[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


 
                HEARING TO REVIEW REAUTHORIZATION OF 
                    THE U.S. GRAIN STANDARDS ACT

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                        GENERAL FARM COMMODITIES
                          AND RISK MANAGEMENT

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 22, 2015

                               __________

                           Serial No. 114-11
                           
                           
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                        COMMITTEE ON AGRICULTURE

                  K. MICHAEL CONAWAY, Texas, Chairman

RANDY NEUGEBAUER, Texas,             COLLIN C. PETERSON, Minnesota, 
    Vice Chairman                    Ranking Minority Member
BOB GOODLATTE, Virginia              DAVID SCOTT, Georgia
FRANK D. LUCAS, Oklahoma             JIM COSTA, California
STEVE KING, Iowa                     TIMOTHY J. WALZ, Minnesota
MIKE ROGERS, Alabama                 MARCIA L. FUDGE, Ohio
GLENN THOMPSON, Pennsylvania         JAMES P. McGOVERN, Massachusetts
BOB GIBBS, Ohio                      SUZAN K. DelBENE, Washington
AUSTIN SCOTT, Georgia                FILEMON VELA, Texas
ERIC A. ``RICK'' CRAWFORD, Arkansas  MICHELLE LUJAN GRISHAM, New Mexico
SCOTT DesJARLAIS, Tennessee          ANN M. KUSTER, New Hampshire
CHRISTOPHER P. GIBSON, New York      RICHARD M. NOLAN, Minnesota
VICKY HARTZLER, Missouri             CHERI BUSTOS, Illinois
DAN BENISHEK, Michigan               SEAN PATRICK MALONEY, New York
JEFF DENHAM, California              ANN KIRKPATRICK, Arizona
DOUG LaMALFA, California             PETE AGUILAR, California
RODNEY DAVIS, Illinois               STACEY E. PLASKETT, Virgin Islands
TED S. YOHO, Florida                 ALMA S. ADAMS, North Carolina
JACKIE WALORSKI, Indiana             GWEN GRAHAM, Florida
RICK W. ALLEN, Georgia               BRAD ASHFORD, Nebraska
MIKE BOST, Illinois
DAVID ROUZER, North Carolina
RALPH LEE ABRAHAM, Louisiana
TOM EMMER, Minnesota
JOHN R. MOOLENAAR, Michigan
DAN NEWHOUSE, Washington

                                 ______

                    Scott C. Graves, Staff Director

                Robert L. Larew, Minority Staff Director

                                 ______

      Subcommittee on General Farm Commodities and Risk Management

             ERIC A. ``RICK'' CRAWFORD, Arkansas, Chairman

FRANK D. LUCAS, Oklahoma             TIMOTHY J. WALZ, Minnesota, 
RANDY NEUGEBAUER, Texas              Ranking Minority Member
MIKE ROGERS, Alabama                 CHERI BUSTOS, Illinois
BOB GIBBS, Ohio                      GWEN GRAHAM, Florida
AUSTIN SCOTT, Georgia                BRAD ASHFORD, Nebraska
JEFF DENHAM, California              DAVID SCOTT, Georgia
DOUG LaMALFA, California             JIM COSTA, California
JACKIE WALORSKI, Indiana             SEAN PATRICK MALONEY, New York
RICK W. ALLEN, Georgia               ANN KIRKPATRICK, Arizona
MIKE BOST, Illinois
RALPH LEE ABRAHAM, Louisiana

                                  (ii)
                             C O N T E N T S

                              ----------                              
                                                                   Page
Conaway, Hon. K. Michael, a Representative in Congress from 
  Texas, opening statement.......................................    51
Crawford, Hon. Eric A. ``Rick'', a Representative in Congress 
  from Arkansas, opening statement...............................     1
    Prepared statement...........................................     2
    H.R. 2088, United States Grain Standards Act Reauthorization 
      Act of 2015................................................    55
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, opening statement...................................     4
Walz, Hon. Timothy J., a Representative in Congress from 
  Minnesota, opening statement...................................     3
    Submitted letter.............................................    71

                               Witnesses

Winkles, Jr., David M., President, South Carolina Farm Bureau 
  Federation, Columbia, SC.......................................     4
    Prepared statement...........................................     6
Cox, Sr., J. David, National President, American Federation of 
  Government Employees, American Federation of Labor and Congress 
  of Industrial Organizations, (AFGE, AFL-CIO), Washington, D.C..     8
    Prepared statement...........................................     9
Friant, Nick, Chairman, Grain Grades and Weights Committee, 
  National Grain and Feed Association; Co-Chair, Grain Grades and 
  Inspections Committee, North American Export Grain Association, 
  Wayzata, MN....................................................    10
    Prepared statement...........................................    12
    Supplementary material.......................................    72

                           Submitted Material

Ayers, David, President, American Association of Grain Inspection 
  and Weighing Agencies, submitted statement.....................    73
Blankenship, Brett, President, National Association of Wheat 
  Growers, submitted letter......................................    75


   HEARING TO REVIEW REAUTHORIZATION OF THE U.S. GRAIN STANDARDS ACT

                              ----------                              


                       WEDNESDAY, APRIL 22, 2015

                  House of Representatives,
         Subcommittee on General Farm Commodities and Risk 
                                                Management,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 1300 of the Longworth House Office Building, Hon. Eric A. 
``Rick'' Crawford [Chairman of the Subcommittee] presiding.
    Members present: Representatives Crawford, Austin Scott of 
Georgia, Allen, Conaway (ex officio), Walz, Ashford, David 
Scott of Georgia, and Peterson (ex officio).
    Staff present: Haley Graves, Jessica Carter, John Goldberg, 
Mollie Wilken, Ted Monoson, John Konya, Anne Simmons, Liz 
Friedlander, Matthew MacKenzie, and Nicole Scott.

    OPENING STATEMENT OF HON. ERIC A. ``RICK'' CRAWFORD, A 
            REPRESENTATIVE IN CONGRESS FROM ARKANSAS

    The Chairman. This hearing of the Subcommittee on General 
Farm Commodities and Risk Management, to review the 
reauthorization of the U.S. Grain Standards Act, will come to 
order.
    This hearing comes nearly a century after the Grain 
Standards Act of 1916 was signed into law by then-President 
Woodrow Wilson. For nearly 100 years, this law has been the 
cornerstone of the vibrant grain trade, both domestically and 
internationally. This law is relied upon not only by exporters 
and domestic shippers, but by the whole U.S. ag sector. It 
establishes official marketing standards and procedures for the 
inspection and weighing of grains and oilseeds, providing a 
critical service to the grain marketplace.
    The witnesses who join us today represent industries that 
have thrived over the last century, and transformed the grain 
trade into the economic juggernaut it represents today. The GSA 
has supported the evolution of this industry by providing a 
backbone of stability relied upon by exporters, shippers, 
farmers and even consumers. With the farm economy and so many 
of our constituents relying on the ability of grain and 
oilseeds to get to market, reauthorization of GSA should have 
this one goal in mind: stability. And I mean this in a couple 
of ways.
    Many of the provisions in current law are set to expire on 
September 30th of this year. A lapse in authorization would 
disrupt the current grain and inspections process, therefore, 
Congress should not delay in passing its reauthorization. To do 
this, we need to get our work done well in advance and achieve 
bipartisan consensus. That is why we are hosting this hearing 
more than 5 months ahead of the deadline.
    Second, the GSA needs to provide stability by ensuring we 
can avoid disruptions like that which took place last year in 
Washington State. Last summer, the Washington State Department 
of Agriculture was providing export inspections under a 
delegation of Federal authority at an export terminal at the 
Port of Vancouver. The Department discontinued its export 
inspection amid an ongoing labor dispute.
    Since labor disputes do occur from time to time, this kind 
of situation was anticipated by our predecessors, which is why 
the current GSA provides a mechanism for USDA to step in and 
provide inspection services in the event of a disruption. 
However, the dispute devolved into a political situation in 
which the Secretary of Agriculture declined to use his 
discretionary authority to maintain inspections. While 
inspection services were eventually restored, it is incumbent 
on the Committee to take appropriate action to provide 
safeguards against a repeat of that unfortunate decision.
    We have reviewed proposals from grain industry 
organizations and have engaged in considerable discussion with 
other stakeholder organizations represented on today's panel. 
Likewise, Majority and Minority offices have worked very 
closely in an effort to develop bipartisan consensus in advance 
of the markup in the near future.
    It is my understanding that discussions regarding 
legislative drafts are nearly concluded, and we expect to 
circulate those drafts for public review shortly. I hope the 
discussion today will confirm areas of consensus as well as 
provide necessary insight regarding areas where additional work 
may be necessary. With that, I thank the witnesses for being 
here today to aid in this process.
    [The prepared statement of Mr. Crawford follows:]

Prepared Statement of Hon. Eric A. ``Rick'' Crawford, a Representative 
                       in Congress from Arkansas
    This hearing on reauthorizing the United States Grain Standards 
Act, will come to order.
    This hearing comes nearly a century after the Grain Standards Act 
of 1916 was signed into law by then-President Woodrow Wilson. For 
nearly 100 years, this law has been the cornerstone of the vibrant 
grain trade both domestically and internationally. This law is relied 
upon not only by exporters and domestic shippers, but by the whole U.S. 
agricultural sector. It establishes official marketing standards and 
procedures for the inspection and weighing of grains and oilseeds, 
providing a critical service to the grain marketplace.
    The witnesses who join us today represent industries that have 
thrived over the last century, and transformed the grain trade into the 
economic juggernaut it represents today. The GSA has supported the 
evolution of this industry by providing a backbone of stability relied 
upon by exporters, shippers, farmers and even consumers. With the farm 
economy and so many of our constituents relying on the ability of grain 
and oilseeds to get to market, reauthorization of the GSA should have 
this one goal in mind: stability. And I mean this in a couple of ways.
    Many of the provisions in current law are set to expire on 
September 30th of this year. A lapse in authorization would disrupt the 
current grain and inspections process, therefore Congress should not 
delay in passing its reauthorization. To do this, we need to get our 
work done well in advance and achieve bipartisan consensus. That is why 
we're hosting this hearing more than 5 months ahead of the deadline.
    Second, the GSA needs to provide stability by ensuring we can avoid 
disruptions like that which took place last year in Washington State. 
Last summer, the Washington State Department of Agriculture was 
providing export inspections under a delegation of Federal authority at 
an export terminal at the Port of Vancouver. The Department 
discontinued its export inspection amid an ongoing labor dispute.
    Since labor disputes happen from time to time, this kind of 
situation was anticipated by our predecessors, which is why the current 
GSA provides a mechanism for the U.S. Department of Agriculture to step 
in and provide inspection services, in the event of a disruption. 
However, the dispute devolved into a political situation in which the 
Secretary of Agriculture declined to use his discretionary authority to 
maintain inspections. While inspection services were eventually 
restored, it is incumbent on the Committee to take appropriate action 
to provide safeguards against a repeat of that unfortunate decision.
    We have reviewed proposals from grain industry organizations and 
have engaged in considerable discussion with other stakeholder 
organizations represented on today's panel. Likewise, Majority and 
Minority offices have worked very closely in an effort to develop 
bipartisan consensus in advance of a markup in the near future.
    It is my understanding that discussions regarding legislative 
drafts are nearly concluded, and we expect to circulate those drafts 
for public review shortly.
    I hope the discussion today will confirm areas of consensus as well 
as provide necessary insight regarding areas where additional work may 
be necessary.
    With that, I thank the witnesses for being here today to aid us in 
this process, and I yield to the Ranking Member, Mr. Walz, for his 
opening comments.

    The Chairman. I recognize the Ranking Member, Mr. Walz, for 
his opening comments.

OPENING STATEMENT OF HON. TIMOTHY J. WALZ, A REPRESENTATIVE IN 
                    CONGRESS FROM MINNESOTA

    Mr. Walz. Well, good morning, and I want to thank the 
Chairman for holding today's hearing, and I associate myself 
with his comments on the need to get this done on time. That 
should be the standard, and that is what should be expected to 
give that certainty to our shippers, and to our global market 
partners. And I certainly look forward to working with everyone 
on the Subcommittee to get this done.
    I want to thank our witnesses for being here. We have a 
wide variety of expertise amongst us, from Farm Bureau to NGFA 
to our friends in labor at AFGE, the folks who do the work out 
there.
    I fully expect this cross-section of views will promote a 
vigorous debate, and that is what we are here to do. I think 
the reason, and everyone knows, the one overriding theme that 
we are here for is we must maintain the integrity of the 
system. It must be the gold standard as it has always been. It 
must be done that way, and we all absolutely agree upon that. 
There may be some divergence of opinion on how we get there. 
That is our job to get done. So I look forward to hearing those 
opinions, working with Chairman Crawford, a Chairman who I know 
is committed, as he always has been, to get this done on time, 
to get it done in a manner that satisfies all parties involved, 
and that we can move forward doing what we do best: feed the 
world. And that is what you do, and that is what we want to see 
happen.
    And so I thank you, Chairman, for holding this hearing, and 
again, I look forward to working with you to get this done on 
time.
    The Chairman. I thank the gentleman, and would recognize 
the Chairman of the full Committee, who is not here just yet, 
he will be here later on, we will recognize him when he 
arrives. And I would also like to recognize the Ranking Member 
of the full Committee for any opening statement he would like 
to make. Mr. Peterson.

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE 
                   IN CONGRESS FROM MINNESOTA

    Mr. Peterson. Thank you, Mr. Chairman, and Mr. Walz, for 
holding today's hearing, and for working in a bipartisan way. 
It looks like we are going to get this bill worked out in a way 
that everybody can live with.
    The inspections provided by the Federal Grain Inspection 
Service define and classify grains as well as assign grades to 
specify weight and quality requirements, and these inspections 
provide a gold standard assurance backed by the Federal 
Government to both grain buyers and sellers. American grain 
farmers participate in a very competitive world, and foreign 
grain buyers should be confident in the process that we have in 
place to ensure our exports are adequately inspected.
    So as we move ahead with reauthorization, I hope that we 
can take stock in how well the current system of export 
inspections by the Federal and state agencies is working, and 
continue to work in a bipartisan basis and get this 
reauthorization moved through the both Houses and to the 
President's desk.
    And I yield back.
    The Chairman. I thank the gentleman.
    I would like to recognize our witnesses. We have one panel 
and three witnesses. Starting with Mr. David Winkles, who is 
the President of South Carolina Farm Bureau Federation, 
Columbia, South Carolina; Mr. J. David Cox, Sr., National 
President, American Federation of Government Employees, here in 
Washington, D.C.; and Mr. Nick Friant, Chairman, NGFA Grain 
Grades and Weights Committee.
    Thank you, gentlemen, for being here. And with that, I want 
to remind you that you have 5 minutes to make your oral 
testimony. Anything further will be submitted for the record in 
your written testimony. I would encourage you to watch the 
lights. Green means go, yellow is just like when you are 
driving; hurry it up, and when you see red, that means stop.
    And with that, I am pleased to recognize Mr. David Winkles 
for 5 minutes.

 STATEMENT OF DAVID M. WINKLES, Jr., PRESIDENT, SOUTH CAROLINA 
              FARM BUREAU FEDERATION, COLUMBIA, SC

    Mr. Winkles. Thank you, Mr. Chairman. For the record, Mr. 
Chairman, I received word from the American Soybean 
Association, the National Corn Growers Association, and the 
National Council of Farmer Cooperatives, informing me that they 
had received my written testimony, and have asked that I inform 
the Subcommittee that they support the points made in my 
testimony.
    As a grain farmer, I understand the role and the work of 
the Federal Grain Inspection Service in the grain sector, but I 
believe I can add a unique perspective this morning, since I 
have had direct interactive experience with the FGIS through my 
responsibilities as President of the South Carolina Farm 
Bureau.
    For several years, our organization operated a grain export 
elevator in Charleston, South Carolina. We were also in 
partnership with Carolina Soya in Hampton, South Carolina, a 
grain-handling and soybean processing operation, that provided 
a huge positive financial impact on the farmers in the 
Southeast. In the past, the South Carolina Farm Bureau 
Marketing Association operated a large number of local grain 
elevators, and we still own and operate one. In each of these 
facilities, FGIS was and is a major asset in our ability to 
market grains domestically and internationally. The grades 
established by the agency served to set the standard for every 
contract, and when coupled with the official inspection 
services, particularly with regards to export, FGIS provided 
the necessary and credible third party verification of grain 
standards that provide efficiencies in the marketing and 
movement of grain. Without these standards and verification of 
grades, every transaction would have been significantly more 
difficult and much more expensive.
    As I am sure you know, in order to encourage the marketing 
of high quality grain for an agricultural sector, it is highly 
dependent upon export demand. The Act requires that exported 
grains and oilseeds be officially inspected if sold by grade 
and weight. Export inspections are carried out either by 
Federal inspectors or federally supervised state agencies 
called delegated official inspection agencies. We believe that 
any change in these fundamental requirements needs to be 
thoroughly and carefully considered in the context of how our 
international customers and their respective governments would 
view such changes. This is important today when some countries 
have shown very little reluctance to use some very interesting 
excuses to stop or inhibit exports of U.S. agricultural 
commodities and products.
    We applaud your actions to move this legislation earlier 
this year because, as you know and as you have said, several 
provisions of the Act will expire in September, including the 
authority for FGIS to collect user fees that fund their 
operations, and the authority for the USDA Grain Advisory 
Committee. It is critically important to the grain sector that 
we maintain the ability for FGIS to continue to perform its 
duties and functions and not be allowed to lapse. We urge the 
Committee to reauthorize the Act in a timely manner.
    Also, Farm Bureau believes that it is important to ensure 
that the extremely troubling precedent set in the State of 
Washington last summer, and similar situations that have 
occurred at other West Coast ports, are not repeated. We 
believe that the Washington State Department of Agriculture's 
actions created a precedent that was amplified by the FGIS 
decision to not intervene. The incident created uncertainty in 
our reputation as a reliable supplier of grains and oilseeds to 
foreign customers. We believe it is imperative for you to 
consider adoption of a contingency plan that would ensure an 
immediate and effective program to continue official services 
at a port. The lack or disruption of an accepted grain 
standards and accepted accredited inspection procedure will 
cause chaotic marketing conditions, and will financially 
negatively impact farmers, local business, and consumers.
    Disruption of official grading and inspection services can 
have an impact on the timing of purchases and the delivery of 
sales, and jeopardize marketing agreements and arrangements 
that have often taken years to put in place. We must have 
contingency procedures ready so that disruptions of any kind 
will not negatively impact the viability of hard-won contracts.
    Again, thank you for the opportunity to testify today. Farm 
Bureau supports reauthorization of the Act, in addition to the 
Federal organizations I mentioned earlier, with the addition of 
a contingency plan. We also support the continuation of the 
Grain Inspection Advisory Committee. For all of our grain 
farmers and our industry sector partners, we appreciate the 
important work you do as Representatives of our country. Thank 
you.
    [The prepared statement of Mr. Winkles follows:]

Prepared Statement of David M. Winkles, Jr., President, South Carolina 
                  Farm Bureau Federation, Columbia, SC
    Mr. Chairman, Members of the Subcommittee, good morning and thank 
you for the opportunity to be here today to discuss the reauthorization 
of the United States Grain Standards Act (the Act). I am David Winkles, 
President of the South Carolina Farm Bureau (SCFB) and a member of the 
board of directors of the American Farm Bureau Federation. I also crop 
share a 1,000 acre farm that produces corn, wheat, soybeans and timber.
    As a grain farmer, I certainly understand the role and work of the 
Federal Grain Inspection Service (FGIS) in the grain sector. But I 
believe I can add a unique perspective this morning as I have direct 
interactive experience with the FGIS through my responsibilities as 
President of South Carolina Farm Bureau. For several years, our 
organization operated a grain export elevator in Charleston, South 
Carolina. We were also in partnership with Carolina Soya of Hampton, 
South Carolina, a major grain handling and soybean processing operation 
that provided a huge positive financial impact on farmers in the 
Southeast. In addition, the South Carolina Farm Bureau operated a large 
number of local grain elevators in the past and we still own and 
operate one under the management of the South Carolina Farm Bureau 
Marketing Association.
    In each of these grain handling facilities, FGIS was and is a major 
asset in our ability to market grain domestically and internationally. 
The grain grades established by the agency serve to set the standards 
for every contract. And when coupled with the official inspection 
services, particularly with regard to exports, FGIS provide the 
necessary and credible, third party verification of grain standards 
that provide efficiencies in the marketing and movement of grain. 
Stated another way, without these standards and verification of grades, 
every transaction would be significantly more difficult and much more 
expensive.
    One in 3 U.S. farm acres is planted for export and 31 percent of 
farm income comes directly from exports. Farmers and ranchers know that 
exports are critical to their industry and livelihoods. This is why the 
reauthorization of the Act in a timely manner is so important. We have 
built these markets based on product availability and quality.
    Since the passage of the Grain Standards Act in 1916, the U.S. has 
been the pioneer in providing quality assurance to overseas buyers. In 
fact, other countries have duplicated our services as standard 
guidelines for their exports. Overseas buyers continue to seek products 
from the U.S. because they know the official system, with its precise 
testing procedures, equipment criteria and conduct standards, ensures 
accurate, consistent results. The integrity of this system, which U.S. 
sellers and overseas buyers rely on, should never be compromised.
    The Federal law, enacted nearly a century ago, prohibits the export 
of U.S. grains and oilseeds unless inspected and weighed by official 
personnel in accordance with U.S. grain standards. The law has been 
amended occasionally over the ensuing decades, but the basic tenets 
still apply. Exports are required to be accompanied by official 
certificates showing the grade designation and certified weight, unless 
the requirement is waived by the Secretary of Agriculture and the grain 
is not sold or exported by grade. Under the Act, Congress vested in 
USDA the responsibility and obligation to provide official inspection 
services to facilitate efficient and cost-effective marketing of U.S. 
grains and oilseeds.
    The Act authorizes the FGIS to establish official marketing 
standards for certain grains and oilseeds. In turn, the standards 
facilitate the marketing of grain by serving as contract language, 
enabling buyers and sellers to more easily determine quality and 
therefore value of these commodities. FGIS promotes the uniform 
application of U.S. grain standards through official inspection 
personnel. In order to encourage the marketing of high-quality grain 
for an agricultural sector that is highly dependent upon export demand, 
the Act requires that exported grains and oilseeds be officially 
inspected if sold by grade, and weighed. Export inspections are carried 
out by either Federal inspectors or federally supervised state 
inspection agencies, called delegated official inspection agencies.
    We believe that any changes to this fundamental requirement need to 
be thoughtfully and carefully considered in the context of how our 
international customers and their respective governments would view 
such changes. This is especially important in an era in which some 
countries have shown little reluctance to use some interesting excuses 
to stop or inhibit imports of U.S. agricultural commodities and 
products.
    On the domestic front, marketed grain and oilseeds may be, but are 
not required to be, officially inspected. Official inspections of 
domestically traded grain are done by federally supervised state 
agencies and private companies, called designated official inspection 
agencies. Services under the Act are performed on a user fee basis for 
both export and domestic grain shipments.
    Our current grain inspection system has earned worldwide 
recognition as being reliable and impartial. World markets look for, if 
not require, the FGIS imprimatur on the official export certificate to 
ensure buyers' confidence that they can expect to receive the quality 
and quantity of grain for which they paid. The integrity of the system 
is vital. As I noted earlier, maintaining the confidence of our 
international buyers is important to U.S. farmers and other segments of 
the grain trade.
    We applaud your actions to move this legislation early this year 
because, as you know, several provisions of the Act will expire in 
September, including the authority for FGIS to collect user fees that 
fund their operations and the authority for a USDA Grain Advisory 
Committee. It is crucial to the grain sector that the ability for FGIS 
to continue to perform its duties and functions is not allowed to 
lapse. We urge the Committee to reauthorize the Act in a timely manner.
    In addition to the basic reauthorization of the Act and other 
adjustments that you may consider, Farm Bureau believes it is important 
to ensure that the troubling precedent set in the State of Washington 
last summer and similar situations that have occurred at other West 
Coast ports are not repeated.
    The Washington State Department of Agriculture (WSDA) is the state 
agency designated by the Grain Inspection, Packers and Stockyards 
Administration to provide export inspections at the United Grain 
Corporation terminal at the Port of Vancouver, Washington. Last summer, 
WSDA notified USDA that it no longer would fulfill its obligation to 
provide official grain inspection and weighing services at the port. 
The WSDA notice stated that it was suspending official inspection 
services indefinitely because the ``continued provision of inspection 
services appears to have been unhelpful in leading to any foreseeable 
resolution'' of the labor dispute between United Grain and the 
International Longshore and Warehouse Union. The inspection agency said 
it was concerned with employee safety at the entrance of the site where 
demonstrations were being held. The United Grain terminal is a major 
grain export facility on the West Coast.
    Farm Bureau and 21 other agricultural groups urged USDA to take 
immediate action to restore the inspection services by using either 
Federal inspectors or qualified inspectors from other delegated 
agencies. The USDA Grain Advisory Committee also called on USDA to 
restore grain inspection service.
    The Act currently provides USDA discretion to grant a waiver of 
inspection in an emergency and authority to determine what constitutes 
an emergency. In July 2014, United Grain reportedly shipped grain in 
one case by obtaining a waiver from the inspection requirement. The 
company also relocated grain to other facilities for inspection, which 
increased shipping costs. In early August, USDA reportedly declined 
using Federal inspectors at the United Grain Corporation terminal at 
the Port of Vancouver because ``the situation does not ensure that FGIS 
inspectors will have safe access to the facility.'' While the grain 
companies and union reached an agreement to end the dispute later in 
the month and inspections resumed at the United Grain terminal, the 
inability of grain shippers to obtain the necessary inspection 
certificates had a significant impact on all segments of the grain 
trade chain.
    We believe that the WSDA actions created a troubling precedent that 
was amplified by the FGIS decision to not intervene. We cannot afford 
for this to be repeated as it could irreparably damage the integrity 
and reliability of the nation's official grain inspection system. Just 
as critical, the incident created uncertainty within the U.S. grain 
export industry regarding potential future disruptions of official 
services at facilities operating at other U.S. export ports and has put 
at risk the United States' reputation as a reliable supplier of grains 
and oilseeds to foreign customers.
    Because of this incident and related export shutdown and slowdown 
situations, and the potential for future such incidents, we believe it 
is imperative for you to consider adoption of a contingency plan that 
would ensure an immediate and effective program to continue official 
services at the port when service interruptions occur.
    The lack or disruption of an accepted grain standards and 
accredited inspection procedure will cause chaotic marketing conditions 
and the resulting inefficiencies in grain marketing will negatively 
impact farmers, local business, and consumers. We need to have a 
reliable third party inspection and grading program for emergency 
situations to assure both seller and buyer that the terms of sales and 
credibility of every contract can be relied upon to be fulfilled in a 
timely manner.
    Viewed from another perspective, the disruption of official grading 
and inspection services can have significant impacts on the timing of 
purchases and delivery of sales, and jeopardize marketing agreements 
and arrangements that often take years to get in place. We must have 
contingency procedures at the ready to ensure that required 
certification of grades and inspection services do not negatively 
impact the viability of hard-won contracts.
    Again, thank you for the opportunity to testify today. Farm Bureau 
supports reauthorization of the Act with the addition of a contingency 
plan. We also support the continuation of the Grain Inspection Advisory 
Committee. For all of our grain farmers and our industry sector 
partners, we appreciate the important work you do as representatives of 
our industry in Congress.

    The Chairman. Mr. Winkles, that was very impressive, 
particularly given the fact that our yellow light did not work, 
and you wrapped it up with 2 seconds to spare. I appreciate 
that. That makes it tough on the other two witnesses.
    Mr. David Cox, Sr., National President, American Federation 
of Government Employees, right here in Washington. Mr. Cox, you 
are recognized for 5 minutes.

 STATEMENT OF J. DAVID COX, Sr., NATIONAL PRESIDENT, AMERICAN 
  FEDERATION OF GOVERNMENT EMPLOYEES, AMERICAN FEDERATION OF 
                     LABOR AND CONGRESS OF
           INDUSTRIAL ORGANIZATIONS, (AFGE, AFL-CIO),
                        WASHINGTON, D.C.

    Mr. Cox. Thank you, Mr. Chairman. And on behalf of AFGE, I 
am proud to represent the dedicated Federal employees and the 
Federal Grain Inspection Service in Louisiana, Texas, 
Washington, and Oregon, as well as other locations throughout 
the country. And I appreciate the sincere efforts of this 
Subcommittee to take into account our views as lawmakers draft 
the reauthorization measure.
    FGIS, with its successful record of over 4 decades of 
inspecting and weighing nearly 90 percent of the grain shipped 
to customers around the world, guarantees impartial and open 
trading which greatly facilitates U.S. grain exports. We 
understand that a small minority of voices demand that the 
reauthorization bill be used to privatize the weighing and 
inspection of grain. Of course, many of these same voices 
called for the privatization of grain inspection and weighing 
back in 2005, the last time the law was reauthorized. That ill-
advised effort ultimately failed thanks to a broad coalition of 
farmers, consumers, and workers. There is no question that this 
important function must continue to be performed by reliable 
and experienced FGIS employees, and I strongly urge the 
Subcommittee to oppose efforts to use the reauthorization of 
the U.S. Grain Standards Act, or any other measure for that 
matter, to promote the privatization of this work. 
Privatization of FGIS would undermine America's guarantee of 
impartial and honest government-backed trading, which is relied 
upon by world buyers. The substitution of rubber-stamped 
inspections actually completed by industry paid inspectors 
would undermine international confidence in the integrity of 
U.S. agricultural exports.
    We strongly urge you to ensure that the grain which America 
exports continues to meet the highest of standards expected by 
our trading customers, so that U.S. farmers who raise the best 
products in the world receive the prices they truly deserve. 
Thanks to the bipartisan Congressional effort that established 
FGIS, we have come a long way since the 1970s when a wholly 
privatized inspection process yielded a series of scandals that 
undermined confidence in the quantity and quality of U.S. grain 
exports; scandals which many believe contributed to a crash in 
grain prices in the middle of the decade, farm foreclosures, 
and the loss of significant numbers of family farms. AFGE and I 
believe America's farmers look to this Subcommittee to continue 
the record of bipartisan support for grain inspection and 
weighing performed by reliable and experienced Federal 
employees.
    Thank you very much for your consideration of my testimony, 
I look forward to taking questions, and I yield back my time, 
Mr. Chairman.
    [The prepared statement of Mr. Cox follows:]

 Prepared Statement of J. David Cox, Sr., National President, American
 Federation of Government Employees, American Federation of Labor and 
Congress of Industrial Organizations, (AFGE, AFL-CIO), Washington, D.C.
    Chairman Crawford, Ranking Member Walz, and Members of the 
Subcommittee: I am J. David Cox, Sr., and I am the National President 
of the American Federation of Government Employees (AFGE), AFL-CIO, 
which represents more than 650,000 Federal and District of Columbia 
workers who serve the American people across the nation and around the 
world, including in the Department of Agriculture. I thank you for the 
opportunity to testify this morning on the reauthorization of the U.S. 
Grain Standards Act.
    I do not claim to be an expert on this important law, but I am 
proud to represent the dedicated Federal employees in the Federal Grain 
Inspection Service (FGIS), in Louisiana, Texas, Washington, and Oregon, 
as well as in other locations. And I appreciate the sincere efforts of 
this Subcommittee to take into account their views as lawmakers draft 
the reauthorization measure.
    FGIS, with its successful record over 4 decades of inspecting and 
weighing nearly 90% of the grain shipped to customers around the world, 
guarantees impartial and open trading, which greatly facilitates U.S. 
grain exports. Continued viability and profitability for American 
agricultural producers, over the long-term, is essential to the 
economic health of our nation. However, the pursuit of profits must be 
carefully balanced with the protection of America's standing as an 
honest and trusted trading partner.
    The grain inspectors represented by AFGE are focused on their 
important work, rather than the details of the U.S. legislative 
process. However, it is understood that a small minority of voices 
demand that the reauthorization bill be used to privatize the weighing 
and inspection of grain. Of course, many of these same voices called 
for the privatization of grain inspection and weighing back in 2005, 
the last time the U.S. Grain Standards Act was reauthorized. That ill-
advised effort ultimately failed, thanks to a broad coalition of 
farmers, consumers, and workers.
    I realize that grain inspection is performed in different ways, 
both in this country and abroad. In the United States, Federal 
employees, state employees, and even contractor employees all play 
significant roles. However, today, my remarks are focused on the 
responsibilities of FGIS employees with respect to the mandatory 
official weighing and inspection of exported grain. There is no 
question that this important work must continue to be performed by 
reliable and experienced FGIS employees, and I strongly urge the 
Subcommittee to oppose efforts to use the reauthorization of the U.S. 
Grain Standards Act--or any other measure, for that matter--to promote 
the privatization of this work.
    Privatization of FGIS would undermine America's guarantee of 
impartial and honest, government-backed trading which is relied upon by 
world buyers. The substitution of rubber-stamped inspections actually 
completed by industry-paid inspectors would undermine international 
confidence in the integrity of U.S. agricultural exports.
    Whether one supported or opposed its effort to outsource many of 
the functions performed by Federal employees, it must be stipulated 
that no Administration in the history of the Republic was more 
aggressively pro-privatization than the Bush Administration. And 
consistent with its ideology, the Department of Agriculture during the 
Bush Administration aggressively explored the privatization of grain 
inspection through a pilot project.
    However, the Department ultimately abandoned that effort, 
concluding ``that the use of contractors did not provide additional 
savings or efficiencies that would enhance the competitiveness of U.S. 
grain exports in the global market.'' i
---------------------------------------------------------------------------
    \i\ ``Evaluation of the Use of Contractors to Enhance the Delivery 
of Official Inspection and Weighing Services at Export Port 
Locations'', Federal Grain Inspection Service, March 2009.
---------------------------------------------------------------------------
    And while there were no benefits from privatization, there were 
significant risks.
    Pilot project contractors failed ``to hire and maintain an 
adequately-skilled workforce . . . (because) (c)ertification and 
weighing of grain at export facilities require skills not normally 
found in the labor force. The agency invests a minimum of 2 years of 
training before employees are allowed to grade and weigh grain . . .'' 
ii
---------------------------------------------------------------------------
    \ii\ Ibid.
---------------------------------------------------------------------------
    Moreover, shifting to contractors would remove the agency's 
``service provision safety net . . . (leaving) the agency challenged to 
fulfill its legal mandate to provide services if a contractor could not 
. . . thereby allowing for potential service disruptions.'' 
iii
---------------------------------------------------------------------------
    \iii\ Ibid.
---------------------------------------------------------------------------
    It has been reliably estimated that the cost of inspection and 
weighing by Federal employees is a penny per bushel. Even putting aside 
the finding by the pilot project that nothing would be saved by 
privatization--indeed, that much could be lost--the cost of Federal 
performance is de minimis. In fact, it would be more correct to say 
that the pennies spent on Federal inspectors are an investment which 
yields significant dividends for our nation's farmers because of the 
confidence foreign buyers can therefore have in the integrity of 
American agricultural exports.
    The mandatory inspection of U.S. grain exports benefits the entire 
grain marketing chain, from farm gate to export. It is imperative that 
lawmakers not allow empty ideology, short-sighted financial interests, 
or anti-labor animus to trump the nation's interest in ensuring 
impartial and honest inspection and weighing of its grain exports.
    AFGE strongly urges the Subcommittee to ensure that the grain 
America exports continues to meet the highest of standards expected by 
our trading customers, so that U.S. farmers, who raise the best 
products in the world, receive the prices they deserve.
    Thanks to the bipartisan Congressional effort that established the 
Federal Grain Inspection Service, we have come a long way since the 
1970s when a wholly privatized inspection process yielded a series of 
scandals that undermined confidence in the quality and quantity of U.S. 
grain exports--scandals which many believe contributed to a crash in 
grain prices in the middle of the decade, farm foreclosures, and the 
loss of significant numbers of family farms. AFGE and, I believe, 
America's farmers look to this Subcommittee to continue the record of 
bipartisan support for grain inspection and weighing performed by 
reliable and experienced Federal employees.
    Thank you for your consideration. I look forward to your questions.

    The Chairman. Excellent. That is great. You guys are doing 
fantastic.
    Now, Mr. Friant, that doesn't mean you get to use up all of 
his extra time. Mr. Nick Friant, Chairman, NGFA Grain Grades 
and Weights Committee, and Co-Chair of the NAEGA Grain Grades 
and Inspections Committee, you are recognized for 5 minutes.

 STATEMENT OF NICK FRIANT, CHAIRMAN, GRAIN GRADES AND WEIGHTS 
               COMMITTEE, NATIONAL GRAIN AND FEED
ASSOCIATION; CO-CHAIR, GRAIN GRADES AND INSPECTIONS COMMITTEE, 
                  NORTH AMERICAN EXPORT GRAIN
                    ASSOCIATION, WAYZATA, MN

    Mr. Friant. Chairman Crawford, Ranking Member Walz, Members 
of the Subcommittee, I am Nick Friant, Business Unit Food 
Safety Leader for Cargill, Inc., in Wayzata, Minnesota. I 
provide technical and regulatory compliance assistance on a 
wide range of issues related to grain quality, handling, and 
inventory for Cargill's operations and merchandising personnel 
in the U.S. and abroad. I appreciate the opportunity to testify 
today on behalf of the National Grain and Feed Association, and 
North American Export Grain Association. I chair NGFA's Grain 
Grades and Weights Committee, and co-chair NAEGA's Grain Grades 
and Inspections Committees, both of which address issues 
concerning the official grain inspection and weighing system 
and the U.S. Grain Standards Act.
    Our organizations strongly support reauthorization of the 
U.S. Grain Standards Act, and offer recommendations to improve 
and maintain the U.S. official grain inspection system. The 
inspections and other services provided by FGIS contribute 
significantly to the marketing and trading of U.S. grains and 
oilseeds by establishing and maintaining U.S. grain standards, 
and providing official inspection and weighing services. That 
is why NGFA and NAEGA urge Congress, when developing 
legislation to reauthorize the U.S. Grain Standards Act, to 
address each of the following concerns.
    First, in response to apparent system shortcomings, 
including the disruptions in official services at the Port of 
Vancouver, Washington, during 2013 and 2014, we urge that 
existing language in the Act be strengthened to reinforce the 
obligation of the Secretary of Agriculture to restore official 
service in a prompt manner. Make no mistake, foreign buyers, in 
particular, the Korea Flour Mills Industrial Association, took 
note of the very visible and extreme disruptions in such 
official inspections which damaged the reputation of FGIS, and 
undermined confidence of international buyers in the 
reliability of the U.S. official grain inspection system at 
export locations. I respectfully request that the letter from 
KOFMIA be made part of the hearing record. Also, a diverse 
array of U.S. farm, commodity, and agribusiness organizations, 
including NGFA and NAEGA, strongly encouraged action by the 
Secretary to meet his legal obligations to restore official 
inspection services in a pair of joint letters, but 
unfortunately, to no avail. I respectfully request that these 
letters also be made a part of the hearing record. Therefore, 
we urge that additional language be inserted into the U.S. 
Grain Standards Act to remove any uncertainty that the 
Secretary of Agriculture is to immediately, with the exceptions 
of disruptions caused by natural disasters, restore official 
grain inspection services if there are future interruptions or 
disruptions.
    Second, we urge that the process used by FGIS to delegate 
or designate its authority to perform official service at 
export elevators be made more transparent and open to public 
comment, just as the agency already does through Federal 
Register notice and comment rulemaking when designating 
official inspection authority to state or private entities to 
serve the domestic market where the use of official inspection 
services is voluntary.
    Further, NGFA and NAEGA strongly believe consideration 
should be given to directing FGIS to license and utilize, 
subject to FGIS oversight, the use of qualified personnel 
employed by independent third party entities to perform 
official services at export elevators through the existing 
licensing provisions embodied in the U.S. Grain Standards Act, 
particularly in cases where disruptions in official service 
occur. Some attempt to denigrate, undermine, or obfuscate this 
concept by labeling it as privatization. That emphatically is 
not what NGFA and NAEGA are proposing. In this regard, two 
recent studies conducted for NAEGA are enlightening, and show 
the degree to which personnel from these independent third 
parties already are working at export elevators to provide 
services that are above and beyond those mandated under the 
U.S. Grain Standards Act. I respectfully request that both of 
these studies be made part of the hearing record.
    Third, NGFA and NAEGA support the U.S. Grain Standards Act 
provisions pertaining to FGIS's current authority to designate 
qualified accredited state or private entities to perform 
official inspection services in territories within the domestic 
market, and support the request to extend the duration of such 
designation to 5 years from the current 3 years.
    Fourth, we urge that FGIS be required to base the tonnage 
portion of export inspection user fees on shifts in actual 
shipment volumes that are officially inspected by basing it on 
a 5 year rolling average.
    Finally, we recommend that reauthorization of the U.S. 
Grain Standards Act be reduced from a period of 10 years to 5 
years, particularly given the dynamic, changing, and highly 
competitive nature of the global grain export marketplace.
    NGFA and NAEGA believe that our recommendations pursuant to 
the U.S. Grain Standards Act will help strengthen the official 
inspection and weighing system, enhance the competitive 
position of the U.S. grains and oilseeds in the world markets, 
and retain integrity of the U.S. inspection results.
    Thank you for the opportunity to testify. I am pleased to 
respond to any questions you may have.
    [The prepared statement of Mr. Friant follows:]

 Prepared Statement of Nick Friant, Chairman, Grain Grades and Weights 
Committee, National Grain and Feed Association; Co-Chair, Grain Grades 
  and Inspections Committee, North American Export Grain Association, 
                              Wayzata, MN
    Chairman Crawford, Ranking Member Walz, and Members of the 
Subcommittee, I am Nick Friant, Business Unit Food Safety Leader for 
Cargill, Inc. in Wayzata, Minn. In this capacity, I provide technical 
and regulatory compliance assistance on a wide range of issues related 
to grain quality, handling and inventory for Cargill's operations and 
merchandizing personnel in the U.S. and abroad.
    I appreciate the opportunity to testify today on behalf of the 
National Grain and Feed Association (NGFA) and the North American 
Export Grain Association (NAEGA). I serve as Chairman of NGFA's Grain 
Grades and Weights Committee and Co-Chair of NAEGA's Grades and 
Inspections Committee, both of which address issues concerning the 
official grain inspection and weighing system and the U.S. Grain 
Standards Act that are the subject of this hearing.
    NGFA, established in 1896, consists of more than 1,050 grain, feed, 
processing, exporting and other grain-related companies that operate 
more than 7,000 facilities and handle more than 70 percent of all U.S. 
grains and oilseeds. Its membership includes grain elevators; feed and 
feed ingredient manufacturers; biofuels companies; grain and oilseed 
processors and millers; exporters; livestock and poultry integrators; 
and associated firms that provide goods and services to the nation's 
grain, feed and processing industry. NGFA also has 26 State and 
Regional Affiliated Grain, Feed and Agribusiness Associations.
    NAEGA, established in 1912, consists of private and publicly owned 
companies and farmer-owned cooperatives that are involved in and 
provide services to the bulk grain and oilseed exporting industry. 
NAEGA-member companies ship and support the vast majority of the highly 
competitive and fungible U.S. grain export supply. NAEGA is dedicated 
to providing for efficient, predictable, reliable and expanded trade 
via responsible commercial and official practices. Through a reliance 
on member action and support, NAEGA acts to accomplish its mission from 
its office in Washington, D.C., and in markets throughout the world.
    NGFA and NAEGA strongly support reauthorization of the U.S. Grain 
Standards Act to improve and maintain the U.S. official grain 
inspection system. Both of our organizations have a long history of 
supporting a Federal official grain inspection and weighing system. We 
have worked continuously for nearly 40 years to encourage continued 
improvements to this system, as well as the broader regulatory and 
commercial environment to improve the value, safety, competitiveness 
and sustainability of U.S. agriculture.
    The U.S. Department of Agriculture's Federal Grain Inspection 
Service (FGIS) performs the essential role of maintaining the official 
U.S. grain standards, which are critical to establishing value and 
price-discovery in the U.S. grain and oilseed marketplace. The 
inspection and other services provided by FGIS contribute significantly 
to the marketing and trading of U.S. grains and oilseeds by farmers and 
other commercial parties. The U.S. grain handling and export system is 
admired around the world for providing a fungible, abundant, safe and 
sustainable commodity supply that is responsive to customer needs.
    U.S. competitiveness in global markets, as well as stakeholders 
ranging from farmers to end-users, benefit when FGIS and its delegated 
state agencies provide state-of-the-art, market-responsive official 
inspection and weighing of bulk grains and oilseeds at export, and do 
so in a reliable, uninterrupted, consistent and cost-effective manner.
    That is why NGFA and NAEGA urge that Congress, when developing 
legislation to reauthorize the U.S. Grain Standards Act, address each 
of the following concerns:

   First, in response to apparent system shortcomings, 
        including the frequent, intermittent disruptions in official 
        inspection and weighing service at the Port of Vancouver, 
        Washington, during 2013-14, we urge that existing language in 
        the Act be strengthened further to reinforce the obligation of 
        the Secretary of Agriculture to restore official inspection and 
        weighing service in a prompt manner, except in instances where 
        the disruption is caused by cataclysmic natural disasters.

      The USGSA mandates that most U.S. export grain be officially 
        inspected and weighed whenever official standards and 
        procedures are utilized, with such activities required to be 
        performed and supervised by FGIS. Except in certain cases in 
        which FGIS chooses to delegate its authority to a state agency 
        to perform the service, or to waive the official inspection 
        requirement in response to a contractual agreement between the 
        buyer and seller, the Act requires that FGIS personnel provide 
        official inspection service and official weighing or 
        supervision of weighing service at export locations.
      We believe the Secretary of Agriculture already is obligated 
        under the existing USGSA language to step in to provide 
        official inspection and weighing services immediately if FGIS 
        employees, or personnel of a delegated state agency or 
        designated domestic entity are unwilling or unable to perform 
        such services. Regrettably, that did not occur at the Port of 
        Vancouver, Washington, during sporadic interruptions in 
        official inspection services that spanned the fall, winter and 
        spring of 2013-14.
      Make no mistake, U.S. foreign buyers took note of this very 
        visible and extreme disruption, which damaged the reputation of 
        FGIS and undermined confidence of international buyers in the 
        reliability of the U.S. official grain inspection system at 
        export locations. One significant buyer--the Korea Flour Mills 
        Industrial Association (KOFMIA), in a letter dated July 10, 
        2014 to the agricultural counselor at the U.S. Embassy in 
        Korea--expressed its concern about the impact these disruptions 
        were having on its ability to obtain U.S. wheat. The letter 
        stated, in relevant part, as follows: ``Last year, the Republic 
        of Korea purchased over 1.3 million metric tons of wheat from 
        the United States. We have long viewed U.S. wheat as a 
        reliable, readily available commodity . . . We fear that 
        actions taken by your government set a dangerous precedent 
        which could compromise shipments from any export terminal in 
        the U.S. A stoppage of this nature undermines the reputation of 
        U.S. wheat in the marketplace. KFMIA has long been a major 
        buyer of wheat from the United States. We insist that you do 
        everything in your power to restore inspection services at the 
        Port of Vancouver and ensure timely loading of grain bound for 
        the Republic of Korea.'' I respectfully request that this 
        letter be made part of the hearing record.
      A diverse array of U.S. farm, commodity and agribusiness 
        organizations, including NGFA and NAEGA, strongly encouraged 
        similar action by the Secretary to meet his legal obligation to 
        restore official inspection services in a pair of joint letters 
        submitted on October 18, 2013 and July 14, 2014, but 
        unfortunately, to no avail. I respectfully request that these 
        letters also be made part of the hearing record.
      As expounded upon later in this testimony, U.S. farmers, grain 
        handlers and exporters, as well as our foreign customers, today 
        already are less reliant upon the official inspection and 
        weighing results provided by FGIS and its delegated state 
        agencies. Indeed, many complementary and competitive testing 
        services are being provided by impartial independent third 
        parties at U.S. export elevators in response to value-chain 
        demand from foreign customers, and because of the reliability, 
        integrity, competence and efficiency of such services. Some of 
        these services actually are redundant with or used to verify 
        official testing results determined by FGIS and its delegated 
        and designated agencies under the official inspection system. 
        Such services also are being used increasingly by our major 
        grain export competitors in other countries.
      NGFA and NAEGA believe accurate, timely and cost-effective 
        delivery of mandated, impartial and federally managed official 
        inspection services administered by FGIS can and should remain 
        the cornerstone of a viable and market-responsive U.S. grain 
        inspection and weighing system. Official export inspections 
        provide transparency and market information to the entire value 
        chain that contribute to an efficient marketplace, while 
        supporting price-discovery, food security and sustainable 
        supplies. But to remain respected and relevant, the U.S. 
        official grain inspection system needs to function in a 
        continuous, predictable and consistent manner to facilitate the 
        ability of U.S. farmers and agribusinesses to reliably serve 
        foreign customers and remain competitive in world markets, 
        which is responsible for as much as 50 percent of total 
        utilization of U.S. wheat and soybeans, as well as up to \1/3\ 
        of U.S. feed grains.
      For these reasons, to reinforce the existing obligation of the 
        Secretary of Agriculture to provide for the uninterrupted 
        provision of official inspection service, we urge that 
        additional language be inserted into Section 79(e) of the USGSA 
        to remove any lingering uncertainty that the Secretary of 
        Agriculture is to immediately, with the exception of 
        disruptions caused by hurricanes, floods or other cataclysmic 
        natural disasters, restore official grain inspection services 
        if there are future interruptions or disruptions in the 
        performance of such service, either by utilizing the 
        Secretary's own inspection work force or delegating such 
        authority to another official entity or an FGIS-licensed 
        inspector from an independent third-party.

   Second, we urge that the process used by FGIS to delegate or 
        designate its authority to perform official inspection and 
        weighing service at export elevators at export port locations 
        be made more transparent and open to public comment--just as 
        the agency already does through Federal Register notice-and-
        comment rulemaking when designating official inspection 
        authority to state or private entities to serve the domestic 
        market, where the use of official inspection services is 
        voluntary.

      Simply put, the current process for delegating state agencies to 
        perform official inspection at export facilities is neither 
        open nor transparent. The opaqueness of the current delegation 
        process provides no opportunity for stakeholders to offer 
        public comment to the Agency on a delegated state agency's 
        performance. Nor does it provide any opportunity to 
        periodically review such delegations--they can continue in 
        perpetuity. Therefore, we urge that the delegation of official 
        inspection and weighing service to state agencies be subject to 
        notice-and-comment rulemaking through the Federal Register, and 
        that the duration of such delegation or designation be limited 
        to 5 years--consistent with our recommendation for designated 
        state and private agencies providing official inspection 
        service to the domestic market.
      Further, NGFA and NAEGA strongly believe consideration should be 
        given to directing FGIS to license and utilize, subject to FGIS 
        oversight, the use of qualified personnel employed by 
        independent third-party entities to perform official inspection 
        and weighing services at export elevators through the existing 
        licensing provisions embodied in the USGSA, particularly in 
        cases where disruptions in official service occur. Some attempt 
        to denigrate, undermine or obfuscate this concept by labeling 
        it as ``privatization.'' That emphatically is not what NGFA and 
        NAEGA are proposing. Instead, what we propose is a process to 
        further strengthen the Federal system we seek to improve and 
        preserve by enabling qualified individuals working under 
        Federal oversight and employed by independent, private third 
        parties to be licensed under Section 84 of the USGSA utilizing 
        the same process USDA already does to license personnel from 
        designated official state and private entities in the domestic 
        market.
      In this regard, two recent studies conducted for NAEGA are 
        enlightening. The first, entitled ``U.S. Grain and Oilseed 
        Inspection Services and Competitiveness Study_Export Competitor 
        and Importer Information,'' examines the work that independent 
        third parties already are performing at export elevators to 
        provide non-grade-determining testing services that are above-
        and-beyond those mandated under the USGSA, and which are 
        provided in response to specific quality or customer 
        requirements. This study found that between 20 and 25 percent 
        of U.S. exports of bulk grains, oilseeds and major byproducts 
        currently are being re-inspected in some manner by private 
        entities in response to requests from foreign buyers. These 
        services are voluntarily engaged in by the importer or by 
        mutual agreement of the exporter and importer as part of the 
        terms of the contract to either confirm some inspection 
        results, measure attributes not determined under U.S. mandatory 
        inspection requirements or meet some other commercial 
        requirement of the trade transaction. This certainly is strong 
        affirmation of the level of acceptance that foreign customers 
        of U.S. grains and oilseeds already have in the integrity of 
        test results provided to them by private third parties for 
        whose services they pay. This study also notes the inspection 
        reforms being considered by Canada and the European Union, and 
        contains a country-by-country analysis of the extent to which 
        foreign U.S. competitor countries already are utilizing such 
        independent third parties to perform inspection services, with 
        the only government involvement being accreditation to ensure 
        accuracy, competence and equipment calibration. In fact, the 
        United States and Canada currently maintain the only major 
        grain and oilseed exporter national government-run inspection 
        agencies, and as a result have significantly higher costs per 
        ton for basic commodity inspections.
      A second study, entitled ``U.S. Grain and Oilseed Inspection 
        Services Competitiveness Study_Customer Specifications and 
        Preferences,'' examines the motivations of foreign buyers that 
        request independent third-party testing services. I 
        respectfully request that both of these studies be made part of 
        the hearing record.
      Clearly, these studies reinforce the acceptance that already 
        exists in the marketplace regarding the integrity of 
        inspections being performed by independent third parties. We 
        believe our proposal to provide a mechanism for including such 
        inspection assets within the licensing and oversight rubric of 
        FGIS would further strengthen the U.S. official system.

   Third, NGFA and NAEGA support the USGSA provisions 
        pertaining to FGIS's current authority to designate qualified, 
        accredited state or private entities to perform official 
        inspection and weighing services in geographic territories 
        within the domestic market, and support the request to extend 
        the duration of such designation to 5 years from the current 3 
        years.

   Fourth, we urge that FGIS be required to base the tonnage 
        component of export inspection user fees on a fluctuating and 
        more market-responsive basis that takes into account shifts in 
        actual shipment volumes that are officially inspected, rather 
        than the current static formula that is based on what were 
        erroneously low projections in export volumes. We estimate 
        FGIS' current formula will result in more than $12 million in 
        overcharges during fiscal years 2014 and 2015, as documented in 
        the chart attached to our written testimony.

      Currently, FGIS sets the tonnage user fees based primarily on 
        export tonnage projections based over a 5 year period. But to 
        help retain U.S. export competitiveness, we believe the 
        Agency's fee structure needs to: (1) be more predictable for 
        system users and responsive to market conditions; (2) be more 
        flexible and timely in making adjustments; and (3) reduce the 
        impact of subjective forecasting of export volumes. Rather than 
        continuing to rely only upon the subjective and time- and 
        resource-consuming rulemaking process to modify fees, the NGFA 
        and NAEGA propose that the FGIS be required to establish fees 
        through an ongoing and market-responsive process.
      Specifically, we recommend that FGIS use a rolling 5 year average 
        as the basis for the tonnage user fee calculation. The use of 
        such a methodology to establish base tonnage for determining 
        the fee level will lead to a greater correlation between both 
        high- and low-volume market fluctuations, as well as better 
        enable U.S. exporters to project future costs. This correlation 
        of fees to both a 5 year moving average and continuing pursuit 
        of cost-controls and revenue management should create an 
        environment in which official fees can be adjusted continually 
        and more accurately.
      While, NGFA and NAEGA recognize that fee increases may be 
        necessary from time to time, we encourage FGIS to continue its 
        ongoing efforts to provide efficient service at a reasonable 
        price to its customers. The rolling average approach we are 
        proposing will assist in achieving that outcome.

   Finally, we recommend that reauthorization of the USGSA be 
        reduced from a period of 10 years to 5 years, particularly 
        given the dynamic, changing and highly competitive nature of 
        the global grain export marketplace. Thus, we recommend that 
        the USGSA be reauthorized through September 30, 2020.
Conclusion
    As noted previously, it is the responsibility and obligation of 
FGIS and delegated state agencies to provide vibrant and reliable 
official inspection and weighing services to facilitate efficient and 
cost-effective marketing of U.S. grains and oilseeds to foreign 
markets, upon which U.S. agriculture and the American economy depend 
for economic growth and jobs.
    NGFA and NAEGA believe that our recommendations pursuant to the 
USGSA will help strengthen the official inspection and weighing system, 
enhance the competitive position of U.S. grains and oilseeds in world 
markets, and retain the integrity of U.S. inspection results. Our 
industry pledges to work with Congress to craft policies that achieve 
these positive outcomes.
    Thank you for the opportunity to testify. I will be pleased to 
respond to any questions you may have.
                              Attachment 1
July 10, 2014

  Kevin Smith,
  Minister Counsellor for Agricultural,
  Embassy of the United States.

    Dear Mr. Kevin Smith

    Recently, the Federal Grain Inspection Service has refused to 
provide grain inspection services at the United Grain Corporation 
export terminal in Vancouver, Washington. As a result, grain exports 
from this terminal have been effectively stopped. We are very concerned 
about the impact this disruption will have on our ability to source 
grain from the United States.
    Last year, the Republic of Korea purchased over 1.3 million metric 
tons of wheat from the United States. We have long viewed U.S. wheat as 
a reliable, readily available commodity. Furthermore, UGC has been an 
important supplier of ours for many years. We fear that the actions 
taken by your government set a dangerous precedent which could 
compromise shipments from any export terminal in the U.S. A stoppage of 
this nature undermines the reputation of U.S. wheat in the marketplace.
    KOFMIA has long been a major buyer of wheat from the United States. 
We insist that you do everything in your power to restore inspection 
services at the Port of Vancouver and ensure timely loading of grain 
bound for the Republic of Korea.
    Your prompt attention to this matter is appreciated.
            Best Regards,
            Sincerely,

Cho, Won Ryang,
Executive Senior Managing Director,
Korea Flour Mills Industrial Association (KOFMIA).
                              Attachment 2
July 14, 2014

  Hon. Thomas J. Vilsack,
  Secretary,
  U.S. Department of Agriculture,
  Washington, D.C.

    Dear Secretary Vilsack:

    Many of the undersigned organizations representing agricultural 
producers, grain handlers and exporters wrote to you on October 18, 
2013 (copy of letter attached) expressing, in the strongest possible 
terms, our concerns over the periodic disruptions in Official grain 
inspection and weighing services provided by the Federal Grain 
Inspection Service's (FGIS) designated agencies in the Pacific 
Northwest.
    During a subsequent meeting last October with Grain Inspection, 
Packers and Stockyards Administrator Larry Mitchell and his colleagues, 
attended by representatives of many of our organizations, we strongly 
urged that contingency plans be developed to ensure that FGIS respond 
immediately and effectively if there were any future disruptions in 
Official inspection service from WSDA.
    Our expanded stakeholder interest group now understands that on 
July 1, 2014, the designated agency--the Washington State Department of 
Agriculture--provided written notification that it was withdrawing 
Official grain inspection services at the Port of Vancouver, WA, 
effective July 7, 2014. Based upon this unprecedented development, we 
urge you to direct that FGIS take immediate action to provide such 
Official inspection services utilizing either its own personnel or the 
personnel of another FGIS-designated agency authorized to perform such 
Official services at grain export facilities.
    As noted in the previous correspondence, the U.S. Grain Standards 
Act (P.L. 113-36) vests in FGIS the sole responsibility to provide 
Official inspection and weighing services. Further, the Statute 
prohibits the export of U.S. grains and oilseeds unless Officially 
inspected and weighed by Official personnel in accordance with the 
Grain Standards. In addition, such exports are required to be 
accompanied by Official certificates showing the Official grade 
designation and certified weight--unless such a requirement is waived 
by the Secretary of Agriculture and the grain is not sold or exported 
by grade. Thus, Congress has vested in FGIS the responsibility and 
obligation to provide vibrant and reliable Official inspection and 
weighing services to facilitate efficient and cost-effective marketing 
of U.S. grains and oilseeds to foreign markets, upon which U.S. 
agriculture and the American economy depend for economic growth and 
jobs.
    To our knowledge, this latest announcement by a designated state 
agency declining to provide Official services is unprecedented. We 
believe WSDA's actions create an extremely troubling precedent that 
will cause irreparable damage to the integrity and reliability of the 
nation's Official grain inspection system. This development already has 
created uncertainty within the U.S. grain export industry regarding 
potential future disruptions of Official services at facilities 
operating at other U.S. export ports. The disruptions that already have 
occurred have put at risk the United States' reputation as a reliable 
supplier of grains and oilseeds to foreign customers. In the absence of 
WSDA's reliable performance of its duties, FGIS must intervene and make 
the necessary arrangements to provide the mandatory Official services.
    American farmers, grain handlers and exporters, as well as our 
foreign customers, depend upon accurate, timely and cost-effective 
delivery of mandated impartial third-party Official inspection services 
administered by FGIS and its designated and delegated agencies. The 
U.S. Official grain inspection and weighing system is widely recognized 
around the world for its impartial, consistent, reliable and timely 
measurement and certification of quality attributes and weights. The 
availability of accurate FGIS inspection results also is essential to 
determining grain value and market price discovery. Further, Official 
export inspections provide transparency and market information to the 
entire value chain that contribute to an efficient marketplace, while 
supporting food security and sustainable supplies. As much as 50 
percent of total utilization of U.S. wheat and soybeans (either as raw 
commodities or value-added products like meat, milk and eggs), as well 
as up to \1/3\ of U.S. feed grains are directly supported by the 
industry user-fee funded service USDA is mandated to maintain and 
administer.
    To this point, confidence that the U.S. Official grain inspection 
system will function in a continuous and consistent manner--and not be 
subject to unwarranted disruptions--has been instrumental in 
facilitating the ability of U.S. farmers and agribusinesses to reliably 
serve foreign customers and remain competitive in world markets. It has 
been a model of integrity. But the recent decision by WSDA, and the 
subsequent inaction to this point of FGIS to fulfill its mandate to 
provide Official inspection services, risks sullying that hard-earned 
reputation, to the long-lasting detriment of U.S. agriculture. It also 
sends a dangerous signal to any third-party that might wish to disrupt 
U.S. grain export trade.
    Given the gravity of this situation, we urge USDA to immediately 
take all actions necessary to fulfill FGIS's statutory obligation to 
restore Official inspection and weighing services at grain export 
elevator facilities in the event of a disruption in such service, 
either by immediately replacing absent inspectors with FGIS Official 
personnel or those from available qualified providers, including other 
designated or delegated Official agencies.
    We appreciate your prompt consideration of this request, and look 
forward to your timely response.
            Sincerely,

Agricultural Retailers Association;
American Farm Bureau Federation;
American Soybean Association;
Idaho Grain Producers;
Minnesota Grain and Feed Association;
Montana Grain Growers Association;
National Association of Wheat Growers;
National Corn Growers Association;
National Grain and Feed Association;
National Oilseed Processors Association;
North American Export Grain Association;
North Dakota Grain Dealers Association;
North Dakota Grain Growers Association;
Oregon Wheat Growers League;
South Dakota Grain and Feed Association;
South Dakota Wheat Inc.;
Transportation, Elevator and Grain Merchants Association;
Pacific Northwest Grain and Feed Association;
U.S. Grains Council;
U.S. Soybean Export Council;
U.S. Wheat Associates;
Washington Association of Wheat Growers.

CC:

Hon. Krysta Harden, Deputy Secretary of Agriculture;
Hon. Edward Avalos, Under Secretary, Marketing and Regulatory Programs;
Hon. Michael Scuse, Under Secretary, Farm and Foreign Agricultural 
Services;
Hon. Phil Karsting, Administrator, Foreign Agricultural Service;
Hon. Larry Mitchell, GIPSA Administrator;
Hon. Randall D. Jones, Deputy Administrator, FGIS.
                               attachment
October 18, 2013

  Hon. Thomas J. Vilsack,
  Secretary,
  U.S. Department of Agriculture,
  Washington, D.C.

    Dear Secretary Vilsack:

    The undersigned organizations representing agricultural producers, 
grain handlers and grain exporters respectfully urge the U.S. 
Department of Agriculture (USDA), in the strongest terms, to take all 
actions necessary to provide Official inspection and weighing services 
at grain export elevator facilities.
    The U.S. Grain Standards Act (P.L. 113-36) vests in USDA's Federal 
Grain Inspection Service (FGIS) the sole responsibility to provide 
Official inspection and weighing services. Further, the Statute 
prohibits the export of U.S. grains and oilseeds unless Officially 
inspected and weighed by Official personnel in accordance with the 
Grain Standards. Further, such exports are required to be accompanied 
by Official certificates showing the Official grade designation and 
certified weight--unless such a requirement is waived by the Secretary 
of Agriculture and the grain is not sold or exported by grade. Thus, 
Congress has vested in FGIS the responsibility and obligation to 
provide vibrant and reliable Official inspection and weighing services 
to facilitate efficient and cost-effective marketing of U.S. grains and 
oilseeds to foreign markets, upon which U.S. agriculture and the 
American economy depend for economic growth and jobs.
    We have been made aware that the Washington Department of 
Agriculture (WSDA)--designated by FGIS most recently on Feb. 9, 2012 to 
perform such Official services through Dec. 31, 2014--periodically has 
not done so at the Port of Vancouver in the Pacific Northwest. In 
addition, it is our understanding that WSDA's willingness to fulfill 
its designated Official service remains highly uncertain. Moreover, 
FGIS seemingly has deferred to WSDA in making determinations regarding 
the circumstances under which it will or will not provide the mandatory 
Official services.
    To our knowledge, this interruption by a designated state agency in 
uniformly and consistently providing Official services is 
unprecedented. We believe WSDA's actions create an extremely troubling 
precedent that could cause irreparable damage to the integrity and 
reliability of the nation's Official grain inspection system. This 
development already has created uncertainty within the U.S. grain 
export industry regarding potential future disruptions of Official 
services at facilities operating at other U.S. export ports. The 
disruptions that already have occurred have put at risk the United 
States' reputation as a reliable supplier of grains and oilseeds to 
foreign customers. In the absence of WSDA's reliable performance of its 
duties, FGIS must intervene and make the necessary arrangements to 
provide the mandatory Official services.
    American farmers, grain handlers and exporters, as well as our 
foreign customers, depend upon accurate, timely and cost-effective 
delivery of mandated impartial third-party Official inspection services 
administered by FGIS and its designated and delegated agencies. The 
U.S. Official grain inspection and weighing system is widely recognized 
around the world for its consistent, reliable and timely measurement 
and certification of quality attributes and weights. As much as 50 
percent of total utilization of U.S. wheat and soybeans (either as raw 
commodities or value-added products like meat, milk and eggs), as well 
as up to \1/3\ of U.S. feed grains are directly supported by the user-
fee funded service USDA is charged with maintaining and administering.
    Having confidence that the U.S. Official system will be continually 
and consistently available--and not be subject to unwarranted 
disruptions--makes these user-fee funded FGIS export services a 
linchpin in the ability of U.S. farmers and agribusinesses to reliably 
serve foreign customers and remain competitive in world markets. It has 
been a model of integrity. The availability of accurate FGIS inspection 
results also is essential to determining grain value and market price 
discovery. Further, Official export inspections provide transparency 
and market information to the entire value chain that contribute to an 
efficient marketplace, while supporting food security and sustainable 
supplies.
    Given the gravity of this situation, we urge USDA to take all 
actions necessary to fulfill its statutory obligation to provide 
Official inspection and weighing services at grain export elevator 
facilities, including prompt replacement with Official personnel from 
other designated or delegated Official agencies, or with FGIS Official 
personnel, if a designated or delegated Official agency does not 
provide such service.
    We appreciate your prompt consideration of this request.
            Sincerely,

Agricultural Retailers Association;
American Farm Bureau Federation;
American Soybean Association;
National Association of Wheat Growers;
National Corn Growers Association;
National Council of Farmer Cooperatives;
National Grain and Feed Association;
National Oilseed Processors Association;
North American Export Grain Association;
Transportation, Elevator and Grain Merchants Association;
U.S. Grains Council;
U.S. Wheat Associates.

CC:

Hon. Edward Avalos, Under Secretary for Marketing and Regulatory 
Programs;
Hon. Larry Mitchell, GIPSA Administrator;
Hon. Randall D. Jones, Deputy Administrator, FGIS.
                              Attachment 3
U.S. Grain and Oilseed Inspection Services Competitiveness Study
Export Competitor and Importer Information
January 30, 2015
W. Kirk Miller and Paul B. Green
WKMGlobal Consulting
3901 Chain Bridge Road, Fairfax, VA 22030
[email protected]
Contents
  Part One

    Introduction and Purpose
    Background

  Part Two

    Findings

      Competitor Bulk Commodity Export Inspection Practices
      Bulk Commodity Importer Inspect ion Requirements
      Approximate Cost for Export Inspection Services in Select Markets 
            (USD)

  Part Three

    Summary and Conclusion

  Resources

    Contacts and Resource List

    Appendices

      Representative Importing Country Survey Results
      Regarding Inspection Requirements
      Pending Reform Plans in Competitor Export Countries
        Canada
        European Union
U.S. Grain and Oilseed Inspection Services Competitiveness Study Report
Introduction and Purpose
    U.S. bulk agricultural commodities face stiff competition from 
export origins that utilize private sector pre-export inspection 
programs. The private sector surveyors that provide the pre-export 
services are able to offer a wide array of testing and inspection 
testing services for intrinsic characteristics, sustainability schemes, 
and food safety analysis not routinely performed as part of the current 
official U.S. export inspection model. The purpose of this study is to 
look at what export competitor governments' inspection delivery models 
entail, what is driving the use of alternative factors, and at what 
cost.
    This project has been undertaken to further accomplish the 
objectives and deploy strategies in NAEGA's Unified Export Strategy 
(UES) by providing for needed analysis, organization, and reporting of 
the U.S. grain and oilseed inspection services. This will be 
accomplished by primarily studying export inspection delivery models 
and collecting export competitor and importer information. The 
objective is to advance NAEGA's UES by determining if U.S. export 
market-share is being placed at a competitive disadvantage or is 
threatened due to costs for mandatory official services that may be 
insufficient or available on a more cost-competitive basis.
Background
    In order to understand what the competition is offering, it will be 
useful to first describe how the U.S. export grain inspection and 
weighing system is structured and functions. The U.S. Department of 
Agriculture's (USDA) Grain Inspection, Packers and Stockyards 
Administration's Federal Grain Inspection Service (FGIS) establishes 
quality standards for grains, oilseeds, pulses, and legumes; provides 
impartial inspection and weighing services through a network of 
Federal, state, and private entities; and monitors marketing practices 
to enforce compliance with the U.S. Grain Standards Act, as amended, 
(hereinafter, USGSA) and Agricultural Marketing Act of 1946, as amended 
(hereinafter, AMA).
    Under provisions of the United States Grain Standards Act, most 
grain exported from U.S. export port locations must be officially 
weighed. A similar requirement exists for inspection, except for grain 
which is not sold or described by grade. Inter-company barge grain 
received at export port locations also must be officially weighed. The 
Act also requires that all corn exported from the U.S. be tested for 
aflatoxin prior to shipment, unless the contract stipulates that 
testing is not required.
    Mandatory inspection and weighing services are provided by FGIS on 
a fee basis at 45 export elevators and floating transshipment rigs. 
Five delegated states provide official services at an additional 13 
export elevators under FGIS oversight.
    Under the AMA, FGIS administers and enforces certain inspection and 
standardization activities related to rice, pulses, lentils, and 
processed grain products such as flour and corn meal, as well as other 
agricultural commodities. Services under the AMA are performed upon 
request on a fee basis for both domestic and export shipments by either 
FGIS employees or individual contractors, or through cooperative 
agreements with states.
    FGIS administers uniform, national grain inspection and weighing 
programs established by the Act. Services under the Act are performed 
on a fee basis for both export and domestic grain shipments. USGSA 
requires that export grain be inspected and weighed, prohibits 
deceptive practices with respect to the inspection and weighing of 
grain, and provides penalties for violations.
    In administering and enforcing the Act, FGIS:

   Establishes and maintains official U.S. grain standards for 
        barley, canola, corn, flaxseed, oats, rye, sorghum, soybeans, 
        sunflower seed, triticale, wheat, and mixed grain;

   Promotes the uniform application of official U.S. grain 
        standards by official inspection personnel;

   Establishes methods and procedures and approves equipment 
        for the official inspection and weighing of grain;

   Provides official inspection and weighing services at 
        certain U.S. export port locations, and official inspection of 
        U.S. grain at certain export port locations in eastern Canada 
        along the St. Lawrence Seaway;

   Delegates qualified state agencies to inspect and weigh 
        grain at certain U.S. export port locations and Designates 
        qualified state and private agencies to inspect and weigh grain 
        at interior locations;

   Licenses qualified state and private agency personnel to 
        perform inspection and weighing services;

   Provides Federal oversight of the official inspection and 
        weighing of grain by delegated states and designated agencies;

   Investigates, in cooperation with the USDA Office of 
        Inspector General, alleged violations of the Act and initiates 
        appropriate corrective action;

   Monitors the quality and weight of U.S. grain as received at 
        destination ports, and investigates complaints or discrepancies 
        reported by importers; and

   Helps U.S. trading partners develop and improve their grain 
        inspection and weighing programs.

    The Administrator of GIPSA is authorized by the USGSA to charge and 
collect reasonable fees for the inspection and weighing of grain and 
related services performed by employees of FGIS. The FGIS fee schedule 
as reflected in 7 CFR, Section 800.71-73 provides for hourly rates for 
contract and non-contract inspection and weighing service. The contract 
service agreement is designed to help FGIS better manage its work force 
at individual service points which is expected to reduce the cost of 
providing official services. These cost of service reductions are 
reflected in the fee schedule as lower rates than the standard non-
contract rates ($39.40 per hour for contracts to $70.00 per hour for 
non-contract rates). In addition to the hourly fees for direct 
inspection and weighing costs and fees for certain specific additional 
test services (for instance $2.60 per online test for oil and protein 
to $20.30 per online aflatoxin test via a kit), FGIS assesses 
administrative fees on a per metric ton basis for all outbound carriers 
in addition to all other applicable fees. These per metric ton 
administrative fees vary among the four service areas ($0.092-$0.300 
per mt) and to those assessed for services in one of the delegated 
states ($0.059 per mt).
    During the period from 2005 to the present, FGIS has increased 
weighing and inspection fees. The size and frequency of fee increases 
have been a point of contention for the U.S. export industry which 
feels that export originating from competitor origins receive an 
advantage by not having to pay for mandatory government testing on top 
of testing needed to fulfill the terms of the sales contract.
    At export FGIS inspectors test for a wide range of grade 
determining factors including test weight, dockage or impurities, 
damage, class in the case of wheat, odor and the presence of insects or 
other deleterious substances and provide weighing oversight and 
certification. FGIS does not routinely test for many intrinsic quality 
and food safety factors which are available from FGIS or private 
surveyors upon request. This represents a fairly significant difference 
between how FGIS performs inspection and weighing versus other export 
origins around the world. Whereas, FGIS determines what factors are 
important and inspects against those criteria, other systems allow the 
buyers and sellers to determine what is important and to reflect that 
in their testing requirements.
    The U.S. system creates a fairly large number of circumstances 
where foreign customers are required to pay for mandatory FGIS tests 
and then voluntarily request inspection testing for characteristics 
that are of more concern to their needs and intended end use. 
Addressing this source of duplicative or additional testing may provide 
opportunities for the U.S. to improve its export competitiveness and 
still deliver a high quality export product at a lower cost to the end-
user customer.
Findings

          Competitor Bulk Commodity Export Inspection Practices
------------------------------------------------------------------------
        Country                            Requirement
------------------------------------------------------------------------
Argentina                The Government of Argentina requires
                         grains and oilseeds and soymeal to be inspected
                         pre-export by private sector surveyors under
                         the auspices of the Government Agency Servicio
                         Nacional de Sanidad y Calidad Agroalimentaria
                         (SENASA).
 
                         SENASA charges a stiff fee for
                         overseeing the private surveyors, but assumes
                         no liability for quality complaints.
 
                         The Government of Argentina issues
                         phytosanitary certificates.
 
                         The pre-export inspection cost is $0.58
                         USD per mt, including $0.22 USD per mt
                         government service fee for corn, wheat and
                         soybeans and $0.16 USD for soymeal.
------------------------------------------------------------------------
Australia                There is no quality inspection by the
                         government.
 
                         Quality is determined by private
                         organizations or the terminal operator which
                         issue certificates which they guarantee.
 
                         There is a full cost recovery for
                         phytosanitary inspection service administered
                         by the Department of Agriculture Biosecurity
                         using ``Authorized Officers'' who are employed
                         by the exporters.
 
                         All bulk and container loads are tested
                         on a full cost recovery basis by the National
                         Residue Survey (NRS) an agency of the
                         Department of Agriculture.
------------------------------------------------------------------------
Brazil                   The Brazilian Government is not
                         responsible for quality specifications or
                         testing which is done for both bulk and
                         containerized shipments by private sector
                         surveyors.
 
                         In order to perform the quality and
                         food safety testing the private surveying firms
                         must be registered with MAPA and have an ISO
                         17025 compliant laboratory and acknowledged as
                         such by the Brazilian Metrology Institute,
                         which has the authority to conduct random scale
                         checks on behalf of the Brazilian Federal
                         Treasury.
 
                         Any test results for weed seeds,
                         insects, fungus and other pests that are part
                         of the International Plant Protection
                         Organization phytosanitary requirements are
                         reported to the Brazilian Ministry of
                         Agriculture, Livestock and Feed Supply (MAPA)
                         for their use in issuing the phytosanitary
                         certificate.
 
                         The inspection costs for Brazil
                         reportedly range between $0.13 USD per mt to
                         $0.20 USD per mt.
------------------------------------------------------------------------
Canada                   According to the Canadian Grain Act,
                         all grain exports from Canada, excluding
                         shipments to the U.S., are mandated to be
                         officially inspected by the Canadian Grain
                         Commission.
 
                         The Canadian Grain Commission is
                         responsible for collecting an official sample
                         during loading, conducts the official
                         inspection on the sample and issues a Final
                         Certificate attesting to the quality of the
                         shipment.
 
                         According to the published fee
                         schedule, the cost for the export inspection in
                         2014/2015 is $1.31 USD per mt.
 
                         The Canadian Grain Commission sets
                         standards and specifications for grain grades
                         basis recommendations of the Eastern and
                         Western Canada Standards Committees.
 
                         The Canadian Grain Commission has
                         developed the Canadian Grain Grading Guide
                         which is a complete reference guide for grading
                         grains, oilseeds and pulses and is protected by
                         the Canadian Grain Commission's International
                         Standards Organization (ISO) provisions.
 
                         Private sector surveyors are permitted
                         to perform inbound inspections at export
                         locations.
------------------------------------------------------------------------
EU                       The European Parliament has established
                         official control measures to ensure the
                         compliance with feed and food law UN Regulation
                         (EC) No. 882/2004 which includes certain rules
                         for delegation by competent government
                         authorities to independent third parties.
 
                         The guarantees given by the official
                         control activities are the baseline on top of
                         which specific certification schemes may
                         operate on a voluntary basis.
 
                         Within the European Union, grains and
                         oilseeds and products are inspected under
                         voluntary certification schemes such as ``The
                         GAFTA Approved Superintendents Scheme'' or
                         ``COCERAL GTP--Community Guide to Good Trading
                         Practice'' which comply with EU Member State
                         pre-requisites for assurances that inspected
                         products or their production methods conform to
                         the particular scheme specification.
 
                         Scheme specifications may include such
                         things as environmental protection, animal
                         welfare considerations, organoleptic qualities,
                         ``Fair Trade'' and other socioeconomic
                         provisions.
 
                         Schemes may attest to compliance with
                         government requirements for best farming or
                         management practices.
 
                         Fees for inspection in major export
                         hubs are around $0.30 USD per mt.
 
                         The EU will be considering major
                         revisions to its food and feed law regulations
                         at a meeting in February which may eventually
                         introduce more consistency in European food and
                         feed control law. A copy of the CELCAA
                         (European food and agriculture traders
                         association to which COCERAL belongs)
                         supporting comments are attached in the
                         appendix to this report.
------------------------------------------------------------------------
Russia                   The Russian Grain Union which is
                         comprised of private and public sector grain
                         industry bodies in Russia is responsible for
                         establishing certification requirements and
                         accredit organizations to provide services.
 
                         According to information on their
                         website, the Russian Grain Union certifies
                         quality management system in compliance with
                         ISO requirements.
 
                         Export inspections are conducted by
                         privates surveying companies and if the sales
                         are made under GAFTA contracts the inspections
                         must conform to The GAFTA Superintendents
                         Scheme.
------------------------------------------------------------------------
Thailand                 Bulk and containerized Thai rice
                         exports are inspected by private surveyors per
                         the requirements set forth by the Ministry of
                         Commerce's Office of Commodity Standard.
 
                         The Office of Commodity Standard is
                         authorized to inspect 100% to 25% of fragrant
                         and white rice respectively and other grades
                         are inspected by private companies under the
                         auspices of the Office of Rice Inspection,
                         Board of Trade providing they meet certain
                         conditions.
 
                         The Government of Thailand sets a
                         ceiling on inspection fees of approximately
                         $0.50 USD per mt; laboratory fees are capped at
                         no more than $45 per test and the fee for
                         issuance of a certificate is capped at $7 USD.
 
                         The Government of Thailand assumes no
                         liability for quality claims.
------------------------------------------------------------------------
Ukraine                  Export inspections for grains and
                         oilseeds are provided by independent surveyors
                         per contract specifications laid out in GAFTA
                         and FOSFA contract language and operating rules
                         such as the GAFTA Approved Superintendents
                         Scheme.
 
                         Inspection fees for the Ukraine are
                         reportedly around $0.27 per mt.
------------------------------------------------------------------------
Vietnam                  Information not yet available.
------------------------------------------------------------------------


             Bulk Commodity Importer Inspection Requirements
------------------------------------------------------------------------
        Country                            Requirement
------------------------------------------------------------------------
China                       On March 20, 2014, the China National Health
                         and Family Planning Commission released the
                         revised National Food Safety Standard--Maximum
                         Residue Limits for Pesticides in Foods. (GB
                         2763-2014)
                            Exported food and feed products need to be
                         compliant with the following Chinese
                         restrictions to avoid introduction of
                         unapproved biotechnology events:
 
                        National Standards
 
                            GMO Product Testing--General Requirements
                         and Definitions (GB/T 19495.1-2004)
                            GMO Product Testing--Technical Requirements
                         on Laboratories (GB/T 19495.2-2004)
                            GMO Product Testing--DNA Extraction and
                         Purification (GB/T 19495.3-2004)
                            GMO Product Testing--Qualitative Nucleic
                         Acid Based Methods (GB/T 19495.4-2004)
                            GMO Product Testing--Quantitative Nucleic
                         Acid Based Methods (GB/T 19495.5-2004)
                            GMO Product Testing--Testing Method for Gene
                         Chips (GB/T 19495.6-2004)
                            GMO Product Testing--Sampling and Sample
                         Preparation Methods (GB/T 19495.7-2004)
                            GMO Product Testing--Testing Method for
                         Protein (GB/T 19495.8-2004)
 
                        AQSIQ Developed Standards
 
                            Testing of GMO Plant and Its Products--
                         General Requirements (NY/T 672-2003)
                            Testing of GMO Plant and Its Products--
                         Sampling (NY/T 673-2003)
                            Testing of GMO Plant and Its Products--DNA
                         Extraction and Purification (NY/T 674-2003)
                            Testing of GMO Plant and Its Products--
                         Qualitative PCR Method for Soybean (Testing)
                         (NY/T 675-2003)
 
                        MOA Standards for GMO Testing of Specific Events
 
                            MOA Public Notice No. 869 (14 standards);
                            MOA Public Notice No. 953 (27 standards);
                            MOA Public Notice No. 1193 (three
                         standards);
                            MOA Public Notice No. 1485 (19 standards);
                            MOA Public Notice 1782 (13 standards); and
                            MOA Public Notice 1861 (six standards).
 
                        MEP Developed Standards
 
                            Guideline for Eco-Environmental Biosafety
                         Assessment of Insect-resistant Transgenic
                         Plants (HJ 625-2011)
 
                            On December 22, 2014, The Chinese National
                         People's Congress published the Second Draft of
                         its Food Safety Law for public comments. The
                         draft can be found at: http://www.npc.gov.cn/
                         npc/lfzt/spaqfxd/node_25114.htm.
                            This new law establishes new registration
                         requirements and reinforces the AQSIQ authority
                         to inspect foodstuff imports.
------------------------------------------------------------------------
Egypt                       The Egyptian Government requires imported
                         corn, soybean, wheat, rice, soymeal and DDGs to
                         be pre-inspected, but special measures are in
                         place for wheat by the General Authority for
                         Supply Commodities (GASC) which requires
                         imports of wheat to be pre-inspected by an
                         Egyptian Government agency prior to export.
------------------------------------------------------------------------
EU                          Basically all EU food safety and
                         socioeconomic schemes that are in effect and
                         apply to exports apply to imports as well as
                         exports.
------------------------------------------------------------------------
Japan                       The Japanese Government does not require pre-
                         inspection of imports by a government authority
                         prior to export.
------------------------------------------------------------------------
Korea                       The Government of Korea requires imports of
                         basic food and feedstuffs to be pre-export
                         inspected by a government authority.
------------------------------------------------------------------------
Mexico                      Mexico does not require a government
                         inspection prior to import for basic
                         agricultural commodities.
------------------------------------------------------------------------
Philippines                 The Philippines Government requires pre-
                         export inspection by an accredited third party
                         inspection company. Shipments will not be
                         released without a pre-export inspection
                         certificate. Currently this does not apply to
                         containerized shipments, but the Government of
                         the Philippines is considering draft
                         legislation to close this window.
------------------------------------------------------------------------
Taiwan                      No government pre-export inspection is
                         required as the Taiwan Council of Agriculture's
                         Animal Industry Department and Taiwan Ministry
                         of Health and Welfare's Food and Drug
                         Administration conduct their own import
                         inspections at the port of entry. Starting
                         January 9, 2015, imports of grains and flour of
                         corn and soybeans are required to have a GMO
                         certificate which is issued by either the
                         exporting country's competent authority or
                         suppliers.
------------------------------------------------------------------------
Thailand                    The Government of Thailand requires pre-
                         export inspection for basic agricultural
                         commodities.
------------------------------------------------------------------------
Turkey                      Information not yet available.
------------------------------------------------------------------------
Vietnam                     Vietnam is implementing a new biotech
                         regulatory system which has made a number of
                         U.S. bulk commodities to be non-compliant at
                         least in the short term until approved by the
                         new regulatory system.
------------------------------------------------------------------------


 Approximate Cost for Export Inspection Services in Select Markets (USD)
------------------------------------------------------------------------
                              Source: Govt (G) or     Baseline Testing
          Country                 Private (P)            Cost/per mt
------------------------------------------------------------------------
United States USGSA (Bulk                       G         FY07 $0.399287
 Grains and Oilseeds)
(Source: Calculated from                                  FY08 $0.442203
 Information Contained in
 USDA FGIS
  Annual Reports)                                         FY09 $0.436873
                                                          FY10 $0.474746
                                                          FY11 $0.463697
                                                          FY12 $0.440692
                                                          FY13 $0.516284
------------------------------------------------------------------------
United States AMA (Rice)                        G         FY09 $1.265647
(Source: Calculated from                                  FY10 $1.621067
 Information Contained in
 USDA
  Annual Reports)                                         FY11 $1.547178
                                                          FY12 $1.768691
                                                          FY13 $1.968364
------------------------------------------------------------------------
Argentina                                       P           $0.58 USD/mt
------------------------------------------------------------------------
Australia                                       P           $0.30 USD/mt
------------------------------------------------------------------------
Brazil                                          P     $0.15-$0.21 USD/mt
------------------------------------------------------------------------
Canada                                          G              $35.98/hr
(as of 1.21.15) (Excludes                                       $1.34/mt
 applicable taxes)
------------------------------------------------------------------------
European Union                                  P           $0.30 USD/mt
------------------------------------------------------------------------
Russia                                          P           $0.27 USD/mt
------------------------------------------------------------------------
Thailand                                      G/P     $0.40-$0.50 USD/mt
------------------------------------------------------------------------
Ukraine                                         P           $0.27 USD/mt
------------------------------------------------------------------------
Vietnam (rice)                                  P           $0.26 USD/mt
------------------------------------------------------------------------

Summary and Conclusion
    Absolute cost comparisons, as the tables indicate, between country 
inspections for cross-border commodity trade is very difficult due to 
differences in fee structures (i.e., hourly vs. tonnage vs. per sample) 
for specific tests. Therefore, it is difficult to measure empirically 
the cost and competitiveness gains that might be obtained from new 
delivery models for U.S. grain inspection.
    However, it is evident that:

   There is a global trend toward countries permitting private 
        surveying firms to perform such services for the buyer and 
        seller, with the only government involvement (if any) being 
        accreditation to assure accuracy, competence and equipment 
        calibration, if any. In fact, many sovereign nations find that 
        private standards organizations such as ISO, provide rigorous 
        certification of accuracy at lower cost than establishing 
        individual government standards would entail.

   The U.S. and Canada maintain the only major grain and 
        oilseed exporter national government-run inspection agencies 
        and have significantly higher costs per ton for basic commodity 
        characteristics.

    The U.S. exports about \1/3\ of all grains and oilseeds traded 
globally and between 20% and 25% of U.S. exports of bulk grains, 
oilseeds and major byproducts are currently re-inspected in some manner 
by private surveyors. These services are voluntarily engaged by the 
importer or by mutual agreement of the exporter and importer as part of 
the terms of the contract to either confirm some inspection results, 
measure attributes not measured under U.S. mandatory inspection 
requirements or meet some other commercial requirement of the trade 
transaction. This further reinforces the global trend cited above and 
indicates a strong confidence level from foreign buyers in the test 
results provided to them by private surveyors that they pay for.
    The USDA FGIS grain and oilseed export inspection and weighing 
system is based on labor-intensive, subjective procedures and 
historical precedent based heavily on reaction to events forty years 
ago and fails to take full advantage of opportunities created by 
professional third-party contractors using modern objective technology 
to establish marketing parameters that have the most utility in the 
marketplace.
    Since major U.S. competitors and customers already recognize the 
efficiencies and cost savings accruing to the use of private surveyors 
to perform independent third party surveying services, it may be 
prudent for U.S. stakeholders in U.S. competitiveness to consider 
support for a competitive model of inspection service delivery.
    Based on our examination of how other competitor and customer 
countries address their grain export and import inspection services, 
the U.S. should consider adopting a new paradigm utilizing accredited 
private surveyors to compete to perform official inspection and 
weighing services under a strict process-verified system overseen by a 
branch of USDA such as the Agricultural Marketing Service utilizing 
standards and procedures established by the USDA FGIS. This would 
restore the U.S. Government's role to that of a regulatory agency and 
allow commercial trade to take better advantage of the efficiencies of 
the professional independent third party surveyors who provide services 
to U.S. customer governments and commercial parties already.
Contacts and Resource List for Competitiveness Study
    WKMGlobal Consulting believes that all the information used in this 
study was derived from sources believed to be accurate and reliable and 
is not responsible for any unintentional errors or omissions therein.

  USDA FAS Posts

    Tokyo, Japan
    Taipei, Taiwan
    Bangkok, Thailand
    Manila, Philippines
    Hanoi, Vietnam
    Cairo, Egypt
    Moscow, Russia
    Mexico City, Mexico
    EU Brussels, Belgium
    Istanbul, Turkey
    Beijing, China

  Grain Trade and Industry Associations

    Grain Trade Australia
    ANEC, Brazil
    Cargill Brazil
    COCERAL
    GAFTA

  Government Websites

    USDA GAIN and FAIRS Reports
    USDA FGIS Annual Reports 2007-2013
    Canada Grain Commission
    European Union

Appendices

  Representative Importing Country Survey Results Regarding Inspection 
    Requirements

    Korea
    Japan
    Egypt
    Thailand
    Philippines
    Taiwan

  Pending Reform Plans in Competitor Export Countries

    Canada
    European Union
Representative Importing Country Survey Results Regarding Inspection 
        Requirements
Korea
    The Government of Korea requires imports of corn, soybeans, wheat, 
rice, soybean meal, and DDGs to be pre-inspected by a government 
authority prior to shipment. Private surveying companies are permitted 
to perform Maximum Residue Level testing in lieu of a government 
inspection. Both bulk shipments and container shipments are required to 
have phytosanitary inspections per requirements of the Ministry of 
Agriculture. Import inspections are performed by the government and 
testing is performed for biotech presence, mycotoxins, maximum residue 
levels, heavy metals, radiation and plant pests and diseases. Any 
private sector firm performing inspections under the auspices of the 
Korean Government must first be accredited by the government and pay a 
fee for compliance to the Ministry of Food and Drug Safety. According 
to USDA sources there is no way for any commodity to circumvent or 
avoid the government inspection requirements.
Japan
    The Government of Japan (GOJ) does not require pre-inspection for 
bulk or container shipments. However, for state traded commodities 
(i.e., rice and wheat) whether bulk or containerized, the Grain Trade 
and Operation Division of the Crop Production Department in the 
Agricultural Production Bureau of the Ministry of Agriculture, Forestry 
and Fisheries (MAFF) does require some testing as part of its purchase 
contract. MAFF also requires that samples be taken of wheat and barley 
during the harvest season in export countries and tested for chemical 
residues, heavy metals, unapproved GE events and mycotoxins. The items 
for inspection vary depending on the risk of the substances/chemicals 
in each exporting country. For state traded commodities, testing is 
either performed in a registered laboratory in the exporting country or 
shipped to Japan to be tested at a MAFF laboratory. For the harvest 
season survey--in the case of the United State--MAFF coordinates with 
USDA/GIPSA to have samples sent to registered laboratories in the 
United States. State trade wheat is tested for GMO presence, 
mycotoxins, maximum residue levels, and heavy metals. Rice is tested 
for all of those attributes plus moisture, damaged kernels and 
impurities. Private sector surveyors can become registered by complying 
with a procedure established by the GOJ.
Egypt
    The Government of Egypt requires imports of corn, soybeans, wheat, 
rice, soymeal and DDGs to be pre-inspected by a government authority 
prior to shipment. There is no way to bypass the government inspections 
and the cost on average is $8 per mt for corn; $6 per mt for wheat; $16 
per mt for soybeans; $7 per mt for rice; $20 per mt for soymeal; and 
$15 per mt for DDGs in addition to the approximately $.50 per mt cost 
for GIPSA inspection at origin in the U.S. The Government of Egypt 
Ministry of Supply General Authority for Supply Commodities (GASC) 
requires imports of wheat to be pre-export inspected by a government 
authority prior to export to Egypt. For GASC purchases, Egypt requires 
that a six-member inter-agency committee inspect wheat at origin. The 
joint committee is composed of two members each from the Ministry of 
Agriculture's Central Administration of Plant Quarantine (CAPQ), the 
Ministry of Trade's General Organization for Export and Import Control 
(GOEIC), and the Ministry of Health (MOH). For wheat imports by the 
private sector, it is optional to send only two people from CAPQ. For 
corn it is also optional to send two people from the Ministry of 
Agriculture and Land Reclamation's Regional Laboratory for Food and 
Feed (RLFF). Egyptian Government testing is performed by the Ministry 
of Agriculture and Land Reclamation which has responsibility for the 
Central Administration of Plant Quarantine and the Regional Lab for 
Food and Feed. In addition, the Ministry of Health and the Ministry of 
Trade and Industry are also involved in import inspections. In Egypt, 
inspections are performed by government agencies listed above and there 
is no accreditation of private surveyors. Egypt does not have any pre-
export or arrival testing licensing program to allow private surveyors 
to perform the functions on behalf of the government. International 
surveying companies that are ISO 17020 and 17025 accredited are 
sometimes hired by private importers to do testing and analysis as a 
back-up in case a shipment is rejected, and the importer can use 
inspection results from such firms in appeals made of government 
inspection results. These firms are not licensed by the Government of 
Egypt.
    In case of rejection of shipment, according to Article 117, Chapter 
4 of Ministerial Decree No. 770/2005, the exporter or importer may 
appeal the final inspection results no later than 1 week from the date 
of rejection. The concerned party can file and appeal with the Appeal 
Committee Secretariat which has broad authority to accept the results 
of the final inspection, or to amend the results or annul them. They 
can also authorize a re-inspection of the consignment or allow for 
treatment with certain conditions. The committee's results are deemed 
to be final.

            Summary Table of Egyptian Inspection Requirements
------------------------------------------------------------------------
  Factors \1\     Corn     Wheat    Soybeans    Rice    Soymeal    DDGs
------------------------------------------------------------------------
Moisture        Max      Max 13%   Max 12%     Max     Max 12%    Max
                 12.5%    \2\                   14%                11.9%
------------------------------------------------------------------------
Density         Not      Not       Not         Not     Not        Not
                 requir   require   required    requi   required   requi
                 ed       d                     red                red
------------------------------------------------------------------------
Damaged         Max 5%   Max 5%    Max 5%      Max 5%  Not        Not
 Kernels                                                required   requi
                                                                   red
------------------------------------------------------------------------
Impurities      Max 2%   Max 2%    Max 2%      Max     Max Ash    Max
                                                0.5%    7%         Ash
                                                                   7%
------------------------------------------------------------------------
Oil and         9%       Minimum   Oil not     Based   Low        Protei
 Protein                  11.5 %    less than   on      protein    n +
 Content                  Max       18          custo   not less   fat
                                    percent     mer     than 45%   36%
                                   Protein      needs  High       Digest
                                    not less            protein    ed
                                    than 37             not less   prote
                                    percent             than 46-   in
                                                        48%        85.5%
------------------------------------------------------------------------
GMO Testing     No       No        No testing  No      No         No
                 testin   testing               testi   testing    testi
                 g                              ng                 ng
------------------------------------------------------------------------
Falling         N/A      Minimum   N/A         N/A     N/A        N/A
 Numbers                  250 per
                          sec for
                          12.5%
------------------------------------------------------------------------
Mycotoxins      Total    Total     Total       Not     Total      Total
                 Aflato   Aflatox   Aflatoxin   requi   Aflatoxi   Aflat
                 xins     ins       s maximum   red     ns         oxins
                 maximu   maximum   20 PPB              maximum    maxim
                 m 20     2 PPB    Aflatoxin            20 PPB     um 20
                 PPB                B1                 Aflatoxin   PPB
                Aflatox            Maximum 10           B1        Aflato
                 in B1              PPB                Maximum     xin
                Maximum                                 10 PPB     B1
                 10 PPB                                           Maximu
                                                                   m 10
                                                                   PPB
------------------------------------------------------------------------
MRLs            Codex,   Codex,    Codex, EU   Codex,  Codex, EU  Codex,
                 EU and   EU and    and EPA     EU      and EPA    EU
                 EPA      EPA       Standards   and     Standard   and
                 Standa   Standar   Apply       EPA     s Apply    EPA
                 rds      ds                    Stand              Stand
                 Apply    Apply                 ards               ards
                                                Apply              Apply
------------------------------------------------------------------------
Heavy Metals    EU       EU        EU          EU      EU         EU
                 Standa   Standar   Standards   Stand   Standard   Stand
                 rds      ds                    ards    s          ards
------------------------------------------------------------------------
Radiation       EU       EU        EU          EU      EU         EU
                 Standa   Standar   Standards   Stand   Standard   Stand
                 rds      ds                    ards    s          ards
------------------------------------------------------------------------

Thailand
    The Government of Thailand requires mandatory pre-inspection by a 
government or private surveyor for imports of corn, soybeans, wheat, 
rice, soybean meal and DDGs prior to shipment for both bulk and 
containerized cargoes. The Government Agency responsible for the import 
testing for feed ingredients (soymeal and DDGs) is the Department of 
Livestock Development.
    Tests are conducted for moisture, oil and protein content, 
mycotoxins and heavy metals. The reported cost for testing for DDGs is 
$12-$24 per mt.
Philippines
    The Philippines Bureau of Customs (BOC) requires pre-inspection 
(via a third party or accredited private inspection company) of bulk 
and break-bulk shipments from all origins. Shipments will not be 
released to importers without load-port survey/inspection reports. At 
the current time, there is no pre-export government inspection 
requirement for containerized shipments, but the Philippine BOC is 
drafting legislation that would require pre-inspection of containers. 
The BOC has already advised the accredited load-port inspection 
companies (for bulk and break-bulk) to prepare for the expansion of 
work to cover containerized shipments. The BOC accredits SGS, Bureau 
Veritas, Cotecna and Intertek to perform bulk and break-bulk load-port 
inspections, which are audited by the BOC/Bureau of Internal Revenue. 
The cost for testing wheat for one vendor was reportedly $0.075 USD per 
metric ton. The Philippines Bureau of Plant and Industry which is part 
of the Philippines Department of Agriculture is responsible for any 
government testing upon arrival. Importers are not able to receive any 
relief from weight discrepancies but may file insurance claims for 
quality disputes. The current system is valuable for the government and 
all concerned in that it addresses under declaration in weight, 
misclassification, and under-evaluation. It is onerous and costly for 
U.S. origin exports which are already inspected by FGIS for quality and 
quantity. USDA FAS Manila reports that expansion of the mandatory pre-
shipment inspection requirement to containerized shipments will likely 
become a trade irritant.

                            Summary of Philippine Pre-Export Inspection Requirements
----------------------------------------------------------------------------------------------------------------
         Factors \1\              Corn          Wheat       Soybeans        Rice         Soymeal        DDGs
----------------------------------------------------------------------------------------------------------------
Moisture                                X             X             X                           X
----------------------------------------------------------------------------------------------------------------
Density                                 X             X             X                           X
----------------------------------------------------------------------------------------------------------------
Damaged Kernels
----------------------------------------------------------------------------------------------------------------
Impurities
----------------------------------------------------------------------------------------------------------------
Oil and Protein Content                 X             X             X                           X
----------------------------------------------------------------------------------------------------------------
GMO Testing                             X             X             X                           X
----------------------------------------------------------------------------------------------------------------
Falling Numbers                         X             X             X                           X
----------------------------------------------------------------------------------------------------------------
Mycotoxins                              X             X             X                           X
----------------------------------------------------------------------------------------------------------------
Quantity                                X             X             X                           X
----------------------------------------------------------------------------------------------------------------
Price Comparison                        X             X             X                           X
----------------------------------------------------------------------------------------------------------------

[Section Notes]
    \1\ Please note that GOE import law presently disallows/stipulates 
zero tolerance for ambrosia, so U.S. grain and soybean shipments are, 
from time to time, subject to screening and associated costs at ports 
of discharge.
    \2\ GASC has issued exemption (for French wheat) allowing up to 
13.5% until the end of February 2015.
Taiwan
    The Taiwanese Government does not require pre-export Government or 
private sector inspections for bulk or containerized corn, soybean, 
wheat, rice, soymeal or DDGs shipments from any of its import sources. 
Taiwan is reportedly adding a new requirement for pre-export inspection 
for radiation for products from Japan destined for food use. Import 
inspections are carried out at the Taiwanese port of entry into the 
Taiwan market by the Council of Agriculture's Animal Industry 
Department for feedstuffs and by the Ministry of Health and Welfare's 
Food and Drug Administration for foodstuffs. Starting on January 9, 
2015, shipments of corn and soybeans and processed byproducts of these 
two commodities are required to have certification for GE presence 
which is to be issued by either the export country's competent 
authority or the supplier. Private laboratories can be accredited to 
provide import compliant service on behalf of the Taiwan FDA by making 
a voluntary application to TFDA. Non-accredited laboratories are also 
eligible to compete for the TFDA business contracts which is supposedly 
awarded based on a review of qualitative criteria. Inspection results 
are audited by the government agencies responsible for feed and food. 
The Government of Taiwan does not intervene in weight discrepancies or 
disputes which are negotiated between the importers and exporters per 
the terms of the contract. The fee for inspections is determined on an 
ad valorem basis of 0.05% for corn, soybeans and wheat and 0.15% for 
other products on the CIF price. Importers pay the fee on non-compliant 
products and additional testing requirements can add to the inspection 
cost.
Pending Reform Plans in Competitor Export Countries
    Canada and the European Union are considering reforms for grain, 
feed or foodstuff inspection requirements, which may or may not enhance 
their grain and oilseed competitiveness versus U.S. origin exports.

     Amendments to the Canada Grain Regulations (Security)--Forward
                        Regulatory Plan: 2014-16
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Key changes proposed for the Canada Grain Act
 
  Enhance producer protection
 
    1. Extend producer access to Canadian Grain Commission binding
     determination of grade and dockage (this right is known as
     ``Subject to inspector's grade and dockage'') on deliveries to
     licensed process elevators, grain dealers, and container loading
     facilities.
 
       Producers have the right to ask the Canadian Grain
       Commission for binding determination on grade and dockage when
       the producer or the person delivering the grain disagrees with
       the grade or dockage assigned to a grain delivery.
 
       The producer is paid according to the Canadian Grain
       Commission's determination.
 
       Currently, this right is limited to deliveries at
       licensed primary elevators.
 
       Extending this right would resolve inconsistencies in
       producer treatment across the licensed grain handling system.
 
    2. Allow the Canadian Grain Commission to establish and administer a
     producer compensation fund to compensate producers when a licensee
     fails to pay for a grain delivery.
 
       The amendment would give the Canadian Grain Commission
       additional flexibility to implement an alternative producer
       payment protection model.
 
       The fund would be funded by licensee contributions, which
       would be based on their expected risk of failure and volume of
       grain purchases. Payments would be distributed to eligible
       producers when a licensee fails to pay.
 
       The fund would pool the risk of payment failure. It is
       anticipated that it would reduce industry costs and
       administrative requirements.
 
       Until a fund is developed, the existing security-based
       program and its requirements would continue, that is, producers
       would be covered by the security program, and licensees would be
       required to post sufficient security.
 
  Enhance grain quality and safety assurance
 
    1. Create a new class of licence for container loading facilities. A
     new class of licence would allow the Canadian Grain Commission to:
 
       Effectively respond to quality complaints on the
       increasing volume of grain shipped in containers.
 
       Improve statistical reporting.
 
       License the grain industry more consistently.
 
    2. Permit the Canadian Grain Commission to monitor, test and enforce
     grain safety issues in grain elevators in Eastern Canada as
     required where provincial authorities do not exist.
 
       The Canadian Grain Commission would have the ability to
       request samples of grain from Eastern elevators.
 
       The change would improve the Canadian Grain Commission's
       capacity to identify and mitigate safety issues and help resolve
       market access disputes.
 
       It would also provide a consistent, national approach to
       grain safety issues.
 
       The change would not expand the Canadian Grain
       Commission's licensing authority in Eastern Canada. Primary and
       process elevators east of Thunder Bay would continue to follow
       provincial regulations.
 
       The change would not be implemented until stakeholders
       and provincial governments in Eastern Canada have been consulted.
 
  Modernize the Canada Grain Act
 
    1. Clarify that the Canadian Grain Commission acts in the interest
     of all Canadians, including the entire grain sector and grain
     producers.
 
       This clarification would address stakeholder concerns
       that the current mandate, which speaks specifically of grain
       producers, is not in keeping with the Canadian Grain Commission's
       role as an unbiased regulator.
 
       All aspects of producer protection would be maintained,
       and the Canadian Grain Commission would continue to perform
       specific functions in the interests of producers, such as binding
       determination of grade and dockage (Subject to inspector's grade
       and dockage) and allocating producer cars.
 
    2. Establish a non-binding process for reviewing certain Canadian
     Grain Commission decisions, such as exemptions, licence
     suspensions, and refusals to grant permissions.
 
       The review process would consist of a panel of three
       members:
 
         one chosen by the party requesting the review.
 
         one chosen by the Canadian Grain Commission.
 
         one chosen by both parties.
 
       Currently, a stakeholders only recourse is to seek review
       by a court.
 
       The review process would be a less costly and more
       responsive way for stakeholders to appeal decisions that affect
       their businesses.
 
    3. Provide authority for the Minister of Agriculture and Agri-Food
     to appoint and reappoint members to the grain standards committees,
     upon recommendation of the Commission.
 
       The Minister would also establish the terms of office for
       the non-government members and establish a maximum term of
       office.
 
    4. Permit the Canadian Grain Commission to enact regulations that
     require producers and shippers to make declarations on grain
     deliveries.
 
       The Canadian grain industry implemented an industry-wide
       declaration system for western Canadian wheat in 2008.
 
       Currently, grain companies use declarations for most type
       of grain deliveries.
 
       Declarations are part of a larger quality management
       system for western Canadian grain, which includes testing and
       monitoring protocols for industry.
 
       Regulations would define the declaration process.
 
    5. Make certain offences under the Canada Grain Act subject to
     administrative monetary penalties under the Agriculture and Agri-
     Food Administrative Monetary Penalties Act.
 
       The amendment would allow the Canadian Grain Commission
       to respond more appropriately to common violations of the Canada
       Grain Act and would improve compliance.
 
    6. Permit licensees to refuse varieties of grain that are not
     registered under the Seeds Act for sale or import into Canada.
 
       The amendment would not exclude producers from declaring
       and delivering unregistered varieties.
 
       It would allow elevator managers some discretion
       regarding the orderly delivery of grain.
Date modified: 2014-12-09
------------------------------------------------------------------------

European Union
Brussels, November 2014
CELCAA Key Messages on Official Food and Feed Controls
    CELCAA is the voice of the European traders in agricultural and 
food commodities to the European Institutions, media and stakeholders. 
Cereals, oilseeds, animal feed, oils and fats, olive oil, agro-supply, 
meat and meat products, dairy products, wine, eggs, egg products, 
poultry and game, raw tobacco, essential oils and spices are covered by 
our umbrella.

    CELCAA supports the Commission proposal towards a European 
consolidation of harmonized, fair, efficient and transparent system for 
official controls on food and feed.

    Official controls contribute to the high level of food and feed 
safety in the EU, to consumer trust and to the good functioning of the 
internal market, and shall guarantee a level playing field for all 
operators across the EU. The Commission proposal aims at strengthening 
these principles, and goes in the right direction in terms of 
consolidating the current legislation.
    CELCAA would like to draw the attention of European decision-makers 
to the following points, which are crucial for the trade operators in 
the food and feed chain:

    Risk-based approach for import controls (Art. 8; Art. 47)

   CELCAA strongly supports the Commission's principle 
        supporting a risk-based approach and welcomes the proposal to 
        strengthen it. CELCAA calls for its full implementation by 
        competent authorities when programming and performing official 
        controls.

   The frequency of the physical and identity checks should take 
        due consideration of the risk-based principle, and hence should 
        depend on the past experience with the given product and 
        country of origin, as proposed by the Commission proposal.

    Controls by independent private bodies (Art. 25) and own controls

   CELCAA supports the importance of independent controls; as 
        the mandate for controls given to a public body can be too 
        restrictive in some cases, as in some Member States official 
        controls need to be performed by a third independent party 
        which can be both public and private.

   CELCAA welcomes the EU Parliament vote considering operators' 
        private quality schemes. Trade operators have invested heavily 
        in quality assurance systems and regular own controls, and 
        competent authorities should give due consideration to these 
        schemes when elaborating controls programs.

    Principle of equivalence of SPS requirements between the EU and 
third countries

   In line with the international principles of equivalence of 
        sanitary and phytosanitary requirements under the WTO, the 
        Commission proposal provides a series of requirements designed 
        to ensure that imported products meet standards at least 
        equivalent to those required for production in, and trade 
        between, Member States. This is welcomed by CELCAA.

   It is, therefore, of utmost importance that the EU system of 
        official controls remains fully embedded in this principle. 
        Without this principle, imports of much needed agri-food 
        products to the EU will risk breaching the legislation and thus 
        security of supply for EU consumers.

    Trade in bulk (Art. 75)

   CELCAA supports the Commission proposal recognising the 
        specific nature of bulk trading.

   Specific rules should apply to the collection, storage, 
        trading and transporting of bulk agricultural commodities.

   The delegated act envisaged by the EU Commission in this 
        respect should be maintained in the proposal and drafted in 
        close collaboration with representatives of traders in bulk 
        commodities.

    Common Health Entry Document (Art. 54)

   Traders should be thoroughly consulted on the draft design of 
        the Common Health Entry Document, so as to avoid duplication 
        with other requirements.

    Official certificates for exports

   The use of model official certificates should be optional; 
        Current practices need to be taken into account in instances 
        where an existing certificate has already been agreed 
        bilaterally between a Member State and a third country or where 
        a specific format is required by the third country and it may 
        be more appropriate to use this particular certificate.

    Right to second opinion (Art. 34)

   The right of the operator to apply for a second expert 
        opinion is of utmost importance for the agricultural sector. 
        CELCAA requests provisions to include a set timeframe to obtain 
        analytical results of a second sample which is imperative to 
        business and to avoid trade stoppages at ports.

    Transparency and Information Management System (Chapter II. Art. 
10; Art. 14)

   CELCAA strongly opposes the publication of individual control 
        results and the use of rating schemes (naming and shaming). 
        Information identifying individual operators should only be 
        published when there is an overriding public interest, i.e., a 
        serious risk to human health and according to criteria set at 
        EU level. In any case, operators should be given the 
        opportunity to defend themselves and their comments should be 
        published together with the control results.

   Similarly, CELCAA does not support the provision to grant a 
        legal basis to allow Member States to publish ratings of 
        individual operators. On the contrary, CELCAA supports the 
        strengthening of data protection in the current compromised 
        text (ref. Art. 133a and Art. 133b).

   Publication of multi-annual national control plans should be 
        drafted in consultation with traders.

   CELCAA is concerned about the provision of access to 
        information. Access to the business operators' computerised 
        information management system would need to take account of the 
        data privacy and protection and should be done only to the 
        extent that a food safety risk is justified. The access by 
        competent authorities to operators' documents and information 
        management systems needs to be restricted to those ones 
        required to verify compliance with food and feed law 
        requirements.

    Financing of official controls & principle of costs sharing 
(Chapter VI)

   Food safety is a common public good. CELCAA, therefore, 
        believes that official controls from public authorities should 
        be financed through public budget.

   As part of the shared responsibility in ensuring food and 
        feed safety, business operators have already invested in 
        certified quality management systems in their daily operations.

   Competent authorities, therefore, need to remain in charge of 
        the funding of the official control system as part of their 
        shared responsibility.

   Food and feed business operators have primary responsibility 
        for food safety. Official controls are under the responsibility 
        of competent authorities. Therefore, where mandatory fees 
        apply, a cost sharing system must be put in place to ensure 
        there is an incentive on both sides to carry out official 
        controls in an efficient manner.

   There is a need for further harmonisation of controls across 
        the EU which should be proportionate to the risk as currently 
        there is a huge variance between Member States.

   If in the event that a charge for the funding of official 
        controls is implemented, it must be a fundamental principle 
        that it is harmonised at EU level. The harmonisation of the 
        costs of controls at EU level is of utmost importance to the 
        trade and should be calculated and allocated in a way to ensure 
        fairness for all operators along the supply chain and to ensure 
        consistent as well as effective systems. This cost-sharing 
        system should follow the principle below:

     Where fees are collected, they must be collected from 
            all operators in a fair manner and should be proportionate 
            to the official controls performed, micro-enterprises 
            included.

     The Competent Authority must demonstrate a risk based 
            approach which is transparent to the Food Business 
            Operators.

     Fees should only be recovered and related to direct 
            costs linked to official controls on site (e.g., short 
            positive list: salaries, equipment and consumables) while 
            Competent Authorities should remain in charge of the 
            indirect costs.

     Competent Authorities should provide full transparency 
            to operators on the methods related to the costs linked to 
            charging.

   On the application of fees, CELCAA does not support the 
        provision that Competent Authorities do not release goods until 
        fees are paid which could amount to significant additional 
        costs for importers should vessels be delayed at the point of 
        import.

    Efficient controls according to the principle of thriftiness

   CELCAA strongly calls for competent authorities to carry out 
        performance and efficient controls; they should have 
        appropriate means to carry out their tasks.

   The time-efficiency in performing official controls, in terms 
        of staffs, procedures and equipment as well as in delivering 
        results by control authorities is essential for traders. 
        Potential inefficiencies by control authorities should be 
        avoided as they will create additional burdens to traders in 
        terms of costs and delay in discharging/delivering the goods.

   The principle of thriftiness should be clearly mentioned as a 
        principle to be duly followed by the competent authorities in 
        the core text of proposed legislation.

    CELCAA is the EU umbrella association representing EU organisations 
covering the trade in cereals, grains, oil, animal feed, agro-supply, 
wine, meat and meat products, dairy and dairy products, eggs, egg 
products, poultry and game, tobacco, spices and general produces. 
Members include COCERAL, UECBV, EUCOLAIT, CEEV, EUWEP, GAFTA, FETRATAB, 
CIBC. CELCAA's main objectives are to facilitate understanding of 
European decision-makers and stakeholders on the role played by the 
European traders in agri-food products; to act as a platform of 
dialogue and communication with the European Institutions and to 
encourage public and general interests in agri-trade issues.
                              Attachment 4
U.S. Grain and Oilseed Inspection Services Competitiveness Study
Customer Specifications and Preferences
March 15, 2015
W. Kirk Miller and Paul B. Green
WKMGlobal Consulting
3901 Chain Bridge Road, Fairfax, VA 22030
[email protected]
Table of Contents
  Introduction
  Executive Summary
  Background and Purpose

    Official Grain Inspection
    Additional Characteristic Certification

  Findings

    Choices for Inspection Services
    Selected Importing Country/Company Data Results

  Conclusions and Recommendations
  Appendices

    FGIS Services
    Excerpted from the National Oilseed Processors Association
    ``Trading Rules for the Purchase and Sale of Soybean Meal''
    Adopted October 18, 1933
Customer Specifications and Preferences
Introduction
    U.S. exporters are in a unique position to originate and provide a 
wide array of products that conform to the requirements of foreign 
customers. Better understanding foreign customer needs and capabilities 
of the U.S. export sector to adapt and deliver products that meet those 
needs will help the U.S. to maintain and grow its grain and oilseed 
market-share globally. An effective, efficient and reliable official 
export inspection and weighing system can enhance the competitiveness 
of U.S. grain exports and a system that is seen as inefficient or 
unreliable can damage competitiveness dramatically.
    Different inspection service and superintendence models are 
employed at major export locations around the world driven by 
government requirements, importer needs and exporter convenience 
balanced against reasonable costs for assuring the product quality and 
functionality. U.S. exports of most bulk grains and oilseeds, with few 
exceptions, are inspected and weighed by the USDA Federal Grain 
Inspection Service (FGIS) per a load order based on contract 
specifications. Load orders usually include requests for additional 
superintendent services to assure or provide test results covering 
intrinsic quality characteristics or socioeconomic considerations. The 
additional services may be provided by FGIS, if they offer the service, 
or by private superintendent companies per the contract.
Executive Summary
    Foreign buyers require additional third party tests to satisfy one 
or more of many possible motives, e.g.:

   To comply with importing government food safety requirements 
        such as for mycotoxins, MRL's and heavy metals.

   To satisfy customer, commercial processing information needs 
        for amino acid profiles, farinograph or amyleograph, falling 
        numbers, oil and protein content etc.

   To assure delivery of premium commodities or byproducts 
        which reduce freight costs on an end-use value basis.

   To provide testing and related services for non-standardized 
        grains.

   To satisfy socioeconomic considerations such as 
        sustainability and labor standards requiring certificates of 
        origin or custody documentation.

   To meet end-user GMO approved event compliance requirements.

   To verify FGIS results.

   To meet commercial documentation requirements such as 
        banking or customs requirements.

    Interestingly, some of the additional non-grade determining tests, 
which may be the most important factors in the marketplace, are not 
available from FGIS. This leads to the question of why the specific 
factors that are part of the official U.S. grade standards are the 
exclusive purview of the official U.S. Government inspection service, 
but other attribute tests that seem to matter as much or more to 
importers are optional and allowed to be performed by professional 
private superintendent firms.
    With private independent superintendent companies providing so many 
services both internationally and at U.S. export locations for foreign 
customers, especially customers demanding more rigorous international 
quality control regimens than those used by FGIS, it is apparent that 
these independent third party firms could be contracted to perform 
official services without a negative impact on market perceptions or 
customer confidence in U.S. origin products. They could be utilized to 
provide many of the mandatory inspection and weighing tasks that are 
now performed by Federal employees leading to overall efficiency gains 
and cost savings. FGIS could take advantage of the professional 
expertise that is available in the private sector and prioritize its 
activities toward meeting traditional governmental roles of standard 
setting, training, oversight and compliance.
Background and Purpose
    On behalf of the U.S. grain and oilseed export industry, the North 
American Export Grain Association has contracted with WKMGlobal 
Consulting to conduct a review of the global marketplace and determine 
what motivates foreign customer importers to request additional 
independent third party testing services above and beyond what is 
mandated under the U.S. Grain Standards Act. A competitive U.S. grain 
and oilseed export system will always be aware of trends that cause 
importer's contractual requirements for inspection and analysis to 
change and will be responsive to importer needs for additional 
information about export shipments. This report is to provide insight 
into those trends, identify the motivating factors behind them and 
explain the implications they might have for the U.S. grain handling 
system's ability to meet future needs in the most cost-effective 
manner.
    According to the project terms of reference, this work was to be 
based to a large extent on a comprehensive customer and exporter 
survey:

   To elicit the rationale and business case for specifying 
        certain additional private sector services or the rationale for 
        additional non-grade determining factors for U.S. grain and 
        oilseed export cargoes.

   To use U.S. cooperators to help distribute and collect the 
        survey information including the costs that are incurred for 
        the additional services.
Official Grain Inspection
    GIPSA's Federal Grain Inspection Service provides inspection 
services on grains, pulses, oilseeds, and processed and graded 
commodities. These services facilitate the efficient and effective 
marketing of U.S. grain and other commodities from farmers to domestic 
and international end-users.
    Official inspection services are divided into two basic types: 
``inspection for grade'' or ``factor analysis'' without grade. 
Inspection for grade involves analyzing the sample according to the 
quality factors listed in the Official U.S. Standards for Grain and 
certifying the applicable numeric grade designation, the quality 
factors responsible for the grade assignment, and any other quality 
factors the customer requests.
    Under the United States Grain Standards Act, the following 
activities are defined as mandatory export grain inspection and 
weighing services:

   Official weighing of most grain exported from the United 
        States and of inter-company barge grain received at export port 
        locations.

   Official inspection of most grain exported from the United 
        States.

   Testing of all corn exported from the United States for 
        aflatoxin prior to shipment, unless the contract stipulates 
        testing is not required.

    Mandatory inspection requirements do not apply to grain that is not 
sold or described by grade. Mandatory inspection and weighing 
requirements are waived for grain exporters shipping less than 15,000 
metric tons of grain abroad annually; for grain exported by rail or 
truck to Canada or Mexico; for grain sold as ``seed''; for grain 
transshipped through the United States in a bonded identity preserved 
fashion; and for high-quality specialty grain shipped in containers.
Additional Characteristic Certification
    Some commodities like rice and processed bulk grain byproducts like 
soymeal and dried distillers grains are not listed under the USGSA and 
are usually inspected by private third party inspectors under industry 
standards or in the case of rice under the auspices of the Agricultural 
Marketing Act by either USDA FGIS or independent third party surveyors. 
For standardized grains and oilseeds, FGIS tests for grade determining 
factors such as test weight, damage, foreign material, class and in 
some cases moisture established by FGIS. Non-grade determining factors 
or attributes may be tested by FGIS or independent third party 
surveyors depending on the agreement reached between the buyer and 
seller of the commodity.
    Additional non-grade determining factors or attributes that can be 
tested cover a wide range of analytical procedures from determination 
of intrinsic quality attributes to the presence of heavy metals, 
certain biotech events or pesticide residues. Sometimes independent 
third party contractors are needed to provide certificates for 
documentation requirements related to buyer chain of custody concerns 
or for socioeconomic or labeling purposes. USDA's FGIS performs some of 
these tests and services, but not all of them (Examples of tests not 
provided include biotech testing and weed seed identification) and many 
are conducted offsite from the export elevator location where the cargo 
is being sampled prior to export loading. A list of tests and fees that 
FGIS conducts is attached to this report as an addendum.
    It is noteworthy that independent third party laboratories often 
use International Standards Organization (ISO) or industry trade 
association standards that are often more rigorous than those 
established and used by FGIS. The formal ISO requirements for internal 
audits and feedback dictate that the private subscribers adhere to 
protocols that are of a global nature rather than standards developed 
and used only in the U.S. Also, many of the independent third party 
superintendent companies are the same firms that are conducting inbound 
inspections and surveys on behalf of U.S. export customers. It is in 
these firms own best self-interest to insure that the test analysis at 
U.S. origin are in line with the results that are determined at 
customer import locations.
    This report attempts to identify why foreign customers request 
independent third parties to perform these tests rather than simply 
have USDA FGIS perform the additional tests, which would seem to be the 
natural default condition since they are already on location and 
involved in the mandatory official testing.
Findings
    In accordance with our original study objectives, WKMGlobal 
developed an extensive and detailed customer preference survey. After 
further detailed discussion with representatives of U.S. Wheat 
Associates, U.S. Soybean Export Council, U.S. Grains Council, USA Rice 
and NAEGA, it was agreed that such an extensive, survey of importers 
might be an imposition on them and might yield redundant or incomplete 
data. This instead led to a multi-step alternative approach:

   Pursue input from a more select and targeted group of 
        companies from major market countries regarding the contractual 
        expectations from importers for inspection, quality 
        characteristic measurements and documentation.

   Review with U.S. exporter documentation experts their 
        knowledge of the drivers behind these contractual provisions 
        and the rigor behind the provisions.

   Interview some selected knowledgeable importer 
        representatives to determine their perspectives on what needs 
        are being met in the case of individual contractual inspection 
        document.

    The basis of this approach was to test the WKMGlobal original 
hypothesis that the drivers for trends in the characteristics being 
measured in international trade by the global food business could be 
grouped into categories:

  1.  Basic visual and physical characteristics of soundness, 
            cleanliness and accuracy of description and purity as 
            proscribed in the U.S. Grade Standards for standardized 
            grains.

  2.  Health and food safety characteristics as perceived and required 
            by Health Ministries.

  3.  Characteristics related to the processing performance of products 
            in the supply chain as they move toward their intended 
            uses.

  4.  Consumer or activist demands for information about their food and 
            its production methods.

  5.  Compliance with regulatory requirements that production methods 
            or processes have been completed and approved by the 
            importer.

    The interviews and document review undertaken in conjunction with 
this project clearly confirmed that as expected the first category of 
inspection requirements--the physical characteristics--was a necessary 
description and measurement needed for every cargo of U.S. export grain 
and oilseeds. However, it is also clear that analysis of physical 
characteristics is insufficient to meet the information needs of an 
increasingly sophisticated food supply chain with just mandatory USDA 
FGIS inspections. There was no indication from any stakeholder that the 
official FGIS certificates are no longer needed and should be 
abandoned.
    A second hypothesis that needed verification came from a different, 
but related study regarding customer acceptance of quality inspection 
from non-U.S. origins by private inspection companies. WKMGlobal 
surmised that the importers would also find that the current additional 
characteristic inspections that were being done by private inspection 
agencies to be sufficient and cost-effective. As with the categories 
assumption, the project sought to verify or reject that hypothesis.
    The study approach described above allowed WKMGlobal to compare 
contracts and tender language from various buyers and put 
characteristics requirements into the categories above. We then were 
able to take those buckets of inspection criteria as the basis for 
targeted questions to expert exporter and importer representatives.
    The end result was a confirmation of both hypotheses--

   Buyers are satisfied with the descriptive measurement of the 
        U.S. grain grades which provides for a definition of the basic 
        physical factors of the traded commodities and indicate 
        knowledge of the fact that the grade certificate is issued by 
        the U.S. Government.

   However, the demands of government regulators, food 
        processing customers and consumers (as indicated by the market 
        or activist demands) is leading to more specific, testing-
        related characteristic measurement
Choices for Inspection Services
    U.S. grain exporter sources confirmed to WKMGlobal that there are 
three models for requests from foreign buyers for additional 
characteristic inspection/documentation.

  1.  Requirement for documentation of additional characteristics with 
            no designation of which entity (private or FGIS) will 
            perform the sampling and testing.

  2.  Requirement for documentation of additional characteristics with 
            a selection of prospective companies to provide the 
            sampling and testing.

  3.  Requirement for documentation of additional characteristics with 
            a specific company to provide the sampling and testing.

    In the first two scenarios, the exporter is entitled to choose the 
company to provide the service. In telephone interviews, we were 
informed that the price for services was relatively competitive between 
private firms, so the more important factors for choice between firms 
were;

  a.  Experience and predictability of results (most export companies 
            have experience with major testing companies and the 
            predictability of testing results from those firms based on 
            both experience and 'round robin' lab calibration 
            participation).

  b.  Speed of turnaround for documents (Filing of documents with 
            banking officials has financial impact, so time is of the 
            essence in obtaining the results).

  c.  Relationship and physical proximity (if firm is already 
            performing inbound testing and are located in the export 
            facility, they have a built-in advantage to be designated 
            for the export testing).

    When asked by the authors whether the exporters would consider 
using FGIS for the optional inspections, we were told that it would be 
very rare, since FGIS is not perceived to be as competent in performing 
non-grade determination additional testing services's outside of the 
required grade factors. (Laboratory operator competence is often a 
function of the volume of tests being done and FGIS is not being used 
for nearly the number of tests that many private superintendent 
companies are.)
    According to the January 30, 2015 companion Export Competitor and 
Import Country Information study conducted by the authors, absolute 
cost comparisons between country inspections for cross-border commodity 
trade is very difficult due to differences in fee structures (i.e., 
hourly vs. tonnage vs. per sample) for specific tests. However, in that 
study the authors found that there is a global trend toward countries 
permitting private surveying firms to perform such services for the 
buyer and seller, with the only government involvement (if any) being 
accreditation to assure accuracy, competence and equipment calibration. 
In fact, many sovereign nations find that private standards 
organizations, such as the International Standards Organization (ISO), 
provide more rigorous certification of accuracy at lower cost than 
establishing individual government standards would entail.
    The USDA FGIS grain and oilseed export inspection and weighing 
system is based to a large degree on labor-intensive, subjective 
procedures and historical precedent that was a reaction to events forty 
years ago and fails to take full advantage of opportunities created by 
professional third party contractors using modern objective technology 
to establish marketing parameters that have greater utility in the 
marketplace.
    Since major U.S. competitors and foreign customers already 
recognize the efficiencies and cost savings accruing to the use of 
private surveyors to perform independent third party surveying 
services, it may be prudent for U.S. stakeholders to advocate for a 
more competitive model for official inspection and weighing services 
involving accredited independent third party surveyors here in the U.S. 
rather than such a heavy reliance on the U.S. Government monopoly 
services.
    According to a study conducted by the authors earlier this year, 
absolute cost comparisons between different origin country inspection 
costs for cross-border commodity trade is very difficult due to 
differences in fee structures (i.e., hourly vs. tonnage vs. per sample) 
for specific tests. However in that study, the authors found that there 
is a global trend toward countries permitting private surveying firms 
to perform such services for the buyer and seller, with the government 
involvement, if any, being such functions as accreditation to assure 
accuracy, competence and equipment calibrations.
    As part of this study, we learned that over 75% of U.S. exports are 
being inspected for some type of additional factors by private 
superintendent companies that are fully accepted by importers. That 
clearly demonstrates a high degree of confidence in the private sector 
surveyors by the parties to the export transactions. This would seem to 
further indicate that there would be significant value to U.S. 
competitiveness if the official inspection system would utilize private 
surveyors to perform the inspections under the strict supervision and 
oversight of FGIS. The conversion of FGIS to a regulator and use of 
accredited private contractors would be virtually the same as the 
domestic system used in the U.S. and not a ``privatization'' of the 
inspection system. It is better seen as inserting competition into the 
current monopoly and optimizing the government's role as the regulator 
and standard setting body, rather than service provider.
Selected Importing Country/Company Data Results
    Exporters, superintendent companies, and trade associations have 
provided contract information that indicates some of the additional 
tests that key buyers are requesting. We have tried to reach out to as 
many of those buyers to determine why they use third party surveyors to 
perform the tests.

--------------------------------------------------------------------------------------------------------------------------------------------------------
   Importing Country             Company                               Additional Attributes                               Rationale for Request
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Corn
--------------------------------------------------------------------------------------------------------------------------------------------------------
China                    COFCO                    Condition, phyto and chemical residues per qualified             Contract specification in recognition
                                                   independent laboratory or surveyor certificates.                 of Chinese CIQ and Ministry of
                                                                                                                    Health requirements.
China                                             Mycotoxins, heavy metals, residues and GMO's.
Cuba                                              GMO's, pesticide residues, heavy metals.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Wheat
--------------------------------------------------------------------------------------------------------------------------------------------------------
Algeria                                           Wet gluten, dry gluten, toxins, heavy metals, pesticides,
                                                   microbiology.
China                    Xiamen Mingsui Grains    Sound condition, phyto, chemical residue analysis, crop year     Contract specification in recognition
                          and Oils Trading Co.     certificate, and wood packing material by private surveyor.      of Ministry of Agriculture and CIQ.
Egypt                    GASC                     Wet gluten, dry gluten, toxins, heavy metals, pesticides and
                                                   microbiology.
El Salvador              Multi-Flour              Falling number, vomitoxin, and free of odor per first class      Customer contract specification.
                                                   independent laboratory.
Japan                    Food Agency              Comprehensive testing.                                           Japanese Food Agency requirements.
Jordan                                            Wet gluten, dry gluten, toxins, heavy metals, and microbiology.
Malaysia                 FFM Berhad               Mycotoxin, radioactivity, heavy metals, pesticide residues,      Customer contract language.
                                                   microbiology, scab and vomitoxin and certificate of origin
                                                   from nonstipulated vendor.
Nigeria                                           Wet gluten, dry gluten, toxins, pesticides, GMO's and flour
                                                   test.
Taiwan                   Taiwan Flour Mills       Protein, moisture, dockage, Extraction rate, bran, shorts,       Customer contract language.
                          Association              flour ash, farinograph, absorption rate, development time, and
                                                   stability time per specific private laboratories.
Saudi Arabia                                      Wet gluten, dry gluten, toxins, pesticides, microbiology.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Soybeans
--------------------------------------------------------------------------------------------------------------------------------------------------------
China                    COFCO                    Sound condition, oil and protein content, additional specific    Customer specification in recognition
                                                   phyto requirements, chemical residues and wood packing           of Chinese CIQ, Ministry of Health,
                                                   material certificates from private surveyors. Certificate of     and Chamber of Commerce from load
                                                   origin.                                                          port.
China                    Wilmar                   Mycotoxins, heavy metals, residues and GMO's.
Indonesia                FKS MultiAgro            Color, size and fragrance by private laboratory.                 Customer preference.
Philippines                                       Toxins, metals, residues, GMO's.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    This summary is not intended to be an exhaustive list of additional 
attribute testing requirements, but rather an indication of what some 
firms and origin markets are requesting. Not surprisingly since they 
are considered to be foodstuffs, rather than feedstuffs, wheat and rice 
have more intrinsic quality testing requirements than the other 
commodity grains and oilseeds. However when it comes to grain and 
oilseed byproducts, especially soymeal, they are traded on detailed 
criteria spelled out, not by FGIS, but by the association representing 
the manufacturers of the product and utilization of accredited 
independent third party laboratories and inspection agencies to perform 
most of the quality determination in commerce. (See attached excerpts 
of National Oilseed Processors Association Trade Rules.)
Conclusions and Recommendations
    According to information gathered from a wide array of sources 
including a review of foreign customer contracts and interviews with 
foreign contacts as well as U.S. experts, the U.S. grain supply chain 
and export trade is well-served by the existence of the USDA FGIS 
regulatory and standard setting body and official U.S. inspection 
certificates, but the actual delivery of export inspection and weighing 
services could be improved. It is our conclusion that foreign customers 
recognize the value of the independent third party superintendent 
companies and respect the testing results that they provide as part of 
export trade execution. This is demonstrated by the large extent to 
which they are currently utilized in export transactions, not only in 
the U.S., but elsewhere around the world. The flexibility, reliability 
and cost-effectiveness of the independent third party service providers 
generate measurable utility and value for the U.S. grain and oilseed 
export supply chain and foreign customers.
    It is our conclusion that foreign customers would benefit if a 
significant portion of the actual inspection and weighing work that is 
performed by Federal inspectors would be contracted out to accredited 
independent third party laboratories under the strict regulatory 
oversight of USDA FGIS. USDA FGIS would retain the responsibility for 
training and compliance and insure that service providers perform their 
assigned duties or be immediately replaced by another entity that will. 
This might not preclude FGIS from stepping in on a temporary basis to 
ensure that interruptions in service to foreign customers never occur 
at export locations.
Appendices
FGIS--Tests for Grading and Quality Factors
    Tests for Grading and Quality Factors (http://www.gipsa.usda.gov/
fgis/inspectionservices_testgrading.aspx)

    Inspection Services

   Original Inspection (white certificate)

   Submitted sample (pink certificate)

   Warehouseman inspection (yellow certificate)

   Re-inspections

   Appeal inspections

    Other Grain Tests

   Aflatoxin

   Vomitoxin (qualitative)

   Vomitoxin (quantitative)

   Waxy corn (per test)

   Corn Oil, Protein and Starch

   Falling Number (Wheat)

   Mycotoxin Analyses (Aflatoxin)

   Mycotoxin Analyses (DON)

   Mycotoxin Analyses (Zearalenone)

   Mycotoxin Analyses (Fumonisin)

   Pesticide Residue Analysis

   Soybean Protein and Oil

   Sunflower Oil

   Wet Gluten (http://www.gipsa.usda.gov/fgis/inspwgh/
        wet_gluten.pdf)

   Wheat Hardness

   Wheat Protein

   Cracked Corn Inspection

    Other Commodity Tests

   Sampling (http://www.gipsa.usda.gov/fgis/
        inpectionservices_sampling.aspx)

   Lots sampled online during loading

   Truck/trailer/container

   Railcar (per carrier)

   Barge (per carrier)

   Sacked grain

    Weighing Services

   Class X weighting

   Class Y Weighing

   Scale Testing services

   Scale testing and certification

   Evaluation of weighing and material handling systems

   Mass standards calibration and re-verification

    Stowage Examination Services

   Stowage examination (service on request) (http://
        www.gipsa.usda.gov/fgis/inspectionweighing.aspx#stow)

   Ships

   Subsequent ship examinations

   Barge

   All other carriers

    Other Services

   Interpretive line samples

   Rapid Test Kit Development Verification Service (http://
        www.gipsa.usda.gov/fgis/rapidtestkit.aspx)

   NTEP prototype evaluation (other than Railroad Track Scales) 
        (http://www.gipsa.usda.gov/fgis/inspectionweighing.aspx#ntep)

   NTEP prototype evaluation (Railroad Track Scales) (http://
        www.gipsa.usda.gov/fgis/weighingservices.aspx#railroad)

   Grain grading seminars

   Certification of diverter-type mechanical samplers

   International services

   Online customized data EGIS service

   Samples provided to interested parties

   Extra copies of certificates

    Laboratory tests

   Aflatoxin test (Quantitative--HPLC)

   Aflatoxin (Quantitative--Test Kit)

   Aflatoxin (Qualitative--Test Kit)

   Appearance and odor

   Ash

   Brix

   Calcium

   Carotenoid color

   Cold test (oil)

   Color test (syrups)

   Cooking test (pasta)

   Crude fat

   Crude fiber

   Falling number

   Free fatty acid

   Insoluble impurities (oils and shortenings)

   Iron enrichment

   Lovibond color

   Moisture

   Moisture and volatile matter

   Oxidative stability index (OSI)

   Peroxide value

   Popping ratio

   Protein

   Sanitation (filth light)

   Sieve test

   Smoke point

   Solid fat index

   Visual exam

   Vomitoxin (Qualitative--Test Kit)

   Vomitoxin (Quantitative--Test Kit)

    Laboratory Working Instructions

   Cooked Bostwick Method--Corn Soy Blend (http://
        www.gipsa.usda.gov/fgis/inspwgh/cooked_bostwick.pdf)

   Determination of Vitamin A as Retinyl Palmitate in 
        Processed-Grain Commodities (http://www.gipsa.usda.gov/fgis/
        inspwgh/vita3r01.pdf)

   Determination of Iron in Cereal Grains and Seed Oils by 
        Flame AA (http://www.gipsa.usda.gov/fgis/inspwgh/
        WI_Iron_Flame_AA.pdf)

   Sieve Method--Corn Soy Blend (http://www.gipsa.usda.gov/
        fgis/inspwgh/sieve_method_csb.pdf)

   Uncooked Bostwick Method--Corn Soy Blend (http://
        www.gipsa.usda.gov/fgis/inspwgh/uncooked_bostwick.pdf)

    Miscellaneous Processed Commodities

   Falling Number

   Aflatoxin--Non Field Run

    Graded Commodities (Beans, Peas, Lentils, Hops, and Pulses)

   Field Run (per lot or sample)

   Other Than Field Run

   Factor Analysis

    Last updated: 06/26/2013
Excerpted from the National Oilseed Processors Association Trading 
        Rules for the Purchase and Sale of Soybean Meal
Adopted October 18, 1933
    RULE 2--QUALITY

Section 1. Standard Of Quality

    a. The standard of quality shall be the soybean meal of fair 
merchantable quality conforming to standard definitions and standard 
specifications of the Association, as set forth in these Trading Rules.
    b. Analysis shall be made in accordance with methods approved by 
the American Oil Chemists' Society (AOCS) in effect as of the date of 
the contract.

Section 2. Standard Definitions

    a. Soybean Cake or Soybean Chips is the product after the 
extraction of part of the oil by pressure or solvents from soybeans. A 
name descriptive of the process of manufacture, such as ``expeller,'' 
``hydraulic,'' or ``solvent extracted'' shall be used in the brand 
name. It shall be designated and sold according to its protein content.
    b. Soybean Meal is ground soybean cake, ground soybean chips, or 
ground soybean flakes. A name descriptive of the process of 
manufacture, such as ``expeller,'' ``hydraulic,'' or ``solvent 
extracted'' shall be used in the brand name. It shall be designated and 
sold according to its protein content.
    c. Soybean Mill Feed is the byproduct resulting from the 
manufacture of soybean flour or grits and is composed of soybean hulls 
and the offal from the tail of the mill. A typical analysis is 13% 
crude protein and 32% crude fiber, and 13% moisture.
    d. Soybean Mill Run is the product resulting from the manufacture 
of dehulled soybean meal and is composed of soybean hulls and such bean 
meats that adhere to the hull in normal milling operations. A typical 
analysis is 11% crude protein and 35% crude fiber, and 13% moisture.
    e. Soybean Hulls is the product consisting primarily of the outer 
covering of the soybean. A typical analysis is 13% moisture.
    f. Solvent Extracted Soybean Flakes is the product obtained after 
extracting part of the oil from soybeans by the use of hexane or 
homologous hydrocarbon solvents. It shall be designated and sold 
according to its protein content.

Section 3. Standard Specifications

    a. Soybean Flakes and 44% Protein Soybean Meal are produced by 
cracking, heating, and flaking soybeans and reducing the oil content of 
the conditioned product by the use of hexane or homologous hydrocarbon 
solvents. The extracted flakes are cooled and marketed as such or 
ground into meal. Standard specifications are as follows:

 
 
 
    Protein.........................................      Minimum 44.0%
    Fat.............................................       Minimum 0.5%
    Fiber...........................................       Maximum 7.0%
    Moisture........................................      Maximum 12.0%
 

    b. Soybean Flakes and High Protein or Solvent Extracted Soybean 
Meal are produced by cracking, heating, and flaking dehulled soybeans 
and reducing the oil content of the conditioned flakes by the use of 
hexane or homologous hydrocarbon solvents. The extracted flakes are 
cooled and marketed as such or ground into meal. Standard 
specifications are as follows:

 
 
 
    Protein...............................         Minimum 47.5-49.0% *
    Fat...................................                 Minimum 0.5%
    Fiber.................................           Maximum 3.3-3.5% *
    Moisture..............................                Maximum 12.0%
 
* As determined by Buyer and Seller at time of sale.

    c. Any of the above meal products (listed in Section 3 above) may 
contain a non-nutritive inert, non-toxic conditioning agent to reduce 
caking and improve flowability, in an amount not to exceed that 
necessary to accomplish its intended effect and in no case to exceed 
0.5% or 10 lbs. per ton by weight of the total meal product. The name 
of the conditioning agent must be shown as an added ingredient.
          * * * * *
    Appendices to Trading Rules for the Purchase and Sale of Soybean 
Meal

Appendix A. Official Methods of Analysis

    Testing methods as adopted by the American Oil Chemists' Society 
(AOCS) shall be used as the official methods of analysis, except as 
otherwise specified.
    The method numbers listed below indicate the latest issue at the 
time of this publication. It behooves the user of these methods to make 
certain that the user has available and is following the latest version 
of each specific method.

        Moisture--AOCS Method Ba 2a-38
        Protein--AOCS Method Ba 4e-93
        Crude Fiber--AOCS Method Ba 6-84
        Oil--AOCS Method Ba 3-38

    The analysis for moisture content shall be performed in duplicate 
on the unground, as received, soybean meal sample.
    A second analysis for moisture content and all other constituent 
analyses shall be performed in duplicate on the sample after grinding.
    The average ground moisture content shall be used to convert the 
average constituent values to the average moisture content of the 
unground sample as received, and to a 12% moisture basis. A signed and 
numbered AOCS Certificate of Analysis shall be used to report the 
average moisture and constituent values on an unground moisture basis 
and on a 12% moisture basis.
          * * * * *
    Appendix L. Official Referee Laboratories for Soybean Meal (2014-15 
AOCS/NOPA Certified Laboratories)

    The Association has designated as Official Referee Laboratories for 
Soybean Meal those laboratories certified to it by AOCS, as follows:

    Admiral Testing Services, Inc.
    12111 River Rd.
    Luling, LA 70070
    +1-504-734-5201

    ATC Scientific
    312 North Hemlock
    North Little Rock, AR 72114
    +1-501-771-4255

    Barrow-Agee Laboratories, Inc.
    1555 Three Place
    Memphis, TN 38116
    +1-901-332-1590

    Carolina Analytical Services LLC
    17570 NC Hwy 902
    Bear Creek, NC 27207
    +1-919-837-2021

    Cumberland Valley Analytical
    14515 Industry Drive
    Hagerstown, MD 21742
    +1-301-790-1980

    Eurofins Scientific
    2200 Rittenhouse St.
    Suite 150
    Des Moines, IA 50321
    +1-515-265-1461

    Hahn Laboratories, Inc.
    1111 Flora St.
    Columbia, SC 29201
    +1-803-799-1614

    Intertek Agri Services
    160 East James Dr. Suite 200
    St. Rose, LA 70087
    +1-504-602-2100

    K-Testing Laboratory, Inc.
    1555 Three Place Suite A
    Memphis, TN 38116
    +1-901-525-0519

    SGS North America
    151 James Dr. W.
    Saint Rose, LA 70087
    +1-504-463-3320

    Thionville Laboratories, Inc.
    5440 Pepsi St.
    Harahan, LA 70123
    +1-504-733-9603

    Whitbeck Laboratories, Inc.
    1000 Backus Ave.
    Springdale, AR 72764 USA
    +1-479-756-1270

    The Chairman. Thank you. Again, I thank the witnesses for 
your quick and concise testimony.
    We will now begin questioning. I will start with myself. I 
recognize myself for 5 minutes.
    As I said in my opening statement, the events that caused 
disruptions last year at the Port of Vancouver were unfortunate 
and, I believe, entirely avoidable. Mr. Friant, can you 
describe for us some of the economic consequences that resulted 
for the grain trade?
    Mr. Friant. I don't know the answer to that at this time. I 
was not specifically involved in those facilities, but I would 
be happy to visit with my NGFA colleagues and----
    The Chairman. Okay.
    Mr. Friant.--follow up at a later time.
    [The information referred to is located on p. 72.]
    The Chairman. Okay. Mr. Winkles, when Washington State 
withdrew its inspectors and USDA failed to fill in, my 
understanding is that South Carolina Department of Agriculture 
offered to help but they were met with some resistance. Do you 
have a sense of what prevented South Carolina from stepping in 
to help maintain inspections?
    Mr. Winkles. Unfortunately, Mr. Chairman, I do not. I am 
very well aware of the services provided by the South Carolina 
Department of Agriculture because they were the designated 
officials in South Carolina when we had our export facility in 
Charleston. We had a very close working relationship with them, 
but I am not aware of the exact circumstances of why they were 
not allowed to fill in.
    The Chairman. Would you support a change in the law that 
would authorize state agencies, either delegated or designated 
under the Act, to step in in the event USDA was unable to 
fulfill their inspection obligations?
    Mr. Winkles. Yes.
    The Chairman. You would, all right.
    Let me go back to Mr. Friant. In your testimony, you 
mentioned that farm, commodity, and agribusiness organizations 
urged the Secretary of Agriculture to take action on the 
inspection service disruptions. We all know how the Secretary 
responded, but was the issue ever addressed by the GIPSA 
Advisory Committee, whose mission it is to provide advice to 
the GIPSA Administrator with respect to GSA implementation?
    Mr. Friant. Yes, as a matter of fact, on two accounts at 
two separate GIPSA Advisory Committee meetings, there were 
resolutions from the committee. If you would like, I could read 
you those resolutions.
    The Chairman. If you would submit them for the record, that 
would be great.
    Mr. Friant. Yes, we can do that.
    [The information referred to is located on p. 71.]
    The Chairman. Thanks. And then finally, in your testimony, 
Mr. Friant, you mentioned the competitiveness of the United 
States as an exporter of bulk grain and oilseed in the global 
market. In general, how competitive is the bulk grain and 
oilseed market?
    Mr. Friant. In general, the market is a very competitive 
market on a global basis.
    The Chairman. And how does our current official inspection 
system compare to ones that are used by foreign competitors in, 
say, Europe, Asia or Latin America?
    Mr. Friant. As referenced in my testimony, NAEGA 
commissioned two studies to compare the U.S. systems to other 
systems, which have been submitted as part of the record. In 
those reports, what you will find is that the U.S. is one of 
two countries that still require government-mandated 
inspections by government employees. More broadly on a global 
basis, third parties are utilized by the individual countries 
to provide those official inspection services.
    The Chairman. Thank you.
    I yield the balance of my time. I now recognize the Ranking 
Member, Mr. Walz, for 5 minutes.
    Mr. Walz. Thank you, Mr. Chairman. And thank you all for 
your testimony.
    Mr. Winkles, I thank you, and you do have a unique 
perspective on this of actually being in the grain business, 
working the elevator. How would you describe, your opinion, the 
working relationship with the grain inspectors?
    Mr. Winkles. We have a very, very good relationship. As I 
mentioned earlier, we work very closely with South Carolina 
Department of Agriculture, the grain inspectors that were 
sanctioned by FGIS. Frankly, we would not have been able to 
operate the facility without that assistance provided by those 
grain inspectors.
    Mr. Walz. Does the system work? When it is working, does it 
work?
    Mr. Winkles. Absolutely. It is working fine. Granted, we 
all know that technologies have changed, but the world 
standards are number 2 yellow corn, number 2 soybeans. So the 
system is working, and we have to have a standard.
    As I have noted, my personal experience, I have been able 
to participate in some foreign ag service trips to Asia. Our 
Asia friends tend to have a unique negotiating perspective, and 
it really is important to be able to have that standard to say 
this is what you purchased, and this is what it is guaranteed 
to be.
    Mr. Walz. Have any of you witnessed a situation that 
happened in Washington, or do you have another example of that 
happening, a disruption of that magnitude? Would it be safe to 
say then, at this point in time it is an isolated case?
    Mr. Friant. I am not aware of any other issues, but again, 
we could work with our colleagues at NAEGA to see if there are 
other disruptions----
    Mr. Walz. Yes.
    Mr. Friant.--in service similar----
    Mr. Walz. Because we looked at this one too, and if I 
could, Mr. Chairman, submit to the record, the Washington State 
Delegation, in a bipartisan manner, unanimously sent a letter 
and said the system works, don't mess up the system, just 
address it so that we have a safeguard in there in case this 
situation arises. So I am interpreting that that they are 
pretty happy with the way the system is functioning, when it 
is, make sure we put something in place to make sure this 
doesn't happen.
    [The information referred to is located on p. 71.]
    Mr. Walz. And so I want to come back, Mr. Friant. You are 
asking for some changes on this. Could you tell me the cost of 
official grain inspection here as opposed to the other 
countries you talk about? It is far more expensive, about a 
penny a bushel, is that correct?
    Mr. Friant. I don't know exactly what that number is, but 
working with NGFA and NAEGA, we could certainly follow up at a 
later date with that information.
    Mr. Walz. If you would, that would be great.
    Mr. Cox, on this, how many inspectors are employed?
    Mr. Cox. There are approximately 200 inspectors that are 
employed. There are about 400 employees, some of them do 
various things, but about 200 inspectors nationwide.
    Mr. Walz. Would you happen to know the length of time that 
they have been doing that? The average length of time.
    Mr. Cox. Many of them have been doing it a lifetime because 
it takes about 2 years to train a person for them to be able to 
function to do the work of a good quality nature. It is not 
something that someone goes to school and automatically gets a 
degree and is prepared to do it.
    Mr. Walz. So to train up a reserve force to step in in a 
situation like Washington State, are there people out there 
that can do that right now?
    Mr. Cox. I do not believe there is.
    Mr. Walz. Okay. This one is interesting, and, Mr. Friant, 
the value-added that the inspectors add is an important topic 
you brought up, and you mentioned on this the non-grade 
determination testing that private third parties are doing. Has 
the industry asked FGIS to do that also in addition to their 
normal duties of weight?
    Mr. Friant. Well, normally those are requests from the 
buyer to have completed, and we work with the buyer on who they 
would generally like to have perform the service. It is not 
generally a request that is made directly to the Federal Grain 
Inspection Service.
    Mr. Walz. Okay, so it is not as if they asked and they said 
no that we are not going to do this, am I right in my 
interpreting this that there is a value-added that you said 
these other groups can provide that FGIS is not right now?
    Mr. Friant. There could be other tests that are requested 
for commercial purposes, potentially around functional 
properties that FGIS is not able to perform.
    Mr. Walz. Not able or not willing?
    Mr. Friant. My understanding is not able.
    Mr. Walz. Okay. Mr. Cox, do you know, at this point, how 
that would be if there were these requests from buyers to add 
to what is there, can that be done?
    Mr. Cox. I couldn't say for sure, sir, that I am not an 
expert on the total grain inspection process, but I am told by 
our membership that they are quite capable of doing the work 
that is requested of them on a regular basis.
    Mr. Walz. I would end with Mr. Winkles', it was in your 
testimony, you served this right, it is how our customers view 
this process is paramount in this, and if those are things that 
can enhance what we are doing, that is an area that we should 
explore, but I would also make the case that I do think we need 
to learn from what happened in Washington, but I would caution 
us not to upset a very good and functional system over that 
incident.
    I yield back.
    The Chairman. I thank the gentleman.
    I now recognize the gentleman from Georgia, Mr. Scott, for 
5 minutes.
    Mr. Austin Scott of Georgia. Thank you, Mr. Chairman.
    Mr. Friant, I want to follow up a little bit on what 
Congressman Walz was talking about with the testing. And can 
you give us some examples of the kinds of tests that are being 
performed by the independent third parties, who is requesting 
these tests, and are they being done primarily at the request 
of a particular end-user, or is that coming from an importer or 
a broker?
    Mr. Friant. When it comes to additional testing, it really 
depends on what the buyer, and that could be the end-user 
themselves or the importer in the country, what they are 
requesting. Some tests are requested for grade determining 
factors to cross-check or verify the FGIS results. And then 
they also may be doing additional non-grade determining factors 
such as protein and oil. They could be doing additional testing 
for mycotoxins or, as I mentioned, other functional properties 
of the grain or products that they are buying. And we also see 
more requests or more information shared around more crop 
analysis, what does the overall crop look like, because we 
aren't necessarily just selling one shipment at a time. Buyers 
are looking at what does the U.S. crop look like more broadly.
    Mr. Austin Scott of Georgia. And what percentage of the 
grain that is shipped out has some type of third party testing?
    Mr. Friant. In the studies that were performed on behalf of 
NAEGA, more than 75 percent of grains and oilseed exports are 
inspected for some additional commercial requirements by the 
buyer.
    Mr. Austin Scott of Georgia. By a private inspector?
    Mr. Friant. By a private inspector, yes.
    Mr. Austin Scott of Georgia. Seventy-five percent of what 
is exported.
    Mr. Friant. Yes.
    Mr. Austin Scott of Georgia. Is most of that just a double-
check of the grade and weight, or is most of that getting into 
more detailed analysis of the actual individual grain shipment?
    Mr. Friant. I don't know the exact breakdown of which types 
of tests are being performed.
    Mr. Austin Scott of Georgia. Mr. Chairman, most of the 
questions that I have, or that I had, have been asked by you or 
Mr. Walz.
    Gentlemen, thank you for coming and testifying. And with 
that, I yield back the remainder of my time.
    The Chairman. I thank the gentleman. And I now recognize 
the Ranking Member of the full Committee, Mr. Peterson, for 5 
minutes.
    Mr. Peterson. Thank you, Mr. Chairman.
    Most of the questions have been answered, or asked that I 
was going to ask, but, Mr. Friant, is that how you say your 
name? Friant?
    Mr. Friant. Friant.
    Mr. Peterson. Friant, I am sorry. In your testimony, you 
were talking about the delegation to state agencies, and that 
it is not transparent. Do you guys have a problem with what the 
states are doing out there in terms of inspection? I have not 
heard that in our area, what are you getting at there?
    Mr. Friant. Well, the point that we are trying to address 
is that the current process for designating agencies is open to 
the Federal Register rule and comment-making process, whereas 
the delegation of states is not subject to that same 
transparent process on how the state is being delegated. The 
length of the delegation, it is not limited, it is an unlimited 
delegation. And so we are simply proposing to bring some 
transparency to that process.
    Mr. Peterson. I mean what is the problem you are trying to 
get at? What problem exists that you think we are not finding 
because it is not transparent?
    Mr. Friant. Really, we would like it to be harmonized with 
what happens on the designation process on the domestic side, 
so we are--the system is a more harmonized systems process.
    Mr. Peterson. So you mean some states are doing different 
things that are causing you problems, is that----
    Mr. Friant. Not doing different things, but we would just 
like to see the process itself between delegation and 
designation be a harmonized or standardized process, whereas 
today, it is two separate processes, to delegate a state versus 
designate a domestic facility--a domestic inspection agency.
    Mr. Peterson. I am still not totally understanding what the 
problem is that you are trying to resolve here.
    Mr. Friant. So maybe it would be----
    Mr. Peterson. How does that impact you in the marketplace?
    Mr. Friant. Yes. So maybe it would be best if NGFA and 
NAEGA could follow up with you at a later date to go through 
some more detail?
    Mr. Peterson. The question that Mr. Walz asked about the 
price, as I understand it, Mr. Cox's testimony, it is about a 
penny a bushel.
    Mr. Cox. Yes.
    Mr. Peterson. Something like that. So you think that is too 
expensive, Mr. Friant?
    Mr. Friant. No, but we have opportunities around an even 
more reliable cost-effective system.
    Mr. Peterson. But you don't have the information in terms 
of how we stack up against other countries or other----
    Mr. Friant. I don't have that information in front of me at 
this time, but I believe the two are----
    Mr. Peterson. Do you have that information?
    Mr. Friant. I think the reports from NAEGA would help 
clarify that comparison.
    Mr. Peterson. Well, if you could make that available to the 
Committee we would appreciate that.
    Thank you. I will yield back, Mr. Chairman.
    The Chairman. Thank you. The gentleman yields back.
    I recognize the gentleman from Georgia, Mr. Allen, for 5 
minutes.
    Mr. Allen. Thank you, Mr. Chairman. And we do appreciate 
you coming and sharing with us today.
    In your testimony, Mr. Cox, you were talking about the 
privatization factor as far as inspection goes and, of course, 
reading your testimony, obviously, privatization seems to be a 
big issue. What is the general attitude of the farm community 
out there about your service versus privatization?
    Mr. Cox. We believe that the farm community wants Federal 
inspectors, and has had a good relationship with Federal 
inspectors. And I believe if you look back at the history of 40 
years ago, things were not going very well in this country, and 
that is the reason that the government created Federal 
inspectors, to make sure that grain was meeting a proper 
standard, and that the weights were proper, and those type 
things. So I believe in general, farmers are happy with the 
service that the Federal inspectors provide, and the oversight, 
because some are states, some various things, but the 
government does provide the oversight of the general inspection 
process.
    Mr. Allen. And then a decision by the Washington State 
Department of Agriculture to withdraw its inspectors last year 
was unfortunate. Can you identify the immediate economic 
consequences that were felt by the grain trade there----
    Mr. Cox. Yes----
    Mr. Allen.--when this occurred?
    Mr. Cox. Yes, sir, I am sure there was economic 
consequences that are felt any time that there is a labor 
dispute, sir, and I am very much aware of those.
    Mr. Allen. Okay. How much of this goes on as far as the--
obviously, we had this situation here, where we only have so 
much time--and we export a lot of this. What provisions in this 
new authorization can we use to guard against that sort of 
thing as far as these unfortunate circumstances?
    Mr. Cox. It would appear that the Committee is certainly 
trying to work through various processes, and I believe from 
the knowledge that I have during the labor dispute that went on 
in the State of Washington that there were other companies in 
this country who were prepared to inspect grain and to move 
grain out of the country as such, and maybe people did not use 
them and move them around. I am not a total expert----
    Mr. Allen. Yes.
    Mr. Cox.--on the process of how grain is exported from this 
country, but I do know that there were other companies that had 
bargained contracts with their unions, and were open for 
business, and were willing to take that business and to move 
forward with it.
    Mr. Allen. Mr. Winkles, your take on this and as I said, in 
reauthorization we can deal with these unfortunate delays that, 
obviously, are penalizing our farmers and those in this 
industry.
    Mr. Winkles. Well, thank you, Mr. Allen. One thing it does 
is it creates uncertainty, and that always has a negative 
impact on business----
    Mr. Allen. Right.
    Mr. Winkles.--the business climate. I understand, I believe 
there was some grain actually had to be moved from----
    Mr. Allen. Right.
    Mr. Winkles.--one place to another. Transportation of grain 
is very expensive, and a truck is one of the most expensive 
ways to move it, and it has the greatest environmental impact, 
if you would.
    Mr. Allen. Yes.
    Mr. Winkles. We need to be very careful so that we make 
sure that we have contingencies in place so that we don't 
disrupt the flow of grain.
    The grain trade is very interesting, very interesting 
business model. When you have grain exporters who, very often, 
the destination may change once it leaves its port, headed to 
its destination, the destination may very well change relative 
to their overall movement. So again, that is why it is so 
important that we have standards in place, and that the grain 
trade has the flexibility to be able to continue to operate 
that way.
    Mr. Allen. Right. Thank you, Mr. Winkles.
    I yield back the remainder of my time, Mr. Chairman.
    The Chairman. I thank the gentleman from Georgia.
    And we will recognize the gentleman from Georgia, Mr. 
Scott. I will just say that Georgia is very well represented on 
this Committee.
    Mr. David Scott of Georgia. Absolutely. We take care of 
business in Georgia.
    Voice. How did I get ahead of Mr. Scott?
    Mr. David Scott of Georgia. It is wonderful to be here.
    Mr. David Cox, you represent the American Federation of 
Government Employees as the President of that union, and you 
represent the grain inspectors, so I want to direct this 
question at you. The last reauthorization of the U.S. Grain 
Standards Act was in 2005, and there was a study commissioned 
to assess the impact of using private contractors to conduct 
export grain inspections. Now, I reviewed that report in great 
detail and I noticed something. I noticed that the study 
concluded that, ``that the use of private contractors did not 
demonstrate additional savings or efficiencies that would 
enhance the competitiveness of U.S. grain exports in the global 
market.'' I found the report to be pretty thorough and well put 
together, but I would like to give you a moment, as the 
President of the union that represents the grain inspectors, a 
moment to add any additional thoughts you might have to that 
conclusion in that study.
    Mr. Cox. Clearly, the report speaks for itself, but also 
the fact that, again, you are dealing with a job, a profession, 
a trade, that is learned by doing it. You have to have an 
ongoing process where you have people actually do the work, 
learn how to do the work, are mentored in the process, and it 
is all on-the-job learning in the process. And to have a supply 
of people, yes, I believe that the government is going to have 
to have an element of oversight to make sure that people are on 
those jobs, trained in the jobs. And the cost-effectiveness, 
the report speaks for itself, and the inspection of a 1 a 
bushel, even from North Carolina, I know the size of a bushel--
--
    Mr. David Scott of Georgia. Yes.
    Mr. Cox.--that 1 is a very reasonable price to be paid. 
And we believe----
    Mr. David Scott of Georgia. Okay.
    Mr. Cox.--that the grain inspectors have done a very, very 
good job. Again, the comment has been made, there was one 
incident from the last 80 years, and it appears that bipartisan 
support, you are trying very hard to deal----
    Mr. David Scott of Georgia. Okay.
    Mr. Cox.--with those type of incidents.
    Mr. David Scott of Georgia. And to the panel, I want to ask 
this question. I am aware that the bulk of the U.S. Grain 
Standards Act of 1916 is permanently authorized, but there are 
a few provisions that are not: first, the authority to pay for 
the FGIS's operation, and improvements to the inspection 
procedures would expire; second, the collection of fees for 
certain supervisory inspections and weighing namely for the 
state agencies to conduct export inspections would be halted; 
third, the Grain Inspection Advisory Committee, GIAC, which 
serves as the stakeholder link between the FGIS and the 
agriculture industry, would lose authorization; and fourth, a 
30 percent cap on administrative and supervisory costs relative 
to the total cost for inspection, services would be lifted.
    What I wanted to get, if you all could expand on these non-
permanent provisions, and how you think the industry would be 
affected if we did not have legislation reauthorized by 
September 30.
    Mr. Winkles. Let me start, Mr. Scott. As you know, I 
addressed in my testimony the fact that we really feel it is 
important to have this advisory committee reauthorized. We also 
feel it is very important to have the user fees reauthorized.
    Mr. David Scott of Georgia. Yes.
    Mr. Winkles. We understand in this time of tight government 
budgets, at the national level as well as the state level, that 
the users be required to pay for these services. They are very 
reasonable, as has been mentioned before, so we strongly 
support that these provisions, that will expire, be 
reinstated----
    Mr. David Scott of Georgia. Good.
    Mr. Winkles.--as soon as possible. Thank you.
    Mr. David Scott of Georgia. I agree. Anyone else?
    Mr. Cox. I think it is very, very important to get it done 
and to get it done quickly. I am sure all the Members of 
Congress, as well as myself, are always familiar what happens 
when we don't get legislation authorized, and we don't have 
monies appropriated, it becomes very chaotic for the entire 
country.
    Mr. David Scott of Georgia. Yes.
    Mr. Cox.--and grain exports are very, very important to 
this country, and we need to have this legislation to move.
    Mr. David Scott of Georgia. All right. Thank you, Mr. 
Chairman.
    The Chairman. The gentleman yields back.
    And I recognize the full Committee Chairman, Mr. Conaway, 
for 5 minutes.

OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE 
                     IN CONGRESS FROM TEXAS

    Mr. Conaway. Well, thank you, Mr. Chairman.
    I just have one line of questioning. Mr. Cox, you guys may 
have already covered this, and I apologize if you did, in the 
Washington State incident, there was a labor dispute between 
the elevator and the longshoremen, and the inspectors finally 
decided to not cross the line. Is that what happened there, 
that is why we quit inspecting grain, or was there just no 
grain being loaded?
    Mr. Cox. I am not----
    Mr. Conaway. Okay.
    Mr. Cox.--familiar with all----
    Mr. Conaway. Well, what----
    Mr. Cox.--the actual specific things.
    Mr. Conaway. The program allows for if and when the state 
delegated authority pulls their inspectors, then there is a 
duty for USDA to send in inspectors, and USDA failed that duty 
under some argument that it was unsafe. Are there reports of 
violence associated with that strike? Are there police reports 
we can look at, were there people beaten up, was there 
intimidation, what all went on that caused the violence that 
was referred to that prevented the USDA from doing their 
responsibility in inspecting grain?
    Mr. Cox. I do not have knowledge of all of that, sir.
    Mr. Conaway. Okay.
    Mr. Cox. I was here in Washington, D.C., not Washington 
State.
    Mr. Conaway. Yes, I got that. Well, you are here today to 
represent those folks. Is there some way----
    Mr. Cox. No, I am here to represent the Federal employees, 
yes.
    Mr. Conaway. Right, I understand that. And is there a way 
that you could get for the Committee the police reports and the 
other information about the violence that occurred, because 
somehow we are unable to get from USDA the study they did to 
say that there was, in fact, violence out there and it was 
unsafe for other inspectors to cross the picket line. Is there 
a way that we can get information from your organization that 
would help the Committee understand the level, the extent of 
the violence that did occur, if any violence actually did 
occur?
    Mr. Cox. I will be more than happy to make that request 
from the Secretary, but also I have the same----
    Mr. Conaway. No, no, I can ask the Secretary, and I have, 
but is there a way that your union can get that information 
separately from going through the USDA? Can you----
    Mr. Cox. I will certainly----
    Mr. Conaway. Yes. You have to----
    Mr. Cox. We will go to our rank and file members----
    Mr. Conaway. There you go.
    Mr. Cox.--and ask them, sir.
    Mr. Conaway. There you go. They were there for a part of 
that, so if you can get that information for the Committee it 
might be very helpful, because if there was violence--
longshoremen have a rough and tumble reputation. I grew up in 
west Texas with roughnecks. I understand the drill. But if 
there really was no violence, then it would be very 
disappointing that USDA didn't fulfill their responsibility to 
send in the folks. And South Carolina volunteered to go do it. 
So anyway, if you wouldn't mind running whatever traps you 
have. If you can't find anything, I got it, but if you would 
make a good faith effort to provide the Committee with whatever 
information you have, newspaper reports, whatever it might be, 
from the time of the strike of the violence, I sure would 
appreciate it.
    All right. With that, I yield back.
    The Chairman. I thank the gentleman.
    And I recognize the gentleman from Nebraska, Mr. Ashford, 
for 5 minutes.
    Mr. Ashford. Thank you, and most of my questions also have 
been asked and answered, though I just would stress that we 
export 50 percent of our wheat outside our borders. From 
Nebraska, we export 50 percent of our soybeans outside the 
state. It is a massively important part of our economy in our 
state, and it is growing.
    Mr. Winkles, I would ask you--this is a good discussion. I 
am beginning to understand a little more about the need, 
certainly, of course, for reauthorization, but I am also 
sensing a need for some flexibility as we move forward if we 
are going to reauthorize for a relatively long period of time, 
which is a good thing. As we expand our trade, however, 
hopefully, as we expand our trade for agricultural exports from 
Nebraska and throughout the entire country, is there anything 
else, Mr. Winkles, if I might ask you, and I know there have 
been some discussions about other ideas, but with the system 
the way it is now, with the people we use now, do you see the 
advisory committee which has been mentioned, do you see 
anything else that we should be looking at in the 
reauthorization to ensure that, as trade does expand, which I 
fully expect and hope it does do, that we can meet our 
obligations and make sure that that grain is accepted in the 
countries we trade with?
    Mr. Winkles. Thank you, and that is an interesting 
question. Today, we do things in a variety of ways, and I will 
point to the container shipment. Right now, we are exporting 
about 50 percent of the South Carolina soybean crop in 
containers. That is a big change in the system. Frankly, I 
never believed that would happen, but it has. The buyers are 
much more in touch. Consumers want to be more in touch with 
people who grew the grain. That is going to create challenges 
for the entire system. It certainly creates challenges here at 
home. But we see buyers--I have visited with feed compounders 
in Europe before. Cost is on everyone's mind. So as we move 
along, we will have to be cognizant of new technologies as they 
develop, new methods of shipment, buyer expectations, all these 
things will have to be considered, but from a specific thing or 
specific items, I don't think I could add any, but it just very 
interesting how the market has changed over time.
    Mr. Ashford. Yes. And just one quick follow-on to that--and 
there will be more changes as we expand our base of consumer-
driven exports, the demands are going to be greater, obviously, 
as people become more educated on the products that they are 
receiving in other countries. But generally within the system 
we do have, you do believe, I assume from your testimony, that 
what we have is the base operation is appropriate and should be 
continued.
    Mr. Winkles. Absolutely. The base operation needs to be 
continued. Many of these items that I was talking about to 
expand export trade are very much specialty items, and they 
require special treatment, special handling, identity 
preservation, if you will, but the standard is still the most 
important thing. I hate to guess, but I would say that is 
probably 90, 95 percent of the trade. So that is key. We can 
add and increase value, but the base is still there, and we 
have to maintain those standards and inspection for that huge, 
major percentage.
    Mr. Ashford. Thanks. I yield back. Thank you, Mr.----
    The Chairman. I thank the gentleman.
    And I would just ask if there are any further requests for 
recognition? No. I will recognize Ranking Member Walz for any 
final thoughts.
    Mr. Walz. Well, again, I thank the Chairman and our 
witnesses. Thank you for helping provide this. You are experts 
in this field, you deal with it daily, and as we said, giving 
you the certainty and protecting the integrity of the system. 
And it is prudent to have a fallback, if you will, a safety 
valve if a situation like Washington State arises, but making 
sure we keep the integrity of a working system in place. So I 
thank you for the time, and I appreciate the Chairman's 
commitment, and you have the commitment of the folks up here. 
Let's get this reauthorized, let's get it done on time and give 
you the certainty.
    I yield back.
    The Chairman. And I thank the gentleman, and would echo 
those sentiments.
    I appreciate the panelists for being here. And certainly it 
is our goal to get this reauthorized in a timely fashion, and 
be prepared, as the Ranking Member alluded to, that we do have 
a safety valve in position that we can utilize if the need 
arises.
    Under the rules of the Committee, the record of today's 
hearing will remain open for 10 calendar days to receive 
additional material, and supplementary written responses from 
the witnesses to any questions posed by a Member.
    This Subcommittee on General Farm Commodities and Risk 
Management is now adjourned.
    [Whereupon, at 10:53 a.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
  H.R. 2088, United States Grain Standards Act Reauthorization Act of 
2015, Submitted by Hon. Eric A. ``Rick'' Crawford, a Representative in 
                         Congress from Arkansas
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
                                 ______
                                 
Submitted Letter by Hon. Timothy J. Walz, a Representative in Congress 
                             from Minnesota
April 14, 2015

 
 
 
Hon. K. Michael Conaway,             Hon. Collin C. Peterson,
Chairman,                            Ranking Minority Member,
House Committee on Agriculture,      House Committee on Agriculture,
Washington, D.C.;                    Washington, D.C.
 

    Dear Chairman Conaway and Ranking Member Peterson:

    As the House Committee on Agriculture considers reauthorization of 
expiring provisions of the United States Grain Standards Act (GSA) in 
the coming weeks, we respectfully request that any legislation 
considered by the Committee maintains the Secretary of Agriculture's 
ability to delegate to a State Department of Agriculture, or other 
applicable state agency, the authority to conduct grain export 
inspection services. Additionally, it is essential that any changes to 
the export inspections regime do not upset the existing process, which 
is both efficient and meets the needs of growers, producers, and 
distributors, as well as customers.
    Prior to 1976, there were numerous examples of misgrading grains, 
bribery, short-weighting, and other instances of corruption in the 
grain inspection industry that led Congress in an amendment to the GSA 
to establish the Federal Grain Inspection Service (FGIS) under the 
authority of the Grain Inspection, Packers and Stockyards 
Administration (GIPSA). Today, FGIS inspects about \2/3\ of the 
nation's grain exports and, pursuant to the 1976 GSA amendments, five 
states have been delegated by the Secretary of Agriculture to carry out 
official inspections for the other \1/3\. It is worth noting that since 
the 1976 GSA amendments were adopted, allegations of corruption in 
grain export inspection services have all but disappeared; a testament 
to the quality of work and impartiality from FGIS and delegated state 
authorities.
    State-delegated inspection services, like those that exist in 
Washington State, are important for several reasons. Like FGIS, state 
inspectors operate as unbiased evaluators with established grading 
standards. If a producer would like to challenge a FGIS or state-
delegated inspector's ruling, there is an established appeals process 
that grants recourse to producers. Also, a FGIS/state-delegated 
inspection regime offers foreign customers certainty through well-
established standards--a perception and market share that could be 
jeopardized if the current system is modified.
    We understand there have been concerns raised with the timely 
inspection of grain by Washington State Department of Agriculture 
(WSDA) inspectors during an unrelated labor dispute at the Port of 
Vancouver in 2014. It is important to note that when FGIS was requested 
to step in to offer inspection services in lieu of WSDA, they also 
refused to do so. We do not believe that any modification to the 
inspection regime would remedy the root issues highlighted by the Port 
of Vancouver incident.
    Again, we view the existing relationship between state-delegated 
export inspection services and GIPSA as mutually-beneficial. These 
inspectors provide objectivity and a means of recourse for producers, 
as well as predictability for customers. We appreciate your efforts to 
reauthorize these important provisions, and request that you protect 
the balance that the GSA currently sustains. We look forward to working 
with you to reauthorize the GSA.
            Sincerely,
            [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


 
 
 
Hon. Dan Newhouse,                   Hon. Suzan K. DelBene,
Member of Congress;                  Member of Congress;
 

                                     
                                     

 
 
 
Hon. Cathy McMorris Rodgers,         Hon. Rick Larsen,
Member of Congress;                  Member of Congress;
 

                                     
                                     

 
 
 
Hon. David G. Reichert,              Hon. Denny Heck,
Member of Congress;                  Member of Congress;
 

                                     
                                     

 
 
 
Hon. Derek Kilmer,                   Hon. Jim McDermott,
Member of Congress;                  Member of Congress;
 

                                 ______
                                 
Supplementary Material Submitted by Nick Friant, Chairman, Grain Grades 
 and Weights Committee, National Grain and Feed Association; Co-Chair, 
  Grain Grades and Inspections Committee, North American Export Grain 
                              Association
Insert 1
          The Chairman. Thank you. Again, I thank the witnesses for 
        your quick and concise testimony. . . .
          As I said in my opening statement, the events that caused 
        disruptions last year at the Port of Vancouver were unfortunate 
        and, I believe, entirely avoidable. Mr. Friant, can you 
        describe for us some of the economic consequences that resulted 
        for the grain trade?
          Mr. Friant. I don't know the answer to that at this time. I 
        was not specifically involved in those facilities, but I would 
        be happy to visit with my NGFA colleagues and----
          The Chairman. Okay.
          Mr. Friant.--follow up at a later time.

    The economic impact of a disruption, like the failure of FGIS to 
provide mandatory services in Vancouver, Washington, extends throughout 
the grain trade and negatively impacts producers and consumers as well 
as buyers and sellers. Unwarranted costs resulting from the FGIS's 
failure to provide services are imposed on the export elevator, in turn 
those costs reduce prices paid to farmers or increase cost of supplies 
for consumers. While delays in vessel loading, or shifting of load 
ports, often results in demurrage or diversion costs amounting to tens 
of thousands of dollars per day, the cost of not providing the timely 
availability of the specific contracted volume and quality of the grain 
that is delayed or prevented from being delivered is more difficult to 
quantify. We also are aware that the disruption in inspections further 
exacerbated rail logistical delays in the Upper Plains states, as 
railcars backed up waiting unloading. But certainly the failure to 
provide for reliable contract performance is of much greater 
consequence to all stakeholders in the grain trade. Most economic 
damage to the value chain occurs from a resulting shift in the 
perception of value that is based on the reliability, integrity, 
competence and reputation of grain inspections. A failure of FGIS to 
provide mandatory services, as was experienced in Vancouver, 
reverberates globally. One of the more astute observers of economic 
impact is Warren Buffet who has been quoted as saying: ``It takes 20 
years to build a reputation and five minutes to ruin it. If you think 
about that, you'll do things differently.''
Insert 2
          The Chairman. You would, all right.
          Let me go back to Mr. Friant. In your testimony, you 
        mentioned that farm, commodity, and agribusiness organizations 
        urged the Secretary of Agriculture to take action on the 
        inspection service disruptions. We all know how the Secretary 
        responded, but was the issue ever addressed by the GIPSA 
        Advisory Committee, whose mission it is to provide advice to 
        the GIPSA Administrator with respect to GSA implementation?
          Mr. Friant. Yes, as a matter of fact, on two accounts at two 
        separate GIPSA Advisory Committee meetings, there were 
        resolutions from the committee. If you would like, I could read 
        you those resolutions.
          The Chairman. If you would submit them for the record, that 
        would be great.
          Mr. Friant. Yes, we can do that.

    The following resolution was introduced and passed at the November 
4-5, 2014 GIPSA Grain Inspection Advisory Committee Meeting (http://
www.gipsa.usda.gov/fgis/advcommittee/Nov2014/November-2014.pdf):
    ``Whereas the U.S. Department of Agriculture has authorized FGIS 
under the U.S. Grain Standards Act, as amended, to provide official 
inspection and weighing services for exports of U.S. grains and 
oilseeds, and as FGIS has been authorized to delegate certain of their 
responsibilities to appropriate entities including the State of 
Washington, and, as the State of Washington, at least for 30 days in 
2014, has failed to fulfil their responsibilities and obligations under 
the agreement dated November 2013, in particular clauses IV Terms and 
Conditions B 1(a), B 1(b), 2, 3, 14, and, under the authority granted 
FGIS to revoke the agreement under VI, (C), the Advisory Committee 
recommends that FGIS remove the Delegation/Designation of all States/
Agencies that do not fulfill their obligations for providing services 
as required under the Grain Standards Act and that FGIS immediately 
provide the required services.''
    In addition, the following resolution was introduced and passed at 
the July 15-16, 2014 GIPSA Grain Inspection Advisory Committee Meeting 
(http://www.gipsa.usda.gov/fgis/advcommittee/July2014/July 2014 Minutes 
and Presentions.pdf):
    ``Whereas the U.S. Department of Agriculture is mandated under the 
U.S. Grain Standards Act to provide Official inspection and weighing 
services for exports of U.S. grains and oilseeds,
    Therefore be it resolved that the Advisory Committee urges in the 
strongest terms that FGIS take whatever actions are necessary to 
immediately restore Official grain inspection and weighing service 
wherever and whenever it is disrupted, either by immediately replacing 
absent inspectors with FGIS Official personnel or with inspectors from 
available qualified providers, including other designated or delegated 
Official Agencies.''
                                 ______
                                 
Submitted Statement by David Ayers, President, American Association of 
                 Grain Inspection and Weighing Agencies
Issues Related to Re-Authorization of the U.S. Grain Standards Act, As 
        Amended
    Mr. Chairman and Members of the Subcommittee:

    I am David Ayers, President of the American Association of Grain 
Inspection and Weighing Agencies (AAGIWA), on whose behalf I am 
presenting testimony today. I am the elected leader of the Association. 
I own and operate a designated official agency, the Champaign-Danville 
Grain Inspection Agency, with its headquarters in Urbana, IL. I have 
been in the grain inspection business for nearly 40 years.
    AAGIWA is the national professional association representing the 
public and private agencies that are designated and delegated by USDA's 
Grain Inspection, Packers & Stockyards Administration (GIPSA) to weigh, 
inspect, and grade the nation's grain. AAGIWA's member agencies are 
located throughout the United States and perform well over 80 percent 
of all of the inspections under the United States Grain Standards Act 
(USGSA). The official agencies employ over 2,000 dedicated individuals.
    AAGIWA member agencies bring a professional unbiased third party 
aspect to the grading and weighing of America's grain. During the 
association's 67 years of service to the grain industry, it has 
assisted its members in performing these services through a national 
forum that promotes and assists professionalism, integrity, technology, 
and performance, while providing a constant dialog with government and 
industry. AAGIWA wishes to comment on the pending reauthorization of 
the USGSA provisions expiring on September 30, 2015. In doing so, the 
association wishes to support the reauthorization of the expiring 
provisions, and provide the following observations to the Congress:
    There is an important role for a Federal regulatory and supervisory 
agency in the operation of an official grain inspection system. GIPSA 
serves to provide an objective, third party regulatory role, which 
assures credibility and integrity for both domestic and export grain 
handlers and buyers of U.S. grain. Its strict Federal standards help 
maintain the accuracy and consistency that the grain industry has come 
to expect from the nation's official grain inspection system.
    Much has changed in America's grain marketing system since the 
Federal Grain Inspection Service was formed by Congress in 1976. 
Industry consolidations, transportation efficiencies, testing services, 
and result accuracy have all improved beyond what anyone could have 
envisioned 39 years ago to make the U.S. grain marketing system the 
world leader. Shuttle trains and export containers have replaced 
boxcars for moving grain. We can now test for substances in parts per 
billion, and electronically provide inspection and weighing results 
around the world in seconds. These advancements are a result of the 
vision, hard work, and commitment of the grain industry and GIPSA.
    What has not changed is the need for a third party inspection 
service that is both responsive and unbiased to provide accurate and 
timely results so that grain can be traded throughout the U.S. and 
around the world. GIPSA certificates issued by official agencies are 
regarded as the final word in quality by the industry trading rules and 
serve to resolve disputes and allow for the collection of funds when 
grain is traded domestically and overseas. Producers, marketers, 
handlers, and grain processors in the U.S. and around the world all 
benefit from knowing the true quality of the grain they are selling or 
buying.
    GIPSA's ability to supervise official agencies has also evolved and 
improved past what was possible since 1976. Each agency now has a 
quality management program with internal audits that are reviewed 
annually by GIPSA auditors. Inspection results are now sent 
electronically on a daily basis to GIPSA for review so that file 
samples can be selected on a daily basis to monitor all aspects of 
inspection accuracy. These and many other enhancements implemented by 
GIPSA over the last 39 have greatly enhanced FGIS' ability to monitor 
official agency performance, and initiate corrective action in real 
time anytime during an agency's designation.
    Official agencies have also evolved with the changing pace of the 
grain industry by providing on-site inspection laboratories for shuttle 
loaders and at container yards shipping grain. Certificates are issued 
electronically so customers and interested parties can see inspection 
results anywhere around the world in seconds. GIPSA has approved and 
standardized rapid testing methodologies that allow official agencies 
to quickly provide accurate and reliable mycotoxin, protein, and 
moisture results at remote locations, so shippers can make real time 
decisions. AAGIWA is proud of what the official agencies have 
accomplished and owes much of these advancements to GIPSA's willingness 
to change and provide more rapid and accurate testing capabilities.
    Where agencies have struggled is in surviving the changing rural 
business economy. The number of official agencies has significantly 
decreased since 1976. Although still a diverse group of state and 
private organizations exist, much consolidation has occurred. The need 
for greater capital as official agencies have consolidated has 
increased. While GIPSA has been responsive in approving fee increases 
this only places a larger inspection cost burden on the grain industry.
    AAGIWA is requesting that the U.S. Grain Standards Act be amended 
to provide GIPSA the ability to increase the maximum designation length 
for official agencies from 3 to 5 years.
    Providing a 5 year designation would not compromise GIPSA's 
authority to suspend or revoke a designation already in place. GIPSA 
would retain the authority under the Act to suspend and revoke 
designations when an agency has failed to meet one or more criteria in 
the Act, the regulations, and instructions issued by GIPSA, or is 
involved in any violation of Federal law involving the handling or 
inspection of grain. GIPSA has used this authority in the past to 
protect the integrity of the official grain inspection system and the 
facilitation of grain trade in export and domestic markets and AAGIWA 
supports the suspension and revocation of a designation when it is 
warranted.
    Increasing the maximum designation period to 5 years would not 
require GIPSA to provide agencies with 5 year long designations. GIPSA 
can choose to establish designation termination dates for shorter 
duration, as they currently do when warranted under the present 
legislation.
    AAGIWA believes this change will strengthen the official inspection 
system, and its direct and indirect beneficiaries. This change would 
allow agencies to secure more favorable financing for the purchase of 
new equipment and expansion of their operations to keep pace with the 
U.S. grain industry. Allowing GIPSA to increase designation times to 5 
years would bring more stability to the over 2,000 citizens employed in 
mostly rural communities across the nation. These hard working citizens 
would know that their employer would be in business for a longer period 
of time and can feel more secure in their financial situation. A 5 year 
designation provides the official agency the opportunity to control 
expenses which also translates to the inspection costs incurred by the 
grain industry in these rural communities. Inspection costs have been 
reported to be a grain company's third largest cost. Keeping these 
costs under control contributes to the local elevator's viability, 
which in some cases, is the only major business in many communities.
    This change would not create any additional budgetary burden on the 
U.S. taxpayers and it would not decrease any tax revenue to the U.S. 
Treasury. What it would do, is help ensure that the official inspection 
system remains robust so that it is able to meet the needs of the grain 
industry, producers, and all those supported and dependent on receiving 
timely, accurate, and unbiased grain inspection and weighing results.
    In conclusion, AAGIWA commends GIPSA for making changes for the 
betterment of the official grain inspection system, for its integrity, 
and for its beneficial partnership with 49 state and private agencies 
that perform official duties at the local level. As Congress moves to 
reauthorize the key provisions of the U.S. Grain Standards Act it is 
important that new technologies and efficiencies continue to be brought 
to the official inspection system, and that the maximum designation 
period be increased to 5 years so that official agencies can have the 
financial stability to implement them.
                                 ______
                                 
Submitted Letter by Brett Blankenship, President, National Association 
                            of Wheat Growers
April 20, 2015

 
 
 
Hon. K. Michael Conaway,             Hon. Collin C. Peterson,
Chairman,                            Ranking Minority Member,
House Committee on Agriculture,      House Committee on Agriculture,
Washington, D.C.;                    Washington, D.C.
 

    Dear Chairman Conaway and Ranking Member Peterson:

    As you prepare to reauthorize the Grain Standards Act, it is 
imperative that we avoid the sort of disruption to our export system 
that occurred last year at a United Grain Facility in the Pacific 
Northwest. Wheat farmers, in particular, are reliant upon our export 
markets, as wheat exports \1/2\ of our production nationwide in a given 
year. As the United States is seen as the world's reliable supplier of 
grain, interruptions in the flow of trade can have adverse impacts on 
commodity prices, and thus, our members' bottom lines. The suspension 
of Federal Grain Inspection Service (FGIS) authorized grain inspections 
that occurred last summer at the Port of Vancouver in Washington State 
directly impacted our members throughout the country. Vessels were not 
loaded, barges could not deliver, the rail transportation system slowed 
down, and our foreign customers began to question our ability to 
deliver on contracts.
    While labor disputes may arise at our ports, NAWG believes that 
there must be a mechanism in place to ensure that the flow of trade is 
not disrupted. In states where the state has delegated authority from 
the U.S. Department of Agriculture (USDA) to conduct inspection, USDA's 
FGIS must step in to ensure inspections continue if the delegated 
entity does not fulfill their obligation within 48 hours from the 
requested time of service. We further believe that if a delegated 
entity fails to perform its duties, that authority should be revoked 
and FGIS must permanently retain the role of inspections. NAWG urges 
you to include language in your reauthorization bill that would further 
emphasize this responsibility.
    Additionally, we believe this restored service must be conducted 
either by FGIS or by another delegated state authority, and not by a 
private entity. Our trading partners have developed a trust in the 
current system of inspections, a trust which would be diminished if 
inspections were no longer conducted by the Federal Government or a 
delegated state agency. Moving forward, we urge Congress to reject 
attempts that would undermine the current system of inspections.
    Further, NAWG supports legislation requiring FGIS to take whatever 
actions are necessary to immediately restore official grain inspection 
and weighting service wherever and whenever it is disrupted. The 
situation in Vancouver, WA, where inspections were disrupted, could 
have been avoided if FGIS had exercised its authority.
    The National Association of Wheat Growers (NAWG) is a federation of 
22 state wheat grower associations that works to represent the needs 
and interests of wheat producers before Congress and Federal agencies. 
Based in Washington, D.C., NAWG is grower-governed and grower-funded, 
and works in areas as diverse as Federal farm policy, trade, 
environmental regulation, agricultural research and sustainability. As 
your Committee works to reauthorize the Grain Standards Act, I urge you 
to consider the perspective of our nation's wheat farmers and to 
appreciate the importance of the current system of inspections to 
facilitate the flow of trade. We also urge you to maintain a close 
oversight role over FGIS to ensure that the agency is following 
appropriate statutory obligations when disruptions occur at our ports.
    Thank you for your consideration, and I hope that you will use NAWG 
as a resource as the reauthorization process moves forward.
            Sincerely,
            [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

            
Brett Blankenship,
President,
National Association of Wheat Growers.

CC: Members of the House Agriculture Committee.

                                  [all]