the current economy supports today's average land 
prices, some factors, such as higher interest rates, geopolitical 
developments that could undermine global demand for farm products, and 
an unexpected decline in grain prices because of a global supply 
response, could lead to a drop in the value of farm real estate. To 
address the issue of rising farmland values, FCA organized a meeting 
with the other Federal financial regulators to discuss concerns and 
observations regarding agricultural land values and associated risk to 
loan collateral. Our intent also was to foster a broad-based 
interchange on the appropriate regulator response to these risks and to 
develop a productive working relationship among banking regulators. We 
are considering additional meetings to continue our focus on topics 
important to agriculture.
    FCS's access to capital markets returned to normal during 2010, 
which helped FCS further augment its solid overall financial strength, 
serve its mission, and maintain the Insurance Fund. FCS, as a 
Government-sponsored enterprise (GSE) with solid financial performance, 
benefited from monetary policy actions that helped to foster 
historically low domestic interest rate levels. Tepid investor demand 
for longer-term FCS-wide debt securities in 2009 improved appreciably 
in 2010, particularly for those with maturities of more than 5 years. 
Also, FCS continued to enhance its domestic marketing and internal 
liquidity reserve requirements. For 2011, FCS expects that the capital 
markets will continue to meet all of its financing needs.

               FEDERAL AGRICULTURAL MORTGAGE CORPORATION

    The Congress established Farmer Mac in 1988 to establish a 
secondary market for agricultural real estate and rural housing 
mortgage loans. Farmer Mac creates and guarantees securities and other 
secondary market products that are backed by agricultural real estate 
mortgages and rural home loans, USDA guaranteed farm and rural 
development loans, and rural utility loans made by cooperative lenders. 
Through a separate office required by statute (Office of Secondary 
Market Oversight), FCA regulates, examines, and supervises Farmer Mac's 
operations.
    Farmer Mac is a GSE devoted to making funds available to 
agriculture and rural America through its secondary market activities. 
Under specific circumstances defined by statute, Farmer Mac may issue 
obligations to the Department of the Treasury, not to exceed $1.5 
billion, to fulfill the guarantee obligations on Farmer Mac Guaranteed 
Securities. Farmer Mac is not subject to any intra-FCS agreements and 
is not jointly and severally liable for FCS-wide debt obligations. 
Moreover, the Farm Credit Insurance Fund does not back Farmer Mac's 
securities.
    Farmer Mac made continued financial progress during 2010. Although 
net income was down significantly from 2009, this decline was largely 
the result of unrealized gains and losses; however, core earnings, a 
measure based more on cash flow, was up by 56 percent. As of December 
31, 2010, Farmer Mac's core capital totaled $460.6 million, which 
exceeded its statutory requirement of $301.0 million. The result is a 
capital surplus of $159.6 million, up from $120.2 million as of 
December 31, 2009. The total portfolio of loans, guarantees, and 
commitments grew 14 percent to $12.2 billion.
    In January 2010, Farmer Mac raised $250 million in capital from a 
private offering of shares of noncumulative perpetual preferred stock 
of Farmer Mac II LLC, an operating subsidiary in which Farmer Mac owns 
all of the common equity. Farmer Mac used the proceeds to repurchase 
and retire $150 million of Farmer Mac's outstanding series B preferred 
stock, with additional proceeds available for other corporate purposes. 
The new preferred stock has a lower net effective cost than the retired 
capital and has improved Farmer Mac's ability to generate new capital 
through earnings.
    Farmer Mac's program-business portfolio shows stress in certain 
subsectors but remains manageable. Stress in the ethanol industry, as 
well as certain crop and permanent planting segments, contributed to an 
increase in the nonperforming loan rate. The nonperforming loan rate 
was 1.90 percent at December 31, 2010, compared with 1.41 percent at 
December 31, 2009. Loans more than 90 days delinquent increased from 
1.13 percent at December 31, 2009, to 1.63 percent at December 31, 
2010.
    Regulatory activity in 2011 that will affect Farmer Mac includes an 
interagency joint Notice of Proposed Rulemaking to implement provisions 
of the Dodd-Frank Act relating to capital and margin requirements for 
over-the-counter derivatives that are not cleared through exchanges; a 
Notice of Proposed Rulemaking on nonprogram investments and liquidity 
at Farmer Mac that would, among other things, reduce reliance on credit 
ratings as required by section 939A of the Dodd-Frank Act; and an 
Advance Notice of Proposed Rulemaking that will request public input on 
how to reduce reliance on credit ratings in the methodology underlying 
the Risk-Based Capital Stress Test. In addition, FCA plans to finalize 
a rule to update the stress test to address Farmer Mac's new rural 
utility financing authority and make other technical changes.

                               CONCLUSION

    We at FCA remain vigilant in our efforts to ensure that FCS and 
Farmer Mac remain financially sound and focused on serving agriculture 
and rural America. It is our intent to stay within the constraints of 
our fiscal year 2012 budget as presented, and we continue our efforts 
to be good stewards of the resources entrusted to us. While we are 
proud of our record and accomplishments, I assure you that FCA will 
continue its commitment to excellence, effectiveness, and cost 
efficiency and will remain focused on our mission of ensuring a safe, 
sound, and dependable source of credit for agriculture and rural 
America. This concludes my statement. On behalf of my colleagues on the 
FCA Board and at FCA, I thank you for the opportunity to share this 
information.
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